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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.
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.
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.
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.
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.
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.
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: Thank you for your continued patience. Your meeting will begin shortly. If you need assistance at any time, please press 0, and a member of our team will be happy to help you. Standby, your meeting is about to begin. Good morning, and welcome to the Perella Weinberg Partners Full Year and Fourth Quarter 2025 Earnings Conference Call. Currently, all callers have been placed in a listen-only mode. Following management's prepared remarks, the call will be open for your questions. Please be advised that today's call is being recorded. I will now turn the call over to Taylor Reinhardt. You may begin. Taylor Reinhardt: Thank you, operator, and welcome all. Joining me today are Andrew Bednar, Chief Executive Officer, and Alexandra Gottschalk, Chief Financial Officer. Before we begin, I'd like to note that this call may contain forward-looking statements, including Perella Weinberg Partners' expectations of future financial and business performance, conditions, and industry outlook. Forward-looking statements are inherently subject to risks, uncertainties, and assumptions that could cause actual results to differ materially from those discussed in the forward-looking statements and are not guarantees of future events or performance. Please refer to Perella Weinberg Partners' most recent SEC filings for a discussion of certain of these risks and uncertainties. The forward-looking statements are based on our current beliefs and expectations, and the firm undertakes no obligation to update any forward-looking statements. During the call, there will also be a discussion of some metrics which are non-GAAP financial measures, which management believes are relevant in assessing the financial performance of the business. Perella Weinberg Partners has reconciled these items to the most comparable GAAP measures in the press release filed with today's Form 8-K, which can be found on the company's website. I will now turn the call over to Andrew Bednar to discuss our results. Andrew Bednar: Thank you, Taylor, and good morning. Today, we reported full-year 2025 revenues of $751 million and fourth-quarter revenues of $219 million. While 2025 revenues were down 14% from 2024's record results, 2025 was the third-highest revenue year in our firm's twenty-year history. A testament to the strength and resilience of our business and the result of our deliberate investment in building a focused and differentiated platform that can perform across M&A. It was a productive year for expanding and deepening our coverage and expertise. Though we fell short of our revenue ambitions as several large transactions we advised on did not complete as we had hoped. That said, we are pleased with our progress and have confidence that our investments and laser focus on clients will deliver in 2026 and beyond. In Europe, we delivered record revenues, further cementing our position as a leading advisor in the most active regions on the continent. Our restructuring practice also hit record revenues, gaining market share in a market that continues to grow. Consistently delivering superior results for our clients is attracting more high-profile and high-value assignments, especially in debtor-side mandates. This positions us extremely well going forward across our financing and capital solutions business. On talent, 2025 was a record year for both recruiting and promoting senior bankers, and new hire momentum continues. We see a flywheel effect. Top talent is attracting more top talent, and our pipeline of future 23 new senior bankers to our platform. And already in 2026, we added two more partners, one reflecting our continued build-out of our Healthcare Services business and the other strengthening our U.S. Software coverage, following a recent partner addition in Europe. Looking ahead, the opportunity to grow our business is exceptional. Our gross pipeline stands at record highs, and our announced and pending backlog is strong and building. Sentiment is positive across our client base from corporates to sponsors. And we see momentum building. As we enter our twentieth year as a firm, we feel great about our position. We're incredibly proud of the firm we've built over two decades, and we're excited to write the next chapter. One that builds on our strengths to deliver both superior outcomes for our clients and attractive returns for our shareholders. In a sense, we're really just getting started. With that, I'll now turn the call over to Alexandra Gottschalk to review our financial results and capital management in more detail. Alexandra Gottschalk: Thank you, Andrew. Our fourth-quarter revenues of $219 million included $18.5 million related to closings that occurred within the first few days of 2026, which in accordance with relevant accounting principles were recorded in the fourth quarter. Our adjusted compensation margin was 68% for the full year 2025 compared to 67% in 2024. We maintained strong discipline in managing our compensation ratio despite, as Andrew mentioned, a year of record talent investment, including the Devon Park acquisition. We remain highly aligned with our shareholders, with partners in our broader team owning over 30% of the firm, and we are committed to thoughtfully managing our compensation ratio as we drive profitability while strategically investing in top talent. Adjusted non-compensation expense was $159 million for the full year 2025, down 2% from a year ago and well below the single-digit growth range we originally projected earlier in the year. Looking ahead to 2026, with certain nonrecurring items now behind us, we expect a further single-digit percent decrease. Turning to capital management, we returned over $163 million to equity in 2025 through dividends, RSU settlements, share repurchases, and unit exchanges. As a part of these efforts, we retired 6.5 million shares during the year, reflecting our continued focus on managing our share count. At year-end, we had 67 million shares of Class A common stock and 22 million partnership units outstanding. Finally, we closed the year with $256 million in cash and no debt. This morning, we declared a quarterly dividend of $0.07 per share. With that, operator, please open the line for questions. Operator: Thank you. Our first question will come from Devin Ryan with Citizens Bank. Your line is open. Devin Ryan: Great. Good morning, Andrew and Alexandra. How are you? Andrew Bednar: Yes. Hi, Devin. How are you? Devin Ryan: Doing great. Question just first on kind of the advisory environment and kind of the outlook. Obviously, don't want to dwell too much on what happened in 2025, but you did mention there were some kind of large deals that didn't come together. Any sense of like order of magnitude how much that impacted results on the year? And then as we think about 2026 and assuming your kind of batting average is more normal versus maybe it's a little below normal on those large deals, how much of an impact does that have as you look at your kind of record backlog as you noted? And how much is kind of large deals versus kind of a broadening out in the M&A market? Andrew Bednar: Yes. Thanks, Devin. Look, we live for large-scale M&A transactions, but we don't die when they don't play out. I mean last year, there were 70 transactions over $10 billion. The year before that, there were 35. And in the year, where we had record results, there were four transactions over $10 billion last year. We were not in any. This year, out of the gate, we're in one already. So I think generally, the trending is better. Because of our scale, we're just going to have a lower incident rate than really all segments in the market, but in particular, we all feel it a little bit more when we're not in the larger scale, larger fee transactions. There are several where the ball just didn't bounce our way for us and for our client. That's unfortunate. So that usually leads to some other type of strategic activities. So that doesn't usually lead to just a dead environment for deal flow generally once you have that client you're thinking about the next thing. So that's encouraging. And generally, a few of them, the bulge didn't bounce our way. We're more optimistic heading into '26 again given the starting point that we have here in January. Where we announced a $15 billion transaction a couple of weeks ago. Devin Ryan: Okay. That's great. Thanks, Andrew. And follow-up here on the private capital, the Devon Park kind of addition. Now that that's been part of the business, obviously not too long, but any anecdotes on how that's going, how it's making you more relevant in client conversations? And just how we can think about maybe the order of magnitude of what that business could mean for Perella Weinberg Partners over the intermediate term, just like how is it going and the anecdotes you're seeing there? Thanks. Andrew Bednar: Yes, thanks. So far, feel great about the combination. As you know, we look for situations where they're culturally and financially and strategically highly attractive to us and to our new partners. I think the Devon Park transaction has gone very well in all those regards. The take-up rate and the conversations with our private equity clients and our credit clients and real estate clients have gone very well. And we have already jointly won new mandates. So we're very encouraged by that. And the pipeline looks very good. We're only month four, obviously, so it's early days, but we couldn't be happier with the early days. Devin Ryan: Okay, great. I'm going to try to squeeze one more in here, if I can, just on compensation. Obviously, in the year where revenues go down, not surprising to see the comp ratio tick up a little bit. Indirectly because that made sense. As we look ahead and the environment is improving, hopefully, a better hit rate 2026 on some of these larger deals. How do we think about the algorithm from this jumping-off point to get back into that mid-60s or below on the comp ratio? And not twenties. Andrew Bednar: Yes. Thanks for that. Look, didn't hit our revenue targets for '25 and combined with our heavy investment. I always look at the balance of trade between our productive partners and our shareholders, and I've always committed to finding the right balance point between having partners invest in future growth and having shareholders invest in future growth. I think we've historically struck the right balance. We're all large shareholders, as you know, so we care about the equity of this company, but we're looking at ways to drive this forward. We do have comp leverage. We have flexed that in the past. As you know, we flexed in '21. We flexed it in '24 where we took it down 300 basis points from 2023. We need more scale, so we need the revenue progression to continue and get back on what we think we can earn here. I think last year, we under-earned based on our capabilities and our capacity. So we're more optimistic going into 2026. But I don't have a specific algorithm because it really depends on a multivariable equation where we have to look at only the revenue outcome, but also what our investing is like. And you know, Devin, I have a different view than the accountants, but the accountants control the outcome on how it's reported. But some of our comp margin is CapEx. And I think that when we're wisely investing, we're going to see the results of that in the go-forward periods. There's a bit of a mismatch where we have to invest before we get the revenue. But we feel really good about the 23 senior hires we had, the 23 senior additions we had in 2025, 14 of whom are new to the platform, which is great. We see the pipeline looking pretty good for 2026 as well. But that's a constant balancing that we have to do to make sure that we're sharing appropriately how we think about CapEx here and this impact on comp margin. But as you get scale, we have that comp leverage flex and we've done that in the past. We just weren't able to do it in 2025, and I think a one-point increase from where we were accruing reflects the level of investments that we're doing. Devin Ryan: Yes. Very helpful. Thank you very much. I'll hop back in the queue. Andrew Bednar: Thanks, Devin. Operator: Thank you. Our next question will come from Alexander Bond with KBW. Your line is open. Alexander Bond: Good morning, everyone. Just a question on restructuring outlook. This has obviously been an increasingly important part of your business recently. But wondering if you can just speak to your outlook for 2026 here, maybe relative to 2025. Are you expecting revenues to be up here maybe year over year or maybe closer to flat or even down slightly? And then any color you could add just on the broader backdrop for restructuring from here would be helpful as well. Thank you. Andrew Bednar: Yes. Thanks, Alex. We feel very, very good about the environment for our restructuring business and we feel very good about across sectors in that market as well. We saw a record year for our business last year. We're not seeing any slowdown, particularly in liability management engagement. So not necessarily nine eleven going bankrupt tomorrow, but just generally really prudent and very proactive finance managers with our clients that are looking ahead at maturities, they're looking ahead at covenants, they're looking ahead at ways to enhance their balance sheet and we guide them through that and receive a fee in those circumstances. So, I think the environment is very strong. I think with some of the disruption we've seen in software in recent sessions has created some level of concern with the credits in those particular sectors that I think will again lead to some more activity for us. So that business is quite strong and we're feeling very good about heading into the rest of 2026. Alexander Bond: Got it. That's helpful. And then maybe just another one on recruiting backdrop. I think you've noted previously that this past year was an above-average year for you all in terms of hiring. But maybe if you could just help us think about how you're thinking about the recruiting backdrop for the coming year, maybe what we should expect to see in terms of maybe not necessarily a number, but just in terms of your activity there on the hiring side and also just, any high-level thoughts around, recruiting backdrop as a whole be helpful as well. Thank you. Andrew Bednar: Sure. That's a continuous exercise for us. It's a core part of our strategy to add talent. We have a lot of open space in our platform still with only now 77 partners, and we have you know, covering about 1,500 to 2,000 clients. So we have a lot of open space for high-quality bankers to join our platform. And pipeline looks very good. We have always every year more candidates that are interested in joining us than we will accept. And just reality of how we think about additions to our platform. I think it will be likely a more normal year. It'll go back to trend in the coming twelve months. I think, again, the pipeline looks good, but I don't see it as active as we were last year. In terms of the sort of brick by brick strategy that we've been on. But we can get some surprises and that'll be great if we can add some more talent. But I think we're back on trend and the pipeline looks very good, so I'm happy about it. Alexander Bond: Okay, great. That all makes sense. Thank you, Andrew. Operator: Thank you. Our next question will come from Brendan O'Brien with Wolfe Research. Your line is open. Brendan O'Brien: Good morning and thank you for taking my questions. To start, I was just a bit surprised that you guys had the record year in Europe given from what we can see in the geologic data trends have continued to lag those in the U.S. I was just hoping you could unpack some of the drivers, what seems like pretty meaningful share gains in the region and just what the tenor discussions are like in Europe today and how you feel that people will track relative to the U.S. over the near to intermediate term? Andrew Bednar: Yes. I think for the better part of the decade, European volumes have been trending below normal. And certainly trending disproportionate to the growth in the U.S. So I think it's a matter of just a matter of time before those activity levels get back to where they should be. Again, I think we're seeing the benefits of some of our investments and not only in new talent, but also our investments in clients that you have to make that are going to take time to actually convert to revenue and we were fortunate to have some large-scale transactions not only announced in the period, but also get done in the period because we're in a business where typically large-scale transactions don't announce and close in the same quarter. Or sometimes even in the same year. So I think we had some very good dynamics in our European business. We've got a terrific team there. We've got leading share in markets like in Germany and in France, and those were very active markets as we look back at 2025's results. I think Europe is very, very focused on what their future is looking like. There's active investments around industries, defense and energy things around infrastructure. So the dialogue has picked up quite dramatically in the wake of all the geopolitical changes that we're all witnessing every day. We wake up and read the news, and I think that's leading to more and more discussions on the continent about what the industries will look like in a go-forward Europe, which is good for our business when people have complex situations, they tend to have experts around them and so we're fortunate to get those calls and be around the table with industry leaders as they think about and contemplate the future of what Europe is going to look like. But we're right in the middle of those dialogues and feel good about our team and very happy with results coming out in 2025. Brendan O'Brien: That's helpful color. And I guess building on your comments on the geopolitical tensions ramping, that's obviously seen a pretty notable uptick as and then you've also seen an increase in policy uncertainty in the U.S. which is only likely to intensify into the midterm elections. Just wanted to get a sense as to whether you've seen any impact on dialogues at this point with your U.S.-focused clients? And do you anticipate the midterms to have any negative impact? Andrew Bednar: On the last point on midterms, we're not seeing anything yet, it's a little too early. For that to start. Bleeding into some of the decisions our clients have to make. So I think it's a little early on Geopolitical generally, as I mentioned a few seconds ago, it's just part of our environment now, much part of the every day we wake up and assess what's going on in the world. I think it creates a level of anxiety, but not panic. And I think once we and our clients get through some of the fog, most of our clients, I would say the overwhelming majority of clients see opportunities more than they see obstacles coming out of the geopolitical landscape. And that's true for the energy complex, for global manufacturing and even for services companies that operate globally. So I think once you get through the initial shock of some of the headlines and news flow, I think the cooler heads prevailed, long-term thinking sets in and people are seeing more opportunities than they are seeing problems. Brendan O'Brien: Great. Thank you for taking my questions. Andrew Bednar: Thanks. Operator: Our next question will come from James Yaro with Goldman. Your line is open. James Yaro: Good morning. Would you be able to help us think through a high level the mix of your advisory revenue across M&A versus the non-M&A businesses, perhaps 2025 in aggregate or however you'd be willing to break this down? Andrew Bednar: Yes. Good morning, James. As you know, said on prior calls and at various conferences that we don't segment our business that way because we don't operate our business based on our products. We don't sell products. We solve problems for clients. We are organized by sector and therefore organized by the coverage we have of our clients, not the products that we're trying to sell. So I know I get this question often. Respectfully declining to give that detail because it isn't how we operate the business. I do want to give some color on the different markets we operate in, which hopefully I've given in terms of M&A context as well as our financing and capital solutions business, which I mentioned was at a record. And we feel very good about particular our liability management engagements going forward and the activity we see there. James Yaro: Understood. Could you just perhaps update us a little bit on your capital return priorities beyond the organic investment, which is clearly top of the list of priorities and that makes sense. But just beyond that, anything that we should be thinking about for capital deployment? Andrew Bednar: Our priority stack remains exactly the same. As we can invest our capital in future revenue and future clients and building out businesses, that by far the best use of our capital. We saw really good uses in '25, so we were weighted a bit more to that deployment in the prior period. '26, we don't it's early days, so we don't know. We may have some good investment opportunities, and we'll take advantage of those they present themselves. But we're still laser-focused on our share count. We have our dividend, which we announced this morning. And we will take advantage of buyback opportunities either through exchanges and our typical RSU vesting, where we buy in the shares to pay taxes and from time to time, we're in the open market. But I don't see any departure from our priority stack there. And from time to time, may emphasize one over the other, but priorities remain in place, James. So no change there. James Yaro: Thank you. And maybe if I may, just one more. What is the right starting point for the comp ratio as we head into 2026? I'm just trying to make sure that we understand I think, firms do it differently. Should we be looking at full-year '25 ratios, the jumping-off point, the 4Q number? And then does the mid-sixties comp ratio target still hold? Andrew Bednar: Yeah. The Q4 number to me at least, is irrelevant. That's just what the math shows to get to our annual comp ratio, is 68%, which is I explained I thought was 100 basis points above where we were accruing in the first March, which a fair balance of trade for who will pay for future growth. And I think we're going to get that, and it's a good investment. Our jumping-off point, we're going to have the same as last year. So start at 67% for Q1. And I've just always asked all of our stakeholders, people on this phone and my partners, employees that own shares that we just need some flexibility in Q4 to assess what the final manage our business and reflect our investments. So that's our typical cadence stick with that, but the jumping-off point, as you call it. For Q1 will be at 67% accrual. James Yaro: That's very clear. Thanks a lot. Andrew Bednar: Thank you. Operator: This concludes the Q&A portion of today's call. I would now like to turn the call back over to Andrew Bednar for any additional or closing remarks. Andrew Bednar: Okay. Thank you, Katie, and thank you, everyone, for joining us today. As we mark our 20th anniversary as a firm, I want to express our gratitude to first all of our clients who have trusted us with their most consequential transactions over the last two decades. Relationships are the foundation of everything we do. And we thank you for placing your trust and confidence in us over the years. To our investors, many of you have been with us since we went public five years ago. And others have joined along the way or more recently. Thank you for your confidence and for all your support. We're committed to delivering for you, as you know, as I've mentioned many times, we're also large shareholders. And finally, to my teammates around the world, you make this firm what it is. Your exceptional talent and tireless dedication to our clients drives their success every day and in turn our success. Thank you. We look forward to updating all of you on our next quarter. And thanks again for joining us today. Operator: This concludes the Perella Weinberg Partners full year and fourth quarter 2025 earnings call and webcast. You may disconnect your lines at this time and have a wonderful day. Goodbye.
Operator: Good day, and welcome to the nVent Electric plc Fourth Quarter 2025 Earnings Conference Call. All participants will be in listen-only mode. After today's presentation, to ask a question, you may press star then 1 on a touch-tone phone. To withdraw your question, please press star then 2. Please note that this event is being recorded. I would now like to turn the conference over to Tony Riter, Vice President of Investor Relations. Please go ahead. Tony Riter: Thank you, and welcome to nVent Electric plc's fourth quarter 2025 earnings call. On the call with me are Beth Wozniak, our Chair and Chief Executive Officer, and Gary Corona, our Chief Financial Officer. Today, we will provide details on our fourth quarter and full-year performance, and 2026 outlook. All results referenced throughout this presentation are on a continuing operation basis unless otherwise noted. Before we begin, let me remind you that any statements made about the company's anticipated financial results are forward-looking statements subject to future risks and uncertainties, such as the risks outlined in today's press release and nVent Electric plc's filings with the Securities and Exchange Commission. Forward-looking statements are made as of today, and the company undertakes no obligation to update publicly such statements to reflect subsequent events or circumstances. Actual results could differ materially from anticipated results. Today's webcast is accompanied by a presentation, which you can find in the Investors section of nVent Electric plc's website. References to non-GAAP financials are reconciled in the appendix of the presentation. We will have time for questions after prepared remarks. With that, please turn to slide three. I will now turn the call over to Beth. Beth Wozniak: Thank you, Tony, and good morning, everyone. It's great to be with you today to share our outstanding fourth quarter and full-year results. 2025 was a record year for sales, EPS, and free cash flow, each growing at or above 30%. Through 2025, organic sales accelerated, resulting in consecutive record sales quarters. It was an important year as we transformed our portfolio with the divestiture of the thermal management business and the acquisition of EPG. These strategic moves increased our exposure to the high-growth infrastructure vertical. Infrastructure now makes up 45% of our annual sales, with data center sales representing approximately $1 billion in 2025. The fourth quarter was our second consecutive quarter with sales of more than $1 billion. Both sales and EPS exceeded our guidance. We also had strong orders and backlog growth. Organic orders were up approximately 30%, primarily driven by large orders for the AI data center build-out. Excluding data centers, organic orders grew low double digits. With the strong orders, we ended the year with $2.3 billion in backlog, triple what it was a year ago. Our free cash flow was very strong in the quarter, and our balance sheet is healthy. In 2026, we expect another year of record performance. Our full-year guidance includes reported sales growth of 15% to 18%, and adjusted EPS growth of 20% to 24%. Now on to slide four for a more detailed summary of our Q4 and full-year performance. Fourth quarter sales were up 42% and 24% organically, led by the infrastructure vertical. Adjusted operating income grew 33% year over year with return on sales of 19.7%. Adjusted EPS grew 53%, and we generated $189 million in free cash flow, up 26%. Looking at our key verticals, infrastructure led the way, with organic sales up over 50% driven by outstanding growth in data centers. Industrial grew high single digits, and commercial resi sales were up low single digits. Turning to organic sales by geography, both Americas and Europe are strong. Americas grew approximately 30% while Europe was up high single digits. Asia Pacific was down. For the full year, we had sales of $3.9 billion, an increase of 13% organically. Adjusted operating income grew 21% with margins up 20.2%. Adjusted EPS was up 35%. For the full year, we had record free cash flow of $561 million, growing 31%. Let me share a few strategic and operational highlights. First, we launched 86 new products in 2025, contributing approximately 10 points to our sales growth, and our new product vitality was 27%. Our innovation is delivering growth and solutions for our customers. Second, as I mentioned, the infrastructure vertical now makes up 45% of our sales, led by data centers, which grew over 50% for the year. Third, our organic growth and recent acquisitions more than offset the EPS impact from the thermal management business we divested in the first quarter. Importantly, we cannot accomplish these results without the dedication of our nVent Electric plc team. Transforming our portfolio and accelerating to become a higher growth company takes a lot of effort and teamwork. I'm very proud and appreciative of all the hard work by our nVent Electric plc team to support our customers and deliver the outstanding performance in 2025. Looking ahead, we expect 2026 to be another record year of strong growth and value creation. Moving to Slide five. Our portfolio transformation to become a more focused, higher growth electrical connection and protection company is showing up in our results. We have increased our exposure to the high-growth infrastructure vertical from 12% of sales at spin to 45% last year, and infrastructure is expected to be well over half of our sales in 2026. In addition, we have been aggressively investing in our data center business, which is rapidly growing and accelerating with the AI build-out. In January, we opened a new facility in Blaine, Minnesota, to expand our liquid cooling capacity. Production is online, and we are ramping quickly. Turning to Slide six and our outlook for the verticals. In 2026, we believe the infrastructure vertical has the highest growth with the trends of electrification, sustainability, and digitalization. Infrastructure is expected to grow at approximately 20% this year, driven by AI data center CapEx acceleration. In addition, power utilities, renewables, and energy storage are expected to grow with the increasing demand for power. For industrial, we expect mid-single-digit growth with increasing CapEx investment, automation, and reshoring. The commercial resi vertical is expected to grow low single digits. This wraps up my remarks. I will now turn the call over to Gary for further details on our results as well as our 2026 outlook. Gary, please go ahead. Gary Corona: Thank you, Beth. We had another excellent quarter exceeding our guidance with record sales, strong adjusted EPS, and very strong free cash flow. Let's turn to slide seven to review our results. Sales of $1.067 billion were up 42% relative to last year. Organically, sales grew 24%, well ahead of our guidance driven by stronger than forecasted data center sales. Acquisitions added $126 million to sales, or 17 points to growth, ahead of our guidance. Foreign exchange was roughly a one-point tailwind. Adjusted operating income was $210 million, up 33%. Return on sales came in at 19.7%, a bit lower than expected due to higher investments, incentive compensation, and mix. Inflation was nearly $55 million, including more than $40 million in tariff impact. Price plus productivity offset inflation, and we also continued to make investments for growth, particularly for data centers and our recent acquisitions. Q4 adjusted EPS was $0.90, up 53% and above the high end of our guidance range. We generated robust free cash flow of $189 million, up 26% year over year. Now please turn to slide eight for a discussion on the fourth quarter segment performance. Starting with systems protection. Sales of $737 million increased 58%. Acquisitions contributed 23 points to sales and have performed ahead of expectations. Organically, sales grew 34% with all verticals growing. Infrastructure grew approximately 70% largely due to continued strength in data centers. Industrial was up high single digits, and commercial resi grew low single digits. Geographically, Americas and Europe were both strong. Americas grew over 45% while Europe was up high single digits. Asia Pacific was down in the quarter. Fourth quarter segment income was $149 million, up 49%. Return on sales of 20.3% decreased 120 basis points year over year impacted by inflation, growth investments, and recent acquisitions. Moving to electrical connections. Sales of $330 million increased 15%. Organic sales were up 8%, and the EPG acquisition contributed six points to sales. From a vertical perspective, infrastructure led, growing approximately 25%. Industrial grew mid-single digits, and commercial resi was up low single digits. Geographically, all three regions grew. Sales were up high single digits in The Americas, Europe was up low single digits, and Asia Pacific grew double digits. Segment income was $91 million, up 8% versus last year. Return on sales of 27.6% decreased 180 basis points year over year impacted primarily by inflation. That wraps up the quarter. Now turn to slide nine for a recap of our full-year 2025 results. 2025 was an outstanding year with 30% or more growth in reported sales, adjusted EPS, and free cash flow. We ended the year with sales of $3.9 billion, up 30% or 13% organically. Acquisitions contributed 16 points to growth for the year. Adjusted operating income grew 21% to $786 million. Overall, return on sales came in at 20.2%. Inflation was more than $160 million, including approximately $90 million in tariff impact. Price plus productivity offset inflation, and we also continued to make investments for growth. Free cash flow was $561 million, up 30% with a 102% conversion of adjusted net income. This included higher CapEx investments for growth and capacity. In summary, 2025 was a year of record performance and strong execution with nVent Electric plc now a higher growth company. Turning to the balance sheet and cash flow on slide 10. We ended the year with $237 million of cash on hand and $600 million available on our revolver, putting us in a strong liquidity position. Our debt stands at $1.6 billion, down approximately $600 million from a year ago. Our healthy balance sheet and strong liquidity position give us financial flexibility to support our disciplined capital allocation strategy. Turning to slide 11, where we outline our capital allocation priorities. Our capital allocation strategy is all about investing in and capitalizing on opportunities that generate the highest returns for our shareholders. Our first priority is growth. We are investing in new products, capacity, and supply chain resiliency. In 2025, we invested $93 million in CapEx, up 26%. These increased investments are for recent acquisitions and new capacity to support growth in data centers and power utilities. We returned $383 million to shareholders in 2025, including share repurchases of $253 million. And we increased our quarterly dividend 5%. We exited the year with a net debt to adjusted EBITDA ratio of 1.6 times, below our targeted range of two to two and a half times. We believe we are well-positioned and have additional capacity for future capital deployment, with our first priority being to invest in growth. Moving to slide 12 and our 2026 outlook. We are forecasting another year of strong sales and earnings growth. Reported sales are expected to grow 15% to 18% with organic growth in the range of 10% to 13%. This assumes strong volume growth and positive price. Acquisitions are expected to contribute approximately four points to growth, and foreign exchange to be a one-point tailwind. Our outlook for full-year adjusted EPS is $4 to $4.15, which represents growth of 20% to 24%. And we expect free cash flow conversion to be between 90% to 95% of adjusted net income. We expect net interest of approximately $70 million, our adjusted tax rate of approximately 22%, and shares outstanding of approximately 164 million. Price and productivity are expected to offset inflation, including tariffs. We forecast incremental tariffs of approximately $80 million, largely in the first half of the year. Corporate costs are expected to be approximately $130 million, CapEx of approximately $130 million, and depreciation and amortization of approximately $230 million. Moving to slide 13, and our first quarter outlook. We forecast reported sales growth of 34% to 36%, with acquisitions contributing approximately 15 points to sales and foreign exchange approximately a two-point tailwind. Organic sales growth is expected to be up 17% to 19%. Price coupled with productivity are expected to offset inflation, including the tariff impacts in Q1. We expect adjusted EPS to be between $0.90 and $0.93, which at the midpoint reflects more than a 35% increase relative to last year. Wrapping up, our team delivered a strong year with record sales, adjusted EPS, and free cash flow. We are well-positioned for another record year in 2026. With that, I will now turn the call back over to Beth. Beth Wozniak: Thank you, Gary. Please turn to slide 14. Key to our success and performance has been our people and our culture and making nVent Electric plc a great place to work. We are focused on improving our employee experience and having a positive impact on our communities. On this slide, you can see numerous awards and recognitions we have received as we focus on our people and building a more sustainable and electrified world. For the second consecutive year, we were recognized as one of the world's most ethical companies by Ethisphere. We also earned a gold sustainability rating from EcoVadis, placing us in the top 5% of companies assessed. And we were certified as a great place to work for the fourth consecutive year. These are just a few of the many awards and recognitions we have received. I'm extremely proud of our nVent Electric plc team and everything we have accomplished together. And there's always more we can do. We want people to grow their careers at nVent Electric plc as we grow as a company. Turning to slide 15. On February 24, we will be hosting our Investor Day, and I look forward to sharing more details about our growth strategy, new medium-term financial targets, and how nVent Electric plc is inventing the electrified future. Wrapping up, on slide 16. 2025 was a year of outstanding performance for nVent Electric plc, delivering differentiated value for our customers and shareholders. Our portfolio transformation and data center organic investments are accelerating our growth, and we expect 2026 to be another record year of financial performance. Our future is bright. With that, I will now turn the call over to the operator to start Q&A. Operator: Thank you. We will now begin the question and answer session. To ask a question, you may press star then 1 on your touch-tone phone. If you are using a speakerphone, please pick up your handset before pressing the key. If at any time your question has been addressed and you would like to withdraw your question, please press star then 2. At this time, we will pause momentarily to assemble our roster. The first question comes from Deane Dray with RBC Capital Markets. Please go ahead. Deane Dray: Thank you. Good morning, everyone. Beth Wozniak: Good morning. Deane Dray: And maybe we can start with getting a bit more color, and maybe you can size the impact of inflation and these growth investments in your '26 guide. And then also, if you can just give us some context as new capacity comes online, what is that doing to your typical margin progression? Gary Corona: Thank you. Thanks, Deane. This is Gary. I'll give a bit of color on inflation. And we expect higher inflation in 2026 due to labor, metals, and as I mentioned in my script, approximately $80 million in carryover or tariff impacts. We plan to address that through strong productivity as well as pricing, and those two actions will offset the inflation in the year. As you mentioned, we'll continue to invest to support growth. And we have been doing that in '25 as well as into '26. And you're seeing that support the tremendous top-line growth that we've delivered in the quarter, and we'll continue to deliver in 2026. Beth Wozniak: And with respect to your point on as we're investing in the margin impact, I would just say that we're ramping so quickly and having to train a lot of new people. There are some inefficiencies. And as we start to scale, we'll get better in terms of improving those inefficiencies and that productivity. Deane Dray: That's real helpful. Thank you. And then just as a follow-up, really impressive new product introductions, new product vitality index. And maybe if we could, you made a lot of impact at Supercompute this year, launching a new line of standardized modular liquid cooling platforms. Just, you know, how what's been the customer receptivity to the launch? And where does that stand today? Beth Wozniak: Yeah. Thank you, Deane. Yes, we did showcase a lot of those new products at Supercompute, and some of those products start to launch here through Q1 and Q2. Customer reception to that has been very strong because, as you know, we've driven some very high-performance and very capable products that are very scalable and modular. And so, as we see, you know, this year, a lot of those products launch, and we think that'll be part of our growth story as that reps through 2026. Operator: Thank you. The next question comes from Julian Mitchell with Barclays. Please go ahead. Julian Mitchell: Hi, good morning. Beth Wozniak: Good morning. Julian Mitchell: So maybe just good morning. Just wanted to start perhaps with, you know, a color you could give us on that backlog kind of recognition profile? I think it was $2.3 billion at the December. So it's about 50% of your revenue guide for the next twelve months. Maybe help us understand, I suppose, you know, how the maybe the book to bill trended recently so we can get some sense of that orders to sales cadence. And how much of that backlog do you think will be recognized in the next twelve months? I think we get your RPO in the 10-K. Beth Wozniak: Hi, Julian. Maybe I'll start, and I'll let Gary fill in. So, you know, as we transformed our portfolio, and we talked about how we have more of a mix between short cycle and long cycle. You're seeing that we're more of a, you know, we have more backlog than we would have had traditionally. And so some of that is in data centers. Some of that is in power utilities. And so you're just seeing the strength there. And, you know, I would say that most of that backlog, you know, is through 2026, although there's some beyond that. But a lot of that is what gives us confidence in our guide for the year given the strength of it. Gary Corona: Yeah. I just would add we mentioned in the script, the backlog is now three times what it was last year. Primarily data center and our new track team and EPG business supporting the vertical, but there also is healthy orders and backlog in our electrical connections business and our core systems protection business, Julian. So healthy backlog. Orders were up nicely in the quarter, and we feel good about the momentum that we're carrying into 2026. Julian Mitchell: Thanks very much. My second question would be on the operating margins. So I think the guidance embeds about a 70 basis point decline year on year in the first quarter. And then operating margins are up maybe 20 bps or so for 2026 in aggregate. Just wanted to check those numbers are roughly okay. And I suppose more specifically, it seems like the organic operating margins maybe are not getting the lift yet that you had expected. So just wondered what you thought the main culprit there was. Is it if it's price cost, that's okay on the cost side, but has anything got worse on the price side because of all the capacity everyone's adding? Gary Corona: Thanks, Julian. I'll take that one. And I'll talk about 26 margin. And we expect margin expansion in 26, including better incrementals in '26 than we had in '25. You know, as you mentioned, the inflation will persist, including the tariffs, but we expect price and productivity to offset it. We expect more price, and we've announced pricing that's in the market. You know, the Q1 is we expect margins to be flattish sequentially in the quarter but up factoring in for the accelerated share-based compensation that we'll recognize in Q1, which is really phasing across the year. Operator: Great. Thank you. The next question comes from Nigel Coe with Wolfe Research. Please go ahead. Will Branco: This is Will Branco on for Nigel. Hey, Will. Good morning. Gary Corona: Morning. Will Branco: If I could kinda go back to the margin point, for twenty-six first, I think the implied incremental margins in the guide are around 25% next year or this year, which is obviously a step up from twenty-five. But just in terms of the first half versus the second half, you increasingly easy comps through the year. So just how should we think about the first half or second half waiting on incrementals? And then maybe if I could just extend that out beyond 26, I think longer term, you've talked about think, incrementals in the 30 to 35% zone. Obviously, the portfolio, very different now from two years ago. So any color on how we should think about incremental margins in the business beyond 26 as well? Thank you. Gary Corona: Yes. Thanks for the question. And as you mentioned, incrementals will be better in '26 than they were in 25. And we expect that to progress nicely throughout the year. The first half has the impact of the carryover tariffs, the EPG acquisition, and some of these investments for growth that Beth mentioned as we get some new capacity online. You know, second half will be better as those headwinds abate. You know, we're very confident in the direction that our margins are headed. And I'm not gonna comment on anything beyond '26. We will have the opportunity to speak to that as we're together in about a month at our Investor Day. Will Branco: Great. Thanks, Gary. And then maybe my follow-up, I could focus on orders. Obviously, 30% growth in the quarter. Any color on maybe how orders trended q over q in four q? And then, obviously, through January, maybe any color on year-to-date order trends, specifically any orders that may have pushed out of the fourth quarter into the first quarter? If any color there would also be very helpful. Thank you. Beth Wozniak: Yes. As we commented in our last earnings call, our orders ex data centers were up high single digits. And as I just remarked, orders for Q4 were up low double digits. So in the non-data center business, we've seen orders improve, and I would say orders continue to look good through January. Will Branco: Thanks, guys. Operator: Thank you. The next question comes from Joe Ritchie with Goldman Sachs. Please go ahead. Andy: Hi, this is Andy on for Joe. Good morning. Beth Wozniak: Good morning. Andy: Yeah. Thanks. I had a broader level question around your 2026 guide. So in 2025, your order growth has averaged close to 30% through the year, and you exited 4Q with a 24% organic clip as well. So can you just help us understand the puts and takes on the growth guide of 10% to 13% for 2026? And then the implied step down after 1Q. Gary Corona: Yeah. I appreciate you recognizing the strong growth that we had in Q2 or Q4. And we expect really a strong Q1 on revenue and EPS both growth over 30%, mid-thirties at the midpoint. You know, annually, I would just say, look. It's early in the year. We've entered a period of unprecedented growth for nVent Electric plc. And we'll continue to update our outlook as we deliver the results quarter after quarter. Keep in mind, we are overlapping 20% organic and 50% EPS growth in 2025. And we want to ensure that our guidance gives us the flexibility to invest to support growth in the long run. So we feel good about the momentum. And we'll continue to update you as we move throughout the year. Andy: Got it. That makes sense. Just as a follow-up, maybe a broader question around liquid cooling, and a lot of the growth today is driven by data centers, whether it's the orders or the top line. But liquid cooling still remains, you know, underpenetrated and ultimately, like, data centers are going to need it forward. Can you give, like, a higher level on how you're thinking about the TAM, you know, over the next three to five years and when's right to win on this opportunity? Beth Wozniak: Sure. Well, you know, one of the things that we just said is our data centers are now over a billion dollars. And it's been growing significantly with liquid cooling. At Supercompute, we showcased a lot of new products that we're launching. So we see that liquid cooling is, you know, currently less than 30% of data centers have liquid cooling, and that is going to grow significantly because of the heat loads and power densities, etcetera. So, as we go forward, we have a lot of new products that are modular, that are scalable, that we've been investing in our capacity. So we just see a lot of opportunity with data centers and with the AI build-out and the need for liquid cooling. Andy: Okay. That's awesome. I'll get back in queue. Operator: Thank you. The next question comes from Jeff Hammond with KeyBanc. Please go ahead. David Tarantino: This is David Tarantino on for Jeff. Maybe going back to orders, maybe just on the profile of the orders in data center versus the growth we saw in March. Are you seeing any change in the order patterns in terms of size scale and or lumpiness of the orders quarter to quarter? As these kind of larger data center projects are contributing to it? Beth Wozniak: Look. I would say, you know, data center orders can be very lumpy. And so, you know, we had tremendous orders in Q3 and good orders in Q4, but I think we're gonna continue to see large orders and, you know, and those are not gonna be necessarily smooth as they go through the year. David Tarantino: Okay. Great. That's helpful. And then there's been a lot of talk about the effects of operating data centers at higher temperatures as of late. Could you walk us through your view on what the implications this has around your portfolio? And maybe could you speak to your visibility around technology evolutions as you work with your customers on them? Beth Wozniak: Sure. So one of our new CDU products that is launching this year, and we showcased it at Supercompute. What we shared is that we've been working with NVIDIA, and we understand those technology road maps and those heat loads out to 2030. And we have designed those products with a lot of flexibility built into them. So in some cases, what we can do with this new CDU we're launching would have taken two CDUs in the past. So those higher heat loads we're well aware of. We're working with all the chip manufacturers, and we're designing that into our product portfolio. David Tarantino: Great. Thank you. Operator: The next question comes from Vladimir Bystricky with Citi. Please go ahead. Vladimir Bystricky: Hey. Good morning, everyone. Thanks for taking my call this morning. Beth Wozniak: Morning, Vlad. Vladimir Bystricky: So I just wanted to ask you. Obviously, a lot of focus on data centers and infrastructure vertical, but I wanted to touch it for a second here on the third of your portfolio that's industrial. So can you just talk about how you're seeing underlying trends evolve in that market and your level of visibility and confidence to the mid-single-digit growth in Industrial in 2026 and whether you're seeing orders currently sort of consistent with that demand? Beth Wozniak: Well, as we discussed at ex data center, our orders in Q3 were high single digits. Then they're in Q4, low double digits. And we're seeing that we're seeing industrial orders, you know, at a nice rate given investments in CapEx, investments in automation, and reshoring. So some breadth to the orders coming across some different industries. And it's really those order trends and what we're hearing from our channel partners and customers that gives us the perspective that we're gonna see industrial grow mid-single digits for this year. Vladimir Bystricky: Got it. That's really helpful, Beth. Appreciate that. And then just shifting back to data centers, can you just talk about as we're seeing the data center technology and architecture continue to evolve, and as we're seeing new entrants trying to come into the space, can you just talk about how you see your position in thermal management evolving going forward and maybe more specifically, what you're seeing in terms of competition in liquid cooling? Beth Wozniak: Sure. So as you know, we've been doing liquid cooling for well over a decade, and have been working with some large hyperscalers for a long time. And on, you know, we're several generations in here. So when we think about our capability, we have a lot of application expertise. We've developed a lot of manufacturing and supply chain capability to be able to scale. And in our case in point is from when we announced that we were going to expand to a new facility and sign the lease to where we started actually producing that was just over a hundred days when I mentioned that we're up and running in January. And I think that speaks a lot to our capability from a manufacturing supply chain perspective. So, you know, as we go forward, look, I think there's a lot of new entrants that want to get in because they see the growth opportunity here. And what I would just share is we continue to invest. We continue to launch a broader scale of products because we see that there's going to be demand for liquid cooling from hyperscalers to colos to enterprise, it's even non-data center applications in the future. And so our investment here, our investment in our labs, you know, we've got good partnerships that I think we're going to continue to differentiate with our performance and our ability to scale. Vladimir Bystricky: Thanks, Beth. Appreciate that. I'll hop back in the queue. Operator: Thank you. The next question comes from Brian Drab with William Blair. Please go ahead. Brian Drab: On the $1 billion figure in data center, I just wanna be clear. Is that a run rate that we're exiting the year at? And sorry if you said this, but I might have missed it. But is that a run rate, or is that the total for '25? And that's my first question. Beth Wozniak: Well, the first is that was our 2025 revenue in data centers reached over a billion. Brian Drab: Okay. And then can you talk about what the comparable number was for '24? And I know there's acquisitions in there. And then, you know, just any color that you... Beth Wozniak: In 2024, it was $600 million. Brian Drab: Okay. And then can you talk at all about in '25 what the, you know, the different categories within data center? Like, what type of growth you saw? At least maybe, like, rank order, you know, cooling versus powering versus the, you know, enclosures and other business? Like, where are you seeing the fastest growth? I assume it's in liquid cooling, but I just want to if you could add some color to that. Beth Wozniak: Yeah. I mean, we're really seeing the fast growth in liquid cooling and power. But, you know, behind that, I would say our cable management is also growing very nicely as well. Brian Drab: Okay. Alright. Thanks. I'll save my other questions for later. Thank you. Operator: Thank you. The next question comes from Nicole DeBlase with Deutsche Bank. Please go ahead. Nicole DeBlase: Yes, thanks. Good morning. Beth Wozniak: Good morning, Nicole. Nicole DeBlase: I don't think we've spent much time on power and utility yet in Q&A. So just wanted to kind of dig in there, Beth, you know, trends that you guys saw during the quarter with respect to orders. And then last quarter, you commented about tracking were trending ahead of your deal plan. Is that still the case? Beth Wozniak: Yes. It is. You know, we're very pleased with those acquisitions, and the growth that we're seeing in the performance. Look. Power utilities. This is an area where we're seeing just solid growth and opportunity, and I think there's some very synergistic plays for us as we're able to pull through more of our portfolio, especially in some of these integrated engineering building solutions. And we just see some nice long-term growth in this area, very synergistic to what's in the rest of the nVent Electric plc portfolio. Nicole DeBlase: Thanks, Beth. And just orders, were they up double digits in power and utility? I would assume so, but wanted to clarify that. Beth Wozniak: I don't think we've been that I don't think they've been as strong as data centers, but they're part of that overall everything ex data centers is up. Low double digits. Nicole DeBlase: Okay. Understood. And then, maybe on the M&A pipeline, if you could talk a little bit about the level of activity that you're seeing today and the level of excitement about potential M&A into 2026? Beth Wozniak: Yes. I mean, our, you know, first of all, you know, our balance sheet and our net debt to EBITDA ratio are in really good shape, and when we think about our pipeline, it's very strong. It's very robust. We remain very disciplined. And I think, you know, there's always opportunity for us to find some new acquisitions like we did with Trackdee and Avail that are really helping us build out, you know, infrastructure in particular. So you never quite control the timing of deals, but we've got a good pipeline that we're currently working through. Nicole DeBlase: Thank you. See you in a few weeks. Operator: Thank you. The next question comes from Scott Graham with Seaport Research Partners. Please go ahead. Scott Graham: Hey. Good morning. I have a question about hey. Hey, Gary. Hi, Beth. I have a question about productivity. Let's call it, let's say, away from the acquisition integration. So, you know, sort of in the first half of the year, we're gonna have some, you know, dilution margin-wise with the ramp in the LC capacity. Suggesting that the offset is on productivity elsewhere has to be maybe a little bit higher. What are you doing in productivity elsewhere to kinda make some of that up? Gary Corona: Yeah. I appreciate the appreciate the question, Scott. And as I mentioned in my remarks, we plan to have our productivity as well as our pricing offset the mid-single-digit inflation that we're expecting in the year. And what we've talked about is we're advancing our lean capabilities, you know, while we invest in our capability. We're working on driving capability in transportation, automation, and our funnels and our sourcing productivity side are quite good. So we're very focused on driving additional productivity, especially as we've increased our investment. And we're confident that price plus productivity will offset the inflation in twenty-six. Scott Graham: Okay. Got it. Hey. I too wanted to ask a couple questions about power. So I know you're mostly, you know, grade T and D. But now for the, I think, for the first time in a while, you've started to mention renewables as being, you know, 5%. I was just kind of wondering what the dynamics of renewables growth look like as well as generation? Do you have opportunities in generation? Beth Wozniak: It's more for us through T and D, in particular, sub. And as you think about substations, whether that's for utilities or it's supporting data centers, that's where we see the most opportunity currently. Scott Graham: Okay. Close enough. And then last one was on the penetration of liquid cooling. Is that a number you guys are able to update? Beth Wozniak: Well, we will give an update at our Investor Day on February 24. You know? But we've said that, you know, liquid cooling, less than 30% of data centers have liquid cooling today. And we see it growing significantly. Operator: Thank you. The next question comes from Neil Burke with UBS. Please go ahead. Neil Burke: Question on data center. I mean, we see CapEx continuing to accelerate. But the guide for organic growth for this year like, a pretty meaningful deceleration in the back half. Is this just comps getting harder, or is there some sort of kind of timing difference between what we see on the hyperscaler CapEx side and in nVent Electric plc's orders or sales? Gary Corona: Yeah, Neil. I appreciate the appreciate the question, and we're pleased with the backlog and our momentum that we have on data center. I'll just go back to the comment I made earlier, which is, look, it's early in the year. You know, we're managing unprecedented growth here for nVent Electric plc. And we'll continue to update you on the outlook as we deliver results here in the first half of the year. But we're confident in the momentum, and then we'll talk about the multiyear opportunity in data center here in a month or so at our investor day. Neil Burke: Thanks. And just like on the multiyear opportunity, so I'd look forward to hearing more on that. But do you just sort of, like, high level feel like you have a better level of visibility now as you scale this business. Obviously, backlog's a lot higher. But, like, in terms of the data center project pipeline, do you feel like you are getting closer to customers as you grow this business and you have more visibility on future demand. Thank you. Beth Wozniak: Well, I would say, in general, with this portfolio transformation, it's given us more of a balance between short cycle and long cycle. And whether it's data centers or even power utilities, just because of the nature of those types of builds and projects, we certainly have more visibility into, you know, multiyear projects or even just understanding technology road maps and where they're going. Both of those are very important and are helping us to think about our capacity as well as our new product technology road map. Operator: Thank you. This concludes our question and answer session. I would like to turn the conference back over to Beth Wozniak, Chair and CEO, for any closing remarks. Beth Wozniak: Thank you for joining us today. I'm extremely proud of our performance in 2025. We will continue to focus on delivering for our customers, employees, and shareholders by executing on our growth strategy. We believe nVent Electric plc is a top-tier high-performance electrical company well-positioned for the electrification, sustainability, and digitalization trends. Thanks again for joining us. This concludes the call. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Operator: Good day. And welcome to the Under Armour Third Quarter 2026 Earnings Conference Call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the appropriate key. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then 1 on a touch-tone phone. To withdraw the question, please press star then 2. Please note this event is being recorded. I would now like to turn the conference over to Lance Allega, Senior Vice President of Finance and Capital Markets. Please go ahead. Lance Allega: Good morning. Welcome to Under Armour's fiscal 2026 third quarter earnings call. Today's call is being recorded and a replay will be available at our Investor website shortly after it ends. Joining us this morning are Kevin Plank, Under Armour's President and CEO, and Dave Bergman, our CFO. Before we begin, please note that certain statements made on today's call are forward-looking as defined under federal securities laws. These statements reflect management's current expectations as of February 6, 2026, and are subject to risks and uncertainties that could cause actual results to differ materially. For a detailed discussion of these factors, please refer to this morning's press release, filings with the SEC, including our most recently filed Form 10-Ks and Form 10-Q, and other public disclosures. In today's call, we may reference non-GAAP financial measures. We believe these metrics offer additional insights into the underlying trends of our business when considered along with our GAAP results. Reconciliations of these measures to their most comparable GAAP metrics are included in the press release and can be found on our investor website at about.underarmour.com. With that, thank you for being here and your interest in Under Armour, and I'll now turn the call over to Kevin. Kevin Plank: Thanks, Lance, and good morning to everyone taking the time to join us today. Under Armour is a global performance brand with opportunity and relevance that is both present today and capable of significantly scaling as we find our operating rhythm. Entering the next phase of our turnaround, the focus is on execution. We're not declaring all the work finished yet, but we are making real progress. With a disciplined strategy, structure, and team now in place, that progress is becoming more consistent. For too long, the organization carried unnecessary complexity. Too many handoffs, too many approvals, too much focus on one's individual job versus the broader brand objective we're trying to solve for: having athletes fall in love and know why they need Under Armour. Since coming back to the CEO chair nearly two years ago, we have narrowed our focus, moved decisions earlier, and reduced friction across the system. That work has simplified the operating system. Inventory is down year over year. Assortments are tighter. Planning is more precise, and we have additional opportunity to continue to improve. The structure of the company has been addressed and is enhancing our speed to market, SKU productivity, athlete insight, and especially accountability for all the above. In the third quarter, although we had a few nonrecurring impacts in our GAAP results that are frustrating, our adjusted results came in ahead of expectations across most line items. We modestly raised our full-year adjusted operating income outlook. This is a good proof point that our underlying business is becoming steadier, and we're seeing fewer surprises and greater predictability, which is where we believe we should be at this stage of our turnaround. Looking at our journey, fiscal 2025 is about assessing our greatest needs to address our operating infrastructure and stand up the expertise necessary for our reset, with a few additions from outside, but primarily from within the organization. For Under Armour by Under Armour. Years of consulting and rented in... David Bergman: ...took us on a path that was not the unique brand position and engine that allowed UA to cut through in the first place. Fiscal 2026 was about implementing that structure, including the foundation category-managed operating model, a renewed go-to-market, and a clearly articulated strategic business plan. We're now building on that infrastructure by changing nothing, running that same play again in fiscal 2027 and beyond, becoming sharper as the kinks work through, which we are still feeling some of, but moving forward. What is new has been layering in the how we are running the business. The operating principles that will manifest the thematic of selling so much more, of so much less at a much higher full retail price. I spent the month of January presenting these holistic principles called unleashing intentionality, in dozens of individual and group settings to teammates and partners. Taking this message directly to key stakeholders, ensuring our entire offense and defense know exactly who we are, what we are building, and how we plan to execute to achieve our mid and long-term ambitious goals. To support this next phase, we recently made targeted leadership changes to accelerate speed. Kara Trent is now Chief Merchandising Officer, with end-to-end responsibility for product mix, pricing, and margin performance. Adam Peak has been named President of The Americas. Eric Glitke is now Chief Marketing Officer and EVP of Strategy. And Yaseen Sade has transitioned to an external senior advisor role to ensure design continuity. These changes reflect exactly where we are in the transformation, moving with tighter alignment and a more decisive operating cadence. This work is not done on a spreadsheet but by bringing our teams together, removing slow process barriers, and facilitating conversations to create a much more intentional line of products across apparel, footwear, and accessories. Products that we can be famous for while highlighting the areas we already are, like UA heat and cold gear. The recent org changes now have all product teams in one conversation, including physically in one room sharing information to remove redundancy and increase speed. In addition to the 25% of SKUs we began eliminating in fiscal 2025 that is now complete, we have additional opportunity to be even more efficient. Not only with SKUs and styles, but the raw materials that support the products we make. More to come on this in future calls. But the new structure is actively digging into this work, and the early reads are incredibly positive. Kevin Plank: Looking ahead, key indicators are moving in the right direction. Brand health in the US continues to improve; awareness, consideration, and engagement are trending higher, particularly among younger athletes. Digital engagement remains strong, and when products, storytelling, and distribution align, we see a positive consumer response. So let's talk about product, because product is everything. And at Under Armour, we say that product is our currency. It always has been the engine that will ultimately drive this turnaround. This is also the hardest part of the transformation. There was no switch to flip. We are rebuilding capability, discipline, and credibility inside the organization and in the market. That work takes time. And importantly, we're now seeing real evidence that it is working. Across apparel and accessories, the proof points are starting to stack up. Base layer remains a steady engine for the business with heat and cold gear standing out. New styles, refreshed design language, and modern colorways are driving higher ASPs and strong double-digit growth in these products. That matters because it's an early signal that intentional product thought leadership can help us rebuild pricing power. We're seeing similar momentum elsewhere. ICON fleece is performing well, and our women's Meridian franchise continues to gain traction as new silhouettes and colors attract a broader, more engaged consumer base. These products reflect a stronger point of view and improved execution across categories. Spring/Summer 2026 is another meaningful step forward. You'll see more elevated products entering the market with a more consistent cohesive design language. We're introducing improved women's Vanish Elite collection, alongside continued evolutions across icon, sportswear, and footwear. In accessories, our Stealthform hat and no way backpack continue to push the price ceiling, supported by premium performance attributes in a clean, focused product story. When design intent is strong and segmentation is disciplined, consumers respond. Sell-through for newer franchises is improving year over year. Full price realization is trending higher even from a lower base. Wholesale partners are engaging more positively with upcoming assortments and buying. The shift in the footwear, which has been on a long challenging recovery path. I want to be very direct about it. Year-to-date sales are down about 14% reflecting structural issues we are actively unwinding. For multiple seasons, we tried to grow by expanding the assortment. More styles, more price points, more incremental updates. Without consistent demand over the scale to support it. That diluted volume pressured margins and increased inventory risk. We are addressing each of these. We're exiting low productivity styles, reducing redundant SKUs, and eliminating launches that lack a defined role, strong margin profile, or scalable growth opportunity, with the primary criteria being every product must have a reason to be built by Under Armour. It must have a story. In parallel, we're tightening our price tier architecture and concentrating investment behind fewer higher impact franchises that can win consistently. This disciplined approach sharpens our focus areas across training, running, and sportswear, while building momentum in team sports where we are increasingly confident in both our product and our growth trajectory, all of which should drive improved returns over time. We're already seeing proof points. In run, the Velocity Elite 3 delivered strong sell-through at launch and run specialty. And sharper segmentation across the franchise is driving healthier performance at more accessible price points. With velocity distance and Pro 2. The Acerta 11, launched in November, we talked about on the last call, continues to perform really well and is delivering a meaningfully higher ASP versus the assert 10 as we predicted. And as we outlined last quarter, we positioned this velocity run-inspired redesign in a Charge plus midsole as an outstanding $75 accessible price point offering. Rowan Los Angeles Dodgers back-to-back World Series champion Freddie Freeman as a product ambassador. Starting to drive increased demand in a millions of annual units program. This reflects our strategy in action. Simplifying the line, strengthening franchises, and reinforcing Under Armour's running credibility. In sportswear, just this week, we launched the HP Low, a $100 basketball-inspired silhouette built for all-day comfort. Pairing a premium leather upper with a cushioned court-to-street ride and a bold expression of the UA logo. The price-to-value of this shoe is off the charts and believe that it can be a gateway product for Under Armour to take share in court shoes and sportswear. Coming off our fall launch, the $120 solo model continues to build momentum. Additionally, we introduced the ARC 96 at $125 a modernized run-inspired silhouette that blends premium materials with elevated cushioning the distinctive design language. With social response and sell-through as key indicators, we're very encouraged by the evolution of these sportswear styles, all excellent examples of what's to come. While the reset of our footwear business is still underway, the actions we're taking combined with strong early signals for our innovation and design-led product give us growing confidence that we can stabilize the footwear category next year rebuild momentum with consumers and wholesale partners. Overall, our products are becoming stronger assets, not just something we sell, but primary driver of demand and value creation. We're building more intentional product segmentation across innovation levels, price points, and usage models. Every product is gaining a defined consumer role and will have a distinct identity. Over time, this approach will deepen consumer understanding of the brand support more consistent pricing discipline. Pathway to improve demand and margin contribution. Our storytelling is also getting sharper. We're moving up with greater purpose, connecting the right products to real sports moments meeting athletes where they are and driving higher engagement per dollar. Social is leading that effort particularly on TikTok. Our influencer strategy continues to expand reach and reinforce credibility. While activations like We Are Football and Run Club events with recording artist, Gunna, are evolving into community-led platforms that generate authentic energy and momentum for the brand. Team sports remain a core driver of momentum and brand authority. In American football, we continue to deepen our presence through authentic on-field storytelling and partnerships, including the launch of the first overtime national high school championship at our UA Stadium here in Baltimore, and expanded collegiate relationships with Georgia Tech, the first Under Armour school to wear Under Armour in 1996. And the University of Wisconsin, a long-standing partner. This week, we launched our spring 2026 activation spotlighting women's flag football, the next era of the game. Debuting just this past Wednesday on National Girls and Women in Sports Day. Click clack, the next era, reimagines our iconic original 2006 ad in a fresh Gen Z forward way. With the sport exploding in the 2028 Summer Olympics, on the not-so-distant horizon, UA athletes, Ashley Klam, Diana Flores, Lynne O'Brien, and Isabella Garrasi helped set the pace for the sport. The message is clear. Flag football is here to stay. At the highest level of the sport, our on-field credibility in the NFL continues to build spanning established athletes like Philadelphia Eagles, Davonta Smith, and rising stars such as Seattle Seahawks rookie, Nick Amonowari. In his first year in the league, Nick will take the Super Bowl stage this Sunday, a powerful and energizing milestone that underscores the momentum of our athlete roster and the growing relevance of our brand at the very top of the game. We're also investing in the next generation of athletes. Our UA Next All America Game Week showcased top high school talent across football and volleyball. Broadcast on ESPN and where we sold out the product capsule. We signed our first click clack NIL class and continue to build our presence in track and field as we prepare to host the inaugural UA Track and Field Nationals this spring at IMG Academy in Florida. This month, UA is on the world stage. In Italy, Lindsey Vonn, our longest-serving athlete. Will compete for Team USA and Kayle McCar will take the ice for team Canada at the Winter Olympics. Then next month, that momentum carries as the World Pass Baseball Classic. Many of our iconic UA Major League Baseball players will compete at the highest level on yet another global stage. In EMEA, momentum continues to build across global football. Activations including the UA Mansory collab, delivered strong engagement and sell-through. In our full funnel, be the problem football, and unapologetic women's campaigns are outperforming benchmarks and strengthening our brand's cultural relevance. We don't see these as isolated moments. We see them as repeatable proof points that our brand is regaining momentum at scale. This authenticity enables UA to meet approximately $5 billion in annual consumer demand while rebuilding trust, and deepening durable connections with athletes around the world. This is a foundation for sustained relevance, demand stability, and long-term value creation. Switching next to the regions. North America is beginning to turn the corner. We believe December marks the bottom of the reset. Traffic, yes, remained soft, but underlying indicators are improving. We continue efforts to strengthen our premium online position even amid a promotional environment. E-commerce conversion is up and factory house performance is improving. Digital engagement tools such as SMS and TikTok shop are delivering strong growth. In wholesale, our focus remains on rebuilding the right partner relationships. And we're making real progress. A Q3 product campaign led by Cold Gear compression with DICK'S Sporting Goods delivered solid results, and its partners gained confidence in our product and storytelling collaboration is growing. And we are encouraged by how our fall order book is shaping up. In EMEA, the business remains solid and continues to be the clearest expression of our premium strategy in action. Performance is being driven by disciplined execution, across the region with a more intentional approach to promotions that protects brand equity and pricing integrity. At the same time, solid wholesale performance is reinforcing the quality of our partnerships and the strength of demand in key markets. Together, these factors are delivering consistent reliable results and underscoring the resilience of the business in the region. In APAC, where I spent seven days in January visiting five key cities with our teams and partners, we continue to make progress on our reset. And the region remains a critical long-term growth opportunity. There, we're taking decisive actions to manage inventory, sharpen assortments, and elevate the retail experience. Together, these efforts are positioning APAC for stabilization over the next twelve months and more sustainable growth beyond. So to close, there are no shortcuts in a turnaround like this. Progress is earned through discipline and consistent execution. The business is simpler. Revenue volatility is stabilizing. The margin trajectory is improving. Inventory is cleaner. And Under Armour remains a brand athletes actively choose with authenticity and a competitive edge that would be difficult, if not impossible, to replicate. Under Armour is unique. It just is. Now if there's one thing to take away from today's call, we believe that the most disruptive phase of our reset is now behind us. We're past the period of structural change and operating noise and the organization is now focused squarely on execution and stabilization. When we look at the fundamentals, they are where we expected them to be at this point in the reset. Our operating model is in a much better place. Our business plan is well defined and increasingly repeatable. And our go-to-market approach is more focused and disciplined. Each is making progress, and each is reinforcing the other. The strategies we're executing are strengthening our foundation and positioning Under Armour to deliver more consistent performance and long-term value creation going forward. With that, I'll turn it over to Dave to review the quarter and our outlook. Thank you. David Bergman: Thanks, Kevin. Turning to our third quarter performance, we met or exceeded our outlook across all major line items. This performance reflects the discipline, focus, and growing consistency in execution as the turnaround continues to progress. While there was some non-recurring noise in the reported numbers for the period, the underlying performance of the business remains solid and consistent. With that context, I'll start at the top of the P&L and walk through the details. Revenue declined 5% to $1.3 billion, slightly better than the outlook we shared in November. The outperformance relative to our plan was partially due to approximately one percentage point of growth from a timing shift of some wholesale deliveries from Q4 into Q3. Digging into the results by region, North America revenue declined 10% primarily due to a decrease in wholesale, with a slightly smaller decline in our direct-to-consumer business. In EMEA, revenue increased 6% on a reported basis and 2% on a currency-neutral basis, with growth in both wholesale and direct-to-consumer during the quarter. APAC revenue decreased 5% on both reported and currency-neutral basis, marking a sequential improvement from the year-over-year declines we saw in the first half of the fiscal year. The Q3 decline was driven primarily by our full-price wholesale business while DTC revenue was down only slightly, partially offset by positive licensing growth. And in Latin America, revenue increased 20% or 13% on a currency-neutral basis, driven by balanced growth throughout the business. From a channel perspective, wholesale revenue decreased 6% due to lower full-price and third-party off-price sales, partially offset by growth in our distributor business. Direct-to-consumer revenue decreased 4% primarily due to a 7% decline in e-commerce revenue. Sales in our owned and operated stores were down 2% in the quarter. And licensing revenue increased 14% driven by the strength of our international licensees and modest growth in North America. Finally, by product type, apparel revenue decreased 3% due largely to softness in train, golf, and run, while sportswear was flat for the quarter. Footwear revenue decreased 12% reflecting declines across most categories partially offset by growth in outdoor. And accessories revenue decreased 3%, driven largely by declines in golf, outdoor, and team sports, with a partial offset from growth in sportswear. Third-quarter gross margin declined 310 basis points year over year to 44.4%, in line with our outlook. This decline was primarily driven by 180 basis points of supply chain headwinds, including 200 basis points of pressure from higher U.S. tariffs, 140 basis points from pricing amid a more promotional environment in North America, and a combined 40 basis points from unfavorable channel and regional mix. These headwinds were partially offset by 30 basis points of foreign currency impacts and 20 basis points from a more favorable product mix. Turning to SG&A, third-quarter expenses increased 4% to $665 million driven primarily by a $99 million litigation reserve expense related to a previously disclosed insurance carrier dispute. Within SG&A, we also recorded approximately $3 million in transformation costs related to our fiscal 2025 restructuring plan. Excluding these items, adjusted SG&A was down 7% to $563 million mainly due to lower marketing spend driven by timing with a greater share of our fiscal 2025 marketing investment recognized in the second half, along with continued benefits from restructuring actions and disciplined management of discretionary costs. In the third quarter, we recorded $75 million of restructuring charges and $3 million in transformation-related SG&A expenses, totaling $78 million under our fiscal 2025 restructuring plan. Since the plan's inception, we have incurred $224 million in charges and transformation expenses, of which $89 million are cash-related and $135 million are non-cash. We continue to expect total charges and expenses under the plan to be up to $255 million with any remaining amounts expected to be incurred by the end of 2026. Thus far, the actions we've taken under the plan to streamline our business have resulted in $35 million in savings in fiscal 2025, and are on track to deliver an additional $55 million in fiscal 2026. Moving down the P&L, we reported a third-quarter operating loss of $150 million. Excluding the litigation reserve expense, transformation expenses, and restructuring charges, our adjusted operating income was $26 million, again exceeding our outlook. The bottom line, our reported diluted loss per share was $1.01. This result includes the impact of the insurance appeal decision, transformation expenses, restructuring charges, and a $247 million non-cash valuation allowance against certain U.S. federal deferred tax assets. Regarding this valuation allowance, accounting rules required us to reduce the value of our U.S. federal deferred tax assets and record a non-cash tax expense due to cumulative GAAP U.S. losses over the past three years. These losses have been driven largely by restructuring and impairment charges, litigation reserve expenses, and other non-operating items. Importantly, this valuation allowance has no impact on current cash flow, does not signal deterioration in the underlying business, and should reverse over the next few years as U.S. profitability improves. Excluding the items discussed earlier and the U.S. federal deferred tax asset valuation allowance, our adjusted diluted earnings per share for the quarter was $0.09. Separately, part of our Q3 adjusted EPS overdrive relative to our outlook was due to a favorable tax development on the IRS's approval of a tax method change that mitigated the use of our U.S. losses to offset foreign earnings under the U.S. GILTI provisions. As a result, our full-year fiscal 2026 non-GAAP estimated effective tax rate is lower than originally anticipated and more reasonable. So with that, we recorded a cumulative three-quarter catch-up tax benefit in the third quarter. This tax update accounted for approximately $0.06 of our EPS in the quarter. Now, turning to the balance sheet. Third-quarter inventory was down 2% year over year to just over $1 billion. We ended the quarter with $465 million in cash and cash equivalents and $600 million in restricted investments. As a reminder, that $600 million is fully set aside and dedicated to covering all remaining principal and interest on our senior notes due in June. These restricted investments are not available for general use and should not be viewed as part of our operating liquidity or discretionary debt profile. Furthermore, we continued to prioritize balance sheet strength during the quarter, including repaying approximately $200 million of revolver borrowings and ending the period with no amounts outstanding under our $1.1 billion revolving credit facility. As a result, we entered the final quarter of this fiscal year with a strong liquidity position and meaningful financial flexibility with more than sufficient resources to meet all expected obligations. Now moving to our fiscal 2026 outlook. With one quarter left in the fiscal year, we've updated our expectations largely toward the high end of our previous ranges. Breaking that down further, we now expect full-year revenue to decline approximately 4% compared with our prior expectation of a 4% to 5% decline. This reflects our expectation that North America revenue will decline approximately 8% and APAC revenue will decline approximately 6%, partially offset by growth of approximately 9% in EMEA. This implies a meaningful improvement in fourth-quarter revenue trends as we continue executing our strategies and move toward the stabilization we expect in fiscal 2027. Turning to gross margin, we now expect the full-year rate to decline by approximately 190 basis points compared with our prior outlook of a 190 basis to 210 basis point decline. Drilling down further, U.S. tariffs will drive most of the decline, along with unfavorable channel and regional mix and pricing headwinds. These pressures are partially offset by foreign currency tailwinds and a more favorable product mix. We remain highly focused on controlling costs and expect adjusted SG&A expenses to decline at a mid-single-digit rate, unchanged from our prior outlook. With even greater confidence in our ability to leverage given the slight improvement in the revenue outlook. This implies a considerable decline in fourth-quarter SG&A expenses driven primarily by year-over-year marketing timing and lower compensation-related costs. This translates to an expected adjusted operating income of approximately $110 million at the high end of the $95 million to $110 million outlook we provided in mid-November. The bottom line, we now expect adjusted diluted earnings per share of $0.10 to $0.11 driven in part by the favorable tax planning developments I noted earlier. These updates are expected to yield a full-year fiscal 2026 effective tax rate roughly in line with the fiscal 2025 rate. In closing, we are operating with focus, discipline, and growing confidence as we complete a pivotal year in Under Armour's transformation. Our third-quarter performance reflects meaningful progress in simplifying the business and driving more disciplined execution, supported by a leaner, more agile operating model. The foundation continues to give us flexibility to manage near-term challenges while positioning the company for improved financial performance over time. While work remains, we believe the most disruptive phase of this reset is behind us. And with a clear strategy, disciplined capital deployment, and continued focus on cost optimization and margin expansion, we are confident these actions will better position us to drive sustainable profitable growth and shareholder value over the long term. Finally, before we close out today's prepared remarks, this being my last call in this role, I want to pause and say thank you. With a special thanks to Kevin, our entire Board, and to all my teammates around the world. After twenty-one years at Under Armour, including nine as CFO, I've had the privilege of working alongside extraordinary teammates who bring passion, resilience, and an unwavering commitment to this brand every day. Together, we have navigated periods of growth, transformation, and real challenges. We have done so with locked arms in the humble and hungry mentality that makes this place so special. As we work through the coming CFO transition, with Reza joining the brand, I do so with complete confidence in our teams. And in the strength of the foundation we have now established together. We are reaching that crucial turning point. And thus I believe Under Armour's best days are still ahead. With that, we'll open the call to questions. Operator? Operator: We will now begin the question and answer session. