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Operator: Good morning, ladies and gentlemen, and welcome to the Cousins Properties Fourth Quarter Conference Call. [Operator Instructions]. This call is being recorded on Friday, February 6, 2026. I would now like to turn the conference over to Pamela Roper, General Counsel. Please go ahead. Pamela Roper: Thank you. Good morning, and welcome to Cousins Properties Fourth Quarter Earnings Conference Call. With me today are Colin Connolly, our President and Chief Executive Officer; Richard Hickson, our Executive Vice President of Operations; Gregg Adzema, our Executive Vice President and Chief Financial Officer; and Kennedy Hicks, our Executive Vice President and Chief Investment Officer. The press release and supplemental package were distributed yesterday afternoon as well as furnished on Form 8-K. In the supplemental package, the company has reconciled all non-GAAP financial measures to the most directly comparable GAAP measures in accordance with Reg G requirements. If you did not receive a copy, these documents are available through the quarterly disclosures and supplemental SEC information link on the Investor Relations page of our website, cousins.com. Please be aware that certain matters discussed today may constitute forward-looking statements within the meaning of federal securities laws, and actual results may differ materially from these statements due to a variety of risks and uncertainties and other factors, including the risk factors set forth in our annual report on Form 10-K and our other SEC filings. The company does not undertake any duty to update any forward-looking statements, whether as a result of new information, future events or otherwise. The full declaration regarding forward-looking statements is available in the supplemental package posted yesterday, and a detailed discussion of the potential risks is contained in our filings with the SEC. With that, I'll turn the call over to Colin Connolly. Michael Connolly: Thank you, Pam, and good morning, everyone. We had a strong 2025 at Cousins. On the earnings front, the team delivered $0.71 a share in FFO during the fourth quarter, which is in line with consensus. In addition, we delivered $2.84 a share for the full year in 2025, which represents 5.6% growth over 2024. Importantly, leasing remained robust. We completed 700,000 square feet of leases during the quarter, which is our second highest quarterly volume over the last 4 years. And for the 47th consecutive quarter, we delivered a positive cash rent roll-up on second-generation leasing. Earlier this week, we acquired 300 South Tryon, a trophy lifestyle office property in Charlotte for $317 million, which strategically expands our presence in the Uptown submarket. These are remarkable results all around. Let me start with a few observations on the market. Most major companies are phasing out remote work. Home Depot here in Atlanta is the latest Fortune 500 company to end work from home entirely. Thus, office fundamentals are improving. Demand is growing as leasing hit a post-pandemic high in 2025. Vacancy is declining with new construction starts at de minimis levels, any meaningful increase in new supply is 4 to 5 years away. The net result of these trends will be a shortage of high-quality space that will be particularly acute in 2028, 2029 and 2030. Importantly, for Cousins, corporate migration to the Sub Belt has reaccelerated. As a result, our leasing pipeline is robust across all markets. We see a notable pickup in leasing interest from West Coast and New York City-based companies, particularly among financial service and select large-cap technology companies. While not necessarily full corporate relocations, they are significant regional hubs and in some cases, highlight growth away from high tax and high regulation states. The recent mayoral election in New York and wealth tax proposals in California only reinforce these trends. A slowing labor market is raising some concern about office leasing. However, as I said, demand is actually accelerating. I'll explain why. Office using employment growth was historically high during the pandemic. At some companies, headcount almost doubled. Because of the pandemic, many of these new hires were remote and associated office space was never leased. Now as return to office mandates have become widespread, many companies lack the space to accommodate their pandemic era headcount growth even after recent layoffs. Simply said, the tailwinds from accelerating return to office remain greater than the impact of a slower job market. This is an excellent setup for Cousins to advance our strategic plan. Our team remains sharply focused on driving earnings growth while maintaining our best-in-class balance sheet and enhancing the quality of our Sub Belt lifestyle portfolio. I will share some 2026 priorities. First, we plan to grow occupancy in 2026. At quarter end, the portfolio was 88.3% occupied and finally reflects the expiration of Bank of America's lease in Charlotte. We have modest lease expirations in 2026 and a late-stage leasing pipeline that now totals over 1.1 million square feet. While the ramp will be weighted towards the back half of the year, we have a goal of achieving occupancy of 90% or higher by year-end 2026. We believe this goal is achievable, but will be highly dependent on the timing of lease commencements, which are outside of our control. Simply said, though, timing, not underlying leasing demand will be the risk in achieving this goal. Second, we hope to execute additional accretive investment opportunities. Our track record highlights our openness to a wide variety of transactions, including property acquisitions, debt, structured transactions and joint ventures. However, our core strategy remains the same, invest in properties that already are or can be repositioned into lifestyle office in our target Sub Belt markets. To fund any new investments, we will always evaluate all of our options. To be clear, new equity at today's stock price certainly does not make financial sense. Dispositions of noncore assets, settling shares already outstanding on our ATM and/or utilizing the balance sheet are more likely options. While sometimes characterized as conservative, we view our low levered balance sheet as an offensive tool. At select times in the past, we have modestly flexed up our leverage to take advantage of compelling investment opportunities. Given improving property fundamentals and a scarcity of competitive office capital, this could be one of those moments. We will remain agile and opportunistic with any acquisitions and/or dispositions. And as always, our capital allocation decisions will prioritize earnings accretion while maintaining our financial strength and enhancing our portfolio quality. Lastly, we hope to identify a new development start that could break ground in late 2026 or 2027. As I mentioned earlier, large users with '28, '29 and 2030 expirations are facing a significant shortage of large blocks of premier space and will likely need to consider new construction. We hope to capitalize on this dynamic as select development with meaningful pre-leasing has been a powerful source of long-term earnings and NAV growth for Cousins. Last night, we introduced 2026 FFO guidance of $2.92 a share at the midpoint. This guidance forecast implies 2.8% growth over 2025. This would be our third consecutive year of FFO growth and would represent a 3.7% compounded annual growth rate over this time period. This performance is simply unmatched among other traditional office REITs. Our team's ability to drive both internal and external growth is the key. We are excited about what is ahead for Cousins. As I said, demand is accelerating, new supply is at historical lows. The office market is rebalancing. We are growing earnings. Bank of America independently ranks our portfolio as the highest quality in the office REIT sector, and the balance sheet is exceptionally strong, and our G&A is highly efficient for our investors. Before turning the call over to Richard, I want to thank our dedicated Cousins employees who provide outstanding service to our customers and each other every day. Richard? Richard Hickson: Thanks, Colin. Good morning. Our operations team ended 2025 with another great quarter and once again delivered a full year of fantastic operating results for our shareholders. In the fourth quarter, our total office portfolio end-of-period leased and weighted average occupancy percentages were 90.7% and 88.3%, respectively. Our portfolio leased percentage was sequentially higher, driven by gains in Atlanta, Tampa and Phoenix. Our portfolio occupancy was flat sequentially as we expected, with occupancy either increasing or holding steady in every market except Charlotte. Regarding occupancy in Charlotte, the impact of Bank of America's expiration at 201 North Tryon is now fully reflected in our occupancy. As Colin mentioned, our occupancy outlook remains the same. Our exceptionally low 2026 lease expirations of only 4.8% of contractual rent and continued strong new leasing demand are important tailwinds in our focus on driving occupancy gains. Leasing volume in the fourth quarter was very strong for Cousins. Our team completed an impressive 39 office leases totaling 700,000 square feet with a weighted average lease term of 9.6 years. This is our highest quarterly square footage volume of the year and the second highest in the past 4 years. Our total signed activity for the year exceeded 2.1 million square feet, which was the most since 2019. This quarter, 493,000 square feet of our completed leases were new and expansion leases, representing 70% of total activity. For the full year, new and expansion activity accounted for a healthy 55% of our activity. Our average net rent this quarter came in at 36.52 and leasing concessions, defined as the sum of free rent and tenant improvements were above trend at $10.58. As a result, average net effective rent this quarter came in at a lower $23.18. It is important to note that we completed 211,000 square feet of leasing at Northpark this quarter, including a very important 166,000 square foot new lease with AT&T. While this activity is clearly very positive, Northpark lease economics are generally lower than the balance of our portfolio. So for context, when excluding Northpark activity, our average lease economics were much stronger with net rent of $41.02, concessions of $10.03 and net effective rent of $27.96. The same dynamic holds true with our increase in second-generation cash rents this quarter. In total, this quarter, while still positive, cash rents only increased 0.2%. However, excluding Northpark, cash rents increased by a more substantial 10.4% and every market posted increases this quarter. At the market level, JLL reports that leasing volume in Atlanta registered a 5.8% increase quarter-over-quarter in the fourth quarter, marking the highest quarterly volume of the year. We have seen this demand in our portfolio, where we signed a phenomenal 361,000 square feet of leases in the fourth quarter, our highest quarterly volume in Atlanta since the first quarter of 2019. 70% of our quarterly activity was new and expansion leasing and included the AT&T lease at Northpark that I've already mentioned. Our total activity also included 2 renewals with Raymond James totaling 55,000 square feet in both Buckhead and Northpark. Net of our Northpark activity, the Atlanta team also rolled up rents an impressive 14.5% this quarter. Our Atlanta portfolio occupancy also increased for the second consecutive quarter to 84.2%, driven by commencements at Avalon and in Buckhead. In Austin, JLL noted that the CBD posted positive absorption for both the fourth quarter and the full year. In addition, with 1.3 million square feet of leasing activity market-wide in the fourth quarter, total leasing activity for the full year was the highest for Austin since 2021. Notably, leasing by technology companies played a meaningful role in the year's activity and nearly 1/3 of tenants currently in the market are technology companies. Across our Austin portfolio, we signed a solid 98,000 square feet of leases in the fourth quarter, and we ended the year at 94.8% leased. In Charlotte, CBRE noted that the fourth quarter rounded out with what was one of the strongest leasing years as of late, with leasing activity market-wide increasing 72% year-over-year. About 3/4 of that activity was new and expansion leasing, driven by large block and also new-to-market requirements. Along with that, there is no speculative new development currently underway. This supply and demand equation has already translated into solid rent growth in the urban core and the tightening conditions in Charlotte certainly bode well for our major redevelopments of 201 North Tryon and 550 South. Our 550 South redevelopment is reaching completion at a great time as the property will see a couple of move-outs in the second quarter that combined will total 128,000 square feet, all of which have been long expected and are included in our occupancy outlook. With that said, I'm very pleased to report that we are in lease negotiations with a new 87,000 square foot customer at 550 South that would take occupancy in 2026. While we don't yet have any specific activity to report at 201 North Tryon, we continue to see very encouraging demand for multiple large requirements for what we view as the highest quality second-generation large block availability in the market. In Phoenix, full year 2025 net absorption came in at over 700,000 square feet and fourth quarter absorption showed improvement over the prior quarter for JLL. Demand in the market continues to be focused on the most well located and high quality projects especially in Tempe and the Camelback Corridor. As such, the highest quality segment of the market has been successfully increasing rents. For example, prior to 2024, Phoenix had not seen a lease completed with a gross rent over $60 per square foot. As of today, 20 leases have been completed market-wide north of that mark. In the fourth quarter, our Phoenix team signed an incredible 177,000 square feet of leases, all of which were at our Hayden Ferry project in Tempe. Over 90% of our quarterly activity was with 3 new customers with all of them relocating their corporate headquarters to Hayden Ferry. I'm thrilled to say the entire project, inclusive of Hayden Ferry I is now 95% leased. The redevelopment of Hayden Ferry and resulting accelerated lease-up of the former SVB space and then some is one of the greatest success stories in Cousins recent history. I'll conclude with an update on our leasing pipeline. Our overall pipeline remains near peak levels and 60% of the overall pipeline is new and expansion leasing. In our December late-stage leasing pipeline update, we shared that 1.2 million square feet of activity was either signed quarter-to-date or in lease negotiations. Even after completing 700,000 square feet of volume in the fourth quarter, as of today, we still have over 1.1 million square feet of leases either signed quarter-to-date or in lease negotiations. Further, the amount of activity we have in lease negotiations is at its highest level in 5 years. With continued robust demand and activity progressing nicely through our pipeline, we believe we are positioned for an excellent start to 2026 on the leasing front. As always, I want to thank our operations team for everything they do to help make us successful. Again, 2025 was another fantastic year, and we are looking forward to continuing the momentum into 2026. Kennedy? Jane Hicks: Thanks, Richard. Good morning. As Colin discussed, one of our key objectives remains to identify and execute acquisitions that meet our criteria, lifestyle Sun Belt assets consistent with or better than the quality of our current portfolio that we can acquire and fund in a manner that is accretive to earnings and cash flow. While office transaction volume is increasing across our markets, we believe that we still have a competitive advantage as a well-capitalized buyer and operator, particularly when it comes to larger offerings. To that end, I'm excited to provide more detail on the acquisition of 300 South Tryon in Uptown Charlotte that we closed earlier this week. The 638,000 square foot trophy asset is an excellent strategic fit for our portfolio. The highly amenitized building sits in the heart of the urban core, boasting a walk score of 95 as well as very convenient vehicular access and direct connectivity to the Kimpton Tryon Park Hotel. Since its completion in 2017, the 100% leased building has served as Barings global headquarters, while also attracting a who's who of Amwell 100 and other professional service firms such as Mayor Brown, Ameriprise Financial, K&L Gates and RSM. Barings leases approximately 30% of the building. We acquired the building off market for $317.5 million or $497 per square foot, a basis that represents a significant discount to replacement cost. This equates to a 7.3% cash cap rate and an 8.8% GAAP cap rate. There's currently over 6 years of weighted average remaining lease term and strong upside potential given that the in-place rents are approximately 20% below today's market rate. This transaction and the seller's desire to work with us directly validates our competitive advantage within our markets. The asset is a great complement to our existing Charlotte portfolio, bringing it to 2.7 million square feet. The Charlotte market has recently been a top performer, leading the country in job growth in 2025 amongst major MSAs. As Richard mentioned, this dynamic, along with the dwindling supply of high-quality urban space has led to demonstrable recent rent growth in the top-tier buildings. We expect this trend to continue and perhaps even accelerate. Turning to dispositions. The private market continues to improve with equity and debt sources becoming more constructive around office opportunities, especially those of a smaller size. As we have discussed in the past, we view dispositions as one of several funding options for new acquisitions and eventually developments. Given the quality of our portfolio and balance sheet, we don't need to sell. But when there are opportunities to accretively rotate into assets that improve our portfolio composition and mitigate higher CapEx needs, we plan to execute. We are currently under contract to sell Harbourview Plaza in Westshore Tampa, scheduled to close in the first quarter for $39.5 million. This is a 2002 vintage building that is approximately 81% leased and due for a renovation. We were encouraged by the depth of investor demand for the building and decided that our resources are better invested in other assets going forward. We also have a land parcel, 303 Tremont in Southend Charlotte, now under contract to be sold to a residential developer. The contract price for the 2.4 acres is $23.7 million, and we expect it to close in the second half of the year. As you know, we maintain a very modest land bank, but similar to the rest of our portfolio, we are always evaluating the highest and best use of our capital. As this area of South End has evolved, our view is that this particular site is now better suited for a residential development as opposed to the office towers that we originally contemplated. Given the aforementioned office supply shortage in Charlotte, we continue to advance predevelopment efforts on our other South End site, 1435 South Tryon and remain enthused about the prospects for that eventual office development as well as others across our markets. Looking forward, we are optimistic that 2026 will be another busy investment year for Cousins. We continue to be opportunistic when it comes to acquisitions and dispositions as well as other investment opportunities. We have the flexibility to invest in a variety of ways throughout a capital stack, yet we'll maintain discipline as to quality with a constant eye towards ultimately increasing earnings. Finally, I want to provide an update on Neuhoff, our mixed-use development project in Nashville. We finished the quarter with the apartment component up to 89% leased. And today, it sits at over 90%. We did move the stabilization date to the first quarter of 2026 as we expect to achieve over 90% occupancy in this quarter. On the commercial side, we remain very encouraged by the recent activity, both in the market and at the project. We now have a late-stage lease pipeline that is nearly 120,000 square feet. We look forward to providing further updates. I will now turn the call over to Greg. Gregg D. Adzema: Thanks, Kennedy. I'll begin my remarks today by providing a brief overview of our results, spending a moment on our same-property performance and then moving on to our property transactions and capital markets activity before closing my remarks by discussing our inaugural 2026 earnings guidance. Overall, as Colin stated upfront, our fourth quarter results were outstanding. Second-generation cash leasing spreads were positive, same-property year-over-year cash NOI increased and leasing velocity was exceptionally strong. Focusing on same-property performance for a moment, GAAP NOI increased 0.4% and cash NOI increased 0.03% during the fourth quarter compared to last year. These numbers were negatively impacted by the large Bank of America departure that Richard discussed earlier. But despite that, we've kept this property in the same property pool. Excluding 201 North Tryon, same-property cash NOI increased 2% during the fourth quarter. As Kennedy just discussed, we're in the process of selling 2 noncore assets. These assets were reported as held for sale on our year-end balance sheet, and we recognized impairments on both during the fourth quarter. At Harbourview Plaza, we recognized a $13.3 million impairment, which as a depreciable asset does not impact NAREIT-defined FFO. At 303 Tremont, we recognized a $1 million impairment on our land parcel, which does run through FFO. Before moving on, I want to provide a little bit more detail on the Tremont impairment. We originally purchased this parcel in 2021 for $18.9 million. It's currently under contract to sell for $23.7 million, so there's been significant depreciation. However, while we held it, we spent $5.4 million in predevelopment costs. It's these predevelopment costs that led to the impairment. And just last night, we received repayment at par of our $18.2 million mezzanine loan secured by an equity interest in the 110 East property in the South End submarket of Charlotte. We assumed this repayment in our '26 guidance. Finally, although we didn't sell any common shares during the fourth quarter, to date, we have sold 2.9 million shares through our ATM program on a forward basis at an average gross price of $30.44 per share. None of these shares have yet been settled. With that, I'll close out our prepared remarks by discussing our 2026 earnings guidance. We currently anticipate full year '26 FFO between $2.87 and $2.97 per share with a midpoint of $2.92 per share. This is approximately up just a little under 3% from the prior year. Our guidance includes a refinancing of approximately $465 million in debt that matures between August and October of '26. Our unsecured bonds currently trade at the tightest spread to treasuries among all traditional office REITs and are much tighter than any secured debt options. This will provide us a significant cost of capital advantage as we pursue this refinancing. Our guidance also assumes the 300 South Tryon acquisition is funded with proceeds from the Harbourview and Tremont sales as well as approximately $200 million in additional noncore asset sales. We provided this additional sales assumption for modeling purposes. In reality, as Colin stated earlier, our strong balance sheet puts us in a position to be very patient and opportunistic on the ultimate funding for this acquisition. Our guidance does not include any additional property acquisitions or development starts in 2026. If any of these do take place, we'll update our earnings guidance accordingly. Bottom line, our fourth quarter results are excellent, and our initial 2026 guidance indicates the third straight year of earnings growth. Our best-in-class leverage and liquidity position remains intact. Office fundamentals continue to improve with accelerating leasing activity and declining new supply, and we continue to deploy capital into compelling and accretive investment opportunities. We look forward to reporting our progress in the coming quarters. With that, I'll turn it back over to the operator. Operator: [Operator Instructions] Your first question comes from the line of Blaine Heck from Wells Fargo. Blaine Heck: Colin, I thought your commentary on starting a new development project was interesting. Can you talk about which markets are most supportive of development from a yield perspective and whether you're likely to develop on land you own, maybe redevelop something in your portfolio like your opportunity in the domain or whether you'll be looking to purchase land associated with that new development? Michael Connolly: There's not a specific development yet that I'm referring to. But given the number of opportunities that we're looking at across our footprint, that does make me hopeful by year-end, we will have identified one. And I think it could be in several different markets. Dallas, Uptown Dallas is extraordinarily tight, and we're seeing rents today approach replacement cost rents. You alluded to The Domain, which is effectively 100% leased, and we've got great land there. We referenced a tightening Charlotte market in the south end of Charlotte, again, where we own great land, where we're seeing a shortage of large blocks of space. Even in Buckhead, where I'm sitting today, there's not a single block of space over 100,000 square feet today in a Class A building. So I do think you're going to start to see some increases in rental rates that will justify new construction for some large users that have no other alternatives, and we want to be ready to capitalize it. And it ultimately could be land that we own today. It could be some discussions that we're having about various ventures with folks that own parcels that we currently do not own. So it's going to be -- we're going to be flexible, but we're laser-focused on identifying and converting one of these opportunities, hopefully by year-end. Blaine Heck: Okay. Great. That's helpful. You've got a robust late-stage pipeline, as you guys have alluded to at 1.1 million square feet. So I'm sure you guys have a good idea of where rent spreads might be on that activity. Is there any color you can provide there and just general thoughts on '26 rent spreads on a cash basis? Richard Hickson: Sure. This is Richard. Yes, I mean we definitely have visibility into that in the late-stage pipeline. And what I'll say is that it's looking certainly more in line with our activity this past quarter net of Northpark. So we feel good about the near term on continuing to be able to roll up cash rents. Michael Connolly: And Blaine, I'd highlight if we're successful in delivering another positive cash rent roll-up in the first quarter, that will be our 48th consecutive quarter with a positive second-generation rent roll-up. That's -- for those that don't want to do the math, that's 12 years. Blaine Heck: Very impressive. Yes. Last one for me. Can you just talk a little bit more, I guess, about the optionality you guys have for funding the 300 South Tryon acquisition and how you're thinking about sales versus debt or equity issuance from a strategic and also economic perspective? I guess, are there certain target cost of capital or yields on each option that would make you kind of lean one way or the other? Michael Connolly: Yes. Great question, Blaine. It is -- we have a lot of optionality. And the reason for that optionality is the low levered balance sheet we have and the trophy quality of the portfolio. You hit it right on the head. We're trying to balance both the financial aspects with the strategic aspects. And so we will continue to look at various opportunities to fund that. And I'd say we think about dispositions and the alternative dispositions really with a basket approach. So you could see we've got Harbourview and a piece of land under contract to sell. We perhaps could pair that with an older vintage, higher CapEx disposition that might be at a higher cap rate. But ultimately, what we're trying to balance with any disposition or basket of dispositions is a -- a disposition yield that is comparable to where we could reinvest that. So we've been buying at GAAP cap rates in the 8s. I would expect us to -- any sales that we execute the weighted average cap rate of those sales to be at least at that cap rate, if not lower, because ultimately, driving accretion is the priority. Operator: Your next question comes from the line of Andrew Berger from Bank of America. Andrew Berger: Maybe just piggybacking on Blaine's first question on developments. Can you give us a sense of