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw the question, please press star then 2. Our first question comes from Simeon Siegel with Guggenheim. Please go ahead. Simeon Siegel: Thanks. Hey, guys. Morning. Dave, just want to say it's been great working with you. Best of luck on your next chapter. David Bergman: Thank you. Simeon Siegel: Kevin, your December comment is interesting and encouraging. Can you speak to what makes you confident about that the quarter was the lowest revenue decline for North America and just that the region and Under Armour overall will see stabilization in FY '27? And then along those lines, just as you think about this path forward, I think you mentioned stabilization in footwear in '27. Can you elaborate a little bit on that more? Thank you. Kevin Plank: Yeah. Thank you, Simeon. And, let me just start with leadership. First of all, I'm becoming more and more proud, I think, of the ecosystem that we built here at UA to be able to have internal talent like Kara Trent be able to move from a merchandising role into America to a similar one in Europe, to heading up Europe and then having the ability to bring her back here a little more than two years ago. And I think stabilization was something that was her number one goal, and we did a, care delivered and along with an amazing team of people, that just made that happen. And then I also just want to make note that the credit of a fourteen or fifteen-year Under Armour vet in Adam Peak who we brought back to the brand about eleven months ago and have the ability to create that kind of clarity and role and succession. So I think it starts with, the confidence we have in giving stability to our partners. Within that, you know, structurally, believe that we now have the right model in place. I think that we're attacking the right issues. And that, of course, begins with product. We clearly have done a really solid job in laying out our design ethos and a language that consumers can look to, expect, and begin to make more and more repeatable. As I said, we started with our concept of winning with the winners, and that's getting behind heat and cold gear. And then meanwhile, we're introducing new styles and silhouettes that, again, just becoming more consistent with. From a storytelling standpoint, I think it's you're just starting to feel the brand more. And that goes to the launch we did with the women's flag football campaign on Wednesday, and please take a chance to look at our investor relations page and see the recent spot that we just put out, which is pretty impressive. Probably the most telling thing, though, is going to be no matter what I say, Kara walked into a pretty tough situation, and we were just looking at declines especially at the wholesale level, which is always a great indicator of how a year is going to turn out. And I can say, definitively for the first time in quite some time, we're no longer looking at significant declines. And, obviously, I'm hedging my statements there. But we're at a place that we like the way the order book is shaping up right now. That also just goes back to just pure relationships with partners because, hopefully, you can hear it in our voice. And if you were watching, you could see it in our eyes. But there's just a different level of confidence, swagger, whatever you want to call it, which I think leads to the most important indicator, which is just culturally. This business is feeling it. That's exuding out. It's exuding through the desire of the number of phone calls we get of people that want to be here. And it's just a trend. It's hard to put it into words. And after twenty years public and celebrating thirty years this year as a business, I've just seen a lot. So feel very good about what the North American position looks like. Moving on to footwear. As I said, we're not trying to hide anything here. Footwear is a billion-plus dollar business for us. We believe has the opportunity to be much larger. As we compare ourselves to others in our space, we're seeing other partners or other brands do a lot more with a lot fewer items. That's pretty narrative to the way that I'm driving across the organization right now. Is how can we just skinny up. I think I did a pretty good job covering it in my prepared remarks. Of let's just stop trying to chase volume through additional units. Let's get behind. Let's get clarity with the way that works from the product to the story to the distribution. And I think that our new operating model, what we spent the majority of calendar year 2025 doing implementing, and then running now for a year. I think we're going to start seeing those benefits. So I can talk about the authenticity on field, and I think we made a good job making the statement that Under Armour's authentic athletic credibility is something which is nearly impossible to recreate. So we're going to lean there. We're going to leverage and you're going to see, you know, really clear ideas, like, when we talk about things like running we have a really clear point of view of who we are and run. Know, we build running shoes for athletes that are running to train for their sport. In addition to that, we also have the ability to make Formula One race cars like the Velocity 3 at $250 per share in Lokate. But a part of it is some of the work that our team has been digging into we just took up the Velocity family that had six shoes in its franchise ranging from a 110 to $250. We just went from six shoes in that franchise to four. Being more targeted. Being more deliberate with the storytelling that we're going to do and put behind it, which makes it easier for, a, our teams to be able to build b, our sales team be able to sell, see the wholesale partners, be able to write orders for, and most importantly, the consumer to be able to make an easy purchase decision with a really clear point of view from the brand. So, in some instances, and maybe just the last point here, when I think about it, I mentioned sportswear and talked about three price points from a 100 a hundred and twenty, and a $125 with the Solo, the HP Low, and the footwear that we now have in place there. We're just we're getting very intentional. That word is no accident on this call. You'll hear it over and over. And it's basically it's tattooed into anyone who walks through this building. So, we're doing a good job doing that. So thank you for that question, Simeon. Simeon Siegel: That's great. Your excitement is really clear. Best of luck for the rest of the year. Kevin Plank: Thank you. Operator: Our next question comes from Jay Sole with UBS. Please go ahead. Jay Sole: Thank you so much. Kevin, you mentioned that North America is beginning to turn the corner and the wholesale partners are engaging. You're seeing the fall order book shaping up nicely. I'm wondering if all that progress, that operational progress in North America is also transferable to Europe and the APAC regions. Are you seeing progress in those regions as well? Do you expect sequential improvement as we go through, you know, calendar 2026? Kevin Plank: Yeah. Thank you, Jay. EMEA has been a strong suit for the company for quite some time, and delivering no less this year with about 9% growth there. So we really like the team. Again, it's the consistency that we have, a, in the team on the ground, the leadership of, again, being able to move in, another Under Armour legacy athlete like Kevin Ross into the leadership position following Kara has been a real asset. Relationships there have really never been stronger. And calling out specifically JD Sports and Sports Direct, the buy-in, the partnership is something that, you know, they're really getting behind the brand because we've been delivering, and we've been consistent. And in places like France where we're probably the number one underground brand in the country, we're seeing that begin to translate out. At the same time, EMEA is becoming more and more promotional particularly in The UK, which is our largest market. So it's something we have our eye on. And what you're seeing, frankly, from the other brands is there's a lot of people that are out there buying business. So we know that that does not work. And so we're really holding the line, I think, for being opportunistic where we can or more importantly, maybe we have to in some instances. But, you know, we like what EMEA is doing. We believe it will continue to grow for us. We're not sure at what levels right now as we think and look out into the new year. But it's certainly an area of strength for us. And, you know, I guess I get to sit here like a bit of an old hat now, thirty years doing this, where I just look at things of progress. But, you know, that feeling from the team, I'm going to be over in Europe next week and get to see Lindsey Vonn hopefully ski and win and compete and win some gold. So and I'll be visiting our office in Amsterdam too and delivering the unleashing intentionality directly to our team too. So, we like what's happening in Europe. Again, we're not declaring victory anywhere. What you see is you feel a brand that's it's I think we're right where we're supposed to be at this moment in our turnaround. Jay Sole: Got it. Thank you so much. Operator: Our next question comes from Bob Drbul with BTIG. Please go ahead. Bob Drbul: Hi. Good morning. I guess just Kevin, you think about the go forward especially in footwear, how are you thinking about segmentation in a pretty competitive market? Is increased penetration and success of better and best to stabilize is that the key to stabilization here? Or will it be good level driven? Thanks. Kevin Plank: Yeah. We've used a vernacular of good, better, best of really just thinking about the line that's been critical, as we've been working through this reset. As I said in the past, we've made a lot of good. We've made something better and nowhere near enough best. Now if you ask me for our druthers, we sit at $5 billion-ish in revenue. We'd love to maintain our good. Of course, be opportunistic where we can. But we really like to concentrate our growth at the better and best level. Frankly, those clear lines of segmentation have not been there. And as we said, going through this premiumization, as we're really focusing. And so even with things I gave the example about our velocity franchise earlier. Clear segmentation is there. And what I'll get into maybe a little bit later, is as we're thinking about the way that we're approaching this is becoming more consistent for the consumer. You know, I think one thing that I'm driving very much so is our global continuity. And what's ironic is that in a brand that was founded effectively on two products, if not two fabrics, heat gear and cold gear, if you ask today what our two most important franchises that we have, it's heat gear and cold gear. Then we make a lot of other stuff. So number one, we want to go where the money is. We want to leverage those places where we're already currently winning. And so establishing clear good, better, best that compression category, that base layer category, make sure that we continue to win there. And then we're looking where we can create extensions. What we don't want to be we're not interested in being a fashion company. We'll be fashionable. But we're looking for more continuity where today, we're carrying a global commonality of a number that's somewhere in the twenties. Meaning that each year or if you went to each region between APAC, EMEA, and The States, you'd find about 20% commonality in stores. We're looking to drive that much higher with a much more consistent brand voice and making sure that we're lining up with the distribution that we have because I think it's a unique position of our industry that sports brands especially, you know, we've got the ability to sell at good. And as long as we have the quality and we have product that can compete, we can do better and best very well. So you'll see a much better and broader offering. But not unlike the example I laid out in our footwear with some of our sportswear styles including the Arc 96, the HP Low, and the Solo. We're looking to get into that business, and we're not coming in at a $160. We're being very thoughtful about the way we're approaching it because our footwear ASP, which as you've heard is my number one driver, I'm thinking about how we can grow the business. And we have the organization thinking about it. It's been a number with it that hasn't been carrying three digits. And so we're looking to start building a much stronger platform a $100 plus in footwear, which may be a good, good carryover from the last question too. Bob Drbul: Thank you. Dave, good luck. David Bergman: Thank you. Operator: Our next question comes from Sam Poser with Williams Trading. Please go ahead. Sam Poser: Thank you for taking my questions. I have a handful. But one, Kevin, you talked a lot about the product. You talked a bit about the storytelling. Can you discuss sort of what you're doing to create I just watched the ad very quickly, but what you're doing to create more of an emotional connection both with your performance product and then with your product like the HP and Sola and some of that better those better kinds of introductions both in footwear and apparel. Kevin Plank: Yep. Thank you, Sam. One thing is certain is that the world does not need another capable apparel and footwear manufacturer. The world needs hope and they need a dream, and that means that it's our job to make them feel something when they participate with our brand and it's that little girl or little boy that maybe strap it on their first Under Armour compression shirt and feeling like they just put on a superpower or sliding a shoe on their foot. We've got opportunity. And I don't think that we've maximized that opportunity yet. I was talking about in the sportswear categories, you can see is that the price to value in things like that new HP Lowe shoe at a $100, it is extraordinary. And so that is incredibly intentional from the brand and saying, we need to get them to look. And if you check the site and say, there's nobody better at you than doing that, and find out what people are saying about it. It's what do you think of this UA shoe? And then they're sort of eye-popping and saying, wow. That's a $100. I think people have been critical of us, and we've been critical of ourselves of improving the price to value relationship of the products that we put out there. So a, the product has to be there. Then we have to give them a reason to wear the product. Our authenticity with athletes and teams and leagues all over the planet are something that give us a global presence. But as you know, it's about winning here in The States, so finding that credibility. So we're taking a very deliberate city attack strategy, making sure we get things like sportswear in there. Not to be lost on that, and the reason that people buy our sportswear is because we are authentic. Because we are on field and we have a great positioning. But I think when you look at the levers that will drive that, it's athlete credibility, it's clever and inspirational imaging. And it's confidence, Sam. It's just confidence from us. I think that's the one thing that you see of us being the first ones to really drive and get behind, women's flag show it in such an aspirational way. We think, a, we can invite new young women and inspire them and give them the confidence to participate in the game. That we think will help their overall self, is the thing that helps us show up here and go to work every day, and be so passionate about what it is that we do. So brands need to make you feel something. I certainly feel that that commercial some of the feedback we've had in just a few days from young women that are just sending thank yous and watching the handles of some of the incredible young stars that we have featured in the commercial, like Ashley, they're just these letters that are saying, thank you so much for doing this. You've inspired me. I'm going to go take a chance, and I want to be an athlete now. That you'll see more and more of that where product attributes are important. Having our naming architecture, etcetera, in place matter. Making consumers feel something is where we're focused for the brand. Sam Poser: Thank you. I just want to follow-up. In your flagship store in Baltimore, you have all those high school local high teams who have their helmets up. When I was there, you had the two high schools that I forget what that was called, but the two high schools that are like the rivalry, I think it was. And I'm wondering if you're thinking of applying that both in other full-line stores, but as well as the outlet stores. And then second and then the other question is, if somebody can break down sort of APAC by country and three, the management realignment, with Yassine taking an external role. If you could talk a little bit about that, that would be great. Thanks. Kevin Plank: Well, Sam, with in North America alone, we have 16,000 football-playing high schools in the country, and that just means they have a large enough budget if you sort of want to simplify it. Under Armour has about 3,000 of those high schools right now, so our presence is significant. The opportunity we have to grow in the team sports, which has been a real bright spot for the brand consistently for us, double-digit growth that we continue to see outfitting teams, sidelines, coaches, etcetera. So that's our anchor. The other thing is the other stuff is, frankly, the easy things that we're supposed to be able to sell as a result of being authentic on field. I think we've done a good enough job setting the consumer up for that, giving them products that will get them to and from the field, you know, to and from the court. But we have all the credibility in the world when it happens actually on field or on court. And so opening that up, which is things like buying into the sportswear business by offering such great value with some of those new work shoe offerings we have is something that hopefully will help translate a little more in driving more top and bottom line for us. And I think, Sam, on APAC, you know, we don't normally break down by country, but you know, obviously, it's a super critical region for us. We've got some new leadership there that's really focused on the brand and rebuilding the brand, which is great. We've also got a new country leader in China who's very seasoned, and she's digging in really, really quickly, which is awesome. So we've talked about that APAC is a little bit behind as far as North America on the turnaround efforts, but that we feel like we can turn it around more quickly. It is a challenging environment there. You know, a little bit of softening consumer sentiment. It's a pretty promotional environment. But I think we've got the right leadership there now. The right intention, and the right focus. And we keep rebuilding on the brand voice and driving full-price sales, and that's where the focus is there. I think we could probably say the worst declines for APAC are behind us at this point. And we really start to drive forward again. So we're excited. Dan, what was your last question? Sam Poser: About Yassine and his changed role. Kevin Plank: Yeah. So Yassine has been an incredible partner for us. In just really helping to drive a consistent brand aesthetic. Across the organization. So that red thread is now beginning to pull across. You know, it's when structure follows strategy and you know, the people follow the structure, as you've seen and I've started talking about his role where he could be most helpful to the brand, it was a really easy decision for both of us. And so, you see us going back to his agency world and Under Armour is his first client, and this is all in a very positive way. He begins a new chapter with getting remarried, etcetera. So we're excited for Yassine and what he's going to be doing going forward as it relates to Under Armour. This aesthetic is something that we're driving. The unleashing intentionality presentation that I talked about that we've been rolling out, it's about getting consistent. It's about establishing clear good, better, best, and in categories where we have multiple styles, and you could take something as our woven pants, our unstoppable pants as they're classically called. We've just been editing. We've just been going through and just cleaning the brand up or we're going from, you know, 10 different pants, in multiple styles with, frankly, though, 10 different fabrics and 10 different drawstrings or waistbands or closures or buttons and logo applications and reducing it down to three. Good, better, and best. That simplification that we're going to do on the raw material side of really thinking about how we can be a better supply chain company is a lot of what's driving the thinking that we're doing right now. And when we just made this shift February 2 the new structure and having Kara sit in as our maestro as the chief merchandising officer, getting those five different category managers that are running 10 different categories vertically. We all sat in the same room. And we've had, you know, we've got the planners in there, and we have 15, 20 people that are just really driving cross-functional communication and what that means. And as a part of that, we need the red thread in design. So now that we have a chief merchandising officer, that's setting the tempo, they're setting the music for us, they're writing the sheet music, then you have the category managers that are driving and really implementing what is the consumer insights that we can do. Marketing is driving, ensuring that every product we built has a story. Ensuring that that design comes across in a horizontal way to drive the red thread of what actually makes it Under Armour, what makes it consistent, and what makes this Under Armour good level, Under Armour better level, under our best level. But you should find a much more consistent deliberate, and get ready for it intentional Under Armour going forward. So, we're excited about working with Yassine, Kara, all the other leaders that we have in place now. Sam Poser: Thank you. Operator: Our next question comes from Peter McGoldrick with Stifel. Please go ahead. Peter McGoldrick: Yeah. Thanks for taking my question, Dave. All the best in the future. I want to dig in on the complexity reduction and for greater progress in the future. It seems like much or some of the heavy lifting from SKU rationalization and organization have been made already. I was curious if you can help us think about the improvements that we should expect in the coming quarters and how that would manifest in the cost structure of the business, whether it be raw materials or other items? Kevin Plank: Yeah. Thank you, Peter. Let me give this in two parts. I'll take the first, and Dave will take the back end of it. I've used this analogy as coming back in the CEO chair in April 2024. You know, walking and seeing our innovation head, Kyle Blakely, having a conversation where we were talking about we might need more resources because of the number of fabrics that we're having to go to market with every season. And the number came out as we're making more than 300 fabrics and we just came down and said, why are we making so many? Can we run the eighty-twenty on that? And the eighty-twenty is that there's actually 30 fabrics that are driving 80% of our volume, yet we're spending that time driving nearly another 300 fabrics in development. We're just looking at it holistically, like, how do we get rid of all this stuff? Become more simple, become more narrowed, and more deliberate? Applying a good, better, best structure, which is what Kara's job is doing, setting the margin targets, of where it sits for apparel, where it sits for footwear, setting the profitability targets, SKU targets, etcetera, being really clear at the top. And then making sure that there's products that will fall out of that line. So we've actually spent the last two weeks, since getting into this new cadence with, as I said in the last question, with our GMs and just going through line by line, product by product, finding out where we can maybe have 15 or 16 or 17 training shirts, and with a business like training shirts, where Under Armour has five products that sit in the NPD top top 10, nine products that sit in the NPD top 25, as I've mentioned, our focus here is how do we drive ASP. Because while we may be listed in the top 10 and top 25, we're not certainly not driving anywhere near the highest ASP. We'd see there's opportunity, a, to be able to drive more volume, b, more consistent with our messaging to the consumer, and then as well be able to get more consistent by having less fabrics, having less basically, inventory we have fewer things with clearer stories for the consumer, that hopefully will manifest into a much clearer brand with a much brighter bottom line. David Bergman: Yeah, Peter. And I think as far as, you know, when you think about the go forward, there's some different pieces. What Kevin's getting at absolutely should be able to drive a little bit better margin as far as pricing on raw materials and actual, you know, production based on volumes and less SKUs. That's clear, and that's what we're going to be driving for. And that'll probably benefit more, you know, think about, like, back half fiscal twenty-seven, more into fiscal twenty-eight and beyond. But I think also keep in mind, you know, right now, fiscal twenty-seven would have a full year of tariff cost. Assuming tariff rates don't change. So, you know, the actions that Kevin speaking to will help offset that. In addition to some of the pricing changes that we're driving through that you'll start to see in the market more in back half of fiscal twenty-seven as well. So kind of a balance there is the best way I would put it. Peter McGoldrick: Appreciate that. Thank you. Operator: Our final question comes from Brooke Roach with Goldman Sachs. Please go ahead. Brooke Roach: Good morning, Kevin and Dave. Thank you for taking our question. Can you elaborate on the channel and product category puts and takes you expect in the North America business as you drive stabilization into fiscal year twenty twenty-seven? Are there any businesses that you expect to drive faster or slower stabilization? Are you seeing the same level of wholesale order book improvement across accounts and product lines that might over index to premium versus the value segments of your business? Thank you. David Bergman: Thanks, Brooke. Definitely appreciate the question. But getting into details on fiscal twenty-seven is not something we're really at this point going to do. We're going to do that more when we get to the early May call. But I would say that we've talked a lot about all the deliberate actions that we've been taking over the last year or so, and Kara was definitely driving a lot of that in her new role. And then, obviously, now she's transitioning into product, which is going to be awesome with chief merchandising officer. And we've got Adam Peak stepping in. He's a veteran, and he's going to take the reins to keep driving forward with those relationships in North America. So the wholesale discussions have been positive. I think a lot of the newer product is really resonating. So we should see that come through as we think about, you know, the full-price wholesale business. Next year and beyond. But it does still take some time. We've talked about that. You know, the orders that you're placing now are definitely further out in the future as far as when it comes through on the revenue side. So it is a journey. We've talked a lot about being excited about reaching that stabilization period as we drive into fiscal twenty-seven. And that's exactly what we're going to do. I think there's opportunities in each of the channels as we go forward. But we're going to be deliberate. We're going to continue to be smart about how we deploy promotions and discounting and continue to try and step off that journey more and more and reach the sweet spot there. As we continue to double down on our big partnerships with our on the wholesale side. So a lot of different moving pieces, and we are excited about the momentum on the product, on the brand, on the relationships. And we're excited to talk more about that when we get to the early May call. Kevin Plank: And, Brooke, maybe I'll just give you the sort of high-end version from that answer as well, which is I said earlier about winning with the winners. Today, Under Armour is famous for base layer. We're famous for heat gear and cold gear. Getting a really clear segmentation within both of those categories is a massive opportunity for us, ensuring that we can be present, you know, in distribution at the appropriate price and making sure there's a real reason for a consumer to spend more for it too. So that's been a lot of the work that Kara and the team are really attacking right now, and then extrapolating that out to, you know, multiple categories and as it relates to, you know, appropriate distribution. So we're definitely in this fight, but we got a really good strong base to build from, and you'll see, you know, better and better from us with that. Brooke Roach: Great. Thanks so much. Best of luck. Kevin Plank: Thanks, Brooke. Operator: This concludes our question and answer session. I would like to turn the conference back over to Kevin Plank for any closing remarks. Kevin Plank: Thank you, operator, and the listeners out there. I'd like to close with one final thought. We're thrilled to welcome Reza to UA's going to be filling some very big UA shoes as CFO for the next chapter with this brand. But I just want to start and say, Dave, thank you. Twenty-one years at Under Armour mean you joined just before the IPO in November 2005. We've been through a lot. Your alma mater, James Madison, made it to the college football playoffs, which is just another proof point that you can do anything. And you have here. Not even close to my terps. Joining from a great run at PwC, you're an accountant who became our controller to our CFO for the last nine years. But always the best teammate, partner, CFO, and even more importantly, an amazing husband, father, and friend. You and I have been through a lot of stuff. Dick and Finn, we've had amazing times together, and we've also been tested. Yet here we are still standing. Moving forward. You remain a major shareholder. Know you'll always be a part of this team and will honor and do a great job for you and all of our stakeholders. I give you my highest compliment. You're a true professional. Thank you. And on behalf of the brand, a heartfelt overwhelming thank you, Dave Bergman. We appreciate everyone joining us on today's call and ask you to have a great day. David Bergman: Thank you, operator. Kevin Plank: Thank you, Kevin. Thank you, UA. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Operator: Good day, and welcome to the AerCap Holdings N.V. Q4 2025 Financial Results. Today's conference is being recorded. A transcript will be available following the call on the company's website. At this time, I'd like to turn the conference over to Brian Kraniff, Group Treasurer. Please go ahead, sir. Brian Kraniff: Thank you, operator, and hello, everyone. Welcome to our fourth quarter 2025 conference call. With me today is our Chief Executive Officer, Aengus Kelly, and our Chief Financial Officer, Peter Juhas. Before we begin today's call, I would like to remind you that some statements made during this conference call which are not historical facts, may be forward-looking statements. Forward-looking statements involve risks and uncertainties that may cause actual results or events to differ materially from those expressed or implied in such statements. AerCap Holdings N.V. undertakes no obligation other than that imposed by law to publicly update or revise any forward-looking statements to reflect future events information or circumstances that arise after this call. Further information concerning issues that could materially affect performance can be found in AerCap's earnings release dated 02/06/2026. A copy of the earnings release and conference call presentation are available on our website at aercap.com. This call is open to the public and is being webcast simultaneously at aercap.com and will be archived for replay. We will shortly run through our earnings presentation and we'll allow time at the end for Q&A. As a reminder, I will ask that analysts limit themselves to one question and one follow-up. I will now turn the call over to Aengus Kelly. Thank you for joining us for our fourth quarter 2025 earnings call. This was a record year for AerCap Holdings N.V., with exceptional financial and operating performance driven by disciplined execution across all of our business lines. In 2025, we reported record GAAP net income of $3.8 billion, or $21.3 per share, and adjusted net income of $2.7 billion or $15.37 per share. Full-year revenues reached an all-time high of $8.5 billion while sales volumes totaled a record $3.9 billion. During the year, we had cash CapEx of $6.1 billion and we generated $5.4 billion of operating cash flow for the full year 2025. Building on these record results, we returned $2.6 billion of capital to our shareholders last year, our highest annual amount ever, through the repurchase of approximately 22.1 million shares and the payment of quarterly dividends. At the same time, we strengthened our balance sheet, resulting in a credit rating upgrade from Fitch and a net debt to equity level of 2.1 times at year-end. We received $1.5 billion of insurance and other recoveries related to the Ukraine conflict in 2025, in large part due to the successful court judgment in June. This brings total pretax recoveries related to the Ukraine conflict since 2023 to approximately $3 billion, which exceeds the net charge of $2.7 billion that we recognized in 2022. These key achievements underscore the strength of our company and the value we deliver to you, our shareholders, every single day. As we look to the year ahead, our outlook remains strong. And that is why we are announcing an adjusted EPS range of $12 to $13 per share for 2026, not including any gains on asset sales. We have also increased our quarterly dividend to $0.40 per share. This is on top of the new $1 billion share repurchase program we announced in December. Moving to business activity during the year, ongoing secular trends continue to underpin the strength of aviation assets globally. Demand remains robust, with recent industry-wide load factors at record highs, while delivery delays and maintenance backlogs have kept supply constrained. To that point, it is encouraging to see increases in OEM production rates in recent months, which should start to alleviate some of the backlog for new aircraft. That said, we do not expect to see a normalization of the supply-demand imbalance until sustained higher monthly production rates are achieved. As I have said before, aircraft manufacturing is a complex industrial process, and production surprises to the upside simply do not occur. So while demand dynamics may evolve, we remain confident that the current structural shortage of aircraft will persist at least through the end of this decade. Against this backdrop, in 2025, we executed 705 transactions positioning AerCap Holdings N.V. to capitalize on these favorable market conditions. This included the sale of 189 assets delivering a gain on sale margin of 27%, or 2x the book equity on our owned assets. The high volume of sales and consistently strong margins underscore the persistent demand we are seeing for our assets and our conservative book values. It is worth mentioning that aircraft sales were particularly elevated last year. We sold 108 owned aircraft at an average age of 15 years, generating strong gains while improving the overall quality of our portfolio. We also extended 87% of our leased aircraft in 2025, up from 79% in 2024, which further highlights the strength of customer demand. Airlines and lessors remain prominent buyers, accounting for more than 80% of the aircraft sales revenues last year. Balancing our robust sales activity, we also delivered strong organic fleet growth in 2025, with full-year cash CapEx reaching $6.1 billion. As noted on our last call, we acquired Spirit's order book of 52 Airbus A320 Neo family aircraft last year along with an additional 45 options from Airbus. More recently in January, we announced a sale-leaseback for six new Airbus A330 Neos with Virgin Atlantic, which will start delivering in the coming months. These are just two examples of bilateral transactions that enable us to secure today's most in-demand aircraft outside traditional OEM channels, and in most instances, with delivery certainty before the end of the decade. With our scale, market intelligence, and strong financial position, AerCap Holdings N.V. is uniquely positioned to continue executing such strategic transactions. Turning to the Engine business, in 2025, we strengthened our engine offering by expanding our existing partnership with GE Aerospace, which will provide support to the GE9X engine. This partnership enhances AerCap Holdings N.V.'s value proposition for airline customers worldwide at a time when engine support and spare engines are in exceptionally high demand. Our engine leasing business continues to offer a very attractive investment opportunity in this regard. At year-end, we have approximately 100 engines on order, which once delivered, will further expand our capabilities and reinforce our leadership in this critical space. Now turning to Cardinal, 2025 was a landmark year for our cargo business as we received certification for the 777-300ER SF passenger to freighter conversion program. This milestone allowed us to deliver the first ACE of our converted 777 aircraft to customers worldwide, helping them to meet strong and growing air cargo demand. The cargo market has shown tremendous resilience despite global trade tariffs and other geopolitical challenges. In addition to meeting demand, our cargo platform also extends the useful life of former passenger aircraft, enabling us to extract further value from our assets. Looking ahead, we remain focused on executing our robust pipeline of feedstock and expect to deliver another 15 cargo aircraft from our cargo conversion programs in 2026, five of which are part of the 777 conversion program. 2025 was equally momentous for Milestone, our helicopter business, as it celebrated fifteen years in operation. Demand across multiple segments remained strong, reflected in the full-year utilization rate reaching 99%. Today, we have no Sikorsky S-92 helicopters available for lease. To put this into perspective, Milestone had 18 S-92 helicopters on the ground in 2020, which underscores the sustained recovery in this market. Last year, we further strengthened our helicopter operator relationships by signing 71 lease agreements with 23 customers, the most recent being with Bristow Group for five new Airbus H160s in 2025, becoming the first lessor to bring this aircraft type into their fleet. In closing, 2025 was a tremendous year for AerCap Holdings N.V., a year that showcased the inherent strength and capabilities of our global industrial platform. Combining scale, expertise, and disciplined execution, we completed 705 transactions during the year, we purchased approximately $22.1 million of our outstanding shares, and generated $5.4 billion of operating cash flow, all while strengthening our balance sheet and growing book value per share. Looking ahead, we enter 2026 ready to build on this position of strength. We have over $3 billion of excess capital to deploy, which we will continue to allocate with the flexible and disciplined approach that has defined our strategy since inception. 95% of our order book is placed for the next two years, and we have an average remaining lease term of seven years on our existing fleet, providing us with exceptional visibility into future cash flows. This degree of forward revenue certainty is something very few sectors can offer. These factors, together with structural supply constraints and the strong demand for aviation assets, give us a high level of confidence in the outlook for the business. We look forward to executing our strategy and continuing to deliver long-term value for our shareholders in 2026 and beyond. I will now hand the call over to Pete to review the financials in more detail. Peter Juhas: Thanks, Gus. Good morning, everyone. Our GAAP net income for the fourth quarter was $633 million or $3.79 per share. The impact of purchase accounting adjustments was $74 million for the quarter or 45¢ a share. That included lease premium amortization of $25 million, which reduced basic lease rents, maintenance rights amortization of $36 million, which reduced maintenance revenue, and maintenance rights amortization of $13 million, which increased leasing expenses. During the fourth quarter, we had $43 million of recoveries related to the Ukraine conflict, or 26¢ per share. The tax effect of the purchase accounting adjustments and the net recoveries related to the Ukraine conflict was $5 million or $0.03 per share. So taking all of that into account, our adjusted net income for the fourth quarter was $660 million or $3.95 per share. I'll briefly go through the main drivers that affected our results for the fourth quarter. Basic lease rents were $1.688 billion, basically flat compared to last quarter, and maintenance revenues were $225 million. Net gain on sale of assets was $253 million. We sold 55 of our owned assets during the fourth quarter, for total sales revenue of just over $1.3 billion, resulting in an unlevered gain on sale margin of 24% for the quarter. As Gus mentioned, this brought our sales for the full year to a record $3.9 billion and a gain on sale margin of 27%, which translates into two times book equity value. Interest expense was $474 million for the quarter. Leasing expenses were higher than usual due to restructuring costs related to the Spirit Airlines bankruptcy. When we look at maintenance revenue and leasing expenses, we generally look at them in terms of net maintenance contribution on an adjusted income basis, which is maintenance revenue less leasing expenses other than maintenance rights amortization. When we generally expect the contribution to be around $30 to $50 million a quarter on average, although it does tend to fluctuate from quarter to quarter mainly due to the level of maintenance activity. In the fourth quarter, the net maintenance contribution was negative $106 million, so approximately $130 million to $150 million lower than normal. This reflects the net impact of the Spirit restructuring as well as other unusual items as well as the timing of maintenance activity that I mentioned earlier. Our income tax expense for the fourth quarter was $78 million. Equity and net earnings of investments accounted for under the equity method was $80 million, and that was primarily driven by continued strong earnings and gains on sale in the fourth quarter from our Shannon engine support joint venture. On the next slide, you can see a walk of our full-year earnings and EPS. And as you can see, it was a record year for AerCap Holdings N.V. across a number of areas, including GAAP net income, adjusted net income, GAAP EPS, and adjusted EPS. We had approximately $3.8 billion of GAAP net income for the year, which included $1.5 billion of net recoveries related to the Ukraine conflict. That resulted in a record $21.3 of GAAP EPS for the year. After adjusting for the insurance recoveries, as well as for purchase accounting items, our adjusted net income was approximately $2.7 billion. So that's an adjusted EPS of $15.37 per share, which is also a record. Our GAAP ROE for the full year is 21%, and our adjusted ROE was 15%. Operating cash flow was $5.4 billion for the year, and as a reminder, this does not include any proceeds from our insurance settlements or any gains on sale, both of which go through investing cash flow. We continue to maintain a strong liquidity position. As of December 31, our total sources of liquidity were approximately $21 billion. That compares to uses of around $11 billion, resulting in a next twelve-month sources to uses coverage ratio of 1.8 times. And that reflects excess cash coverage of around $9 billion. Our leverage ratio at the end of the quarter was 2.1 to one, and our operating cash flow was approximately $1.2 billion for the fourth quarter. Our secured debt to total assets ratio was 10% at the December, the same as last quarter, and our average cost of debt was 4.1%, a slight increase from 4% last quarter. During the fourth quarter, we bought back 3.5 million shares at an average price of $127.63 for a total of $444 million. And in December, we announced a $1 billion share repurchase program, and today, we've announced an increase in our dividend to 40¢ a share. One of the metrics that we focus on is growing book value per share. On this slide, you can see that AerCap Holdings N.V.'s book value per share has increased by over $45 or 68% since 2022. Over the past year, book value per share increased by 19%, and in fact, over the past three years, it has increased at a compound annual growth rate of 19%. Of course, this reflects in part the significant amount of insurance recoveries that we've had over the last three years, but it also reflects the company's ability to generate significant amounts of capital year after year. So that covers our 2025 performance. Now I'll turn to our guidance for 2026. For 2026, we're projecting adjusted EPS of $12 to $13, not including any gains on sale. On the next slide, you can see a walk from our record adjusted EPS of $15.37 in 2025 to our guidance for 2026. The largest item is gains on sale of $3.95 that we had in 2025, and we have not included any gains in our 2026 forecast. We had high levels of other income in 2025, related to a number of specific items as well as high interest income, so we're projecting other income to be 45¢ lower in 2026. Our effective tax rate was 13.6% in 2025, due to some releases related to prior years. For 2026, we're projecting an ETR of 15.5%, so that results in a reduction of $0.30. Other than those items, we're projecting our EPS to be higher by 1.8, which reflects the impact of lease rents, net maintenance contribution, SG&A, share repurchases, and other items. On the following slide, you can see a breakdown of our projected income statement for 2026 showing the major line items. For full-year 2026, we expect to have lease rents around $6.7 billion, maintenance revenues of around $700 million, and other income of around $200 million for total revenue of around $7.6 billion. On the expense side, we're projecting depreciation and amortization of around $2.6 billion and interest expense of around $2 billion. We expect leasing expenses, SG&A, and other expenses to total around $1.2 billion for the year. And I would note that the majority of the leasing costs associated with the Spirit restructuring recognized in 2025. We will, of course, have downtime on aircraft that we've taken back from Spirit, which has an impact on lease revenue. And that's been reflected in this forecast. We've assumed that we'll have cash CapEx of around $5.2 billion for the year, and we're forecasting asset sales of $2 billion to $3 billion. As you know, these figures can vary significantly as CapEx is largely dependent on OEM deliveries, and sales volume depends on the demand for assets and the time it takes to close those sales. As I mentioned, we've assumed an effective tax rate of 15.5%, which assumes no specific tax releases as we had in 2025. In 2026, we expect to recognize earnings around $200 million from our equity investments, and that's primarily our engine leasing joint venture, SES. So altogether, that gives us projected GAAP net income of around $1.7 billion. After adding back purchase accounting adjustments of around $300 million, we expect to have adjusted net income of around $2 billion for the year. That gives us an adjusted EPS range of $12 to $13, again, not including any gains on sale. So in closing, AerCap Holdings N.V. continued to perform very strongly during the fourth quarter, concluding a record year for the company across many fronts. As Gus mentioned, we continue to see a strong environment for leasing and a strong environment for aircraft sales, which is reflected in the record level of gains on sale for the full year. We're continuing to generate strong cash flows that in turn result in greater profitability and more financial flexibility, and we're deploying capital where we see the most attractive opportunities. We also continue to return capital to shareholders. In 2025, we returned $2.6 billion to our shareholders through share repurchases and dividends. We announced another new share repurchase authorization of $1 billion in December, and today, we've announced an increase in our quarterly dividend to $0.40 per share. These actions reflect our strong confidence in the value of AerCap Holdings N.V. and in our outlook for the future. And with that, operator, we can now open up the call for Q&A. Operator: Thank you. And would like to ask a question, please signal by pressing star one reach our equipment. Again, press star 1 to ask a question. If you are in the event via the web interface and would like to ask a question simply type your question in the ask a question box and click send. For our first question, we'll go to Jamie Baker with JPMorgan. Please go ahead. Jamie Baker: Good afternoon to the team. A couple of high-level questions for Gus Silkes. Gus, on the order book, you know, totally understand your preferences to order at the bottom of the cycle when the OEMs come to you. I trust that they fair characterization, but you know, we still keep coming back to that existing backlog. And the possibility that the next downturn is you know, hopefully a long ways away. So my question is, know, is there a point where the backlog window would grow so significant that you might feel you'd have no choice but to get in with an incremental sizable order. Aengus Kelly: Thanks, Jamie. Well, like you certainly hope that any downturn is a long, long way off. And in that regard, we certainly feel that, Jamie, given the supply dynamics that are in the market even if we did see any weakness on the demand side, the shortage of supplies we think, structural for a good bit of time. So know, I take your point on the order book. But that being said, Jane, last year, we added a 103 aircraft to our order book, including options. None of those aircraft came through direct orders from the OEMs. It was all because of our positioning in the industry and how we were able to assist our customers. We also ordered 22 helicopters and importantly, in the last two years, we have committed to purchase 281 brand new engines through our own engine business, which you 100% own in-house, and the SES joint venture. So we have found very significant growth away from the tent in Farnborough or La Bourget. That's not to say, of course, Jamie, that we won't order with the OEMs. I'm delighted to order with them. But it has to be in terms that make sense for our customers. And I do think just a bilateral straight-up deal it's hard to see how that will add value at the moment given the duration of when you deliver this stuff. But there are other things that AerCap Holdings N.V. can offer to OEMs and discussions we've had with OEMs about that. That they value. So I would say, you know, if the right opportunity comes, of course, we will. But I have a high level of confidence in the capability of the AerCap Holdings N.V. platform. It's global reach and penetration in the industry, and the unique skill sets it brings, particularly through its engine business as well. That give us access to opportunities that no one else would be able to open up. Jamie Baker: Okay. That's great color. And then sort of as a follow-up, Gus, you know, lessors if I just kinda step back, lessors are scaling up to sizes that at least for us, you know, ten or fifteen years ago, we wouldn't have thought it was likely. Right? So my question is, is there any size I don't know. Maybe it's a $100 billion. I mean, just make up a number. But is there any size where an individual lessor simply becomes potentially too large. Thanks in advance. Aengus Kelly: Thanks, Jimmy. I would say the nuanced answer in terms to me, the concern I had when we were acquiring GECAS was would be the other size where we had to participate in every transaction? Because we had so many aircraft coming at us or engines every week. So we had to place x aircraft, x engines, y helicopters, etcetera. And are you a price taker from the market? That was my concern at the time. It proved to be unfounded. And we are well able to exercise price discipline placement discipline, as evidenced by our results. So, to me, I think and, of course, there's constant what we so I would say on that one, so long as I don't believe that we will have to take every transaction in the market, and we're not price takers, which I don't see. I think you could grow quite a bit from where we are. I do believe that. And then on the on the liability side, which would have been, as you rightly say, ten, fifteen years ago, a very limiting factor as there were very few investment-grade lessors. There was very little public debt, offerings, etcetera. That's changed dramatically. While they're are nearly every lessor in the world issues public debt, every big institutional investor, bond fund, bank, has an aviation division now and has understood the space a lot more. And realizes through thick and thin that aircraft are a safe store of value and a hard dollar asset. That's great. Thank you, guys. Take care. Jamie Baker: Pleasure. Operator: Thank you. And we'll go next to Ronald Epstein with Bank of America. Please go ahead. Ronald Epstein: Hey. Good morning, guys. Last week, or was it two weeks ago, in Dublin, gosh. Right? There was a lot of talk about an A220-500 and what's your take on the airplane? What what's it mean? If Airbus were to do something like that, would that provoke some competitive response from Boeing and, you know, you yourself being a large fleet owner how do you think about it? Aengus Kelly: Look. Candidly, I just don't see anywhere in the market that the airplane is needed. Airbus are the market leaders in the narrow bodies. I think they'd be just cannibalizing their own market share, incurring a lot of cost, I know the A220-300 program, they wanna make it more profitable. I think they just focus on their efficiency of manufacturing the aircraft. Rather than trying to just scale up with more volume because I think they're only eating the raw market share. It's it's not solving a problem that exists in my view, that aircraft. Ronald Epstein: Got it. Got it. Yeah. That's clear. And then yep, end of quarter or in the year. Excuse me. And end of the quarter. You've guys been very successful at selling aircraft. When does that trade end? So maybe this is a follow-on to Jamie's question. Like, how how do we think about a transition from, you know, AerCap Holdings N.V. you know, selling aircraft at on a gain to maybe just more of a focus on the traditional leasing model? Aengus Kelly: Well, I'd say, Ron, if you look at our earnings profile, the vast, vast majority of our earnings comes from the operating business. While the gain on sales are percentage margins are higher than usual, I would say that if you go back to 2006 when we became a public company of twenty years, I think for all twenty years, maybe nineteen years, we have sold assets at a gain. That speaks to the discipline of how we acquire assets, but most importantly, how we manage them and how we manage the maintenance cost of those assets. And the condition we manage those assets too. Because at the end of the day, an aircraft is really just a piece of tin. And without records and management of those records, it is an expensive piece of tin. So to generate value on a consistent basis over twenty year period, which this company has done. It is about how you manage that asset every single day. We've demonstrated that. So I'd be highly confident that as we go forward, I mean, maybe we won't be at two times book equity forever. But if you look at our history, I think, piece at SWAT is that we, on average, last twenty years, we sell about 1.3 times book equity. It Peter Juhas: Yeah. A little above that, I'd say. Yeah. And that's going through the average of going through the financial crisis, COVID, Russia, And what I point to Ron I think is important is the stability of AerCap Holdings N.V.'s earnings through ThickenTen. Ronald Epstein: Our average Aengus Kelly: GAAP ROE for the last twenty years is nine fifty one basis points above the five-year treasury for that twenty-year period. And that is a GAAP number, which includes the impact of the loss in Ukraine, COVID, the financial crisis. I would challenge you to find any industrial company in the aerospace sector that could match the stability of those returns or indeed the outlook that this company has. Yeah. No. For sure. And then maybe maybe just one last quick one. Everything seems really good right now kind of across all the segments. When you when you think about risk mitigation, what what worries you? I mean, there's gotta be something that maybe doesn't keep you up at night, but at least in the back of your head, you know, what would get your spidey sense going that we gotta think about this? Aengus Kelly: Yeah. Ronald Epstein: Well, I I think that for me, Ron, Aengus Kelly: everything boils down to the day-to-day of the business. The operations of the business that we are 100% focused on making sure that our assets are moving efficiently as quickly as we can. They're on time, on spec, they're on budget. That is what drives the business. The internal operations of the business. That's the things like internal audit. They're boring. But things like that really make a difference in the long run of how you manage the business. We have very high-value assets, so very high CapEx, very low numbers of people against that, so not much in the way of labor. But it's vital, therefore, that all the process, the people you have, that there are a 100% focused every day on doing the right thing and following the process procedures that underpin how this company operates. And that runs from that, everything flows. If that breaks down, it's, you know, it's lights out. Ronald Epstein: Gotcha. Gotcha. Alright. Well, thank you very much. Operator: Thank you. And we'll take our next question from Moshe Orenbuch with TD Cowen. Please go ahead. Moshe Orenbuch: Great, thanks. And congrats on some really impressive results in the even a higher level of excess capital than three months ago. Maybe on that issue, could you talk a little bit about how you see that deployment of that excess capital? And seems like there isn't much, if any, of that embedded in your guide for 2026. Peter Juhas: Sure, Moshe. So in terms of the guide, first off, mean, we've assumed that we would use our remaining authorization and then do some other buybacks on top of that for modeling purposes. And, look, if you look at what we did in 2025, buying back $2.4 billion worth of stock, I mean, that's indicative, I think, of of our of our view there in terms of the attractiveness of the stock. I think in terms of leverage and how we use our excess capital, over the medium term, I would expect that to start to revert towards, more normal levels, towards our target. But as Gus mentioned before, you know, we're really focused on the opportunities. Where can you get the most value in deploying capital? Whether that's buying back stock, whether that's adding to the order book, the engines, all of those type of things. And so those opportunities come along from time to time, and then we act on them And we wanna be able to act on them in a big way. And I think given our positioning now, we obviously have a lot of capital that can be deployed for that purpose. Aengus Kelly: Right. And Moshe Orenbuch: you know, maybe, you know, in one of your slides, you noted, you know, over a 100 aircraft or added to your order book, you know, from Spirit and other transactions and, you know, kinda talked about that a little bit. As you look at the, you know, the the landscape do you think that future years will have, you know, comparable levels I mean, how should we think about you know, what the opportunity set is out there as we go forward? Aengus Kelly: Sure, Moshe. And you're right. We you know, not only did we add the 103 aircraft last year, but as I mentioned in an earlier comment, in the last two years, we've added 281 brand new engines. That's a significant amount of growth in our two engine businesses. And we like, my view has always been in this business. I've said to you guys, aviation is a growth business. Every fifteen to twenty years, the number of people traveling doubles. Leasing is a growth space within that The airlines will always need us. The airlines' net profit margin next year will be around close to 4% per IATA. That is a business that always needs capital. It's a business that will need aircraft, and we supply both, and we can manage both. So I would be very confident that as we look forward, as the aviation industry grows, opportunity come. We've demonstrated year in, year out that we've always found attractive opportunities for our shareholders Last year was no exception. This year is off to a good start as well. You saw the announcement that we added another six wide bodies with Virgin Atlantic. Again, these are bilateral transactions in time frames that are just not available traditional with traditional orders with the OEMs. And so we're always looking to how allocate the capital in the best way. And, of course, we we believe that our shares still represent the cheapest aircraft in the world. Moshe Orenbuch: Thanks very much. Operator: Thank you. And we'll next go to Terry Ma with Barclays. Please go ahead. Terry Ma: Hey, thank you. Good morning. Pete, I think you mentioned some of the downtime from the Spirit aircraft was kinda contemplated in the guide. I was maybe just hoping for an update timing of kinda when those get kinda released. Go back into service, and how much of that was actually contemplated for this year? Peter Juhas: Sure, Terry. So we've baked that into our numbers, into our guidance that we've provided here for 2026. We'd expect the first of those aircraft to start coming back. In the second half of the year. Terry Ma: Got it. And when do you think all of those actually come back? Is it this year or it kind of drift into '27? Peter Juhas: Some of it, I think it will go in. Some of it gonna go into '27. I mean, we'll see how fast we they can get done, obviously. We'd prefer sooner, but, you know, we've assumed that some of that, comes back in '26 and then bleeds into 2027. Terry Ma: Got it. Okay. That's helpful. And maybe just to follow-up on the capital allocation question. You guys gave some color on what the priorities are, kinda medium term, but as you kinda sit here today for 2026, like, maybe just kinda rank order kind of the most attractive uses of capital, whether it's, you know, buybacks or some, like, one-off deals that you see? Thank you. Thanks, Harry. Terry, you know, I wouldn't rank them per se. I mean, to me, the uses of capital, our return of capital to shareholders, obviously, the buybacks We have very small dividend. Asset acquisitions, be it engines, aircraft, or M and A for that matter. As you know, we participated in an M and A process earlier in the year, but the key is discipline, Terry. Any one of those three are just fine with me. So long as the the outcome of those decisions is to increase the value of this company by increasing earnings on a risk-adjusted basis. That's the only reason we're here. Nothing else. I'm not here to grow for the sake of growth. We're here to make a return for our shareholders. And whichever one of those capital allocation strategies, or all three of them for that matter, they'll be the ones who will follow that will add value. Operator: Thank you. Great. Thank you. And we'll go next to Catherine O'Brien with Goldman Sachs. Please go ahead. Catherine O'Brien: Hey, good morning, everyone. Thanks for the time. So I have a bit of a follow-up to Moshe and Terry's questions. Gus, you know, you've made it clear you continue to see very good value in buying back your own shares over the last couple of these calls. And last several years. Know, your leverage is still well below your target at 2.1 times at year-end. Should we interpret this as you seeing more unique and significant opportunities to acquire assets over the next year or so, and you wanna have dry powder? And and I guess, like, if that doesn't materialize over the next six, twelve months, how quickly and aggressively will you pivot to shareholder returns? I guess what just trying to understand is, is there a minimum leverage where you'd not wanna sit at for more than quarter or two? Aengus Kelly: I I think, Catherine, you gotta put a little bit of context around the current debt equity ratio because of the large insurance recovery that came in just a few months ago. And so that has had a big impact on it. So you don't just distribute that just as quickly. And if you look at what we did last year, it's a good indicator of how we think. As we said, we had a record amount of return of capital to shareholders with two best part of $2.5 billion. And in addition, we deployed $6.1 billion of CapEx last year. That was cash CapEx. And then we added a very significant amount of assets to the backlog. So, you know, as I look forward, I'm not concerned about the ability of the company to find attractive uses of capital, and, you know, if that is buybacks, as I said on the earlier call call, or asset acquisitions, etcetera, very happy to do it. But we have always managed to do that, and, I would imagine that we will. Pete, anything to add? Peter Juhas: No. I agree with that. Look. I think, Catherine, over time, as I said, I think it is gonna get closer to the target level. But you know, obviously, we're looking for the right opportunities to deploy it. The worst thing you could do is to try and chase growth by doing the wrong deal. Catherine O'Brien: Absolutely agree. I think, you know, your guys' results speak to that. Another one. In the industry, another owner of engine assets announced they'd be looking to convert engines to power turbines. To service data centers. Is that something you guys are exploring? And and can you just remind us how many engines you own that are not under your agreement with CFM? Peter Juhas: Sure. Well, to start with, Aengus Kelly: of course, we're looking at this. And if it turns out that the demand for what are currently commercial aerospace engines. If that demand to convert them into ground-based power generation for data centers is very durable, and is long-lived then, of course, we will participate in that either directly or indirectly, directly by converting the engines into ground-based power generation or indirectly by taking advantage of this surge in demand. But at the moment, we wanna make sure that this demand is a durable demand, and it's not fleeting. And that's our focus at the moment is sizing the market. And from there, then we will participate, as I said, one way or the other. In terms of the quantum of engines that we have ourselves, if you look at what's installed on our aircraft, take the CFM56 model, we are the largest owner of CFM56s in the world. And I would remind you, that all of our engines are serviceable. And have to be returned for the most part in full life condition. Which is very different to a portfolio of engines that is half-life or run-out engines and you're swapping modules to make a serviceable engine. So when we look at the engine portfolio that we have, Catherine, on any of those metrics, we would have more engines than anyone in the world. Catherine O'Brien: That's great. Excited to see how it all plays out. Thanks for the time. Operator: Thank you. And we'll go next to Kristine Liwag with Morgan Stanley. Please go ahead. Kristine Liwag: Hey, good afternoon, everyone. So maybe following up on the SPIRIT, order book that you've taken, and maybe this is a more theoretical question and practical But if you look at those aircraft slots that you were able to get, how much of a value did you get if you were to have ordered that on your own? I mean, are those planes even available to acquire? But but how how do you measure value Thanks. Aengus Kelly: Well, that's where the the knowledge and the wisdom is. You know? Understanding the difference between price and value. And I would say given our market knowledge, we lease more airplanes than anyone We lease more engines than anyone. We know where the delivery slots are with the OEMs. That all that data comes together to assess what we think the value of an aircraft is in any given year. And close to rain aircraft have a premium because it is availability. And so when we looked at the the proposition with Spirit and we saw the order book, we felt that there was significant value there versus the OEM alternative, and that value was composed of the proximity in terms of time, and also the absolute price level. Is that okay? Kristine Liwag: Okay. Great. And, would you like to quantify any of that, Gus? Aengus Kelly: I I I won't, if you don't mind. Thanks very much. Kristine Liwag: No. No worries. I thought I'd try. And if I could do another follow-up, you you've already received more in insurance proceeds than the charge you took regarding Ukraine. I was wondering, can you remind us how much more, you know, un unresolved or unsettled litigation you have, and if you're able to recover more, how much that could be? Peter Juhas: Well, Kristine, we do have a case ongoing This is pursuing the operator insurance reinsurers. So that's the case in London, that will we expect will go to trial late in late this year. We're we haven't included in our guidance or in our projections any further recoveries on that. Or, from the Russian insurers directly. It's possible that we could get some there, but it's just very hard to know. And, obviously, as you said, we've already gotten $3 billion back, which, from our perspective, is a huge result. Obviously, we'd take everything that we can, but at the moment, we're not projecting anything. Kristine Liwag: Great. Thank you very much. Operator: Sure. Thank you. And we'll go next to Erin Seganovich with Truist Securities. Please go ahead. Erin Seganovich: Thanks. I was wondering if you could talk a little bit about, any technology investments that you potentially could be making or any investments you have made recently that you know, are improving the efficiency of the company? I know your company's quite efficient already, but just curious what you're seeing on there. Aengus Kelly: Sure. Well, I would say the biggest investment we make is around and we always have because we have more data than any other participant in the aviation industry. And that data is used, as I just referenced in the earlier question, to assess what we believe value of an asset is. The value of an asset is a function of market demand, It's a function of the condition of your assets. And it's a function of where you think market demand will be and what you think the cost of maintaining assets, that particular asset, will be in the future. So you take all that that that gives you data, and we're always putting money into our into our IT systems, our technology systems in AerCap Holdings N.V. to improve, to enhance the efficiency of that data. The same is true then, in particular, when it comes to maintaining the assets. As I said on prior calls, if you spend a $100 million on an airplane, you will spend a $100 million on maintenance over its life, or you might spend a 120 if you don't know what you're doing, or you might spend 90 if you know what you're doing. The proof of whether you were did 90, a 100, or a 120 generally comes out in your margins, versus your peers and also your gain on sale of older life assets. And, you can see the results of that with our margins both our operating margins on the core business and as well as gain on sale. So we are always looking to try and utilize the vast quantity of data that we have to make our decisions better informed. That's not to say that we are that that doesn't mean that we're making some massive AI investment. That's not the case. The case is that we look at the different ways we can enhance the data we have all the time. Erin Seganovich: Okay. Thanks. And then this is kind of an small one, but the CapEx guide for the year, 5.2 billion. I think the last public disclosure of what the obligations were was in the second quarter as $5.8 billion of obligations. Like $600 million or so less now. Were those sales or delays? Just curious what the dropdown was. Peter Juhas: Well, we had a pretty significant amount that we did in the fourth quarter of this year. So I think that was a lot of CapEx in the fourth quarter. So you know, it wasn't, not meaningful delays from what we had before. I think it was just some of that may have been front-loaded that we did, last quarter. Erin Seganovich: So pull forward from the 2026 estimate? Peter Juhas: Yeah. I think so. Because we're we're giving a next twelve months estimate. Right? And so yeah. This, this last quarter was high for CapEx. It was $2 billion total in or 2.1 billion. Of cash payments that we made A fair amount of that was PDPs, but also deliveries in the fourth quarter. So you know, we think 5.3 billion is reasonable number for next year. It could grow if we find additional opportunities, but, you know, and we have seen that in the past where it's actually grown during the year because even though you might see some delays, because of production issues with the OEMs, we've also added, in some cases, whether that's engines or helicopters or aircraft during the course of the year. So I think it's a reasonable number for now. Erin Seganovich: Okay. Thank you. Peter Juhas: Sure. Operator: Thank you. And we'll go for our next question from Shannon Dougherty with Deutsche Bank. Please go ahead. Shannon Dougherty: Hi. Thank you for taking my questions, and congratulations on the strong results this year. Gus, this may be a follow-up to Ron's question asked earlier in the call. But in general, do you foresee any sort of systemic risk to aircraft lessors that some financially weaker airlines may fail to meet contractual return conditions just simply based on the high maintenance escalation costs that we're seeing I understand this would be a bigger problem for the airlines, but I'm just curious to get your thoughts. Aengus Kelly: Sure. I mean, look. The the the reality is, of course, the airlines are a noninvestment grade bunch great thing about them. They'll always need me. That's never changed, and I don't expect it to ever change. So there will be instances, no doubt, in the future where they're not able to meet return conditions they don't have the wherewithal. Now in many of those instances, that's where someone of our position and scale is able to provide alternatives that no one else can. So, if they can't meet engine return conditions we might say, okay. Can use our engine leasing business or just our scale or positioning with the engine MROs to facilitate, to secure slots, to provide spare engines, And in return for that then, we will cooperate with our partner airline and see what they can give us in return. That's happened on several occasions, for example, with GOL Airlines when they were in some difficulty in Chapter 11. We were able to provide them with engines. We took over some of their order book. Something similar with Spirit, etcetera. So you know, I would see it as part of the the daily cut and thrust of our business. And as something that we manage year in, year out for the last twenty years. Shannon Dougherty: Great. Thanks. And as my follow-up, you know, we know that lease extensions have been historically high over the past couple of years. When do you expect renewal rates to decline or perhaps normalize? And what percent of your existing fleet or COVID leases do you expect them to, you know, run off you know, let's say, 2031 or 2032. So thanks for taking the questions. Aengus Kelly: Sure. Let let me deal with the first part, then I'll ask Pete to comment on the COVID leases. Extensions are elevated. You're right. There are two things driving that. The first is, of course, the airlines know that the OEMs won't deliver on time. As I said in my prepared comments, you just don't get surprised to the upside on aircraft production. So they know that, and they know that it's not for you know, a year or two years. It's structural for the long term. And that's why we have seen these elevated extension levels for several years now, and I expect them to persist. The second reason that I expect them to persist is that even when the technology delivers, what's happening is that because of the strain put on the engines and on the aircraft, they do not last as long in service before they need an overhaul as the previous generation of A320s or 737s or A330s or 777s. And so, therefore, in order to fly the same number of flights, you know, you need to fly if you were flying ten 737s, you might need 11 Maxes or 11 Neos to do the same, over the long run. To accomplish the same number of flights because they do spend longer in the shop. Now, in time, I do expect the technology, which is always the case, that there are technology improvements that will improve that time on wing, and the next one coming up will be the Pratt and Whitney Advantage engine. We have the upgrades also to the LEAP 1A, which have begun. And the similar upgrades we put into the LEAP 1B, they'll begin later this year. So steadily over time, we will see time on Wing improve But before those improvements flow through the whole fleet, which is massive, you know, we'll be well into the 2030s. Peter Juhas: And then to answer your question on the COVID COVID era leases, so it's about 12% of our fleet today. And you're right. It will roll off, it'll roll off over time. But it will pretty much be done by 2031, 2032. Operator: And we'll go to our next question with Christopher Stathoulopoulos with SIG. Please go ahead. Christopher Stathoulopoulos: Thanks for taking my question. Angus, could you remind us so in your prepared remarks, you spoke about the normal normalization of supply-demand balance, and you don't see, I guess, monthly production rates meaningfully picking up Your Investor Day, I believe you said end of decade. Where you continue to see a supply shortage. And I think a quarter or two ago on a call, in response to a question, it was the same. Has that changed? And then could you also remind us at your Investor Day, you went into the economics of the engine market and and why I guess, the OEMs are really not incentivized to to produce excess units given the, I I guess, the initial sale and and and then the economics around servicing that in the secondary market. Thank you. Aengus Kelly: Sure. So with regards to the first part of the question, supply-demand imbalance, I still I I do believe that around 2030, Boeing and Airbus would probably pick up production to where it gets closer to meeting the demand But that being said, so it might be 2031 or 2032 or 2030, but that being said, the other point that's very important to remember is what I just said on the previous question. Is that the technology being used is not as durable as the previous generation. Take an A330-300 with Rolls Royce engines. That thing could go forever, or 777 GE 90. They're just not as durable today because those engines, they're pushed much harder they're running hotter, they're coming off wing, more often. Which means that the demand for aircraft in my view, the OEMs just won't be able to meet it for many years to come even when they get the basic production up. It's because once these assets are in service, they're just not lasting. And they're not they're not spending as much time in service as the previous generation. And that's a hidden aspect that it's not as visible, obviously, as Boeing missing a production target. So, in my view, I do believe that supply will be structurally limited for a very long time, well into the 2030s because of those two events. The other thing, though, that's very important, as you as I referenced and and you bring up from the investor day. We have never ever seen a significant period of oversupply of aircraft on a global basis in my career, which is thirty odd years. Never happened. Why is that? Because airlines do go bust. And that that was the case, of course, with all The US majors at some period of time. The reason is that yes, a region can be oversupplied with aircraft due to a downturn in that region. But the engine OEM sells their engine on day one, the air day the aircraft is delivered for about 25% of cost or 30% of cost. The airframer, Boeing or Airbus, gets 100% of their revenue on day one. Now the engine guy only makes money if those engines hit the shop probably three times. Once after maybe eight years, once after fourteen years, once at eighteen years. The single most important thing any engine OEM does is that last shop visit when the aircraft is around 18 years of age. That is the most cash flow positive highest margin thing they do The least attractive thing they do is deliver a new engine to Boeing and Airbus. So if they ever see and this is the case for the last thirty years, a period of significant oversupply coming to the market. They will be the ones who will lose the most because oversupply of new aircraft will mean early retirement of old aircraft. Those old aircraft are the ones where that shop visits is performed on. So it's Turkeys voting for Christmas, if they allow Boeing and Airbus to overproduce aircraft in a market where there is oversupply, and they have never ever done it. I don't expect they will. And that's one of the key reasons on a macro basis why AerCap Holdings N.V. has produced such stable returns for decades. And I don't see that changing. Christopher Stathoulopoulos: Great color. Thank you. And I guess along those lines, if you could speak to I know there's been a few questions around capital allocation and priorities this year and thoughts around I guess, buybacks and acquisitions. But one of the things that I think important and and and perhaps sometimes forgot about and what is unique and certainly shows up in your results here is this barbell approach to managing your portfolio At a high level, could you just you just run that down for us? I think that's important for us to to revisit, if you will. Thank you. Aengus Kelly: Certainly. And when we sell assets, we're not selling them to generate a gain. Of course, when we decide to sell an asset, we want to maximize to the greatest extent possible how much we get for the asset. But the driver is to look at where the portfolio will be. And so, the barbell approach, as you rightly say, the way we want the portfolio to be is if we have older technology assets like the seven three, the A320, the 777, the A330. We want them to be old assets. We do not want young variants of those assets. At some point, the 777 and the A320s will be replaced in large part by the Neos, by the Maxes, by the the seven eights, etcetera. It hasn't happened just yet, but it will happen at some point in the future. And so if you have, say, 2017 A320 or 777, for that aircraft, to return a a fair cost of capital over the lifespan It has to still be in service in 2042 if you bought it in 2017. It's twenty-five years of service. I simply do not believe that that will be the case. At some point in the 2030s, the demand for those assets will fall off. And therefore, you do not want to have young variants of those assets. Now having an old variant that's eighteen years old, of an A330 or 737 or 03/20, that's perfectly fine because you're going to get another five or six years five odd years out of it, and you'll do just fine off the assets. And then when it comes to buying assets, what we want to make sure is that we're in the assets of the future, the ones that we believe the most durable demand is out there, and that's where we invest in the A321 Neo, A320 Neo 737 Max 8, 787-9, A330-900, A350-900. Christopher Stathoulopoulos: Great. Thank you. Aengus Kelly: Very welcome. Operator: Thank you. I'd like to now turn the call back over to our speakers for any final or closing remarks. Aengus Kelly: Thank you, operator, and thank you all for joining us for the call. And, we look forward to speaking to you again in three months' time. Operator: Thank you. And that does conclude today's We thank you for your participation. You may now disconnect.
Operator: Greetings, and welcome to Proto Labs Fourth Quarter and Full Year 2025 Earnings Call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone requires operator assistance during the conference, please press. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Ryan Johnsrud, Investor Relations. Thank you. Please go ahead. Thank you, Donna. Ryan Johnsrud: Good morning, everyone, and welcome to Proto Labs' fourth quarter and full year 2025 earnings conference call. I am joined today by Suresh Krishna, President and Chief Executive Officer, and Dan Schumacher, Chief Financial Officer. This morning, Proto Labs issued a press release announcing its financial results for the fourth quarter and full year ended December 31, 2025. The release is available on the company's website. In addition, a prepared slide presentation is available online at the web address provided in our press release. Our discussion today will include statements relating to future performance and expectations that are or may be considered forward-looking statements and subject to many risks and uncertainties that could cause actual results to differ materially from expectations. Please refer to our earnings press release and recent SEC filings, including our annual report on Form 10-K, for information on certain risks that could cause actual outcomes to differ materially and adversely from any forward-looking statements made today. The results and guidance we will discuss include non-GAAP financial measures consistent with our past practice. Please refer to our press release and the accompanying slide presentation at the Investor Relations section of our company website for a complete reconciliation of GAAP to non-GAAP results. With that, I will now turn the call over to Suresh Krishna. Suresh? Suresh Krishna: Thanks, Ryan. Good morning, everyone, and thank you for joining our fourth quarter and full year earnings call. I am pleased to share our strong financial performance in 2025 and outline our strategic priorities as we move into 2026. Eight months into this role, I've spent significant time with customers, engineers, operators, and investors. What's become clear is that Proto Labs has exceptional assets and market relevance, but in recent years, we haven't fully translated that into consistent execution. The results this quarter are an early indication of what's possible when we align execution around the right priorities. We finished the year with clear momentum delivering double-digit year-over-year growth and another record revenue quarter. In constant currencies, fourth quarter revenue increased 11% and full year revenue grew 6%, representing Proto Labs' strongest quarterly and annual organic growth rate since 2018. Revenues per customer grew 13% in 2025, demonstrating major success on a key priority. In addition, we delivered year-over-year growth in earnings and generated another strong cash flow, reinforcing the strength of our business model. This was fueled by exceptional demand for CNC machining and sheet metal, which both delivered double-digit growth in 2025. In fact, US CNC revenue grew 25% in 2025. I'd like to thank Mark Dursa, our Senior Director of CNC Operations, and his team for their exceptional execution in delivering on robust CNC demand. Innovation-driven industries like drones, space exploration, satellites, and robotics continue to rely on Proto Labs as a critical partner. We also see strong momentum in data centers, another high-growth market where Proto Labs enables faster execution for customers like Amphenol and CommScope, leaders in data center infrastructure solutions. These are well-funded and long-cycle markets where our digital manufacturing model creates a durable, competitive advantage and has us well-positioned for 2026. Our financial results reflect Proto Labs' progress in improving the customer experience, strengthening customer relationships, and executing with speed, focus, and discipline. As a result of our strong finish in 2025, we've entered 2026 from a position of strength with clear momentum and growing confidence in the opportunities ahead. Now shifting to our long-term strategy, we have clarified our strategy to serve customers across the entire life cycle of a part, from prototype to production. This strategic direction is not new. However, what is new is the rigor, focus, and execution plan behind it. This approach reinforces our position as the world's fastest and most reliable provider of prototype parts, while deliberately building the capabilities required to be a trusted production supplier. Importantly, this strategy builds from our core strengths rather than shifting away from them. Excellence in prototyping and leadership in digital manufacturing are the foundations of our advantage, and they are the capabilities that enable us to expand credibly into production. Execution of this strategy is anchored by four strategic pillars. Number one, elevate customer experience, Number two, accelerate innovation, Number three, expand production, and Number four, drive operational efficiency. Ryan Johnsrud: First, Suresh Krishna: we are elevating the customer experience by removing friction, making it easier for customers to do business with Proto Labs and more efficient for our teams to serve them. Our strategy centers on deepening customer relationships and driving higher conversion, retention, and revenue per customer, ultimately improving unit economics and operating leverage. One tangible example is improvements to our e-commerce customer experience. Today, multiple factory and network storefronts create unnecessary friction. A more unified experience will simplify the customer journey and allow our teams to support customers more consistently and efficiently. With our second strategic pillar, accelerate innovation, we intend to return Proto Labs to its legacy of rapid, differentiated innovation, expanding offerings across our core manufacturing services to drive outsized growth. As one of the earliest and largest digital manufacturers, Proto Labs has unique assets that differentiate us, including over 60 patents and more than 60 trade secrets, a robust and growing CAD dataset, and deep experience applying automation and AI at scale. We are now translating these assets into a faster, more consistent cadence of customer-facing product and service launches through 2026 and beyond. Innovation for us means expanding manufacturing capabilities, improving speed and precision, enhancing coating and manufacturability feedback, and deploying smarter pricing and sourcing algorithms, always grounded in customer needs and clear return on investment. Next, expand production. While we currently offer production, our capabilities and customer engagement have historically been weighted towards prototyping. We are now strengthening the capabilities and certifications needed for true production work, opening access to a much larger market opportunity as we scale. For Proto Labs, expanding production requires a more deliberate customer-led approach, prioritizing the right customers, applications, and capabilities to unlock this opportunity. In January, we achieved ISO 13485 certification for our US factory injection molding operation, a critical requirement for medical device production programs. We already support prototyping work for all major medical device companies, and this certification opens a substantial opportunity to expand into production over the coming years. Moving forward, we will continue to add certifications and other capabilities required for production expansion. Our fourth strategic pillar, drive operational efficiency, enables profitable growth through improved productivity and cost discipline. This pillar is critical. It funds investments across the first three while acting as a force multiplier for profitability. This includes expanding factory and network gross margins, leveraging SG&A more effectively, simplifying how we operate, utilizing AI, and reallocating resources towards the highest priority initiatives. Each of our four strategic pillars reinforces the others, and collectively, they drive a more customer-centric, innovative, efficient, and scalable Proto Labs. While this strategy defines our organic priorities, selective inorganic opportunities can further advance our progress. We will continue to evaluate acquisitions that strengthen our capabilities and align closely with our strategic framework. We will remain disciplined and focused on opportunities that create durable, long-term shareholder value. With our long-term strategy established, let's shift to 2026. We expect 2026 will be a year of transformation and growth focused on execution. We are making foundational organizational, operational, and capability-building changes that position Proto Labs for faster growth and improved profitability. The first change is getting the right talent in place and properly structured. Mark Kermesch, our Chief Technology and AI Officer, is leading a reorganization of our technology group into a domain-focused organization structure, which better aligns how we build technology with how Proto Labs creates value for customers. Our product management teams are now part of Mark's technology organization, helping remove silos and accelerate innovation. The second change is focused on continuous improvement and quality. We are expanding our business operating system, which we call Proto Excellence, beyond our factory manufacturing operations and deploying it across the organization to drive productivity. We are also adding talent with significant manufacturing expertise to our quality team as we continue to build production capabilities. The third change for 2026 is the establishment of a global capability center or GCC in India. Proto Labs India will be a strategic extension of our global operating model designed to scale innovation, strengthen delivery, and deepen our global engineering and digital capabilities. Proto Labs India will serve as an integrated hub that complements our US and European teams, tapping into India's deep technical talent. Ashish Sharma has been appointed to lead this effort. Ashish has built and scaled GCCs for several large industrial companies, and we are excited to have him on board. Fourth, we are making important changes in Europe in 2026. Europe plays a critical role in Proto Labs' future, but revenues have declined over the past two years amid macro uncertainty as well as internal complexity that created friction for customers and employees. As a result, we are taking deliberate action to reset the business. We are implementing new go-to-market strategies and a renewed customer focus to reaccelerate revenue growth, aligning our cost structure with current revenue levels and improving productivity. We believe our addressable market size in Europe is similar to the US. Europe is not a growth drag structurally; it is an execution opportunity. Our strategic reset actions in 2026 are designed to stabilize margins and reset the cost base, positioning the region for growth and profitability. While 2026 is a year of transformation, it is also a year of acceleration. Here are a few initiatives that we expect will drive growth in 2026. On elevating the customer experience in Q1, we plan to launch ProDesk, a customer-facing experience designed to improve Ryan Johnsrud: customers' Suresh Krishna: engagement with Proto Labs across ordering, collaboration, and service. ProDesk is an important first step in improving the e-commerce experience through better user experience and functionality, while we continue to work towards a more fully unified platform over time. This initial launch is focused on removing friction today and setting the foundation for broader e-commerce simplification in the future. On accelerating innovation, we already released a few capability expansions late in 2025, including advanced CNC machining and expanded metal 3D printing. The pace of releases will continue in 2026, including improvements to our quoting experience, manufacturability software, expansions of our factory capabilities, additional secondary services, and more. As for expanding production, we will focus our efforts in 2026 on our largest and most strategic customers in aerospace and defense and medical, applying what we learn and scaling best practices across our customer base over time. We currently have two leading medical device customers in the pilot program, leveraging our new injection molding certifications and capabilities, including traceability, process validation, and automated inspection to support high precision production volumes. As you can see, we are making step changes in 2026 to achieve our four long-term strategic pillars. As a result of strong momentum exiting 2025 and the progress on key growth initiatives, we expect growth in 2026 to accelerate relative to 2025. Operator: Importantly, Suresh Krishna: while 2026 reflects a year of transformation and measured acceleration, the structural changes we are making are designed to position Proto Labs for a return to sustained double-digit revenue growth. Our path to double-digit growth is driven by three levers. First, improving conversion and retention through an improved customer experience and accelerated innovation. Second, growing revenue per customer in part by expanding in production. And third, continuing to accelerate penetration in high-growth verticals like aerospace, defense, medical, robotics, and data centers. Taken together, our long-term strategy and transformational work underway in 2026 positions Proto Labs for sustained revenue growth and operating leverage over the long term, reinforcing our position as a leader in cash flow generation in our industry. We believe our strategic framework will translate into measurable financial progress over the next several years, beginning in 2026. As outlined above, Proto Labs has a credible path to a billion dollars in annual revenue over time while delivering meaningful operating margin expansion. I'm proud of what the team accomplished in 2025 and encouraged by the momentum we enter into 2026 and confident in our ability to execute with speed, discipline, and innovation as we deliver long-term value to our customers and shareholders. With that, I'll turn it over to Dan to walk through the financials. Dan? Dan Schumacher: Thanks, Suresh. And good morning. I'll start with a brief overview of our fourth quarter and full year results, followed by our outlook for 2026. Fourth quarter revenue was a company record of $136.5 million, up 11% year over year in constant currencies. This is also the first time since 2017 that we grew revenue sequentially in the fourth quarter. Fourth quarter revenue in the US grew 15.9% year over year, while Europe declined 8.1% in constant currencies. CNC revenue in the US grew 35% in the fourth quarter. Revenue fulfilled to Proto Labs network was $30.5 million, up 11.2% in constant currencies. Non-GAAP gross margin was 44.8%, up 140 basis points year over year as volume growth in the US factories generated higher gross margins. Fourth quarter non-GAAP operating expenses were $48.7 million, up $5.2 million compared to the prior year, driven by higher incentive compensation, commissions, and medical expenses. On a percent of revenue basis, fourth quarter operating expenses were down 10 basis points year over year. Non-GAAP earnings per share were $0.44, above our guidance range and up 6¢ year over year due to increased volume and factory gross margin improvements, partially offset by a higher tax rate. Now on to our full year 2025 financial highlights. Revenue was a record $533.1 million, up 5.7% in constant currencies. Factory revenue grew 3.7% and Proto Labs network revenue grew 13.8%. 2025 revenue in the US grew 9.1% year over year, while Europe revenue declined 7% in constant currencies. As Suresh discussed, we have focused efforts planned for 2026 to reset our European operation, generating efficiencies and returning the region to growth. In 2025, CNC machining revenue grew 16.7% year over year in constant currencies. Strong demand in the US for CNC parts in drones, satellites, and rockets drove this outstanding performance. In the US, CNC grew 25% year over year. Injection molding revenue declined 1.9%. The service was negatively impacted by weakness in medical device and lower prototyping demand. 3D printing declined 4.7% year over year due to weak prototype demand for 3D printed plastic parts and older technologies. However, we are seeing strength in metal 3D printing. DMLS revenue in the US grew double digits. Sheet metal grew 12% year over year. This service also benefited from strong demand in US aerospace and defense. Full year 2025 non-GAAP gross margin was 45.1% compared to 45.2% in 2024. Our gross margin is unmatched in digital manufacturing, a testament to the strength of our combined factory and network fulfillment model. Factory non-GAAP gross margin was 49%, up 70 basis points year over year. I'd like to commend our factory operations and continuous improvement teams for their productivity improvements in 2025. Network non-GAAP gross margin was 31%, down 190 basis points year over year largely due to inefficiencies related to tariffs. 2025 non-GAAP operating expenses were $193.3 million or 36.3% of revenue, up slightly from 36% of revenue in 2024. As we said throughout 2025, the majority of the SG&A increase was in variable expenses tied to revenue growth, including incentive compensation and commissions. However, there is significant opportunity for leverage on our operating costs as we scale. Suresh already outlined a number of transformational initiatives in 2026 meant to drive efficiencies and productivity. We expect efforts within our operational efficiency pillar to generate operating leverage in the long term. Non-GAAP earnings per share were $1.66, up 3¢ year over year. We generated $74.5 million in cash from operations in 2025, as Proto Labs continues to lead the digital manufacturing industry in cash generation. We returned $43 million to shareholders in the form of repurchases. On December 31, 2025, cash and investments on our balance sheet were $142.4 million and zero debt. Turning to our forward outlook. We have momentum in the business, and we are actively laying the foundation to invest in our strategic pillars and grow the business to $1 billion in revenue. Suresh Krishna: Our focus on long-term margin expansion Dan Schumacher: will be driven by revenue growth, factory utilization and productivity, network margin refinement, and SG&A leverage. As these drivers scale, we believe Proto Labs has a path to expand operating margins while continuing to lead the industry in cash generation. As Suresh mentioned, 2026 is a year of transformation and acceleration for Proto Labs. With that said, we anticipate full year 2026 GAAP revenue growth of 6 to 8%. As is our standard practice, we will provide both revenue and earnings guidance for 2026 outlined on Slide 19. We expect revenue between $130 million and $138 million. At the midpoint, this implies 6% revenue growth year over year. We expect foreign currency to have a $2.1 million favorable impact on revenue compared to 2025. Our earnings guidance incorporates the following assumptions for 2026. Non-GAAP add-backs will include stock-based compensation expense of approximately $3.6 million, amortization expense of $900,000, and transformation and restructuring costs of $700,000. A non-GAAP effective tax rate between 24-25%. In summary, we expect first quarter 2026 non-GAAP earnings per share between $0.36 and $0.44. That concludes our prepared remarks. Please open the line for questions. Operator: Thank you. The floor is now open for questions. Suresh Krishna: Question queue. Operator: You may press star 2 if you would like to remove your question from the queue. Pressing the star keys. Again, that's star 1 to register a question at this time. Our first question today is coming from Greg Palm of Craig Hallum. Please go ahead. Greg Palm: I wanted to maybe start off with a little bit more color on Q4. And by the way, congrats on a great finish to the year and a really improved year overall. But as you kind of mentioned, you know, first time in a long time where revenue actually grew sequentially from Q3 to Q4. And I guess I'll sort of ask the same question. I can't recall you ever sequentially declining from Q4 to Q1, but obviously, that's what the midpoint implies. So how much of that is conservatism? What exactly did you see in Q4? Was there some pull forward of revenues? And maybe just a little bit more color on what you've seen quarter to date. Dan Schumacher: Yeah. Thanks, Greg, and thanks for the congratulations. You know, you've followed us for some time. I've talked about this in the past. As you go into the fourth quarter, it ends up being quite unpredictable in terms of when customers will have projects. And what we saw is like, through November and December, continued, you know, good order volumes driven by, you know, our engagement with customers in those key industries. And so that resulted in the results that you see. As we started in January, it was a more normalized start to the year, it's softer as people are coming back from the holidays. And we've seen order rates improve from that point. So it hasn't been since 2017 that we've seen that where in the fourth quarter, people continue to order right to the end of the year. But we do see some normalization now starting in January. Greg Palm: Okay. That's fair enough. And then, you know, just in terms of end markets applications, I think you've talked about a few of them that you've been sort of seeing, you know, a lot of growth in recent history. But can you just maybe go in a little bit more detail, you know, whether, you know, A&D so that, you know, the drones and satellites, space, I also think you mentioned data centers, and you haven't talked about a lot in the past. But, you know, are you, you know, presumably, some of these end markets are accelerating, but just give us a little bit more color exactly what you're seeing. Suresh Krishna: Yeah. Thanks, Greg. We are absolutely seeing innovation-led growth in these markets. And as you know, we are the default go-to place for prototyping for innovation. We are absolutely well-positioned to leverage all of these growth markets that are well-funded, long-cycle innovations starting now. And we serve almost all of these industries. So we feel pretty good about where we are positioned to serve the innovation-led growth in the US right now. Greg Palm: Okay. And, Phil, lastly, appreciate some of the commentary on the strategic pillars. I'm curious how much or what can sort of be done near term versus midterm versus long term? And, I mean, do you think you're starting to see some of the results from some of these strategic initiatives already, or is this more of a sort of to come kind of thing? Suresh Krishna: Yeah. Greg, we are just starting this now. And we will see acceleration in the outer years. This is a year of transformation. We are putting things in place. And we are getting organized. Greg Palm: Okay. Keep it up. Best of luck. Thanks. Suresh Krishna: Thanks, Greg. Operator: Thank you. Our next question is coming from Troy Jensen of Cantor Fitzgerald. Please go ahead. Troy Jensen: Hey, gentlemen. Congrats on the great results. Suresh Krishna: Thanks, Troy. Maybe just a couple of questions. Troy Jensen: Hey. Just a couple questions for me. Can you talk about just unique developers? It was down here, lowest we've seen in a bit? Is this a conscious decision to shed less profitable, or you just touch on the UDPs, please. Suresh Krishna: Yeah. Troy, you know, we are absolutely focused on increasing revenue per contact, and we saw acceleration in Q4 with revenue per contact up almost 23%. Having said that, we are also focused on driving more contacts, so we are aware that we have to grow both. But our focus has been to get more share of wallet from our existing customers, and that is borne by the facts of how Q4 performed. In fact, all of 2025 performed where we were up 13% year over year on revenue per contact. Troy Jensen: Alright. Alright. Fair. So just different question here. Can you talk there's been chatter or just I know the administration's really kind of in pushing US supply chains for defense. And I've just heard chatter that they're out, you know, even kind of talking to the machine shop builders of the world. But anything that you guys can talk about here that's kind of reshoring or this US-based supply for defense? Is this something that you've had discussions with? Or talk to administration about? Suresh Krishna: And as you can see from our results, we have good exposure to aerospace and defense. Good exposure to all the growth areas within aerospace and defense that includes drones, satellites, rockets, robotics, and you're seeing good growth from all of those end markets. Troy Jensen: Okay. But not specifically. Just defense really pushing US to reshore in the supply chains? It's more broad-based. Suresh Krishna: Yeah. I think, you know, I don't know how much specifics we can give you, but we have good exposure to all of these companies, and we are a preferred supplier to them when it comes to driving innovation. Troy Jensen: Okay. Alright, guys. Keep up the good work. Suresh Krishna: Thanks, Troy. Operator: Thank you. Our next question is coming from Brian Drab of William Blair. Please go ahead. Brian Drab: Since Troy is trying to get you to talk about all your defense work, I thought maybe I'd ask you to reveal all 63 secrets that you mentioned on the call. Can we talk through those? Dan Schumacher: They're secret for a reason, Brian. Brian Drab: I hadn't heard that stat before. 63 Secrets. I thought that was interesting. The injection molding business has been pretty steady here the last couple quarters, but, you know, this is obviously, you know, still one of the keys to the growth going forward is to reaccelerate growth in injection molding. I know that you've done some work around automation and you're working with enterprise customers, different verticals. But, like, what as you think about that 6 to 8% growth, which would be outstanding for 2026 for the overall company, what kind of visibility do you have to the injection molding business contributing to that type of growth? And I'm wondering if you just if you have some better visibility related to production programs with some customers or, you know, any color around that visibility would be great. Suresh Krishna: Yeah. Brian, thanks. Yeah. We have acknowledged in the past that prototyping in injection molding is down, and it remains down. Hence, our pivot towards production in injection molding in particular while we are going after production in all our service lines. Getting the ISO 13485 certification for the medical industry, which allows us to do traceability, process validation, and inspection, helps us pivot to more production in injection molding. We are in pilot with two medical device manufacturers right now for high precision, higher volume production parts for injection molding. And as that scales, we will be able to bring in more customers into that fold and thereby expand our injection molding revenues year over year. Brian Drab: Do you think that it's possible that injection molding grows at a comparable rate to CNC machining in 2026? Dan Schumacher: I don't think giving guidance as it relates to service at this point. Brian Drab: Fair. Okay. And then you launched these advanced CNC capabilities in October. And I'm just wondering is that still very early in the ramp, or did that affect, do you think, some of the CNC order activity in the fourth quarter? Suresh Krishna: Yeah. It's while it's early, it's performing well for us. We are only a few months in, but we are seeing significant excitement and customers wanting to use that service. It's something they've been asking us for a long time. When I talk about friction, it's these kinds of things where customers want something from us, and we are not responding. And we are able to do that now. And we are seeing a good lift for these services. Brian Drab: Okay. And then my last question for now is just on India. Should I be thinking about that as an opportunity to expand the network side of your business, which, you know, serving customers globally, or I think you mentioned I may have just missed it. Or is it more focused on, you know, customers with serving customers within India and the surrounding region? Suresh Krishna: Yeah. So we have been in India for some time with manufacturing partners that support our network business. By putting in a center in India, we are looking to expand how we can leverage India's technical talent to help us advance our innovation agenda, our AI agenda, and accelerate that with speed. So we are expanding India for supporting our global business. Brian Drab: Is it so is it am I what type of people are in this facility then? Is it software engineers or CNC machinists or what you know, can you just elaborate on that a little bit? Suresh Krishna: We'll share more as we build it out. We just started this in the beginning of the year. And as I said, we already had a presence with supplier quality engineers, supplier development engineers working with our manufacturing partners and making them capable to supply global customers in Europe and the US. And by putting in a head has helped build global capability centers, we can add more capability in our India office to support our entire business. Brian Drab: Okay. Perfect. Suresh Krishna: Thank you. Operator: Thank you. Our next question is coming from Jim Ricchiuti of Needham and Company. Please go ahead. Jim Ricchiuti: Hi, good morning. I'm wondering, is this decision to share full year growth targets with us today, is that a function of what you're seeing in terms of opportunity? I'm not gonna call it predictable demand. I don't think that's something necessarily that characterizes your business. But I'm wondering, are you seeing this opportunity a better view of this opportunity in several of the key markets you've identified? Or is it just is this accelerating growth due to, you know, just greater confidence in the changes you're making and the potential for that to provide more immediate benefit? I'm not sure if that question is confusing. I'm just trying to get a sense because normally, you guys have not talked about full year revenue growth. Dan Schumacher: So, Jim, we just had a quarter in which we had 11% growth year over year. And Suresh just laid out some transformational change that we're going through. So it's a year of, you know, quite a bit of change for us. I don't have better visibility to what the full year is, but I thought it would be helpful to share with you and the investors where we're thinking about for the full year in terms of growth. Jim Ricchiuti: And that's very helpful. And I think appreciated. The other question I had is, given all the changes you're making, what are some of the puts and takes on the investments required? Do you anticipate additional investments as you go through the year to potentially, you know, lay those foundation for stronger growth, or is this also gonna be a reallocation of resources? Dan Schumacher: It's gonna be a, you know, one, it's a reallocation of resources. We are driving initiatives. You can see some of the we had a transformational charge in the fourth quarter. We've got one in the first quarter. So we are looking at eliminating costs in certain areas, but reinvesting them into others. So, you know, from a full year perspective, I would not expect us to be expanding margin. What we're gonna be doing is we're gonna be looking to lower cost, but at the same time, reinvest that cost to drive some of the transformational change that Suresh talked about and start really moving growth. Jim Ricchiuti: Got it. And just one quick follow-up. I may have missed it. Could you provide the network gross margin in the quarter? I think they were lower for the year, but I wasn't quite sure. You may have mentioned that I missed it. Dan Schumacher: Network margin in the quarter was 30.3%. Jim Ricchiuti: Thank you. And I'll add my congratulations real nice finish to the year. Dan Schumacher: Thank you, Jim. Thank you. Operator: Thank you. Ladies and gentlemen, this brings us to the end of our question and answer session and today's conference. We would like to thank you for your participation and interest in Proto Labs. You may disconnect your lines or log off the webcast at this time, and enjoy the rest of your day.