the type of underwriting criteria you would look for, whether that's yields and maybe the percent pre-lease that would give you enough confidence to start the project and also whether this is something you would look to do yourself or potentially bring in a joint venture partner? Michael Connolly: I would say we're targeting plus or minus 50% on a pre-lease basis. And I would expect cap rates -- or excuse me, development yields to be at least 150 basis points, if not 200 basis points higher than stabilized cap rates today. So that would put you in the, call it, 8.5% to 9% range today on a development yield. And we're flexible in terms of whether we do it ourselves or we ultimately have a joint venture partner, and we're always evaluating lots of different opportunities. Andrew Berger: Great. And as my follow-up, you mentioned some activity from companies primarily located on the West Coast and New York City. Can you just talk about which of your markets you're seeing the most of that activity in? Michael Connolly: Sure. We're seeing a significant amount of activity in Austin from West Coast companies. We're also seeing some of that in Nashville with various tech users. And then I'd say there's been a real significant pickup in financial services firms out of New York looking at Charlotte in particular. Operator: Your next question is from the line of John Kim from BMO Capital Markets. John Kim: Colin, it sounds like from your occupancy target this year, you have a little bit less conviction than last quarter, yet leasing activity was very strong this quarter. The investment activity with 300 South Tryon and selling Harborview should help your occupancy figure overall. So I'm wondering what has changed in the last few months for you to maybe walk that back a little bit. Michael Connolly: No, John, I don't think anything has changed. And we still, as we sit here today, believe that, that is an achievable goal. Again, it's a goal, not guidance, but we do think that it is achievable given the low levels of expirations. And as you touched on the leasing that we're doing, as I mentioned, timing of commencement is a risk, and I'll just give you an example that if we had a decision between a 100,000 square foot lease that could commence in 2026 in Charlotte or a 200,000 square foot lease in that same block that would commence in 2027, we would likely pursue the larger lease if the economics were strong. So there's just -- there's a little bit of timing from a quarter-to-quarter perspective. But we still think that it's highly achievable. And again, I think you're going to continue to see progress on our percent leased over the year and perhaps that spread between percent leased and percent occupied could continue to grow. But again, I think there's just some variability with timing of a commencement of a lease that's beyond our control. John Kim: Yes, that makes sense. I'm just wondering if you feel comfortable maybe not now or going forward on providing a leased target rather than occupancy just given those dynamics. Michael Connolly: Yes, that we would consider. Absolutely, we would consider that. It's easier to forecast. John Kim: You mentioned in your prepared remarks, the return to office just providing a demand boost currently. Today, we're about 4 years removed from COVID restrictions ending, but I know the return to office has been various or varied across your markets. How much runway do you think we have left on the RTO demand? Michael Connolly: Hard to say, John. There are -- as I mentioned, there are companies like Home Depot that just kind of made this announcement and shift just a few weeks ago. What we can say is that demand is continuing to accelerate. Our pipeline continues to grow. And I also think there's some other trends that will likely kick in, in the not-too-distant future that I think could increase renewal activity and that being the shortage that I indicated is coming in '28 and '29, we're starting to see some of the tenant reps and better informed customers recognize that they probably need to address those lease expirations sooner than later so as to not be boxed out of space at expiration time. Operator: Next question comes from the line of [ Manush Abek ] from Evercore ISI. Unknown Analyst: You talked about good traction on the former Bank of America space and also the commentary sounded positive on the Neuhoff commercial property. So I was wondering if you could share some more color on just the specifics on what type of tenants and how far along you are with those prospects in terms of like lease discussions on those 2 like projects or spaces. Richard Hickson: Sure. I can start with that. This is Richard. Specifically on 201 North Tryon we really continue to see a lot of encouraging demand from large users. Colin already alluded to this, but we all know that Charlotte has traditionally been a hub for financial services. That's -- nothing has changed there. I think it's evolved to some extent to include some level of fintech and technology embedded within large traditional financial services firms, but we're seeing very encouraging looks from that industry and also from large users looking to relocate significant operations out of other markets and into Charlotte. So again, we don't have anything specific to report to you on 201 North Tryon, but we're very optimistic that we will have something very near term. In Nashville, again, technology seems to be a really healthy driver of activity and sort of add-on to new-to-market activity. So continue to be very optimistic about the demand there, both in market and from out of market. Unknown Analyst: Got you. And maybe one follow-up question. Obviously, the market -- there is some fear in the market baked in about just software companies and their outlook for those. Is there any space in your portfolio or tenants that you have a closer eye on just to like follow them if there's any like type of underutilization of space? Again, I don't mean to sound too negative in your commentary is obviously very positive. So I just wanted to check on that since that's the current theme. Michael Connolly: No. It -- the tech component of our customer base is made up of primarily very large, well-capitalized technology companies, Amazon and Google being our 2 largest customers. But there's nothing that we've seen or identified any software companies within our portfolio that are now underutilizing their space or would be showing any signals of any negative impact to their business. So it's far too premature for that. Operator: Your next question comes from the line of Anthony Paolone from JPMorgan. Anthony Paolone: You mentioned the activity in Austin and financial services in Charlotte. But can you talk a bit more about Atlanta? I think the narrative around really strong growth plans for firms like Microsoft and Google were pretty prominent over the last few years. But maybe give us an update on maybe where they are in that hiring and whether or not sort of the anticipated ecosystem around those employers has developed. Michael Connolly: I think specifically, you referenced Microsoft that has bought a significant amount of land in West Midtown. I'd say they have scaled back those plans specifically for their new development. That being said, they did anchor to a large office development project in Midtown. So it was -- I'd say they accomplished probably half of what their announced plans were. But overall, Richard could touch on Atlanta. We're seeing really positive activity, leasing activity across in all of our markets, and it continues to represent a significant amount of our leasing activity. So Richard can give a little bit of color on that. Richard Hickson: That's absolutely right. If you look at what we've completed recently, again, the volume has been phenomenal. Looking out in both the late and early-stage pipelines for Atlanta, the new and expansion activity is roughly half of our demand. Looking at the industry mix, financial services are very much focused on Atlanta. But it's also tended to be a more diversified demand mix in Atlanta, too. So we're seeing a little bit of everything, plenty of professional services. There is the tech component. And so it's very healthy from a diversification standpoint. Anthony Paolone: Okay. And then just back on the occupancy side and thinking about that over the course of this year. Is there -- like can you quantify maybe like how many leases are signed, -- they're just waiting to commence throughout the course of '26? And also maybe even as it relates to your expirations, what you think tenant retention might look like? And I guess the goal of those 2, just trying to understand what the bridge or might need to be on the leasing side to get occupancy higher. Richard Hickson: Sure. I'd say just at a high level, we've always indicated that retention is likely, over time, going to be in the 50% range. And we only have, I think, 1 million square feet -- of square feet expiring in 2026. To your question about what's signed but not yet commenced, what I'd say is that virtually all of our Q4 '25 new and expansion leasing, which is 490-some thousand square feet is going to be commencing in '26. So I think the exact number is 460,000 square feet. That weighted average commencement is going to be in the third quarter, kind of mid-third quarter. What I'd caution is that though those actual commencements are in the third quarter, the way we report occupancy on a weighted average basis, we won't see the impact of those commencements flow through until the fourth quarter in its entirety. So -- but again, we -- a lot of the heavy lifting that we've done on leasing recently is going to show up in '26. Now you look out to the late-stage pipeline and the early-stage pipeline, we're still seeing plenty of '26 commencements on our uncompleted or unsigned activity, but we are fighting the calendar. And Colin gave a good example of situations where we might make decisions to choose a later commencement if it's the right long-term and strategic decision for the company and may not help occupancy in '26, but still be the right decision for the long term. So again, plenty of activity that we completed will have an impact on '26, but we're starting to get into that time of the year where '27 commencements are going to become more and more common. Anthony Paolone: Okay. So if I could just kind of make sure I understand all that, if you keep half your tenants expiring this year, that's almost 0.5 million square feet, then you've got another almost 0.5 million square feet that's just scheduled to commence. So that kind of gets you to flat as a starting point, everything that gets done at this point that you can get commenced and '26 becomes the pickup. Is that kind of a fair summary then? Michael Connolly: Yes. And also what Richard referenced was just the signed leases in the fourth quarter. There were also leases signed before the fourth quarter that will have an impact on 2026, Tony, to ultimately drive the occupancy as well as any other new speculative leasing that we do that we're working on now that will have a positive impact on 2026. Operator: Your next question comes from the line of Brendan Lynch from Barclays. Brendan Lynch: A couple on Harborview and Tampa. Was this asset sale more consideration of asset being asset specific relative to being a consideration for the Tampa market? And also, how many assets do you have that have similar characteristics to Harborview that are older, lower occupancy and need redevelopments that you would be interested in potentially recycling? Jane Hicks: Brendan, it's Kennedy. I would say this is asset specific. So we are certainly very encouraged by what we're seeing in the Tampa market in general and across the rest of our portfolio there. And as it relates to the other assets, I mean, as we've said in the past, it's a very small percentage. And so we kind of look at it relative to the -- where we think investor demand is and again, where the best use of our capital is going to be going forward. So it's certainly sub 10% of the portfolio, if not much less than that. Brendan Lynch: Okay. That's helpful. And maybe you could also give an update on Proscenium as you've made progress with the repositioning and how demand has been for the space in that asset? Jane Hicks: Sure. Good question. We are just now opening up the repositioning. So it's, I'd say, 2/3 of the way done. And as we've seen with some of our other assets, that's generally been a good indicator of when the leasing activity starts to pick up. So we're in good discussions with several prospects there and really encouraged by the response that we've gotten to the renovation work. Operator: Next question comes from the line of Nick Thillman from Baird. Nicholas Thillman: Maybe, Richard, following up on just the late-stage leasing pipeline and the 1.1 million square feet. As we think of just larger tenants within that pipeline, say, above 100,000 square feet, are there any big chunkier deals within that number? And just remind us what the actual close rate historically has been for signed deals on that pipeline? Richard Hickson: Yes. The late-stage pipeline is generally very reliable. So it's 95% to 100% usually conversion rate. I can think of a couple of instances in the last couple of years, we've had someone fall out of that pipeline, and it's usually highly specific to a business decision or approval process in a particular tenant. So very good conversion rate there. There is a little bit of chunkiness in the late-stage pipeline. Some of it's in Atlanta, some really positive new activity. We have some renewal activity that's of size that's in the pipeline as well. But it really -- it's fairly evenly spread across all of our markets. Nicholas Thillman: And on that Atlanta number, is that related to renewal or new? I just wanted to clarify that. Richard Hickson: They're both actually, but the largest is new deal. Nicholas Thillman: Okay. And then maybe just touching on a couple of the larger blocks that are coming up. Just an update on overall in Houston with Samsung? And then also, can you remind us what the plans are with Ovintiv space that's currently a sublet that's expiring next year with the 88% of the subtenants in the space. Is the plan to go direct with subtenants? Or is there some larger users looking at that space? Maybe some more commentary there, so those 2 spaces. Richard Hickson: Sure thing. Maybe I'll start with Legacy Union in Plano and the Ovintiv building. Again, as a reminder, what we did last quarter was we entered into an agreement with Ovintiv as the prime tenant to take over management for one, get control of the building because we did not have that. And then terminate them early in the middle of '26, at which time we will go direct with the subtenant base, which is extensive at the project. So you look at that square footage that will still expire out in '27. We're having very positive constructive discussions with 4 different subtenants currently at the project. So we feel good about our prospects of potentially taking those direct. When you kind of back those out and look at what the opportunity is to go do new leases with new tenants and continue to multi-tenant the building, that's roughly 150,000, 175,000 square feet out in '27. And the pipeline in Plano and North Dallas, in particular, it's extremely robust. And we're seeing just in the last month, probably at least 3, 4 different tours of the building greater than 150,000 square feet, but we also have plenty of inquiries of a single floor, 2 floors, 3 floors. So very positive demand backdrop there. At Briarlake in Houston with the Samsung expiration. As a reminder, that expiration is in at the end of November of this year. So really minimal impact either way on 2026. It's 123,000 square feet. I'd say that at this moment in time, only about 70,000 of that is exposure. We're having very positive discussions with a number of subtenants there as well and also some new deals and very similar demand backdrop to North Dallas. Operator: Your next question is from the line of Dylan Burzinski from Green Street. Dylan Burzinski: Colin, you mentioned, obviously, the strong demand backdrop, which is accelerating Cousins portfolio is likely to be sort of 90% leased, call it, towards the end of this year, it sounds like. And then you mentioned new development not likely coming for the next 4 to 5 years. And obviously, replacement rents are sort of well above market rents today. So just sort of wondering, can you sort of give us an outlook for where you guys sort of see the growth in net effective rents shaking out over the next 1, 2, 3 years? Michael Connolly: Dylan, as you just described, the backdrop is really, really positive. Demand is accelerating. Construction is de minimis. You're actually seeing approximately 20 million square feet a year being taken out of inventory. And so we do see a shortage of premier space starting to take shape in 2028 and beyond. And so that -- we believe we're close to an inflection point where it will very much become a landlord's market. And as I alluded to, tenant reps are starting to recognize that by approaching us early on those type of renewals in those time periods. I can't say specifically what the change in net effective rents will be. But I do think rents will go higher and concessions will come down. You're already starting to see in certain submarkets where that shortage is showing up sooner and will be a good proxy. And Dallas would be a good example where over the last 4 years, rents have arguably doubled within trophy properties in uptown Dallas and again, concessions have come down. So rent growth in the office world rarely moves in a single-digit linear way, whether up or down. It's usually a bit chunkier. And we are seeing, again, some specific markets today where we've seen double-digit rent growth over the last year. At our Hayden Ferry project, as an example, rents have grown 10% to 20% over the last 12 to 18 months alone. So I think it's a very, very favorable backdrop an environment for owners of trophy lifestyle office and I'd say, particularly in the Sun Belt where the population continues to grow and migration continues to be very favorable. Operator: Your next question comes from the line of Upal Rana from KeyBanc. Upal Rana: Colin, you mentioned in the past of an increased interest in private capital in your markets. Could you give us an update on how that looks today and how that is impacting how you're thinking about deploying capital on external growth opportunities? Jane Hicks: This is Kennedy. I'll jump in on that. Yes, I mean, as I mentioned, certainly seeing more private capital generally, family offices, kind of high net worth capital has been leading the way. There's certainly a lot of debt capital out there now that's being much more constructive around office. But those types of capital sources generally are more focused on the smaller deals. So that's where we're, again, trying to align some of our disposition thoughts as well. So we really haven't seen that capital start to compete with us on acquisitions. We think it's probably coming, but still feel like we've got a good window and a competitive advantage when it comes to investing in some of the larger assets. Upal Rana: Okay. Great. That was helpful. And then Greg, on your full year guidance, assumes the refinancing on the term loan, Colorado Tower and 201 North Tryon. What do you have currently baked into you guidance on where pricing could potentially shake out? Gregg D. Adzema: We're committed to an unsecured borrowing strategy. So we will likely refinance all of those 3 maturities with unsecured debt. And I'm not saying I'm going to do it right now, but if I did it right now, we have a hole in our maturity schedule in 7 years and 10 years. So we have some flexibility in what we do. And the 7-year debt would probably get priced, if I did it today, somewhere, give or take, around 5% and the 10-year debt would be priced somewhere around probably 3.5%-5.40%. Operator: Your last question comes from the line of Shashank Saurav from Mizuho. Shashank Saurav: This is Shashank on for Vikram Malhotra from Mizuho. It appears that Austin as a market has inflected positively. Any more color on bigger requirements there? Richard Hickson: I think we are definitely seeing some level of positive -- I don't want to say green shoots, a little overused term, but some positive activity that I alluded to in the tech sector. Obviously, a lot of Austin's success in the past has been driven by tech demand. And we see that starting to percolate certainly in our pipeline in our own specific activity. So I would say, yes, we're seeing some positive movement there. Shashank Saurav: My next question is, how should we think about TI spend in '26 and as we go into '27? Richard Hickson: Well, obviously, the TIs drove some elevation in concessions this past quarter. I would point you back toward my comments about ex Northpark and looking at lease economics in that context, you're going to continue to see with the elevation of TIs, our prioritization of occupancy and driving occupancy. And so that could continue. But what I'd like to stress, and this has been a theme over, frankly, many years as we've talked about at different points of time where we see pressure in TIs or concessions in general, that we have been able to successfully maintain net effective rents. And I think that was the case this past quarter, even with elevated TIs. And it's important to note that with the tightening conditions that we see ahead, certainly in the medium term that we're going to be able to back off of that over time. I think it's going to become a more constructive market for owners and landlords. So I would call that a more near-term dynamic as we prioritize occupancy. Operator: There are no further questions at this time. I would like to turn the call back to Colin Connolly for closing comments. Sir, please go ahead. Michael Connolly: Thank you for joining us this morning, and we appreciate your continued interest in Cousins Properties. If you have follow-up questions, please feel free to reach out to Gregg Adzema or Roni Imbeaux. Have a great day and a great weekend. Operator: Ladies and gentlemen, this concludes today's conference call. Thank you very much for your participation. You may now disconnect.
Jakub Cerný: So good afternoon, ladies and gentlemen. We will come from Komercni banka and thank you for sharing your time with us today. It is the 6th of February 2026, and we are going to discuss the results of Komercni banka Group for the fourth quarter and for the full year 2025. Please note that this call is being recorded. Today, we have the entire Board of Directors together in one room led by the Chairman and CEO of Komercni banka, Jan Juchelka; and we also have Margus Simson, Chief Digital Officer; Miroslav Hirsl, Head of Retail Banking; Katarina Kurucova, Head of Corporate and Investment Banking; Anne de Kouchkovsky, Chief Risk Officer; Jitka Haubova, Chief Operations Officer; and we them, of course, Etienne Loulergue, our Chief Financial Officer. As always, we will begin with the presentation of results, which will be followed by a questions-and-answer session. [Operator Instructions] Now let me ask the CEO, Jan Juchelka, to begin the presentation. Thank you. Jan Juchelka: Thank you, Jakub. Hello, everyone. Thank you for sharing your time with us. We very appreciate your attention you pay to Komercni. It's my pleasure together with the management team to lead you through the presentation of Q4 2025 results and the full year 2025 results. We can start with Page #4. Komercni in 2025 printed solid growth of financing of Czech economy across the board, all segments with the emphasis on housing loans. We grew by 6.8% in the fourth quarter attributed by -- contributed by 4.3%. On the side of deposits, we grew almost by 6%, which we didn't find optimal. This is why in fourth quarter, we opened the gate a little bit for gaining a bit more deposits from the market in order to build solid foundations for 2026 commercial and business growth. Assets under management outside the bank grew by 5.5%. For us it's a combination of mutual funds made by Amundi, the private banking product. Pension schemes and insurance products from Komercni pojistovna. Here, we saw a little drop on the new sales and new origination for the investment products by Amundi, I will come back to it in a bit of -- in a few minutes in detail. Balance sheet and capital remains very strong. We are sitting on 17.9% of capital, 17.1% is Core Tier 1. Loans to deposits in safe territory of 83.1% and both short-term and long-term indicators of liquidity remain far above the requested 100%, LCR for 159%, NSFR for 130%. Full year's results were translated into CZK 18.1 billion net profit. On a reported basis, it's 4.7% growth. If you take out the extraordinary income stemming from the sale of the headquarter building last year at Wenceslas Square in Prague. We are showing 22.3% on a year-over-year basis growth. It represents CZK 95.61 per share, and all this money will go back to shareholders as we are -- as a Board of Directors, advising the shareholders meeting, which will take place in April this year. Cost-to-income ratio of KB remained at 46.1%, return on equity at 14.2%. Looking forward, we will guide -- or we are guiding the market for 2026 dividend guidance at 80%. The payout ratio, and we feel we are fulfilling our promise that after the extraordinary period of time, which took three consecutive years, we were giving back 100%. We will go lower but we are still 15% above the traditional payout ratio, which used to be 65% before COVID. In the bank, there was one remarkable corporate governance-related event. We are welcoming Herve de Kerdrel as a new Supervisory Board member since 1st January 2026. Herve is lifelong banker, which is retired SG banker joining the team and enlarging the diversity of Supervisory Board. In 2025, Komercni made an important step towards the new realities. We are closing our KB 2025 transformation program, probably the largest transformation initiative in the Czech banking history for the last 20 years, where we delivered the full -- fully rebuilt digital platform from 21st century, replacing the core banking, the accounting and payment systems and other relevant systems and launching new client proposition and new application for the front office in branches, for Internet banking and for mobile banking. Thanks to that, we are also able to learn new disciplines. How to acquire hundreds of thousands of new clients. In 2025, there was 135,000 new clients using our platform, KB+. The total number of KB Group customers overshooted 2.2 million. So currently, we are recording 2,268,000 clients whom we are servicing in the entire group. In 2025, we gained a couple of recognitions on the MasterCard Bank of the Year, we were named as the Bank of the Year in Corporate Banking and Bank without Barriers. We can move to Page #5. Speaking about strategy, let me open this chapter with the statement that we have completely new fully digital platform, working 24/7 with multicurrency accounts in place in which we are currently finding almost entire portfolio of our retail clients. So 2025 was a year of huge -- of finalization of huge maneuver of transferring clients from the old to the new system. And we are gaining also the expertise how to onboard, how to activate and how to cross-sell the new clients. We will come back to it in detail through my colleague, Miroslav Hirsl in a second. We have created a competitive advantage with higher digital sales penetration. We are currently achieving 54%, 55% and heading to 60% of the total sales of our products in a digital way, improving customer satisfaction, thanks to the very modern design of our new app and new interface in the Internet banking and in the branches. The modern technology is done in the world where we have applicated the agile way of working for the software crafting and software coding, thanks to which we are able to come to the market much faster with new innovations, and we will show you the picture what might be those in 2026. We were very strict on working with -- working on costs. The cost base was redefined. In 2025, we are super strict even in the context of our NBI slightly lagging behind our original expectations. So we took the measures on the cost side immediately. And we see that the new platform combined with much simpler, much faster processes and much simpler organization is bringing a higher level of efficiency. We are keeping the bank strong on capital. We will obviously continue with that, not only from the, let's say, strict supervision point of view, which is represented by Czech National Bank, but also by our strong conviction that the large and stable capital base is enabling us for the future to grow organically. We are recognizing as leader, combining MSCI ESG rating, S&P Global CSA Score, as well as FTSE4Good is keeping us amongst top 5% of players of that kind. We continue financing