Operator: Hello. My name is Tiffany, and I will be your conference operator today. At this time, I would like to welcome everyone to the Cboe Global Markets Fourth Quarter Earnings Call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during that time, simply press star, then the number one on your telephone keypad. I would now like to turn the call over to Kenneth Hill, head of investor relations. Ken, please go ahead. Kenneth Hill: Good morning, and thank you for joining us for the fourth quarter earnings conference call. On the call today, Craig Donohue, our CEO, will discuss our performance for the quarter and provide an update on our strategic initiatives. Jill Griebenow, our Chief Financial Officer, will then provide an overview of our financial results for the quarter as well as discuss our 2026 financial outlook. Following their comments, we'll open the call to Q&A. Also joining us for Q&A will be Christopher Isaacson, our Chief Operating Officer, Prashant Bhatia, our Head of Enterprise Strategy and Corporate Development, and Robert Hocking, Global Head of Derivatives. I would like to point out that this presentation will include the use of slides. We will be showing the slides and providing commentary on each. A downloadable copy of the slide presentation is available on the Investor Relations portion of our website. During our remarks, we'll make some forward-looking statements, which represent our current judgment on what the future may hold. And while we believe these judgments are reasonable, these forward-looking statements are not guarantees of future performance and involve certain assumptions, risks, and uncertainties. Actual outcomes and results may differ materially from what is expressed or implied in any forward-looking statement. Please refer to our filings with the SEC for a full discussion of the factors that may affect any forward-looking statements. We undertake no obligation to publicly update any forward-looking statements, whether as a result of new information, future events, or otherwise after this conference call. During the call this morning, we'll be referring to non-GAAP measures as defined and reconciled in our earnings material. Now I'd like to turn the call over to Craig. Craig Donohue: Good morning, and thank you for joining us to review our fourth quarter and full-year results. Cboe Global Markets, Inc. delivered record net revenue and adjusted earnings for the quarter and year, powered by continued strength across our core businesses. These results demonstrate how our products continue to resonate with a diverse group of users across regions and asset classes. We remain focused on extending this momentum as we execute on our strategic direction we laid out on our last earnings call. Reducing our focus in certain areas while we redirect our time, talent, and capital to our core businesses and emerging opportunities. During the fourth quarter, Cboe grew net revenue 28% year over year to a record $671 million, and adjusted diluted EPS increased a robust 46% to a record $3.06. For the full year, Cboe delivered record net revenue of $2.4 billion, up 17% year over year, generating adjusted diluted EPS growth of 24% to $10.67 per share. The exceptional results in the fourth quarter were underpinned by double-digit net revenue growth in every segment and record results in each category at Cboe. Specifically, strong volumes in both our multi-list and proprietary index option products drove the strength in the derivatives category. Solid new sales growth led to gains on our Cboe DataVantage business, and robust industry volumes propelled our cash and spot markets higher. While 2025 was an impressive year, we remain focused on sustaining and amplifying our momentum by leveraging the strong secular trends across our core businesses. Taking a closer look at the fourth quarter trends by category, our derivatives franchise delivered a record fourth quarter with net revenue increasing 38% year over year to cap a record year in which revenue grew 22%. In our multi-list options business, net transaction and clearing fees revenue was up a strong 41% given higher industry volumes and positive pricing trends. The multi-list option space remains an area where we believe Cboe has a right to win, and we will continue to enhance our position within the industry to drive greater results over time. We're encouraged by the recent innovation in the space, underscored by the launch of Monday and Wednesday expirations for select multi-list names. While we are focused on educating market participants on the unique risks associated with single stock zero DTE trading, we believe these additions ultimately expand the toolkit available to investors. This development complements our index options franchise by elevating awareness of the utility zero DTE strategies provide while allowing us to reinforce the advantages of index options. Namely, the larger notional size, diversified risk profile, and daily cash-settled structure as compared to single stock options. More broadly on the index options side, net transaction and clearing fees revenue was up a strong 40% as our proprietary SPX options complex set new records powered by robust growth in zero DTE options trading. SPX zero DTE ADV was up an impressive 66% year over year, while overall SPX ADV increased 39% to a record 4.3 million contracts. Zero DTE options made up over 61% of SPX volumes, up from 51% share a year ago. We saw a similar dynamic in many SPX options where zero DTE ADV was up 135% as compared to 2024, making up just over half of the mini SPX volume to end the year. In our proprietary options business, it's worth noting that the 10 highest average daily volume months occurred in 2025 and 2026. In fact, nine of the 10 highest SPX days on record occurred in 2025 or 2026, pointing to the healthy momentum in the franchise today. We also saw growth in our VIX products. Volume in both VIX futures and VIX options gained 15% last quarter amidst increased market uncertainty with two notable spikes in volatility, generating robust trading opportunities. For the third year in a row, VIX options set a new record in trading volume, averaging 862,000 contracts a day in 2025. As concerns rise over the concentration risk in US markets, we're seeing renewed interest in small-cap stocks for those looking to diversify their equity exposure away from large-cap tech. Volume in our Russell 2000 index options jumped 20% last quarter to reach their highest level in almost ten years. We're excited to add 2000 index options to our global trading hour session starting this month, giving investors the opportunity to trade small-cap stocks around the clock. This will capitalize on the strong demand we have seen from international investors to access U.S. markets, with total volume in our GTH session up 34% last quarter. Looking ahead, we remain bullish on the outlook for our core derivatives franchise, anchored around strong retail demand, continued international growth, and further product innovation. Beyond these secular drivers, rising geopolitical tensions and increasing economic uncertainty should remain a tailwind for our products as investors turn to options to help better manage risk and generate income. Moving to cash and spot markets, net revenue was up a strong 27%, as we saw solid growth in our cash equities business in Europe and North America as well as in our global FX business. Led by another quarter of strength in our European transaction business, the Europe and Asia Pacific segment delivered a 24% year over year increase in net revenue. This was driven by a 33% year over year growth in net transaction and clearing fees, given strong industry volumes, stable market share trends, and improved net capture dynamics. Higher non-transaction revenues in the segment also contributed to the growth, with revenue up 15% year over year. North American Equities made a solid contribution with net transaction and clearing fees revenues up 18% given strong equity volumes in each of our markets. Non-transaction fees were also up double digits as our entire cash equity ecosystem benefited from the more active trading environment. Rounding out cash and spot markets, Global FX made another notable contribution, increasing net revenue 22% year over year in Q4. The fourth quarter results continue FX's long track record of revenue growth and caps an impressive 17% net revenue growth rate for 2025. Beyond the macro backdrop lifting activity across our cash and spot markets businesses, we are unlocking incremental revenue opportunities through our securities, financing transactions clearing service in Europe. Launched in response to strong client demand, this service has leveraged XevoClear Europe's pan-European footprint to introduce central clearing to a securities lending market that has traditionally operated on a bilateral basis. This market plays a key role in enabling asset owners to earn additional income by lending out their portfolios, enhancing returns for beneficial owners. By bringing clearing to this market, our service can provide participants with meaningful capital and risk efficiencies. The first trades were executed in March 2025, and we have seen hundreds of new contracts across 15 active European settlement locations cleared every day between borrowers and lenders, with notional outstanding loan values exceeding €1 billion in January 2026. Turning now to DataVantage. Net revenue increased by 9% on a year over year basis, reflecting continued momentum across our platform in the fourth quarter. Notably, roughly 90% of the growth across our market data and access businesses was again driven by new unit and new sales as opposed to pricing. This growth was underpinned by strong demand for access to our markets, a durable and growing international contribution, and favorable trends in our newer product offerings. If we look more broadly at the full-year results, net revenues increased 10% across the DataVantage platform. Importantly, we saw each component of our DataVantage business—market data and access, indices, and risk market analytics—all trend higher on a year over year basis. Now I'll turn the call over to Jill to walk through the details of our financials and 2026 guidance. Jill Griebenow: Thanks, Craig. Stifel posted another record quarter with adjusted diluted earnings per share up 46% on a year over year basis to a record $3.06. I will provide some high-level takeaways from this quarter's operating results before going through the segment results. Net revenue increased 28% versus 2024, to finish at a record $671 million. We saw healthy growth in all categories, with the strongest growth coming from our derivatives business. Specifically, derivatives markets net revenues grew 38%, cash and spot markets net revenues grew 27%, and DataVantage net revenues grew 9%. Adjusted operating expenses of $221 million were up 8% on a year over year basis. Adjusted operating EBITDA of $465 million grew 40%, and adjusted operating EBITDA margin expanded by 6.1 percentage points to 69.2%, a result of both our robust revenue results and disciplined expense management. The fourth quarter results capped a remarkable year at Cboe, where annual net revenue grew 17% to $2.4 billion, and adjusted earnings per share of $10.67 was up 24%, both setting new annual records. Turning to the key drivers of the quarter by segment. Our press release and the appendix of our slide deck include information detailing the key metrics for our business segments, so I'll provide some highlights for each. The option segment delivered another quarter of record net revenue, increasing 34% year over year. The growth was driven by a 40% increase in net and clearing fees in the fourth quarter. Total options ADV was up 24%, with a 35% increase in total index options volume and a 20% increase in multi-listed options volume. The rate per contract for our options business also increased 13% on a year over year basis, given a positive contribution from both our index and multi-list products. North American equities net revenue rose 17% versus 2024, with strong industry volumes driving an 18% increase in net and clearing fees. On the non-transaction side, market data fees grew 12%, and access and capacity fees increased 10%. Europe and APAC produced 24% year over year net revenue growth. Net transaction and clearing fees were up 33%, while non-revenues were up a combined 15%. Futures net revenue increased 12% from 2024. The increase was primarily due to a 16% up in total ADV, given a resurgence of VIX activity during the quarter. And finally, global FX net revenue was up 22% on a year over year basis, driven by a 17% increase in average daily notional value and an 8% increase in net capture. Looking at our Cboe DataVantage business, net revenues were up 9% year over year in the fourth quarter. Revenue growth was again underpinned by healthy new subscription and unit sales, representing approximately 90% of this quarter's growth, with the remainder coming from pricing changes. We remain encouraged by the success of our newer product offerings, including dedicated cores, time stamping services, and one-minute open-close data. Regionally, we saw incremental growth in index and market data sales, fueled by new brokers coming online in the Asia Pacific region. Overall, we remain pleased with the multiple avenues of durable growth in our DataVantage business. Turning to expenses. Total adjusted operating expenses were $221 million for the quarter, up 8% on a year over year basis. This increase is reflective of higher compensation and benefits expense, which primarily resulted from our strong 2025 revenue growth, increasing our short-term incentive compensation. Before detailing our 2026 guidance, I would like to provide a brief progress update on our strategic realignment over the past quarter and explain how these actions are reflected in our 2026 expectations. During the fourth quarter, we commenced the sales process for our Cboe Australia and Cboe Canada businesses. We have seen strong initial interest from potential buyers, and we will continue working towards an outcome that delivers a positive solution for all parties. Although we have initiated sales processes for Cboe Canada and Cboe Australia, we continue to operate those units as business as usual, and the revenue and expense contribution of each is included in our 2026 guidance. We plan to provide updates as milestones are met in the sales process and detail any subsequent financial impacts. We have also ceased operations on our corporate listings businesses while driving efficiency in our growing US ETP listings business, and European ETP listings business, as well as several of our smaller risk and market analytics businesses. Our 2026 guidance fully incorporates the anticipated revenue and expense impacts from these actions. And finally, last year, we made the decision to explore ways to reduce our cost footprint for Cboe Europe derivatives exchange, referred to as FedEx. As we further assess the business, it became clear that FedEx was unlikely to meet targeted revenue and profitability metrics given the retail investing landscape and market structure in Europe. And in January 2026, we made the decision to close FedEx. Our 2026 guidance includes the impact of our decision to wind down FedEx. The financial impact of the FedEx wind down is expected to be largely realized in 2026 and does not change the overall estimated revenue and expense impact ranges communicated on our October 31 earnings call related to our strategic realignment decision. For full-year 2026, we are introducing the following guidance. We anticipate our DataVantage organic net revenue growth to be in the mid to high single-digit range, and we expect our total organic net revenue growth to be in the mid-single-digit range. We are also introducing our 2026 adjusted operating expense guidance range of $864 million to $879 million, representing 3.3% growth on the low end and 5.1% growth on the high end. Our guidance accounts for some modest inflation in our core expenses, along with the expected financial implications associated with the recently announced leadership transition, and provides room for incremental investment in emerging opportunities. A few areas where we are excited to make some near-term incremental investments include expanding our securities financing transaction capabilities, as well as new product development around emerging event prediction markets. Our full-year guidance range for CapEx is $73 million to $83 million, and our depreciation and amortization is expected to be in the $56 million to $60 million range. We expect the effective tax rate on adjusted earnings under the current tax laws to come in at 27.5% to 29.5% for the full year, with the midpoint of the range 80 basis points below the 2025 rate as a result of an expected decrease in tax expense associated with uncertain tax positions. And while we don't provide formal guidance on interest income or interest expense, we expect that interest income, net of interest expense, will be a $3 million to $4 million positive contributor for 2026. On the capital front, we continue to look for ways to effectively allocate capital and drive long-term durable shareholder returns. In the fourth quarter, we returned $76 million to shareholders in the form of a $0.72 per share dividend, bringing the total amount of dividends paid in 2025 to $284 million. Factoring in both share repurchases and dividends, Cboe returned a total of $350 million to shareholders in 2025. We enter 2026 with a great deal of balance sheet flexibility. As evidenced by our adjusted cash position of $2.2 billion and a leverage ratio of 0.9 times. We are well-positioned to invest in organic or inorganic opportunities as well as redeploy capital to shareholders as dividends or opportunistic share repurchases. Moving forward, we remain focused on optimizing our capital deployment and look forward to delivering on long-term shareholder value objectives. Now I'd like to turn it back over to Craig for some closing comments. Craig Donohue: Thank you, Jill. As we move forward as an organization, we are focusing more attention on driving results in our core businesses and preparing for emerging opportunities across our industry. We believe that capitalizing on those opportunities starts with having the right group of leaders in place. As we announced last week, we are thrilled to welcome Heidi Fisher to head our cash and spot markets businesses and Scott Johnston as our new COO. Both bring a wealth of industry experience in their respective fields and strengthen our management capabilities across our core businesses at Cboe. I want to take a moment to express my sincere gratitude for the many contributions that Christopher Isaacson has made throughout his tenure at Cboe. From his early days as a founding BATS employee in 2005 to his meaningful contributions as a key member of our executive team and our COO, Chris has been an integral part of Cboe's growth and identity. Chris has embodied a Cboe-first mentality, and we are fortunate that he will continue to serve as an adviser through 2026. Now I'd like to turn the call to Chris to say a few words. Christopher Isaacson: Thank you, Craig. First, I'd like to thank my Cboe colleagues for everything we've accomplished together and your trust over the past twenty-plus years. It's been an incredible run together. To the investor community, I'm grateful for your engagement and thought interest through the years. It's been a privilege to build so many meaningful relationships with you during my time at BATS and Cboe. While leaving Cboe is certainly bittersweet for me, I'm excited for the opportunity to spend more time and be more fully present with my family. I feel there's no better time to pass the baton given the excellent momentum of the business under Craig's leadership, the recent strategic decisions we've made as an organization, and the support of a capable leadership team with long-tenured leaders as well as talented new ones coming into the organization. Thank you again. And with that, I'll hand it back to Craig. Craig Donohue: We have been incredibly deliberate in our efforts to strengthen leadership across our core businesses. This transition with Chris has been thoughtfully planned, and we are excited to bring in leaders of Heidi and Scott's caliber. With the addition of Heidi, Scott, and recent key hires in strategy and corporate development, global derivatives, clearing, and DataVantage, our management team has added an average of over twenty-five years of industry experience per hire. Importantly, these new hires are complemented by our efforts to elevate talent from within Cboe. Given the depth of talent now in place across each of our core businesses, along with a robust regional leadership team of proven executives, I believe we are better positioned than ever to capitalize on the numerous opportunities ahead. 2025 was a remarkable year on many fronts, and we begin 2026 with a position of real strength supported by healthy secular tailwinds, a fortified and aligned leadership team, and a sharpened focus on each of our core businesses. With this foundation in place, we are well-prepared to build on our momentum and unlock even greater value for our shareholders in the years ahead. I'll now turn the call back over to Ken for questions and answers. Kenneth Hill: At this point, we'd be happy to take questions. We ask that you please limit your questions to one per person to allow time to get to everyone. Feel free to get back in the queue, and if time permits, we'll take a second question. Operator: At this time, if you would like to ask a question, press star, then the number one, on your telephone keypad. To withdraw your question, simply press star 1 again. We will pause for just a moment to compile the Q&A roster. Your first question comes from the line of Patrick Moley with Piper Sandler. Please go ahead. Patrick Moley: Yes. Good morning. So you guided to mid to high single-digit DataVantage revenue growth in 2026, which is consistent with what you've introduced guidance at the last few years. But more recently, you've been trending closer to high singles to low doubles. And it seems like a lot of that's been driven by momentum internationally and the new unit sales. So could you just elaborate on the decision to maintain the mid- to high single revenue growth target? Should we interpret that as just general conservatism? Or are you expecting growth to slow over the next few quarters? Thanks. Kenneth Hill: Hey, Patrick. Thanks for the question. So, you know, really, when we look to set the annual guidance, we look at it on a full-year basis as opposed to just the quarter-to-quarter piece. We continue to see the durability in the DataVantage business, but, yes, we set the guidance still very comfortable with that mid to high single-digit range. But, again, some good momentum coming from new usage. The sales were about 10% coming from the pricing. Craig Donohue: Yeah. And I think I'd add to that, you know, to Jill's point, just the timing of sales may vary quarter to quarter, but on an annual basis, we're pretty comfortable where we are. Just for some color around what's happening within DataVantage from a market data perspective, we see a lot of momentum from sales overseas, about 45% of our new data sales this quarter were from overseas clients, so that compares to about 35% a year ago. So we're seeing good momentum there. If you look at our recurring sales, during the quarter, three out of our top five recurring sales came from clients in the Asia Pacific region. So we're seeing good momentum there similarly across our CGI businesses analytics businesses. The utilization of our products in option-embedded ETFs continues to be strong, and there's a lot of client demand for that. So we're really positive on the continued growth in that mid to single-digit range. Patrick Moley: Okay. Thank you. Operator: Your next question comes from the line of Daniel Thomas Fannon with Jefferies. Please go ahead. Daniel Thomas Fannon: Thanks. Good morning. Craig, I was hoping you could expand upon your comments around the single name zero DTE, you know, recent rollout and why you, I guess, what gives you confidence around that not cannibalizing potentially your index business and ultimately, you know, expanding the pie, I think, is how you described it. I was hoping to get a little bit more context around that. Craig Donohue: Yes. Sure. Thanks, Dan. I'll start, but I'll turn it over really to Rob. I mean, I think we view it as additive to the market. But, I mean, fundamentally, there's a lot of differences between, from the customer perspective, including, you know, from the risk aspect, a lot of differences between our SPX products and single name zero DTE. So we actually don't think that they will be cannibalistic. We think they'll just be additive to the market, but Rob, why don't you comment? Robert Hocking: Yeah. And maybe I'll even, thanks, Craig. Maybe I'll even take a step back and just, this is obviously a popular question we're getting. So maybe just give an overview of what we've seen early days in the Monday, Wednesday trading as well as kind of to your cannibalization question. So, so far, I think early uptake of the Monday, Wednesday options has been good. They're largely concentrated really in two names, NVIDIA and Tesla. At this point, we have a very small dataset, obviously, but Monday, Wednesday options are ranging between 10% to 30% of the total number of that are trading in the nine names that were launched. And so, you know, of these options, a lot of them have been picked or they've all been picked up by all the different exchanges. We're pretty sure all the different retail broker platforms are offering them. From an access standpoint, we think, you know, we're there. On the cannibalization question with regards to SPX, you know, really that one, I think it helps to take a step back. And as Craig alluded to, you know, why are people trading each of these products and how differently they actually work. You know, SPX tends to be more smooth because it's a diversified basket. You know? Price moves tend to be more macro-driven. They're well telegraphed. Single names are different. They're driven by more company-specific news. Really means more gaps, call it sharper jumps, fatter tails. And so the strategies we see today in zero really better align with that smoother kind of intraday SPX price action. The retail activity we're seeing is around the open and then again and call it the final hour of the close. Where people are trading that momentum trying to collect, you know, premium decay throughout the day. And so those strategies are really less suited to underliers whose prices, we'll call it, are more unpredictable with kind of those higher probabilities of gap moves. Now, you know, do I think that that will keep people from trading single name zero DTE? Well, no. Investors will continue to develop new strategies and they'll introduce, you know, kind of these shorter tenors into their portfolios, but I think that will actually have a positive effect on industry volumes overall. I don't think they'll cannibalize for the reasons that, you know, trading both are differentiated enough that, you know, one is not a good replacement for the other. But I do think it's really important to note right now for investors that, you know, they'll have to deal with some really large fundamental differences in product design between trading single names in zero DTE and trading single name SPX. And so, for example, SPX options are cash-settled and European style, while single name options are physically settled and American style. So that difference brings early exercise into play with single names. And so on expiration day, SPX zero DTE positions settle into cash based on the index print. There's no overnight exposure. Your account gets debited or credited the next day. And really with single name options, instead, you end up with actual shares of stocks. I think that's really important for investors to understand. That means there's overnight risk. It also means you have to unwind those stock positions the next day to get your capital freed up to put into new option strategies. And so if you're trying to run some of those higher turnover zero DTE strategies in single names that we've seen, those differences kind of really matter. And so, you know, kind of these fundamental contract differences are also why Cboe is really hyper-focused on investor education. We think that's important at this stage of the game to really ensure that investors understand the differences between these two products and they're not caught off guard with cash and or stock moving through their accounts unexpectedly at expiration. So I know it's a long-winded answer. I think it's important to get all of those details out there because I like the introduction of Monday, Wednesday single names. I think it's good for volumes. But, really, we don't see them replacing SPX. We'd rather see them additive to the system. Daniel Thomas Fannon: Great. Thank you. Operator: Your next question comes from the line of Elias Abboud with Bank of America. Please go ahead. Elias Abboud: Good morning. Thanks for taking my question. You completed a number of introducing broker onboardings in 2024 and 2025. I was hoping you could give us Robinhood, of course, but then also several APAC brokers. Any sense of the contribution of these new brokers to the strong SPX volumes in 2025? And then, what does the pipeline look like for further broker adds in 2026? Robert Hocking: Yeah. This is Rob. Thanks, Elias. Maybe I'll take that question. Don't get down to specific SPX attribution, but I can take it up one notch for you. As you mentioned, we continue to expand access to our core products. Robinhood was a great add. We continue to see their options volume grow, which is super exciting. And they've been very public that they see good options growth in the midterm. I think I saw somewhere in an article, you know, they're estimating 40% to 45% kind of growth of options penetration. So we're excited about that. As you mentioned on the APAC side, we continue to see strong demand from international retail brokers and institutional clients wanting to connect to our exchanges, especially for SPX options, the Mega Tech, you know, the mega cap tech names are also in demand in our VIX. You know, they voiced that they're very anxious to really tap the large US pools of liquidity that we have. Korea has been a success story for SPX Options with seven of the 10 identified local brokers that we've seen all offering now as options at this point. Put that in perspective, that's compared to zero online two years ago. So that's expanding. We see that as a really good, you know, opportunity for growth. To give another region, Taiwan saw the first local retail broker launch of SPX and VIX options in Q4, and we're expecting others to follow this year, so more growth there. The continued demand keeps coming in. We see this volume not only showing up in some of our GTH sessions. I think you heard in Craig's remarks how that is growing at a very fast pace, but we're also seeing it actually show up in our regular trading hour sessions. And we're just really encouraged by kind of that international demand coming into the US, and we see it as a large area of growth in the years to come. Operator: Your next question comes from the line of Benjamin Budish with Barclays. Please go ahead. Benjamin Budish: Hi. Good morning, and thank you for taking the question. Don't think you've talked about prediction markets yet on the call. I know there's been some press indicating that you are either thinking about or having early discussions with brokers regarding sort of yes-no options. So could you maybe give us an update of where you are in the thinking in terms of product design, conversations with, you know, just distribution partners, market makers, anything else that you could share? Thank you. Robert Hocking: Yeah. Absolutely. We're excited about the continued growth in the event prediction markets. Really view this as a logical extension of Cboe's existing strengths. And they provide a clear entry point for new customers and really a pathway to broader Cboe product adoption. As you've heard us mention, our current focus is on the financial and economic style contracts. That's where we think we have the deepest expertise, where our core products already sit, and where we believe we can deliver value immediately to our end users. By staying, I would say, close to our core, we can leverage really our technology, the existing product liquidity, which I think is important, and our market structure experience, while offering customers the regulatory certainty and reliability that comes with trading on our established regulated exchange. I think that's important. You know, a few important points I think that's worth highlighting. You know, our first initial offerings will be securities products. We think that's the best way to reach the broadest set of end users, and it clearly differentiates what we're doing from a lot of the non-security-based platforms already in the market. Second, these products will closely align with our SPX options ecosystem. We already see more than 200,000 SPX Zero DTE contracts trade every day, many of which, you know, those trades have the same kind of defined risk or, as you mentioned, all-or-nothing payout profiles that this newer investor is looking for. And so this provides a very natural connection and something we feel we can leverage into being successful in that prediction market space. And so from a regulatory standpoint, I think it's also important to mention we're encouraged by the recent comments from both chair Atkins and chair Selig, especially around drawing clear lines between what's considered a security versus a CSD regulated swap. Their remarks reinforce the idea that securities products belong on a registered securities exchange, which really puts Cboe in a very strong position in the driver's seat, so to speak, with expanding into the space and then continuing the development. Now, the positive thing behind this regulatory clarity is it's giving people increased confidence, you know, as certainty improves, participation broadens, not just among individual investors, but also among retail brokerage platforms, which is important. You know, they've been previously cautious about entering the space, and so we think the timing is good with the added regulatory clarity, kind of how this product set intertwines with our existing, you know, SPX product set. And so as far as when, I think that's always the last question we get, which is when do you think we'll launch? You know, right now, we're targeting a second-quarter launch. Assuming regulatory approval and really most importantly partner readiness as we need to launch these with the various partners we have in the industry such as OCC, and a lot of the retail broker platforms. But as we get closer, we'll continue to provide more updates. But big picture, we're super excited about the space. Benjamin Budish: Alright. Thank you very much. Operator: Your next question comes from the line of Brian Bedell with Deutsche Bank. Please go ahead. Brian Bedell: Great. Thanks. Good morning. Thanks for taking my question. Maybe just a follow-on for that and then maybe just to add a question for Jill on the revenue guidance. With that. So, the second-quarter launch for the just to clarify, that's for the binary options, I believe. And then, I guess the follow-on question is, when do you would you expect to be launching the actual more traditional prediction market contracts? Is that just coming in future the next quarter or two? Or is that a longer-term development? And then I know the expenses for developing these are in the guidance. Is there any revenue assumption from these embedded in the revenue guide as well? And then, Jill, if you could just on that revenue expense guide, can you just reconfirm the part that you are including in that versus the commentary in the third-quarter call, I think the divestitures were 3% net revenue drop on an annualized basis with eight to 10% expense drop. Sounds like most of that's still in there because of the Canada and Australia commentary but just wanted to confirm. Robert Hocking: So, yeah. Thanks, Brian. I can start with your questions around the event contracts. So second quarter is for and I'm not going to give too much detail because we're going to make a bigger splash on this, I think, in a little while here. But it will be the all-or-none style combined with what we feel is a way to intertwine some of the spread trading that we see going on today in SPX. So that is what we're targeting for that second quarter. Once again, you know, think our core products think yes or no, but even a little bit of a different twist as a differentiator on that. And then once again, in the security space, we think that's super important. On the other contracts, you know, as we gain traction and as we get our initial contracts up on retail broker platforms, as they build let's call it, the GUIs that are able to those contracts and really give the user experience what they're after, we'll look to expand that into what you referenced as the more, call it, traditional contracts more, you know, yes, no around an event style contract. But think of that, you know, as market adoption happens, that will be a steady rollout into the future. Craig Donohue: Yeah. Ross, you might comment. I mean, what Rob is describing will still be focused on financial and economic events. But like this strategy. I like the synthesis on securities products. It capitalizes on, you know, hundreds of thousands of spread contracts that are trading every day in the market. And leverages our strengths in that way. Brian Bedell: Okay. On securities, yeah, securities, do you mean single name company securities or index? Securities or both? Robert Hocking: We'll be starting with index. That's just a natural fit at the moment. But that will potentially expand into other securities as well. Brian Bedell: Okay. Robert Hocking: Then to Craig's point real quick, you know, I mentioned the 200,000 SPX contracts we see each day trade. Those are in very, very tight minimum increment vertical spreads. And those minimum vertical, those minimum increment vertical spreads on expiration day have effectively a binary payout. A yes-no payout. So we believe we're seeing event style contracts that can exist in SPX today. And so as I talk about this all-or-none new contract, combined with the spreads that we're seeing, I mentioned, the 200,000 contracts, 200,000 plus contracts we see, that's where we think we can offer a very positive securities-based in the indices to start product offering to the market. Jill Griebenow: And then just to pick up on the second half of your question as it relates to the guidance impact. So a couple of different components to your question. Let me know if I miss anything here. But the first one, that I'll address is just on your question as to what we're including from the 2026 revenue guide as it relates to the new prediction and event contract opportunities that Rob has spoken to. I'll just say that there's, you know, a small contribution contemplated in the 2026 revenue guide, but we really do expect that to ramp more over time, and we'll continue to update our model as that becomes more clear. As it relates to the strategic realignment pieces and how those factor into the guidance, again, there are a few different tranches there that I tried to address in the prepared remarks, but we'll just take a couple of minutes here to further articulate and clarify those. So to your earlier point, we did communicate back in October that we expect the net impact of all of the realignment to result in about a 3% net revenue loss. So there are pieces of that that are already contemplated in the 2026 revenue guide. So those would relate to the decision to wind down the Japan equities business, corporate listings, and then some of the optimizations we've made within the risk and market analytics business as well as any revenue contemplated from the FedEx initiative. So, again, those knowns are built into the 2026 guide. The piece that still lives within the 2026 revenue guidance, though, is the contribution that's contemplated from Cboe Canada and Cboe Australia. Given that those businesses are still actively owned and operated by Cboe. As the sales progress progresses there and if and when there's an impact on either 2026 revenue or expense contributions from those businesses, we'll recast our guidance then communicate those impacts to the industry. Brian Bedell: That's great. And the expenses, the related expenses to what you just described is also in and out expenses in for Canada and Australia expenses out for the other things that you've closed. Jill Griebenow: Correct. So, the 2026 expense guidance does include what we expect expenses to relate to Canada and Australia, correct? And then there will be somewhat of a timing lag on some of the we're doing. But for the most part, we do see a bit of savings then in 2026 from, you know, the Japan piece, corporate listings, the risk and market analytics optimization. As well as the FedEx wind down. So those knowns are embedded within the 2026 expense guide. Brian Bedell: Great. Thank you so much. Operator: Your next question comes from the line of Alexander Kramm with UBS Financial. Please go ahead. Alexander Kramm: Hi, guys. Good morning. Thank you for the question. So a lot of the strategic initiatives that you've talked about meant to be organic build-outs. That feels consistent. The balance sheet obviously continues to be in a really good place, so I was hoping you could refresh us on your latest thoughts around share repurchases or any other use of capital over the next kind of twelve to eighteen months. Jill Griebenow: You bet. So, I mean, if you look back historically, our return on capital is actually we get some of the highest returns on organic investments. So on the heels of the strategic realignment, obviously, we are pivoting away from certain areas of the business. But what that is allowing is both time and balance sheet flexibility to really invest in areas where we do see some promise. So really looking to optimize around the core. A couple of the opportunities that we've mentioned today from an organic standpoint are the focused investments that we're making to further build out our securities financing transaction line of business as well as, you know, some of the product development and opportunities around the event prediction market. So we really are laser-focused on continuously looking at all of our core business lines to see what further enhancements or optimization we can make to generate that long-term revenue flow. That isn't to say, though, that share repurchases don't remain a priority. We absolutely still will look to do those again on an opportunistic basis. We do also have a history of paying a quarterly dividend and also have increased that annually. If you look back to August 2025, we did announce a 14% increase to the dividend. Really, you know, we like the flexibility that we have at the moment. We like the dry powder, and you know, we'll just continue to look to optimize the capital returns based upon the opportunities that are ahead of us. Alexander Kramm: Great. Thank you. Operator: Your next question comes from the line of Alex Kramm with UBS Financial. Please go ahead. Alex Kramm: Hey. Good morning, everyone. At the risk of asking Brian's question a little bit more specific on the expense side, Jill, of the 8% to 10% that you talked about on the last call, can you maybe just give us the number of how much of that is now basically out of the 2026 cost guide? Thank you. Jill Griebenow: Morning, Alex. No. We're not breaking it out on that discrete of a level. What I'll say, though, is there are quite a few tranches of things that are coming off and then, you know, some organic investments that we're making coupled with what I will say is, you know, the majority of the savings would come later on from some of the Canada, Australia pieces. But like I said, we already are starting to see the full-year benefit of the Japanese equities piece as well as looking for a good portion of the FedEx component to come out. So it really is a balance there. You do see it reflected in the guide that we came out with. So, you know, you look at the lower end of the range, the $864 million, higher end of the range, that $879 million, that suggests, you know, somewhere of a 3.3% to a 5.1% expense guide. Again, we will keep you updated over the course of the year as more becomes known with the timing of the Cboe Japan or Cboe Australia and Cboe Canada pieces. But, for now, again, feel good with that range that we've communicated given some of the pieces that are in motion. Alex Kramm: Understood. Figured I needed to ask. I'll be back with a follow-up. Thanks. Operator: Your next question comes from the line of Ashish Sabadra with RBC Capital Markets. Please go ahead. Ashish Sabadra: Thanks for taking my question. Was wondering if you could provide more color on the rollout of dedicated cores as well as talk about the new growth initiatives and new product roadmap within the DataVantage? Thanks. Craig Donohue: Yeah. So in general, you know, some of the products we've rolled out over the last year or so include dedicated cores. Again, that's reducing latency. In terms of accessing our equity markets. We've also rolled out time stamping and a one-minute open and closed dataset, and those are more focused on the datasets around our options exchanges. We've rolled those out. We started in the US, and then we took them across to markets in Europe. So those were some of the initiatives we had in place. As we looked at 2026, we've got some new launches planned as well. There's an option-like dataset that we've just launched early this year. We're already seeing some strong interest in the Asia Pac region around that dataset. And there's something that we'll put in around the middle of the year, around Cboe clock service that has good potential as well as we work with clients who really understand some demand around that. So we continue to innovate around new products and services that clients are really asking for. So we'll continue that rollout into '26 as well. Ashish Sabadra: Thank you. That's great, Connor. Operator: Your next question comes from the line of Jeffrey Schmidt with William Blair. Please go ahead. Jeffrey Schmidt: Hi. Good morning. You discussed on the last call that you're working on pricing improvements for your exchanges. And, you know, whether it's market maker incentives, more attractive rebate programs, things like that. Could you provide us with an update on what you're doing there? Is that really for the multi-listed options? Thanks. Robert Hocking: Hi. Yeah. This is Rob. I'll take that one. And, yeah, it's for the multi-list space. We're still, it's an exciting space for us and really core to Cboe. As all the reports show, you know, industry volumes continue to grow at a staggering pace. And so this is an area we're heavily focused on. But we'll say, as you point out, it's highly competitive. By early twenty-six here, we'll reach 20 exchanges in the space. But that said, you know, Cboe still controls, call it, around 22% market share in multi-list. And we're number one in overall market share. So without getting into, as you mentioned, we're constantly evolving different functionality, the different pricing schemes. And we're always actively evaluating and working through all of those pricing enhancements across our different medallions, but it's I think it's important to point out that we're always very intentional about how we manage the dynamic between market share and revenue capture. So we don't see that as a static kind of trade-off. As market conditions change, we'll continuously adjust pricing and incentives to make sure we're maximizing that overall opportunity set for Cboe rather than optimizing for a single metric in a given quarter. So that's kind of an ongoing thing, and it will continue to be an ongoing thing. On the more specific things we're doing, on the market structure side, we're preparing to launch multi-list trading during our limited GTH session. You've seen reports of that. That will pending regulatory approval later this year. And then another one that I think is important to mention that I'm not sure we've mentioned before, we're engaging with industry participants on the potential for options, the options regulatory fee or for form as you hear it referenced. Now ORF is a per contract fee charged on option trades to help pay for market regulation and oversight, and ORF is assessed on customer trades regardless of which exchange the trade is actually executed on. So the fee is used by options exchanges to fund their regulatory responsibilities, but because there are many options exchanges, as I mentioned 20 here in the first part of 2026. ORF can be charged by multiple venues on the same cleared trade, which is why it's become really a point of focus and discussion across the industry. Because as the number of exchanges grow, the cumulative burden on customer trades increases. Which is why the, you know, the industry, the derivatives industry has been discussing this offer form and aligning fees more closely with where trades actually occur to reduce friction, cost, improve overall market efficiency. And so this initiative is important to us. It's one Cboe firmly believes in is supportive of aligning fees with where the actual trades are done. And we feel, you know, overall, if you look at our approach towards pricing, extending GTH or for form, we still feel we're positioned well to remain an industry leader in multi-list. Jeffrey Schmidt: Okay. Thank you. Operator: Your next question comes from the line of Ken Worthington with JPMorgan. Please go ahead. Natalie Daleiden: Good morning. This is Natalie Daleiden on for Ken. Appreciate your earlier comments on single name cannibalization risk. But may you provide some more context or help us size the capital efficiencies customers could realize when trading across the new, you know, shorter duration equity risk management tools, whether it be single name zero DTE, the MAG10 index you launched, binary options, when trading in conjunction with the legacy S&P index stakes. Craig Donohue: Sure. Want me to? Yeah. You can start. Yeah. I mean, all these products are cleared through OCC. And so as a result, there's substantial capital and margin efficiencies because of the portfolio margining that's happening within OCC. So, you know, I think, again, that's kind of another sort of complementarity to the launch of these products, which is they're all held on the same pool. And therefore, you know, they get the multilateral of centralized clearing. I think that's your question. But Rob, is there something you want to add to that? Robert Hocking: And maybe to expand on that is just, you know, if you think events, think zero DTE, whether single name or index, think MAG 10. All of these, as Craig points out, are cleared at OCC. So all of them, we expand the product set, whether it's introducing new tenors existing products. So think, you know, Mag 10 is even introducing new products that are made up of top 10 names relative to the single names that already trade. All of those and that's kind of our strategy. All of those are going into the same bucket of risk at the OCC for offset and risk offset capital efficiency. So as we expand the toolkit, that's the beauty of it, is these people's portfolios, as you add these names, you're not introducing a completely new asset class that you have to fund as a completely new vertical. You're introducing new, call it, risk characteristics, new access points all within the existing verticals they have is a much more efficient way to trade. Natalie Daleiden: Thank you. Operator: Your next question comes from the line of Michael Cyprys with Morgan Stanley. Please go ahead. Michael Cyprys: I was just hoping you could share your updated thoughts on plans around extending trading hours to twenty-four-seven. Across your markets, what that path and some of the hurdles look like. I know for multi-list, you've announced to have extended sessions, I think, for certain options contracts. Just curious how you think about overcoming any sort of hurdles around fragmenting liquidity and ensuring real price discovery, particularly in some of those overnight hours. Craig Donohue: Thanks. Michael Cyprys: Yeah, Michael. I just want to remind you. So we already trade 23 or 23.5 by five. Futures index options and FX. I have for many years. And as we've mentioned on this call already, through the prepared remarks and Q&A, GTH volume or global trading hours really grown tremendously. 34% year over year. So we're seeing great growth in those markets where we already trade. In US equities, we trade from 4 AM eastern to 8 PM eastern today. Kind of the broadest hours of all the US markets. Coming in late November, assuming the market infrastructure, the consolidated tapes, and DTCC are ready, the industry, including our EDGX market, would be going to 23 by five in late November, but you'll see a room filing for that in the first half. And then to your specific question about 24 by seven, you know, we're already making plans. There's been a lot of talk here about the Fed prediction markets and some about crypto as well. So we certainly have the capability to trade 23 by five. We're taking a look at what would it mean for us to extend our clearing abilities to 24 by seven as well as our trading abilities to do that. And just, I'd say, just watch the space for when we see the appropriate market demand. To justify those projects. But those are definitely in the planning phase, and we look forward to bringing those to market when the customer demand is there to meet it. Robert Hocking: And then, Michael, real quick, if you're asking specifically about multi-list, you know, we're working to launch, you know, extended hours trading or that extended GTH session for Q, we'll call it Q3, pending regulatory approval. And in our filing, we would add a morning session from 07:30 to 09:25 eastern time and then a post-close session from four to 04:15 to supplement the existing US equity options hours that Craig meant, sorry, that Chris from 09:30 to four. Our plan would be to start with 25 names only. That represent kind of the highest market cap, most liquid, names across options and underlying equities. And as you highlighted, this is really in response to the surge we've seen in the equity option volumes and just the general industry push towards 24 by five. But those are kind of the specifics around how we're expanding that for multi-list. Michael Cyprys: So just on the multi-list, so that goes till four fifteen. Just curious why not extend a bit longer? How do you think about that? What are some of the hurdles? When do you think we can get to twenty-four five, twenty-four seven within multi-list? Robert Hocking: No. I think it's a great question. Really, you know, trying to expand the functionality slowly and deliberately to make sure market participants are prepared and it's a smooth transition process. Right now, these windows where we're expanding account for where we see the majority of volume in our current GTH session. With SPX. So we don't want to burden liquidity providers right out of the gate having to staff and provide liquidity all night over some of the lower, you know, traded hours or lower volume hours. So we feel like if we use SPX as an XSP kind of as a guide, this is where we're seeing the majority of the volumes. So let's expand 25 names there. Let's see how that works. Let's not burden liquidity providers and then hopefully expand as it makes sense. Michael Cyprys: Great. Thanks so much. Operator: That concludes our question and answer session. I will now turn the call back over to Cboe management for closing remarks. Craig Donohue: Thank you very much. Thank you for joining us today. I just want to take a last opportunity to thank Christopher Isaacson for his ten years of experience in his last earnings call with us. But he'll be with us for a while as an adviser and Chris, we thank you, and thank you for joining us. Christopher Isaacson: Thanks, Craig. Thank you all. Operator: Ladies and gentlemen, this concludes today's call. Thank you all for joining. You may now disconnect.
Operator: Hello, and welcome to the Unum Group 4Q 2025 Results and 2026 Outlook. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. If you would like to withdraw your question, press 1 again. And please limit to one question and one follow-up. I will now turn the call over to J. Matthew Royal, Investor Relations. You may begin. J. Matthew Royal: Thank you, and good morning. Welcome to Unum Group's Fourth Quarter 2025 Earnings Call. Today, we will be discussing full year 2025 results along with highlights from the fourth quarter. We will also use the time to discuss our outlook for 2026. As such, we have extended our time today to allow for the additional presentation and discussion. Note, today's call may include forward-looking statements and actual results may differ materially. We are not obligated to update any of these statements. Please refer to our earnings release and our periodic filings with the SEC for a description of factors that could cause actual results to differ from expected results. Yesterday afternoon, Unum released our earnings press release, financial supplement, and webcast presentation for today's call. All of those materials may also be found on the Investors section of our website. Also, please note, references made today to core operation sales and premium including Unum International, are presented on a constant currency basis for comparability period to period. Participating in this morning's conference call are Unum's President and CEO, Richard Paul McKenney, and Chief Financial Officer, Steven Andrew Zabel. Following the remarks from Richard Paul McKenney and Steven Andrew Zabel, additional members of management will participate in Q&A, including Mark Till, who heads our Unum International business, Timothy Arnold, who heads our Colonial Life and voluntary benefits lines, and Christopher Wallace Pyne for group benefits. Now I will turn the call over to Richard Paul McKenney. Richard Paul McKenney: Morning, everyone, and thank you for joining us. 2025 was a year of disciplined operational performance across our core businesses, sustained investment in digital capabilities that create differentiation for Unum, and decisive progress in the closed block, materially improving its risk profile. We delivered for customers, advanced our strategy, and closed the year with strong capital and liquidity. On the earnings front, for full year 2025, adjusted EPS was $8.13. This was down year over year and below our expectations going into the year. The primary driver of the softer outcome for both the quarter and the year was higher than expected benefits experience. That experience varied in total and by line throughout the year. We will dig into our benefits experience more, but throughout the call today, you will hear more about our leading franchise in group benefits that has grown notably over time as we serve employers and their employees. As we have grown, we have done so profitably. As our core operations delivered approximately 20% return on equity. This reflects durable earnings power supported by disciplined underwriting, solid persistency, a focused product mix, and a sales force that appreciates building relationships with clients. Those fundamentals have been true for many years. Combined with strong risk management and capital management, we remain excited about the opportunity moving into 2026. As we look at the top line, this opportunity is demonstrated by a growing premium base and customer relationships. Core operations premium grew within our expected range at nearly 4.5% excluding transaction impacts. This includes a 3.1% premium growth at Colonial Life and 10% in international. Given our healthy persistency and the ongoing demand from employers who value integrated benefits, we are well-positioned to deliver premium growth within our long-term target range of 4% to 7% in 2026. A key enabler of that performance is the progress we are making in digital. Today, over one-third of our core premium base is associated with customers experiencing one of our leading digital capabilities. The idea is simple: connect our benefits to the HR platforms employers already use and wrap those connections with an experience of service, expertise, and empathy. The execution, particularly when building at scale, is complex, but our teams are up to the challenge. HR Connect, Broker Connect, and Total Leave strengthen the employer link. MyUnum, Gather, and The UK's Help at Hand make enrollment and administration easier while adding value-added services. AI-enabled tools help our teams respond faster and with higher quality. Where these capabilities are adopted, we see stronger engagement and persistency. We pair that digital momentum with paying attention to the fundamentals across the enterprise. In group disability and group life in the US, we maintain strong pricing discipline and risk selection, and returns remain attractive and industry-leading. In Colonial Life, we continue to strengthen our independent distribution model, improving agent productivity through better digital tools and workflow. This supported steady premium growth, strong returns, and sales that finished the year at a multi-year high, which included double-digit growth in the fourth quarter. In international, we also delivered double-digit premium growth, reflecting a sharper broker experience in the UK and continued progress in Poland. While 2025 had some variability in reported benefits experience, the underlying earnings power remains resilient. Our strategy continues to translate into durable growth and meaningful long-term value creation. This growth also flows through to our capital generation, conversion to free cash flow, and deployment. Consistent with our deployment philosophy, 2025 was a year in which we grew the company organically and made two small acquisitions. At the same time, with our continued strong statutory earnings, we were able to increase our dividend 10% and buy back $1 billion of our shares. That combination effectively returned to shareholders what we generated in the year. We ended the year with robust capital levels of 440% risk-based capital and $3.2 billion of cash at the holding company. 2025 will also be remembered as a year where we reached some pivotal moments in addressing the closed block. It dates back many years, but in 2023, we provided additional funding to our Fairwind entity and stated at that time that no further contributions would be necessary. Three years later, our position remains unchanged. Today, we have $2.2 billion of protection between reserves and capital to guard against any future adverse development. As you have heard before, a consistent part of our block management has been to seek price increases over time where appropriate. With our steady and mature approach, we have crossed the $5 billion mark in cumulative premium rate increases since initiating our program. Finally, in 2025, we completed a reinsurance transaction that ceded roughly 20% of long-term care reserves coupled with an internal reinsurance action that reduced potential capital volatility. Combined, we reduced LTC reserves by more than $4 billion in total through these transactions. Our progress in 2025 has meaningfully strengthened our risk profile while maintaining strong capital protections, and we remain focused on further reducing legacy exposures to drive the focus to our leading employee benefits franchise. We are excited about how we are positioned entering 2026. We are starting the year in a real position of strength. That is true in our market position and reputation, the depth and expertise of our team, and, of course, the financial flexibility to capitalize on opportunities when they present themselves. Our performance is grounded in purpose: helping the working world thrive throughout life's moments, delivered through the right balance of digital connection and human empathy. With our continued investment in technology, we expect a good year of growth in '26. Across the company, we see top-line growth in the range of 4% to 7%, with meaningful contributions from each part of the enterprise. This stems from both new sales and persistency, driven by the connections we have developed over the years. With disciplined focus on our margins, our EPS will return to growth of 8% to 12%, driven by our high ROE businesses. Finally, we continue to return value to our shareholders in a consistent manner, as we have done over the last several years with an increasing dividend and share repurchases of approximately $1 billion. Steven Andrew Zabel will now take you through the quarter details, and then we will cover our 2026 outlook. Steven Andrew Zabel: Great. Thanks, Richard Paul McKenney, and good morning, everyone. While earnings in the fourth quarter were below our expectations, our top line continues to grow, and the franchise remains strong. Core operation sales finished the fourth quarter on firm footing after a slower than expected first half and were up 1.1% in 2025 over the prior year. This included Colonial sales increasing 10% in the quarter over a year ago and 5.3% for the full year. We were also pleased with our persistency results, and we continue to see high levels across our businesses, including U.S. Group persistency of 90.2%. Considering all this, core operations premium in the fourth quarter increased 2.9% compared to a year ago and finished up 3.7% for the full year. When we adjust for the runoff stop-loss business and the ceded IDI business from the LTC transaction, core premium grew approximately 4.5%. This growth is consistent with our outlook from last February and within our long-term expectation of 4% to 7% annual premium growth. Turning to margins in the quarter, results across the franchise generally performed lower than our expectations. This was reflected in Unum US group disability, with a 64.2% benefit ratio in the fourth quarter, which was above our expectations, driven by lower average size of recoveries and lower than expected mortality on our claimant block. Despite this, we continue to be pleased with the high returns our business generates. In both the quarter and for the full year, adjusted ROE for our core operation was approximately 20%, a good reminder of the underlying earnings power of our business. Even when margins show volatility and are pressured in certain quarters. Altogether, these factors produced after-tax adjusted operating earnings of $322.3 million for the quarter, or $1.92 per share, and $1.4 billion or $8.13 per share for the year. These GAAP earnings translated to full-year after-tax statutory earnings of $1.1 billion, which exclude the impact of reinsurance transactions. This result was below our expectation of $1.3 billion to $1.6 billion coming into the year and largely reflects the lower than expected margins experienced in our GAAP results. However, our overall capital generation model still provided immense levels of capital optionality, enabling us to execute against our capital deployment priorities. Consistent with our priority of continued organic investment and capabilities, the full-year adjusted operating expense ratio finished in line with expectations. Outside of organic investments, we executed two small transactions for our core business, closed our first long-term care risk transfer transaction, and returned approximately $1.3 billion to shareholders through share repurchases and dividends. Our capital generation and strong excess position enabled this high level of capital flexibility in 2025, allowing for a wide range of capital uses which will continue into 2026. I will now briefly review our 2025 results by segment, provide updates on the Closed Block strategy, and then shift to our 2026 outlook. In Unum US, before-tax adjusted operating income was $289.7 million in the fourth quarter, 13.1% less than the prior year quarter, and full-year adjusted operating income decreased 11.6% from 2024 to $1.3 billion. In group disability, adjusted operating income was $102.3 million in the fourth quarter and $479.8 million for the full year, a decline of 22.8% from 2024. This year-over-year decline represents a normalization of our group disability benefit ratio after a historically low benefit ratio of 59% in 2024. This normalization paired with volatility throughout the year led to a group disability benefit ratio of 64.2% in the fourth quarter and 62.4% for the full year. Reported full-year premium of $3.1 billion was nearly flat. Adjusting for the runoff of our stop-loss business, premium increased nearly 3%. For Group Life and AD&D, fourth-quarter adjusted operating income increased 11.1% to $91.9 million, and full-year adjusted operating income decreased 7.3% to $319.4 million. Favorable levels of mortality counts led to a benefit ratio of 64.8% in the fourth quarter and 67.5% for the full year. Full-year premium increased 4.9% to $2.1 billion due to favorable sales, while persistency remained strong. In our supplemental and voluntary lines, adjusted operating income declined 8.2% to $95.5 million in the fourth quarter and was flat at $472.7 million for the full year. Fourth-quarter results were impacted by higher benefits experienced across all product lines. Excluding the impact of reinsurance, premium growth was strong, growing approximately 5.5% for the full year. Moving to Unum International, underlying earnings in the fourth quarter declined 11.7% to $33.2 million from the prior year and declined 3.5% to $152.3 million for the full year, driven mainly by unfavorable claims experience in UK group disability. Healthy sales and persistency bolstered double-digit top-line growth as fourth-quarter premiums grew 11.5% to $283.9 million and full-year premium increased 10% to $1.1 billion. In Colonial, adjusted operating earnings declined 7.2% in the fourth quarter to $113.9 million and for the full year declined 0.7% to $463.6 million. Like claim count volatility and higher expenses due to sales growth, led to lower margins in the fourth quarter. The benefit ratio of 48.3% in the quarter and 48.1% for the full year were elevated over 2024 but in line with our outlook. Fourth-quarter sales increased 10% to $203.9 million, the largest amount of quarterly sales since 2019. Full-year sales increased 5.3% to $560.3 million, one of our largest years ever. Additionally, favorable persistency also benefited top-line growth with full-year premium increasing 3.1% to $1.8 billion. The Corporate segment produced a loss of $51.1 million in the quarter as staffing and IT costs were elevated. For the full year, the segment produced a loss of $171.6 million compared to the full-year loss of $191.2 million in 2024. Moving now to the Closed Block segment, adjusted operating income was $21.1 million in the fourth quarter and $63.5 million for the full year, in line with the guidance provided in the third quarter. Regarding LTC fourth-quarter performance, claim counts were in line with our expectations and the net premium ratio decreased slightly to 97.5% from 97.6% sequentially. Finally, our alternative investment portfolio, which largely backs the long-term care block, generated $25.9 million in income translating to an annualized return of 7.6%. This marked the strongest yield achieved in 2025 and reflects positive momentum compared to the full-year yield of 6.4%. Since inception, our diversified alternative portfolio has produced returns in line with our long-term expectation of 8% to 10%. I will now move to our Closed Block strategy. As Richard Paul McKenney mentioned, we have made significant progress over time reshaping our closed block. On this journey, we have established a track record for executing on prudent risk management actions such as seeking actuarially justified premium rate increases and maturing our interest rate hedging program. On top of these successes, we further advanced our strategy in 2025 through three notable achievements. First, the reduction of $4 billion of LTC reserves through the execution of our risk transfer transaction with Fortitude Re and our internal funds withheld reinsurance transaction. Second, the removal of our morbidity and mortality improvement assumptions derisking our assumption set, and increasing predictability of the block. Lastly, the discontinuation of new employee coverage on existing group long-term care cases, which was effective February 1 of this year, resulting in the entirety of the block being in full runoff. To conclude, we are pleased with our actions in 2025 to derisk the block and continue to work toward our stated objectives of fully mitigating this risk. These actions continue to reinforce our expectation that we will no longer need to contribute capital to support LTC reserves, a view first established in 2023. Before moving on from the closed block and diving into the Outlook, one change I want to call out as we enter 2026 is a change in our go-forward presentation of adjusted operating income. Beginning with first-quarter results in 2026, we will exclude Closed Block earnings from our adjusted operating earnings measurements. Going forward in our disclosure, you will see a special item that encompasses the entirety of Closed Block earnings. As such, adjusted operating earnings will now be presented as the combination of our core businesses and our corporate segment. This change aligns with the actions we took in 2025 to reduce the footprint of our legacy closed blocks and provide sharper focus on the core business. As we continue to shrink the footprint of the closed block, we view the potential for increased earnings volatility that would otherwise distort our reported results. One recent example of this increased volatility in recent years is when we experienced GLTC case terminations which drove GAAP losses. While this outcome is positive for the block longer term, the GAAP earnings impacts may present a different result. In conjunction with this change, we also took the opportunity to holistically consider and adjust for two related impacts. First, we will no longer present non-contemporaneous reinsurance and the cost or gain of reinsurance as a special separate item. The related non-closed block amortized reinsurance gain and impact of non-contemporaneous reinsurance will move to segment operating results above the line, which impacts our individual disability line of business. Second, as part of this broader evaluation, we considered our methodology for allocating GAAP excess equity across our reporting segments. The result of this was a decrease in the allocated closed block equity and a corresponding increase in the ongoing operations. A function of our view that adjusted operating results are no longer supported by the closed block. Therefore, the corporate-owned excess should be represented in our reported results. Ultimately, this will drive higher investment income across our other reporting segments starting in the first quarter. Putting this all together, our 2026 adjusted EPS growth will be presented off of a redefined 2025 base of $7.93, which excludes closed block results and related items. For additional detail, we have added a slide in the appendix that illustrates the bridge from historically reported to our newly defined basis. Turning to the ongoing monitoring of the Closed Block, we have refreshed our disclosure as you can see here. We introduced these metrics during our fourth quarter 2023 earnings call to highlight the most relevant indicators of closed block health and performance. Given the change in presentation of closed block earnings, which was formerly used to help assess claim trends in the period, we would note that the MPR paired with the remeasurement line better captures near-term claims experience. When considering our view of no additional capital required for the block, our protection metric serves as a way to assess loss absorption capacity. This quarter, we took the opportunity to revise the presentation of this metric to fully be on a pretax basis aligning the treatment of both excess capital and reserve margins. Ultimately, these four metrics provide a comprehensive outlook of the block. As such, going forward, we will continue to provide details on a periodic basis. I will close by affirming that none of these reporting changes impacts our commitment to our strategy of reducing the footprint and capital demands of the closed block. Moving to the outlook for our core operations, I will start with our view of business growth and earnings power and discuss how that translates to capital generation. The key themes of our 2026 outlook are strong top-line growth, stabilizing margins, and robust capital return levels. Top-line results are expected to grow more in line with our long-term expectations and above what we achieved in 2025. While core sales in 2025 were lighter than anticipated, persistency was better than expected. As we enter 2026, we believe we can benefit from both strong sales growth and persistency in our core businesses. From a margin perspective, group disability was a main part of our story in 2025 as it normalized from historically high levels of margins in 2024. While volatile in 2025, we believe that we will still see a stabilizing benefit ratio of 62% to 64% in 2026, which still provides a very strong return on equity of greater than 25%. Combining these trends with our capital position and plans to repurchase approximately $1 billion of shares in 2026, we expect adjusted after-tax operating earnings per share in the range of $8.6 to $8.9 for full year 2026, representing growth of approximately 8% to 12% over our redefined 2025 result of $7.93 per share. I will now turn to our expectations for top-line growth, returns, and underwriting margins across our core businesses. Starting with Unum US, we expect premium growth to be between 4% to 6%. As Richard Paul McKenney mentioned, we will see continued tailwinds to our premium growth as a result of the success of our digital platforms. To quantify the impacts, I would note that for customers that utilize our HR Connect platform, we see close ratios that are roughly double when HR Connect is part of the experience and persistency at levels 2% to 4% higher than non-HR Connect customers. The benefit ratio outlook is relatively consistent from what we achieved in 2025 for group life and AD&D, but grading up slightly for group disability, which we expect to be in a range of 62% to 64%. Preliminary first-quarter indicators are broadly consistent with our assumptions and supportive of this outlook. Notably, through our financial planning process, clarity on the long-term benefit ratio outlook has emerged. As a result, we do not expect the group disability benefit ratio ultimately to be greater than 65% when considering normal volatility. This result translates to a robust ROE in the mid-20s. Underlying this future steady state is the expectation that our underlying claim trends are sustainable and that the move to a longer-term target is primarily influenced by expected pricing dynamics, which contributed a little under one percentage point to the ratio increase in 2025. Lastly, with the change I mentioned earlier to individual disabilities amortization of the deferred gain, we now expect supplemental and voluntary earnings to be in the $120 million to $130 million range per quarter, including an expected benefit ratio range of 48% to 50%. Altogether for Unum US, these results drive healthy expected ROEs this year in line with the 22.6% we experienced in 2025. I will shift now to Colonial where our outlook for top-line growth and underwriting margins is quite consistent with 2025 results. Strong persistency and our building sales momentum will enable top-line growth to continue in the 2.2% to 4% range. When paired with consistently strong margins, ROEs will continue in the high teens range reflecting our benefit ratio expectation of 48% to 50%. Then in international, a high level of top-line growth continues after 10% growth in 2025. While 2025 saw margins contract below our expectations, we do expect the benefit ratio to return to a range of 70% to 72% in 2026. This will result in earnings power for the International segment in the low $40 million range quarterly delivering high teens ROEs. Adding it all up for the total company, this translates to healthy premium growth in the 4% to 7% range, in line with our long-term expectations, attractive ROEs, and after-tax adjusted operating earnings per share in the range of $8.6 to $8.9 representing growth of approximately 8% to 12% with momentum building throughout the year. Consideration for the quarterly pattern of earnings reflects the realities of the seasonality of higher expenses in the first quarter along with the growth of our in-force block and impact of capital management throughout the year. Finally, included in this outlook is our expectation that the corporate segment will reduce quarterly losses consistent with the fourth quarter's result of approximately $50 million and our adjusted operating expense ratio for the full year will be 22%. Executing against this outlook will position the company very strongly in 2026. Turning to capital, the strong returns our business provides enables high levels of free cash flow conversion. Capital generation in 2026 is expected to be in the $1.4 to $1.6 billion range when considering our statutory earnings of $1.2 to $1.4 billion, international dividends of $100 million to $125 million, and other service fees of $75 to $100 million. After considering debt service of approximately $200 million, this leads to free cash flow generation of $1.2 to $1.4 billion. For deployment back to our shareholders, our 2026 plans remain consistent with 2025. We expect to repurchase approximately $1 billion of stock and grow our common dividend per share by 10%, deploying approximately $300 million. Combined, this brings expected capital deployment to shareholders to approximately 100% of the free cash flow we generate, a target we now expect to achieve for a second straight year. Finally, I will finish with our expectations for capital flexibility at the end of 2026. We expect capital levels to continue to be robust and well above levels needed to support our current ratings. As such, our outlook includes a risk-based capital in our traditional subsidiaries to be 400% to 425%, holding company liquidity to be $2 billion to $2.5 billion, and ample leverage capacity under 25%. While current metrics are well above these requirements, to remain an A-rated company with our rating agencies, we will ensure a prudent approach to capital management. As such, we do not plan for immediate changes to our capital position but rather will gradually manage metrics down over time. To wrap up my prepared remarks, we are happy with the progress we made in 2025. While earnings ended the year below expectations, there were plenty of bright spots to be encouraged by, including strong top-line growth in our core business, significant capital return to our shareholders, and many actions taken to reduce our LTC risk and exposure, including our first external long-term care reinsurance transaction. All these items position us well as we enter 2026. We remain optimistic for the year and ready to execute against our plans to continue to deliver on our promises to our customers, create a desired workplace for our employees, and deliver industry-leading margins for our shareholders. I will now turn it over to Richard Paul McKenney for his closing comments before we go to your questions. Richard Paul McKenney: Thank you, Steven Andrew Zabel. I would like to wrap up today's comments by stepping back and reflecting on what our company has delivered over the last decade. Strong and consistent top-line growth has translated into value creation. This has been possible with a very resilient business model and a team that has bought into our purpose. Core operations premium has grown at a 4% compound annual growth rate to $10 billion even through the disruption of the pandemic. Additionally, book value per share, excluding AOCI, compounded at 8% to over $78 per share, doubling where it was ten years ago. These through-the-cycle results demonstrate the impact of disciplined growth, strong risk management, and consistent execution across time. It reflects the essence of our purpose-driven strategy: serve more employees, deepen our relationships with employers and brokers, and consistently convert that growth into premiums, earnings, and long-term value creation. We now like to take time to take your questions. I will turn it back to J. Matthew Royal for the Q&A session. Operator: In the question and answer session, if you would like to ask a question at this time, simply press star followed by the number one on your keypad. Again, please limit to one question and one follow-up. We will pause for a brief moment to compile the Q&A roster. Our first question comes from the line of Wilma Jackson Burdis with Raymond James. Wilma, please go ahead. Wilma Jackson Burdis: Hey, good morning. Can you give us a little more detail on the drivers of the group's disability loss ratio and the outlook in '26? What gives you the confidence for the result to stay strong this year? Thanks. Richard Paul McKenney: Wilma, thanks for the question. I think Christopher Wallace Pyne will start. Let's talk a little about the market and what we are seeing out there as we think about this year, how we executed next year, and then maybe back to Steven Andrew Zabel to some of the underlying dynamics. Getting a little deeper than what he had in his prepared remarks. Christopher Wallace Pyne? Christopher Wallace Pyne: Yeah. Thanks, Richard Paul McKenney. Thanks, Wilma, for the question. Right now, we continue to experience a marketplace that is receptive to the type of problems that we have made investments in around lead management, connecting to the human capital management platforms of choice. The conversations are really centered around what we can do to help HR teams run more effectively, more efficiently, help their companies thrive. Obviously, price across the bundle, whether it is group insurance, supplemental health, whatever it might be, there is discussion around striking good deals, but we feel it is a very favorable environment to go at. With our pricing discipline, about capabilities, talk about the problems we are solving, understand that prospect really well. Again, that could be a prospect on the new side or one of our current customers, and really show them how we can be a key partner going forward. It gives us a lot of confidence in the discussion around price, and that is why we think we can drive those loss ratios into the future. Yeah. And then, Wilma, I will talk a little bit about just what we saw in the quarter and how we are thinking about the outlook and just the projection. More of a multiyear basis. First of all, it is normal to see some quarter-to-quarter volatility. We were actually really pleased with how the full year turned out. We had an overall annual loss ratio of just over 62% for the year. ROE greater than 20%. For the year, we feel pretty good. It was pretty consistent with our expectations coming into the year. In the quarter, what we did see, though, were a couple of things. First of all, I would start with recovery rates that we saw were still consistent with really what we have seen throughout the year and what our expectations would be. That has really been consistent as the entire year plays out. It is just the number of people that we can get back to work has been in our expectations. What happened specifically, I would say, in the fourth quarter, one, the size of recoveries of those recoveries were about 5% lower than maybe what our expectations would have been. It was really just the mix of those people that did recover and go back to work. The other thing that was very different, and this is similar to our group LifeBlock where we saw very low mortality, in the working world, we saw lower mortality counts for our LTD claimant block. Just to size that up, they were a little over 10% lower than