also the energy transition in the country and other relevant programs. So we are exiting the program as a simpler, more agile, more efficient bank, well positioned to deliver the organic growth down the road starting 2026. Next page, please. Page #7, I'm handing over to Margus Simson, the Chief Digital Officer. Margus Simson: Good Afternoon from my side. Just looking into the things that we delivered during this last 5 to 6 years of transformation, then I would probably point out three the most important ones. The first one, the new digital bank is completely cleaned up, completely simplified compared to the setup that we had in the past. So taking a simple example on the retail platform side or retail customer side, we had 600 products before in the legacy system. We have only a bit more than 30 in the new one, effectively bringing down 20x the number of products. This is not only speeding up the kind of -- the way how fast we can develop things, but it also brings down the operational cost, operational complexity. It is helping to bring up our time to market from 18 months that we had rather before in the old system to rather to a couple of months in the new system. So the ability to innovate, the ability to deliver into the market is significantly change, thanks to that kind of complexity reduction that we have been going through. So simplification in every term, the things that the customer sees, the things that are happening inside the bank is the biggest benefit of the transformation from that end. When looking at the functionality, then obviously, the new technology brought different opportunities as well, multicurrency account, the very similar setup what, for example, Revolut has. This has been enabled only by the new solution being up and running. The account customization, I believe, one of the very unique opportunities that the customers tend to love and this one is that they can choose their own account numbers. This is something that is -- seems trivial or seems like a little bit unnecessary development. But at the same time, we see that the customers like that when the services are really tailored rather towards their own needs and their own initiatives. When we're looking from a security perspective, then previously, we had our authentication tool separately and our mobile application separately, now into one, which makes the usage for the customer significantly easier, but also make sure that we do not have the complexity also from that side burdening our customers and ourselves. And when we are looking at the security options that are setting in KB+, just imagine a modern solution that needs to be there in order to make sure that the customers' money is safe and we do guide. And with that one, I'm handing over to Miroslav Hirsl to focus on the questions of what has been really changing on the business side, and what has been delivering the results. Miroslav Hiršl: Thank you, Margus, and hello to everyone. Let me guide you by using a few highlights through how all of that was explained so far is reflected in business life and business activity of the bank. On the next slide, if I may. And I will start by commenting the number of users by the way. So the first thing to say is our new bank is up and running. It's stable. And today, there's more than 1.6 million active users. And when I say even more, it is by additional -- sorry, 30,000 clients. And the number is basically increasing every week, every day and even every time you click on a refresh button on the screen. So it's moving forward. It's not just a number of users. It is also the number of new clients that aren't there on the platform. And when you look at 2025 and 2024, we basically almost doubled our acquisition capacity compared to the usual years before. Even though in the brackets, you see another year that was pretty good. I would stick to my doubling the acquisition capacity, which is quite a success. Another point I'd like to highlight goes to customer migration. You heard it already. So we finalized the migration of private individuals to the new platform. There are still a few left on the old one, but it will be a lower and lower number and it's not critical anymore for the activity of the bank. If you would ask me, is it done? I would say, yes, it's done for private individuals, what is not yet done, but will be done soon is other client segments, starting by small entrepreneurs. Already more than 50% of clients has been migrated to the new platform, and we will finish the process by Christmas this year. Number three out of my fourth chapter is private banking clients. Even though there are not so many, they are quite specific in many cases. We will start the migration with the first cluster next month, in a few weeks. And again, the strong commitment and confidence on our side that we will be able to finalize the migration process until the year-end. There's one chapter more, and this is legal entities. This will take a year longer, but we will wait for 2027. We will start the beginning of summer this year already, and we would like and will finalize the process in 2027 by the year-end. Moving to the next slide. A few more things to say. The first one, it's true that we went through quite important and even sizable streamlining of the distribution network over the recent years. It was branches, number of branches, but not only that, it was number of front office people and probably even more number of managers, not just the number as such, but also the number of layers and the whole organization structure. And it is true that when you go through so significant changes, it creates a certain friction in the organization and takes part of your energy rate for the change itself. This was the first thing that was symptomatic for our distribution network. The second one was, by the way, to focus of distribution network or front office people to migration as such because it was taking approximately 20% of the capacity. Good news is that it's all done, even though there's still some migration to go through, it will just be part of business as usual, not taking much of our distribution capacity, which should allow us to spend even more time with our clients and to spend even more time on our business activity, which gives me a lot of optimism for the years to come. From the same basket, let me speak a bit about the increase of digital sales. A few years ago, we were starting from quite modest humble numbers in 2025. We were already around 55% of all sales happening in the digital way. And when I say digital, is not just paperless, but it means it goes end-to-end digitally without any human being in the bank touching the process at all. And it is true even for some quite significant products, such as consumer loans, where we are already about 50% of all the tickets being processed super-fast without any touch of a human being. So if I should close the story by the last element. It has to be client satisfaction because what we were doing, we are not doing because of transformation per se or migration per se. We are doing it to make the bank better for the clients. And you can see on the graph that we did and the customer satisfaction measured by NPS, is consistently increasing month by month, where we are starting at very humble levels. Today, we are already moving in the corridor between 25 -- sorry, 35 and 40 points. And we still believe in our ambition to get to 50, but we will need a few more quarters for doing so. But it is true that with every other migration rates finished, these clients getting used to the new environment, with the new environment being very stable, we are quite convinced that this is going to happen. I would stop here, and I will give the floor to Etienne, our CFO. Not yet? Jan Juchelka: So in fact, the word goes back to me, not because of my function, but because this is the order how we agreed at the beginning. So let me say, Page #10, just to summarize what was this chapter of our transformation about. We went out as a streamlined organization with much lower number of managerial layers. We were turned down from 7 to 8 to the existing 4 to 5. We have increased our span of control at the level of approximately 8.1, and we want to stay around 8 for the time to go. We have came out as a team of people who know how to run and deliver the complex transformation of that size of that kind, using agile@scale, way of crafting the [indiscernible] and running the project across all the disciplines of banking. That being combined with micro services architecture of our IT is giving us the advantage of much faster time to market when launching new innovations, when launching new functionalities, when launching new products. The system is much more stable than the previous one. We are seeing higher than 95% of operational stability and availability of the systems as we speak. The overall platform is obviously much better ready for working smarter in a smarter way with data and implement AI functionalities in a smoother way. We are not abandoning our very strong culture of compliance and risk management, which was, by the way, one of the contributors also into our net profits in 2025. And we have gained already in various parts of the bank very high productivity increase. Let me name the housing loans production, which is back at record high levels delivered by approximately 50% of the staff than it was before, and further cost rationalization across the bank. Let me move to the next page, please. Now we are inviting you back to the traditional pages of our presentation. We are very lucky together with our main competitors to make the banking business in the Czech Republic. This is a growing economy, we expect in 2025, the growth -- the total growth of GDP was 2.5%. 2026 after the revision of our macro echo team, we believe it might go even higher to 2.7%. The industrial production is back to the growth followed by already growing construction businesses. Wages are beating the inflation. So without any surprise, the households are the main engine of this growth and large contributor in the growth of GDP. Thanks to that. Also unemployment is down. So this is one of the assumptions we are making that consumer lending, consumer loans produced by Komercni banka in 2026, should be one of the fastest-growing parts of our loan book. The inflation, as I mentioned, is nowadays even in -- for January, even below 2%. Czech National Bank has not touched the 2 weeks repo rate and they are remaining at -- they are keeping it at existing 3.5%. And Czech crown is slightly stronger and stronger vis-a-vis both euro and dollar. So the overall frame seems fine, when you combine it with the fact that the current government seem to be pro-investment and pro-business. And we see that there is also more and more decisions of our clients to follow this enthusiasm by private investments. Let me move to next page, which is the business performance. The loans are up by almost 7%. The main engine being mortgages, Komercni is back to the market, taking from the market anything what oscillates around 20% of the new production. When you see the fourth quarter of '24 and fourth quarter of '25, you see the -- you see also the fascinating growth by 82.2%. Having said that, and having repeated that, we are delivering it with 1/2 of people than previously. When moving to consumer loans, we would love to have higher numbers in '25. It didn't happen, but we have our new format of consumer loan in KB+, which is fully digital from beginning to the end. We have 15% to 20% of the capacity of our branches back to sale and less to assist the clients with transfers and migration. And we are orchestrating the branches, the digital, KB Advisory services, third parties and KB Contact Center in the best way to approach the market with a real omnichannel approach and simply speaking, to sell more in 2026. When moving from retail to corporate, there was very dynamic very dynamic growth in the fourth quarter, very strong fourth quarter, promising fourth quarter. We believe that the rebound of Czech manufacturing industry, machinery industry, defense sector and a few more is bringing us back to faster growth of -- the faster growth and positive trajectory. On that front, KB will be assisting its clients at the maximum, and we believe that here the dynamism will continue. When speaking about corporate clients, we need to remind ourselves also the performance of SGEF, which became 100% subsidiary to KB, which is delivering 6.2% growth. Let's move to the next page. You see that Komercni was all over the place during 2025. During the fourth quarter of '25, assisting clients with financing or advisory in their transformative projects. Miroslav spoke about NPS for retail clients. Let me say that our strong activity on corporate and investment banking side is bringing us back very high levels of Net Promoter Score in corporate and investment banking business. Higher we go through the portfolio, we are drifting towards 80 positive points of the feedback, of the satisfaction feedback by corporate clients. We are very proud of it, but we are not complacent from that. So we will continue pushing the button on the side of corporate clients, midsized clients, municipalities as we do today and confirming our leading position in corporate financing. Let me go to next page. Page #16 is deposits. I need to confess it grew by a little bit suboptimal levels. We wanted to grow more and we opened the gates in the fourth quarter to get more like long-term deposits mainly from retail to build even stronger funding for our future commercial and business growth. Despite the fact we were growing by 5.8%, which is probably not a disappointing number, but our ambition was slightly higher. When speaking about deposits, what is probably the most important part of it is that, the savings accounts and term deposits are growing by almost 30% in that -- in the mix between the paid and non-paid deposits, the non-paid deposits, i.e., current accounts are slightly down. When going to -- from the balance sheet of the bank to assets under management outside the bank, you know that we have this partnership with Amundi, where the sales of mutual funds was down by 14% on a year-over-year basis between '25 and '24. We should keep in mind that, yes, on one hand, we are not super satisfied with that. On the other hand, '24 was super strong and we are sitting together with Amundi to get appropriate action plan in place and to get it back to growing trajectory. Inside that, KB has collected more fees even from that structure, thanks to the change or transformation of the composition of fees charged to the clients, mainly thanks to the fact that there was much less money market funds sold and much more equity, fixed income and other funds sold to our retail clients. Having said that, insurance was growing by double digits, 15.2% in total, life, 15.3%, non-life, 15%, both somehow being also or taking the benefit from the growing book of housing loans. But not only that, you can see in our KB+ application that there is an extra button for the insurance product, which is bringing first fruits to the P&L. Next page, please. Here, I'm handing over to Etienne Loulergue, our CFO. Thank you. Etienne Loulergue: Thank you, Jan. I will guide you through the financial performance of Komercni banka for 2025. So 2025, Komercni banka delivered again a very solid financial performance bottom line with net profit reaching more than CZK 18 billion on a full year basis. And if we compare it to the reported 2024 net profit, which was CZK 17.2 billion, it's a growth of more than CZK 800 million, representing 4.7%. But if we look at the full year 2024, excluding the exceptional positive one-off the capital gain coming from the sale of the historical building of Vaclavske namesti, we start from CZK 14.7 billion in 2024 on recurring. Therefore, the growth year-on-year is plus 22%, representing CZK 3.3 billion in 2025. The main drivers for this growth are the following. First, we have the influence of the net cost of risk evolution in 2025, which represents year-on-year positive evolution of CZK 2.5 billion. Second, and it is very important to highlight in our 2025 performance, we have a visible decrease of our operating expenses base by more than CZK 700 million on the full year basis with two main components. Of course, we enjoy the fact that we have a lower contribution to the Resolution Fund in 2025, and it helps for CZK 380 million. But more important than that, we are able to decrease our internal cost base by more than CZK 360 million with efforts, which will explain a little bit later. The third driver for growth is, of course, the growth of the net banking income overall driven by our commercial performance. The overall growth of the net banking income is plus CZK 70 million, representing plus 0.2%. And within this net banking income. We have, of course, the fourth driver, which is the net interest income growing by more than CZK 560 million and unfortunately slightly compensated by a decrease in the overall net fees and commission and net profit from financial operations. This more than CZK 18.1 billion of net profit in 2025, enabled to deliver a return on average tangible equity at 16.1% growing year-on-year by more than 70 basis points on a reported basis. And if we compare to the recurring basis, it's even bigger with more than 300 basis points. You can see also that the return on average assets stands at 1.2%, which is also growing year-on-year by approximately 10 basis points. And on the bottom right part of the chart, you can see the evolution quarter-over-quarter with a regular growth of the net banking income and solid control of the operating expenses. We can move to the next slide, please. Evolution of the balance sheet. We had a solid growth of the balance sheet and a sound growth of the balance sheet. It represents 4.1% additional year-on-year or CZK 60.4 billion, and we reached CZK 1.6 trillion off balance sheet at the end of 2025. On the asset side, the first driver for this growth is obviously the commercial loan performance with a growth of CZK 52 billion, representing 6% of this part of the balance sheet. And on top of that, we grew also our cash and liquid instrument by CZK 17 billion, representing 4%. On the liability side, the growth was driven by the client deposits for CZK 47 billion year-on-year, representing 4%. And additionally, we also grew our portfolio of securities issued with CZK 17 billion from an issuance of covered bonds that we achieved in the last quarter of 2025. The purpose of such initiative is to diversify our sources of funding and secure satisfactory level of liquidity ratios. And I recall at this stage, considering the balance sheet evolution that we have a comfortable high-quality liquid asset portfolio on the asset side, representing more than CZK 400 billion, or 1/4 of the balance sheet, which enables to sustain the liquidity coverage ratio at a flattish level, 159% and the net stable funding ratio at 130%, also stable year-on-year. Now if we move to the next slide to go in more details regarding the composition of the net banking income. First, we have the net interest income, which is growing year-on-year by 2.2%, more than CZK 560 million with definitely as a first driver, the growth of the balance sheet. We have the growth of the loan books by -- as we mentioned just in the previous slide, contributing by plus CZK 300 million in the net interest income of plus 3%. And the growth of the deposits contributed with plus CZK 185 million in the net interest income or 2% for this specific category. Important to highlight also on the top left of the page, you can see that we maintained our net interest margin overall, at a stable level, 1.72% coming from 1.74% in 2024. And this is a very positive achievement considering that in 2024, we had to suffer a decrease of this net interest margin by almost 20 basis points. So 2025 stabilizing is a satisfactory -- very satisfactory performance. And now the change is to continue the growth on volumes. If we move to the next page, on fees and commissions. The overall picture year-on-year is decreased by CZK 330 million, representing 4.6% However, we have to remind that in the base of 2024, we benefited from some exceptional additional fees and commissions coming mainly from the exceptional performance of asset management in 2024. We benefited from extra performance fees in this field. And we also benefited from very important transaction in the field of syndicated loans, generating also additional fees in 2024. The exceptional fees that we had in 2024 represented slightly more than CZK 300 million. So if we exclude them and we compare to a recurring base, we are year-on-year more or less flattish in terms of fees and commissions. Second point to highlight in the fees and commission, flattish with counting -- factoring the fact that in 2025, we have performed this significant migration of our private individual clients to the new digital solutions under a new framework in terms of fees as the client now benefit from subscription plans. So the structure of fees changing, and we are much more consistent with market practice. It influenced the transaction fees by minus CZK 200 million in 2025 compared to 2024. And now we are on a new base on which we come with growth, thanks to additional volumes. You can see also on the bottom of the page, the quarterly evolution of the fees and commission and their mix. And you can see a steady growth in the second half of 2025 with a nice rebound in the fourth quarter. If we move to the next page. The third component of the net banking income is net profit from the financial operations. And in this front, we are growing nicely by more than CZK 100 million year-on-year, representing 2.8%. And the first driver is very sound as it is our sales activity for -- mostly for hedging instruments for our client. The growth represents plus CZK 130 million of 8%. On the front of net gains on foreign exchange operations from payments, we are in terms of overall revenue, flattish. However, we see a continuous growth of number of transactions and volumes, but we have also a slight pressure on the spend. You can see also on the bottom right of the page, the evolution quarter-on-quarter of these two activities. And I would like to highlight that Q4 is kind of normal quarter compared to Q3, which was a historically high quarter obviously, the best of 2025 and probably one of the best historical speaking. Next slide, please. Now moving to the cost path here. This is a remarkable achievement in 2025 with the reduction of the cost base. It was made possible thanks to the transformation, which was explained at the beginning of the presentation by my colleagues, where we have invested massively in the digital transformation and now our digital solutions are up and running. We have also reorganized and refocused network in orderly manner. And now we benefit from these gains in productivity and efficiency, and it is visible in our operating expenses. And the first driver of the operating expenses decrease is the personnel cost with minus 5%, representing CZK 450 million year-on-year, and it is driven by a reduction in the number of average position by approximately 6.5% year-on-year. I would like also to highlight that we keep a very strong discipline on the other cost and especially on the general administrative expenses, which were also decreased by 4%, representing almost CZK 200 million year-on-year. I recall once more the reduction in the Resolution Fund contribution helping also to reduce the overall cost base. The last element in the operating expenses that is important to comment. And it is growing. It is a depreciation part growing by 7%. But we confirm that we have it completely under control as it is our road map following all the investments we have capitalized in the previous years to deliver this massive digital transformation at the bank level. Reducing the operating expenses in such big scale enabled to deliver a significant positive jaws effect on the cost-to-income ratio and we decreased by more than 2 points our cost-to-income ratio, which reached a level of 46.1% on a full year basis in 2025. And I will now hand over to Anne de Kouchkovsky, our Chief Risk Officer, for the asset quality and cost of risk. Anne Laure de Kouchkovsky: Thank you, Etienne. So I will start with the asset quality. So the fourth quarter is in prolongation to what was seen during the full year. As it was mentioned earlier, the portfolio of loan grew up to almost 7% and this was in the context of a very stable and excellent quality of our loan portfolio. So this is seen in the Stage 2 and Stage 3. So you see that Stage 2 is dropping down but this is mainly driven by the effects of the inflation reserve that was created some years back. And that -- and we commented in the previous quarter that the scenario of inflation not being realized that we just saw the prospective figures that we decided to release these reserves. So this is creating this effect in Stage 2. But despite from that, it was very low inflow of Stage 2. Same remark on Stage 3, you see that here, we are dropping to 1.6% share of the portfolio in nonperforming loans. And this is also influenced by some write-offs and successful resolution of the big corporate client sites that were nonperforming and some sales of receivable. As far as the provision coverage of the nonperforming loans is concerned, it's very stable, and the effect and I would say, the variation is linked to this sales of receivable and resolution of the corporate files. So maybe more interesting is to see the effect on the cost of risk. So if we can go to the next slide. So for the fourth quarter, we are in net release of CZK 130 million. And here, on the non-retail portfolio, once again, it's driven by the release of the inflation reserve and this successful resolution of the client situation that I mentioned earlier. And at the same time, we also decided to modify a bit some assumptions on our reserves and to keep reserve with more broader assumptions linked to these unstable situation, whether it's macroeconomic or geopolitical. On the retail exposure, this is the net creation here, but this is driven by also the adjustment in the reserve assumptions. And this is I would say, for the newly assumption created for the reserve for the coming years, we are here impacting more of the small business exposures. So all in all, for the full year, it's a net release of almost CZK 1.5 billion, so minus 16 bps, which is obviously very low point, but it was logical, given all quarters' evolutions. Here, maybe one comment is that cost of risk is always seen as more through the cycle. So some years might be obviously impacted by some exceptional resolution of long-dated situation with client. This was the case this year. We also had the impact -- positive impact of the very high-quality portfolio, which led to very low inflow of problematic loans, this is also linked to what was mentioned that we are growing with mortgage and big corporate loans, which are the, I would say, the bulk of our exposures, and we are less present in segments which naturally brings some cost of risk, and this is what we are going to develop for the coming years. So, again, on the non-retail side, it's mainly the effect of repayments and successful resolution and the adjustment of assumptions of the overlay. And on the retail, as I mentioned, it's intrinsically very low inflows of default and the adjustment of overlay. And I give you the floor back, Etienne. Etienne Loulergue: Thank you, Anne. And I will comment on the capital adequacy ratios. So we maintained a solid level of solvency ratio with 17.9% at the end of 2025, which is well above the overall capital requirement set by the regulation. We are more 130 basis points above this requirement. The main -- first maybe the composition of this capital adequacy ratio is very qualitative with Core Tier 1 ratio standing at 17.1%. and the Tier 2 instrument in our own funds represent 0.8%. The main components of the evolution of this ratio are stable Core Equity Tier 1 part of the capital, stable level of Tier 2 instrument in 2025, so stable in terms of regulatory on funds. While on the denominator side, the risk-weighted assets grew by 2.4% in 2025 to reach a level of CZK 580 billion. Of course, we have maintained our provisioning for the dividend at 100% on the cumulative net profit of 2025. This is a transition for the next slide. Being in this solid capital adequacy ratio situation, we confirm our intention to distribute 100% of the net profit to 2025 as guided across 2025. So we will distribute the CZK 18.1 billion of total net profit for last year, and it represents an impact per share at CZK 95.6. Now coming to the forecast for 2026, considering our conditions to grow further our loan book and contribute more to the funding of the Czech economy and grow our commercial footprint. We see an acceleration of our loan production in 2026 and therefore, an acceleration also of our risk-weighted assets. And as we, of course, want to stay always with a solid capital adequacy ratio. We consider that it is time to slightly reduce the payout policy. Remember that we have distributed 100% of the net profit for three consecutive years, but always mentioning that it is kind of extraordinary situation with an expectation to accelerate again on the credit side for 2026. We consider that it is prudent, but still very satisfactory to guide a distribution of 80% of the net profit in 2026. Next slide, please. To comment on our outlook for the year 2026, of course, in the central scenario. First, the assumptions on which we base our scenario are the following, we foresee, again, solid growth of the gross domestic product of the Czech Republic at 2.7%. We also forecast a good control of the inflation below 2%, and also stability of overall of the interest rate environment, starting with the short-term rates, the 2-week repo at 3.5%. And by the way, probably as you noticed, it was confirmed yesterday by the Czech National Bank in their public statement. Based on this assumption and our ambition to continue to grow our commercial books, we forecast for the loans to client growth in the range of mid- to high single digits in both segments, retail and corporate, probably slightly higher in retail, thanks to the dynamism of the household consumption. On the front of client deposits, we also target to grow mid- to high single digits as it is consistent with the loan book. On the net banking income, our ambition is to grow mid- to high single digits with the contribution of the main components, of course, the net interest income first, but also growing again on net fees and commission and net profit from the financial operations. On the front of operating expenditures, after having decreased in '25 compared to '24, we count with coming back in a slight growth of the OpEx in '26, but with low single-digit growth. The combination of this low single-digit growth in OpEx and higher growth in the net banking income, we should enable to deliver, again, a positive growth effect in 2026. For the cost-to-income ratio and decrease it in the range of 43% to 44%. Regarding the net cost of risk in 2026, coming from the exceptional 2025, which was in net release representing 16 basis points of net release overall. Now in '26, we are cautious, and we expect to return to creation of loan loss provisions. However, in the range that is lower compared to the average level that we have observed through the cycle. Bottom line, the return on equity should stay in a very satisfactory level between 13% and 14%, considering again that the net cost of risk should come back in creation of provisions. Of course, we commit to maintain a solid level of capital adequacy ratio, and we maintain our guidance to stay in the range of 17.5% to 18.5% for our ratio, which is 100 basis points above the overall capital requirement set by regulation. And I hand over to Jan Juchelka for the final conclusion. Jan Juchelka: Thank you very much, Etienne. Thank you for giving us your attention. It's -- there is a hard work behind us in 2025, especially on the side of cost management, on the side of crafting the finalization of the transformation program. We believe we are perfectly equipped for 2026 on both retail and corporate segments to attack the market with a growing loan book and growing deposit base. We believe that in the dialogue of Czech Banking Association where KB is an important member, we will continue the constructive dialogue with the government who presented pretty ambitious parts of public investments. We believe that private investments from our corporate clients will follow, and the consumption and investments of households will continue remaining strong. This is the main assumptions on which we are building our conviction that 2026 should be another strong year of Komercni banka. Thank you very much. I am shipping the word back to Jakub Cerny for conducting the Q&A part. Jakub Cerný: Thanks to all the speakers. In the next part of today's meeting, we will be happy to answer your questions. [Operator Instructions] Thank you. So our first question comes from the line of Cihan Saraoglu from HSBC. Cihan Saraoglu: I have two quick questions. One is with regards to how much inflation overlays you have left? Have you consume all of those, released all of those in 2025? And the second one is with regards to competitive landscape in the deposit market, particularly, I remember in the first -- towards the first half of 2025, deposit competition was somewhat escalating. And then you're also saying that you want to -- you commented that you were not really happy -- too happy with the acceleration in your deposit book in terms of growth. So how do you see the competitive landscape and how confident are you with regards to your deposit growth guidance? Anne Laure de Kouchkovsky: I will start with your question on the inflation reserves. So here, just maybe to remind a model are backward looking with some forward-looking coefficient. And what we put in the reserve is more like what we cannot capture with the models. Then this is based on many assumptions. And I explained inflation being no more one of our concern. And we see that it's going to a very, I would say, the lower level than it used to be in the past. We considered changing the assumption. So under the so-called pure inflation, we don't have any reserves, but we considered that the environment being still very unstable on other, I would say, geopolitical macroeconomic concerns, we kept the reserve both in the corporate and on the small business for the retail part. Jan Juchelka: If I may continue with the deposits and the competition on that front. Yes, you are right. The composition of our deposits was and remains, let's say, slightly different on the side of current accounts versus saving accounts or term deposits. So if you wish, unpaid versus paid parts of the deposit. It's visible here in the Czech Republic that we are opening advertising company with pretty attractive levels of rates for our retail clients. We see the tendency of our clients to either bring back fresh money, should they be already existing clients or bringing money as a new client. So slowly but steadily, we believe that we will be building even stronger pillar of our deposits for further funding of -- financing of Czech economy. As far as pricing is concerned, we are not the leader. We are not proposing the highest-ever rates. Nonetheless, we know that it will not go forward without leaving some money on the table in favor of attracting fresh money into the bank. So if you wish we slightly adjusted our approach to collection of new deposits. When speaking about deposits on the corporate side, we believe that smaller the companies longer the deposits stay in the bank. So we are, again, more or less, as we speak, we are back to the market with very attractive rates for small businesses where we were lagging behind our traditional market shares. And we continue pushing on a cross-sell of these clients using the deposits as an anchor product in the new platform. Jakub Cerný: [Operator Instructions] We still have a question from Marta Czajkowska from IPOPEMA. Marta Czajkowska-Baldyga: I have a few questions. First, you mentioned that there was a pressure on credit margins in the fourth quarter. Can you just elaborate on that, which credit lines are more exposed to that pressure and whether you expect this to continue? The other question is on the 2026 outlook, where do you see the potential for growth for NII is this coming only from loan growth, the mix of the loan growth or the margin expansion? And also on the fee income, where do you see the prospects for higher growth to support the revenue streams? And on the cost side, if I may, you mentioned you expect slower growth. If you could elaborate on the potential for cost savings in 2026. Etienne Loulergue: I will start with the outlook. So you are right that we expect growth of the net interest income. It is -- our assumption is based on growth of the volumes, not only loans, deposit as well. Even though indeed, we have higher growth on the paid deposits, more than the nonpaid deposit, even paid deposits we are able to generate margins additional on them. So we expect growth from deposit and loan volumes. And if we focus more on the loan portfolio, it's also a question of mix indeed. We forecast to accelerate on the consumer loans, for example, where we didn't grow so much in 2025, and we have a much higher expectation in 2026. And definitely, on this type of loan, we have better margin. In the field of fees, we expect to grow in different categories of them. I will mention, of course, the cross-selling fees, where we expect a rebound in asset management fees, definitely, but also transactional fees as after having achieved the migration to the new subscription plan, now we expect to grow, thanks to volume growth. Regarding costs, we have mentioned that in 2026, we expect rather an increase compared to 2025, but in the low single digits. So we don't expect to decrease further the OpEx in 2026 compared to 2025, but to be back slightly in growth under a very good control, of course. This growth is driven by an increase in the depreciation that is expected and again, fully under control because we have a road map of the put in use of all the investments we have achieved in the recent years. And on top of that, a slight increase of the other component of the operating expenses, both staff and general administrative, sorry, expenses, but in a very low single digits in both cases. Coming back to the pressure on margins on credit. It is true that the market is very competitive, and we saw it in Q4. We can say that, for example, on mortgages, which is market growing very fast. We are also facing intense competition, and we saw a cushion of a few basis points on the margin -- on the mortgages. However, as this product remains a core project to anchor the long-term relationship with the client. And with this product, we are able to generate cross-sell, especially on fees, but also by securing some stable deposits on the balance sheet, we truly believe that it is worth accepting a slight decrease on the spread and mortgages, but securing additional revenues side. Jan Juchelka: If I may, just a few additional words, Etienne. You probably know that in the field of consumer loans in the field of small businesses, we are somehow lagging behind our natural market share. We believe that we have the means to fill the gap here and to be much more active on providing consumer loans to Czech households and providing the appropriate financing to small businesses. And we have acquisitive ambitions on that front. So we want to grow. And this is one of the main sources of NII down the road, especially when you take into account that households will be -- will continue their strong economic activity also in 2026 and on. We believe that those are also two subsegments where the margins are still achieving pretty nice, pretty nice, pretty nice numbers. Let me also remind that on the side of mortgages, we are currently collecting anything around 20% of new production from the market. Again, I will never miss the opportunity to say that we do it with 1/2 of people than we used to be -- than there are used to be. There is still obviously a margin lower than on consumer loans. We see that oscillating between 60 and 80 bps for 2025. Hence, here, the volumes will be, let's say, prevailing and creating also the perfect base for cross-sell to clients, which are taking long-term mortgage from KB. Marta Czajkowska-Baldyga: Okay. Just one follow-up on your dividend policy. Going forward, post 2026, could the market expect a continuation of 80% payout ratio in the following years as well? Jan Juchelka: We feel super responsible in front of the shareholders. And when speaking about shareholders, obviously, there is one which collects 60% of the ownership, but there is anything between 70,000 to 80,000 institutional and private individuals, which are representing the 40%. And we are simply guiding our dividend payout through the filter of do we have better use for the excess of capital or not? If not, we are giving it back to the shareholders. When we see our forward-looking predictions, we will always keep as much capital as needed for securing our organic growth. And the rest will be for investors. Should that be 80% on the long term, it's pretty too early to say. We'd rather stay on the safe side and guide the market only for the ongoing year. But we will do our best to keep it at satisfactory levels. Jakub Cerný: [Operator Instructions] So we don't seem to have any further questions at this point. So I'm handing back to the CEO for a concluding remark, please. Jan Juchelka: All right. Again, thank you very much for this numerous presence in our con call. We very appreciate your attention paid to Komercni. We are looking forward to come back to you at latest with the next first quarter presentation. In the meantime, we entirely stay at your disposal for potential questions should you have any. And thank you very much and the team of Investors Relations and all my colleagues here to help with the presentation and answering your questions. Thank you, and have a good rest of the day. Jakub Cerný: Thank you all. This has concluded our call today. You can now disconnect. Good bye.
Pekka Rouhiainen: Good morning, everyone, and welcome to Valmet's Fourth Quarter Results Webcast. My name is Pekka Rouhiainen. I'm the Vice President of Investor Relations at Valmet. And with me today are Valmet's President and CEO, Thomas Hinnerskov; and our CFO, Katri Hokkanen. Today, we will walk you through Valmet's fourth quarter and also highlighting some of the full year highlights, the most notable one being the full year margin, increasing to a new record of 11.9% as our strategy, delivered its first results during the second half. The agenda for today is straightforward. First, Thomas will present the Q4 and full year highlights, including the acquisition of Severn. Next, Katri will walk us through the financial development in detail, and then Thomas will return to discuss the dividend proposal, the guidance for 2026 and the short-term market outlook for the next 6 months. And after the presentations, we'll open the lines for your questions. So thank you for joining us today and your interest in Valmet. And with that, let's get started, Thomas. Thomas Hinnerskov: Thank you, Pekka. 2025 was my full first year as CEO at Valmet, and it's been a true transformative year. We've been driving many changes and initiatives, and I'll get back to some of those later in the presentation. Therefore, firstly, I want to be thanking the Valmet team for all the hard work and commitment throughout the whole year. I also would like to sort of thank everyone at Valmet personally for being very open and welcoming me to Valmet and being open for the behavioral and cultural aspects we've been working on in order to speed up our execution and being bolder in our thinking. Let me start by setting the overall frame for today. We operate in a softer market in the second half of the year. But even though the market is going through a softer patch in the short term, we do remain confident that our strategic choices are the correct ones, and they will take us to the next level of performance by 2030. So with that, let's start with the full year highlights. For the full year, we delivered a resilient performance. Net sales held steady and our comparable EBITA margin reached, as Pekka said, a record of 11.9%, up 0.6 percentage points from previous years. This was driven by the bold operating model changes we decided already in the first quarter when the market was still largely in a better shape. That timing really mattered, and we were ahead of the curve. It gave us the efficiency benefits when the environment turned softer later in the year without us having to react defensively at a challenging moment. Process Performance Solutions performed exceptionally well and Biomaterial Solutions and Services remained stable or remained -- maintained stable margins despite our customers' low operating rates and overall weaker global economy. Cash flow stayed strong at EUR 581 million and orders remained solid against a very demanding comparison period. The Board of Valmet proposes a EUR 1.35 dividend per share, unchanged from last year. Overall, Lead the Way is now being embedded across the organization and the benefit becomes visible already in the second half of last year. With that, let's have a look at the fourth quarter. The overall fourth quarter picture is quite similar to the full year. The market was subdued in biomaterial services like we anticipated. And unfortunately, we saw a more muted demand also in the parts of our Process Performance Solutions, especially in the pulp and paper automation market was slower than expected. Also some of the packages in automation actually got postponed in the end of the year. When we exclude the exceptionally large Arauco order and the FX from the comparison point, orders were very close to last year's level, so which is a solid achievement, I think, in this environment. Profitability was clearly a highlight. Our comparable EBITA margin reached an all-time high of 13.3% for the quarter, driven by the operating model improvements implemented earlier in the year. Those actions decided when the market was still better, gave us an efficiency that we needed in the second half. We secured several important wins, including our largest ever energy order for a biomass power plant in Berlin. So these kind of projects add to our installed base and create long-term life cycle opportunities for us. Process Performance Solutions delivered another excellent quarter with a margin of 21.9%, very good execution from the team and a strong starting point as we invest back into growth going into '26, like we've talked about earlier as well. And finally, we announced the acquisition of Severn Group just before Christmas. Severn brings leading severe-service valve technologies, a high-quality installed base, truly strengthening our flow control in several key process industries, so a very strong strategic fit for us. One important clarification. Our 2026 guidance does not include this acquisition. We will include Severn in our guidance once the transaction is fully finalized, which we expect will happen in Q2. So overall, a strong quarter operationally, supported by disciplined execution and the benefit of the choices we made earlier in the year, even though the market didn't support us with tailwinds. Let's take a closer look at the order development behind the quarter. As expected, orders for the quarter decreased year-on-year in both segments, mainly because of the comparison period including the exceptionally large pulp mill order from Arauco in Q4 2024. Like earlier said, this order impacted also biomaterials services and Automation Solutions orders intake in Q4 last year. That single project alone create a very demanding benchmark for this quarter, obviously. Against that backdrop, our performance was solid. We secured our largest ever energy order for the Berlin biomass power plant, which also came with extensive service agreement, highlighting our life cycle approach that we have launched early in the year at our strategy. This is an important long-term value driver for us. Overall, our energy business had a good year and was able to close some key wins. In biomaterial services, the market remains subdued, and we saw a decrease in service orders compared to Q4 last year. This is fully in line with what we communicated earlier, operating rates, investment activity has been under pressure, and we saw the impact in our Q4 financials. In Process Performance Solutions, the environment softened, particularly in the pulp and paper automation. The difficult end market of our customers showed also in automation's demand during the quarter and furthermore, some package deals did not materialize and were postponed for later. Going forward, we see the market now stabilizing from the weaker Q4 level. So overall, while the headline year-on-year comparison shows a clear decline, we had a decent quarter in a soft market and continue to capture some strategically important wins that strengthen our installed base for the long-term service opportunities. Let me then highlight one example that illustrates the strength and the versatility of our automation technology. We secured the automation delivery for the next-generation Polarstern, polar research vessel. This is a mission-critical platform for a vessel operating in some of the most extreme environments on earth. The order showcase how far beyond the traditional process industries our automation offering today reaches. When a customer like this chooses Valmet to run a vessel like this, it is a strong testament or a statement of trust in the reliability, safety and sophistication of our systems. It also builds long-term value. These vessels have multi-decade life cycle and the automation is central to their operation. That creates recurring life cycle revenue and further strengthen our installed base in a segment where we already hold a leading global position in cruise and marine arbitration. So while the quarter was soft in pulp and paper automation, this kind of win demonstrates the underlying competitiveness of our technology and our ability to grow in diverse markets. Let's look at another concrete example of our strategy to further strengthen our Process Performance business and diversify outside our traditional biomaterial business. We are -- yes, we are very excited, I have to say, to be able to announce the acquisition of Severn in the fourth quarter. This is a strategically important step for Valmet in the mission-critical flow control business. Severn brings leading severe service valve technologies, a strong installed base and deep customer relationship in industries that are complementary to ours, to our biomaterial business and businesses as refining, chemicals, energy and gases as well as metal and mining. So the strategic fit is excellent. Severn has a proven track record in demanding applications where reliability is key and this strength in our Flow Control business, both technology-wise, but also commercially. It clearly expands our addressable market and increase our presence in segments where we see long-term growth potential beyond our traditional biomaterial business. It also takes us to top 5 globally in the valves business. The combination also brings clear synergy opportunities, broader market reach, complementary offering and the ability to increase service presentation or penetration in a large, high-quality installed base. Severn generated around EUR 250 million of revenue in 2025 with an EBITDA margin of about 16%, reflecting a solid operating foundation. We expect the acquisition to close during the second quarter of this year. And overall, very good strategic fit. In addition, it strengthened Flow Control, broaden our portfolio and improves our growth profile over the long term. Now let's turn to Process Performance Solutions. Process Performance Solutions delivered a record year in comparable EBITDA. Orders came in at EUR 372 million, decreasing as anticipated due to the very strong comparison period, which include the landmark automation order from Arauco last year. Net sales remained at last year's level. Flow Control continued to grow organically while Automation Solutions saw a decline, particularly or partly, I would say, reflecting the softer demand condition we already discussed on the previous slides. The clear highlight is profitability. Comparable EBITDA reached a new record of EUR 90 million, and the margin increased to 21.9%. The margin was supported by solid commercial execution, operating model efficiencies and overall disciplined cost control. So even with a softer automation market and a tough comparison on orders, PPS continued to show strength and resilience. However, we do want to be mindful of the fact that we don't expect the margins to continue at this record level into 2026 as we will be investing back into long-term growth by hiring key personnel, both in the sales but also in R&D. Now let's move to the Biomaterials Solutions and Services. Starting with orders. The highlight win in the quarter was the Berlin biomass power plant order, which I mentioned earlier, but compared to last year, exceptionally strong fourth quarter, orders were clearly lower as the comparison period included the very large Arauco pulp mill order. Full year services orders were up 4% organically and represented 52% of the orders received. Looking at the market environment, the biomaterial services market continued to be soft, very much in line with what we saw already in the third quarter. In fact, the year was divided into sort of 2 parts, a good active first half, followed by a clearly softer second half as customer operating rates were visible in the market. On the net sales side, development was as expected. Capital net sales came in at a solid level in the quarter, and we saw the Aramco project progressing well. In total, we booked roughly EUR 400 million of Aramco as net sales during 2025, and we estimate that roughly another EUR 400 million will be booked as net sales in 2026 as the project continues to advance according to plans. In Services, net sales decreased organically by about 7%. This reflects the order mix in the recent quarters, which have been more tilted towards longer lead time mill improvement projects. Also along with the FX impact, that mix effect was clearly visible in the net sales for the fourth quarter as well. Comparable EBITA amounted to EUR 123 million with a margin of 11.6%, unchanged from last year. Biomaterial services net sales were lower, but the operating model efficiency we implemented early in the year supported the segment's margin development, and I'm very pleased that we made those decisions when we did. Without them, the year-end would have been significantly tougher for this segment in terms of delivering the margin. This covers the operational and market development for our segment this quarter. To give you a deeper look at our financial development, I'll now hand over to Katri, our CFO. Katri, the floor is yours. Thank you. Katri Hokkanen: Thank you, Thomas. And actually, before I begin, I want to sincerely thank the Valmet Finance team and our Investor Relations team for a very strong year-end reporting effort. This was the first annual closing under our new renewed operating model and reporting structure. We introduced several improvements to our quarterly and annual reporting during the year. So delivering these changes while maintaining excellent accuracy and clarity required significant teamwork. And I want to thank everyone involved for their dedication in this. I'll now take you through Valmet's financial development, focusing in the fourth quarter. I will cover our profitability, cash flow, balance sheet and other key financials. And as always, my aim is to provide a clear and transparent view of our financial position and the drivers behind our performance. Let's start with an overview of our net sales and comparable EBITA for the fourth quarter. Net sales amounted to EUR 1.5 billion in Q4, and this was EUR 51 million lower than in the comparison period, and this was mainly due to a negative currency impact of approximately EUR 42 million as the euro strengthened against U.S. dollar and some other key currencies. Organically, net sales were only 1% lower than Q4 last year, showing steady development in both segments. Comparable EBITA reached EUR 196 million, and the margin rose to 13.3%, which is the highest quarterly margin in Valmet's history. The increase was driven by the cost savings from our own operating model renewal, which continued to support profitability in the second half. And by the end of the year, we realized approximately EUR 35 million in cost savings related to the operating model renewal. And this includes approximately EUR 20 million in the fourth quarter and the targeted EUR 80 million annual cost savings run rate has been reached now. Like I said earlier, we will be investing part of those savings back into growth. So the incremental net savings impact will be roughly EUR 30 million in the first half this year. I'm pleased to note that even with the weaker market and currency headwinds, our operating model and disciplined execution allowed us to deliver another quarter of strong financial performance. Let's move next to our order backlog. At the end of 2025, Valmet's order backlog amounted to EUR 4.3 billion, which is EUR 146 million lower than at the end of 2024. Based on the current delivery schedules, we expect approximately EUR 3.1 billion of the backlog to convert into net sales during this year. And this is in line with the level we guided last year when a similar amount of backlog was expected to be recognized as net sales during 2025. And