what we would have expected for the quarter and what we have seen really for the year. That was a bit of an anomaly that we think is just quarterly volatility. Then we step back and we think about going forward. We are obviously getting the question a lot just around our thoughts on the longer-term benefit ratio and group disability. Our thinking here is for the near term, including 2026, we think that benefit ratio will operate in the 62% to 64% range. We do think that it will gradually over the next few cycles glide up to that 65% range. We think that will probably be kind of the max. We will still have quarter-to-quarter volatility there. What I will tell you is the confidence in that path is really that we feel great about claims performance. We do continue to think that that is very sustainable. Going to have quarter-to-quarter volatility, but we do think that that risk management is going to be consistent. We also think, though, that there is an active pricing dynamic, and Christopher Wallace Pyne did mention that whether it is new pricing coming in on new cases, or just how we manage the in-force block, that it is going to continue to impact how we think about benefit ratios going forward. We are trying to give a little bit more guidance. What I will tell you is that is what our planning assumptions would indicate as we just run the planning process going forward. We will have to see ultimately how pricing strategy does play out. Christopher Wallace Pyne said it, what we are seeing in the market has not really changed our thinking generally on the performance of this block, but we do know that there will be price adjustments as we go through the next few years. I just step back and say, longer term, the economics are great on this block. Start going to have margins in the mid-teens supporting the 25% plus ROE on this block of business. I am very happy about it. Knew the market was looking for maybe a little bit more clarity about the longer-term trajectory. Wanted to give a little bit more on that as part of the earnings call. Wilma Jackson Burdis: Thank you. Very helpful. Absolutely love the decision to move closed block below the line, and looking forward to not discussing those quarterly fluctuations with you in the future. Could you give us a little bit of color on how you view the '26 EPS outlook on an apples-to-apples basis? It looked favorable compared to my prior expectations, but it is a little bit tough to compare given the reporting change. Thanks. Steven Andrew Zabel: Yeah. I think, generally, it comes down to a few things. One is we do think we are going to be able to start growing top-line growth at a higher rate. You will see that with our expectation. We grew about 4.5% in '25. We do think that will pick up as we are going into '26 across all of our core businesses. We do think we are just going to generate more core business premium margin. Then we are also looking at just better ratio levels and by and large other than some of the dynamics that I discussed, we think those will be pretty consistent as we go into next year. Going to continue to have very disciplined expense management and really think about what kind of technical capabilities and innovation we can bring to make sure that we are doing the right thing around expense management. Then there is obviously a fair amount of capital deployment that builds into that outlook. When you bring all those things in, we feel good about an 8% to 12% EPS growth rate given the new definition of how we are thinking about adjusted operating earnings. Great. Thank you. Thanks, Wilma. Operator: Our next question comes from the line of Alex Scott with Barclays. Alex, please go ahead. Alex Scott: Hey, good morning. I just wanted to follow up on the decision to move the definition of operating earnings. It does not change anything economically, and we will still be able to analyze some of the LTC below the line. What I thought was interesting about it is it does seem to be an extension of this being prepared for life after LTC. You took the charge, aligned it more hopefully with where reinsurers are at. You have closed the block. Now you have made a decision to move it into below the line or whatever. It would potentially make a deal look a lot cleaner as you complete it. I am just wondering is that the right read on this? What are you seeing in the reinsurance market that is maybe motivating you to do some of these things? Do you potentially have the opportunity to do a bigger piece of the block, or will it need to just continue to be bite-size? Richard Paul McKenney: Thanks, Alex. It is Richard Paul McKenney. Just to take it through, I think you captured it well, as we have been actively working on this block of business for many years, but certainly over the last several, it has been a steady drumbeat of things that we are doing to really put LTC behind us. Many things you talked about in terms of improving the profitability around that block with the rate increases, the work that we did to put capital behind it to make the statement that we are not putting any more capital into this business. Then as you talk about, 2025 was a pivotal year in terms of doing our first reinsurance transaction, doing an internal reinsurance transaction, all the things that we talked about coming out of the third quarter with the group life, I am sorry, with the group LTC, etcetera. So very steady things that we are doing. This move is, I think, part of that. The last piece to talk about is what is next. It is something we have been talking about pretty consistently is we want to continue to take the opportunity to get out of this block of business, to do so through reinsurance. Be active in the markets around that. You asked, does this make us do anything different? Not really. I think that we are still on the same path of how we are going to look at different parts of the block of business that we want to look at reinsurance to use are still in active discussions. We have been in active discussions for a period of time. We will continue talking to counterparties about what are the ways to take this out. You asked about the sizing of a transaction. Those are all on the table in terms of things that we can look at continue to work through this. I think you captured it well. This is something we have not stopped on because we have changed the reporting. How does the reporting look? Does not mean we are changing anything about our activity around the strategic management of the block, including all the things we have done previously. We are going to stay on that. That is a key part of our overall strategies. Continue to put LTC behind us. Alex Scott: Got it. That is helpful. Next one I wanted to ask is on artificial intelligence. We are getting a lot of questions from investors around this, and related to group benefits, a lot of it is around your client base and if they have layoffs and so forth. I would be interested if you could comment at all about the types of industries you are exposed to, if you have done any work or put any thought behind how relatively more or less exposed you are and maybe even just broader thoughts on risk and opportunities related to AI. Richard Paul McKenney: Yeah. No. Thanks, Alex. We are continually monitoring what is happening in the macroeconomic conditions when you think about it. I think we have also talked about our book of business and what we see from a natural growth, which is the increase in that we see in payrolls and wages and how that fits into our overall block of business. I think this is part of that question that we look at. The awareness that we have and the balance we have across the portfolio of different types of industries that we are actually covering. Different types of workers that we are covering, I think is very well balanced across the piece. When we think about the potential labor impacts that AI can bring to the markets, when we look at that business mix that we have today, we think it is early. Our performance has remained consistent across the industries. Our book is well diversified. Diversified and so that helps mitigate localized or specific sector shifts that you might see over time. I think that, you know, this is kind of a common phraseology, but history does suggest that these advancements will reshape the nature of work rather than reduce it or eliminate it, and so certain roles may diminish. New functions will emerge. All those pieces, and we will be there to take care of those individuals at that time. What we look at. I think it is very early on that front. The last thing I would say too is, you know, our mix by type of work or one of the things that we talk about is protecting people is not for any one particular level in the organization. Our mix is probably sixty-forty. White collar, blue collar. We are going to make sure we are taking care of different people at different times. It is a fair question, but I think it is very early, it is one we are definitely on top of. Alex Scott: Thank you. Operator: Our next question comes from the line of Suneet Kamath with Jefferies. Suneet, please go ahead. Suneet Kamath: Yes, thanks. Just wanted to follow up on the LTC. You kind of answered the question, Richard Paul McKenney, in terms of what you guys are doing. What are you seeing in the marketplace? Are there more counterparties that are looking for this type of exposure? I mean, we have seen a couple deals. I am just trying to figure out, like, how much interest is there in these types of liabilities. Thanks. Richard Paul McKenney: Yeah. I take you back to some of the commentary made coming out of the transaction. Clearly, when we did this transaction early last year, we saw more interest coming up from different types of counterparties. That could be people that are interested in the morbidity aspects of the book, people that are very interested in the asset side of the book of business. That definitely picked up over that period of time. We see it ebb and flow continually, but there still is a lot of interest out there continually. We just watch the markets. As I say, having active conversation with multiple people, and we will continue to do that. It does tend to ebb and flow. We manage this over the longer term. I do not want people to think that there is anything imminent on that front. There still is interest certainly on the asset side, but on the morbidity risk side as well. Suneet Kamath: Okay. Then I guess on the capital, I fully appreciate 100% capital return based on what you are generating. To your point, it still leaves you with a sizable excess holding cash holding company cash position and RBC well above target. I know you want to manage this down over time, but I guess what is the time frame that we should be thinking about in terms of getting to those target RBC and holdco liquidity levels? Thanks. Richard Paul McKenney: Yeah. Sure, Suneet. I think when you think about the you have to go back to what our uses are and potential uses of deployment. First of all, grow the business. We can put more capital into growing the core franchise. That is what we are going to do first and foremost. Acquisitions, we will do so on a certainly a disciplined basis, thinking about how we put capital to work there. Those are two things that we would like to put it to work on. As you have seen over time, our capital has been in a very strong position. I would not put a time frame around it. We are going to address this as we look at plans every year. We kind of gave you our 2026 plan that we have today. As we look at future years, we will do the same. We feel very good about the position that we are in today, about how much we are deploying back to shareholders, at the same time sitting on a very robust capital base. Suneet Kamath: Okay. Thanks. Operator: Our next question comes from the line of Jamminder Singh Bhullar with JPMorgan. Jamminder Singh Bhullar, please go ahead. Jamminder Singh Bhullar: Hey. Good morning. Maybe first, if you could just comment on what you are seeing in terms of competition in the market and it seems like everybody has had very good margins in disability, recently, some of the companies have mentioned that they are seeing some price reductions, but the one one twenty-six renewals. Just talk about what you have seen. Christopher Wallace Pyne: Yeah. Jamminder Singh Bhullar, thanks. It is Christopher Wallace Pyne. I would start with traditional competitive continues. There is no question there is real interest in this business. It is a great business as Richard Paul McKenney and Steven Andrew Zabel have described. We really feel great about the strategy that we have deployed to operate well in that market. I do not think it is abnormal competition. I do not see abnormal kind of drops in the market that cause you to change your approach. We are going to go back to our disciplined pricing approach, understanding risk. We know that with the capabilities we have built we can be much more intentional about the companies that we promote our products to. Because they will respond really well and they are ready to take advantage of things like modern lead management on modern system, you know, where they have made an investment in a platform that is important to them, we can show them how we can make that decision even smarter. Then, you know, wrap it with a bundle of, you know, the best financial protection products out there that do really well for their employees. That is a nice kind of combination. Our team has been running this play for several years. We get better at it. The investment and capabilities gets deeper. It just deemphasizes that price comp part of the conversation. To your point, we are aware that people have healthy businesses and we stand prepared to compete both on new business and on renewals. We are seeing success. I might point out the second half of the year was really our strongest, you know, from a sales persistency perspective. We feel really good going into 2026. Jamminder Singh Bhullar: Okay. Then on your comments on margins sustaining guess, in the 60s, I think if you look longer term disability generally been a pretty good business. Even prior to COVID. In those days, it used to be a 70% plus loss benefits ratio business for most companies with still very good returns. I think you and most other companies were surprised as post-COVID, the margins improved as much as they have. Now they are starting to somewhat normalize. What gives what is different about the business, now versus that would not cause margins to maybe go back to what they used to be? Why does it just settle in the mid-sixties? Why should not it go in the seventies? Because that still is a fear that could return in the context of this industry. Steven Andrew Zabel: Yeah. This is Steven Andrew Zabel. What I would tell you is it was not COVID that necessarily created a step change, you know, in the margins that we have in this business. The biggest driver improvement in our book of business is around the rate that we can get people back to work. Recover. We did specific things. We increased our over that period of time in several areas. We think that that improvement is sustainable and is not something that just happened, you know, during a kind of an unusual time during COVID. We have seen that stabilize over the last couple of years, and we definitely think that that is achievable going forward. We continue to have very steady incidence rates. As Christopher Wallace Pyne mentioned, I mean, the pricing continues to be very reasonable there. We will run kind of our normal process that we do every year as we go through our new pricing a renewal process, but that is something that we have been doing for years. I do not view there as being pressure that we revert back to something that was, you know, pre-COVID because we have actually taken actions during that time and feel that we have very sustainable performance. Within our operational areas to maintain it. Yeah. That is why we feel confident that kind of the new norm for us will be somewhere in that mid-sixties range. What we see right now in our projections, that that benefit ratio would not go above 65% other than, you know, maybe some quarter-to-quarter volatility. Yeah. Jamminder Singh Bhullar, it is Christopher Wallace Pyne. I might add you have been doing this a long time. I know, I remember the days when the table stakes to get in on an RFP were jeez, can you meet the provisions of the contract? Whether you are a high-quality carrier or person who knew or entered, that was mark you had to achieve. It was a little bit easier to make sure you had filed the right provisions and they could enter the IRP and what sometimes into more of a price competition. The world has changed a lot. We went through COVID. That was just what was going on in the world. As a business, all the elements that Steven Andrew Zabel mentioned are foundationally changed the way we can execute for sure. Then you layer in a new set of table stakes around, are you welcome to come into this RFP? Can you do the lead services that are required? Do you have the tech connection to make it work? Are you able to run the enrollment solutions that are required by the customer? So that sophisticated customer who knows what they are looking for, that is who we are targeting, and we are able to provide a more modern set of solutions that make it much more difficult to just enter and make it a commodity sale. Jamminder Singh Bhullar: Yeah. I think you and some of some of you some of the peers, not all of them, they are generally ahead in terms of lead management and capabilities. It just seems like everybody else is investing in that too. The question is whether it gets completed away down the road or not. Guess we will see. Christopher Wallace Pyne: Well said. We look forward to that. Challenge because these things are you know, they are real. When you are thinking about leave for sure is very definable. But technological connections if they do not show up the way they are promised, that realized pretty quickly and we feel good about what our are experiencing. I will leave it at that. Jamminder Singh Bhullar: Thank you. Operator: Your next question comes from the line of John Barnidge with Piper Sandler. John, please go ahead. John Barnidge: Thank you for the opportunity, and good morning. My first question is on the investment portfolio. Can you talk about exposure to software in the investment portfolio that exists? After moving Yep. Maybe the closed block below the line because I know there are some alternatives. That go through that. Thanks. Steven Andrew Zabel: Yep. Great. Thanks, John. Yeah. This is Steven Andrew Zabel. We feel really good about our position. I will size it up a little bit and then let you know how we are feeling. We have less than a percent in our bond portfolio. What I would tell you, it is in our investment-grade bond portfolio, very well managed. They are integrated software providers. They tend to have a more stable, you know, credit profile and business profile. Really no leverage loan type of structures in our portfolio. We have pretty vanilla invest in some of the really large integrated software providers. If you look at our alternative assets portfolio, that is right around 0.5% maybe in that portfolio. Again, the types of investments we are making there, we feel really good about it. Obviously, we are going to monitor this. It obviously is on our watch list. What I will tell you is we feel good about how we are positioned and kind of the part of the broader software allocation where we really play, we feel good about. John Barnidge: Thank you. My follow-up question is on the international business. It looks like there were some unfavorable claims resolutions and higher incidents in the group long-term disability product line. Can you maybe talk about that? That sounds like maybe some frequency and, I do not know, severity. Love to hear more. Richard Paul McKenney: John. Maybe we will turn to Mark Till to just talk about the market of what we are seeing in the UK and then back to Steven Andrew Zabel to talk about the specifics that you asked. Mark Till? Mark Till: Yeah. Thank you, Richard Paul McKenney. The UK market at the moment is generally pretty buoyant as a place to do business. As you can see that in our top-line growth in the business, premium income up 8% for the year. There has been a little bit more volatility in the claims incident at the moment, which Steven Andrew Zabel can talk a bit about. We have got several government initiatives at the moment that are designed to try and improve the general health of the workforce. We have got something called keep Britain working that is coming. These things should be positive for our business more generally, but maybe, Steven Andrew Zabel, you want to talk about the claims. Steven Andrew Zabel: Yeah. Sure. Absolutely, John. The current quarter was one of the more challenging quarters that we have seen for a while. The international segment. It is performing actually very strong over the last few years, I would say. So been a very good business. Great top-line growth with very stable margins. This quarter, we saw a couple of things. One, we saw a higher number of just new disability claims and really no concentration from a geography or industry or anything like that. We did see a tick up in just the counts of our disability claims. We also saw something similar to what we saw in the US. Where some unfavorable volatility in just the size of the claims we terminated. We were pretty happy with the counts of those that recovered and got people back to work. It was just lower size than maybe what we would have expected. I just pull back in over the longer term and across really all the product lines in international we do expect the UK to contribute to the international benefit ratio being in the low seventies. Feel great about the business. Very cash generative, and, you know, we had kind of a tough quarter. We will just have to see how that plays out as we get into 2026. John Barnidge: Thank you. Richard Paul McKenney: Thanks, John. Operator: Our next question comes from the line of Thomas George Gallagher with Evercore ISI. Thomas George Gallagher, please go ahead. Thomas George Gallagher: Thanks. First question is how much of your alternatives portfolio will be put into this discontinued operations? After the earnings change and how much is going to remain in the closed in the open block still reported as operating earnings. Then I guess a related question, would another risk transfer deal Richard Paul McKenney, be an event that may cause you to reevaluate your excess capital deployment plans or no? Is that not something that you think would be on the table? Steven Andrew Zabel: Yeah, Thomas George Gallagher. It is Steven Andrew Zabel. I will take the easy one. It is pretty straightforward. The vast well, first of all, let me clarify. We are not putting the closed block in the discontinued operations. That is kind of a specific accounting designation. We are, in essence, taking those operations and just excluding them from our definition of adjusted operating earnings. It is settled, it is a difference. Yeah, that basically, the entire portfolio back the long-term care block. We have some other legacy, but it is de minimis. That is the way to think about it is the earnings that come off of our alternative investment portfolio will now be below the line. Richard Paul McKenney: The second part of your question, Thomas George Gallagher, was around the excess capital that we have and LTC transactions. It is hard to tell until you have a in front of you. We were very happy about the really little capital impact that the first transaction had to us. We are going to have to see when we get closer to the finish line on that. We are not holding back capital specifically for that type of event. I think we are managing our capital way. The thing that Steven Andrew Zabel mentioned in the comments we still have a lot of leverage capacity as well. We have got firepower to do both. I would say we also want to be clear that as we remove this legacy exposure, we want to ensure that these transactions are focused on that are shareholders will also view them that being in the best interest of the company. We want to make sure we are doing things that are smart overall for the long term. We clearly have a bias to removing this legacy, but we are going to do so in a shareholder-friendly way. I want to make sure people understand that, you know, we are going to be very thoughtful about any transactions we might do in the future. Thomas George Gallagher: Thanks for that. Then just my follow-up is, I guess, one of the big concerns that I hear from investors is they see every other day, you get a big layoff announcement from another company. You know, at least the perception is that this is going to translate into disability claims. That there is a strong correlation. I guess so my related question is, when look at the broad or number of corporate announcements, for layoffs, have you seen any increasing claims in those clients that you have? Is that something that you have looked into? Then maybe could you also comment on whether actually is a real correlation when you have looked at your own claims experience in periods of higher unemployment. Richard Paul McKenney: Yeah. I think it is a good question, Thomas George Gallagher. We talked to Alex Scott's question a little bit about just the overall employment base. When you think of disability particularly, I understand that these are for people that have a condition where they cannot work. When we look at it, sometimes in a recessionary environment, you will see an increase in submitted claims. People are, you know, out of work and they are looking for it, but we only pay on that are truly valid claims. We might see higher submitted, but we generally see maybe very, very different very, very small change you see in the paid claims. We would expect to see that in this type of environment. We might see a little bit higher submitted. We have not to date, so a lot of these announcements are just coming out, and they are announcements. We have not seen that come through our book at all to date. Over time, we are going to be very good about paying claims of people that are truly valid, and so we just do not expect necessarily to see that come up. Thomas George Gallagher: Okay. Thanks. Operator: Our next question comes from the line of Joel Robert Hurwitz with Dowling. Joel Robert Hurwitz, please go ahead. Joel Robert Hurwitz: Hey. Good morning. Wanted to start on group life. The experience has been very favorable for you and others. I guess, what are the drivers of you assuming a reversion back to the 68% to 72% target in '26? Is it pricing? Or are you assuming a normalization in more mortality trends from what you have experienced recently? Steven Andrew Zabel: Yeah. This is Steven Andrew Zabel. I would say it is of the latter. The latter. If we step back a little bit, we are going to continue to guide at the 70% benefit ratio. It does not appear as though there is anything structural kind of in the mortality market. Post-COVID. You know, we continue to be very happy with the group life performance. We have had another, you know, good quarter in the second quarter coming off of a pretty good year generally. Definitely just driven by lower counts of mortality. The average size of the mortality in our block is really consistent period to period, so that is usually not a driver. What I will tell you is in the fourth quarter specifically, that lower mortality was very consistent with what we saw in the group disability line. Just generally, it seemed like that was a fourth-quarter trend. Kind of working, you know, life type of mortality was just lower than what the normal expectation that you would see. This benefit ratio can bounce around quite a bit from quarter to quarter. Our full-year benefit ratio was 68%. For the year, and so we feel good about, I guess, the assumption that we put out there of 70%. Just have to see how the year actually plays out. Joel Robert Hurwitz: Got it. Then shifting to Colonial sales up 10% was a real positive in the quarter. You have been talking for a few quarters now about actions that you have been taking, but wanted to see if you could provide more color on the sales this quarter. The outlook for '26 sales. I guess, if sales are improving, is there potential upside to that top-line growth outlook? I mean, you did 3% premium growth in '25 off of a lower sales base. If sales improve, can we see something above, you know, top end of that 4% range? Timothy Arnold: Yeah. Thanks for the question. This is Timothy Arnold. Really appreciate you pointing it out. The strong quarter that we had at Colonial Life from a sales perspective. As Steven Andrew Zabel the sales overall up 10%. You know, as we think about leading indicators, we are also very pleased that new agents who joined us in the fourth quarter were up 14%. Sales from those agents were up 14% in the quarter for the year. Were up 22% in new agents, and sales from those new agents were up 25%. The success was really broad-based as well. You look at the public sector, which I have commented before, is our most profitable sector. Sales there were up 13.5% in the quarter. Sales through the broker channel up 12% in the quarter. Large case, our value prop continues to resonate across all market segments. Large case was up almost 20% in the quarter. We are also encouraged by the success of the agents who have joined us over the last three years that the agents who joined us in 2024 had sales increase of 20% in the fourth quarter and 11% for the year. The agency joined us in '23 had sales up 11% in the quarter and 10.5% for the year. Really, like where we are from a footprint perspective. We like the leading indicators that we have. All of our regional areas hit their plan in the fourth quarter, so we like the success we are seeing there. We are having real strong success with the products that we have introduced over the last few years. We are pleased with that. As, Christopher Wallace Pyne pointed out earlier relative to Unum US, Colonial Life is having a lot of success with our technology platform partnerships as well. We talked about agent assist in the past, which is our agent productivity tool. Making a lot of progress there on agent adoption. In fact, all of the cases that were new clients written in the fourth quarter were submitted through the Agent Assist app, which not only helps our agent with their productivity but also improves productivity in our home office areas as well. As we look at '26, you know, we are pleased with the momentum that we built, especially over the back half '25. We are pleased with the staffing we have. We are pleased with the number of new people we have been able to add and the number of agents we have been able to retain and the success they are having. Is it possible I think I was asked at the second quarter earnings call last year is it possible to get in the range, Timothy Arnold, because you are three and you need to get to five? Thankfully the sales teams delivered, and we did get into that 5% range of sales growth for the year. I would say that, you know, we are optimistic about the year, but we need to see how things play out. Joel Robert Hurwitz: Okay. Thank you. Operator: Our next question comes from the line of Tracy Benguigui with Wolfe Research. Tracy Benguigui, please go ahead. Tracy Benguigui: Good morning. You ended the year with $1.1 billion of statutory earnings. I believe last quarter, you talked about $1 billion for the first nine months of the year. That implies about $100 million in the fourth quarter. I am thinking, like, group disability trends are normalizing. What is driving the improvement in the statutory earnings to $1.2 to $1.4 billion in 2026? Steven Andrew Zabel: Yeah. This is Steven Andrew Zabel. There are a couple of things that kind of was that impacted, I would say, you know, as we were closing out the year. A little bit about cleanup on some of our reinsurance transactions that probably caused, you know, a little bit of volatility in that. Frankly, just kind of how we round some of the numbers. We still felt good about fourth-quarter generation. I will tell you, though, it was a little bit short of what our expectations would have been given a lot of what we saw in the GAAP results. Really flowed through from know, challenges in some of the margins, really flowed through to what we saw in the session results as well. Was a little challenge, was a little bit short of our expectation. For the full year, we also came up a little bit short from our cash generation. What was good is, I mean, we have stuck to the capital deployment expectations that we set for the year and really converted 100% of that generation into deployment. As we look towards 2026, the outlook that we put out there for statutory earnings and related cash generations again, is anchored upon how we think about the margins that we have generated in our gap income projections as well and the outlook that we gave there. We do think that there are going to be some places that we are going to generate more earnings. Again, it kind of gets back to through the top-line growth of our core businesses, as we think about driving productivity within the organization. Then some stabilization in some of the benefit ratios. It is really just a flow-through as well going into '26. Tracy Benguigui: Thank you. I just want to be sure the net investment income allocation to other segments that begins in the '26. In your exercise of redefining the 2025 EPS to $7.93, just for comparison purposes. Did that include that exercise as well? Reallocating investment income, and if you could size that for us? Steven Andrew Zabel: Yeah. It did not. That change is really just being made prospectively. The only thing that we really recast the 2025 EPS for was the redefinition of just adjusted operating earnings and what we did with the closed block. Generally. Then just from sizing it up, that changes about $5 million a quarter probably in that range, and it is going to be, you know, very distributed. Throughout the core businesses as we think about just allocating excess assets that are in the corporate kind of portfolio amongst the businesses. When you look at individual lines, it is going to be probably not even really negligible. When you add it up, it is going to be about $5 million a quarter. Tracy Benguigui: Thank you. Thanks, Tracy Benguigui. Operator: Our next question comes from the line of Mark Douglas Hughes with Truist. Mark Douglas Hughes, please go ahead. Mark Douglas Hughes: Yeah. Thanks. Good morning. On persistency, it sounds like you are seeing improvement. You mentioned the HR Connect gives you a higher persistence. I think you also talked about AI-enabled tools. How much improvement are you expecting in 2026 and what is driving the persistency? When we look at those or consider those different factors? Christopher Wallace Pyne: Yeah. Mark Douglas Hughes, thanks. It is Christopher Wallace Pyne. Yeah. Persistency, we hit it in the opening comments from Richard Paul McKenney and really you were right on target when you talked about the new invest or the invest we have been making for years that really do tie us into customers differently. That would naturally show up in two ways. One is new prospects close ratio. The other is when people are experiencing it, they feel really great about how we can help them run their businesses better, and that shows up by them sticking around longer. Maybe just a tiny bit of history on persistent in general. Like, '24 was a remarkably high persistency year. 'twenty-five we knew was going to revert back to a little bit of normalization. We exceeded target in '25, felt good about that. The outlook for '26, which is in our plans, we really feel good about. That is foundationally based on the fact that we continue to attract more customers put them into the block where they are coming for the right reasons around capabilities that we can deliver, solving big problems like weed management, going deep on technology. I talked a little bit about it before with Jamminder Singh Bhullar's question around when you are actually making their lives easier because information flow and things they need to run their business from staffing and return to work perspectives are showing up in modern kind of ways that fit their environment. They want to stay. Then we take our normal traditional discipline around approach around the full benefit package that we offer them, we are transparent around loss ratios that we need to achieve. We talk about stable pricing for them and their employees over the long term. Again, you just end up in a very logical and thoughtful discussion with long-term clients which is showing up as Richard Paul McKenney said before in higher persistency when tied to investments. Mark Douglas Hughes: Appreciate that. Then the lower average size of recoveries on the disability business, have you seen that in the past? Is that tied to any government policy perhaps? What do you think is driving that? Steven Andrew Zabel: Yeah. I do not think it is any one thing other than just it just depends on who actually recovers and goes back to work and the size of the claim reserve we have up on them. We have seen it in the past bounce around a little bit, but I think this quarter, it was low enough that we wanted to call it out. It was a little bit out of the norm. I do not think it is tied to anything structural. We do not see it being tied to anything kind of programmatic. It is just something that, you know, period to period, you will see fluctuations in size of new claims. You will see fluctuations in size of recoveries, and it just so happened in the fourth quarter, the size of recoveries was lower than we would expect. Then also, just the level of mortality in our claimant block was lower than we would have expected as well. Mark Douglas Hughes: Appreciate it. Thank you. Richard Paul McKenney: Thanks, Mark Douglas Hughes. Operator: Our next question comes from the line of Jack Matten with BMO Capital Markets. Jack Matten, please go ahead. Jack Matten: Hey, good morning. Just a follow-up on the strong persistency trends in group benefits. I guess in an environment with strong persistency, but maybe less growth in new sales, is that something that is out to a near-term kind of margin benefit for Unum? Guess, in other words, there has certainly been a new business penalty that is less of a headwind in the current environment. Christopher Wallace Pyne: Yeah. Jack Matten, it is Christopher Wallace Pyne. I will start. First, I would like to kind of look ahead toward what we are really excited about a strong sales outlook for the coming year. In any given quarter, you have puts and takes where we really strong 2024. We saw some nice sales in the third quarter of this year, which both combined to a strong second half. We have lots of new logos coming through. Then, you know, talk to persistency. We think the block growth that we put out there north of 5% is a really strong outlook. It comes with great margins, as Steven Andrew Zabel has been talking about. I just step back and appreciate your question, but really feel good about the combination of ways we are going to grow this business and doing it in a really healthy way. Again, we know it is foundationally tied to a long-term strategy. Based on investment in technology and other services. Jack Matten: Got it. Thank you. Then maybe on the supplemental and voluntary business, can you just unpack this quarter or what you saw this quarter on the claims side? Maybe just talk about what gives you confidence in the stronger earnings run rate outlook for next year? Steven Andrew Zabel: Yeah. Voluntary benefits is kind of interesting. You know, it is actually several businesses kind of embedded within that one product line. There is life business in there. There are other types of critical illness, accident health. I would say it was not really any maybe one line that really caused the drive of the loss ratio. It was a little bit up, obviously, from what we saw last year, which was very, very strong. We also had a really good quarter in the third quarter. It was elevated a little bit from those two. Still, I think it came in about 48.5%, something in that range. That is pretty consistent. With what our expectations would be, and, you know, it is going to bounce around within a percent or two as you go quarter to quarter. There is probably nothing specific that I would spike out on that one. Jack Matten: Thank you. Operator: Our next question comes from the line of Joshua Shanker with Bank of America. Joshua Shanker, please go ahead. Joshua Shanker: Well, thank you all for letting the call run so long and giving me an opportunity. Appreciate it. There are a couple of companies that have some issues in medical stop-loss. One of them said that they have seen a rise in cancer among young people that that is causing some of those issues. Are you seeing anything in that sort of cohort and experience that is causing you to make any changes in how you price disability or group life business? Richard Paul McKenney: Yeah, Joshua Shanker. It is Richard Paul McKenney. Let me try that. We are familiar with the stop-loss business. We exited that business going back a couple of years ago. What we have heard similar things, you know, we monitor across the board in terms of what we are seeing in the working lifetime. I would say that the particular that diagnosis in the US, you know, we have not seen a big change in terms of younger mortality coming from specifically cancer diagnosis. Understand ours is mortality within the working lifetime, so as you see trends within that, you are not expecting much in the way of mortality over that working lifetime, particularly at younger ages, so it is something we would watch but nothing has really stuck out to us that would be coming through in our group life block. As you saw, we have got very good live free good life re group life results really over the course of the year. Joshua Shanker: It does not exist in disability either that someone gets a diagnosis of kill them, but it takes them out of the workplace for a certain period of time. I am not asking my uriners. I am trying to discover whether it is true, the trend, and it is an issue at all. Richard Paul McKenney: Yeah. I think we just have not seen it coming into our book of business. That is a real diagnosis. Cancer is a large component of what we see from a long-term disability perspective. It is an we can help people through and get them back to work. What you are talking about on the more acute younger ages, certainly there is news about it, we have not seen that come in specifically into our books. You just see that our submitted levels on the LTD side are group life mortality levels. Both still you know, LTD in line and on the group life side have been favorable. Joshua Shanker: Thank you very much for the information. Operator: Our next question comes from the line of Wesley Collin Carmichael with Wells Fargo. Wesley Collin Carmichael, please go ahead. Wesley Collin Carmichael: Good morning. Thanks. I had a question on group disability, but maybe from a little bit of a different angle. I know everybody focuses on the benefit ratio. If I go back a couple of years to the outlook from 2023, I remember there was a slide on efficiency and investments you were making that I think you showed the expense ratio peaking in 2023 and declining post that. I know you continue to invest in this business and lead management, etcetera. Just curious if we go forward, is there a point where you think expenses can kind of inflect and we can get some operating leverage in the segment? Richard Paul McKenney: Yeah. I appreciate the question, Wesley Collin Carmichael. It is something that you have heard throughout the conversation today about the amount of investment that we are making. We have continued to see great opportunities. We have continued to invest. We did, your 2023, as you talked about that, we saw that inflection point somewhere in that range. I think it has moved out a little bit, but what we are expecting as we look 2026 is you will see our operating expense ratio come down. That is inclusive of a lot of investment, but also good productivity that we are going to see coming out of our teams and across the business. We do think there is operating expense leverage that we will see in the coming years, but you are right, it is because of the investment that we have been making that has delayed that a little bit. Steven Andrew Zabel: Yeah. What I would add is, you know, we always are driving productivity within the organization, and there are times that we decide to invest back in either within you know, back into our people to support our operations or also our technology. Yeah, we would expect going forward, maybe not, you know, immediately in '26, but over time, we would see that stabilize and then go down over time as I think we will see that productivity really overwhelm the investments that we are making back into the organization. Wesley Collin Carmichael: Great. That is helpful. Thank you. Just maybe a follow-up on LTC and premium rate increases. I just wanted to see if there is any real update on how the program is progressing. I know there was a pretty sizable request that was put in for 2023, but just wanted to see how that was performing and any other updates on that. Steven Andrew Zabel: Yeah. We feel really good about that program. Really coming in closing out the year, we just expanded the program back in the latter half of last year when we made our assumption update. Around our best estimate assumptions. We have launched that additional expansion. Along the way, we are at about 15% achievement approval for kind of the expanded program. We feel good about it. ISteven Andrew Zabel: would say the regulatory environment continues to be very open to this discussion. Similar to what I have kind of commented on in the past, it has turned into kind of an administrative process just working with the states and getting them what they need to support the request that we put in. Generally speaking, that has been a pretty stable environment for us, and we continue to make really good strides. I think Richard Paul McKenney mentioned it. We topped $5 billion of value as far as what we have been able to achieve really over a decade plus with those programs and have a really good team that is working with regulators to be able to get those approved. Wesley Collin Carmichael: Thank you. Operator: Our next question comes from the line of Thomas George Gallagher with Evercore ISI. Thomas George Gallagher, please go ahead. Thomas George Gallagher: Thanks for the follow-up, guys. I promise I am not trying to make this a two-hour call. I will make it quick. The paid family leave, is that a real opportunity for you guys? How big of a business is that? I see that new states are rolling out paid family leave. How big of an opportunity is that? I think I view that as sort of just a separate market. What do you think on that? Christopher Wallace Pyne: Yeah. Thomas George Gallagher, it is Christopher Wallace Pyne. Paid family medical leave is a very important and interesting topic. We have been very active in it. I do think of it as part of two things that we are really expert in, leave and short-term disability. When you think about leave management, which is really important for our employers and the capabilities we bring, and you think about their intention to help cover not just when an employee has a sickness or an accident needs to be away from work, but maybe when a family member needs additional support and that employee needs to be paid and have job protection away from work, Paid family medical leave is a real thing. It does expand the number of events that we cover. Where you have seen states take a specific action to put in programs that are very specific, we are a player there. A lot of those states this past quarter Minnesota and Delaware put in programs that allowed for a private insurance option. Again, we are thrilled to be able to offer that to current clients, maybe their current STD clients where the relationship gets bigger on that line. Because we are covering more events, but also the other lines that go with it. We sell bundles and we keep that customer. Also new customers who are looking for the PFM solution. We are able to step in, show them we are expert at that, but write other lines of business. State by state, and we have seen it over about 10 plus a dozen states so far, there has been opportunity. What I would say, though, is the opportunity going forward is not equal with each state. If a state is not going to put in some sort of a regulated mandate, PFML will not look the same. As it has where you see Minnesota, Delaware, soon to be Maine, put in programs. It does not mean it is not an important topic. It does not mean we know, you know, work with larger employers for corporate leaves and things that they want to put into place. For protecting their employees and their workforce. But it is part of the disability business. It is part of the leave business. You have seen us think about it more as absorbing it into the normal business flow that we have got. We have done that successfully. We will continue to manage the business like other insurance products where we will look at utilization, we will look at loss ratios, and we will mention over time and focus the employer and the employee on having that great experience so that we can handle that bundle, you know, again, with paid family medical leave, other services and, you know, you have seen the states where that has been in play. Then going forward, every state is equal and it will not be quite the robust addition of new states as we look out over the years. Thomas George Gallagher: Gotcha. Thank you. Can you provide any numbers? Like, what percent of your total disability business is and what kind of growth rate you are seeing? Christopher Wallace Pyne: Yeah. You know, I think that it is probably best to just look at our very large book of disability business and say, the way it has flowed in and again, we have seen all the way back to New York and Massachusetts, through the most recent quarter. There are quarters where it is in the numbers. It does flow through. We like to think about it as just something we can manage by absorbing it into the business. Thomas George Gallagher: Thank you. Operator: That concludes our question and answer session. I will now turn the call back over to Richard Paul McKenney for closing remarks. Richard Paul McKenney? Richard Paul McKenney: Great. Thank you. We do thank everybody for taking the time today this morning. We will be out in a series of events where we will be able to answer more questions, any follow-ups. Certainly, the team will be here to do that. We will be out as early as Monday actually to talk to you. We do appreciate you joining us today, and that does conclude the call. Operator: That concludes today's call. You may now disconnect.
Preben Ørbeck: Good morning, and welcome to Aker Solutions presentation of our fourth quarter and full year results. My name is Preben Orbeck, and I'm the Head of Investor Relations. With me today is our CEO, Kjetel Digre; and our CFO, Idar Eikrem. They will take you through the main developments of the quarter and the full year. After the presentation, we have time for questions. Those of you who are following the webcast can submit your questions via the online platform. And with that, I leave the floor to Kjetel Digre. Kjetel Digre: Thank you, Preben, and welcome to everyone tuning in. As usual, let me start the presentation with the main messages for today. First and foremost, I'm once again pleased to report that we continue to deliver solid financial results in a period of high activity. Our fourth quarter revenues were NOK 16.7 billion, which takes our full year revenues to more than NOK 63 billion, the highest in Aker Solutions' recent history. Our EBITDA margin for the quarter was 7.9% or 7.5% if you exclude the net income from SLB OneSubsea. Our net cash position increased to NOK 3.7 billion at the end of the year. This was fueled by strong cash generation in our segments and substantial dividends from our 20% ownership in SLB OneSubsea. Looking at 2025 as a whole, we have made good progress on our project portfolio and on our strategy. The Aker BP portfolio is progressing well with all key milestones met during the year. And I'm also encouraged to see high demand for our engineering and consultancy services, leveraging our 5,000 strong engineering muscle to solve energy challenges for a wide range of customers across the globe. Our life cycle business is well positioned to continue its strong development, underpinned by long-term frame agreements with strategic clients. And lastly, I also want to highlight our ownership in SLB OneSubsea, a leading player in the growing subsea market. The company is delivering strong cash generation, enabling solid dividends to Aker Solutions. So as you can see, 2025 has been a very important year for Aker Solutions. Going forward, we continue to expect revenues to decline from peak levels in 2025, and we are taking steps to adjust capacity and costs accordingly. Our financial position is robust, and the Board of Directors has decided to propose a dividend of NOK 3.6 per share for 2025, up from NOK 3.3 per share in 2024. I'll talk more about how we are positioning the company to continue delivering shareholder value. But first, I wanted to take a step back to reflect on our journey since 2020. When we merged Aker Solutions and Kvaerner back in 2020, we set ambitious targets for the period ending in 2025. As you can see from the graphs, I think it's safe to say that we have delivered. Since 2020, our revenues have grown from about NOK 20 billion to more than NOK 60 billion. And equally important, our margins have also improved significantly over the period. In 2025, we delivered an EBITDA margin of 8.4% or 7.3%, excluding net income from OneSubsea. This is an increase of about 500 basis points from 2020. We also secured several important new orders in 2025 with an order intake of about NOK 66 billion during the year. Our order backlog was about NOK 65 billion at year-end, dominated by projects under the Aker BP Alliance model and reimbursable contracts. And it's great to see that these results have generated solid returns to our shareholders. Since the announcement in July 2020, the value of Aker Solutions has increased sevenfold. This includes about NOK 13.7 billion in dividends and share buybacks distributed to our shareholders during the last 5 years. So how are we creating value? Well, since 2020, we have delivered strong operational and financial performance across our business segments. In Renewables and Field Development, we have seen the top line grow more than 4x since the merger. And going forward, we are broadening our customer base and geographical exposure. We do this mainly through our engineering and consultancy business as well as selectively targeting renewables opportunities with balanced risk reward profiles. Our second segment, Life Cycle has also had an impressive journey, delivering double-digit revenue growth with improved margins. With an asset-light business model characterized by reimbursable contracts with low investments, Life Cycle is an important contributor to Aker Solutions' performance and cash generation. Going forward, the segment is well positioned in a growing brownfield oil and gas market with a strong backlog dominated by long-term frame agreements with strategic customers. Lastly, I wanted to touch upon our ownership in SLB OneSubsea. In late 2023, we announced the closing of the transaction to create a leading global subsea player. Since then, SLB OneSubsea has delivered strong financial performance and cash generation. The company has an attractive dividend policy where all excess cash is distributed to shareholders. And as I will come back to, this is just the starting point. Supported by a strong subsea market, the company is well positioned for growth and value creation in the years to come. So let's go deeper into some of these important value drivers. A key element in our strategy is to safeguard the delivery of our projects. So how are we doing this? An excellent example is the Aker BP projects we are executing in the alliance model. There are several benefits working in this model. By aligning our incentives, sharing risk and rewards, we create win-win situations that drive innovation and efficiency. This way of working closely together with our strategic partners helps us deliver high-quality projects faster, which in turn means more energy to the markets quickly and responsibly. The Aker BP project portfolio consists of 4 new platforms with a combined weight of about 90,000 tonnes. This includes Hugin A, the largest topside ever assembled at Stord. And we're also delivering the Valhall PWP platform and the smaller Hugin B and Fenris platforms from our yards. In addition, we are involved in several projects within modification of existing assets such as Skarv as well as being delivery partner for One Subsea for the fabrication of subsea equipment. I'm very pleased to report that all critical milestones on these projects were met during 2025. This includes the delivery and sailaway of the jacket substructures for both Hugin A and Valhall PWP in the summer and the arrival of several large topside modules to Stord for final assembly. At Stord, we are progressing as planned with the stacking program preparing the topside for sailaway during 2026. In order to safeguard the delivery of these other projects, Aker Solutions is applying new ways of working, enabled by automization and digital solutions. These are not ends in themselves, but rather means of improving efficiency and safety in execution. One example is the use of augmented reality or AR for short. By overlaying the technical drawings with real-world construction, inspectors can spot issues earlier when it is easier and less costly to mitigate them. Another example is the use of virtual reality or VR, where engineers from our different locations around the world can meet virtually inside the digital model they are working on to collaborate and identify the best solutions. The technology has multiple use cases, including replacing offshore surveys in a range of operations. This frees up man hours otherwise spent on transport, reduces personnel on board and saves costly helicopter transport. These are just a couple of examples of how we turn digital ambitions into practical applications that can save both time and cost for our customers. As for the alliance model, I believe that the achievements for the alliance are a clear testament to the value of working closely together with aligned incentives. This in turn enables us to deliver quality projects with faster time to first energy. Another key pillar of our strategy is to grow our engineering and consulting business. At Aker Solutions, we are currently having more than 5,000 engineers with unique competencies across market segments covering all phases of the asset life. Our spearhead in emerging markets and client relationships is Entr, our consultancy arm. The core team at Entr currently consists of about 350 people, but draws on the competencies and capacity of the entire organization. A unique selling point for our engineering and consultancy services is how we are pioneering new digital solutions and data analytics powered by AI, artificial intelligence. By shifting from manual to automated processes, we can make better use of historical data and scenarios to design innovative solutions that unlock value for our customers. One example is a recent FPSO concept study. Here, our engineers were able to identify more than 200 potential improvements, significantly reducing both weight, costs and delivery times. From our key engineering hubs in Norway, U.K., U.S., Canada, India and Malaysia, we deliver consulting and engineering projects to a wide range of customers across the globe. Within oil and gas, we are actively engaged in several FPSO projects that we believe will move into next phases of development over the next 1 to 2 years. We're also seeing strong demand for our onshore, midstream and downstream capabilities. In these markets, we benefit from the experience and track record from our Indian office, where we have more than 1,000 engineers delivering projects across the globe. Likewise, we see that our track record in both CCS and offshore wind enables us to engage early with new clients in different geographical regions. In both offshore wind and CCS, we are now engaged in the second generation of projects. Compared to the first generation, which have been both operationally and commercially challenging, the new generation is progressing well, delivering healthy margins. So what has changed? Firstly, we have managed to negotiate commercial terms with balanced risk reward profiles and joint incentives for successful project deliveries. This means that we have moved away from traditional lump sum models to a model where both risks and upsides are much closer tied to our own performance. Secondly, we have managed to move away from customized one-off projects to leveraging standardization across several projects. One example is the Norfolk portfolio, where we are seeing the benefit of designing one and build several. For instance, both engineering and fabrication hours are significantly reduced on the second topside compared to the first. The same applies for our CCS portfolio, where learnings from the first wave of capture and storage projects are now being implemented at the Northern Lights Phase 2 and the Hafslund Celsio carbon capture and storage projects. All in all, I'm pleased to see that our focused approach is yielding positive results, positioning us in the markets with significant growth potential in the years to come. Moving over to our life cycle business. The segment has since 2020, delivered double-digit revenue growth with improved profitability and strong cash generation. At year-end, the backlog stood at about NOK 23 billion, dominated by long-term frame agreements and reimbursable modification projects on existing onshore and offshore assets. The segment also delivers hookup and commissioning services to ensure efficient and safe start-up of new oil and gas facilities and offshore wind components. Our long-term engagements on these critical assets enable us to expand our capabilities, offering unique technology-enabled services. This includes autonomous drone inspection, remote operations and AI-powered analytics. And talking about long-term engagements. I'm happy to report that we have secured several new long-term frame agreements for maintenance and modification services over the past months. Why is this important for Aker Solutions? For one, it creates transparency on activity levels for several years to come. As you can see on this slide, the recently awarded agreements in Norway have a duration of more than 10 years, including options. We are also working side-by-side with key international clients such as Exxon, Shell and BP to maintain and modify their critical infrastructure in Canada, U.K., Angola and Brunei. I believe one of the main reasons we've been awarded these contracts is our demonstrated ability to drive improvement. And we are not just talking about doing the same things we did yesterday only faster, we are talking about fundamentally challenging what we do and how we do it. That means not just applying new technology, but applying the right technology and digital solutions, where we truly move the needle and deliver measurable results. It is also about understanding our clients, how they think, how they prioritize and what matters most to them. Our deep understanding of the assets also positions us for modification projects, for instance, related to subsea tieback or the decarbonization through electrification. In Norway alone, Equinor expects to develop more than 75 subsea projects over the next decade. So to summarize, I'm impressed by how Life Cycle has developed over the last 5 years and believe that the segment is well positioned to continue its transformation journey in the years to come. Moving over to SLB OneSubsea. As mentioned, the company was established through the merger between SLB and Aker Solutions Subsea divisions with the ambition to create the leading subsea company in the world. The financial performance of the company speaks for itself, delivering strong margins and solid cash flows. The company has a very attractive dividend policy. And during 2025, SLB OneSubsea had paid out more than $400 million in dividends to its shareholders. After these payments, the company still has a robust financial position with net cash of more than $0.5 billion. And the outlook for the company is strong with global subsea spending expected to increase by around 25% over the next 5 years. Tendering activity is high, both within Subsea production systems, Subsea processing solutions and umbilicals and cable systems. SLB OneSubsea also has a highly resilient life of field service offering, enabled by the largest installed base of subsea equipment in the industry. The company recently announced targets of cumulative bookings exceeding $9 billion over the next 2 years, positioning the company for growth from 2027 and onwards. So as both the proud co-owner and delivery partner for OneSubsea, Aker Solutions sees great opportunities for continued strong value creation in the company going forward. And talking about shareholder value. As you can see from the graph on the left-hand side, share prices among players with exposure to the subsea equipment market have increased markedly during the last 6 to 12 months. If one uses such peer trading multiples, one may argue that our 20% ownership represents a significant upside to Aker Solutions current trading. In addition, Aker Solutions currently holds more than 5 million shares in SLB, which were used as considerations for the Subsea transaction. Since the closing of the fourth quarter, we have seen a substantial increase in the value of these shares. So to summarize, I am pleased to see that we continue delivering strong financial results that we have a solid backlog of healthy projects and that we continue positioning the company for the future. Finally, our financial situation is robust. This gives us a strong foundation to continue developing the company while generating solid returns to our shareholders. And with that, I leave the word to Idar, who will take you through the financials of the quarter and for the full year. Idar Eikrem: Thank you, Kjetel. I will now take you through the key financial highlights of the fourth quarter, the full year figures, our segment performance and run through our financial guidance. As always, all numbers mentioned are in Norwegian kroner. So let me start with the income statement. The fourth quarter revenue was NOK 16.7 billion. Full year revenue were NOK 63.2 billion, a 19% increase from 2024. The underlying EBITDA in the quarter was NOK 1.3 billion with a margin of 7.9%. During the quarter, Aker Solutions have taken provisions for restructuring costs of NOK 194 million in relation to the announced capacity adjustments. This is treated as a special item. The net income from OneSubsea was only NOK 80 million in the quarter. This was affected by one-off costs related to integration and restructuring. If adjusting for these one-off costs, the net income from the entity was in line with previous quarters. Full year EBITDA for the group was NOK 5.3 billion with a margin of 8.4% or 7.3% if you exclude the net income from SLB OneSubsea. The underlying EBIT in the quarter was NOK 940 million, up from NOK 888 million a year ago with a margin of 5.6%. The full year EBIT was NOK 3.8 billion with a margin of 6.1%. For the full year, net income, excluding special items, was NOK 2.9 billion, representing an earnings per share of NOK 6.1. This is somewhat lower than in 2024, mainly driven by lower interest income after the sale of liquid funds used for the payment of extraordinary dividend in 2024. As Kjetel mentioned, the Board of Directors will propose an ordinary dividend of NOK 3.6 per share for 2025, pending approval of -- in our Annual General Meeting in April. This represents approximately 60% of net income, excluding special items. Moving to our segment performance. For Renewables and Field Development, the fourth quarter revenue was NOK 12.4 billion. Full year revenues was NOK 46.1 billion, representing a year-on-year growth of 21%. The underlying EBITDA in the quarter was around NOK 1 billion with a margin of 8.1%. EBITDA for the full year was NOK 3.7 billion, representing a margin also of 8.1%. The legacy lump sum projects continue to be a drag on the margins throughout 2025. These projects are now in the offshore commissioning phase and commercial discussions are ongoing. And as previously mentioned, the second-generation renewable projects contribute with healthy margins in the period. The order intake in the period was NOK 11.6 billion, leading to a secured backlog of more than NOK 40 billion at year-end. Based on the secured backlog, we expect the revenues in this segment to be between NOK 30 billion and NOK 35 billion in 2026. For the Life Cycle segment, revenues in the fourth quarter was NOK 3.8 billion. Full year revenues was NOK 15 billion, an increase of about 13% from 2024. The underlying EBITDA was NOK 293 million in the quarter, representing a margin of 7.7%. This was enabled by continued solid performance on ongoing modification projects and long-term frame agreements. EBITDA for the full year was NOK 1.1 billion with a margin of 7.2%. The order intake in the quarter was NOK 7.7 billion, representing a book-to-bill of about 2x. During the quarter, Life Cycle was awarded long-term frame agreements with both ConocoPhillips in Norway and ExxonMobile in Canada. The secured backlog at the end of the year was NOK 23 billion, providing a good visibility for future activity levels. This, however, does not include the announced long-term frame agreement with Equinor awarded in the first quarter of 2026, representing additional intake of more than NOK 10 billion. Based on the secured revenues and backlog, we expect Life Cycle revenues to remain relatively stable in 2026 at around NOK 15 billion. Moving to our financial performance of SLB OneSubsea. In the fourth quarter, SLB OneSubsea delivered revenues of about NOK 10.5 billion. For the full year, revenues were about NOK 40 billion. EBITDA in the quarter was about NOK 1.9 billion, representing a margin of about 18%. For the full year of 2025, the company delivered an EBITDA margin of 19.4%. Net income before PP&A adjustment was NOK 527 million in the quarter. This was negatively affected by the mentioning provisions for one-off costs. After PP&A adjustment, Aker Solutions recognized NOK 80 million for our 20% share. The backlog for the entity is currently at NOK 47 billion. As mentioned, tendering activity is high, and the company has an ambition to exceed $9 billion in new orders over the next 2 years. In the fourth quarter, Aker Solutions received dividend of more than NOK 400 million. This was significantly above previous quarters, reflecting the solid financial position and performance of the entity. This takes me to our cash flow for the full year. Cash flow from operation was NOK 2.6 billion, mainly driven by EBITDA contribution from our operational segments offset by a reversal of working capital of about NOK 1.3 billion. CapEx for the full year was about NOK 500 million or 0.8% of revenues. For the full year, Aker Solutions received NOK 841 million in dividends from our 20% ownership in SLB OneSubsea, significantly above previous guiding from the company. Lastly, we have distributed about NOK 1.6 billion to our shareholders in 2025, in line with our ordinary dividend policy. The financial position remained robust with a net cash position that increased to NOK 3.7 billion during 2025. So to sum up, in 2025, Aker Solutions delivered record high revenues with solid margins and strong cash generation. As Kjetel mentioned, we continue to expect activity levels to come down in 2026, forecasting revenues between NOK 45 billion and NOK 50 billion for the full year. At this early stage, we expect the EBITDA margin to be in the range of 7% and 7.5% for the full year, excluding net income from SLB OneSubsea. CapEx is expected to be around 1% of revenues. While working capital is expected to continue its normalization to a level between negative NOK 4 billion and negative NOK 6 billion over time. Based on our robust financial position, the Board will propose a cash dividend of NOK 3.6 per share for 2025, pending approval in the Annual General Meeting to be held in April. Thank you for listening. That was the end of our presentation. In a few moments, we will open up for questions. Preben Ørbeck: Okay. We will start with a few questions from Martina Kverne in Nordea. The first question is if you can give an update on when the legacy lump sum projects are finished? Kjetel Digre: They are all currently in offshore mode. We have installed them, and they are completed structurally, and we are currently working on the commissioning part of the project and we completed all of it in 2026. Preben Ørbeck: Moving on to two questions on the tender pipeline. Whether Wisting is included. And also, if you can elaborate a bit on the split between Renewable, Field Development and Life Cycle. Kjetel Digre: Start by saying that Wisting is really high on our agenda, and we are working closely with Equinor on behalf of the license owners to look at the optimal concept and really helping them to make this a viable project. That's a super important work for us. It's not currently included in the tender pipeline numbers because it's in an early phase still. And then the split is, I would say, balanced. We are working on the classical greenfield oil and gas projects. But perhaps link it common to Life Cycle. We have in the start of 2026 and now we've gotten the important continued relationship with Equinor with many exciting agreements and tasks. And part of those agreements is actually not specific yet on what kind of work. So they are sort of empty contracts. But we know that with the ambitions of Equinor and other operators on the Norwegian continental shelf with, for instance, 75 subsea tiebacks that can potentially be filled with quite a lot of life cycle work going forward. Preben Ørbeck: Moving over to a few questions on OneSubsea. They announced a target of $9 billion in cumulative orders. Can you talk a bit about the timing and maybe also elaborate on the dividend expectations? Idar Eikrem: Thank you. I will. And the $9 billion is in U.S. dollars. So that is important. And the $9 billion is a target for the next 2 years. So '26 and '27 to secure $9 billion in new orders. In addition, SLB OneSubsea is sitting with an order backlog of $4.7 billion. So achieving $9 billion over the next couple of years with the current backlog is providing a solid and good visibility for activity level going forward. Currently, they are around $4 billion a year and with healthy margin close to 20%. And as we have seen, we received NOK 841 million for dividends from SLB OneSubsea during 2025. And the dividend policy is a good dividend policy for the shareholders. All excess cash is going to be distributed to the shareholders. And the current cash position at year-end was at NOK 5.7 billion. So with, call it, cash generation from the earnings that we expect in 2026 together with the cash position they're sitting on, we expect healthy dividends also for 2026 and onwards. Preben Ørbeck: Moving to a question on the Aker BP projects where you are noting good progress. Any upside to the margins in 2026? Idar Eikrem: For a project like this, there are incentive mechanism in place. And normally, they -- most of the sort of incentive mechanism are towards the end of the project lifetime and also linked up to start-up. We don't disclose or come with guidance on margins on specific contracts or segments. But as you can see from our guidance for 2026, we are guiding a margin of 7% to 7.5% at this stage. And with Life Cycle being a business that is currently at around 7.2%, you will understand that the Renewable and Field Development segment will be in the range that is in line with the group estimates. Preben Ørbeck: Thank you. Then moving over to a question from Oscar Ronnov in Kepler. If you can comment on how margins of new contracts signed in 2024 and also now in the beginning, '25 and into '26, how does that compare to the legacy portfolio? And if you're seeing a material step-up in underlying margins or risk returns on new awards? Idar Eikrem: I think the most important thing that we did and we communicated that clearly is some of those contracts that we signed in '21, '22, didn't have the right risk reward balance. We have, therefore, communicated that we will be very selective and make sure that we have the right risk reward balance on contracts that we are signing. That is what you have seen of the contracts that we have signed in '24, '25 and now into '26 with healthy margins. Renewables portfolio, we have not been satisfied with those on a historical one. However, that was the first generation. The second generation has healthy margins. And renewable projects are competing with oil and gas projects for our own internal resources. And we are requiring margins on renewable projects in line with our oil and gas projects. So healthy margins in the portfolio. Preben Ørbeck: Next question, how do you look at the potential future projects in the U.S.A., especially in wind industry under the Trump administration? Did the sentiment changed after the recent rhetoric? Kjetel Digre: It's quite obvious that the sentiment and the opportunities in this period of Trump administration has changed. And our role in this is obviously to work closely with our key clients, and they are looking at changing focus just now that has been seen and particularly towards Europe and back to what we are tendering for and potential project, that's where the major wind opportunities are currently worked on from our side. Back to U.S., we do have office in U.S. and with consultancy Entr focus. And there, we are working on exciting new opportunities around, for instance, CCS, but also within classical oil and gas industry. And just to make another connection, those kind of jobs in the U.S., particularly onshore, is also supported from our experienced Indian engineering muscle. Preben Ørbeck: Then a question from Martin on the structural competitive advantage of Aker Solutions that you believe can support a sustainable returns above cost of capital. Kjetel Digre: Well, that's a big question. It's almost our whole strategy. But I think what you see is that we tend to be sort of a key and closest partner to our clients, and that's the role we want to grow further. And I think we are preferred in many instances on that because we have the totality of the engineering through our very experienced engineering organization. We're also the ones that are handling and orchestrating the totality of the project puzzle when it comes into execution. Back to our strategy, what we are also careful about is that we know what we are really good at. We have a core business that we are improving, but also growing and also do that around our existing hubs so that we are taking careful steps outside those. And then I think also as a company, we are in a place where we have taken onboard the challenge and realized that we have to change, we change together with clients, but also orchestrating change and improvements in the whole supply chain. I think there are a few companies that can take that role, and we are one of them, for instance, within maturing and developing a digital and AI-based operational model and bringing that out to the rest of the supply chain. Preben Ørbeck: Maybe then elaborating to Idar if there are any key drivers of returns on invested capital expansion in terms of margin development, capital intensity and reinvestment efficiency. Idar Eikrem: Yes. I think I sort of point back to my guidance for next year or this year in '26 where we have put out our guidance NOK 45 billion to NOK 50 billion in turnover and then with a margin of 7% to 7.5% range. CapEx is going to be sort of lower than what we have had recently. We are now capitalizing on our CapEx and investment that we have done over the last few years. So we expect CapEx to be around 1% of revenues. We expect the working capital to normalize a bit more than what it is currently at minus 6.5% to a level of around minus 4% to minus 6%. When you combine all this, we should be in a position that generate healthy cash flows also going forward, being able to serve our shareholders as well. And in addition, as we spoke about earlier in this call, healthy dividends are coming in from our ownership in SLB OneSubsea close to NOK 850 million for last year. Preben Ørbeck: Moving then over to a question from Jorgen Lande. If you can elaborate on the NOK 80 million net income from OneSubsea and the details of the provisions for one-off costs related to integration and restructuring. Idar Eikrem: Yes. What you should read into this is when the 2 companies combined, Aker Solutions and SLB, there was certain plans for taking out synergies and restructuring part of it, and this is part of that program. So this quarter, a bit more than what you have seen historically and you should consider this as a one-off cost in the quarter. And as we have stated in our comments to this, if you adjust for this, the earnings is more in line with previous quarters. Kjetel Digre: Perhaps I'll just add. Preben, you know, we are following this closely, obviously. And we are doing a very good and optimal things both when it comes to structure and system harmonization on the people structure and then also the actual facilities taking out the synergies that Idar is alluding to. Preben Ørbeck: Okay. Should we then move to -- there's a few questions from Erik Aspen Fossa in Sparebank. As visibility into next year improves, what is the outlook for 2027? Idar Eikrem: Yes. I can probably start. First of all, we have provided our guidance for 2026. We have secured order backlog around NOK 15 billion for 2017. However, we have a tender pipeline of around NOK 80 billion. And of course, a result of those tenders will impact '27. In addition, the frame agreements in Life Cycle. And as you have picked up, we was awarded the frame agreement from Equinor, now in the first quarter in January 2026. That will also come on top and have impact for '27 as well as other contracts that we are currently in the tender phase that will be concluded shortly. So we expect, of course, the backlog to increase when we come a bit closer to '27. Kjetel Digre: So perhaps add on the MMO part of us, having these long-term frame agreements, not only Equinor but also the ones that we won last year. That's a starting point with an expected volume. We are then becoming close to the assets and the organization on the client side, and that positions us really well for projects that are mature and comes on top of the already planned volume of work. Preben Ørbeck: Thank you, Kjetel. I see there's a few similar questions on what the strategy and ownership agenda for our 20% holding in OneSubsea. Is it a long-term part of Aker Solutions asks Martin Huseby Karlsen. Kjetel Digre: Yes. As I said, you are closely linked and collaborating with SLB OneSubsea. We have to also remind ourselves that we are actually an important supplier from both our Egersund yard and our organization at large towards the tasks and projects that OneSubsea picks up. So that's a good position to be. And then obviously, our ambition is to build them to be the largest subsea player worldwide. Idar Eikrem: Yes. And there was also a question about SLB shares that we are owner of. And those shares was allocated in connection with the transaction to us or part of the payment. We consider that as cash and cash equivalent like and can be converted to cash quite quickly if we want to do that. And when it comes to the shareholding, 20% shareholding that we have in SLB OneSubsea, as we have spoken about, this is a good business. It's a growing business and interesting business to be in. And therefore, there is no sort of plan to exit from that one. Preben Ørbeck: A few questions from Victoria McCulloch from RBC on OneSubsea. If you can comment a bit on your views or your expectations in 2026 in terms of margin, in terms of order intake and market share. If you can elaborate a bit more on the targets and the performance of the entity. Kjetel Digre: Well, first of all, on the outlook, a bit more general. They are world-class in both the sort of subsea production system delivery part. They are class in umbilical and cable part. They are world-class in, I would say, really world leading on the subsea processing kind of projects and also in the more sort of Life Cycle aftermarket service segment. And my take is that the way forward looks promising, and we are currently winning work from that side, which makes the months and years ahead, looking really good also, capturing projects with new clients that broadens the footprint and opens up new opportunities. Preben Ørbeck: Then a question from Kim Uggedal. If the Q4 dividends from OneSubsea is a new run rate? Or what should we think about it in 2026? Idar Eikrem: Yes, the Q4 dividend was more than NOK 400 million in 1 quarter. I guess that is a bit higher than what we expect to see every quarter. However, the yearly sort of effect that is there is at least within reach when you look at the cash conversion that SLB OneSubsea is able to do. Preben Ørbeck: Then moving on to a question from Kim Uggedal on the order intake in Renewable and Field Development, which was very strong consider that we did not announce any contracts. And whether this is predominantly related to scope on the NCS portfolio or additional scope on HVDC platforms or other projects? Idar Eikrem: There are increased scope in some of the projects, and it's also a growth in the portfolio. However, the largest element is a catch-up effect from third quarter. Aker BP updated our CapEx forecast in the third quarter. We were allocated a substantial part of that one in the fourth quarter. So there is a catch-up from third quarter, that is the majority of the figures that is unannounced in fourth quarter for us. This has to do with approval of milestone -- new updates on the CapEx estimate and allocating it to the suppliers. Preben Ørbeck: Question from Martin Huseby Karlsen, DNB on the tender pipeline of NOK 80 billion. Is that as end of Q4 or as of today? And how much of the volume is related to Equinor? Kjetel Digre: Well, that tender pipeline is as of end of Q4. And now currently, as we said a few times now, the Equinor MMO volume is the starting point really for those contracts is the expected volume planned that are already. And then on top of that, as I said, we will compete for jobs then that are larger and linked to, for instance, all the subsea tiebacks they are planning. Preben Ørbeck: And maybe elaborate that it's the -- what we expected and not the full tender value that was set out to all the participants in the tender. Idar Eikrem: And just remind everybody about that one, then we booked it now in the first quarter, and it's more than NOK 10 billion on that contract. Preben Ørbeck: Then a question on the margin guidance, Idar, whether it includes provisions or incentives or for the incentives for projects. Idar Eikrem: Yes, the margin guidance for 2026 is for the group. And as I mentioned earlier on today, this is a combination, of course, of -- and this is excluding OneSubsea and the ownership of that one. So the earnings from that comes on top, but the 7% to 7.5% is then for the remaining part of the group, and it consists basically of Life Cycle that has currently delivered 7.2% last year. And then it's -- the rest is basically in Renewable and Field Development. So meaning Renewable and Field Development is having a margin that is more or less in line with the group figures. Preben Ørbeck: Thank you, Idar. It seems that we have no further questions. So from us here, it's time to close off the session. And thank you all for listening in.
Preben Ørbeck: Good morning, and welcome to Aker Solutions presentation of our fourth quarter and full year results. My name is Preben Orbeck, and I'm the Head of Investor Relations. With me today is our CEO, Kjetel Digre; and our CFO, Idar Eikrem. They will take you through the main developments of the quarter and the full year. After the presentation, we have time for questions. Those of you who are following the webcast can submit your questions via the online platform. And with that, I leave the floor to Kjetel Digre. Kjetel Digre: Thank you, Preben, and welcome to everyone tuning in. As usual, let me start the presentation with the main messages for today. First and foremost, I'm once again pleased to report that we continue to deliver solid financial results in a period of high activity. Our fourth quarter revenues were NOK 16.7 billion, which takes our full year revenues to more than NOK 63 billion, the highest in Aker Solutions' recent history. Our EBITDA margin for the quarter was 7.9% or 7.5% if you exclude the net income from SLB OneSubsea. Our net cash position increased to NOK 3.7 billion at the end of the year. This was fueled by strong cash generation in our segments and substantial dividends from our 20% ownership in SLB OneSubsea. Looking at 2025 as a whole, we have made good progress on our project portfolio and on our strategy. The Aker BP portfolio is progressing well with all key milestones met during the year. And I'm also encouraged to see high demand for our engineering and consultancy services, leveraging our 5,000 strong engineering muscle to solve energy challenges for a wide range of customers across the globe. Our life cycle business is well positioned to continue its strong development, underpinned by long-term frame agreements with strategic clients. And lastly, I also want to highlight our ownership in SLB OneSubsea, a leading player in the growing subsea market. The company is delivering strong cash generation, enabling solid dividends to Aker Solutions. So as you can see, 2025 has been a very important year for Aker Solutions. Going forward, we continue to expect revenues to decline from peak levels in 2025, and we are taking steps to adjust capacity and costs accordingly. Our financial position is robust, and the Board of Directors has decided to propose a dividend of NOK 3.6 per share for 2025, up from NOK 3.3 per share in 2024. I'll talk more about how we are positioning the company to continue delivering shareholder value. But first, I wanted to take a step back to reflect on our journey since 2020. When we merged Aker Solutions and Kvaerner back in 2020, we set ambitious targets for the period ending in 2025. As you can see from the graphs, I think it's safe to say that we have delivered. Since 2020, our revenues have grown from about NOK 20 billion to more than NOK 60 billion. And equally important, our margins have also improved significantly over the period. In 2025, we delivered an EBITDA margin of 8.4% or 7.3%, excluding net income from OneSubsea. This is an increase of about 500 basis points from 2020. We also secured several important new orders in 2025 with an order intake of about NOK 66 billion during the year. Our order backlog was about NOK 65 billion at year-end, dominated by projects under the Aker BP Alliance model and reimbursable contracts. And it's great to see that these results have generated solid returns to our shareholders. Since the announcement in July 2020, the value of Aker Solutions has increased sevenfold. This includes about NOK 13.7 billion in dividends and share buybacks distributed to our shareholders during the last 5 years. So how are we creating value? Well, since 2020, we have delivered strong operational and financial performance across our business segments. In Renewables and Field Development, we have seen the top line grow more than 4x since the merger. And going forward, we are broadening our customer base and geographical exposure. We do this mainly through our engineering and consultancy business as well as selectively targeting renewables opportunities with balanced risk reward profiles. Our second segment, Life Cycle has also had an impressive journey, delivering double-digit revenue growth with improved margins. With an asset-light business model characterized by reimbursable contracts with low investments, Life Cycle is an important contributor to Aker Solutions' performance and cash generation. Going forward, the segment is well positioned in a growing brownfield oil and gas market with a strong backlog dominated by long-term frame agreements with strategic customers. Lastly, I wanted to touch upon our ownership in SLB OneSubsea. In late 2023, we announced the closing of the transaction to create a leading global subsea player. Since then, SLB OneSubsea has delivered strong financial performance and cash generation. The company has an attractive dividend policy where all excess cash is distributed to shareholders. And as I will come back to, this is just the starting point. Supported by a strong subsea market, the company is well positioned for growth and value creation in the years to come. So let's go deeper into some of these important value drivers. A key element in our strategy is to safeguard the delivery of our projects. So how are we doing this? An excellent example is the Aker BP projects we are executing in the alliance model. There are several benefits working in this model. By aligning our incentives, sharing risk and rewards, we create win-win situations that drive innovation and efficiency. This way of working closely together with our strategic partners helps us deliver high-quality projects faster, which in turn means more energy to the markets quickly and responsibly. The Aker BP project portfolio consists of 4 new platforms with a combined weight of about 90,000 tonnes. This includes Hugin A, the largest topside ever assembled at Stord. And we're also delivering the Valhall PWP platform and the smaller Hugin B and Fenris platforms from our yards. In addition, we are involved in several projects within modification of existing assets such as Skarv as well as being delivery partner for One Subsea for the fabrication of subsea equipment. I'm very pleased to report that all critical milestones on these projects were met during 2025. This includes the delivery and sailaway of the jacket substructures for both Hugin A and Valhall PWP in the summer and the arrival of several large topside modules to Stord for final assembly. At Stord, we are progressing as planned with the stacking program preparing the topside for sailaway during 2026. In order to safeguard the delivery of these other projects, Aker Solutions is applying new ways of working, enabled by automization and digital solutions. These are not ends in themselves, but rather means of improving efficiency and safety in execution. One example is the use of augmented reality or AR for short. By overlaying the technical drawings with real-world construction, inspectors can spot issues earlier when it is easier and less costly to mitigate them. Another example is the use of virtual reality or VR, where engineers from our different locations around the world can meet virtually inside the digital model they are working on to collaborate and identify the best solutions. The technology has multiple use cases, including replacing offshore surveys in a range of operations. This frees up man hours otherwise spent on transport, reduces personnel on board and saves costly helicopter transport. These are just a couple of examples of how we turn digital ambitions into practical applications that can save both time and cost for our customers. As for the alliance model, I believe that the achievements for the alliance are a clear testament to the value of working closely together with aligned incentives. This in turn enables us to deliver quality projects with faster time to first energy. Another key pillar of our strategy is to grow our engineering and consulting business. At Aker Solutions, we are currently having more than 5,000 engineers with unique competencies across market segments covering all phases of the asset life. Our spearhead in emerging markets and client relationships is Entr, our consultancy arm. The core team at Entr currently consists of about 350 people, but draws on the competencies and capacity of the entire organization. A unique selling point for our engineering and consultancy services is how we are pioneering new digital solutions and data analytics powered by AI, artificial intelligence. By shifting from manual to automated processes, we can make better use of historical data and scenarios to design innovative solutions that unlock value for our customers. One example is a recent FPSO concept study. Here, our engineers were able to identify more than 200 potential improvements, significantly reducing both weight, costs and delivery times. From our key engineering hubs in Norway, U.K., U.S., Canada, India and Malaysia, we deliver consulting and engineering projects to a wide range of customers across the globe. Within oil and gas, we are actively engaged in several FPSO projects that we believe will move into next phases of development over the next 1 to 2 years. We're also seeing strong demand for our onshore, midstream and downstream capabilities. In these markets, we benefit from the experience and track record from our Indian office, where we have more than 1,000 engineers delivering projects across the globe. Likewise, we see that our track record in both CCS and offshore wind enables us to engage early with new clients in different geographical regions. In both offshore wind and CCS, we are now engaged in the second generation of projects. Compared to the first generation, which have been both operationally and commercially challenging, the new generation is progressing well, delivering healthy margins. So what has changed? Firstly, we have managed to negotiate commercial terms with balanced risk reward profiles and joint incentives for successful project deliveries. This means that we have moved away from traditional lump sum models to a model where both risks and upsides are much closer tied to our own performance. Secondly, we have managed to move away from customized one-off projects to leveraging standardization across several projects. One example is the Norfolk portfolio, where we are seeing the benefit of designing one and build several. For instance, both engineering and fabrication hours are significantly reduced on the second topside compared to the first. The same applies for our CCS portfolio, where learnings from the first wave of capture and storage projects are now being implemented at the Northern Lights Phase 2 and the Hafslund Celsio carbon capture and storage projects. All in all, I'm pleased to see that our focused approach is yielding positive results, positioning us in the markets with significant growth potential in the years to come. Moving over to our life cycle business. The segment has since 2020, delivered double-digit revenue growth with improved profitability and strong cash generation. At year-end, the backlog stood at about NOK 23 billion, dominated by long-term frame agreements and reimbursable modification projects on existing onshore and offshore assets. The segment also delivers hookup and commissioning services to ensure efficient and safe start-up of new oil and gas facilities and offshore wind components. Our long-term engagements on these critical assets enable us to expand our capabilities, offering unique technology-enabled services. This includes autonomous drone inspection, remote operations and AI-powered analytics. And talking about long-term engagements. I'm happy to report that we have secured several new long-term frame agreements for maintenance and modification services over the past months. Why is this important for Aker Solutions? For one, it creates transparency on activity levels for several years to come. As you can see on this slide, the recently awarded agreements in Norway have a duration of more than 10 years, including options. We are also working side-by-side with key international clients such as Exxon, Shell and BP to maintain and modify their critical infrastructure in Canada, U.K., Angola and Brunei. I believe one of the main reasons we've been awarded these contracts is our demonstrated ability to drive improvement. And we are not just talking about doing the same things we did yesterday only faster, we are talking about fundamentally challenging what we do and how we do it. That means not just applying new technology, but applying the right technology and digital solutions, where we truly move the needle and deliver measurable results. It is also about understanding our clients, how they think, how they prioritize and what matters most to them. Our deep understanding of the assets also positions us for modification projects, for instance, related to subsea tieback or the decarbonization through electrification. In Norway alone, Equinor expects to develop more than 75 subsea projects over the next decade. So to summarize, I'm impressed by how Life Cycle has developed over the last 5 years and believe that the segment is well positioned to continue its transformation journey in the years to come. Moving over to SLB OneSubsea. As mentioned, the company was established through the merger between SLB and Aker Solutions Subsea divisions with the ambition to create the leading subsea company in the world. The financial performance of the company speaks for itself, delivering strong margins and solid cash flows. The company has a very attractive dividend policy. And during 2025, SLB OneSubsea had paid out more than $400 million in dividends to its shareholders. After these payments, the company still has a robust financial position with net cash of more than $0.5 billion. And the outlook for the company is strong with global subsea spending expected to increase by around 25% over the next 5 years. Tendering activity is high, both within Subsea production systems, Subsea processing solutions and umbilicals and cable systems. SLB OneSubsea also has a highly resilient life of field service offering, enabled by the largest installed base of subsea equipment in the industry. The company recently announced targets of cumulative bookings exceeding $9 billion over the next 2 years, positioning the company for growth from 2027 and onwards. So as both the proud co-owner and delivery partner for OneSubsea, Aker Solutions sees great opportunities for continued strong value creation in the company going forward. And talking about shareholder value. As you can see from the graph on the left-hand side, share prices among players with exposure to the subsea equipment market have increased markedly during the last 6 to 12 months. If one uses such peer trading multiples, one may argue that our 20% ownership represents a significant upside to Aker Solutions current trading. In addition, Aker Solutions currently holds more than 5 million shares in SLB, which were used as considerations for the Subsea transaction. Since the closing of the fourth quarter, we have seen a substantial increase in the value of these shares. So to summarize, I am pleased to see that we continue delivering strong financial results that we have a solid backlog of healthy projects and that we continue positioning the company for the future. Finally, our financial situation is robust. This gives us a strong foundation to continue developing the company while generating solid returns to our shareholders. And with that, I leave the word to Idar, who will take you through the financials of the quarter and for the full year. Idar Eikrem: Thank you, Kjetel. I will now take you through the key financial highlights of the fourth quarter, the full year figures, our segment performance and run through our financial guidance. As always, all numbers mentioned are in Norwegian kroner. So let me start with the income statement. The fourth quarter revenue was NOK 16.7 billion. Full year revenue were NOK 63.2 billion, a 19% increase from 2024. The underlying EBITDA in the quarter was NOK 1.3 billion with a margin of 7.9%. During the quarter, Aker Solutions have taken provisions for restructuring costs of NOK 194 million in relation to the announced capacity adjustments. This is treated as a special item. The net income from OneSubsea was only NOK 80 million in the quarter. This was affected by one-off costs related to integration and restructuring. If adjusting for these one-off costs, the net income from the entity was in line with previous quarters. Full year EBITDA for the group was NOK 5.3 billion with a margin of 8.4% or 7.3% if you exclude the net income from SLB OneSubsea. The underlying EBIT in the quarter was NOK 940 million, up from NOK 888 million a year ago with a margin of 5.6%. The full year EBIT was NOK 3.8 billion with a margin of 6.1%. For the full year, net income, excluding special items, was NOK 2.9 billion, representing an earnings per share of NOK 6.1. This is somewhat lower than in 2024, mainly driven by lower interest income after the sale of liquid funds used for the payment of extraordinary dividend in 2024. As Kjetel mentioned, the Board of Directors will propose an ordinary dividend of NOK 3.6 per share for 2025, pending approval of -- in our Annual General Meeting in April. This represents approximately 60% of net income, excluding special items. Moving to our segment performance. For Renewables and Field Development, the fourth quarter revenue was NOK 12.4 billion. Full year revenues was NOK 46.1 billion, representing a year-on-year growth of 21%. The underlying EBITDA in the quarter was around NOK 1 billion with a margin of 8.1%. EBITDA for the full year was NOK 3.7 billion, representing a margin also of 8.1%. The legacy lump sum projects continue to be a drag on the margins throughout 2025. These projects are now in the offshore commissioning phase and commercial discussions are ongoing. And as previously mentioned, the second-generation renewable projects contribute with healthy margins in the period. The order intake in the period was NOK 11.6 billion, leading to a secured backlog of more than NOK 40 billion at year-end. Based on the secured backlog, we expect the revenues in this segment to be between NOK 30 billion and NOK 35 billion in 2026. For the Life Cycle segment, revenues in the fourth quarter was NOK 3.8 billion. Full year revenues was NOK 15 billion, an increase of about 13% from 2024. The underlying EBITDA was NOK 293 million in the quarter, representing a margin of 7.7%. This was enabled by continued solid performance on ongoing modification projects and long-term frame agreements. EBITDA for the full year was NOK 1.1 billion with a margin of 7.2%. The order intake in the quarter was NOK 7.7 billion, representing a book-to-bill of about 2x. During the quarter, Life Cycle was awarded long-term frame agreements with both ConocoPhillips in Norway and ExxonMobile in Canada. The secured backlog at the end of the year was NOK 23 billion, providing a good visibility for future activity levels. This, however, does not include the announced long-term frame agreement with Equinor awarded in the first quarter of 2026, representing additional intake of more than NOK 10 billion. Based on the secured revenues and backlog, we expect Life Cycle revenues to remain relatively stable in 2026 at around NOK 15 billion. Moving to our financial performance of SLB OneSubsea. In the fourth quarter, SLB OneSubsea delivered revenues of about NOK 10.5 billion. For the full year, revenues were about NOK 40 billion. EBITDA in the quarter was about NOK 1.9 billion, representing a margin of about 18%. For the full year of 2025, the company delivered an EBITDA margin of 19.4%. Net income before PP&A adjustment was NOK 527 million in the quarter. This was negatively affected by the mentioning provisions for one-off costs. After PP&A adjustment, Aker Solutions recognized NOK 80 million for our 20% share. The backlog for the entity is currently at NOK 47 billion. As mentioned, tendering activity is high, and the company has an ambition to exceed $9 billion in new orders over the next 2 years. In the fourth quarter, Aker Solutions received dividend of more than NOK 400 million. This was significantly above previous quarters, reflecting the solid financial position and performance of the entity. This takes me to our cash flow for the full year. Cash flow from operation was NOK 2.6 billion, mainly driven by EBITDA contribution from our operational segments offset by a reversal of working capital of about NOK 1.3 billion. CapEx for the full year was about NOK 500 million or 0.8% of revenues. For the full year, Aker Solutions received NOK 841 million in dividends from our 20% ownership in SLB OneSubsea, significantly above previous guiding from the company. Lastly, we have distributed about NOK 1.6 billion to our shareholders in 2025, in line with our ordinary dividend policy. The financial position remained robust with a net cash position that increased to NOK 3.7 billion during 2025. So to sum up, in 2025, Aker Solutions delivered record high revenues with solid margins and strong cash generation. As Kjetel mentioned, we continue to expect activity levels to come down in 2026, forecasting revenues between NOK 45 billion and NOK 50 billion for the full year. At this early stage, we expect the EBITDA margin to be in the range of 7% and 7.5% for the full year, excluding net income from SLB OneSubsea. CapEx is expected to be around 1% of revenues. While working capital is expected to continue its normalization to a level between negative NOK 4 billion and negative NOK 6 billion over time. Based on our robust financial position, the Board will propose a cash dividend of NOK 3.6 per share for 2025, pending approval in the Annual General Meeting to be held in April. Thank you for listening. That was the end of our presentation. In a few moments, we will open up for questions. Preben Ørbeck: Okay. We will start with a few questions from Martina Kverne in Nordea. The first question is if you can give an update on when the legacy lump sum projects are finished? Kjetel Digre: They are all currently in offshore mode. We have installed them, and they are completed structurally, and we are currently working on the commissioning part of the project and we completed all of it in 2026. Preben Ørbeck: Moving on to two questions on the tender pipeline. Whether Wisting is included. And also, if you can elaborate a bit on the split between Renewable, Field Development and Life Cycle. Kjetel Digre: Start by saying that Wisting is really high on our agenda, and we are working closely with Equinor on behalf of the license owners to look at the optimal concept and really helping them to make this a viable project. That's a super important work for us. It's not currently included in the tender pipeline numbers because it's in an early phase still. And then the split is, I would say, balanced. We are working on the classical greenfield oil and gas projects. But perhaps link it common to Life Cycle. We have in the start of 2026 and now we've gotten the important continued relationship with Equinor with many exciting agreements and tasks. And part of those agreements is actually not specific yet on what kind of work. So they are sort of empty contracts. But we know that with the ambitions of Equinor and other operators on the Norwegian continental shelf with, for instance, 75 subsea tiebacks that can potentially be filled with quite a lot of life cycle work going forward. Preben Ørbeck: Moving over to a few questions on OneSubsea. They announced a target of $9 billion in cumulative orders. Can you talk a bit about the timing and maybe also elaborate on the dividend expectations? Idar Eikrem: Thank you. I will. And the $9 billion is in U.S. dollars. So that is important. And the $9 billion is a target for the next 2 years. So '26 and '27 to secure $9 billion in new orders. In addition, SLB OneSubsea is sitting with an order backlog of $4.7 billion. So achieving $9 billion over the next couple of years with the current backlog is providing a solid and good visibility for activity level going forward. Currently, they are around $4 billion a year and with healthy margin close to 20%. And as we have seen, we received NOK 841 million for dividends from SLB OneSubsea during 2025. And the dividend policy is a good dividend policy for the shareholders. All excess cash is going to be distributed to the shareholders. And the current cash position at year-end was at NOK 5.7 billion. So with, call it, cash generation from the earnings that we expect in 2026 together with the cash position they're sitting on, we expect healthy dividends also for 2026 and onwards. Preben Ørbeck: Moving to a question on the Aker BP projects where you are noting good progress. Any upside to the margins in 2026? Idar Eikrem: For a project like this, there are incentive mechanism in place. And normally, they -- most of the sort of incentive mechanism are towards the end of the project lifetime and also linked up to start-up. We don't disclose or come with guidance on margins on specific contracts or segments. But as you can see from our guidance for 2026, we are guiding a margin of 7% to 7.5% at this stage. And with Life Cycle being a business that is currently at around 7.2%, you will understand that the Renewable and Field Development segment will be in the range that is in line with the group estimates. Preben Ørbeck: Thank you. Then moving over to a question from Oscar Ronnov in Kepler. If you can comment on how margins of new contracts signed in 2024 and also now in the beginning, '25 and into '26, how does that compare to the legacy portfolio? And if you're seeing a material step-up in underlying margins or risk returns on new awards? Idar Eikrem: I think the most important thing that we did and we communicated that clearly is some of those contracts that we signed in '21, '22, didn't have the right risk reward balance. We have, therefore, communicated that we will be very selective and make sure that we have the right risk reward balance on contracts that we are signing. That is what you have seen of the contracts that we have signed in '24, '25 and now into '26 with healthy margins. Renewables portfolio, we have not been satisfied with those on a historical one. However, that was the first generation. The second generation has healthy margins. And renewable projects are competing with oil and gas projects for our own internal resources. And we are requiring margins on renewable projects in line with our oil and gas projects. So healthy margins in the portfolio. Preben Ørbeck: Next question, how do you look at the potential future projects in the U.S.A., especially in wind industry under the Trump administration? Did the sentiment changed after the recent rhetoric? Kjetel Digre: It's quite obvious that the sentiment and the opportunities in this period of Trump administration has changed. And our role in this is obviously to work closely with our key clients, and they are looking at changing focus just now that has been seen and particularly towards Europe and back to what we are tendering for and potential project, that's where the major wind opportunities are currently worked on from our side. Back to U.S., we do have office in U.S. and with consultancy Entr focus. And there, we are working on exciting new opportunities around, for instance, CCS, but also within classical oil and gas industry. And just to make another connection, those kind of jobs in the U.S., particularly onshore, is also supported from our experienced Indian engineering muscle. Preben Ørbeck: Then a question from Martin on the structural competitive advantage of Aker Solutions that you believe can support a sustainable returns above cost of capital. Kjetel Digre: Well, that's a big question. It's almost our whole strategy. But I think what you see is that we tend to be sort of a key and closest partner to our clients, and that's the role we want to grow further. And I think we are preferred in many instances on that because we have the totality of the engineering through our very experienced engineering organization. We're also the ones that are handling and orchestrating the totality of the project puzzle when it comes into execution. Back to our strategy, what we are also careful about is that we know what we are really good at. We have a core business that we are improving, but also growing and also do that around our existing hubs so that we are taking careful steps outside those. And then I think also as a company, we are in a place where we have taken onboard the challenge and realized that we have to change, we change together with clients, but also orchestrating change and improvements in the whole supply chain. I think there are a few companies that can take that role, and we are one of them, for instance, within maturing and developing a digital and AI-based operational model and bringing that out to the rest of the supply chain. Preben Ørbeck: Maybe then elaborating to Idar if there are any key drivers of returns on invested capital expansion in terms of margin development, capital intensity and reinvestment efficiency. Idar Eikrem: Yes. I think I sort of point back to my guidance for next year or this year in '26 where we have put out our guidance NOK 45 billion to NOK 50 billion in turnover and then with a margin of 7% to 7.5% range. CapEx is going to be sort of lower than what we have had recently. We are now capitalizing on our CapEx and investment that we have done over the last few years. So we expect CapEx to be around 1% of revenues. We expect the working capital to normalize a bit more than what it is currently at minus 6.5% to a level of around minus 4% to minus 6%. When you combine all this, we should be in a position that generate healthy cash flows also going forward, being able to serve our shareholders as well. And in addition, as we spoke about earlier in this call, healthy dividends are coming in from our ownership in SLB OneSubsea close to NOK 850 million for last year. Preben Ørbeck: Moving then over to a question from Jorgen Lande. If you can elaborate on the NOK 80 million net income from OneSubsea and the details of the provisions for one-off costs related to integration and restructuring. Idar Eikrem: Yes. What you should read into this is when the 2 companies combined, Aker Solutions and SLB, there was certain plans for taking out synergies and restructuring part of it, and this is part of that program. So this quarter, a bit more than what you have seen historically and you should consider this as a one-off cost in the quarter. And as we have stated in our comments to this, if you adjust for this, the earnings is more in line with previous quarters. Kjetel Digre: Perhaps I'll just add. Preben, you know, we are following this closely, obviously. And we are doing a very good and optimal things both when it comes to structure and system harmonization on the people structure and then also the actual facilities taking out the synergies that Idar is alluding to. Preben Ørbeck: Okay. Should we then move to -- there's a few questions from Erik Aspen Fossa in Sparebank. As visibility into next year improves, what is the outlook for 2027? Idar Eikrem: Yes. I can probably start. First of all, we have provided our guidance for 2026. We have secured order backlog around NOK 15 billion for 2017. However, we have a tender pipeline of around NOK 80 billion. And of course, a result of those tenders will impact '27. In addition, the frame agreements in Life Cycle. And as you have picked up, we was awarded the frame agreement from Equinor, now in the first quarter in January 2026. That will also come on top and have impact for '27 as well as other contracts that we are currently in the tender phase that will be concluded shortly. So we expect, of course, the backlog to increase when we come a bit closer to '27. Kjetel Digre: So perhaps add on the MMO part of us, having these long-term frame agreements, not only Equinor but also the ones that we won last year. That's a starting point with an expected volume. We are then becoming close to the assets and the organization on the client side, and that positions us really well for projects that are mature and comes on top of the already planned volume of work. Preben Ørbeck: Thank you, Kjetel. I see there's a few similar questions on what the strategy and ownership agenda for our 20% holding in OneSubsea. Is it a long-term part of Aker Solutions asks Martin Huseby Karlsen. Kjetel Digre: Yes. As I said, you are closely linked and collaborating with SLB OneSubsea. We have to also remind ourselves that we are actually an important supplier from both our Egersund yard and our organization at large towards the tasks and projects that OneSubsea picks up. So that's a good position to be. And then obviously, our ambition is to build them to be the largest subsea player worldwide. Idar Eikrem: Yes. And there was also a question about SLB shares that we are owner of. And those shares was allocated in connection with the transaction to us or part of the payment. We consider that as cash and cash equivalent like and can be converted to cash quite quickly if we want to do that. And when it comes to the shareholding, 20% shareholding that we have in SLB OneSubsea, as we have spoken about, this is a good business. It's a growing business and interesting business to be in. And therefore, there is no sort of plan to exit from that one. Preben Ørbeck: A few questions from Victoria McCulloch from RBC on OneSubsea. If you can comment a bit on your views or your expectations in 2026 in terms of margin, in terms of order intake and market share. If you can elaborate a bit more on the targets and the performance of the entity. Kjetel Digre: Well, first of all, on the outlook, a bit more general. They are world-class in both the sort of subsea production system delivery part. They are class in umbilical and cable part. They are world-class in, I would say, really world leading on the subsea processing kind of projects and also in the more sort of Life Cycle aftermarket service segment. And my take is that the way forward looks promising, and we are currently winning work from that side, which makes the months and years ahead, looking really good also, capturing projects with new clients that broadens the footprint and opens up new opportunities. Preben Ørbeck: Then a question from Kim Uggedal. If the Q4 dividends from OneSubsea is a new run rate? Or what should we think about it in 2026? Idar Eikrem: Yes, the Q4 dividend was more than NOK 400 million in 1 quarter. I guess that is a bit higher than what we expect to see every quarter. However, the yearly sort of effect that is there is at least within reach when you look at the cash conversion that SLB OneSubsea is able to do. Preben Ørbeck: Then moving on to a question from Kim Uggedal on the order intake in Renewable and Field Development, which was very strong consider that we did not announce any contracts. And whether this is predominantly related to scope on the NCS portfolio or additional scope on HVDC platforms or other projects? Idar Eikrem: There are increased scope in some of the projects, and it's also a growth in the portfolio. However, the largest element is a catch-up effect from third quarter. Aker BP updated our CapEx forecast in the third quarter. We were allocated a substantial part of that one in the fourth quarter. So there is a catch-up from third quarter, that is the majority of the figures that is unannounced in fourth quarter for us. This has to do with approval of milestone -- new updates on the CapEx estimate and allocating it to the suppliers. Preben Ørbeck: Question from Martin Huseby Karlsen, DNB on the tender pipeline of NOK 80 billion. Is that as end of Q4 or as of today? And how much of the volume is related to Equinor? Kjetel Digre: Well, that tender pipeline is as of end of Q4. And now currently, as we said a few times now, the Equinor MMO volume is the starting point really for those contracts is the expected volume planned that are already. And then on top of that, as I said, we will compete for jobs then that are larger and linked to, for instance, all the subsea tiebacks they are planning. Preben Ørbeck: And maybe elaborate that it's the -- what we expected and not the full tender value that was set out to all the participants in the tender. Idar Eikrem: And just remind everybody about that one, then we booked it now in the first quarter, and it's more than NOK 10 billion on that contract. Preben Ørbeck: Then a question on the margin guidance, Idar, whether it includes provisions or incentives or for the incentives for projects. Idar Eikrem: Yes, the margin guidance for 2026 is for the group. And as I mentioned earlier on today, this is a combination, of course, of -- and this is excluding OneSubsea and the ownership of that one. So the earnings from that comes on top, but the 7% to 7.5% is then for the remaining part of the group, and it consists basically of Life Cycle that has currently delivered 7.2% last year. And then it's -- the rest is basically in Renewable and Field Development. So meaning Renewable and Field Development is having a margin that is more or less in line with the group figures. Preben Ørbeck: Thank you, Idar. It seems that we have no further questions. So from us here, it's time to close off the session. And thank you all for listening in.
Lluc Sas: Good morning, and thank you for joining Sabadell's results presentation for the fourth quarter and the full year 2025. We are joined today by our CEO, Cesar Gonzalez-Bueno; and our CFO, Sergio Palavecino. The presentation will follow a similar format as in previous quarters. First, our CEO will walk us through the key highlights of the year. Then our CFO will go into the financials and the balance sheet, before our CEO concludes with closing remarks. Finally, we will open the floor for a live Q&A session where you can ask your questions. So Cesar, over to you. Cesar Gonzalez-Bueno Wittgenstein: Thank you, Lluc, and good morning, everyone. We announced yesterday that the Board of Directors of the bank and I have agreed on my resignation as Sabadell's CEO, while Marc Armengol has been appointed new CEO. These changes will take place around May, following our AGM, and once regulatory approvals have been obtained. Until then, I will remain as Sabadell's CEO, and Marc will remain TSB's CEO. And I think now is the right moment for me to step down, and I say that absolutely sincerely. Our current strategy -- strategic plan is solid and well-defined and supported by everyone, including Marc, who has been a great part of its construction. Targets for '26 and '27 are ambitious but achievable, and we are in course. And now it's all about execution, execution and execution of the current plan and planting seeds for an exciting future. Therefore, the bank is on the right track to deliver its targets. And just very briefly, on a more personal note. Look, I had opted for retirement 6 years ago. And the opportunity of joining Sabadell was so tempting that I couldn't let it pass. I was called for this project. I could not refuse. It has been far more exciting and rewarding than I could have expected. And I think now, it's the time to go. But on top of delivering on our plan, Sabadell also needs to start thinking about this future beyond 2027. There's an increasing number of opportunities from banks arising from technology in general, and from artificial intelligence, in particular. I think we have done a tremendous development in digitalization, but AI goes beyond, and that plan needs to be accelerated and it will transform the bank not in the next year, but in the years to come, and this transformation will be profound. In this context, my dear and friend, Marc Armengol, is the perfect CEO to deliver our targets for '26 and '27 because he has the managerial skills. But beyond, Marc brings strategic vision and delivery, combining CEO experience with developing and executing corporate strategy in the U.S. and in U.K. He has proved his commercial mindset at TSB, where he has improved competitiveness by getting even closer to customers. He also brings exceptional technological, operational and digital expertise from business integrations to large case transformations in Spain, U.K., U.S. and Mexico. And very important, he knows everything about Sabadell. He is definitely not a newcomer. As a matter of fact, this is the first internal CEO appointment since Sabadell went public over a quarter of a century ago. And I think this proves maturity for this great institution. All in all, that is the right time for the bank to address this change. It is the right moment for me, and it is the right moment for Marc. And before moving to the result presentation, let me repeat it one more time. We have announced my resignation and the appointment of a new CEO, but we remain fully committed to delivering our plan and reaching our financial targets for '26 and '27. Key messages for the next full year, we are in Page 4. Given that the TSB sale is expected to be completed during the second quarter of 2026, we are presenting figures with reference to the ex-TSB perimeter. First, volumes grew at mid-single digit during the year, performing loans increased by 5.4% and customer funds by 6.4%. Second, core revenues performed in line with expectations with NII at EUR 3.6 million, while fees were up by 3.6% year-on-year. Third, asset quality continued its positive trend. Total cost of risk declined by 16 basis points and stands at 37 basis points. Moreover, NPAs decreased by 17% year-on-year, while the NPA coverage ratio stood at 64%, up 2 percentage points versus last year. Fourth, this year's shareholder remuneration is EUR 1.5 billion. We have already distributed EUR 700 million through 2 interim cash dividends. And in addition to this, we will allocate EUR 800 million to a new share buyback program. We have already received authorization from ECB and the program will start on Monday. Finally, return on tangible equity stands at 14.3% and the core Tier 1 ratio is 13.1%, after deducting the excess capital that will be distributed. During '25, before dividend accruals, we generated -- I think this is a big number, 196 basis points of capital. Slide 5. And this is a little bit of a reason why. Let me explain why Sabadell is well positioned to keep improving its profitability looking forward. We have a clear strategy that supports profitable growth, as we shared last July during the presentation of our strategic plan. Our ongoing transformation focuses on delivering growth alongside improved asset quality. Although this means marginally lower loan yields, these are more than offset by a much lower cost of risk. Overall, this results in both profitable growth and stronger capital generation. This is a structural and permanent looking forward. Let me explain a little bit further on this. I mean the probability of default is now at the levels of which we wanted. That is done. And the impact on the P&L is immediate because, of course, you lose income, because you're doing less risky assets. But the benefits of that come over time, and it depends also on the duration of the different portfolios. We will still see tails for a long time in terms of -- in the different products. We will see tails of improvement of the risk cost, and we will see tails of improvement of the capital generation due to this. And this is perfectly in line, as we said, with the strategy, and I think it will yield over the course of the year. And furthermore, it makes the bank very sound. But however, and now going to the right-hand side of the slide, following the tender offer period, our business was a bit less dynamic than expected for a time. And we have now clearly regained our commercial momentum. For instance, month-on-month evolution of on-balance sheet funds in December '25 was better than in December '24. And new lending to SMEs was also higher in December '25 than '24. And -- furthermore, and this is meaningful, customer acquisition in December '25 was also significantly higher than in '24. To sum up, we have solid fundamentals and a clear strategy that will support profitable growth and capital generation going forward. Let's go to Slide 6. Performing loans excluding TSB remained flattish quarter-on-quarter and grew by more than 5% year-on-year. At TSB, lending volumes at constant FX remained flattish in the quarter as expected. Moving on to customer funds. On balance sheet, funds regained momentum and increased by 3.4% in the quarter. And this momentum, as we just saw, was more towards the last part of the quarter. Off balance sheet funds also continued to perform well, rising by 1.9% in the quarter and 14% in the year. All in all, in '25, we increased our loan book by EUR 6 billion and our customer funds by EUR 11 billion ex-TSB. This represents mid-single-digit growth, which is in line with our guidance. And this in combination with the growth of capital because growing capital generation but not growing the business is not as attractive as doing both things at the same time. Let's move to Slide 7, loan origination in Spain. In Q4, new mortgages decreased by 3% year-on-year. We have been reducing our market share in new mortgage lending over the past few months as front book yields have compressed. We remain focused on managing our new lending through risk-adjusted return on capital, ensuring that growth is delivered in a profitable manner. New customer loans -- consumer loans in Q4 increased by 8% on a year-on-year basis. In the whole year, new lending of consumer loans increased by 16%. Quarterly new loans and credit facilities granted to SMEs and corporate decreased by 15% year-on-year. This results in a slight decline of 5% if we compare with the full year of '25 with '24. On the other hand, origination of working capital finance remained broadly stable in the year. All in all, a strong performance in new lending during the year delivered loan book growth across all products and segments. If we move to Slide 8, regarding payment-related services in 2025, card turnover increased by 6% year-on-year, while point-of-sale turnover increased by 2%. Let me share that the merchant acquiring business will remain within our perimeter looking forward. Therefore, we will keep this fee income stream. Regarding savings and investment products, we reached a total stock of EUR 70.6 billion in December '25. This represents an increase of EUR 4.2 billion in the year, driven by an increase in off-balance sheet products of EUR 6.5 billion, most of it becoming -- EUR 4.6 billion coming from net inflows. In Slide 9, the breakdown of performing loan book across segments and geographies excluding TSB. In Spain, performing loans fell by 0.9% in the quarter. Mortgages and consumer loans posted positive growth in the quarter. On the other hand, the SME and corporate lending fell by 3.6% quarter-on-quarter, mainly due to the fact that these firms have been growing less heavily on their credit facilities. Year-on-year, performing loans in Spain increased by 5.2%. The mortgage book grew by 5%, consumer loans delivered double-digit growth and the stock of SME and corporate loans increased by 2.4%. The international operations also delivered strong momentum, with performing loans rising by approximately 15% year-on-year at constant FX. If we move now to Slide 10, the U.K. business. As expected, TSB's performing loans and customer deposits remain broadly stable on both quarter-on-quarter and year-on-year. Looking at the main lines of the P&L, NII increased by 7.2% in the year, in line with high single-digit guidance. Fees, which are less relevant for the U.K. business, declined by 15% year-on-year. Total cost decreased by 2.6% in the year, also in line with the guidance, in line with the 3% decline guidance. Provisions increased by around 50% year-on-year. Let me remind you that in '24, TSB recorded releases related to the improvement of macroeconomic assumptions. The resulting cost of risk in 2025 was 13 basis points, considerably better than the 20 basis points guidance. All in all, TSB's net profit reached GBP 61 million in the quarter, translating into almost GBP 260 million for the full year. This implies growth of around 25% in 2025. Stand-alone return on tangible equity was 13.5% despite maintaining a high level of solvency, with a core Tier 1 ratio of 16.7%. Finally, tangible net asset value increased by GBP 154 million between April and December. This, together with the additional TNAV to be generated until the closing of the transaction, will be added to the GBP 2.65 billion sale price, ensuring that TSB continues to contribute to Sabadell until the transaction closes. On Slide 11, a summary of our results. In '25, we posted net profits of EUR 1.8 billion. This represents a 3% decline year-on-year. It is worth noting that when adjusting 2024 net profit for extraordinary items, net profit actually increased by 3.4% year-on-year. All lines have been performing in line with the expectations. Sergio will explain the P&L in more detail shortly. To conclude this section of the presentation, I will outline our shareholder remuneration. The amount for 2025 has been improved to EUR 1.5 billion. This is 9% of our market cap. 2025 remuneration includes EUR 700 million in cash, which have already been paid, and EUR 800 million in share buyback. Last year, we paid 2 interim cash dividends, one in August and one in December of EUR 350 million each. These distributions will be followed by a final dividend of EUR 365 million as well as a EUR 435 million of excess of capital. These amounts to EUR 800 million via share buyback program scheduled to begin next Monday. No doubt, exceptionally, the final dividend will be distributed entirely through a share buyback. The main reason is that we believe that the stock is currently trading at a discount to its fair value, making a buyback the best option to reward our shareholders. We expect to distribute EUR 2.5 billion across '26 and '27, which also represent 9% of the market cap each year, once we deduct the extraordinary dividend related to the sale of TSB. All in all, we are on track to deliver on our commitment to distribute a cumulative EUR 6.45 billion of remuneration over '25 and '27. On top of that, we reiterate our commitment to deliver an annual cash dividend per share above EUR 20.44 from '26 onwards. I will now pass the floor to Sergio, who will provide a more detailed overview of the bank's financial performance. Sergio Palavecino: Thank you, Cesar, and good morning, everyone. Let me begin by presenting the full detailed P&L. As we will explain during the presentation, the annual performance shows an alignment with our year-end targets. We recorded a net profit close to EUR 1.8 billion or EUR 1.46 billion when excluding TSB. Before we go through each line, I'd like to highlight a few extraordinary items and reclassifications recorded this quarter. Firstly, on the trading income line, we recorded an expense of EUR 15 million related to the exchange rate hedging on the full proceeds from the sale of TSB. This impact will be recurrent until the transaction closes. Secondly, and following the termination of the agreement to sell the merchant acquiring business, we have reclassified EUR 23 million from other provisions to depreciation and amortization. The impact of this on net profit is neutral. Finally, on the gain on sale of asset line, we adjusted EUR 20 million related to certain IT and software assets. We will now review the main P&L items in more detail, focusing on Sabadell's performance, excluding TSB. Starting with NII on Slide 15. We recorded EUR 3.6 billion in NII for the year, fully aligned with our guidance. In the quarter, Sabadell ex-TSB delivered close to EUR 900 million, broadly stable versus the previous quarter. Now let's look at the top right-hand side of the slide to understand the drivers behind this quarterly evolution. Moving from left to right, customer NII had a positive impact of EUR 2 million. Within this, the customer margin decreased by EUR 7 million due to the negative repricing of variable rate loans. Although interest rate pressure on loan yield has already eased significantly. The good news is that volumes more than offset the customer spread compression. ALCO, liquidity and wholesale funding contributed by EUR 3 million, supported by lower refinancing needs and lower spreads. Other items had a combined impact of minus EUR 9 million. This mainly reflects the negative impact of certain interest rate hedges related to the fixed rate mortgage portfolio. TSB added EUR 11 million positive this quarter, reaching EUR 314 million as the contribution from the structural hedge was higher than the depreciation of the sterling. For 2026, we expect NII to increase by more than 1% with a clear acceleration throughout the year. In fact, we expect NII to bottom in first quarter '26, mainly due to fewer calendar days and the final repricing of the variable rate loans. From that point, it should grow steadily quarter after quarter, being the fourth quarter of '26 mid-single digit higher versus the fourth quarter of '25. For these estimates, we are assuming interest rates to remain at the same levels as at the end of 2025. We are expecting volumes to perform in line with what we have seen this year, around 6% growth in loans and between 3% to 4% in on-balance sheet funds. Loan yield could decline some basis points in the first half of the year, but should return to current levels driven by higher growth in consumer and SME lending. On cost of deposits, we still see room for further improvement as we reprice the last part of the term deposits. And finally, the impact from the sale of TSB bonds in the ALCO portfolio will be offset by savings in wholesale funding as we will have lower MREL funding needs after the sale. Leaving the NII line aside and moving on to fees. Fees and commissions within the ex-TSB perimeter increased by around 4% year-on-year. Asset management and insurance fees were the main contributors, growing by 15% year-on-year. This performance was driven by strong volume growth in off-balance sheet funds, with -- fully aligned with what we presented at our Capital Markets Day. The fourth quarter was the strongest of the year, with ex-TSB fees rising by 6% quarter-on-quarter, supported by a strong commercial activity and the seasonal uplift in asset management and insurance fees, including a success fee component of EUR 12 million. Looking ahead, we expect fees to increase by mid-single digits in 2026. This growth will be, again, largely driven by asset management and insurance fees. Moving on to the costs on Slide 18. Total ex-TSB costs increased by EUR 44 million in the quarter, mainly driven by 2 factors: first, a reclassification of EUR 23 million from other provisions to amortization following the termination of the merchant acquiring agreement with Nexi. Consequently, going forward, the quarterly run rate for ex-TSB amortization line is expected at around EUR 100 million. And second, the special remuneration in shares to all employees related to the end of the takeover bid amounting to EUR 16 million. All in all, total costs at ex-TSB increased by 2.5% year-on-year. This evolution is totally consistent with the target of low single-digit growth, despite the reclassifications recorded at the one-off personnel costs I have just explained. For 2026, we expect total costs including amortization, to grow by around 3%, fully in line with the strategic plan targets. Moving on to Slide 19. We will now cover credit cost of risk and other provisions. Total cost of risk for the year 2025 was 37 basis points, better than the already improved guidance of 40 basis points for the ex-TSB perimeter. Meanwhile, credit cost of risk fell to 24 basis points, which represents 9 basis points reduction in the year. Now looking at the bridge of the different components of the total provisions for this quarter, on the top right-hand side, we booked EUR 107 million of loan loss provisions, excluding TSB. Then we had EUR 8 million positive impact by driven -- impact driven by real estate asset disposals, [indiscernible] double-digit premium. NPA management costs remain in line with the usual run rate. Other provisions, mainly related to litigations and other asset impairments, were impacted this quarter by the EUR 23 million reclassification previously mentioned. And finally, TSB provisions were EUR 18 million this quarter. For 2026, we expect total cost of risk to remain at around 40 basis points, underpinned by positive asset quality dynamics and the gradual impact of our risk management measures. This better asset quality will offset the potential shift in business mix as we expect stronger growth in companies and consumer lending. Moving on in the next section, I will walk you through asset quality, liquidity and solvency. On Slide 21, we can see that nonperforming loans and coverage ratio continued to improve during the year. Within the ex-TSB perimeter, NPLs decreased by close to EUR 700 million over the year, demonstrated continued success in portfolio derisking and proactive credit risk management. As a result, the NPL improved 66 basis points to 2.65%. The reduction in NPLs is also consistent with the improvement in Stage 2 loans, which declined by more than EUR 1.3 billion in the year. Finally, the coverage ratio increased by 3 percentage points, reaching 69%. Moving on, in terms of foreclosed assets, net NPAs as a percentage of total assets remained comfortably below the 1% threshold, confirming the bank's structurally improved risk profile. The stock of NPAs declined by 15% year-on-year, equivalent to more than EUR 800 million in absolute terms. Meanwhile, the coverage ratio has improved by 2 percentage points. The sales of real estate assets continued their positive trend as 23% of the stock was sold over the last 12 months with an average premium of around 10%. On Slide 23, we are happy to see the continued improvement in asset quality over the past 2 years, explained by 3 favorable dynamics: a consistently declining NPL ratio, a quarter-on-quarter improvement in the cost of risk, along with a higher coverage ratio. Turning now to liquidity and credit ratings. In short, liquidity buffers have remained broadly stable over the year, with credit ratings improved, as you can see on this slide. Standard & Poor's upgraded our rating by one notch to A- with a positive outlook. During the year, Moody's and Fitch also upgraded our rating by one notch to Baa1 and BBB, respectively, both with a stable outlook. Turning to the next slide, we can see our current MREL position, which stand well above the required levels. It is also in line with the buffer of more than 200 basis points set as a threshold in our strategic plan. It is important to note that in 2025, we issued a total of EUR 3.1 billion across the capital structure as well as through covered bonds. We also carried out 3 securitization transactions with significant risk transfer during this year using both synthetic and cash instruments. Let me highlight that once the TSB sale is completed, we will deconsolidate TSB's risk-weighted assets. And therefore, our funding needs will be lower this year. Note that we currently have excess buffer in AT1 even excluding the EUR 500 million issuance that we have just announced that it will be called in March. On the next slide, we can see that we have been able to generate 196 basis points of capital while growing our loan book at mid-single digits. Looking at the quarterly evolution in more detail, we recorded 20 basis points of capital generation before deducting the accrued dividend. This includes 25 basis points from organic CET1 generation after deducting AT1 coupons minus 6 basis points from higher risk-weighted assets, mainly from the update of operational risk, representing minus 14 basis points, and partially offset by the release obtained through the SRT transaction completed in Q4. Then the accrual of a 60% dividend payout ratio had a minus 29 basis points impact, bringing the capital ratio to 13.65%. Given that we are distributing EUR 435 million of excess capital, 54 basis points must be deducted, which takes the CET1 ratio to 13.11%, and in place, an ample MDA buffer close to 400 basis points. With that, I will hand over to Cesar, who will conclude today's presentation. Cesar Gonzalez-Bueno Wittgenstein: Thank you, Sergio. On Slide 28, you can see the achievement of our 2025 targets, a summary of the new guidance for '26 and the reconfirmation of our 2027 strategic plan targets. As we have seen throughout the presentation, the 2025 results have been in line with our year-end guidance. For '26, the guidance we are giving the main P&L lines points to recurrent return on tangible equity ex-TSB of around 14.5%, considering tangible equity of roughly EUR 10 billion. Of course, the return on tangible equity that will be reported will be higher because it would include the TSB impact. Our business model, which is built around strong capital generation, allows us to reconfirm shareholder remuneration of EUR 2.5 billion across '26 and '27. Last but not least, we are reconfirming every single one of the targets for '27 that we presented at our Capital Markets Day. And to conclude the presentation, I would like to summarize a little bit of our equity story. First, Sabadell is a franchise that pursues growth while preserving asset quality. This has been a major turnaround of the last years. Since the tender offer finished, we have been regaining commercial momentum, and we have room to gain some market share in a growing market in the products and segments of our choice. Second, we have strong capacity to generate capital while continuing to grow, which enables us to offer attractive shareholder remuneration. Third, it's all about execution, and this team knows about that. We've been consistently delivering on our guidance since '21, and we are now -- and we now have a clear path towards a 16% return on tangible equity in 2027. And all of this comes while we are trading at a discount to peers in terms both of total shareholder yield and multiples such as PE. Our distribution yield, meaning dividends plus excess capital returned to shareholders, was around 9% in 2025, and is expected to remain around that level in '26 and '27. This compares with a peer average of below 6% for '25. When looking at PE multiples, it's important to adjust Sabadell for market's cap for the extraordinary dividend associated with the disposal of TSB. Many market participants, we believe are not fully doing this. Once adjusted, Sabadell is actually trading at below 9x earnings, while Spanish peers are trading well below -- well above 10 times. There is therefore a clear opportunity here with considerable upside potential for Sabadell's stock. That's why the entire amount pending distribution to shareholders, the final dividend and the excess capital will be executed through a share buyback starting on Monday. It will be equivalent to more than 5% of our market cap, significantly higher than any other Spanish peer. And with this, I hand over to Lluc. Lluc Sas: Thank you, Cesar. We will now open the Q&A session. Given the limited time available, we would appreciate if you could please keep your questions to a maximum of 2. So operator, could you open the line for the first question, please? Operator: First question is coming from Maks Mishyn from JB Capital. Maksym Mishyn: [Audio Gap] in target? Could you walk us through the mathematics? And the second one is on deposit growth. Ex-TSB, it has slowed in the fourth quarter and grew below the sector average. Can you please walk us through your thinking on why this is happening? And what will you do to recover growth? Sergio Palavecino: Thank you very much, Maks, for these questions. In order to help with the mathematics of the NII for 2027 that we are confirming, it will be at around 3.9%. We've been sharing in Slide 16, what are the expected dynamics on the quarterly NII. And as you can see in the slide, we expect the trough in the first quarter of the year because we will have a fewer number of days. We still have the last part of the repricing of the variable rate loans, the ones replacing with Euribor 12 months. But then from there on, we will have the tailwinds that we are currently enjoying for volumes that cannot be seen in NII because of the headwinds of customer spread. Customer spread will stabilize. And then by the second half of 2026, volumes will be on -- compared to the quarter of the previous year, already growing at the mid-single digit. That dynamic in our view, will continue into 2027. And as customer spread will increase a little bit, we are still expecting our customer NII to get close to 300 basis points in 2027. Also, the rates today are somewhat more positive as we see that Euribor 12 months in 2027 will steepened somewhat. So the dynamics that we show for the end of 2026 will continue into 2027. And yes, in our mathematics, they will lead us to NII that will be close to around EUR 3.9 billion. And then the second -- your second question was deposits -- deposit growth. Deposit growth, it was, year-on-year, at 3.6%. It has accelerated from the third quarter, as you mentioned, but this is rather due to very strong growth, really strong growth in the fourth quarter of last year. So when we look at our dynamics on customer funds, we see that currently are strong. Customer growth -- customer funds have growth more than 6%, that's EUR 11 billion growth, a bit skewed towards the -- of balance sheet products: EUR 6.5 billion growth in the off-balance sheet products, EUR 4.5 billion growth in the on-balance sheet. The -- when you do the average growth of deposits, it's actually EUR 4.5 billion. So as Cesar has mentioned, we have acknowledged that we got some minor impacts during the tender of a period in September or October. But we have -- we're very happy to see that we have fully recovered the commercial momentum and December has been very good, and all commercial feedback getting into the new year is good. So we are positive on the volume growth that we are sharing with the market today. Cesar Gonzalez-Bueno Wittgenstein: I think, indeed, that's spot on. And I think that at the core -- at the helm of the hostile takeover, of course, there were some decline in balances, but we see very clearly the recovery, the momentum and everything is on track for the future, and that's why we're very positive. Operator: Next question is coming from Francisco Riquel from Alantra. Francisco Riquel: So first of all, congratulations, [indiscernible] 2 questions for me. First of all in a year -- I want to ask about the quarterly NII bridge in Slide 15, particularly on the core also others with EUR 9 million of interest rate hedges then you can give details on these hedges, what impacted in '26. If that should unwind in '27 or not. Also, if you can comment on the impact from the TSB, MREL and quantify, and the impact in '26 and '27. Also [indiscernible] NII and the improvement in the customer spread, that just said by end of '26 despite reducing the cost of deposits [indiscernible]. So how do you plan to achieve that? Do you think that you have been overpaying for online deposits in '25 and you will adjust your digital offering? And will you grow deposits even if you make less? And then my second question is on costs. Your 3% cost guidance for '26. I understand you include the full year impact of the D&A related to the merchant business, excluding that to cost inflation of just 1%. What type of efficiency measures will you implement to get there? And how can you reassure that you will not be under-investing in the technological transformation? Sergio Palavecino: Thank you, Paco, for your questions. Let me see if we got them all. The first one is regarding the hedges that we show in Page 15. I think we already shared with you guys in the third quarter that we're having an impact on the hedge that we have of the fixed rate mortgage portfolio. As you know, the Spanish market now for a number of years and us in particular, we have been originating virtually everything in mortgages in fixed rate. And now it's been a number of years and recently quite a strong production. So that's a lot of duration, and therefore, we've been hedging that duration. That means that the hedges we pay fixed as we get pay fixed in the mortgage. And we received Euribor 6. So these hedges -- we pay fixed, we received Euribor 6. Euribor 6 has been trending down for a number of quarters, but the good news is that this has been the last quarter, the way we see it, because Euribor 6 has been already flat in the fourth quarter. So in the -- going forward, we no longer expect impact from the hedge, of course, connected with Euribor 6 and then if Euribor 6 goes up and down, of course, it will have an impact. But so far, with the current level of rates, it should be flat. And then your second question was on MREL. MREL currently -- the MREL bonds of TSB are roughly EUR 1.4 billion, and the spread is around 200 basis points. That MREL then is -- MREL that we raised in group in the capital markets. So when this -- we will no longer have this income, but we no longer have the cost in the wholesale funding. This may take some quarters, but at the beginning, we will also have the help of the price that we will get from the sale. Initially, it will be close to EUR 5 billion. If you add up the price of the shares and the price of the bonds, and that will yield in the treasury account, and that will also help to -- that will combine with the savings in the wholesale funding, altogether will offset the impact of the lower MREL of TSB in the ex-TSB perimeter. And for deposits, yes, we expect, as we have written in the presentation, still somewhat reduction in the cost. And this is not only connected with the online, of course, it's also connected with the online. On the online, we have a strategy like any other one-off acquiring, having a very attractive offer, acquiring customers, and then we manage the acquisition. Connected with that, we have an offering, then the price of the book will go down in March, and we will keep on having new offerings. It's a dynamic, of course, product. And we're quite happy because it's been quite successful. The reduction is more coming from term deposits 1 year, 2 years that will come due, either have already matured at the end of the last quarter or will mature in the first quarter of 2026. And we -- when this is renewed, when this is -- the price is lower, connected with the lower prices that we have in the market. And finally, cost that you mentioned, the reclassification of EUR 23 million that we did is permanent because we are not considering the sale of the payment business. The payment business is going to remain within the perimeter. So therefore, the -- it's apple with apples. So the comparison with 2026 and the increase in the 3% is not going to be distorted by that. So in the 3% rate and CAGR that we already shared with the market in the Capital Markets Day, there are 3 major components: salaries, we are expecting salaries to grow at inflation and that is, let's say, close to 2%; then we are seeing general cost flattish, thanks to the different efficiency initiatives that we are running in the bank; and then amortizations connected with the investment in IT are going to be higher, probably at mid-single digit or so. So we are really allowing ourselves with the room that we need in order to keep investing into the business so that we ensure that we make this business growth as we expect. And I don't know, Cesar, if you want to add something? Cesar Gonzalez-Bueno Wittgenstein: Yes, just on the -- I think it. Just on the digital account and to explain a little bit the rationale and the commercial rationale of all of it and so forth. First, more than 50% of our new client acquisition comes from digital, and we think that, that is a phenomenal success. And when interest rates were at 4%, we paid 2%. But now that interest rates are at 2%, we are going down, as you mentioned, Sergio, to 1% starting on March. This is very attractive because it's a full service and with all the gadgets current account that at the same time has a remuneration, but it is capped at EUR 50,000. And therefore, what it is doing, it is attracting customers with 50% of their payrolls, 45% of them do payments every day. And we are getting them to be part of the bank in an attractive way. So this is not a funding strategy. But nevertheless, because the volumes are starting to be significant, now it is the time to reduce the payment from 2% to 1%. It has already been announced to clients. It needs a lead period until you can implement from the moment you announced, and it will happen on March, and it will have progressively impact -- some impact. It's around EUR 30 million year-on-year over the course of the year. Lluc Sas: I would kindly suggest to switch off the microphone when the analysts are asking the questions because we've been told that they cannot hear the questions when they talk. So operator could you open the line to next question, please? [ Technical Difficulty ] Sergio Palavecino: Thank you, Britta. Regarding the MREL dynamics, that the maturities in the group are quite front loaded. So actually, what we are seeing is that by the fourth quarter of 2026, the impact of the sale of the TSB bonds will have already been -- will be already -- being offset by lower funding needs in group already in the fourth quarter of 2026. Regarding the volume developments that you wanted to discuss. At the end of last year, as you can see, we're seeing mortgages growing at a 5%, consumer at a high double digit and SME corporate is growing at a low single digit, right? We are seeing corporate and SME poised to accelerate growth. So in our expectation of 6% growth of the loan book, we are considering still consumer loans to grow at a double digit, SMEs and corporates to accelerate from the current low single digit to mid-single digit. And we expect some -- this acceleration on the growth of mortgages from the currently 5% to maybe something between 4% or between 3% to 4%. Those are our assumptions and those are the assumptions that give a combined net growth of 6% in the loan book. And I think there was a last question? Cesar Gonzalez-Bueno Wittgenstein: That was about the liability side, but let me just add a couple of comments here. I think this is what Sergio explained, is just in line with what we did during the during the Strategy Day, corporates and SMEs above, mortgages in line, and consumer loans well above. And on the liability side, I think what we are expecting is a larger growth than we originally expected from the on-balance sheet part, and that will partially compensate. On the mortgages, I think there has been a lot of hype around this. And I have to say that when the interest rates of the new production were above the 8-year swap, we were gaining market share. We got to a point in quarter 3 '24 in which we went -- when this gap was still positive, we went to almost a 9.5% market share of new acquisition. We are down to 7% purposely, strategically, so we are not gaining market share. We have been declining over the course of the quarters until for Q4 '25 in which we landed at 7% market share of new production. And that is purposely because despite the fact that they have positive RaRoC of above 20% or around 20%, their margin is negative and the investments and the upfront costs are important. So their value creation in the longer term, but they have a negative impact in the short term on the P&L and certainly, in NII, they are not the most exciting thing. But nevertheless, with the cross-selling, they become attractive. So this confirms in a line that has had a lot of discussion, which is mortgages that we will be in line with our current market share, which is approximately 7%, and adapting up and down depending on the attractiveness and the pricing of the market. Sergio Palavecino: Yes. And I think your last question was regarding our expectations of the ALCO book. When we say it's the ALCO book, it's mainly connected with our liquidity and with our ALM. Liquidity is expected to remain strong because on top of this dynamics of loans and deposits, we will have the inflow of the price of the TSB transaction. So when we look at the expected evolution of liquidity will be positive, and that we also expect liabilities, current accounts to grow. So we expect a marginal growth on the ALCO book in line with the balance sheet. Operator: Next question is coming from Ignacio Ulargui from BNP Paribas. Ignacio Ulargui: Congratulations. I just have one question on costs and one question on capital. So looking to costs. I was just wondering whether at a given point in time, you could consider using part of the capital generation that you have to fund an early retirement plan or a voluntary scheme so that you can -- have to compensate on that side, the investments that you have in IT? And the second question on capital generation, I mean going forward, is there any lever that could accelerate the capital generation that we see for 2025 around 200 bps? Then anything that we could have in terms of DTA that could accelerate the capital generation going forward? Cesar Gonzalez-Bueno Wittgenstein: I think -- on the first one, I think there has been a long time since we did the restructuring in '21. That means that the age of part of the population here at Sabadell is 4 years older. And therefore, I think we are starting to consider, starting as there's nothing final yet as ongoing and without nothing extraordinary, but we are starting to consider that there could be some early retirements from now on. And as I say, it's not a major thing probably, but we are looking into it as we speak. Sergio Palavecino: And regarding capital generation, Ignacio, it's been quite strong as we have explained in 2025, 196 basis points. It has also -- it has benefited from the impact of the first application of CRR3, also from the 3 securitizations that we have done. And it's important to take into account that we are self-financing the growth in the loan book. So going forward, we are actually looking at fantastic opportunities of keep increasing the loan book. So of course, that has been taken into account in our projections. And therefore, we think that they both consider profitability, but also growth. And of course, growing the loan book, it weighs on capital, but we believe that it's a very good opportunity to actually improve profitability going forward. So the capital generation is connected with both the increased level of profitability and the good momentum in the loan book growth that we're seeing. [ Technical Difficulty ] Lluc Sas: Matthew, we cannot hear you. I don't know if you have unmuted your mobile. Could you please check that? Okay. Yes, we can hear you now, yes. Unknown Analyst: Sorry for that. So yes, I have 2 questions, basically. The first one is on the EUR 2.5 billion distribution accumulated in '26, '27. If you can give a bit of color on the mix between cash buyback? And the second one, a bit more generic, on the impact. Do you think the neobanks, fintechs, new entrants are having in terms of the deposit cost environment in Spain. So we're seeing a lot of banks actually launching digital campaigns like you guys, Bankinter, et cetera. So I'm trying to understand, actually, to what extent that is also driven by the fact that you have new players exploring that type of segment? Cesar Gonzalez-Bueno Wittgenstein: So on the first one, and you can complete, of course, Sergi. The EUR 2.5 billion, the distribution between what is dividends and what is share buybacks, of course, will depend on final decisions of the Board and we cannot anticipate that. But what we have is a commitment of distributing 60% of the proceeds through dividends and no less than EUR 0.20-plus per share per year. And we expect in excess of capital generation over that. And it would make sense at that point in time that, that would be share buybacks. Neobanks have been in play for a while. I think they have an impact. I think I was very close to that because the first kind of neobank was ING Direct, 25 years ago. And they continue having an impact. They acquired a lot of customers, and that's mainly the account opening, where they have more success. The challenge for them, and that doesn't -- it's not a negative comment at all. The challenge for them is cross-selling, deep selling, having savings, having a number of things. So we certainly see that there is a challenge there, but we continue seeing very successful, as I mentioned before, that our digital account is bringing a significant number of clients, and it will be at 1%, as I mentioned before, not for the acquisition, which will still have promotions and the forth. And it's 50% of our acquisition. So we can live with them, and we congratulate them because, of course, in terms of number of accounts, they are doing extremely well. Operator: Next question is coming from Carlos Peixoto from CaixaBank. Carlos Peixoto: Yes. Actually just a couple of follow-up questions on my side. So when you're discussing the outlook for NII in 2027, you mentioned 300... Lluc Sas: Carlos, Carlos, I don't know if you could check your microphone, please, because we cannot hear you very well. Could you check that or speak louder, please? Carlos Peixoto: Yes. Lluc Sas: Yes, much better, much better, yes. Thank you, Carlos. Carlos Peixoto: Okay. So as I was saying, that basically a follow-up question. So the 300 basis points customer spread improvement to 300 basis points that you mentioned is it something that you see as being achievable already before year-end 2026? Or something that you intend to get to by 2027? And also, along with that or in those lines, I might have missed it, how much do you expect volume growth, loan growth and deposit growth to occur? And how much you expect in 2027, you see at a level similar to the 2026 levels? Just trying to get a closer -- better reach to the EUR 3.9 billion in 2027. Sergio Palavecino: Yes. Yes. Thank you, Carlos. Of course, we'll do our best. The customer spread at the end of this year has been 288 basis points. And it will -- in our model and our expectations, it will be marginally higher, but probably very few basis points at the end of 2026. And then it will keep on gradually growing until reaching the -- around -- at around 300 basis points that actually we share with you guys at the Capital Markets Day. Regarding the composition of the expected volume growth behind that assumption at the end of the day, we, in Capital Markets Day, we guided for a CAGR of mid-single digit of loans and deposits. I think we were at a rate of 4%. So I think we are on track to get to those volume growth. In 2025, the Spanish economy performed very well. GDP expanded by 2.9%, in 2026, the consensus is already above 2%. So connected with this growth, we expect a similar levels of growth in the loan portfolio and in the deposit book. So similar rates of growth we are assuming for 2026 at this moment in time. Operator: Next question is coming from Borja Ramirez from Citi. Borja Ramirez Segura: I have a couple of questions on the NII outlook, please. So firstly, I understand that after the sale of TSB, your MREL requirements may be lower. So maybe there's some opportunity for funding cost savings in case you're able to amortize more expensive MREL issuances? And then my second question would be on the digital deposits. If you could kindly provide the amount outstanding of the digital deposits. And also, what are your expectations for the costs and the volumes of digital deposits going forward? And lastly, I would like to ask on, if you could provide details on corporate CapEx outlook and investment from corporates in Spain, please? Sergio Palavecino: Thank you, Borja, for your questions. Regarding the first one, connected with MREL. MREL requirement will not decrease after the sale of TSB, but it's a percentage of the risk-weighted assets. What we -- what it will go down are the risk-weighted assets once TSB is sold. And then as a matter of fact, once we have less risk-weighted assets, we will have a lower total amount of MREL requirements, right? So that's why we're saying that after the sale, we will issue -- we will have lower funding needs, and therefore, we will have -- we will be issuing less in the market. So the -- we will sort of fix this by not rolling the coming maturities. So it will be very natural. And yes, we will have savings from not rolling the maturities and therefore, having a lower fund -- lower capital -- lower wholesale funding needs. And then for the digital deposits, would you like to take this one, Cesar? Cesar Gonzalez-Bueno Wittgenstein: Yes, on digital deposits, we have, from the beginning, decided not to give the exact numbers. And what I can say again and repeat is that this is more than for the volumes, it is for the customer acquisition and for the whole relationship that comes with it and the cross-selling that comes with it. I already shared that the new pricing and review the pricing will give us a saving of around EUR 30 million on full year terms, and that starts on March. It's 50% of our acquisition, it's relevant, and I think we can leave it at that. In corporates and SMEs, we closed the year at a growth -- with a growth of 2.4%. And as we mentioned before, looking forward, loan demand from corporates and SMEs remain solid, and we have particularly a strong pipeline of medium- and long-term loans. Therefore, we are confident that the growth will accelerate back to mid-single-digit levels. And by the way, the front book yields and spreads remain stable. Operator: Next question is coming from Pablo de la Torre from RBC Capital Markets. Pablo de la Torre Cuevas: My first question -- your guidance for -- you mentioned an insurance worth... Lluc Sas: Pablo, so sorry to interrupt. I think -- we cannot hear you very, very clear. It looks like the sound is -- I don't know if you could check your mobile or could you try again, please? Pablo de la Torre Cuevas: Is it better now? Lluc Sas: I think so. Can you start the question, please? Pablo de la Torre Cuevas: Yes. Sure. And my first question was degrowth in 2026, you mentioned... Lluc Sas: Pablo, Pablo, I'm afraid, it doesn't work. I don't know if you could please send us or send me an e-mail, and we'll -- I will read the question for you, if it's possible. I'm sorry for that. So operator, could we move to the next question, please, while Pablo is sending us an e-mail? Operator: Next question is coming from us from Hugo Cruz from KBW. Hugo Moniz Marques Da Cruz: Can you hear me? So my 2 questions. So first of all, on OpEx, I mean the 3% -- and I'm talking about slide, I think it's 28. So the 3% CAGR seems like an acceleration versus '25. And when you've talked about the moving parts, staff growing, inflation, there have been flat D&A growing, I think, mid-single digits. So I just can't see how we get to 3%. I get to more something like a 2%, 2% in EBIT. So is the guidance too conservative on OpEx? And the second question is similar. Cost of risk. You have a slide where the total cost of risk keeps coming down, ended at 37, but then the guidance assumes you pick up to 40. Again, are you being a bit too conservative there or not? Sergio Palavecino: Yes. Thank you, Hugo, for your questions. We try to be prudent and the guidance on cost has the components that we have just gone through. What we would say is that we are very comfortable with the 3%, and this means that we're not going to be higher than that. So we will work, and Cesar mentioned, some different work streams that we are already exploring so that we can improve the outlook for growth in costs and therefore, improve efficiency going forward. Regarding cost of risk, in 2025, we have reported a 37 basis points cost of risk. 24, credit, 13, others. For 2026, again, we're very comfortable with the 40. We think that credit cost of risk is not going to be higher than 30 basis points, and the -- all the rest is going to be around 10. So again, it's a very comfortable cost of risk that takes into account that we are seeing a very growth momentum in things like consumer and SME, and that may marginally add a little bit more because we are not seeing any increase in cost of risk in the different products. But of course, the cost of risk of consumer is higher than the ones in mortgages, for instance. So growing progressively more in consumer has an impact. Actually, that impact is rather offset by the good performance in the cost of risk of each different product. So what -- I think what I would say is that we feel very comfortable in the guidance of this cost and cost of risk. Could you agree with that, Cesar? Cesar Gonzalez-Bueno Wittgenstein: Yes, I agree fully. And I think the perfect expression is we feel very comfortable with the 40 basis points. Is it conservative or not? The time will tell. But as I think we tried to explain during the presentation, the fact that we have reached a much clearer and lower levels of probabilities of default across all product lines has a lagged effect on cost of risk and on capital generation. And therefore, that's a tailwind that should help the cost of risk. How much of that will be offset by a change in mix into more profitable and better yielding products like the consumer lending and the SME lending in which we expect marginally more growth and significant more growth than the market in consumer lending? How much that will offset that? It's difficult to know. But in general, I think the perfect expression is that we feel confident with the 40 basis points. Lluc Sas: Okay. Then we also have the questions that Pablo sent to me. The first one is regarding the asset management and insurance business. So if we could elaborate a little bit more on the assumptions that we've made in terms of market impacts and others when we guided for this fee growth for 2026? And the second one is regarding the breakdown of the on-balance sheet funds between fixed term and current accounts going forward. Cesar Gonzalez-Bueno Wittgenstein: Yes. I think we'll share this one. From a qualitative perspective, I think we are growing very handsomely already in asset management. And I think we are in record productions in terms of insurance. Over the course of the years, I think we are going to see that fees gradually increase as a percentage of core banking revenues and therefore, reduce somewhat the bottom line P&L sensitivity to interest rate movements, and that's on the back of asset management and mortgages. Sergio Palavecino: Indeed, in 2025, we had a very sound growth in Asset Management and Insurance. This was 14% growth. And the growth that we see in fees connected with that was 15%. So we are seeing that clearly, the revenue is fully connected with the volumes. And for 2026, we're expecting a similar pattern with double-digit growth in insurance and asset management. Very happy, very successful performance in the business. Regarding on-balance sheet funds, Out of the EUR 128 billion, I think, of on-balance sheet ex-TSB, roughly 1/3 of that is remunerated. So more than 2/3 are non-remunerated. So more than EUR 80 billion are stable and transactional current accounts, not remunerated, and the other 1/3 is term deposits or remunerated current accounts. And that is connected with the different customers that we have and the different franchises. Of course, the remunerated part is the part sensitive to interest rates. Operator: Next question is coming from Cecilia Romero from Barclays. Cecilia Romero Reyes: Congratulations, Cesar, on your trajectory, and also wishing you all the best for the next stage. So my first question is a follow-up on a recent question. Looking at recent trends, the new production has been largely dominated by mortgages and consumer lending. And you also expect, during the call, and in your strategic plan, your intention to grow in corporate and SMEs. And I was just wondering if you were able to specifically tell us what's the cost of risk you are observing in SME and corporate lending, and also in consumer lending where you have been expanding quite rapidly? And then just a small one on fees. I just wanted to make sure that the fees from your payment business have been included in the fee line for the entire 2025. So just wondering if the 5% growth is like-for-like '26 versus '25? Sergio Palavecino: Let me take the second one, and thank you, Cecilia, for your questions. Regarding the fee lines, yes, fully comparable. So the payment business fees are included in the 2025 reported figures and the expected growth considers the same. So the answer is yes. Cesar Gonzalez-Bueno Wittgenstein: On the first one, I don't think we have given a specific cost of risk for consumer lending or SMEs. The only thing I can tell you is that the PDs have gone down by 50% since '24. And that is the major driver for the cost of risk. And we are at the level in -- we have reached the levels of cost of risk that we want to have on the longer term, although as I said before, they will take some time to go fully through the P&L, both in terms of cost of risk and capital generation. Lluc Sas: Okay, we've got one final question. So operator, please? Operator: Last question is coming from Lento Tang Bloomberg. Lento (Guojing) Tang: I have a follow-up on the hedging on the NII. So the EUR 9 million, I'm just wondering how long is this hedged? And what is the sensitivity to Euribor? And then another question on your ambition of the international business. Lluc Sas: So I guess, Lento, the last question is regarding the international business, the strategy, okay. Sergio Palavecino: Okay. Let me take the first question, the hedge of the fixed rate mortgages. I think we just mentioned that hedge is connected with this fixed rate and is a hedge where we pay fixed, we receive a floating Euribor 6. As Euribor 6 has been going down, that is the source of the impact. But the good news is that Euribor 6 months has been already stable for a number of months. So this will be -- this effect will fade completely in the next quarter. And Cesar, would you like to take the one on the international business? Cesar Gonzalez-Bueno Wittgenstein: Yes, I think -- well, Mexico and Miami represent more or less, give or take, 5% of our capital each. And we are seeing currently quite a lot of opportunities for growth. They are profitable. They have positive returns on tangible equity. And we have been seeing that the growth in '27, I mean, our expectations of our growth for '27 are higher than the national growth, but that doesn't mean a change in our ambition. It's marginal. It's not very significant. It's just that we are seeing opportunities there. They are very linked to our verticals in which we have a lot of expertise. They are linked to Spanish customers. So it's difficult to separate what is international and what is national. And the 2 verticals in which we do extremely well is, especially, hospitality and energy and to a lesser extent, civil engineering. Lluc Sas: Right. So that concludes our presentation today. Thank you, Cesar and Sergio, and thanks to all of you for joining us today. If you have any further questions, the Investor Relations team is always here to help. Have a great day. Cesar Gonzalez-Bueno Wittgenstein: Thank you very much. Sergio Palavecino: Thank you.