our book-to-bill ratio for the full year was 1, reflecting the softer market in the second half of the year. Even so, the absolute backlog continues to provide a very solid visibility for this year. Overall, the backlog remains at a healthy level, supporting stable deliveries for the year ahead. And as always, our teams are working hard to create a solid amount of book and bill during the year on top of the order backlog. Moving on to our cash flow and working capital next. Cash flow from operating activities amounted to EUR 189 million for the fourth quarter, bringing the full year operating cash flow to EUR 581 million. Our comparable cash conversion ratio for 2025 was 94%, which is in line with our long-term average and demonstrate the strength of our cash generation capability. Net working capital decreased to EUR 29 million at year-end compared with EUR 134 million a year ago. And I'm very pleased to see over EUR 100 million released during the year. CapEx for the year totaled EUR 103 million, representing about 2% of net sales, and this is broadly in line with previous years. And we expect this to increase a bit this year. Efficient cash generation, together with disciplined capital allocation, remain the key priorities for us, and they both support and enable both operational flexibility and also our long-term growth ambitions. Let's move on to our balance sheet and leverage position. At the end of 2025, Valmet's net debt amounted to EUR 904 million, and our gearing decreased to 35%, down from 38% in the third quarter. Net debt decreased by EUR 41 million from Q3, even though we paid the second dividend installment of EUR 0.67 per share, which totaled EUR 123 million in Q4. Our net debt-to-EBITDA ratio improved sequentially to 1.40 compared with 1.50 at the end of the third quarter. We are well within our target of under 50% gearing, which means we are in a good position for the upcoming Severn acquisition as well. It is estimated to increase Valmet's gearing by approximately 15 percentage points once completed. The average interest rate of our total debt was 3.4% at year-end, decreasing from 4% a year earlier. During Q4, we also completed our first Schuldschein loan transaction, which amounted to EUR 375 million. And this transaction strengthens our long-term debt structure, diversifies funding sources and broadens our debt investor base. So big congratulations once more to the team who made this transaction happen. Net financial expenses decreased slightly to EUR 62 million for the year. And overall, the balance sheet remained strong, which gives us flexibility as we continue to execute our strategy even in a softer market. Moving on to our capital efficiency and EPS. Our comparable ROCE for the full year was 13%, and this is a solid level and slightly higher than a year ago. However, our long-term financial target is to reach a 20% comparable ROCE by 2030, so we still have work ahead of us. Main driver behind the lower ROCE compared to 2022 is the series of acquisitions we have made in recent years. These have increased our capital employed. We remain confident that these investments will support stronger returns over time, and they fit well with our strategy and long-term financial ambition and increase shareholder value. Adjusted earnings per share for the year was EUR 1.82. The year-on-year decrease is mainly related to changes in the expensing of fair value adjustments from acquisitions. And just as a reminder, adjusted EPS excludes acquisition-related impacts, but it does include items affecting comparability, which is sometimes misunderstood. Looking at the key financial figures for the fourth quarter, I'm pleased to note that almost all the numbers are in the black for Q4, with the exceptions of orders for reasons we have already discussed and net sales, which decreased mainly due to currency impacts. Comparable EBITA increased to EUR 196 million, up 2% from the previous year, and the margin improved to 13.3%. EBITA and operating profit also increased from last year's levels. Cash flow from operating activities was EUR 189 million, up 7% year-on-year in Q4 and 5% in 2025. For the full year, items affecting comparability amounted to minus EUR 85 million compared to minus EUR 53 million in 2024. The increase in these costs was mainly driven by restructuring expenses related to the operating model renewal. On a full year basis, our tax rate was 25.7%, which is in line with Valmet's historical ETR level, which has been around 25%. You will also notice that our effective tax rate in Q4 was higher than usual as there were some one-off impacts in the taxes. That concludes my review of the key financials. Thomas, over to you, please. Thomas Hinnerskov: Thank you very much, Katri. Very clear, very transparent, very good. Thanks. So let's start with the dividend. So we laid out our capital allocation priorities back at the Capital Market Day last year in June. First, organic growth. We are reinvesting part of the operating model savings back into growth, particularly into strengthen commercial execution. This is a deliberate choice to support our long-term profitability. Secondly, strategic M&A. We expect to close the approximately EUR 410 million acquisition of Severn in 2026, a significant strategic step aligned with our portfolio ambition. Thirdly, dividends. Our policy is to pay out 50% of profit for the period or minimum 50% for the period. The Board's proposal is a EUR 1.35 dividend translating into 89% payout ratios and EUR 249 million in total dividends, unchanged from last year. Fourth, share buybacks, which remain a flexible tool depending on the balance sheet strength and other capital allocation needs of the previous authorities. Overall, the proposed dividend is consistent with our policy. It reflects confidence in Valmet's cash flow and long-term financial position. Let me start with the short-term market outlook for the first half of 2026 compared with the fourth quarter. In PPS, the market softened in Q4, particularly in pulp and paper automation, but also in Flow Control, where earlier tariff cost prebuying turned into a temporary headwind. From here, we do not expect further softening. We see the PPS market stabilizing at the Q4 level and improving modestly during the first half of 2026. In Biomaterials Solutions and Services, the market environment in pulp, packaging and paper remained soft and highly dependent on the timing of any possible individual customer decision. Biomaterials services are also expected to remain soft, but not to worsen from current levels, which is why we've adjusted the wording. Capacity utilization, especially in Europe and China remains low and continues to pressure our customers' profitability. From our perspective, the market is flattening, not deteriorating further. Turning then to our 2026 guidance, which we published today. First, we expect net sales to remain at previous year's level. This reflects the flat order backlog and the short-term market environment I just described. Second, we expect comparable EBITDA to remain at previous year's level or increase. The drivers are clear. On the positive side, we'll have additional net savings of roughly EUR 30 million from the operating model renewal as well as the first benefits from the new global supply unit. On the more cautious side, general market uncertainty remains high and for that reason, we guide for flat or increase. Our long-term ambition remains unchanged. Our 2020 target is a 15% comparable EBITDA margin, a clear step up from the 11.9% in 2025. And we continue working with determination to progress also in 2026. Despite the market challenges, our simplified operating model, our focused strategy position us well to navigate near-term volatility and to continue creating long-term value for both our customers and our shareholders. With that, I'll hand over to Pekka for instructions on the Q&A. Pekka Rouhiainen: Thank you, Thomas and Katri, and let's now go to the Q&A part here. [Operator Instructions] But we start with the questions here from the platform since we have a few. So first of all, Thomas, can you discuss the Services market in 2025 and the outlook for 2026 for biomaterial services as it's one of the important factors for the guidance? Thomas Hinnerskov: Yes. Clearly, that is one of the swing factors for the guidance. Looking back 2025, I think divide the year in 2 parts. The first half, clearly strong, especially in the beginning of it with parts, but then also sort of over the summer period, good mill improvement projects coming off, some prebuying ahead of the tariffs as well. We also saw that in the first half. Then turning into a softer second half that really reflect our customers' operating rates and the challenges that they are going through. Going then into '26, which I think is what we are most sort of interested and passionate about how that will turn out. Clearly, softness continues. We don't think -- we don't see that it's going to be more soft than what we experienced now, but it is going to be soft. It is a bit foggy in terms of looking sort of further out how it will. But then I think it's -- I think we -- what we are doing as well ourselves is we're investing in commercial capabilities. We strengthened our life cycle concepts to actually help our customers. There's still a lot they can do in terms of the mill improvement projects to drive up their efficiency so they become more competitive in their market. And I see that as a positive thing, but it's in our hands that we can actually drive that ourselves. Pekka Rouhiainen: Thank you, Thomas. Thank you for that clarification. And then about the guidance, it was already reflected here, but we received also a few questions before the call started. So does the guidance include Severn acquisition? And what kind of financial impact? So 2 questions here. Do you expect from Severn in 2026? Thomas Hinnerskov: Yes, good point. I think it is very important to clarify that Severn is not included in our guidance. It's too early to do that. We will, of course, include it once we close it in the second quarter. That is clear. Severn had a 2025 estimate of roughly EUR 250 million of sales. That will, of course, come into Valmet at the time we close the deal from a run rate perspective. Pekka Rouhiainen: Yes. Thank you. And then a question on the Services net sales, maybe going to Katri here. So what's the Services net sales decreased in Q4, so were there some specific drivers for that decrease? Katri Hokkanen: Good question. Thank you. First of all, organically, it went down by 7%. So FX played a role there. But Thomas discussed or told in his presentation that as you remember, in Q3, our orders were a bit more tilted towards these mill improvement projects, and they take longer time to recognize as revenue. So that was the main reason. Pekka Rouhiainen: All right. Thank you. Thank you for those. And please use the platform. We'll address those questions also later if there are any more. But now we go to the conference call. So operator, I hand over to you. Operator: [Operator Instructions] The next question comes from. Panu Laitinmaki from Danske Bank. Panu Laitinmaki: I have 2. Firstly, on the biomaterials. So the margin trend was better in Q4 than in Q3, if we look at the year-on-year development and the absolute level. The question is what was behind that improvement? I mean you said that you got a bit more cost savings in Q4 than Q3, but was that the reason? Or was there something else in the underlying business? Thomas Hinnerskov: Basically, if you think about -- I think we also said it in part that a large part of that margin improvement in Q4 for buyer was that they had part of the operating model changes that they actually received or that impacted them positively. And as you probably remember, Panu, we said roughly 2/3 of the savings from the operating model comes into the biomaterial business. Panu Laitinmaki: Okay. Then secondly, on the process performance, you said in your comments that you don't expect the margin to remain at the record high '25 level. Were you referring to the Q4, not continuing at the '22 level or on a kind of full year basis, what you reported for that division? Thomas Hinnerskov: I think we specifically are commenting on that it will not stay on what sort of Q4 level going forward. So as you recall from the Capital Market Day, this is one of the areas where we want to invest into driving more organic growth with investing into sales resources and further R&D resources that we started executing right after the Capital Market Day and the strategy was launched. Some of these recruitments are coming online late last year and early this year, and that put -- we can say, increase the cost level and therefore, take the margins down. Then it's also clear when you drive sales in this area, we will not see the bottom line impact as fast because it takes a bit of while before it really gets into the service mode of these solution. Katri Hokkanen: And may I build on top of that. So if you look at the PPS margin, so it was actually really strong on the second half of last year. And we expect it to ease a bit, but still remain on a solid level. Thomas Hinnerskov: And you also remember, Panu, we said it in Q3 as well, we were commercially ahead of the curve in terms of anticipating some of the cost challenges that now comes online from a tariff perspective, et cetera. Operator: The next question comes from Mikael Doepel from Nordea. Mikael Doepel: So I have a couple of questions or 2 basically. I'll take them one by one. So firstly, on the Service segment, I appreciate the comments earlier. But if you could give a bit more comment there, you say it's still a tough or a soft market, you could say. Is there any region that stands out in terms of consumables demand, for example? And how do you see the rebuilds and other projects if you look at the current environment? And also if you think about the trajectory for the business in the midterm, do you see any pent-up demand building up currently? And also, is there something in this cycle that is different from the past? In other words, do you see any reason why demand would stay weak beyond a few quarters? Thomas Hinnerskov: Michael, thanks for joining and thanks for the call -- thanks for the question, even though you are calling in. Good question. I think let me elaborate a little bit because I think it is an important driver. There's probably 3 elements I'm sort of looking into when we think about it. You asked a little bit about are the areas geographically where there's differences. I think it's clear that North America took some capacity out end of Q2, Q3. Now they're running at very good operating rates. That's great to see that, that actually also impacts our business also going now into this year. On the other hand, we had some quite low operating rates, in particular, in the China Asia market, which then, of course, also have impacted the Service business. Do we see that continue? I think with the -- can we get into a global economy where there's a little bit less uncertainty that will also drive consumer behavior and confidence up, which will then, of course, will be helpful for our customers, which will then create more demand and therefore, the operating rates will go up. I think that's -- I think it's harder to see that it should go further down from here. I think that is a pretty stressed or pretty low end of the market range that we're in. Then what also I think is going to help us in the sort of going forward is if you look at our capital business in this area for '25, then I would say just sort of give you a little bit of more flavor to this. Pulp business, we probably have a 50% market share there last year. Packaging business on the capital side, I'm not talking about, capital on the packaging business, definitely leading for sure in terms of capturing a very strong position there last year. And then on tissue, we also had a hit rate that was well above the 50% last year. So that builds also the installed base, even though it was a relatively soft market also on the capital side, but it does help us going forward. Mikael Doepel: Okay. And then another question on the project or the capital business you just mentioned. So if we think about the larger potential greenfield projects out there, how would you describe the current market environment and the pipeline? I mean, do you see the increased geopolitical uncertainties pushing projects out in time or even some cancellations? Or are things actually progressing as planned? Any color there would be helpful. Thomas Hinnerskov: Yes. No problem. I think -- not a big change from when we talked last. I think that sort of situation basically is the same. They are the same projects in Latin America, as everybody knows about. There's some -- still some activity across other parts of the world. I think our pipeline generally looks the same as what it did a year ago when we look at sort of our sales pipeline. So with that, I don't think there's bigger changes. Maybe a bit of further color, I would say, I think North America, with the old installed base, there is good opportunities for our customers to actually improve their current operation by doing larger mill improvement projects. It's always difficult to sort of predict when it actually happens, right? Mikael Doepel: Sure. Absolutely. And then just a brief follow-up on that and related to Arauco. I think you mentioned that you expect revenues of about EUR 400 million from that project in '26. What was that in '25? You might have said this, but I missed it, sorry. Thomas Hinnerskov: Roughly the same. So it's roughly evenly distributed. So if you think from a run rate perspective, you're going to see the same net sales in '26 as you saw in '25. We've been happy with the progress in the fourth quarter as well, progressing really well on all the different install islands, so -- and very pleased with how the team is managing and operating that. Operator: The next question comes from Tom Skogman from DNB Carnegie. Tomas Skogman: This is Tom Skogman from DNB Carnegie. I would like to get a bit more clarity on the savings program. So if you first start with this EUR 80 million program for white collars, I think you said the incremental savings in the P&L in '26 will be around EUR 30 million. But is this kind of the total impact also adjusting for the growth plans that you have? Or should I take away some of this EUR 30 million kind of build the bridge? Thomas Hinnerskov: Yes. Good question, Tom. And that's like we said before, you need -- we had roughly EUR 30 million in '25. We'll have another EUR 30 million in '26. The EUR 30 million in '26, that is sort of net of investment into growth. Tomas Skogman: Okay. So that's the total impact. And then I'm a bit surprised that you don't give out any information at all about this EUR 100 million savings program or kind of supply chain savings and manufacturing footprint. Should I estimate some savings at all this year? Or is this kind of not the thing for '26 or for '27 and beyond? Or what should I think? Thomas Hinnerskov: Yes. That's a good question, Tom. There are a couple of parts to the whole global supply savings, right? The EUR 100 million we talked about back in June. Clearly, there's some that we are driving sort of relentlessly sort of get short-term impact from -- particularly from a procurement perspective. Then we're also looking overall footprint, how does that actually -- where should we focus our manufacturing capabilities, so how to think about, and of course, we will throw more color to that and information about that as we progress throughout '26, and there will be sort of -- yes, so you'll know more about that. I would probably think about having something similar to the operating model savings in your spreadsheet. Tomas Skogman: So around EUR 30 million savings this year and nothing in '25 basically? Katri Hokkanen: Yes. I would have said double-digit millions. So very much in line with what the Boss just said. Tomas Skogman: But there were no savings here in '25, right? Katri Hokkanen: They really start to materialize in 2026. So that's the thing. Thomas Hinnerskov: And when you have to think about why did we say no savings in '25, Tom, is sort of like we think compared to what we have seen earlier, right? So we talk about where -- how are we cranking up the machine to deliver more, right? And that... Tomas Skogman: But can you just give some thoughts about where you will get this kind of half the supply chain and then the rest is kind of factory closures and what of this will be reinvested also so we don't plug in too much into our models? Thomas Hinnerskov: Yes. It's clear that some of these savings in terms of driving our global competitiveness are very, very important from a competitiveness perspective, of course, also from a margin expansion perspective. So some of it will be or will have to be in particular in today's environment, be reinvested into actually winning the projects. That is clear. Tomas Skogman: Yes, I understand that. Okay. And then finally, the Severn order trend in '25, you just said the sales what it was, but can you give some indication on the order trend there? Thomas Hinnerskov: For Severn? Tomas Skogman: Yes. Thomas Hinnerskov: Yes, let's come back to that when we close. Operator: The next question comes from Sven Weier from UBS. Sven Weier: The first one is a follow-up on Michael's regarding the greenfield project pipeline and your position in the Chinese market because obviously, we've seen a few projects there last year. I think there's another one coming this year, at least one. So we always talk about South America, but there's quite a few things happening in China. So how do you see your chances of winning something there in 2026? That's the first one. Thomas Hinnerskov: Yes. Thanks, Sven, and thanks for joining. China market, important market for us. We're well established. We delivered the first machine there back 90 years ago, I think. So we've been a long-standing supplier into the Chinese market. It is clear, as you said, some of the dynamics we see in the China market is that they are going -- they have aggressive generally investment philosophy, but they're also going more integrated, which we have sort of not seen to the same extent before. So they're going more backwards into actually having their own pulp supply, and that will drive demand for pulp projects in the Chinese market over the next couple of years. Sven Weier: But you also see that going ahead in your current pipeline for this year? Thomas Hinnerskov: Yes. Yes. It's always difficult to say sort of when does things really pan out. I have to sort of say that as well. But yes, we do see it in the pipeline. Sven Weier: And the second question I had is just around the guidance because obviously, with flat sales, you give a bit of a point guidance on revenues, which I appreciate. But on EBIT, right, you say flat, but could also increase. I just wonder about the moving parts, right? Because, I mean, operating leverage is not going to have an impact if your revenues are flat. I mean what are the -- and you talked about the savings. I mean, should we expect a big mix impact on the bridge? And I mean, what kind of range are we talking here? Could it be a significant increase? Or are we talking about a relatively narrow range here also for EBIT? Thomas Hinnerskov: Yes. So good question. So what's really the sort of the swing factors here? I think as we've shown in last year, especially second half, we've taken sort of our own destination really in our own hands, right? We sort of -- with having been early on, on the operational savings, which then hit the bottom line already second half. Swing factors going into '26, I would say, to a very large extent, 2 things: service growth and then growth in our PPS business. Lots of -- Katri talked about our order backlog, but still a lot of book-to-bill going into or have to be happened this year in '26, right? And that's mainly thinking about PPS and the service, especially maybe on PPS, which may be especially on the automation systems. Sven Weier: The upside is not limited by the EUR 30 million net savings, but there could be also a positive mix effect on top of that if things go well. Thomas Hinnerskov: Yes. Back to how does the growth come in Service and in particular and in PPS, yes. Sven Weier: Which would then be more, I guess, back-end loaded on Service, given that short term, the Service market is still difficult, as you said, right? Thomas Hinnerskov: Exactly. Exactly. And that, of course, as you're saying, that creates the mix impact as well, which then drives up our margin. Operator: [Operator Instructions] The next question comes from Timo Heinonen from Handelsbanken Markets. Timo Heinonen: It's Timo from Handelsbanken. I mean I'm sorry if you already commented this, but the Service profitability very strong in fourth quarter. And of course, I know that the cost savings, but at the same time, the sales are down quite a bit. I think it must have been some underlying improvement. I mean that the margin is up only because of the cost savings? Thomas Hinnerskov: First of all, thanks for joining, Timo. And did you mean -- are you talking just about the Bioservice or did you talk about the whole thing? Timo Heinonen: Bioservices, of course. Thomas Hinnerskov: Sorry, once again, I couldn't hear you. Timo Heinonen: I mean if we look at what the margin could have been and then, of course, you have had some cost savings, but then the revenue being down. So it seems that you have been able to kind of improve the underlying margin as well, yes profitability improving, excluding the cost savings. Katri Hokkanen: Timo, as you know, we cannot give comments on the Services profitability overall. But if you look at the buyer side, the main driver for -- because the volume was dropping, then margin was kept was actually the operating model savings. So that was the #1 thing. Timo Heinonen: Okay. But no kind of underlying improving, I mean, pricing or anything like that? Thomas Hinnerskov: Not significant, I wouldn't say. [Technical Difficulty] getting ahead of the curve from the softness in the market, and that's what we are quite pleased with that, that decision really proved out to be the right one. Operator: The next question comes from Tom Skogman from DNB Carnegie. Tomas Skogman: I would just like to understand the dynamics a bit better in China because to me, it seems like you have other competition there than you have in the Western world, and it's very hard to understand what is kind of happening to your market shares in China in board machines and in pulp mills. I mean we see so few order announcements from you regarding Chinese customers, especially on the pulp side, but there seems to be a lot of things happening there. So I would like to understand it a bit better. Thomas Hinnerskov: Yes. I think -- I mean, I'm not sure I fully get your question, Tom. So forgive me. So ask a follow-up if I'm not answering you on that one. I think China market, yes, it is a different market than some of the others. There's some different competition. But clearly, our large Chinese customers, they do look at total cost of ownership or cost per tonne or being the most efficient. They understand probably very, very well that it is about having the lowest operating cost, especially in that market where there also is overcapacity. So how do you actually get to be able to compete effectively and profitable in that market as well. And that's where I think our technology comes really into play because we can deliver that with the most -- or the lowest total cost of ownership to our customers, right? Tomas Skogman: But if you look at pulp mills in China, I mean, what is your market share there the last 5 years or so? And is there any kind of change going on? Thomas Hinnerskov: Yes. I don't think we disclose sort of regional market shares. But I think, as I said, I think it was to Michael's question, that we had a good year in our pulp business as well with sort of a 50% -- taking 50% of market share from a global perspective. Tomas Skogman: But are there other competitors in China in pulp mills? I mean this is really what I want to understand, how are you doing against them in kind of midsized projects, et cetera, if that's kind of one of the hopes that there will be things happening this year? Thomas Hinnerskov: I think our advantage also in the Chinese market or maybe in particular in the Chinese market even more so is back to most efficient equipment, but also this thing about being able to support the customers in the start-up, in the process and start-up of the equipment, and that's where other competitors, especially sort of local competitors don't have the capability at all. Operator: There are no more questions at this time. So I hand the conference back to the speakers. Pekka Rouhiainen: Thank you, operator, and thank you for the good Q&A session. There are no more questions in the digital platform either. So I think it's time to start to wrap up. So the Q1 report for Valmet will be published on April 28. I hope to see many of you in the roadshows and seminars we are planning to attend in Q1. But now I'd like to hand over to Thomas for you for any closing remarks. Thomas Hinnerskov: Thank you, Pekka. And thanks, everyone, who joined us today for a good discussion here on this webcast and other venues as well. First and foremost, I just really want to thank the Valmet team for the hard work and commitment during the past year. Thanks to the finance team for delivering another great transparent report all at the right time and had all the deadlines. To sum up or maybe also maybe even more importantly, I want to have send a big thanks to our customers for the trust that you have shown us throughout the year and for a lot of you, very challenging year. And I sincerely think that we've also played it back and try to deliver as much value and make you as competitive as you possibly can in your markets as well. But thank you very much for the trust. To sum up, we achieved a record high EBITA margin in Q4, thanks to the early action we took last year. 2025 was a true transformative year for Valmet with new strategy, new operating model, a lot of initiatives. Next strategic milestone is the Severn acquisition, which makes us even better positioned for growth in the Process Performance Solutions and outside our biomaterial core. So with this and despite some market headwinds, we are starting the year 2026 from a position of strength. See you out there. Have a great weekend when you get there. Thank you.
Operator: Hello, and welcome to the Orange Fiscal Year 2025 Financial Results Conference Call hosted today by Koen Van Mol, Xavier Pichon and Antoine Chouc. Please bear in mind, this call is being recorded. [Operator Instructions]. I will now hand you over to your host, Koen Van Mol, to begin today's conference. Thank you. Koen Van Mol: Thank you, operator. Good morning, everyone, and welcome to Orange Belgium H2 2025 Earnings Call. My name is Koen Van Mol. And with me today are Xavier Pichon, our CEO; and Antoine Chouc, our CFO. They will walk us through the company's performance as well as the strategic initiatives for the second half and full year of 2025. After the presentations, we will be open -- we will open the floor for questions. And now I will pass the floor to Xavier. Xavier Pichon: Thanks, Koen. Good morning, everyone. Thank you for joining us today as we present Orange Belgium's financial results for the second half and the full year of 2025. So as we look back at the second semester and full year of '25, I'm pleased to report that we are on track with our Lead the Future strategy. We made significant progress across key areas, including network leadership, digital transformation and customer experience. Let me start with some key highlights. At the start of the second semester, we signed an MoU with Proximus to access each other's infrastructure and improve access to gigabit networks in Wallonia. This collaboration will enable us to provide access to high-speed connectivity to our customers while optimizing our investment spend. In the meantime, we continue to extend and to upgrade our gigabit fixed network to meet the demand on our customers for the high-speed Internet. Recently, our network leadership has been validated by Ookla, recognize Orange Belgium as having the fastest 5G network in Belgium, reflecting our commitment to superior mobile performance. Over the past semester, we have observed a consistent improvement in the customer experience, which directly reflects the dedicated efforts and strategic initiatives we have implemented to enhance this aspect of our service. In parallel, we actively encourage our customers to migrate to the new portfolio and the reasons demonstrates its attractiveness and the value it offers to our customers. From an environment perspective with our efforts have resulted in a 6% year-over-year reduction in CO2 emissions, encompassing Scope 1, 2 and 3 emissions, reflecting our commitment to sustainability and environmental responsibility. Also, we launched the Smartphone Pass, empowering parents in digital education and increase our digital inclusion beneficiaries by 30% compared to '24. Slide #6. So in a natural, turning to commercial results. Our performance in H2 '25 was very encouraging. Our mobile postpaid customer base grew by 2.5% year-on-year, reaching 3.5 -- 3.55 million customers with net additions of 38,000 during the semester. This growth was driven by the continued appeal of our customers' offers and targeted promotional campaigns. On the fixed side, our cable customer base increased by 1.8%, totaling roughly 1.04 million customers reflecting the success of our convergent offers and high-speed connectivity. For the full year, our revenue performance was slightly below last year with total revenues at EUR 193 million, down 1.5%. This decline was partly due to the nonrenewal of Belgium cable rights as well as a decrease in low-margin activities such as incoming SMS. However, our EBITDA grew by 3.4% within EUR 566.1 million, supported by synergies from the VOO acquisition and ongoing cost efficiencies. Our CapEx increased modestly by 1.8% to EUR 376 million rough million, reflecting investment in RAN sharing, 5G deployment and gigabit network expansion. These investments are crucial to provide the optimal customer experience we want to offer. These results show the strength of our strategy, the quality of our execution and the dedication of our teams. At this point, I'd like to hand over to our CFO, Antoine, who will provide a deeper dive into our financial performance and explain our guidance for '26. Antoine Chouc: Thank you, Xavier, and good morning, everyone. Let me take you through the details, starting with the evolution of our revenues on Slide 7. So as shown on the slide, I hope you can see it on the stream, our total revenues declined slightly by 1.5%, partly due to the nonrenewal Jupiter Pro League football rights, which impacted the service revenues. Service revenues from convergent offers increased by 3.8%, reaching EUR 634 million, while mobile service revenues declined by EUR 6.7 million -- 6.7% to EUR 563 million, reflecting ongoing market dynamics. On Slide 8, let's zoom on the EBITDAaL evolution. On the cost side, we maintained tight control of our expenses throughout the year. Our direct cost totaled EUR 636 million, reflecting disciplined management and ongoing efficiency initiatives. Indirect costs amounted to a bit less than EUR 500 million, which is down 6.2% compared to last year. This reduction was driven by our continuous effort to optimize overheads, streamline processes and of course, leverage synergies from the VOO integration and several other operational improvements. All these cost control measures contributed significantly to our EBITDAaL growth. For the full year, EBITDAaL increased by 4%, reaching EUR 566 million, which is slightly above our initial guidance range. This growth was primarily fueled by the realization of energy from the VOO acquisition, which helped reduce operating costs as well as ongoing efficiency measures across network and corporate functions. Furthermore, our focus on operational excellence allowed us to offset some of the pressure from market dynamics. And finally, the nonrenewal football rights supported the improvement in EBITDAaL. This solid financial foundation demonstrates our ability to generate strong cash flow and maintain a healthy balance sheet. Now let's move to Slide 7 regarding eCapEx. For the full year of 2025, our CapEx, excluding license fee totaled EUR 376 million represented an increase of EUR 2.1% year-on-year. This reflects our continued investment in key strategic carriers. A significant portion of the spending was allocated to the implementation of the renting program, which is critical to optimizing our network infrastructure, accelerating our 5G deployment and reducing our costs. We also invested in upgrading our cable network and began the initial stages of our FTTP rollout. Let's move to Slide 7 -- 10 sorry. Consolidating our results, we can confirm we are well in line with our guidance for the full year of 2025. Thanks to the important efforts we've made, we slightly exceeded our EBITDA guidance and achieved EUR 566 million, as said, which is slightly above the range between EUR 545 million and EUR 565 million. And with an amount of EUR 376 million in eCapEx, we are exactly in the middle of our bracket, which was between EUR 366 million and EUR 385 million. All in all, we have well achieved the guidance we had established beginning 2025. Let's move to Slide 12. Looking forward in 2026, we expect an increase in our EBITDA by around 3.5% in comparison to 2025. And we also forecast a decrease of our eCapEx and that will reach approximately EUR 360 million. I'd like to conclude this presentation on a more personal note because today marks my final conference as CFO here as I'll be taking the role of CFO of Orange France as from April 1. I'd like to say how honored I've been to serve as CFO during this pivotal years for Orange Belgium. It's been a pleasure to engage with the analyst and investor community over the past few years. Thanks for challenging us and pushing us to do better and a special thanks to the most dedicated among you who continue to follow us despite the lower liquidity of the stock. I'm very proud of what we achieved together with the team over the years. We strengthened Orange Belgium financial profile and profitability. We've always been very disciplined on execution and we have now a clear road map for sustainable value creation. I'm absolutely fully confident that Orange Belgium strengthened by the acquisition and the successful integration of VOO is very well positioned to tackle all the challenges ahead and I wish all the best to the Executive Committee and all the teams. With that, I'd like to conclude my presentation, and we'll be more than happy to answer all your questions. Koen Van Mol: Thank you. We will now the Q&A session where you have the opportunity to ask questions regarding the results. Operator, may I ask you to open the floor for questions. Operator: [Operator Instructions] First caller, please go ahead. David Vagman: David Vagman for ING. The first one on the 2026 EBITDA guidance. So can we discuss its key building blocks? So looking at incremental cost savings synergies, pricing revenues and also football rights. I guess it's quite some degree of uncertainty there, but what have you modeled basically there? So that's my first question. Second one, you talked a little bit about the fiber investment and FTTP investment. Should we expect significant start, maybe not in 2026, but then when should we expect, let's say, then to come and you have the drop in RAN sharing investment. But so basically, how should your CapEx evolve in the coming years? And then the last question, maybe more for Xavier, looking multiple commercially and strategically. So what are you hoping for Orange Belgium in the long term? So when you joined, I think you were very bullish on fixed and market share, if I remember correctly. Now of course, you have a high chance of achieving very significant wholesale fixed revenues in the South. So has your view changed on what Orange should do or not do? Antoine Chouc: Okay. So I'll maybe take the first 2 questions, and then I'll leave Xavier answer to your third question. Regarding the main building blocks of our EBITDAaL growth expected for next year. Clearly, the main driver is an increase in VOO's -- synergies coming from VOO acquisition. We're still -- we still have some room for such an increase over -- and I think we will reach kind of plateau for this synergy in 2028. But so we still expect a growth of, let's say, EUR 15 million of synergies next year that will fuel our EBITDAaL growth, and we have many other cost efficiencies that will also help us on top of these synergies. We will also be helped by a slight increase that we expect in our service revenues. 2026 will be the year where we will be back to growth. It will be fostered by the good commercial dynamics, especially on mobile, but also thanks to the price increase that we announced that we launched and implemented at the beginning of the year. And yes, football rights could also contribute to this EBITDA growth, but is there still some uncertainty as you know, regarding whether or not it will be renewed and at what price. There are still discussions ongoing, and we will be more than happy to continue the distribution of this football rights for our clients. We can do that. We will only do that if we can reach a good and healthy financial agreement with DAZN. When it comes to CapEx, as you can see, we announced and we commit on a decrease of our CapEx for next year. So clearly, we will start -- we will increase our FTTH deployment, but it will remain quite limited in 2026. So no big change expected. It will be -- it will still be year for some kind of a preparation to lay the ground for an acceleration from 2027, 2028. So we will have an increase in our FTTH rollout pace from 2027. And maybe I can let Xavier answer to your third question. Xavier Pichon: Thanks, David, for your specific question. On the goal we've had, I would say, 5 years ago, actually, this is exactly what we did. So we did what we announced. Of course, we did it for most of the numbers while we acquired VOO in the South. When we arrived 5 years ago, we were a whole buyer for the nationwide, I say. Since we bought VOO, now we became full MNO in the South, which is not, of course, the case in the North. But we're happy with Wyre and Telenet, of course, in the North, but this is not the same, I would say, situation between the -- between the 2 regions. In the South, we are quite now a core leader with roughly 40% market share on the fixed and convergent area. So this is what we aim to do in the sales. And now, of course, nationwide, we need to deliver also growth -- organic growth in terms of net acquisition, which was not the case in '25. You're right, I would say. And this is something also we've chosen to do pragmatically, seeing the market, seeing, of course, the value-driven strategy we're having since now years, okay, we decided not to, I would say, follow others and to make sure that the value generation was according to our plan. So of course, this is something we also -- we worked on through the head now. We see most of the peers also generating volumes on lead-ins. This is, of course, what we did, but we decided to smooth a little bit thanks to the value policy we're having. Operator: Ladies and gentlemen, we currently have no questions coming through. [Operator Instructions]. Well, there are no further questions. So I will hand you back to Koen to take questions from the webcast. The floor is yours. Koen Van Mol: We still have some questions on the chat. So the question is twofold. Could you please zoom in on the time line to operationalize the fiber collaboration with Proximus? And second question, the mobile -- zoom in on the mobile competitive situation overall and specifically the evolution of the churn rate to Digi. Xavier Pichon: So maybe on the first one. So we are having, I would say, some discussion with the authorities here in Belgium locally, of course, BIPT and ABC. So this is something we are, I would say, working on at the moment for the South, of course. There is also requirement on the market, depending on the North as well. So this is something we have worked on as well. So we are not, I would say, be on the driver's seat for that, but this is something that has been discussed with the authorities. Normally, they should give a statement on these agreements by the end, I would say, by the end of the year of '26. So of course, this is something we are waiting. And then afterwards, we'll see, of course, how to make sure to implement this agreement as soon as we can. For the question #2, Digi? Koen Van Mol: The mobile competitive situation overall and focus specifically on Digi. Xavier Pichon: So on the market, this is maybe a bit different on the mobile side because you know that since Digi came, I would say, at the end of '24. So we've put a dedicated policy to make sure that our market share will be, of course, sticking to what it was previously. So we decided to align hey, I would say, to the first Digi offers late '24 and early '25. Since the -- I would say, not so present in the market. So we decided to join the value policy we are having, I would say, broadly, including of course, the fix we've just discussed, but also on the mobile side. So this is why we haven't seen, honestly, so much churn from Orange to Digi so far. So this is something, of course, which is very scrutinized within the company. So, so far, I would say, so good for Orange. So this is it for the moment and we see, of course, for '26, what will happen on this dedicated market. Koen Van Mol: Okay. In the meantime, another question came in. So are you seeing much fiber deployment from Digi? Do you think Digi will be credible FMC competitor over the medium term? Xavier Pichon: I think in Belgium people who are familiar with -- so this is something that is organized, I would say, locally. So we are dedicated. We are having -- all the peers are having dedicated tools, technical tools where we need to announce and of course, say what we will do in terms of fiber rollout and all the civil works. So yes, we see Digi, coming in some dense areas in, I would say, around some cities. But this is not something we are focused on, actually. We are having our own strategy. We are having our own now 4 gigabit and modernized network in the South. We are relating -- we are related to Wyre and Telenet in the North. So this is something that is, of course, very precious for us as we are having the most, I would say, integrated and gigabit proposal nationwide, of course, with satellite on top. So we are much more focused on what we are doing actually. Koen Van Mol: And another question from the chat. Any comments you can make on the mobile and fixed ARPU in 2026? You have said you hope to go back to growth on service revenues. Antoine Chouc: Yes, sure. As you know, we don't disclose our ARPUs anymore and of course, not forecast in our ARPU evolution. But what I can say is that, yes, we plan to be back to growth in B2C retail despite the market pressure and we -- that's -- and we are quite confident that we'll be able to achieve this goal. I would say a low single-digit growth. Xavier Pichon: But back to growth. Koen Van Mol: Okay. There are no further questions in the chat. So we can conclude this analyst call. We would like to thank you for your participation. Would you have any follow-up questions, please to contact the IR team for any additional questions you may have. Thank you very much, and have a good day.
Nancy Llovera: Good morning, and welcome to Axtel's Fourth Quarter 2025 Earnings Webcast. My name is Nancy Llovera, Axtel's Investor Relations and Corporate Finance Manager. And today, I am joined by Armando de la Pena, Chief Executive Officer; and Adrian de los Santos, Chief Financial Officer. Financial information for both Axtel and Controlado Axtel, including the unaudited fourth quarter report, is available on our corporate website. We will begin today's session with an overview of our business performance followed by a Q&A segment. For your convenience, this webcast is being recorded and will be available on our website. Before we begin, please note that today's discussion may include forward-looking statements. These statements reflect management's current views and expectations and are subject to risks and uncertainties that could cause actual results to differ. Axtel assumes no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. With that, I will now hand the presentation over to Armando. Armando de Pena: Thank you, Nancy, and thank you all for joining us today. I wish you well this year. Before reviewing our financial results, I would like to comment about fourth quarter and full year performance as well as opportunities we see for our business. Results in the fourth quarter capped a year in which we generated the highest annual operating cash flow in our history. Fourth quarter performance faced a tough comparison versus a strong fourth quarter 2024, particularly in EBITDA. A 14% increase in Government segment revenues helped offset marginal declines in the Enterprise and Wholesale segments. For the full year, we increased revenues, EBITDA and generated $80 million in cash flow. Even excluding the extraordinary first quarter cash flow related to the execution of the conclusive agreement with a major mobile customer, cash flow still improved more than 20% year-over-year, demonstrating our commitment to financial discipline and shareholder value creation. The year presented challenges in closing new projects as customers remain cautious amid economic uncertainty. Although we expanded the Enterprise segment opportunities pipeline by 24%. New contract acquisitions remained similar to 2024 levels. Services such as cybersecurity were particularly affected by slower adoption of new offerings and upgrades by clients. Overall, customers' technology and telecommunication investments were focused mainly on cost optimization rather than capacity expansion or modernization. Mixed performance across the enterprise segment business lines resulted in 3% growth, moderating from a stronger growth achieved in 2024. Mobile services delivered a robust moment with revenues expanding by over 50%. And IT services posted a solid growth of 13%. These gains were particularly partially offset by a more modest growth of 1% in the telecom services and a decline in cybersecurity revenues. Notably, the 1% growth in telecom services significantly outperformed overall industry trends, highlighting the resilience of the core business despite a challenging market environment. The decline in cybersecurity revenues reflects a difficult comparison to the extraordinary performance achieved in 2024 as well as a softer demand conditions across the industry. The Government segment delivered a solid fourth quarter following a year with limited new public acquisitions and auction opportunities, which were mostly restricted to renewal of ongoing services. Performance for the year was well balanced with recurring revenues growing at 22% and onetime revenues increasing 24%. During the year, we continued the implementation of the new platform for the digitalization of our international trade documentation in Mexico, contributing to the growth of our recurring revenue. This initiative is particularly meaningful as it emphasized Axtel growth in advancing the digital transformation of international trade in Mexico and reinforces our commitment to delivering innovative high-value solutions. The Wholesale segment had a very positive year with revenues growing close to 20%, supported by a contract with a major hyperscaler customer. Our new Querétaro Texas fiber optic route deployed in 2025 is expected to continue generating opportunities for infrastructure and capacity sales, capitalizing on the next-generation low latency network with more than 5x the capacity of competing routes. Axtel announced a collaboration agreement with McAllen Data Center, MDC, to strengthen digital interconnection along the Mexico United States border through the integration of MDC Center 2 as Axtel's new primary point of presence in Texas. This alliance represents a significant step in meeting the growing demand from operators, enterprises and digital platforms requiring greater density, neutrality and stability in the cross-border connectivity. As part of our artificial intelligence strategy, Axtel established a strategic alliance with SimplyAsk, a Canadian company specialized in AI-driven automated solutions. This partnership adds virtual assistance and intelligent agents into the iAlestra's portfolio, solutions characterized by rapid flexible deployment and immediate results. Organization effectiveness remains a key factor in our artificial intelligence and business agenda, require the mix of talent, experience and diversity of perspectives. General diversity has been a strategic priority for many years, and it's embedded in certain trade agreements. In 2025, women represented more than 25% of the workforce with strong representation at senior leadership positions. Looking ahead, the 2026, the organization will evolve following the planned retirement of 2 executive directors. As part of this transition, the enterprise and government commercial organization will be consolidated after a single executive leader. And all artificial intelligence initiatives will be centralized within one team under the executive leadership of commercial development. We remain committed to maintaining an agile and efficient organizational structure aligned with evolving needs of the business in 2026 and beyond. In 2025, we strengthened our infrastructure to capitalize on the increased demand of AI-driven data transport between the United States and Mexico. We also diversified our U.S.