Lluc Sas: Good morning, and thank you for joining Sabadell's results presentation for the fourth quarter and the full year 2025. We are joined today by our CEO, Cesar Gonzalez-Bueno; and our CFO, Sergio Palavecino. The presentation will follow a similar format as in previous quarters. First, our CEO will walk us through the key highlights of the year. Then our CFO will go into the financials and the balance sheet, before our CEO concludes with closing remarks. Finally, we will open the floor for a live Q&A session where you can ask your questions. So Cesar, over to you. Cesar Gonzalez-Bueno Wittgenstein: Thank you, Lluc, and good morning, everyone. We announced yesterday that the Board of Directors of the bank and I have agreed on my resignation as Sabadell's CEO, while Marc Armengol has been appointed new CEO. These changes will take place around May, following our AGM, and once regulatory approvals have been obtained. Until then, I will remain as Sabadell's CEO, and Marc will remain TSB's CEO. And I think now is the right moment for me to step down, and I say that absolutely sincerely. Our current strategy -- strategic plan is solid and well-defined and supported by everyone, including Marc, who has been a great part of its construction. Targets for '26 and '27 are ambitious but achievable, and we are in course. And now it's all about execution, execution and execution of the current plan and planting seeds for an exciting future. Therefore, the bank is on the right track to deliver its targets. And just very briefly, on a more personal note. Look, I had opted for retirement 6 years ago. And the opportunity of joining Sabadell was so tempting that I couldn't let it pass. I was called for this project. I could not refuse. It has been far more exciting and rewarding than I could have expected. And I think now, it's the time to go. But on top of delivering on our plan, Sabadell also needs to start thinking about this future beyond 2027. There's an increasing number of opportunities from banks arising from technology in general, and from artificial intelligence, in particular. I think we have done a tremendous development in digitalization, but AI goes beyond, and that plan needs to be accelerated and it will transform the bank not in the next year, but in the years to come, and this transformation will be profound. In this context, my dear and friend, Marc Armengol, is the perfect CEO to deliver our targets for '26 and '27 because he has the managerial skills. But beyond, Marc brings strategic vision and delivery, combining CEO experience with developing and executing corporate strategy in the U.S. and in U.K. He has proved his commercial mindset at TSB, where he has improved competitiveness by getting even closer to customers. He also brings exceptional technological, operational and digital expertise from business integrations to large case transformations in Spain, U.K., U.S. and Mexico. And very important, he knows everything about Sabadell. He is definitely not a newcomer. As a matter of fact, this is the first internal CEO appointment since Sabadell went public over a quarter of a century ago. And I think this proves maturity for this great institution. All in all, that is the right time for the bank to address this change. It is the right moment for me, and it is the right moment for Marc. And before moving to the result presentation, let me repeat it one more time. We have announced my resignation and the appointment of a new CEO, but we remain fully committed to delivering our plan and reaching our financial targets for '26 and '27. Key messages for the next full year, we are in Page 4. Given that the TSB sale is expected to be completed during the second quarter of 2026, we are presenting figures with reference to the ex-TSB perimeter. First, volumes grew at mid-single digit during the year, performing loans increased by 5.4% and customer funds by 6.4%. Second, core revenues performed in line with expectations with NII at EUR 3.6 million, while fees were up by 3.6% year-on-year. Third, asset quality continued its positive trend. Total cost of risk declined by 16 basis points and stands at 37 basis points. Moreover, NPAs decreased by 17% year-on-year, while the NPA coverage ratio stood at 64%, up 2 percentage points versus last year. Fourth, this year's shareholder remuneration is EUR 1.5 billion. We have already distributed EUR 700 million through 2 interim cash dividends. And in addition to this, we will allocate EUR 800 million to a new share buyback program. We have already received authorization from ECB and the program will start on Monday. Finally, return on tangible equity stands at 14.3% and the core Tier 1 ratio is 13.1%, after deducting the excess capital that will be distributed. During '25, before dividend accruals, we generated -- I think this is a big number, 196 basis points of capital. Slide 5. And this is a little bit of a reason why. Let me explain why Sabadell is well positioned to keep improving its profitability looking forward. We have a clear strategy that supports profitable growth, as we shared last July during the presentation of our strategic plan. Our ongoing transformation focuses on delivering growth alongside improved asset quality. Although this means marginally lower loan yields, these are more than offset by a much lower cost of risk. Overall, this results in both profitable growth and stronger capital generation. This is a structural and permanent looking forward. Let me explain a little bit further on this. I mean the probability of default is now at the levels of which we wanted. That is done. And the impact on the P&L is immediate because, of course, you lose income, because you're doing less risky assets. But the benefits of that come over time, and it depends also on the duration of the different portfolios. We will still see tails for a long time in terms of -- in the different products. We will see tails of improvement of the risk cost, and we will see tails of improvement of the capital generation due to this. And this is perfectly in line, as we said, with the strategy, and I think it will yield over the course of the year. And furthermore, it makes the bank very sound. But however, and now going to the right-hand side of the slide, following the tender offer period, our business was a bit less dynamic than expected for a time. And we have now clearly regained our commercial momentum. For instance, month-on-month evolution of on-balance sheet funds in December '25 was better than in December '24. And new lending to SMEs was also higher in December '25 than '24. And -- furthermore, and this is meaningful, customer acquisition in December '25 was also significantly higher than in '24. To sum up, we have solid fundamentals and a clear strategy that will support profitable growth and capital generation going forward. Let's go to Slide 6. Performing loans excluding TSB remained flattish quarter-on-quarter and grew by more than 5% year-on-year. At TSB, lending volumes at constant FX remained flattish in the quarter as expected. Moving on to customer funds. On balance sheet, funds regained momentum and increased by 3.4% in the quarter. And this momentum, as we just saw, was more towards the last part of the quarter. Off balance sheet funds also continued to perform well, rising by 1.9% in the quarter and 14% in the year. All in all, in '25, we increased our loan book by EUR 6 billion and our customer funds by EUR 11 billion ex-TSB. This represents mid-single-digit growth, which is in line with our guidance. And this in combination with the growth of capital because growing capital generation but not growing the business is not as attractive as doing both things at the same time. Let's move to Slide 7, loan origination in Spain. In Q4, new mortgages decreased by 3% year-on-year. We have been reducing our market share in new mortgage lending over the past few months as front book yields have compressed. We remain focused on managing our new lending through risk-adjusted return on capital, ensuring that growth is delivered in a profitable manner. New customer loans -- consumer loans in Q4 increased by 8% on a year-on-year basis. In the whole year, new lending of consumer loans increased by 16%. Quarterly new loans and credit facilities granted to SMEs and corporate decreased by 15% year-on-year. This results in a slight decline of 5% if we compare with the full year of '25 with '24. On the other hand, origination of working capital finance remained broadly stable in the year. All in all, a strong performance in new lending during the year delivered loan book growth across all products and segments. If we move to Slide 8, regarding payment-related services in 2025, card turnover increased by 6% year-on-year, while point-of-sale turnover increased by 2%. Let me share that the merchant acquiring business will remain within our perimeter looking forward. Therefore, we will keep this fee income stream. Regarding savings and investment products, we reached a total stock of EUR 70.6 billion in December '25. This represents an increase of EUR 4.2 billion in the year, driven by an increase in off-balance sheet products of EUR 6.5 billion, most of it becoming -- EUR 4.6 billion coming from net inflows. In Slide 9, the breakdown of performing loan book across segments and geographies excluding TSB. In Spain, performing loans fell by 0.9% in the quarter. Mortgages and consumer loans posted positive growth in the quarter. On the other hand, the SME and corporate lending fell by 3.6% quarter-on-quarter, mainly due to the fact that these firms have been growing less heavily on their credit facilities. Year-on-year, performing loans in Spain increased by 5.2%. The mortgage book grew by 5%, consumer loans delivered double-digit growth and the stock of SME and corporate loans increased by 2.4%. The international operations also delivered strong momentum, with performing loans rising by approximately 15% year-on-year at constant FX. If we move now to Slide 10, the U.K. business. As expected, TSB's performing loans and customer deposits remain broadly stable on both quarter-on-quarter and year-on-year. Looking at the main lines of the P&L, NII increased by 7.2% in the year, in line with high single-digit guidance. Fees, which are less relevant for the U.K. business, declined by 15% year-on-year. Total cost decreased by 2.6% in the year, also in line with the guidance, in line with the 3% decline guidance. Provisions increased by around 50% year-on-year. Let me remind you that in '24, TSB recorded releases related to the improvement of macroeconomic assumptions. The resulting cost of risk in 2025 was 13 basis points, considerably better than the 20 basis points guidance. All in all, TSB's net profit reached GBP 61 million in the quarter, translating into almost GBP 260 million for the full year. This implies growth of around 25% in 2025. Stand-alone return on tangible equity was 13.5% despite maintaining a high level of solvency, with a core Tier 1 ratio of 16.7%. Finally, tangible net asset value increased by GBP 154 million between April and December. This, together with the additional TNAV to be generated until the closing of the transaction, will be added to the GBP 2.65 billion sale price, ensuring that TSB continues to contribute to Sabadell until the transaction closes. On Slide 11, a summary of our results. In '25, we posted net profits of EUR 1.8 billion. This represents a 3% decline year-on-year. It is worth noting that when adjusting 2024 net profit for extraordinary items, net profit actually increased by 3.4% year-on-year. All lines have been performing in line with the expectations. Sergio will explain the P&L in more detail shortly. To conclude this section of the presentation, I will outline our shareholder remuneration. The amount for 2025 has been improved to EUR 1.5 billion. This is 9% of our market cap. 2025 remuneration includes EUR 700 million in cash, which have already been paid, and EUR 800 million in share buyback. Last year, we paid 2 interim cash dividends, one in August and one in December of EUR 350 million each. These distributions will be followed by a final dividend of EUR 365 million as well as a EUR 435 million of excess of capital. These amounts to EUR 800 million via share buyback program scheduled to begin next Monday. No doubt, exceptionally, the final dividend will be distributed entirely through a share buyback. The main reason is that we believe that the stock is currently trading at a discount to its fair value, making a buyback the best option to reward our shareholders. We expect to distribute EUR 2.5 billion across '26 and '27, which also represent 9% of the market cap each year, once we deduct the extraordinary dividend related to the sale of TSB. All in all, we are on track to deliver on our commitment to distribute a cumulative EUR 6.45 billion of remuneration over '25 and '27. On top of that, we reiterate our commitment to deliver an annual cash dividend per share above EUR 20.44 from '26 onwards. I will now pass the floor to Sergio, who will provide a more detailed overview of the bank's financial performance. Sergio Palavecino: Thank you, Cesar, and good morning, everyone. Let me begin by presenting the full detailed P&L. As we will explain during the presentation, the annual performance shows an alignment with our year-end targets. We recorded a net profit close to EUR 1.8 billion or EUR 1.46 billion when excluding TSB. Before we go through each line, I'd like to highlight a few extraordinary items and reclassifications recorded this quarter. Firstly, on the trading income line, we recorded an expense of EUR 15 million related to the exchange rate hedging on the full proceeds from the sale of TSB. This impact will be recurrent until the transaction closes. Secondly, and following the termination of the agreement to sell the merchant acquiring business, we have reclassified EUR 23 million from other provisions to depreciation and amortization. The impact of this on net profit is neutral. Finally, on the gain on sale of asset line, we adjusted EUR 20 million related to certain IT and software assets. We will now review the main P&L items in more detail, focusing on Sabadell's performance, excluding TSB. Starting with NII on Slide 15. We recorded EUR 3.6 billion in NII for the year, fully aligned with our guidance. In the quarter, Sabadell ex-TSB delivered close to EUR 900 million, broadly stable versus the previous quarter. Now let's look at the top right-hand side of the slide to understand the drivers behind this quarterly evolution. Moving from left to right, customer NII had a positive impact of EUR 2 million. Within this, the customer margin decreased by EUR 7 million due to the negative repricing of variable rate loans. Although interest rate pressure on loan yield has already eased significantly. The good news is that volumes more than offset the customer spread compression. ALCO, liquidity and wholesale funding contributed by EUR 3 million, supported by lower refinancing needs and lower spreads. Other items had a combined impact of minus EUR 9 million. This mainly reflects the negative impact of certain interest rate hedges related to the fixed rate mortgage portfolio. TSB added EUR 11 million positive this quarter, reaching EUR 314 million as the contribution from the structural hedge was higher than the depreciation of the sterling. For 2026, we expect NII to increase by more than 1% with a clear acceleration throughout the year. In fact, we expect NII to bottom in first quarter '26, mainly due to fewer calendar days and the final repricing of the variable rate loans. From that point, it should grow steadily quarter after quarter, being the fourth quarter of '26 mid-single digit higher versus the fourth quarter of '25. For these estimates, we are assuming interest rates to remain at the same levels as at the end of 2025. We are expecting volumes to perform in line with what we have seen this year, around 6% growth in loans and between 3% to 4% in on-balance sheet funds. Loan yield could decline some basis points in the first half of the year, but should return to current levels driven by higher growth in consumer and SME lending. On cost of deposits, we still see room for further improvement as we reprice the last part of the term deposits. And finally, the impact from the sale of TSB bonds in the ALCO portfolio will be offset by savings in wholesale funding as we will have lower MREL funding needs after the sale. Leaving the NII line aside and moving on to fees. Fees and commissions within the ex-TSB perimeter increased by around 4% year-on-year. Asset management and insurance fees were the main contributors, growing by 15% year-on-year. This performance was driven by strong volume growth in off-balance sheet funds, with -- fully aligned with what we presented at our Capital Markets Day. The fourth quarter was the strongest of the year, with ex-TSB fees rising by 6% quarter-on-quarter, supported by a strong commercial activity and the seasonal uplift in asset management and insurance fees, including a success fee component of EUR 12 million. Looking ahead, we expect fees to increase by mid-single digits in 2026. This growth will be, again, largely driven by asset management and insurance fees. Moving on to the costs on Slide 18. Total ex-TSB costs increased by EUR 44 million in the quarter, mainly driven by 2 factors: first, a reclassification of EUR 23 million from other provisions to amortization following the termination of the merchant acquiring agreement with Nexi. Consequently, going forward, the quarterly run rate for ex-TSB amortization line is expected at around EUR 100 million. And second, the special remuneration in shares to all employees related to the end of the takeover bid amounting to EUR 16 million. All in all, total costs at ex-TSB increased by 2.5% year-on-year. This evolution is totally consistent with the target of low single-digit growth, despite the reclassifications recorded at the one-off personnel costs I have just explained. For 2026, we expect total costs including amortization, to grow by around 3%, fully in line with the strategic plan targets. Moving on to Slide 19. We will now cover credit cost of risk and other provisions. Total cost of risk for the year 2025 was 37 basis points, better than the already improved guidance of 40 basis points for the ex-TSB perimeter. Meanwhile, credit cost of risk fell to 24 basis points, which represents 9 basis points reduction in the year. Now looking at the bridge of the different components of the total provisions for this quarter, on the top right-hand side, we booked EUR 107 million of loan loss provisions, excluding TSB. Then we had EUR 8 million positive impact by driven -- impact driven by real estate asset disposals, [indiscernible] double-digit premium. NPA management costs remain in line with the usual run rate. Other provisions, mainly related to litigations and other asset impairments, were impacted this quarter by the EUR 23 million reclassification previously mentioned. And finally, TSB provisions were EUR 18 million this quarter. For 2026, we expect total cost of risk to remain at around 40 basis points, underpinned by positive asset quality dynamics and the gradual impact of our risk management measures. This better asset quality will offset the potential shift in business mix as we expect stronger growth in companies and consumer lending. Moving on in the next section, I will walk you through asset quality, liquidity and solvency. On Slide 21, we can see that nonperforming loans and coverage ratio continued to improve during the year. Within the ex-TSB perimeter, NPLs decreased by close to EUR 700 million over the year, demonstrated continued success in portfolio derisking and proactive credit risk management. As a result, the NPL improved 66 basis points to 2.65%. The reduction in NPLs is also consistent with the improvement in Stage 2 loans, which declined by more than EUR 1.3 billion in the year. Finally, the coverage ratio increased by 3 percentage points, reaching 69%. Moving on, in terms of foreclosed assets, net NPAs as a percentage of total assets remained comfortably below the 1% threshold, confirming the bank's structurally improved risk profile. The stock of NPAs declined by 15% year-on-year, equivalent to more than EUR 800 million in absolute terms. Meanwhile, the coverage ratio has improved by 2 percentage points. The sales of real estate assets continued their positive trend as 23% of the stock was sold over the last 12 months with an average premium of around 10%. On Slide 23, we are happy to see the continued improvement in asset quality over the past 2 years, explained by 3 favorable dynamics: a consistently declining NPL ratio, a quarter-on-quarter improvement in the cost of risk, along with a higher coverage ratio. Turning now to liquidity and credit ratings. In short, liquidity buffers have remained broadly stable over the year, with credit ratings improved, as you can see on this slide. Standard & Poor's upgraded our rating by one notch to A- with a positive outlook. During the year, Moody's and Fitch also upgraded our rating by one notch to Baa1 and BBB, respectively, both with a stable outlook. Turning to the next slide, we can see our current MREL position, which stand well above the required levels. It is also in line with the buffer of more than 200 basis points set as a threshold in our strategic plan. It is important to note that in 2025, we issued a total of EUR 3.1 billion across the capital structure as well as through covered bonds. We also carried out 3 securitization transactions with significant risk transfer during this year using both synthetic and cash instruments. Let me highlight that once the TSB sale is completed, we will deconsolidate TSB's risk-weighted assets. And therefore, our funding needs will be lower this year. Note that we currently have excess buffer in AT1 even excluding the EUR 500 million issuance that we have just announced that it will be called in March. On the next slide, we can see that we have been able to generate 196 basis points of capital while growing our loan book at mid-single digits. Looking at the quarterly evolution in more detail, we recorded 20 basis points of capital generation before deducting the accrued dividend. This includes 25 basis points from organic CET1 generation after deducting AT1 coupons minus 6 basis points from higher risk-weighted assets, mainly from the update of operational risk, representing minus 14 basis points, and partially offset by the release obtained through the SRT transaction completed in Q4. Then the accrual of a 60% dividend payout ratio had a minus 29 basis points impact, bringing the capital ratio to 13.65%. Given that we are distributing EUR 435 million of excess capital, 54 basis points must be deducted, which takes the CET1 ratio to 13.11%, and in place, an ample MDA buffer close to 400 basis points. With that, I will hand over to Cesar, who will conclude today's presentation. Cesar Gonzalez-Bueno Wittgenstein: Thank you, Sergio. On Slide 28, you can see the achievement of our 2025 targets, a summary of the new guidance for '26 and the reconfirmation of our 2027 strategic plan targets. As we have seen throughout the presentation, the 2025 results have been in line with our year-end guidance. For '26, the guidance we are giving the main P&L lines points to recurrent return on tangible equity ex-TSB of around 14.5%, considering tangible equity of roughly EUR 10 billion. Of course, the return on tangible equity that will be reported will be higher because it would include the TSB impact. Our business model, which is built around strong capital generation, allows us to reconfirm shareholder remuneration of EUR 2.5 billion across '26 and '27. Last but not least, we are reconfirming every single one of the targets for '27 that we presented at our Capital Markets Day. And to conclude the presentation, I would like to summarize a little bit of our equity story. First, Sabadell is a franchise that pursues growth while preserving asset quality. This has been a major turnaround of the last years. Since the tender offer finished, we have been regaining commercial momentum, and we have room to gain some market share in a growing market in the products and segments of our choice. Second, we have strong capacity to generate capital while continuing to grow, which enables us to offer attractive shareholder remuneration. Third, it's all about execution, and this team knows about that. We've been consistently delivering on our guidance since '21, and we are now -- and we now have a clear path towards a 16% return on tangible equity in 2027. And all of this comes while we are trading at a discount to peers in terms both of total shareholder yield and multiples such as PE. Our distribution yield, meaning dividends plus excess capital returned to shareholders, was around 9% in 2025, and is expected to remain around that level in '26 and '27. This compares with a peer average of below 6% for '25. When looking at PE multiples, it's important to adjust Sabadell for market's cap for the extraordinary dividend associated with the disposal of TSB. Many market participants, we believe are not fully doing this. Once adjusted, Sabadell is actually trading at below 9x earnings, while Spanish peers are trading well below -- well above 10 times. There is therefore a clear opportunity here with considerable upside potential for Sabadell's stock. That's why the entire amount pending distribution to shareholders, the final dividend and the excess capital will be executed through a share buyback starting on Monday. It will be equivalent to more than 5% of our market cap, significantly higher than any other Spanish peer. And with this, I hand over to Lluc. Lluc Sas: Thank you, Cesar. We will now open the Q&A session. Given the limited time available, we would appreciate if you could please keep your questions to a maximum of 2. So operator, could you open the line for the first question, please? Operator: First question is coming from Maks Mishyn from JB Capital. Maksym Mishyn: [Audio Gap] in target? Could you walk us through the mathematics? And the second one is on deposit growth. Ex-TSB, it has slowed in the fourth quarter and grew below the sector average. Can you please walk us through your thinking on why this is happening? And what will you do to recover growth? Sergio Palavecino: Thank you very much, Maks, for these questions. In order to help with the mathematics of the NII for 2027 that we are confirming, it will be at around 3.9%. We've been sharing in Slide 16, what are the expected dynamics on the quarterly NII. And as you can see in the slide, we expect the trough in the first quarter of the year because we will have a fewer number of days. We still have the last part of the repricing of the variable rate loans, the ones replacing with Euribor 12 months. But then from there on, we will have the tailwinds that we are currently enjoying for volumes that cannot be seen in NII because of the headwinds of customer spread. Customer spread will stabilize. And then by the second half of 2026, volumes will be on -- compared to the quarter of the previous year, already growing at the mid-single digit. That dynamic in our view, will continue into 2027. And as customer spread will increase a little bit, we are still expecting our customer NII to get close to 300 basis points in 2027. Also, the rates today are somewhat more positive as we see that Euribor 12 months in 2027 will steepened somewhat. So the dynamics that we show for the end of 2026 will continue into 2027. And yes, in our mathematics, they will lead us to NII that will be close to around EUR 3.9 billion. And then the second -- your second question was deposits -- deposit growth. Deposit growth, it was, year-on-year, at 3.6%. It has accelerated from the third quarter, as you mentioned, but this is rather due to very strong growth, really strong growth in the fourth quarter of last year. So when we look at our dynamics on customer funds, we see that currently are strong. Customer growth -- customer funds have growth more than 6%, that's EUR 11 billion growth, a bit skewed towards the -- of balance sheet products: EUR 6.5 billion growth in the off-balance sheet products, EUR 4.5 billion growth in the on-balance sheet. The -- when you do the average growth of deposits, it's actually EUR 4.5 billion. So as Cesar has mentioned, we have acknowledged that we got some minor impacts during the tender of a period in September or October. But we have -- we're very happy to see that we have fully recovered the commercial momentum and December has been very good, and all commercial feedback getting into the new year is good. So we are positive on the volume growth that we are sharing with the market today. Cesar Gonzalez-Bueno Wittgenstein: I think, indeed, that's spot on. And I think that at the core -- at the helm of the hostile takeover, of course, there were some decline in balances, but we see very clearly the recovery, the momentum and everything is on track for the future, and that's why we're very positive. Operator: Next question is coming from Francisco Riquel from Alantra. Francisco Riquel: So first of all, congratulations, [indiscernible] 2 questions for me. First of all in a year -- I want to ask about the quarterly NII bridge in Slide 15, particularly on the core also others with EUR 9 million of interest rate hedges then you can give details on these hedges, what impacted in '26. If that should unwind in '27 or not. Also, if you can comment on the impact from the TSB, MREL and quantify, and the impact in '26 and '27. Also [indiscernible] NII and the improvement in the customer spread, that just said by end of '26 despite reducing the cost of deposits [indiscernible]. So how do you plan to achieve that? Do you think that you have been overpaying for online deposits in '25 and you will adjust your digital offering? And will you grow deposits even if you make less? And then my second question is on costs. Your 3% cost guidance for '26. I understand you include the full year impact of the D&A related to the merchant business, excluding that to cost inflation of just 1%. What type of efficiency measures will you implement to get there? And how can you reassure that you will not be under-investing in the technological transformation? Sergio Palavecino: Thank you, Paco, for your questions. Let me see if we got them all. The first one is regarding the hedges that we show in Page 15. I think we already shared with you guys in the third quarter that we're having an impact on the hedge that we have of the fixed rate mortgage portfolio. As you know, the Spanish market now for a number of years and us in particular, we have been originating virtually everything in mortgages in fixed rate. And now it's been a number of years and recently quite a strong production. So that's a lot of duration, and therefore, we've been hedging that duration. That means that the hedges we pay fixed as we get pay fixed in the mortgage. And we received Euribor 6. So these hedges -- we pay fixed, we received Euribor 6. Euribor 6 has been trending down for a number of quarters, but the good news is that this has been the last quarter, the way we see it, because Euribor 6 has been already flat in the fourth quarter. So in the -- going forward, we no longer expect impact from the hedge, of course, connected with Euribor 6 and then if Euribor 6 goes up and down, of course, it will have an impact. But so far, with the current level of rates, it should be flat. And then your second question was on MREL. MREL currently -- the MREL bonds of TSB are roughly EUR 1.4 billion, and the spread is around 200 basis points. That MREL then is -- MREL that we raised in group in the capital markets. So when this -- we will no longer have this income, but we no longer have the cost in the wholesale funding. This may take some quarters, but at the beginning, we will also have the help of the price that we will get from the sale. Initially, it will be close to EUR 5 billion. If you add up the price of the shares and the price of the bonds, and that will yield in the treasury account, and that will also help to -- that will combine with the savings in the wholesale funding, altogether will offset the impact of the lower MREL of TSB in the ex-TSB perimeter. And for deposits, yes, we expect, as we have written in the presentation, still somewhat reduction in the cost. And this is not only connected with the online, of course, it's also connected with the online. On the online, we have a strategy like any other one-off acquiring, having a very attractive offer, acquiring customers, and then we manage the acquisition. Connected with that, we have an offering, then the price of the book will go down in March, and we will keep on having new offerings. It's a dynamic, of course, product. And we're quite happy because it's been quite successful. The reduction is more coming from term deposits 1 year, 2 years that will come due, either have already matured at the end of the last quarter or will mature in the first quarter of 2026. And we -- when this is renewed, when this is -- the price is lower, connected with the lower prices that we have in the market. And finally, cost that you mentioned, the reclassification of EUR 23 million that we did is permanent because we are not considering the sale of the payment business. The payment business is going to remain within the perimeter. So therefore, the -- it's apple with apples. So the comparison with 2026 and the increase in the 3% is not going to be distorted by that. So in the 3% rate and CAGR that we already shared with the market in the Capital Markets Day, there are 3 major components: salaries, we are expecting salaries to grow at inflation and that is, let's say, close to 2%; then we are seeing general cost flattish, thanks to the different efficiency initiatives that we are running in the bank; and then amortizations connected with the investment in IT are going to be higher, probably at mid-single digit or so. So we are really allowing ourselves with the room that we need in order to keep investing into the business so that we ensure that we make this business growth as we expect. And I don't know, Cesar, if you want to add something? Cesar Gonzalez-Bueno Wittgenstein: Yes, just on the -- I think it. Just on the digital account and to explain a little bit the rationale and the commercial rationale of all of it and so forth. First, more than 50% of our new client acquisition comes from digital, and we think that, that is a phenomenal success. And when interest rates were at 4%, we paid 2%. But now that interest rates are at 2%, we are going down, as you mentioned, Sergio, to 1% starting on March. This is very attractive because it's a full service and with all the gadgets current account that at the same time has a remuneration, but it is capped at EUR 50,000. And therefore, what it is doing, it is attracting customers with 50% of their payrolls, 45% of them do payments every day. And we are getting them to be part of the bank in an attractive way. So this is not a funding strategy. But nevertheless, because the volumes are starting to be significant, now it is the time to reduce the payment from 2% to 1%. It has already been announced to clients. It needs a lead period until you can implement from the moment you announced, and it will happen on March, and it will have progressively impact -- some impact. It's around EUR 30 million year-on-year over the course of the year. Lluc Sas: I would kindly suggest to switch off the microphone when the analysts are asking the questions because we've been told that they cannot hear the questions when they talk. So operator could you open the line to next question, please? [ Technical Difficulty ] Sergio Palavecino: Thank you, Britta. Regarding the MREL dynamics, that the maturities in the group are quite front loaded. So actually, what we are seeing is that by the fourth quarter of 2026, the impact of the sale of the TSB bonds will have already been -- will be already -- being offset by lower funding needs in group already in the fourth quarter of 2026. Regarding the volume developments that you wanted to discuss. At the end of last year, as you can see, we're seeing mortgages growing at a 5%, consumer at a high double digit and SME corporate is growing at a low single digit, right? We are seeing corporate and SME poised to accelerate growth. So in our expectation of 6% growth of the loan book, we are considering still consumer loans to grow at a double digit, SMEs and corporates to accelerate from the current low single digit to mid-single digit. And we expect some -- this acceleration on the growth of mortgages from the currently 5% to maybe something between 4% or between 3% to 4%. Those are our assumptions and those are the assumptions that give a combined net growth of 6% in the loan book. And I think there was a last question? Cesar Gonzalez-Bueno Wittgenstein: That was about the liability side, but let me just add a couple of comments here. I think this is what Sergio explained, is just in line with what we did during the during the Strategy Day, corporates and SMEs above, mortgages in line, and consumer loans well above. And on the liability side, I think what we are expecting is a larger growth than we originally expected from the on-balance sheet part, and that will partially compensate. On the mortgages, I think there has been a lot of hype around this. And I have to say that when the interest rates of the new production were above the 8-year swap, we were gaining market share. We got to a point in quarter 3 '24 in which we went -- when this gap was still positive, we went to almost a 9.5% market share of new acquisition. We are down to 7% purposely, strategically, so we are not gaining market share. We have been declining over the course of the quarters until for Q4 '25 in which we landed at 7% market share of new production. And that is purposely because despite the fact that they have positive RaRoC of above 20% or around 20%, their margin is negative and the investments and the upfront costs are important. So their value creation in the longer term, but they have a negative impact in the short term on the P&L and certainly, in NII, they are not the most exciting thing. But nevertheless, with the cross-selling, they become attractive. So this confirms in a line that has had a lot of discussion, which is mortgages that we will be in line with our current market share, which is approximately 7%, and adapting up and down depending on the attractiveness and the pricing of the market. Sergio Palavecino: Yes. And I think your last question was regarding our expectations of the ALCO book. When we say it's the ALCO book, it's mainly connected with our liquidity and with our ALM. Liquidity is expected to remain strong because on top of this dynamics of loans and deposits, we will have the inflow of the price of the TSB transaction. So when we look at the expected evolution of liquidity will be positive, and that we also expect liabilities, current accounts to grow. So we expect a marginal growth on the ALCO book in line with the balance sheet. Operator: Next question is coming from Ignacio Ulargui from BNP Paribas. Ignacio Ulargui: Congratulations. I just have one question on costs and one question on capital. So looking to costs. I was just wondering whether at a given point in time, you could consider using part of the capital generation that you have to fund an early retirement plan or a voluntary scheme so that you can -- have to compensate on that side, the investments that you have in IT? And the second question on capital generation, I mean going forward, is there any lever that could accelerate the capital generation that we see for 2025 around 200 bps? Then anything that we could have in terms of DTA that could accelerate the capital generation going forward? Cesar Gonzalez-Bueno Wittgenstein: I think -- on the first one, I think there has been a long time since we did the restructuring in '21. That means that the age of part of the population here at Sabadell is 4 years older. And therefore, I think we are starting to consider, starting as there's nothing final yet as ongoing and without nothing extraordinary, but we are starting to consider that there could be some early retirements from now on. And as I say, it's not a major thing probably, but we are looking into it as we speak. Sergio Palavecino: And regarding capital generation, Ignacio, it's been quite strong as we have explained in 2025, 196 basis points. It has also -- it has benefited from the impact of the first application of CRR3, also from the 3 securitizations that we have done. And it's important to take into account that we are self-financing the growth in the loan book. So going forward, we are actually looking at fantastic opportunities of keep increasing the loan book. So of course, that has been taken into account in our projections. And therefore, we think that they both consider profitability, but also growth. And of course, growing the loan book, it weighs on capital, but we believe that it's a very good opportunity to actually improve profitability going forward. So the capital generation is connected with both the increased level of profitability and the good momentum in the loan book growth that we're seeing. [ Technical Difficulty ] Lluc Sas: Matthew, we cannot hear you. I don't know if you have unmuted your mobile. Could you please check that? Okay. Yes, we can hear you now, yes. Unknown Analyst: Sorry for that. So yes, I have 2 questions, basically. The first one is on the EUR 2.5 billion distribution accumulated in '26, '27. If you can give a bit of color on the mix between cash buyback? And the second one, a bit more generic, on the impact. Do you think the neobanks, fintechs, new entrants are having in terms of the deposit cost environment in Spain. So we're seeing a lot of banks actually launching digital campaigns like you guys, Bankinter, et cetera. So I'm trying to understand, actually, to what extent that is also driven by the fact that you have new players exploring that type of segment? Cesar Gonzalez-Bueno Wittgenstein: So on the first one, and you can complete, of course, Sergi. The EUR 2.5 billion, the distribution between what is dividends and what is share buybacks, of course, will depend on final decisions of the Board and we cannot anticipate that. But what we have is a commitment of distributing 60% of the proceeds through dividends and no less than EUR 0.20-plus per share per year. And we expect in excess of capital generation over that. And it would make sense at that point in time that, that would be share buybacks. Neobanks have been in play for a while. I think they have an impact. I think I was very close to that because the first kind of neobank was ING Direct, 25 years ago. And they continue having an impact. They acquired a lot of customers, and that's mainly the account opening, where they have more success. The challenge for them, and that doesn't -- it's not a negative comment at all. The challenge for them is cross-selling, deep selling, having savings, having a number of things. So we certainly see that there is a challenge there, but we continue seeing very successful, as I mentioned before, that our digital account is bringing a significant number of clients, and it will be at 1%, as I mentioned before, not for the acquisition, which will still have promotions and the forth. And it's 50% of our acquisition. So we can live with them, and we congratulate them because, of course, in terms of number of accounts, they are doing extremely well. Operator: Next question is coming from Carlos Peixoto from CaixaBank. Carlos Peixoto: Yes. Actually just a couple of follow-up questions on my side. So when you're discussing the outlook for NII in 2027, you mentioned 300... Lluc Sas: Carlos, Carlos, I don't know if you could check your microphone, please, because we cannot hear you very well. Could you check that or speak louder, please? Carlos Peixoto: Yes. Lluc Sas: Yes, much better, much better, yes. Thank you, Carlos. Carlos Peixoto: Okay. So as I was saying, that basically a follow-up question. So the 300 basis points customer spread improvement to 300 basis points that you mentioned is it something that you see as being achievable already before year-end 2026? Or something that you intend to get to by 2027? And also, along with that or in those lines, I might have missed it, how much do you expect volume growth, loan growth and deposit growth to occur? And how much you expect in 2027, you see at a level similar to the 2026 levels? Just trying to get a closer -- better reach to the EUR 3.9 billion in 2027. Sergio Palavecino: Yes. Yes. Thank you, Carlos. Of course, we'll do our best. The customer spread at the end of this year has been 288 basis points. And it will -- in our model and our expectations, it will be marginally higher, but probably very few basis points at the end of 2026. And then it will keep on gradually growing until reaching the -- around -- at around 300 basis points that actually we share with you guys at the Capital Markets Day. Regarding the composition of the expected volume growth behind that assumption at the end of the day, we, in Capital Markets Day, we guided for a CAGR of mid-single digit of loans and deposits. I think we were at a rate of 4%. So I think we are on track to get to those volume growth. In 2025, the Spanish economy performed very well. GDP expanded by 2.9%, in 2026, the consensus is already above 2%. So connected with this growth, we expect a similar levels of growth in the loan portfolio and in the deposit book. So similar rates of growth we are assuming for 2026 at this moment in time. Operator: Next question is coming from Borja Ramirez from Citi. Borja Ramirez Segura: I have a couple of questions on the NII outlook, please. So firstly, I understand that after the sale of TSB, your MREL requirements may be lower. So maybe there's some opportunity for funding cost savings in case you're able to amortize more expensive MREL issuances? And then my second question would be on the digital deposits. If you could kindly provide the amount outstanding of the digital deposits. And also, what are your expectations for the costs and the volumes of digital deposits going forward? And lastly, I would like to ask on, if you could provide details on corporate CapEx outlook and investment from corporates in Spain, please? Sergio Palavecino: Thank you, Borja, for your questions. Regarding the first one, connected with MREL. MREL requirement will not decrease after the sale of TSB, but it's a percentage of the risk-weighted assets. What we -- what it will go down are the risk-weighted assets once TSB is sold. And then as a matter of fact, once we have less risk-weighted assets, we will have a lower total amount of MREL requirements, right? So that's why we're saying that after the sale, we will issue -- we will have lower funding needs, and therefore, we will have -- we will be issuing less in the market. So the -- we will sort of fix this by not rolling the coming maturities. So it will be very natural. And yes, we will have savings from not rolling the maturities and therefore, having a lower fund -- lower capital -- lower wholesale funding needs. And then for the digital deposits, would you like to take this one, Cesar? Cesar Gonzalez-Bueno Wittgenstein: Yes, on digital deposits, we have, from the beginning, decided not to give the exact numbers. And what I can say again and repeat is that this is more than for the volumes, it is for the customer acquisition and for the whole relationship that comes with it and the cross-selling that comes with it. I already shared that the new pricing and review the pricing will give us a saving of around EUR 30 million on full year terms, and that starts on March. It's 50% of our acquisition, it's relevant, and I think we can leave it at that. In corporates and SMEs, we closed the year at a growth -- with a growth of 2.4%. And as we mentioned before, looking forward, loan demand from corporates and SMEs remain solid, and we have particularly a strong pipeline of medium- and long-term loans. Therefore, we are confident that the growth will accelerate back to mid-single-digit levels. And by the way, the front book yields and spreads remain stable. Operator: Next question is coming from Pablo de la Torre from RBC Capital Markets. Pablo de la Torre Cuevas: My first question -- your guidance for -- you mentioned an insurance worth... Lluc Sas: Pablo, so sorry to interrupt. I think -- we cannot hear you very, very clear. It looks like the sound is -- I don't know if you could check your mobile or could you try again, please? Pablo de la Torre Cuevas: Is it better now? Lluc Sas: I think so. Can you start the question, please? Pablo de la Torre Cuevas: Yes. Sure. And my first question was degrowth in 2026, you mentioned... Lluc Sas: Pablo, Pablo, I'm afraid, it doesn't work. I don't know if you could please send us or send me an e-mail, and we'll -- I will read the question for you, if it's possible. I'm sorry for that. So operator, could we move to the next question, please, while Pablo is sending us an e-mail? Operator: Next question is coming from us from Hugo Cruz from KBW. Hugo Moniz Marques Da Cruz: Can you hear me? So my 2 questions. So first of all, on OpEx, I mean the 3% -- and I'm talking about slide, I think it's 28. So the 3% CAGR seems like an acceleration versus '25. And when you've talked about the moving parts, staff growing, inflation, there have been flat D&A growing, I think, mid-single digits. So I just can't see how we get to 3%. I get to more something like a 2%, 2% in EBIT. So is the guidance too conservative on OpEx? And the second question is similar. Cost of risk. You have a slide where the total cost of risk keeps coming down, ended at 37, but then the guidance assumes you pick up to 40. Again, are you being a bit too conservative there or not? Sergio Palavecino: Yes. Thank you, Hugo, for your questions. We try to be prudent and the guidance on cost has the components that we have just gone through. What we would say is that we are very comfortable with the 3%, and this means that we're not going to be higher than that. So we will work, and Cesar mentioned, some different work streams that we are already exploring so that we can improve the outlook for growth in costs and therefore, improve efficiency going forward. Regarding cost of risk, in 2025, we have reported a 37 basis points cost of risk. 24, credit, 13, others. For 2026, again, we're very comfortable with the 40. We think that credit cost of risk is not going to be higher than 30 basis points, and the -- all the rest is going to be around 10. So again, it's a very comfortable cost of risk that takes into account that we are seeing a very growth momentum in things like consumer and SME, and that may marginally add a little bit more because we are not seeing any increase in cost of risk in the different products. But of course, the cost of risk of consumer is higher than the ones in mortgages, for instance. So growing progressively more in consumer has an impact. Actually, that impact is rather offset by the good performance in the cost of risk of each different product. So what -- I think what I would say is that we feel very comfortable in the guidance of this cost and cost of risk. Could you agree with that, Cesar? Cesar Gonzalez-Bueno Wittgenstein: Yes, I agree fully. And I think the perfect expression is we feel very comfortable with the 40 basis points. Is it conservative or not? The time will tell. But as I think we tried to explain during the presentation, the fact that we have reached a much clearer and lower levels of probabilities of default across all product lines has a lagged effect on cost of risk and on capital generation. And therefore, that's a tailwind that should help the cost of risk. How much of that will be offset by a change in mix into more profitable and better yielding products like the consumer lending and the SME lending in which we expect marginally more growth and significant more growth than the market in consumer lending? How much that will offset that? It's difficult to know. But in general, I think the perfect expression is that we feel confident with the 40 basis points. Lluc Sas: Okay. Then we also have the questions that Pablo sent to me. The first one is regarding the asset management and insurance business. So if we could elaborate a little bit more on the assumptions that we've made in terms of market impacts and others when we guided for this fee growth for 2026? And the second one is regarding the breakdown of the on-balance sheet funds between fixed term and current accounts going forward. Cesar Gonzalez-Bueno Wittgenstein: Yes. I think we'll share this one. From a qualitative perspective, I think we are growing very handsomely already in asset management. And I think we are in record productions in terms of insurance. Over the course of the years, I think we are going to see that fees gradually increase as a percentage of core banking revenues and therefore, reduce somewhat the bottom line P&L sensitivity to interest rate movements, and that's on the back of asset management and mortgages. Sergio Palavecino: Indeed, in 2025, we had a very sound growth in Asset Management and Insurance. This was 14% growth. And the growth that we see in fees connected with that was 15%. So we are seeing that clearly, the revenue is fully connected with the volumes. And for 2026, we're expecting a similar pattern with double-digit growth in insurance and asset management. Very happy, very successful performance in the business. Regarding on-balance sheet funds, Out of the EUR 128 billion, I think, of on-balance sheet ex-TSB, roughly 1/3 of that is remunerated. So more than 2/3 are non-remunerated. So more than EUR 80 billion are stable and transactional current accounts, not remunerated, and the other 1/3 is term deposits or remunerated current accounts. And that is connected with the different customers that we have and the different franchises. Of course, the remunerated part is the part sensitive to interest rates. Operator: Next question is coming from Cecilia Romero from Barclays. Cecilia Romero Reyes: Congratulations, Cesar, on your trajectory, and also wishing you all the best for the next stage. So my first question is a follow-up on a recent question. Looking at recent trends, the new production has been largely dominated by mortgages and consumer lending. And you also expect, during the call, and in your strategic plan, your intention to grow in corporate and SMEs. And I was just wondering if you were able to specifically tell us what's the cost of risk you are observing in SME and corporate lending, and also in consumer lending where you have been expanding quite rapidly? And then just a small one on fees. I just wanted to make sure that the fees from your payment business have been included in the fee line for the entire 2025. So just wondering if the 5% growth is like-for-like '26 versus '25? Sergio Palavecino: Let me take the second one, and thank you, Cecilia, for your questions. Regarding the fee lines, yes, fully comparable. So the payment business fees are included in the 2025 reported figures and the expected growth considers the same. So the answer is yes. Cesar Gonzalez-Bueno Wittgenstein: On the first one, I don't think we have given a specific cost of risk for consumer lending or SMEs. The only thing I can tell you is that the PDs have gone down by 50% since '24. And that is the major driver for the cost of risk. And we are at the level in -- we have reached the levels of cost of risk that we want to have on the longer term, although as I said before, they will take some time to go fully through the P&L, both in terms of cost of risk and capital generation. Lluc Sas: Okay, we've got one final question. So operator, please? Operator: Last question is coming from Lento Tang Bloomberg. Lento (Guojing) Tang: I have a follow-up on the hedging on the NII. So the EUR 9 million, I'm just wondering how long is this hedged? And what is the sensitivity to Euribor? And then another question on your ambition of the international business. Lluc Sas: So I guess, Lento, the last question is regarding the international business, the strategy, okay. Sergio Palavecino: Okay. Let me take the first question, the hedge of the fixed rate mortgages. I think we just mentioned that hedge is connected with this fixed rate and is a hedge where we pay fixed, we receive a floating Euribor 6. As Euribor 6 has been going down, that is the source of the impact. But the good news is that Euribor 6 months has been already stable for a number of months. So this will be -- this effect will fade completely in the next quarter. And Cesar, would you like to take the one on the international business? Cesar Gonzalez-Bueno Wittgenstein: Yes, I think -- well, Mexico and Miami represent more or less, give or take, 5% of our capital each. And we are seeing currently quite a lot of opportunities for growth. They are profitable. They have positive returns on tangible equity. And we have been seeing that the growth in '27, I mean, our expectations of our growth for '27 are higher than the national growth, but that doesn't mean a change in our ambition. It's marginal. It's not very significant. It's just that we are seeing opportunities there. They are very linked to our verticals in which we have a lot of expertise. They are linked to Spanish customers. So it's difficult to separate what is international and what is national. And the 2 verticals in which we do extremely well is, especially, hospitality and energy and to a lesser extent, civil engineering. Lluc Sas: Right. So that concludes our presentation today. Thank you, Cesar and Sergio, and thanks to all of you for joining us today. If you have any further questions, the Investor Relations team is always here to help. Have a great day. Cesar Gonzalez-Bueno Wittgenstein: Thank you very much. Sergio Palavecino: Thank you.
Operator: Good day, and thank you for standing by. Welcome to the PAA and PAG fourth quarter 2025 earnings call. At this time, all participants are in a listen-only mode. After the speakers' presentation, we'll open up for questions. To ask a question during the session, you will need to press 11 on your telephone. You'll then hear an automated message advising your hand is raised. To withdraw your question, please press 11 again. Please be advised that today's call is being recorded. I would now like to hand it over to your speaker, Blake Fernandez, Vice President of Investor Relations. Please go ahead. Blake Fernandez: Thank you, Victor. Good morning, and welcome to Plains All American Pipeline, L.P. fourth quarter 2025 earnings call. Today's slide presentation is posted on the Investor Relations website under the News and Events section at ir.plains.com. An audio replay will also be available following today's call. Important disclosures regarding forward-looking statements and non-GAAP financial measures are provided on Slide two. An overview of today's call is provided on Slide three. A condensed consolidating balance sheet for PAGP and other reference materials are in the appendix. Today's call will be hosted by Willie Chiang, Chairman and CEO and President, and Al Swanson, Executive Vice President and CFO, along with other members of the management team. With that, I'll turn the call over to Willie. Willie Chiang: Thank you, Blake. Good morning, everyone, and thank you for joining us. Earlier this morning, we reported fourth quarter and full-year adjusted EBITDA attributable to Plains of $738 million and $2.833 billion, respectively. 2025 was a pivotal year for Plains. The market environment presented multiple challenges including geopolitical unrest, actions from OPEC to increase oil supply, and uncertainty on the economic impact from tariffs. As highlighted on Slide four, despite these distractions, we remain focused on transitioning to a pure-play crude company, which also serves as a catalyst to streamline our operations and better position Plains for the future. This transition is accelerated through the sale of our NGL business, along with the recent acquisition of the EPIC pipeline now renamed Cactus III. These transactions enhance the quality and the durability of our cash flow stream while improving distributable cash flow and positioning us well for future market cycles. 2026 will be a year of execution and self-help, with a focus on three initiatives. First, we remain on schedule to close the NGL divestiture near the end of the first quarter, pending Canadian competition approval. Second, we're integrating the recently acquired Cactus III pipeline and expect to drive synergies related to that system to improve EBITDA. And third, we're streamlining the organization with a focus on efficiency and improving our cost structure. Over the past several months, we have advanced our streamlining initiatives and are targeting $100 million of identified annual savings through 2027, with approximately 50% expected to be realized in 2026. The key drivers of these efficiencies are outlined on Slide five and include reducing G&A and OpEx to reflect a more simplified business, consolidating operations, and exiting or optimizing lower-margin businesses. One example that illustrates our focus on higher-margin businesses is the sale of our Mid-Continent lease marketing business in 2025 for a total consideration of approximately $50 million with minimal impact to EBITDA. This sale removes working capital needs associated with line fill, simplifies operations with an improved cost structure while adding long-term contracts to our business. While this transaction is relatively small, it illustrates an opportunity that we have executed on to streamline our business, improve margins, and do more with less. On the bolt-on acquisition front, in January, we acquired the Wild Horse Terminal in Cushing, Oklahoma, from Keyera for a net cash consideration of approximately $10 million, which includes an upward purchase price adjustment of approximately $65 million upon the closing of the pending NGL divestiture. This asset adds approximately 4 million barrels of storage adjacent to our existing terminal assets and is expected to generate returns well above our internal thresholds. Looking to 2026, and as highlighted on Slide six, we are providing adjusted EBITDA guidance of $2.75 billion net to Plains at the midpoint plus or minus $75 million, with an oil segment EBITDA midpoint of $2.64 billion net to Plains, which implies a 13% growth year-over-year in the crude segment. We expect the $100 million of EBITDA from the NGL segment assuming the divestiture closes at the end of the first quarter and $10 million of other income. We forecast Permian crude production to be relatively flat year-over-year in '26 with overall basin volumes remaining about 6.6 million at the end of the year, similar to 2025 levels. That said, we expect growth to resume in 2027 underpinned by more constructive oil market fundamentals driven by ongoing global energy demand growth and diminishing OPEC's spare capacity. Regarding capital allocation, we recently announced a 10% increase in the quarterly distribution payable on February 13 for both PAA and PAGP. On an annualized basis, the distribution represents a 15¢ per unit increase from the November level bringing the annual distribution to $1.67 per unit representing an 8.5% yield based on the recent equity price for PAA. With the simplification and streamlining of our business, stable cash flow contributions from the Cactus III acquisition, and reduced commodity exposure following the NGL sale, we are modestly reducing our distribution coverage ratio threshold from 160% to 150%. This reflects improved visibility for our business, better alignment with peers, and it paves the way for future distribution growth while still maintaining a prudent level of coverage. Our targeted annualized distribution growth remains 15¢ per unit, and the lower distribution coverage gives us more confidence in our ability to deliver increasing returns to our unitholders. Al will cover specific CapEx guidance for the year, but we expect a meaningful reduction in gross spending versus 2025 levels and maintenance capital will naturally decrease following the NGL divestiture. We remain committed to our efficient growth strategy, generating significant free cash flow, optimizing our asset base, maintaining a flexible balance sheet, and returning cash to unitholders via our disciplined capital allocation framework. With that, I'll turn the call over to Al to cover our quarterly performance and other financial matters. Al Swanson: Thanks, Willie. Slide seven and eight contain adjusted EBITDA blocks that provide additional details on our performance. For the fourth quarter, we reported crude oil segment adjusted EBITDA of $611 million, which includes two months of contribution from the Cactus III acquisition partially offset by a full quarter impact of recontracting on our long-haul systems. Moving to the NGL segment, we reported an adjusted EBITDA of $122 million reflecting a seasonal uptick that was moderated somewhat by warm weather impacts on sales volumes and relatively weak frac spreads. A summary of 2026 guidance and key assumptions are on Slide nine. We remain focused on making disciplined capital investments and expect to invest approximately $350 million of growth capital and approximately $165 million of maintenance capital net to PAA in 2026. Key drivers for EBITDA year-over-year include full-year contributions from acquisitions primarily Cactus III, efficiency and optimization gains partially offsetting the impact of the NGL sale and recontracting as provided on Slide 10. Importantly, I would note that while headline EBITDA will decline slightly from the divestiture, distributable cash flow is expected to increase approximately 1% driven by lower corporate taxes and maintenance capital. As illustrated on Slide 11, we remain committed to generating significant free cash flow and returning capital to unitholders while maintaining financial flexibility. For 2026, we expect to generate approximately $1.8 billion of adjusted free cash flow excluding changes in assets and liabilities and excluding sales proceeds from the NGL divestiture. With regard to the potential special distribution previously communicated, we expect the Cactus III acquisition to mitigate a significant portion of the expected tax liability to unitholders resulting from the NGL sale. From this perspective, we now expect a special distribution of 15¢ per unit or less after closing and pending board approval. Regarding our balance sheet, in November, we issued $750 million senior unsecured notes consisting of $300 million due in 2031 at a rate of 4.7% and $450 million in 2036 at a rate of 5.6%. Proceeds were used to partially fund the EPIC acquisition. Additionally, in the fourth quarter, we paid off the $1.1 billion EPIC term loan assumed as part of the EPIC acquisition by issuing a $1.1 billion senior unsecured term loan at BAA. As a reminder, since we invested $2.9 billion to acquire Cactus III, the majority of the proceeds from the NGL sale will be used to reduce debt. Post-closing, we expect our leverage ratio to trend toward the middle of our established target range of 3.25 to 3.75 times. With that, I'll turn the call back to Willie. Willie Chiang: Thanks, Al. 2025 is a transformational year for Plains. And we're taking steps to further strengthen our company for the future. Despite a complex macro backdrop, we proactively executed several major transactions and implemented efficiency initiatives to position Plains as the premier North American pure-play crude oil midstream company. 2026 will be a year of execution and self-help as we focus on closing the NGL sale, advancing our efficiency initiatives, and driving synergies on the Cactus III system. Collectively, these actions will help position Plains more competitively for the future. I also want to take this moment to express thanks to our Plains team whose dedication and professionalism showed through and through as we also achieved our best-ever safety performance as measured by our best TRIR safety rate as well as the lowest severity of injuries as measured by total loss workdays. In closing, I would like to reiterate that we remain committed to our efficient growth strategy, simply stated, generate significant free cash flow, maintain a flexible balance sheet, and return capital to our unitholders. I will now turn the call back over to Blake to lead us into Q&A. Blake Fernandez: Thanks, Willie. As we enter the Q&A session, please limit yourself to two questions. For those with additional questions, please feel free to return to the queue. This will allow us to address questions from as many participants as in our available time this morning. The IR team will also be available after the call to address any additional questions you may have. Victor, we're ready to open up the call, please. Operator: Thank you. And to answer the question, you may press star one one on your telephone and wait for your name to be announced. To withdraw your question, please press 11 again. Please stand by. We provide the Q&A roster. Moment for our first question. First question will come from the line of Manav Gupta from UBS. Your line is open. Manav Gupta: Good morning, guys. I actually wanted to focus a little bit more on the Cactus pipeline and all the synergy benefits you're talking about. And, also, I know it is not the right macro, but, eventually, the macro will turn, and I'm trying to understand what's your ability to expand Cactus III without actually putting more pipe in the ground. If you could talk about some of those factors. Thank you. Jeremy Goebel: Manav, good morning. It's Jeremy. First on the synergies question, the $50 million of synergies we disclosed we believe we're already on run rate for that now. Roughly half of that was associated with G&A and OpEx reductions as well as removing things like insurance and other things that the pipeline had to keep because it was a private equity-backed entity. Those are gone. So half the synergies were achieved in the fourth quarter as we shed those costs. The other 25% are associated with filling the pipeline with supply that we have, doing shorter-term deals, just to build out available capacity. Associated with quality management. Those were ramping up now. So we would imagine during the first quarter, we'll be substantially there on the run rate for the $50 million, and we should hit that number this year. As to your second question on the ability to expand the pipeline, our team, as we recontract the base pipeline to add term and improve rates for that uncontracted capacity now. In parallel, Chris's team is taking a look at all the capital-efficient ways to optimize our upstream connectivity, our downstream connectivity, and then for incremental expansions of the pipeline that don't require new pipe and that do require new pipe. So we're looking at the most capital-efficient ways to do that. We should finish that during the first half of this year. And in parallel, like I said, we are recontracting for term the rest of the pipeline then we'll be in a position to discuss expansions with our customers, etcetera. But first, it's stabilize the base pipeline, and then it's look at capital-efficient expansions from there. In increments that make sense to grow with the base. Willie Chiang: Manav, this is Willie. I think one key point that Jeremy highlighted is it's not a binary expansion at one time. We've got an opportunity to do it in phases and really match the capacity to demand that's out in the market. Manav Gupta: Perfect. My very quick follow-up is can you also talk a little bit about the, you know, $100 million in cost savings through 2027 efficiencies and other initiatives that you are undertaking at the franchise level. Thank you. Chris Chandler: Good morning, Manav. This is Chris Chandler. So the sale of our NGL business in Canada really creates a unique opportunity for us to rethink how our company is structured and organized. So that business, as you might expect, carried a fair amount of operational and commercial complexity. That simply won't exist once the assets are sold. So we're taking a fresh look, from top to bottom at how we're organized, where we're located, a fresh look at, you know, some of the maybe non-core businesses that might be better in somebody else's hands or, for example, outsourced to third parties that could do it more efficiently. So it's really an across-the-board look that, you know, you don't get the opportunity to do this very often. As far as the capture rate, it's a $100 million run rate by the end of 2027. So we expect to achieve $50 million of that in '26. Another $50 million in 2027. Manav Gupta: Thank you so much for taking my questions. I'll turn it over. Blake Fernandez: Thanks, Manav. Operator: Thank you. One moment for our next question. Our next question comes from the line of Brandon Bingham from Scotiabank. Your line is open. Brandon Bingham: Hey. Good morning. Thanks for taking the questions. Maybe first, just looking at the Permian Basin outlook and kind of some of the commentary you just went through, just trying to harmonize it with some of the larger producer commentary from recent earnings calls. How is the sentiment among your producer customers? And maybe what are some of the current discussions like assuming that $60-$65 WTI scenario in your guide? Jeremy Goebel: Good morning, Brandon. This is Jeremy. First, I would say that $60 to $65 is 10% higher than it was a few weeks ago. So it's a very volatile time period. But what I would say is the larger the producer, the less sensitive they are to the plus or minus $5 swings that we used to incur. So I'd say cautiously optimistic. Because if you look consistently across the producer landscape, what used to hold the Permian Basin flat was 325 rigs with less production. Now it's 230 rigs, so you can see those efficiencies are working through the system. There what I would tell you is that they're working to preserve an inventory. They're working to continue to get more efficient with how they develop it. Improve recoveries. All of those things are good for stabilizing earnings for us. And we remain consistent that while 2026 may be flattish, we think a more constructive environment for 2027 and beyond for growth. And that's very consistent with taking a pause, getting better at doing things, becoming more efficient. So that continues to be the case for us. Willie Chiang: And, Brandon, this is Willie. Think a little couple other things to point out. You know, as we develop these basins, it's an exercise in constraint removal. So one observation is gas has been tight there's a number of projects that are there to alleviate that. And when you alleviate the gas constraint, actually, the breakevens for the producers improve, which allows them to be able to be more durable going forward. And I think just to reinforce your point, you know, we've had some consolidation in the upstream section with a couple of producers recently announced. And for us, we like that because it bolsters the producer environment to develop the basins in a more thoughtful way. And I'm actually very, very encouraged by some of the technology improvements that some of the majors are focused on resource recovery. So when you factor all that in, we're very confident and constructive on the ability for the Permian to be a key part of the incremental supply for the world for quite some time. And then would expect growth to come back as fundamentals improve. Brandon Bingham: Very helpful. Thank you. And then maybe just looking at the capital allocation priorities, would be curious to hear if maybe there's a shift in any of them versus what they have been. And specifically thinking around the payout ratio is that 150% level more so to just continue the bolt-on strategy or other priorities? Or is there room to maybe further reduce it and maintain that 15¢ per unit distribution growth cadence a little bit longer? Al Swanson: Brandon, this is Al. Our view on capital allocation has not changed. I think I noted in the prepared comments, there's two ways to look at it. We got the net proceeds coming from the divestiture. We've really redeployed that already in the Cactus III. So the proceeds there, I'll go to pay down debt. When you look ahead post that, it's all the same viewpoints that we had before. Our primary way of returning cash to shareholders is gonna be through distribution growth. That's part of the 160 to 150. We're comfortable with the 150 level. We think it's actually consistent with a large number of our peers. And so we'll be looking to continue looking at bolt-ons where they make economic sense. Distributing cash through distribution growth. Secondly, we do have some preferred securities as well as common unit repurchases. Those will be more on an opportunistic basis. Brandon Bingham: Very helpful. Thank you. Willie Chiang: Thanks, Brandon. Operator: One moment for our next question. Our next question comes from the line of Michael Blum from Wells Fargo. Your line is open. Michael Blum: Thanks. Good morning, everyone. Maybe you could stay on the distribution coverage conversation. I'm really just wanting to get a little more of your thought process on you landed at 1.5 and know, not 1.4 or 1.3. Just exactly there any kind of formulaic way we should be thinking about this? You know, you mentioned some of your peers, but, you know, I could take one peer off the top of it. Top of my head that, you know, says 1.3 is the right coverage. So just trying to get a little more insight into your thinking on that. Willie Chiang: Willie, this is Willie, Michael. You know, when you think about how we came up with the $1.60, right, that was in November '22. And it was intended to be a coverage threshold that was conservative, reflecting in our focus on the balance sheet, I wouldn't try to read too much into the delta. Other than at $1.50, it's still a conservative approach to distribution. And for us, it sets a nice balance for us as we look forward on the ability for multiyear distribution growth. So I would look at it as kind of a reset to the a modest reset, consistent with our peers. As we go forward, we think we have a much more durable cash flow stream, and it's really set there to allow us to feel good about our multiyear distribution growth. Michael Blum: Got it. Thanks for that. And then just wanted to ask on the growth CapEx of $350 million I guess, twofold. One, can you give us any details about any discrete projects that make that up or just some color around what's in that number? And then is this a good way to think about a run rate going forward now that you're really focused in the current markets? Thanks. Chris Chandler: Good morning, Michael. It's Chris Chandler. So, yes, our guide for 2026 is $350 million. That brings us into our more typical $300 to $400 million range, which do think is a good number going forward absent any large investments, which we would call out separately. When I think about how we got to $350 and comparing it to prior years, we, of course, finished up the NGL Fractionator Expansion Last Year In Canada. We finished up a number of Permian crude oil infrastructure projects, and we finished a project to unload Uintawax crude in the Mid Continent. So those obviously all brought the number down on a year-on-year basis. As far as how we build up into the 350, we have a healthy Permian program that's ongoing. In 2025, we connected more wells than we connected in 2024, and 2026 looks to be on a similar pace so far. We're also of course, doing some modest investment to integrate the Cactus III pipeline. To capture synergies as Jeremy mentioned, with additional connectivity and opportunities for quality optimization and cross-connecting between our other cactus pipes. For energy efficiency. And then we see some good opportunities to potentially invest capital into our Canadian crude oil business. We're pursuing a number of potential contracts that would underwrite expansions there and have assumed some of that moves forward in 2026 as part of our capital spending. Michael Blum: Thank you. Chris Chandler: Welcome. Operator: Thank you. One moment for next question. Our next question will come from the line of Jeremy Tonet from JPMorgan Securities. Your line is open. Jeremy Tonet: Hi. Good morning. Thanks for the color today. I just wanted to take a step back here, and there's been some geopolitical developments recently, you know, particularly up, you know, what's been happening in Venezuela. And it seems like there could be a domino effect in a lot of different directions of what happens. So I just wondering if you might be able to share any thoughts on how things could unfold, how could it impact Plains flows on assets, utilization, or even repurposing of assets? Jeremy Goebel: Hey, Jeremy. Jeremy Goebel. How are you? I was calling I mean, the idea around Venezuela, think it was the initial response of 50 million barrels sold into The US Gulf Coast, a significant portion. Do you restructure some of the slates and get consistent with what maybe Pascagoula or the St. James Refiners or the Houston Refiners that run that immediate impact was widening of Canadian differentials in the Gulf Coast the other heavy sour differentials, the Mid Continent and Canada. That creates opportunities more opportunities for quality optimization, cross-border flows, and other movements. Going forward, if you look out a few years and maybe add two to three hundred thousand barrels a day, that might change some buying habits that shouldn't be enough with the commodity prices where they are to change Canadian flows materially. They'll have to price to move. So that would probably be a little bit wider Canadian differentials than otherwise would have been. It would take materially more than that to probably repurpose pipelines. But if you look if you added a million barrels a day, that does different things. Right? That now may push Canadian barrels to the West Coast. That may create other to repurpose pipes from the Gulf Coast to other markets to feed heavy sours into those. So I think it's there's no easy answer because first, you need stability in the government. You substantial reinvestment. Near term, I think it creates some opportunities around quality management. And use of our cross-border pipes. Intermediate term, it creates some logistical opportunities for us as well. But longer term, I think it's gonna take substantial investment in time repurposing, but we're certainly monitoring and paying attention to it. Jeremy Tonet: Got it. That's very helpful, Dan. And one other high-level question if I could. Plains has been active in, you know, industry consolidation bolt-on M&A, what have you over time. And I was just wondering, from your perspective, Willie, where do you think what inning are we in right now for consolidation in the crude oil infrastructure industry, bolt-on, larger consolidation, what have you? Willie Chiang: Well, I would say it's not a perfectly smooth trajectory if you think about consolidation. And you know, and specifically for us, we've made a couple of large transactions. Our focus right now is really to execute on those. We look at all kinds of opportunities that are out there. So you can be assured that as we look at things, we'll stay capital on being able to acquire things. But I do think there will be more opportunities that are out there. And, frankly, you know, to your earlier question, when you think about the macro and you look at the North American infrastructure, you asked about Venezuela. Everyone has a different outlook and view of what might happen there. I personally think it's gonna be very challenged to get a amount of growth out of Venezuela, which leads, know, leads us to a more constructive, crude oil environment going forward. When you think about the infrastructure that we have in ground and the ability to repurpose, if it makes sense, there's a lot of need opportunities there. And know, I mentioned this on one of the last calls. If you think about the basins that you wanna be involved in, the Permian Basin, obviously, is key, close to markets, growth, low breakevens, but you also have Western Canada. And everyone's aware of the desire for them to go to the West Coast. And, you know, we stay very involved in potential of bringing more barrels down to the US. So there's a lot of need opportunities, and you can expect us to stay on track at looking at those with financial discipline. Jeremy Tonet: Got it. That's helpful. Thank you. Willie Chiang: Thanks, Jeremy. Operator: Thank you. One moment for our next question. Next question will come from the line of Keith Stanley from Wolfe Research. Your line is open. Keith Stanley: Hi. Good morning. Wanted to ask on coverage. So the release specifically says that the change in threshold to 150% provides a multiyear runway for 15 cent increases. I wanna confirm, should we interpret that as the plan would be 15 cent increases for at least two more years? And if that's right, it implies a fair amount of growth. Since, you know, you'd have to stay above that 150%. Can you just talk to some of the growth drivers you see in the next twenty-seven and twenty-eight that would support that? Willie Chiang: Yeah, Keith. This is Willie. You're very astute as you did your calculations. The message we wanted to send is we have the ability to continue to grow beyond 2026. If you think of our EBITDA this year, we've got a $100 million of NGL contribution. And if you think about '27 plus, we've got self-help that chews up easily half of that. Our comments earlier about additional growth in the Permian gives us confidence in that. And, we know we're gonna be able to extract additional efficient growth synergies out of that. So out of our asset base. So we are telegraphing that we think we can grow beyond 2026. Keith Stanley: Okay. Great. And then one other coverage one. So you've talked to the rationale for 150% of DCF. When you assess where you wanna go from a coverage perspective, do you look at it on a free cash flow basis too? Because you have pretty steady $300-$400 million a year of investment capital. Just how do you look at it, I guess, on a free cash flow perspective as well? Al Swanson: Keith, this is Al. We've really set it based on DCF. In the view that the DCF coverage of say, one sixty or now one fifty would allow us to fund what we would call routine organic capital, the $300 to $400 million kind of range that we think is more of a normalized level. Plus a small bit for bolt-ons. So we think of it more of the coverage funding routine investments. Clearly, if we see investments that are outside of what is routine or larger, that we'll use the balance sheet for that. So it's not a precision on free cash flow. It's really a percentage of free cash flow, but we are allowing for that kind of self-funding of what we think is a routine kind of profile of investment capital. Keith Stanley: Thank you. Willie Chiang: Thanks, Keith. Operator: Thank you. One moment for our next question. Next question comes from the line of John McKay from Goldman Sachs. Your line is open. John McKay: Hey, guys. Thank you for the time. I wanna touch on the long-haul Permian volume guidance for a second. It's a little maybe if you can just talk a little bit about the year-over-year bridge. I think it's a little stronger than what we were looking for, but maybe the overall margin intact. So a little bit of that volume versus margin mix and bridging us to that pretty high 26 number. Thanks. Jeremy Goebel: John, good morning. It's Jeremy. There's three components to it. First, you've got the full-year run rate of the Cactus III integration into the system. Second, you've got a significant uptick in contracted capacity on the basin pipeline system. And so that would explain some of the lower margins just because the rate from Midland to Cushing is lower than that to the Gulf Coast. And then third, you'd have the BridgeTex pipeline full-year run rate. John McKay: That's very helpful, Jeremy. I appreciate that. Second one, maybe just looking a little more near term. What did you guys see in terms of storm impacts on volumes across the board? I think that the visibility on the gas side has been clear. But maybe just walk us through kind of what you saw the last week or two and kind of where the recovery stands right now. Jeremy Goebel: Thanks, John. To start with the recovery, that's already happened. So it was roughly a seven to ten-day period. When you had back-to-back freezes. A lot of that impacted the gas infrastructure, made it difficult. And once gas infrastructure is impacted, it shuts in the crude. So we saw almost like a reverse check mark type recovery went down and slow to come back. I would say that basin as a whole probably lost 10 to 12 million barrels production. The crude side and NGLs may be half that. Over that seven to ten-day period, but we're back we're out of that trough and have been for a few days. John McKay: Super interesting. I appreciate the color. Thank you, guys. Jeremy Goebel: Thank you. And that's all been considered in our guidance. So just for the record there, that impact has been considered. Operator: Thank you. Our next question will come from the line of Sunil Sibal from SIP Global. Your line is open. Sunil Sibal: Yeah. Hi. Good morning. Thanks for the time. Most of my questions have been hit, but just a couple of clarifications. So in regards to your lowering of distribution coverage to 150%, So, obviously, you're in a more contracted cash flows coming in through Cactus. But I was kind of curious if there is anything else in terms of, you know, how you manage your other assets in terms of contracting that we should be thinking about there. Al Swanson: Sunil, this is Al. No. I mean, we are comfortable with the one fifty. We think the crude segment is a stable cash flow stream. Clearly, the epic contract is highly contracted. But as we look at it, we think the one fifty coverage is actually still remains a conservative coverage level. Relative to our company, and we also think it funds what I described as a routine kind of investment capital going forward. Sunil Sibal: Okay. Thanks for that. And then I think in your prepared remarks, you mentioned about some storage acquisition, the Wildhorse Terminal. Could you walk through that a little bit again, I think you said 4 million barrels of storage. But what's the approximate cost for that? Jeremy Goebel: Sunil, hi. This is Jeremy. Good morning. What I would say. So that's four to 5 million barrels for functional right now. It's adjacent to our existing facility. Our net cost is in his to be $10 million. It'll may take us some time to integrate the facility. It's got an existing operation today. We feel like we have sufficient demand. Our existing Cushing facility is fully contracted to downstream partners. We would just think of this as an addition to that business with a low-cost basis. For us. We could not build those tanks for $10 million. So we're excited about the opportunity to grow our relationships with our customers. Sunil Sibal: Okay. Thanks for that. Operator: Thank you. One moment for our next question. Our next question will come from the line of AJ O'Donnell from TPH. Your line is open. AJ O'Donnell: Hey. Thanks for your time, everyone. Just one question for me. I'm not sure where the developments of Venezuela kind of fit on the timeline of your budget. But just curious as you sit here today and think about where dips are and how quality dips have moved. Just curious how you think about the market-based opportunities trending above or below kind of that $50 million mark that you outlined in your deck? Jeremy Goebel: AJ, good morning. What I would say is the current market reflects what our budget is. So those happened towards the end of last year, giving us the opportunity to lock in spreads across the board. So it significantly derisked the opportunity for us, and they moved out. So things move all the time. But when you have a movement like this, it gives you the opportunity to lock some things in. So I'd say it firmed up part of our plan. AJ O'Donnell: Okay. Thanks for the color. Operator: Thank you. One moment for our next question. Our next question comes from the line of Jeremy Tonet from JPMorgan Securities. Your line is open. Jeremy Tonet: Hi there. Thank you for squeezing me back in. Just a couple quick ones if I could add. We talked a good amount about the 60% of business at the Permian, but just wondered if you could provide maybe a little bit more color on the other 40% of business and what trends you're seeing there. And I get that there's cross currents or it's influenced by, you know, cost cut savings you're seeing there. And that will have some impact. But just how do you think about volumes and EBITDA for that other 40% of business kinda trending over time? Jeremy Goebel: Jeremy, good morning. What I would say is let's start from the north. Excited about Canada, as Chris mentioned. Opportunities around our rainbow system to expand our rangeland system, more activity. The rest of the business is largely flat in Canada. So if you take our Rockies position, everything North Of Cushing and West Of Cushing, that's relatively stable and contracted, so flattish would be the view of that position. Cushing throughput continues at all-time highs year over year for us. So we think that those assets in Cushing and the refinery feed assets consistent with the refiners' performance, that should perform well this year. The South Texas is really somewhat of an extension of the Permian Basin business. It's a wellhead gathering business trucking to support it. And so that stepped down from the cactus contract did impact that business as well. As far as volumes and opportunity set following Ironwood Cactus III, and the integration with our legacy system, we're excited about what we see in South Texas. Now East Of Cushing, the cap line system and Liberty in Mississippi, those are assets we're looking to fill longer term and working on some longer-term contracting. And St. James continues to perform and with the expectation of growth in the Uinta Basin over the next eighteen months to continue to come through to our St. James facility. So think we've got exciting things across that platform. It's not as volatile, and it's not much growth in the other, but you'll see some potential capital investments there as we get contracts to support. Jeremy Tonet: Got it. That's helpful there. Thanks. And, Jim, just one last one if I could. As it relates to the sensitivities for the 100,000 barrels per day change in total Permian production having a 10 to 15 million impact, on the business. Just wondering if there's any more color you could provide there, if, how that sensitivity might change if volumes grow over time, is it linear or could there be an inflection realizing there's an interplay with differentials there? But just any other color, I guess, on how that could fall out. Jeremy Goebel: Jeremy, here's what I'd say. I think the business is very large. Right? So when we talk a 100,000 barrel a day out of a basin, that's over 6 million barrels a day, the impact of the gathering system is gonna be relatively modest. So that's 10 to 15 million of 100,000 barrels a day probably still applies. The integrated benefit may grow over time. I think that's more of the impacts of the price to go to Midland and what could change it might be on the margins, some differentials around WTI. But I think just because of the size of that business, it's probably gonna stay in a very tight band. The impact might be to the long-haul margin since we've been reset to what is the new market. Our expectations would be those would widen out over time. So you might see more of an impact to the long-haul business. Jeremy Tonet: Got it. That's helpful. All you've been there. Thanks. Willie Chiang: We'll see you next time, Jeremy. Operator: Thank you. I'm not showing any questions in the queue right now. I will now turn it back over to management for closing remarks. Blake Fernandez: Thanks, Victor, and thanks to all of you for dialing in. We look forward to visiting with you on the road, and I hope you have a safe weekend. Operator: Thank you. Thank you for your participation in today's conference. This does conclude the program. You may now disconnect. Everyone, have a great day.
Operator: Good day, and thank you for standing by. Welcome to the PAA and PAGP fourth quarter 2025 earnings call. At this time, all participants are in a listen-only mode. After the speakers' presentation, we will open up for questions. To ask a question during the session, you will need to press 11 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press 11 again. Please be advised that today's call is being recorded. I would now like to hand over to your speaker, Blake Fernandez, Vice President of Investor Relations. Please go ahead. Blake Michael Fernandez: Thank you, Victor. Good morning, and welcome to Plains All American fourth quarter 2025 earnings call. Today's slide presentation is posted on the Investor Relations website under the News and Events section at ir.plains.com. An audio replay will also be available following today's call. Important disclosures regarding forward-looking statements and non-GAAP financial measures are provided on Slide two. An overview of today's call is provided on Slide three. Our condensed consolidating balance sheet for PAGP and other reference materials are in the appendix. Today's call will be hosted by Willie Chiang, Chairman and CEO and President, and Al Swanson, Executive Vice President and CFO, along with other members of the management team. With that, I will turn the call over to Willie. Wilfred C.W. Chiang: Thank you, Blake. Good morning, everyone, and thank you for joining us. Earlier this morning, we reported fourth quarter and full-year adjusted EBITDA attributable to Plains of $738 million and $2.833 billion, respectively. 2025 was a pivotal year for Plains. The market environment presented multiple challenges, including geopolitical unrest, actions from OPEC to increase oil supply, and uncertainty on the economic impact from tariffs. As highlighted on Slide four, despite these distractions, we remain focused on transitioning to a pure-play crude company, which also serves as a catalyst to streamline our operations and better position Plains for the future. This transition is accelerated through the sale of our NGL business, along with the recent acquisition of the EPIC pipeline, now renamed Cactus III. These transactions enhance the quality and durability of our cash flow stream while improving distributable cash flow and positioning us well for future market cycles. 2026 will be a year of execution and self-help, with a focus on three initiatives. First, we remain on schedule to close the NGL divestiture near the end of the first quarter, pending Canadian Competition Bureau approval. Second, we are integrating the recently acquired Cactus III pipeline and expect to drive synergies related to that system to improve EBITDA. And third, we are streamlining the organization with a focus on efficiency, improving our cost structure. Over the past several months, we have advanced our streamlining initiatives and are targeting $100 million of identified annual savings through 2027, with approximately 50% expected to be realized in 2026. The key drivers of these efficiencies are outlined on Slide five and include reducing G&A and OpEx to reflect a more simplified business, consolidating operations, and exiting or optimizing lower-margin businesses. One example that illustrates our focus on higher-margin businesses is the sale of our Mid-Continent lease marketing business in 2025 for a total consideration of approximately $50 million with minimal impact to EBITDA. This sale removes working capital needs associated with line fill, simplifies operations with an improved cost structure, while adding long-term contracts to our business. While this transaction is relatively small, it illustrates an opportunity that we have executed on to streamline our business, improve margins, and do more with less. On the bolt-on acquisition front, in January, we acquired the Wild Horse Terminal in Cushing, Oklahoma, from Kira for a net cash consideration of approximately $10 million, which includes an upward purchase price adjustment of $65 million upon the closing of the pending NGL divestiture. This asset adds approximately 4 million barrels of storage adjacent to our existing terminal assets and is expected to generate returns well above our internal thresholds. Looking to 2026, and as highlighted on Slide six, we are providing adjusted EBITDA guidance of $2.75 billion net to Plains at the midpoint, plus or minus $75 million. With an oil segment EBITDA midpoint of $2.64 billion net to Plains, which implies a 13% growth year-over-year in the crude segment. We expect the $100 million of EBITDA from the NGL segment, assuming the divestiture closes at the end of the first quarter, and $10 million of other income. We forecast Permian crude production to be relatively flat year-over-year in '26, with overall basin volumes remaining about 6.6 million at the end of the year, similar to 2025 levels. That said, we expect growth to resume in 2027, underpinned by more constructive oil market fundamentals, driven by ongoing global energy demand growth and diminishing OPEC's spare capacity. Regarding capital allocation, we recently announced a 10% increase in the quarterly distribution payable on February 13 for both PAA and PAGP. On an annualized basis, the distribution represents a 15¢ per unit increase from the November level, bringing the annual distribution to $1.67 per unit, representing an 8.5% yield based on the recent equity price for PAA. With the simplification and streamlining of our business, stable cash flow contributions from the Cactus III acquisition, and reduced commodity exposure following the NGL sale, we are modestly reducing our distribution coverage ratio threshold from 160% to 150%. This reflects improved visibility for our business, better aligns us with peers, and paves the way for future distribution growth while still maintaining a prudent level of coverage. Our targeted annualized distribution growth remains 15¢ per unit, and the lower distribution coverage gives us more confidence in our ability to deliver increasing returns to our unitholders. Al will cover specific CapEx guidance for the year, but we expect a meaningful reduction in gross spending versus 2025 levels, and maintenance capital will naturally decrease following the NGL divestiture. We remain committed to our efficient growth strategy, generating significant free cash flow, optimizing our asset base, maintaining a flexible balance sheet, and returning cash to unitholders via our disciplined capital allocation framework. With that, I will turn the call over to Al to cover our quarterly performance and other financial matters. Al P. Swanson: Thanks, Willie. Slides seven and eight contain adjusted EBITDA walks that provide additional details on our performance. For the fourth quarter, we reported crude oil segment adjusted EBITDA of $611 million, which includes two months of contribution from the Cactus III acquisition, partially offset by a full quarter impact of recontracting on our long-haul systems. Moving to the NGL segment, we reported an adjusted EBITDA of $122 million, reflecting a seasonal uptick that was moderated somewhat by warm weather impacts on sales volumes and relatively weak frac spreads. A summary of 2026 guidance and key assumptions are on Slide nine. We remain focused on making disciplined capital investments and expect to invest approximately $350 million of growth capital and approximately $165 million of maintenance capital net to PAA in 2026. Key drivers for EBITDA year-over-year include full-year contributions from acquisitions, primarily Cactus III, efficiency and optimization gains partially offsetting the impact of the NGL sale and recontracting as provided on Slide 10. Importantly, I would note that while headline EBITDA will decline slightly from the divestiture, distributable cash flow is expected to increase approximately 1% driven by lower corporate taxes and maintenance capital. As illustrated on Slide 11, we remain committed to generating significant free cash flow and returning capital to unitholders while maintaining financial flexibility. For 2026, we expect to generate approximately $1.8 billion of adjusted free cash flow, excluding changes in assets and liabilities, and excluding sales proceeds from the NGL divestiture. With regard to the potential special distribution previously communicated, we expect the Cactus III acquisition to mitigate a significant portion of the expected tax liability to unitholders resulting from the NGL sale. From this perspective, we now expect a special distribution of 15¢ per unit or less after closing and pending board approval. Regarding our balance sheet, in November, we issued $750 million in senior unsecured notes, consisting of $300 million due in 2031 at a rate of 4.7% and $450 million in 2036 at a rate of 5.6%. Proceeds were used to partially fund the EPIC acquisition. Additionally, in the fourth quarter, we paid off the $1.1 billion EPIC term loan assumed as part of the EPIC acquisition by issuing a $1.1 billion senior unsecured term loan at BAA. As a reminder, since we invested $2.9 billion to acquire Cactus III, the majority of the proceeds from the NGL sale will be used to reduce debt. Post-closing, we expect our leverage ratio to trend toward the middle of our established target range of 3.25 to 3.75 times. With that, I will turn the call back to Willie. Wilfred C.W. Chiang: Thanks, Al. 2025 is a transformational year for Plains, and we are taking steps to further strengthen our company for the future. Despite a complex macro backdrop, we proactively executed several major transactions and implemented efficiency initiatives to position Plains as the premier North American pure-play crude oil midstream company. 2026 will be a year of execution and self-help as we focus on closing the NGL sale, advancing our efficiency initiatives, and driving synergies on the Cactus III system. Collectively, these actions will help position Plains more competitively for the future. I also want to take this moment to express thanks to our Plains team, whose dedication and professionalism showed through and through as we also achieved our best-ever safety performance as measured by our best TRIR safety rate as well as the lowest severity of injuries as measured by total loss workdays. In closing, I would like to reiterate that we remain committed to our efficient growth strategy, simply stated, generate significant free cash flow, maintain a flexible balance sheet, and return capital to our unitholders. I will now turn the call back over to Blake, who will lead us into Q&A. Blake Michael Fernandez: Thanks, Willie. As we enter the Q&A session, please limit yourself to two questions. For those with additional questions, please feel free to return to the queue. This will allow us to address questions from as many participants as possible in our available time this morning. The IR team will also be available after the call to address any additional questions you may have. Victor, we are ready to open up the call, please. Operator: Thank you. To ask a question, you may press 11 on your telephone and wait for your name to be announced. To withdraw your question, please press 11 again. Please stand by. We will provide the Q&A roster. One moment for our first question. The first question will come from the line of Manav Gupta from UBS. Your line is open. Manav Gupta: Good morning, guys. I actually wanted to focus a little bit more on the Cactus pipeline and all the synergy benefits you are talking about. Also, I know this is not the right macro, but eventually, the macro will turn. I am trying to understand your ability to expand Cactus III without actually putting more pipe in the ground. If you could talk about some of those factors. Thank you. Jeremy L. Goebel: Manav, good morning. It is Jeremy. First, on the synergies question, the $50 million of synergies we disclosed, we believe we are already on run rate for that now. Roughly half of that was associated with G&A and OpEx reductions as well as removing things like insurance and other things that the pipeline had to keep because it was a private equity-backed entity. Those are gone. So half the synergies were achieved in the fourth quarter as we shed those costs. The other 25% are associated with filling the pipeline with supply that we have, doing shorter-term deals just to fill that available capacity associated with quality management. Those were ramping up now. So we would imagine during the first quarter, we will be substantially there on the run rate for the $50 million, and we should hit that number this year. As to your second question on the ability to expand the pipeline, our team, as we recontract the base pipeline to add term and improve rates for that uncontracted capacity now, in parallel, Chris's team is taking a look at all the capital-efficient ways to optimize our upstream connectivity, our downstream connectivity, and then for incremental expansions of the pipeline that do not require new pipe and that do require new pipe. So we are looking at the most capital-efficient ways to do that. We should finish that during the first half of this year. In parallel, like I said, we are recontracting for term, the rest of the pipeline. Then we will be in a position to discuss expansions with our customers, etcetera. But first, it is to stabilize the base pipeline, and then it is to look at capital-efficient expansions from there. In increments that make sense to grow with the base. Wilfred C.W. Chiang: Manav, this is Willie. I think one key point that Jeremy highlighted is it is not a binary expansion at one time. We have got an opportunity to do it in phases and really match capacity to demand that is out in the market. Manav Gupta: Perfect. My very quick follow-up is can you also talk a little bit about the $100 million in cost savings through 2027 efficiencies and other initiatives that you are undertaking at the franchise level. Thank you. Christopher R. Chandler: Good morning, Manav. This is Chris Chandler. So the sale of our NGL business in Canada really creates a unique opportunity for us to rethink how our company is structured and organized. That business, as you might expect, carried a fair amount of operational and commercial complexity that simply will not exist once the assets are sold. So we are taking a fresh look, from top to bottom, at how we are organized, where we are located, a fresh look at some of the maybe non-core businesses that might be better in somebody else's hands or, for example, outsourced to third parties that could do it more efficiently. So it is really an across-the-board look that you do not get to do this very often. As far as the capture rate, it is a $100 million run rate by the end of 2027. So we expect to achieve $50 million of that in 2026, another $50 million in 2027. Manav Gupta: Thank you so much for taking my questions. I will turn it over. Operator: Thanks, Manav. Thank you. One moment, our next question. Our next question comes from the line of Brandon Bingham from Scotiabank. Your line is open. Brandon B. Bingham: Hey. Good morning. Thanks for taking the questions. Maybe first, just looking at the Permian Basin outlook and kind of some of the commentary you just went through, just trying to harmonize it with some of the larger producer commentary from recent earnings calls. How is the sentiment among your producer customers? And maybe what are some of the current discussions like, assuming that $60-$65 WTI scenario in your guide? Jeremy L. Goebel: Good morning, Brandon. This is Jeremy. First, I would say that $60 to $65 is 10% higher than it was a few weeks ago. So it is a very volatile time period. But what I would say is the larger the producer, the less sensitive they are to the plus or minus $5 swings that we used to incur. So I would say cautiously optimistic. Because if you look consistently across the producer landscape, what used to hold the Permian Basin flat was 325 rigs with less production. Now it is 230 rigs, so you can see those efficiencies are working through the system. There what I would tell you is that they are working to preserve an inventory. They are working to continue to get more efficient with how they develop it and improve recoveries. All of those things are good for stabilizing earnings for us. And we remain consistent that while 2026 may be flattish, think a more constructive environment for 2027 and beyond for growth. And that is very consistent with taking a pause, getting better at doing things, becoming more efficient. So that continues to be the case for us. So I would say that is consistent with our discussion with producers. Wilfred C.W. Chiang: And, Brandon, this is Willie. I would take a look. A couple of other things to point out. You know, as we develop these basins, it is an exercise in constraint removal. So one observation is gas has been tight, and there are a number of projects that are there to alleviate that. And when you alleviate the gas constraint, actually, the breakeven for the producers improves, which allows them to be more durable going forward. And I think just to reinforce your point, you know, we have had some consolidation in the upstream section with a couple of the producers recently announced. And for us, we like that because it bolsters the producer environment to develop the basins in a more thoughtful way. And I am actually very, very encouraged by some of the technology improvements that some of the majors are focused on resource recovery. So when you factor all that in, we are very confident and constructive on the ability for the Permian to be a key part of the incremental supply for the world for quite some time. And then we would expect growth to come back as fundamentals improve. Brandon B. Bingham: Very helpful. Thank you. And then maybe just looking at the capital allocation priorities, would be curious to hear if maybe there is a shift in any of them versus what they have been. And specifically thinking around the payout ratio, is that 150% level more so to just continue the bolt-on strategy or other priorities? Or is there room to maybe further reduce it and maintain that 15¢ per unit distribution growth cadence a little bit longer? Al P. Swanson: Brandon, this is Al. Our view on capital allocation has not changed. I think I noted in the prepared comments, there are two ways to look at it. We got the net proceeds coming from the divestiture. We have really redeployed that already in the Cactus III. So the proceeds there will go to pay down debt. When you look ahead post that, it is all the same viewpoints that we had before. Our primary way of returning cash to shareholders is going to be through distribution growth. That is part of the 160 to 150. We are comfortable with the 150 level. We think it is actually consistent with a large number of our peers. And so we will be looking to continue looking at bolt-ons where they make economic sense. Distributing cash through distribution growth. Secondly, we do have some preferred securities as well as common unit repurchases. Those will be more on an opportunistic basis. Brandon B. Bingham: Very helpful. Thank you. Operator: Thanks, Brandon. One moment for our next question. Our next question comes from the line of Michael Blum from Wells Fargo. Your line is open. Michael Jacob Blum: Thanks. Good morning, everyone. Maybe you could stay on the distribution coverage conversation. I am really just wanting to get a little more of your thought process on how you landed at 1.5 and not 1.4 or 1.3, just exactly there any kind of formulaic way we should be thinking about this? You know, you mentioned some of your peers, but, you know, I could take one peer off the top of my head that, you know, says 1.3 is the right coverage. So just trying to get a little more insight into your thinking on that. Wilfred C.W. Chiang: Willie, this is Willie, Michael. You know, when you think about how we came up with the one sixty, right, that was in November '22. And it was intended to be a coverage threshold that was conservative, reflecting in our focus on the balance sheet. I would not try to read too much into the delta. Other than at one fifty, it is still a conservative approach to distribution. And for us, it sets a nice balance for us as we look forward on the ability for multiyear distribution growth. So I would look at it as kind of a reset to a modest reset, consistent with our peers. As we go forward, we think we have a much more durable cash flow stream, and it is really set there to allow us to feel good about our multiyear distribution growth. Michael Jacob Blum: Got it. Thanks for that. And then just wanted to ask on the growth CapEx of $350 million, I guess twofold. One, can you give us any details about any discrete projects that make that up or just some color around what is in that number? And then is this a good way to think about a run rate going forward now that you are really focused in the current markets? Christopher R. Chandler: Thanks. Good morning, Michael. It is Chris Chandler. So, yes, our guide for 2026 is $350 million. That brings us into our more typical $300 million to $400 million range, which we do think is a good number going forward absent any large investments, which we would call out separately. When I think about how we got to $350 and comparing it to prior years, we, of course, finished up the NGL fractionator expansion last year in Canada. We finished up a number of Permian crude oil infrastructure projects, and we finished a project to unload Uinta wax crude in the Mid-Continent. So those obviously all brought the number down on a year-on-year basis. As far as how we build up into the $350, we have a healthy Permian connection program that is ongoing. In 2025, we connected more wells than we connected in 2024, and 2026 looks to be on a similar pace so far. We are also, of course, doing some modest investment to integrate the Cactus III pipeline to capture synergies, as Jeremy mentioned, with additional connectivity and opportunities for quality optimization and cross-connecting between our other Cactus pipes for energy efficiency. And then we see some good opportunities to potentially invest capital into our Canadian crude oil business. We are pursuing a number of potential contracts that would underwrite expansions there and have assumed some of that moves forward in 2026 as part of our capital spending. Michael Jacob Blum: Thank you. Operator: Welcome. Thank you. One moment for our next question. Our next question will come from the line of Jeremy Tonet from JPMorgan Securities. Your line is open. Jeremy Tonet: Hi. Good morning. Good morning. Can you hear me? Thanks for the color today. I just wanted to take a step back here, and there have been some geopolitical developments recently, you know, particularly up, you know, what has been happening in Venezuela. And it seems like there could be a domino effect in a lot of different directions of what happened there. So I just wondering if you might be able to share any thoughts on how things could unfold, how could it impact Plains flows on assets, utilization, or even repurposing of assets. Jeremy L. Goebel: Hey, Jeremy. Jeremy Goebel. How are you? I was calling I mean, the idea around Venezuela, think of it the initial response 50 million barrels sold into The US Gulf Coast, a significant portion. Do you restructure some of the slates and get consistent with what maybe Pascagoula or the St. James refiners or the Houston refiners had run. That immediate impact was widening of Canadian differentials in the Gulf Coast, the other heavy sour differentials, the Mid-Con and Canada. That creates opportunities more opportunities for quality optimization, cross-border flows, and other movements. Going forward, if you look out a few years and maybe add two to three hundred thousand barrels a day, that might change some buying habits that should not be enough with the commodity prices where they are to change Canadian flows materially. They will have the price to move. So that would probably be a little bit wider Canadian differentials than otherwise would have been. It would take materially more than that to probably repurpose pipelines. But if you look if you added a million barrels a day, that does different things. Right? That now may push Canadian barrels to the West Coast. That may create other opportunities to repurpose pipes from the Gulf Coast to other markets to feed heavy sours into those. So I think it is there is no easy answer because first, you need stability in the government. You need substantial reinvestment. Near term, I think it creates some opportunities around quality management and use of our cross-border pipes. Intermediate term, it creates some logistical opportunities for us as well. But longer term, I think it is going to take substantial investment and time for repurposing, but we are certainly monitoring and paying attention to it. Jeremy Tonet: Got it. That is very helpful there. And one other high-level question if I could. Plains has been active in, you know, industry consolidation, bolt-on M&A, what have you over time. And I was just wondering from your perspective, Willie, where do you think what inning are we in right now for consolidation in the crude oil infrastructure industry, bolt-on, larger consolidation what have you. Wilfred C.W. Chiang: Well, I would say it is not a perfectly smooth trajectory if you think about consolidation. And know, and specifically for us, we have made a couple of large transactions. Our focus right now is really to execute on those. We look at we look at all kinds of opportunities that are out there. So you can be assured that as we as we look at things, stay capital disciplined on being able to acquire things. But I do think there will be more opportunities that are out there. And frankly, you know, to your earlier question, when you think about the macro and you look at the North American infrastructure, you asked about Venezuela. Everyone has a different outlook and view of what might happen there. I personally think it is going to be very challenged to get a significant amount of growth out of Venezuela. Which leads, know, leads us to a more constructive crude oil environment going forward. When you think about the infrastructure that we have in ground and the ability to repurpose, if it makes sense, there is a lot of need opportunities there. And know, I mentioned this on one of the last calls. If you think about the basins that you want to be involved in, The Permian Basin, obviously, is key, close to markets, growth. Low breakevens, but you also have Western Canada. And everyone is aware of the desire for them to go to the West Coast. And, you know, we stay very involved in potential of bringing more barrels down to the to The US. So there is a lot of need opportunities, and you can expect us to stay on track and looking at those with financial discipline. Jeremy Tonet: Got it. That is helpful. Thank you. Operator: Thanks, Jeremy. Thank you. One moment for our next question. Next question will come from the line of Keith Stanley from Wolfe Research. Your line is open. Keith Stanley: Hi. Good morning. Wanted to ask on coverage. So the release specifically says that the change in threshold to 150% provides a multiyear runway for 15¢ increases. I want to confirm, should we interpret that as the plan would be 15¢ increases for at least two more years? And if that is right, it implies a fair amount of growth. Since, you know, you would have to stay above that 150%. Can you just talk to some of the growth drivers you see in the next twenty-seven and twenty-eight that would support that? Wilfred C.W. Chiang: Yeah, Keith. This is Willie. You are very astute as you did your calculations. The message we wanted to send is we have the ability to continue to grow beyond 2026. If you think of our EBITDA this year, we have got a $100 million of NGL contribution. And if you think about '27 plus, we have got self-help that chews up easily half of that. Our comments earlier about additional growth in the Permian gives us confidence in that. And, we know we are going to be able to extract additional efficient growth synergies out of that. So out of our asset base. So we are telegraphing that we think we can grow beyond 2026. Keith Stanley: Okay. Great. And then one other coverage one. So you have talked to the rationale for 150% of DCF. When you assess where you want to go from a coverage perspective, do you look at it on a free cash flow basis too? Because I you have pretty steady $300-$400 million a year of investment capital. Just how do you look at it, I guess, on a free cash flow perspective as well? Al P. Swanson: Keith, this is Al. We have really set it based on DCF. In the view that the DCF coverage of say, one sixty or now one fifty would allow us to fund what we would call routine organic capital, the $300 to $400 million kind of range that we think is more of a normalized level. Plus a small bit for bolt-ons. So we think of it more of the coverage funding routine investments. Clearly, if we see investments that are outside of what is routine or larger, that we will use the balance sheet for that. So it is not a precision on free cash flow. It is really a percentage of free cash flow, but we are allowing for that kind of self-funding of what we think is a routine kind of profile of investment capital. Keith Stanley: Thank you. Operator: Thanks, Keith. Thank you. One moment for our next question. Next question comes from the line of John McKay from Goldman Sachs. Your line is open. John Ross Mackay: Hey, guys. Thank you for the time. I would want to touch on the long-haul Permian volume guidance for a second. It is a little maybe if you can just talk a little bit about the year-over-year bridge. I think it is a little stronger than what we were looking for, but maybe the overall margin intact. So a little bit of that volume versus margin mix and then bridging us to that pretty high 26 number. Jeremy L. Goebel: Thanks. John, good morning. It is Jeremy. There are three components to it. First, you have got the full-year run rate of the Cactus III integration into the system. Second, you have got a significant uptick in contracted capacity on the basin pipeline system. And so that would explain some of the lower margins just because, like, the rate from Midland to Cushing is lower than that to the Gulf Coast. And then third, you would have the Bridgestex pipeline full-year run rate since that was acquired during partially half the year. John Ross Mackay: That is very helpful, Jeremy. I appreciate that. Second one, maybe just looking a little more near term. What did you guys see in terms of storm impacts on volumes across the board? I think that the visibility on the gas side has been clear. But maybe just walk us through kind of what you said the last week or two and kind of where the recovery stands right now. Jeremy L. Goebel: Thanks, John. Start with the recovery, that is already happened. So it was roughly a seven to ten-day period when you had back-to-back freezes. A lot of that impacted the gas infrastructure, made it difficult. And once gas infrastructure is impacted, it shuts in the crude. So we saw almost like a reverse check mark type recovery. It went down and slow to come back. I would say that basin as a whole probably lost 10 to 12 million barrels of production. The crude side and NGLs may be half that over that seven to ten-day period, but we are back we are out of that trough have been for a few days. John Ross Mackay: Super interesting. I appreciate the color. Thank you, guys. Jeremy L. Goebel: Thank you. And that is all been considered in our guidance. So just for the record there, that impact has been considered. Operator: Thank you. Our next question will come from the line of Sunil Sibal from Global. Your line is open. Sunil Sibal: Yeah. Hi. Good morning. Thanks for the time. Most of my questions have been hit, but just a couple of clarifications. So in regards to your loading of distribution coverage to 150%, so obviously, you have, you know, more contracted cash flows coming in through Cactus. But I was kind of curious if there is anything else in terms of, you know, how you manage your other assets in terms of contracting that we should be thinking about there. Al P. Swanson: Sunil, this is Al. No. I mean, we are with the one fifty. We think the crude segment is a stable cash flow stream. Clearly, the EPIC contract is highly contracted. But as we look at it, we think the one fifty coverage is actually still remains a conservative coverage level relative to our company, and we also think it funds what I described as a routine kind of investment capital going forward. Sunil Sibal: Okay. Thanks for that. And then I think in your prepared remarks, you mentioned about some storage acquisition, the Wild Horse Terminal. Could you walk through that a little bit again? I think you said 4 million barrels of storage. But what is the approximate cost for that? Jeremy L. Goebel: Sunil, hi. This is Jeremy. Good morning. Here is what I would say. So that is four to 5 million barrels for, functional right now. It is adjacent to our existing facility. Our net cost is in his to be $10 million. It may take us some time to integrate the facility. It has got an existing operation today. We feel like we have sufficient demand. Our existing Cushing facility is fully contracted to downstream partners. We would just think of this as an addition to that business with a low-cost basis. For us. We could not build those tanks for $10 million. We are excited about the opportunity to grow our relationships with our customers. Sunil Sibal: Okay. Thanks for that. Operator: Thank you. One moment for our next question. Next question will come from the line of AJ O'Donnell from TPH. Your line is open. AJ O'Donnell: Hey. Thanks for your time, everyone. Just one question for me. Not sure where the development of Venezuela kind of fit on the timeline of your budget. But just curious as you sit here today and think about where dips are and how quality dips have moved. Just curious how you think about the market-based opportunities trending above or below kind of that $50 million mark that you outlined in your deck? Jeremy L. Goebel: AJ, good morning. What I would say is the current market reflects what our budget is. So those happened towards the end of last year, giving us the opportunity to lock in spreads across the board. So significantly derisked the opportunity for us, and they moved out. So things move all the time. But when you have a movement like this, it gives you the opportunity to lock some things in. So I would say it firmed up part of our plan. AJ O'Donnell: Okay. Thanks for the color. Operator: Thank you. One moment for our next question. Our next question comes from the line of Jeremy Tonet from JPMorgan Securities. Your line is open. Jeremy Tonet: Hi there. Thank you for squeezing me back in. Just a couple quick ones if I could add. We talked a good amount about the 60% of business at the Permian, but just wondering if you could provide maybe a little bit more color on the other 40% of the business and what trends you are seeing there. And I get that there are cross currents or it is influenced by, you know, cost cut savings you are seeing there and that will have some impacts. But just how do you think about volumes and EBITDA for that other 40% of business kind of trending over time? Jeremy L. Goebel: Jeremy, good morning. What I would say is let us start from the North. Excited about Canada. As Chris mentioned, opportunities around our rainbow system to expand our rangeland system, more activity. The rest of the business is largely flat in Canada. So if you take our Rockies position, everything North Of Cushing and West Of Cushing, that is relatively stable and contracted, so flattish would be the view of that position. Cushing throughput continues at all-time highs year over year for us. So we think that those assets in Cushing and the refinery feed assets consistent with the refiners' performance, that should perform well this year. The South Texas is really somewhat of an extension of the Permian Basin business. It is a wellhead gathering business with trucking to support it. And so that step down from the Cactus contract did impact that business as well. As far as volumes and opportunity set following Ironwood, Cactus, three, and the integration with our legacy system, we are excited about what we see in South Texas. Now East Of Cushing, the cap line system and Liberty in Mississippi, those are assets we are looking to fill longer term and working on some longer-term contracting. And St. James continues to perform and with the expectation of growth in the Uinta Basin over the next eighteen months to continue to come through to our St. James facility. So think we have got exciting things across that platform. It is not as volatile, and it is not much growth on the other, but you will see some potential capital investments there as we get contracts to support it. Jeremy Tonet: Got it. That is helpful there. Thanks. And, Jen, just one last one if I could. As it relates to the sensitivities for the 100,000 barrels per day change in total Permian production having a 10 to 15 million impact on the business. Just wondering if there is any more color you could provide there, if, how that sensitivity might change, if volumes grow over time? Is it linear or could there be an inflection realizing there is an interplay with differentials there? But just any other color, I guess, on how that could fall out. Jeremy L. Goebel: Jeremy, here is what I would say. I think the business is very large. So when we talk 100,000 barrels a day out of a basin, that is over 6 million barrels a day, the impact of the gathering system is going to be relatively modest. So that is 10 to 15 million of per 100,000 barrels a day probably still applies. The integrated benefit may grow over time. I think that is more of the impact of the price to go to Midland and what could change it might be on the margins, some differentials around WTL and WTI. But I think just because of the size of that business, it is probably going to stay in a very tight band. The impact might be to the long-haul margin since we have been reset to what is the new market. Our expectations would be those would widen out over time, so you might see more of an impact to the long-haul business. Jeremy Tonet: Got it. That is helpful. All you have been there. Thanks. Jeremy L. Goebel: We will see you next time, Jeremy. Operator: Thank you. I am not showing any questions in the queue right now. I will now like to hand back over to management for closing remarks. Wilfred C.W. Chiang: Thanks, Victor, and thanks to all of you for dialing in. We look forward to visiting with you on the road, and I hope you have a safe weekend. Thank you. Operator: Thank you for your participation in today's conference. This does conclude the program. You may now disconnect. Everyone, have a great day.