-Mexico connectivity portfolio by linking our Cancún network to Trans American Fiber TAM-1, submarine cable, providing an alternative route to the U.S. East Coast and Central and South America. Likewise, our new generation Querétaro Texas route is expected to bring meaningful business opportunities in the years ahead. In 2026, we aim to continue outperforming industry growth by focusing on cross-sell and upsell opportunities, particularly with our top accounts. In the Government segment, we will pursue multiyear projects to expand our base of recurring revenue. For Axnet, we will enhance connectivity toward the U.S. and promote high-capacity services, particularly wavelengths, driven by hyperscaler data centers and artificial intelligence. We will maintain our financial discipline, increase cash flow generation and continue building stronger business and financial platform in the best interest of our shareholders and all stakeholders. I will now turn the call over to Adrian for additional remarks and discuss Axtel's financial results. Adrian de los Santos Escobedo: Thank you, Armando, Nancy, and good morning to all participants. Last year, we prepaid $55 million of our syndicated bank loan using cash generated from operations. In addition, we refinanced nearly $90 million more through a new 10-year loan with Bancomext, shifting our debt profile to 60%, 40% pesos and dollars, respectively. Our goal is to align our debt currency mix with that of our revenues. In 2025, we generated approximately 20% of our revenues in dollars, which are generated in both pesos and dollar. Notwithstanding the higher proportion in peso-denominated debt, which carries a higher interest rate, we estimate $45 million in interest expenses for 2026, a $5 million reduction compared to last year, resulting from the debt prepayments achieved in 2025 and the more favorable interest rates environment expected for 2026. During the fourth quarter, Fitch Ratings upgraded the company's credit rating from BB- to BB with a stable outlook. This reflects expectations of continued delevering and solid cash flow generation. We will maintain active engagement with both rating agencies to ensure that their assessments accurately reflect Axtel's strong operating and financial performance. For 2026, we expect ongoing economic uncertainty and anticipate that clients will remain cautious in their technology and telecommunications investment decisions. We're continuing to advance the development of artificial intelligence-based solutions supporting clients who are primarily focused on optimizing their operations. Internally, we will concentrate resources on the business lines with the strongest demand and maintain strict discipline in our spending and investment decision. Under this scenario, we estimate revenues of MXN 12,850 million and comparable EBITDA of MXN 3,800 million. We expect capital expenditures of approximately $83 million and cash flow generation of more than $60 million. Based on these estimates, our net debt-to-EBITDA ratio should reach approximately 2x by year-end. For budgeting purposes, we are using an average exchange rate of MXN 18.65 per dollar. I will now move on to review our financial results for the fourth quarter and full year. Fourth quarter revenues decreased 1% year-over-year, while full year 2025 revenues increased 7%, reflecting solid performance across all 3 business segments. Enterprise revenues declined 3% in the quarter, mainly due to a 10% contraction in IT and cybersecurity services following extraordinary licensing and equipment sales recorded in the prior year. Within IT, hosting and systems integration revenues grew 30%. Telecom revenues were stable year-over-year as solid performance in managed networks and mobile services revenues offset the expected decline in collaboration services. For the full year, enterprise revenues increased 2%, supported by 6% growth in IT and cybersecurity solutions and a 2% increase in telecom services, driven by strong results in connectivity, managing networks and mobility, exceeding telecom industry performance. Voice revenue declined 6%, representing 7% of this segment revenues. Government revenues grew 14% in the fourth quarter, driven by a 59% in recurring revenues. Full year revenues increased 22%, supported by a similar increase in recurring revenues, reflecting the company's successful strategy to renew 99% of expiring contracts and expand service penetration among existing federal customers. Revenue mix consisted of 70% federal and 30% state and local entities. Wholesale infrastructure revenues decreased 5% in the quarter, primarily due to a lower volume of upfront high-capacity contracts in this period. However, for the full year, revenues increased 19%, driven by strong demand from high-capacity contracts due to AI-related data transport and increased data center connectivity. Even excluding extraordinary revenues from the conclusion of our workout agreement with a mobile customer in the first quarter, revenues will have registered double-digit growth in the year. Fourth quarter cost of revenues, excluding depreciation and amortization, decreased 5%, resulting in a contribution margin improvement to 66% compared to 65% a year ago. Enterprise segment costs declined 9%, reflecting stronger margins in IT and cybersecurity services. Government segment costs increased by 2% with margin expansion supported by greater proportion of recurring revenue. Wholesale segment costs increased 5%, reflecting lower margins in the quarter. For the full year, cost of revenues increased 5% with lower enterprise costs offset by higher government and wholesale costs, probably aligned with the revenue trends. Contribution margin remained stable at 71%. Commercial and operating expenses are allocated to the 3 business segments, while corporate expenses remain centralized. Commercial and operating expenses increased 35% in the quarter and 11% for the full year, mainly due to the extraordinary bad debt provision benefit recorded in the Wholesale segment during the fourth quarter of 2024, creating an unfavorable comparison base. General corporate expenses increased in the quarter and for the full year, driven by higher personnel expenses. Higher personnel expenses were influenced by labor legislation changes and an extraordinary pension provision benefit recorded in 2024. Excluding these effects, company-wide personnel expenses will have increased 6% in the year. EBITDA reached MXN 833 million in the quarter, a 30% decline compared to fourth quarter 2024, reflecting lower contribution from the business segments and higher corporate expenses. For the full year, EBITDA increased 3%, supported by contributions across all 3 business segments affected by higher general corporate expense. EBITDA margin stood at 31% for the year. CapEx totaled $86 million, equivalent to 13% of total revenues compared to $72 million in 2024, equivalent to 11% of revenues. The increase mainly reflects an extraordinary investment related to the new Querétaro-McAllen fiber optic deployment and the renewal of a 15-year fiber optic lease ensuring the long-term resiliency and competitiveness of our network infrastructure. Cash balance at year-end reached $73 million compared to $39 million at the beginning of the quarter. Fourth quarter cash flow was positive $40 million and full year cash flow was positive $80 million, resulting from $196 million in EBITDA, $20 million in positive working capital, $86 million in CapEx and $49 million in interest expense. Additionally, we recorded $71 million debt reduction in the year. Year-end net debt stood at $456 million with a net debt-to-EBITDA ratio of 2.3x compared to 2.5x a year ago. And with this, we conclude the presentation and open the call for questions concerning both Axtel and Controladora Axtel. Nancy Llovera: [Operator Instructions] Our first question comes from [ Miriam Toto ]. Unknown Analyst: Can you hear me? Nancy Llovera: Yes. Armando de Pena: Yes. Andres Coello: Okay. Sorry, this is Andres Coello with Scotia. I think you are projecting very little revenue growth for this year. It seems like a conservative projection. And I'm wondering if that is a direct response to weak economic conditions. So I'm wondering if you can just discuss a little bit what you're seeing in terms of corporates willing to adopt IT solutions and how the economy may be affecting your outlook for this year? Adrian de los Santos Escobedo: Thank you for your question, Andres. In summary, I could say that the corporate clients are taking longer to make decisions. They used to take decisions in a month or 2 months or so or a certain period and now that has doubled sometimes and in cases even delay until further notice. Particularly, as you said, at least in our case, in services or solutions that require evolution, require to upgrade but not necessarily inflicting any pain today. So increasing capacity, if the network is saturated, that's not delayed at this -- or that's not being delayed what we saw last year but operates in cybersecurity, for example, that's taking longer for corporate clients to make decisions. So yes, definitely, there is a more conservative approach. Clients are coming more with the request of how can we help them optimize their operations. We're not seeing significant expansion in new retail, new branches of banks, new locations, which obviously more locations, more presence means more services for our industry. So that's more or less what we're seeing in the economy. We're not seeing a market, an industry that's stagnant. It's just a slow business environment that has been prevailing since last year. Andres Coello: Okay, Adrian. And regarding the Infrastructure division, do you see the possibility of any other major projects for perhaps telephone companies or also the big data consumers or AI-related projects, et cetera. How do you see the Infrastructure division? Armando de Pena: I will take that one, Adrian. Thank you. Our current new fiber from Querétaro-McAllen, is the only one with a new technology and all the new requirements in order to communicate the data centers of Texas with Mexico mainly. So that brings us an excellent opportunity to capitalize, as you were asking. We are very active with customers that could rely on this connectivity. So we do see opportunities on that as well as the alliance, the commercial alliance that we did with Trans American fiber for the East Coast of the U.S. and South America. So we are in a much better position for hyperscalers and big carriers, and that's mainly explained with the increase in CapEx because we are investing in the future demands, as you said, of AI and data center. So yes, we do see opportunities. But this opportunity sometimes take months to [Foreign Language]. Adrian de los Santos Escobedo: To crystalize. Armando de Pena: Sorry, to crystalize. So we do see for the second semester that we could achieve some opportunities there. Nancy Llovera: Our next question comes from Emilio Fuentes. Emilio Fuentes: And I was wondering what is your take on the competitive environment in the Enterprise segment. And in that context, what are Axtel's competitive advantages given the increase in importance it has gained also for the other large integrated players? Adrian de los Santos Escobedo: Could you repeat the second part of your question, please, Emilio? Emilio Fuentes: Yes, that competitive environment and Axtel's competitive advantages and given how this sector has gained relevance for other large integrated players in the country. Adrian de los Santos Escobedo: Yes, sure. The competitive advantage has been tough. Always there is -- there is a participant that holds a significant market share. But nonetheless, we've been able to compete since the inception of Alestra and Axtel. Today, what we see is customers are looking for reliable partners, are looking for post service interaction. We have seen clients that might go away and come back sometime later because price was maybe an attractive decision maker, but both service was not necessarily what they were expecting. So what I can say is we're dedicated B2B company. Second, we have an extensive network that provides the foundation for all the connectivity or database solutions that it's the base layer on which we add services like cloud, IT, managed services, obviously, cybersecurity. So we leverage our infrastructure to continue adding solutions and services that have more attractive or have greater growth opportunities. We, obviously, over the so many years that we have been in operations, we have maintained a large number of certified engineers that when you're dealing with major brands in our industry, you need these certifications in order to deploy, to install and to maintain services. So we have that environment in Axtel that, obviously, we think we are a very attractive competitor in the industry, and we've been maintaining that position for a while. I don't know if that answers your question, Emilio. Emilio Fuentes: Yes. Nancy Llovera: We have another question from the Q&A function. What are your refinancing plans and timing for that? Adrian de los Santos Escobedo: Thanks, Nancy. We started this refinancing process last year, first of all, by reducing debt that's the most efficient way to refinance debt. And on top of that, we were able to secure as informed a 10-year loan in pesos that shift the percentage of our debt in higher proportion in pesos now. And this year, we will expect to conclude the last piece of the refinancing where we would take out all maturities that come due in 2027 and 2028. We expect to do that this year. Hopefully, we can be able to execute before the end of the third quarter. Nancy Llovera: Thank you, Adrian. There are no further questions at this time. Thank you all for your interest in Axtel and for joining us today. If you require any additional information, please feel free to reach out. Have a great day.
Operator: Ladies and gentlemen, welcome to the Soci�t� G�n�rale conference call. Gentlemen, please go ahead. Slawomir Krupa: Good morning, everyone, and thank you for joining us today. I'm very proud to report strong performance numbers for 2025. As a result, we are upgrading our 2026 target for profitability and confirming all other CMD targets as well. 2025 was a defining year. We set new records for revenues with EUR 27.3 billion and for group net income, which reached the EUR 6 billion mark. The successful transformation sets the stage for us to sustain long-term profitable growth. Significant improvement in our financial results in 2025 cuts across all metrics, outperforming the targets we upgraded in Q2 '25. Our revenues were up by almost 7%, excluding asset disposals. That's more than double our target of more than 3%. Even more remarkable is that all our businesses contributed to the strong performance. As you know, our commitment to reduce our cost base, both structurally and significantly is absolute. The proof point here is the 2% decrease in costs, excluding asset disposal over the past year. That's that 2% is far better than what we targeted, which was a decrease of at least 1% and it translates into a cost-to-income ratio of 63.6% in 2025, an improvement of more than 5 percentage points over the last year. Keep in mind, this is also better than the 2025 target we set of a cost-to-income below 65%. Cost of risk is within our guidance at 26 basis points, reflecting the strength of our asset quality and our capacity to effectively manage risks across the cycle. All of this has significantly boosted our profitability with a ROTE reaching 10.2% for the year and 9.6%, excluding capital gains on disposals. This is above our 2025 target of around 9%. These earnings allowed us to further strengthen our capital by 20 basis points. CET1 ratio now stands at 13.5% after Basel IV regulatory impact and after the extraordinary distribution of EUR 2 billion through 2 additional share buybacks. As a result, the Board has decided to propose a total ordinary distribution of EUR 2.7 billion, up 54% compared to 2024, including a dividend per share of EUR 1.61 and a share buyback of EUR 1.462 billion. Let me put all this into perspective. These results underscore the priorities we established 2.5 years ago and have consistently executed on ever since. Our first decisive step to significantly strengthen the bank's capital. ensuring us both ample capital buffers as well as means to support our growth. Today, with a CET1 ratio of 13.5%, the group is fully dedicated to fostering a sustainable long-term growth and consistently creating value for shareholders. Our second strategic priority to enhance efficiency. The decrease in our cost-to-income ratio of more than 10 percentage points versus 2023 is a significant accomplishment. We still have a lot more work to do, and we will do everything to make sure this positive trend continues. Third, to significantly improve profitability. In 2025, we achieved exactly that. Our ROTE is now more than 4 percentage points higher compared to the 2018, 2022 average. results, sustainable value creation is now a reality with a total shareholder return of 237% over the past 3 years. As I mentioned a moment ago, all our businesses contributed to the strong performance. First, French Retail, Private Banking and Insurance recorded strong revenue growth of 4.2% versus 2024, restated for asset disposals and the impact of short-term hedges. It was driven by a pickup in the net interest income and also by a record high assets under management, both in life insurance and private banking activities, where Bank gained 1.9 million new clients, and that brings its total close to 9 million. It is leading the market as a fully fledged bank with average client maintains a balance of around EUR 9,000 in assets under administration, remained profitable for a third year in a row, proving the strength and sustainability of its business model. BIS had a record year in terms of revenues, delivering another excellent performance with a high RONE of 16.7% under Basel IV. The result of our strategy, Global Markets continue to deliver current and predictable revenues reaching in 2025, a 16-year high and with a high RONE above 20%. FMA increased substantially its origination volumes at a high marginal rate of return, thanks to increased capital velocity. Business also benefits from strong positioning on key sectors like energy and infrastructure. Within International Retail, KB and BRD consistently demonstrated solid commercial performance with the successful optimization and continued digitalization of their respective distribution networks. And last, our teams at Ayven have done an outstanding job managing all the challenges that come with a complex integration. That integration is progressing as planned, and our decision to focus on profitability and risk management has resulted in a steady margin improvement throughout the year, but also allowed Ayven to maintain a sound position while reaching its 2025 financial targets. In light of this performance, the total distribution for 2025 will amount to EUR 4.679 billion, a growth of 169% versus last year. On ordinary distribution for 2025, we are proposing a dividend per share of EUR 1.61, of which EUR 0.61 were already paid in October 2025 through the introduction of our first interim dividend. As a result, the final dividend of EUR 1 per share will be paid in June 2026, subject to the AGM approval. All in all, the total dividend per share represents an increase of 48% versus last year. Our ordinary distribution also includes a share buyback of EUR 1.462 billion, up 68% versus last year. We have already obtained the ECB approval for this program. There's no change in our ordinary distribution policy with a 50% payout ratio, an interim dividend and a balanced mix between cash dividends and share buybacks. In terms of extraordinary distribution, as you know, in 2025, the group launched 2 extraordinary share buybacks for a total amount of EUR 2 billion. Please note here that in the resolutions, authorizing share buybacks is mandatory to include a maximum purchase price. The resolution voted during the last AGM when the share was around EUR 40, maximum purchase price authorized was EUR 75. Therefore, as the share price reached the maximum purchase price authorized by shareholders, we had to pause the buyback launched in November 2025 to remain compliant. This does not change our capital return strategy. And obviously, we will submit a new resolution to the next AGM to increase this limit substantially. Going forward, distribution of excess capital will continue to depend on our capital allocation decisions. And as stated last year, in the best interest of shareholders, we are proactively managing our capital above 13% CET1 ratio. This may include both extraordinary distributions and disciplined profitable growth. We will address potential extraordinary distribution once a year during the release of the Q2 results. At the same time, we will continue to apply strict capital allocation criteria towards the most profitable businesses. Given our current capital position, we are increasing our RWA growth target for the businesses. And in 2026, we expect an organic RWA growth of around 2%. Now our 2026 targets reflect our continued focus on value creation through growth, operating leverage and sound risk management. Execution of our road map to date leads us to upgrade our ROTE target versus the one set at the CMD in 2023. So for 2026, we expect an NBI growth above 2% versus 2025 on a reported basis, a net cost decrease of around 3% versus 2025 on a reported basis, cost-to-income ratio below 60%, cost of risk within the 25, 30 basis points range. And finally, a ROTE above 10%. In 2026, we will continue to deliver solid revenue growth plus strict cost discipline. We expect revenues to grow by more than 2%, driven by strong commercial momentum across all businesses. We'll support that growth by allocating higher levels of capital to the most profitable businesses. Revenue growth will also benefit from a strong decrease in BoursoBank's planned acquisition costs as we target a net profit above EUR 300 million in 2026 at BoursoBank. Global Markets revenues are expected to be above the top end of the guidance range between EUR 5.1 billion and EUR 5.7 billion. This new range is in line with our former guidance actually as we fully consolidate Bernstein U.S. starting January 1. And of course, cost control remains a top priority for the group. We're confident in our ability to further reduce operating expenses by around 3% in 2026. What makes this possible is our ongoing group-wide transformation process. Now at the business level, all of our 2026 financial targets are confirmed. As mentioned before, the Global Markets target is adjusted for the consolidation of Bernstein U.S. and is now between EUR 5.1 billion and EUR 5.7 billion. It's also consistent is our resolve to pursue these goals with precision, determination and a strong sense of discipline. I will now turn things over to Leo, who will review our Q4 performance. Leopoldo Alvear: Thank you, Slawomir, and good morning, everyone. Let's now deeper dive deeper into the details of Q4 '25 performance. The group's net income stands at EUR 1.4 billion, up 36% versus Q4 '24, resulting in a ROTE of 9.5% versus 6.6% in the same period the previous year. These solid results are supported by the continuation of the strong commercial momentum in all businesses as well as by a tight discipline over costs. Looking more closely, revenues are up 6.8% versus Q4 '24, excluding disposals, well above our natural target of above 3%. Meanwhile, costs fall further in absolute terms, down by minus 1.4%, excluding asset disposals and confirming, therefore, our constant cost control. As a result, our operational leverage improves further, the cost to income of 64.6% in Q4 '25, down from 69.4% in Q4 '24. Asset quality-wise, the cost of risk remains contained at 29 basis points within our annual guidance of 25 to 30 basis points. Let's move now to Slide 12 to further explain the main revenue and cost drivers in Q4. Group revenues increased by 6.8% in Q4 compared with the previous year when removing for comparison purposes, around EUR 325 million of revenues related to completed disposals. In French Retail, Private Banking and Insurance, revenues grew by 7.9% in Q4, excluding disposals. The increase is mainly driven by NII, which is up by 8.5%, excluding asset disposals. In Global Banking and Investor Solutions, revenues eased by 2.3% compared to a very strong Q4 '24, which was the best quarter ever in Global Markets. Revenues in Mobility, International Retail Banking and Financial Services were up by 8.6% versus Q4 '24, excluding disposals. Finally, revenues at the Corporate Center grew by EUR 157 million, supported by efficient management of our liquidity position. Regarding costs, operating expenses, excluding disposals, declined further by 1.4% this quarter. Group reports a structural cost reduction of EUR 89 million, which more than offsets the EUR 26 million of higher CTA. Moving on to cost of risk on Slide 13. Cost of risk stands at 29 basis points in Q4 '25 and 26 basis points for the whole year '25. This is in the lower range of our through-the-cycle guidance. Cost of risk this quarter mainly comprises Stage 3 provisions, which accounts for EUR 435 million and remained broadly stable versus Q3 '25. In Stage 1 and Stage 2 provisions, we had a limited net reversal of EUR 26 million, which conceals our prudent approach. As a result, total outstanding Stage 1 and Stage 2 provisions remained high at EUR 2.9 billion and stable from last quarter. Asset quality remains solid, as illustrated by the NPL at 2.8% in Q4, broadly stable when compared with last year and last quarter. And finally, the net coverage ratio remained high at 82% in Q4 '25 and stable versus Q3 '25. Let's now turn to Slide 14, where we can see the evolution of our strong capital position. The CET1 ratio closed at Q4 at 13.5%, which is 320 basis points above NPA. The ratio also reflects the minus 27 basis point impact from new additional share buyback of EUR 1 billion, which we announced and started executing in November. Before adjusting the additional buyback, the CET1 ratio increased by 9 basis points from Q3 '25, reflecting the following impacts shown from left to right in this slide. Retained earnings contributed with 16 basis points after accruing a 50% payout. RWA valuation represents an impact of minus 1 basis point. We had minor regulatory adjustment that had an impact of 5 basis points. And finally, other impacts account for 1 basis point. In addition, as you can see on the bottom right-hand side of the slide, all other capital ratios are comfortably above the regulatory requirements. On Slide 15, liquidity reserves remained high at EUR 318 billion in Q4 '25 with a relatively balanced mix between cash and securities. The liquidity profile of the group remains strong with strong sound liquidity ratios. The LCR ratio was 144% this quarter, and the NSFR ratio was 116%, both well ahead of regulatory requirements and in line with our steering targets. 45% of the 2026 long-term funding program has already been completed. We maintain good access to liquidity in all currencies on the back of strong long-term ratings from all agencies. The deposit base remains strong, granular and highly diversified. Overall, the loan-to-deposit ratio remains at 77% at group level. On Slide 16, we show a summary of the P&L for the group for Q4 '25, which we will cover in more detail in the following slides. Let's move now to the individual businesses on Slide 18, starting with subject network, private banking and insurance. In Q4 '25, loans outstanding increased by 1% compared to last year or by 2% if we exclude state-guaranteed loans, this is PGEs. Corporate loans production was sound and increased 19% versus Q3 '25. Outstanding deposits fell 3% versus Q4 '24 but increased 2% versus Q3 '25 in the context of continued strong growth of retail savings and investment products. These off-balance sheet products contribute to the continued strong momentum in overall asset gathering. On one side, AUM in private banking increased by 9% versus Q4 '24, we adjust for disposals and reached EUR 137 billion at the end of December '25. This is EUR 2 billion higher than at the end of September '25. On the other side, life insurance outstanding reached EUR 158 billion, increasing by 8% versus Q4 '24 or by EUR 5 billion versus Q3 '25, thanks to continued strong net inflows. Moving now to BoursoBank. In Q4, BoursoBank acquired a record number of 575,000 new clients. Since Q4 '24, it represents an increase of 1.9 million new clients or 22% with a consistently low churn rate, which remains below 4%. Assets under administration continued to grow steadily, reaching EUR 78 billion at the end of December or around EUR 9,000 per client. This represents an 18% increase versus Q4 '24, thanks in particular to the continued strong increase in deposits of 15% versus Q4 '24. Similarly, life insurance outstandings increased by 13% versus Q4 '24. Bank also saw record high openings of brokerage accounts, which grew by 25% compared to the previous year. On the lending side, total loans outstanding are up 9% versus Q4 '24. Looking now at the whole pillar on Slide 20. Retail Banking, Private Banking and insurance posted a solid increase in revenues of 4.2% versus 2024 when we exclude disposals and the impact of short-term hedges. And this included a sound 3.1% growth in NII. At the same time, operating expenses fell by 3.9% from '24, excluding disposals. As a result of both, the jaws widened significantly. And therefore, the cost-to-income ratio, it stood at 61.1% in 2025, represents a substantial improvement of 10 percentage points from 76.4% in 2024. All in all, net income lands at EUR 1,815 million for the year or up 80% versus 2024 with a ROE above 10% under Basel IV versus 6% last year under the previous Basel III standards. Let's move now to Global Markets and Investor Services on Slide 21. Global Markets consolidated a fairly strong year in 2025 with revenues reaching a record since 2009 of EUR 5.98 billion, while growing 2.7% versus 2024 in constant currency. In Q4 '25, revenues eased by 8% versus Q4 '24. Equities posted 5% lower revenues, affected by a high base in Q4 '24 and currency headwinds. Performance also reflected the lower commercial activity in Europe and Asia as well as our geographic mix, where Europe and Asia represent around 3/4 of 2025's total revenues. However, if we focus on the Americas, where market conditions were more conducive, we posted a very strong performance with revenues up by 24% versus Q4 '24. In fixed income and currencies, revenues fell by 13% from an also very strong Q4 '24 and affected by negative currency impact. Performance reflects as well the more challenging commercial dynamics in rates products, notably in Europe. Lastly, Securities Services revenues grew by 3% versus Q4 '24 on the back of sound activity levels and the continuation of a strong commercial momentum in all the main markets. Let's turn to Slide 22 on the evolution of Financing and Advisory. Again, it maintained a very strong performance with revenues growing by 5.1% versus Q4 '24. This strong momentum is even more visible when focusing on Global Banking and Advisory, where revenues grew by 8.6% versus Q4 '24, accelerating from last quarter. It represents our best quarter ever, driven by the solid performance in financing activities, combined with the continuation of good momentum in both originated and distributed volumes. In addition, our DCM and ECM franchise delivered one more quarter of sound revenue growth. Lastly, in Transaction Banking and Payment Services, revenues declined by 5% versus Q4 '24 due to negative interest rates and currency impacts. That, however, shadows the good underlying commercial momentum and the continued growth in deposits. For the whole of 2025, GTPS total revenues eased marginally by 1.2% versus 2024. Moving now to Slide 23 for the overall view of GBIS pillar. You can see that GBIS recorded record revenues this year at EUR 10.4 billion, growing by 2.6% versus 2024. That combined the 1% growth in Global Markets and Investor Services with a 5% growth in Financing & Advisory. Moreover, we managed to grow our revenue base while maintaining our strict cost discipline showed by reduction in operating expenses by minus 1% versus 2024. The results just widened and the cost of -- cost-to-income ratio improved 2.3 percentage points from 64.4% in '24 to 62.1% in '25. At the same time, cost of risk remained moderate at 18 basis points in '25. So all in all, GBIS posted a net income of EUR 2.9 billion in '25, up by 3.7% versus '24, which translates into a high ROE of 16.7% under Basel IV. Let's now focus on International Retail Banking in Slide 24. Overall, revenues improved by 2.7% versus Q4 '24 at constant perimeter and exchange rates. Europe posted a solid commercial momentum in both countries with an 8% increase in loans outstanding and 7% in deposits versus Q4 '24 at constant perimeter and exchange rates. The revenues were slightly down 1% at constant perimeter and exchange rates with lower fees in the Czech Republic compared to an exceptionally high Q4 '24 level. Situation is different in Africa. Outstanding loans and deposits were broadly stable versus Q4 '24 at constant perimeter and exchange rates, while revenues increased strongly by 9% in the same period, driven by strong fee income growth. On Mobility and Financial Services in Slide 25, the revenues increased by 11.7% in Q4. At constant perimeter, this is excluding staff. Ayvens revenues grew by 15% versus Q4 '24 on a reported basis, while when adjusted for depreciation and nonrecurring items, they fall by 8% -- this evolution reflects the continued normalization of used car sales results as anticipated. In Q4 '25, the results per unit sold was EUR 702 compared to EUR 1,267 in Q4 '24. On the other hand, the margin increases to 567 basis points in Q4 '25 or 26 basis points higher than in Q4 '24. This highlights the continued ramp-up in synergies and the strategic focus on profitability and asset risk. In 2025, Ayvens successfully reached all its financial targets, delivering total synergies by EUR 360 million, while the average UCS results for the full year '25 stand at EUR 1,075 per unit. This is at the high end of the EUR 700 to EUR 1,100 guidance. And the cost-to-income ratio was finally 56.1%, better than the guidance range of 57% to 59%. Regarding Consumer Finance, the business delivered a solid revenue growth of 5.9%, thanks to better margins. In Slide 26, focusing on the whole MIBS pillar, you can see that revenues increased by 6.1% in '25, excluding disposals and FX impacts, notably driven by Ayvens. Costs in '25 fell by 3.3% versus '24, excluding also disposals and FX impacts. The strong positive jaws evolution drove a substantial improvement in the cost-to-income ratio from 59.6% in '24 to 54.2% in '25, highlighting the strict cost discipline across the pillar despite the high inflation in certain geographies and the additional banking tax in Romania. Cost of risk improved from 42 basis points in '24 to 33 basis points in '25. And all this led to a net income of EUR 1.5 billion in '25, increasing by 28% after disposals and FX adjustments. This translates into a robust ROE of 13.9% in '25, up versus an 11% in 2024. To conclude with the quarterly results, let's move on to Slide 27 with the Corporate Center. In 2025, revenues increased by more than EUR 160 million, thanks to continued efficient liquidity management and improving funding conditions. Operating expenses in '25 include EUR 100 million related to the global employee share ownership program recorded in Q2 this year, which compared to only EUR 3 million in '24. In addition, the accounting impact for the various asset disposals closed this year, mostly SG Equipment Finance, Private Banking in Switzerland and the U.K. generated a positive impact accounted in net profits or losses from other assets of around EUR 300 million. On a quarterly basis, revenues increased by more than EUR 150 million for the same reasons I just mentioned for the full year, while costs are up by around EUR 50 million compared to a very low base in Q4 '24 and more in line with the quarterly historical average. I now give back the floor to Slawomir. Slawomir Krupa: Thank you, Leo. 2025 has been a year of accomplishments for the group in ESG as well. We are maintaining our pace and continuing to deliver on the commitments that we have set both in the decarbonization of portfolios and in the opportunities we see to support our clients with sustainable finance. Emerging leaders of the energy transition see us as a partner of choice. We are now deploying the EUR 1 billion investment envelope established at the CMD to support innovation in this sector. We have joined forces with partners like the EIB or the IFC to help design the best solutions to address the challenges of the environmental transition. Our Scientific Advisory Council helps us stay ahead in this world of rapid change. All these efforts have been recognized by external stakeholders. They have been upgraded to AAA by MSCI, making us 1 of only 2 major European banks to have received the star ESG rating. In conclusion, 2025 was a defining year for us. strong improvement in our performance, we still have a lot more work to do to realize our ambitions. Our objectives are clear and our progress is consistent, and we remain focused on delivering on the upgraded 2026 targets, and we will give you more details on the next phase of our plan during our CMD on September 21. Thank you very much, and let's now start the Q&A [Operator Instructions]. Operator: [Operator Instructions] The first question comes from Flora Bocahut of Barclays. Flora Benhakoun Bocahut: Yes. The first question I wanted to ask you is specifically on BoursoBank Bank because I think you said in the presentation that this is your third year in a row of being profitable, if I got it right Bourso. Could you give us a number because you give us the net profit target for next year -- I mean, this year, '26 of EUR 300 million, but so we have an idea of how big a swing this could be for the profit in French retail and at group level. And the next question is a broader question. I don't want to preempt, obviously, the September CMD, but I can't ignore either that you're not running at 1x the tangible book and you have this ROTE that is upgraded for this year, but still at 10% plus. So we need to start to have a better understanding on where it could go into the next 2 to 3 years. So can you maybe -- anything you can tell us there? What you think is plausible over the next 2 to 3 years? What can get you there would be helpful. Slawomir Krupa: Thank you. On BoursoBank, the short answer is no. We're not providing this number, but I'm, of course, going to try and give you a little bit of color. We have said minus EUR 100 million at the CMD, minus EUR 150 million of GOI to support the growth ambition. It has actually been positive. And -- but think about it as with 1.9 million additional new clients this year, you can see or feel that it can't be a big number because the level of our investment in client acquisition was very high, 1.9 million is, if not the best ever in terms of growth, close to it, right? So basically, it's been positive. So huge improvement over the minus EUR 150 million GOI that was initially our thinking. But obviously, at the annual level, not something that is very significant at this point. So the EUR 300 million improvement in terms of net income is the important number here, and it's a very strong commitment that we have for 2026. In terms of the CMD, so as mentioned in the presentation or in the past, we have basically close to double the our reported ROE, ROE performance if we compare the current performance versus the average of 2018 to 2022, for instance. So first spoiler alert, we're not going to double in the next phase of the plan. So that's one thing. But equally, you should take comfort in what we've done so far and in the way we try to speak about ourselves. So when we say that we do firmly intend to close progressively yet decisively the gap with our most comparable peers, you should build your reasoning around that, right? And we are committed in terms of the means to continue, and I know it's clear in the numbers to continue reducing our cost base regularly through deep transformational change in the way we operate the business in efficiency, right, in terms of sustainable cost savings because they are based on seeking out efficiency gains first that result in cost reductions, while growing and remember, growing not like in the phase we're in right now or finishing right now, meaning with a lot of fixing to do from a capital perspective, a lot of constraints, self-imposed constraints on, for instance, organic growth, right? These things because of our capital position right now are behind us. And so we will be able in a very controlled way, very mindful of risk management strategy and commitments from this perspective, but we will have means to sustain healthy levels of organic capital allocation to the most profitable business, right? So the combination of all this, an absolute commitment in terms of cost and efficiency with an ability to support and sustain basically higher level of profitable growth will be the main ingredients of the next plan. Operator: The next question is from Tarik El Mejjad of Bank of America. Tarik El Mejjad: A couple of questions on my side. First, on the -- on costs, just taken on the previous question. I want to go all the way to the plan, which I understand that cost will be a pillar -- cornerstone of your strategy. But looking at '27, I mean, you said '26 cost will be down, but there's still some effect of 3% effect of disposals. '27 will be a cleaner year from that aspect of scope effect. Should we still expect cost to go down in '27 versus '26? I mean you've talked in your introductory remarks about continuing trend and relentless effort to pursue that. So can you give an indication on '27? And on capital return, I mean, you took a decision to do it once a year in -- your competitor yesterday brought up FLTB as a kind of still a question mark, similar to what you've been doing last year, actually same time. Are you also factoring in into your buffer as potentially still a possibility that it will be a headwind? If not, doing the math as usual, you will be at 13.6 7% in Q2, keeping a small buffer, there is still a EUR 2 billion headroom of buyback. I mean you've asked for EUR 1.5 billion for the full year ordinary buyback. Is EUR 2 billion not too much to ask ECB in one go? I'll leave it there. Slawomir Krupa: All right. So first of all, thank you, Tarik. First of all, I have to present the cost number for '26 is a pretty clean one. because actually, it is in reported, obviously, as everything we do, right? And everything is on a reported basis. And we will not have major differences because most of the disposals were closed early last year. And so the 3% cost reduction in 2026 is actually a pretty clean number and doesn't benefit substantially from perimeter changes. So that's one. Second, on 2027, well, let me put it this way, right? It obviously depends also on the growth and the other opportunities that we will have. But certainly, what you should take away from these conversations is that we are committed to operating leverage, right? So imagine a 2027, which is very buoyant in terms of growth. Obviously, maybe the cost base doesn't go down in absolute terms. But definitely, we are deeply committed, should we experience higher levels of growth to a significant value creation through operating leverage. Now if everything continues as it was in the last few years, yes, further cost reductions are likely. It remains the bedrock of the improvement that we will continue to execute on in terms of transforming the group. As far as capital distribution is concerned, first, you should think about this decision, right, to discuss this at Q2 as the reflection of the fact that -- and I want to say this very clearly, this is a strategic decision for us, right? Last year, we had to make it a couple of times because we were getting out of a phase, which was, as you know, completely different, one of saving capital, one of restricting distribution, et cetera, et cetera. And because of all the progress we had made, we were able to shift quite rapidly from one, let's say, regime to a different one. But it is always a strategic decision, like I said in the past, between organic growth, return to shareholders or inorganic growth opportunities. And so from this perspective, we believe that this, let's say, once a year communication on this topic, the idea that this is a strategic decision. It's not an accounting decision that we make during closing. Oh, we have this excess capital, let's just dispose of it immediately right now. I think the pace for strategic decisions is the one we're setting here. So it's not about some logistics in terms of approval. At the end of the day, obviously, we have a very deep permanent dialogue with the supervisors who have insight into long-term capital projections and understand our trajectory at a very deep level. So it's not about logistics of approval. It's really about this idea that we have, and frankly, from a logistics perspective, we haven't even completely finished the share buyback from November. We're having an ordinary one coming our way right now. The dividend payment, et cetera, the decision -- strategic decision on exceptional distribution in Q2 and so on and so forth. So that's how you should think about this. Operator: The next question is from Giulia Miotto of Morgan Stanley. Giulia Miotto: I have 2. If I look at your target for '26, so first of all, taking a step back, you beat '25 where you had already upgraded the target. And so '26 doesn't seem particularly difficult to beat, especially on the cost side. So can you give us some color on how comfortable are you with these targets? Any initiatives, especially on the cost side that gives us conviction that you can do minus 3% or even more? And then secondly, F&A was quite high in the quarter. And you talked about financing activities led by infrastructure, transportation and fund financing. So is there -- when we forecast looking forward, is there any seasonality we should keep in mind? Was this an exceptional catch-up booking of some deals you had in the pipeline? Or yes, is it basically your growth strategy in this business coming through, and we should expect more of the same going forward? Slawomir Krupa: Thank you. Thank you very much. Listen, on the -- whether the minus 3% target is easy or difficult, Well, I'll leave that, obviously, with everybody on the call to make their own mind, but I'm going to still share my view. I mean, we're talking about 3% absolute decrease on a reported basis, and as I said earlier, without major perimeter changes. So from where we are, I mean, it's a fairly ambitious target. Let me put it this way. Now you do have our track record. So do we have the habit of giving you stretched targets that we're not going to meet? No, right? On the base case scenario, we do definitely intend to meet this target. If we can do better, we will. But again, right, I think it is an ambitious target from where we sit. We are doing everything we can to make sure that we will deliver on this, let's say, in normal circumstances. But on the cost side, I mean, normal circumstances are the rule. How -- it's everything we've already been doing. But as we go, right, so be it technology, efficiency of the technology spend, be it organizational changes that allow us to operate the same process better actually in the interest of everybody, both internally and externally in the interest of clients, getting a smoother client experience, working on efficiency and deepening the work on efficiency across the entire group through new programs, new ideas, et cetera, as you may have seen in the press recently. So it's really the continuation and the deepening of the work group-wide that we have been doing on efficiency throughout the group, right? And so this will continue to deliver not only actually in 2026, but it's going to be a process which we intend to make basically permanent to make sure that the company operates as close as possible to its highest potential in terms of efficiency, right? So that's the spirit here. And then some technicalities, you will have lower CTA expenses because we -- for the program that we had during the CMD, we've spent most of the CTA already. So there's a marginal spend to come in 2026. So that also supports the trajectory. But fundamentally, it's all the work we're doing. And as you may have seen in the latest adjustment project of adjustment that we announced and filed with the unions in France, we are also very careful to optimize execution, right? And for instance, this leg of our efficiency plan comes with no CTA, right? It's important to also recognize that pattern, which is -- not only are we working hard, but also trying to make sure that overall, right, overall, the expense stays under control and is optimized even in terms of the CTA itself. For the F&A question, you should think about this as -- no, there's no particular accumulation of closings or things like that. It's a genuine pretty wide momentum within this business, which, as you know, of course, has been historically a growth engine of GBIS and with a very good risk return profile. And it will continue as such with a very controlled approach in terms of risk still. But yes, it is an investment spot, a natural and very efficient investment spot for organic RWA growth, and it yields substantial marginal rates of return. Operator: The next question is from Delphine Lee of JPMorgan. Delphine Lee: So my first one is on your comments around '26, the 2% increase in RWAs, which is clearly a little bit of an acceleration. It looks like, I mean, volumes are still somewhat very moderate in France and feed volumes at Ayvens also are sort of still going down. So just wondering kind of like if you could give us a bit of color where that's coming from and where do you intend to step up a little bit growth? And my second question is on Global Markets. I was just trying to understand, if you take a step back, why compared to not just U.S. peers, but like some of the French peers, the trends have been a little bit weaker this year. Is that sort of less risk taking from your side? Or any color on how we should think about the trends going forward as well? Slawomir Krupa: Thank you. So on the 2% RWA increase on an organic basis allocated to businesses. So yes, it is an acceleration. Like I said earlier, one of the means that we have now is this one to support our growth in a very reasonable way. So I agree with you. The loan growth in France, especially on the retail side, should remain positive, but not very dynamic in 2026. In terms of the Ayvens opportunities, I would point to a slightly different statement, which is what we have done this past 2.5 years was to focus on a very significant merger, which we discussed in the past, but also on making sure that the business adjusts itself to both some rate environment and margin compression trends and working a lot on the margin on striking the right contracts on making sure that we do the right thing from this perspective, that we protect the value basically from a margin perspective, and you've seen the results of that. And the second piece is obviously risk management in a world which in these businesses was potentially challenged by some of the shifts in residual value or in all the electric vehicles topics, right? And so we've been very conservative from this perspective, precisely to come to, let's say, the new phase, both done with the restructuring, done with the integration, which will more or less be achieved during 2026, but also at the same time, have a very healthy base to resume growth, right? So while it shouldn't be an extremely high pace, let's say, in 2026, Ayvens is clearly well positioned today to be also an investment spot from this perspective. Now -- moving on. Clearly, International Retail has the capacity to deploy capital in a good way, in an efficient and profitable way. And finally, GBIS, starting with F&A, financing and advisory, but also within the cash management business as well can do better and will be one of the preferred spots for investments and again, providing high marginal returns. So that's the story on the organic growth. And your second question on Global Markets. It's really -- I mean, if you take a step back, it's a mix of -- if you look at the entire year, we're talking about the very good performance, which is the best revenue generation in 16 years, one. Two, and consolidating in 2025, which was a high point. And we're now close to EUR 6 billion, as you have seen. So that's one. Two, we've discussed this in the past. There is a perimeter, a business mix difference between us and a lot of our peers in the following way, right? One, we have exited commodities a way back and commodities were a driver of performance this quarter. Two, fixed income in our house is weighted towards rates and towards Europe more than the other jurisdictions. Three, we have prime brokerage businesses, which are smaller or substantially smaller than some of our peers. And so whenever the market dynamic is one which is particularly favorable to this business, you will always see us basically slightly different from this perspective. We are investing there. We are progressing, but in a very controlled way. But today, if you take a snapshot, it's a much smaller business at our shop than some of the others. And finally, our share in the business mix in terms of the U.S. business is also smaller, obviously, than our American peers, but also our competitors more actively, but also when you compare to some of our European competitors. And so when you combine all of this, you have most of the difference of Q4. But again, within a year, which has been good. I'm not going to go through some technical aspects. There is still some of that day 1. I mean, we were actually very dynamic in producing some of the solutions that carry negative day 1 accounting as they are originated when the origination is more dynamic stronger, right? But this is like a couple of percentage points, let's say, of difference since we're at minus 8% and the others are basically plus 5% in Europe. The rest of the gap is almost entirely explained by business and geographical mix differences. Two last comments on this topic. one, our U.S. business has grown in dollars. Remember also that we're reporting in euros, has grown 39%, which is actually well above the market average even in the U.S. So just showing you how we operate there successfully, but it's a 20%, 25% share of our Global Markets business. So that's one. And the last comment is going to your risk consideration and capital consumption consideration. Yes, in the last 5 years, we have dramatically turned the way of doing this business. And while reducing by a 20%, 30% our market risk RWA. We discussed that in the past, even much more so stress test consumption. We have been able to grow this business at a controlled pace with much lower capital allocation and a high ROE of 20%. I gave it all so that you have all the facts. Operator: The next question is from Jeremy Sigee of BNP Paribas Exane. Jeremy Sigee: My first question is just continuing on the Global Markets discussion, if we could. The guidance is unchanged at a level that's lower than both the 2025 run rate and the consensus. Is that just maintaining the existing target? It's conservative. It doesn't mean much you could well be better again? Or is there any kind of directional significance in that number that you're maintaining? And then a different question on Ayvens, the UCS results are normalizing down. And both from your comments and from their comments this morning, the indication is it could continue to go lower in 2026. And I just wondered, is that taken into account in your own guidance, including the 2% revenue growth? Slawomir Krupa: Thank you. So first topic on the markets, Global Markets target. So yes, I mean, we don't want to touch this at this point. So we simply adjusted for the perimeter change, if you will. And this is how we're ending up with that 5.7% top of the range. We're also saying that in our base case, we should be above the top of the range in 2026. So that's what we're saying, right? And the indication that you should, in my view, take from these statements is that we recognize and facts support this recognition that this is a target which -- target range, which has been conservative in a world which was, again, to say the least unusual if you compare the last few years versus, let's say, the previous decade. And so today, we think that, again, while maintaining this range, adjusting it for the perimeter change, we're also giving you the color that we believe that in a base case scenario, we should be above the top of the range in 2026. In terms of the UCS, it's exactly what you said, right? It is decreasing substantially, and we do forecast at this point that it will continue. And yes, this is taken into account in the projections, including in the growth projections and every other aggregate. Operator: The next question comes from Chris Hallam of Goldman Sachs. Chris Hallam: So I guess a couple of questions for me. A little bit of a follow-up on the markets. I think Slawomir great explanation as to how the footprint differs. I just wanted to take it forward a level. Do you feel any need to further address that sort of footprint imbalance versus the industry more broadly aside from what you've already done in Bernstein, i.e., you want to grow faster in the U.S., put more balance sheet to work, expand the product offering in FICC? Or should we just sort of assume that you're comfortable with the footprint and the plans you already have in place? And the reality is some quarters that will be a bit of a headwind versus peers and other quarters, that will be a bit of a tailwind. So that's the first question. And then second, it seems as though there is a bit of a sort of growing tech spend arms race across the industry, and you mentioned your real focus on transformational change in the way that you operate and how you become more efficient by design, I guess. With that in mind, there were some press headlines recently suggesting you've decided to focus your in-house AI infrastructure around Copilot. So just can you help us understand what the relative financial and nonfinancial advantages are of pivoting to a completely off-the-shelf solution versus the alternatives? Slawomir Krupa: So on -- the first question, on markets, I think a few -- it's a very important question. Thank you. So one, yes, unreserved, yes, we are continuing to work on the footprint. And you have some anecdotal at least, if not more, evidence of that through some of the hires we've made in fixed income, for instance, through some of the investments we're making through what I said earlier about continuing investments in the -- our prime brokerage business through also historically a real push to grow our business in the Americas and obviously, in the Americas, in particular and mostly in the U.S. So yes, we are -- and Bernstein is the other example that you gave, of course. And so yes, we are continuing to work on all these fronts to balance the business more from a mix perspective. and in order, yes, to make it both bigger over time, but also more -- even more diversified basically. But so far, it's exactly what you described. And actually, if you look at the patterns over the last few quarters and years, it were -- these were sometimes headwinds like in Q4 2025, but sometimes significant tailwinds when we were in some of the years of more significant trends and moves on the rate markets and in particular, in Europe. So it's exactly what you described, but we are working on making it different. Just one, for instance, example is the U.S. business is now double the size it was 10 years ago. in a very diversified, in a very sound way, which points to my last comment on the topic, right? Nothing will be done in terms of investments and execution on these investments in a hasty or oversized way. I'm explaining myself. In the past, we've tried that, right? We've tried that let's have this very big program to increase very substantially the fix size, and we're going to be competing with everybody across all the sub-asset classes, et cetera, never worked, right? So what we're doing right now is very controlled, slow progress, both to make sure, right, that we don't destroy profitability as we invest -- that's one. But two, that the investments are successful, right? And I don't believe in big moves, except when we had the opportunity to buy Bernstein, we did it. But I don't believe in, let's say, huge accelerations, revolutionary accelerations in organic investments in the market. That's not working usually. And when we're trying to do something right now, we're trying to make sure that this is going to work. That's for the market. In terms of the AI question and internal off the shelf, et cetera. I mean it's the idea more accurately that you need to use the best tools available at the moment in time where this whole AI opportunity and potentially threat, et cetera, is still partially unclear, right? Today, what works is effective summary and translation of text, effective extraction of data from large pools of more or less structured data and where it really works is indeed in IT services and coding, et cetera. These are the 3 areas where this new technology is actually able to perform at scale at a high level of reliability. And I remind you that in our business, the level of expectations from supervisors on, for instance, model validation is extremely high, right? So building on that, clearly, we prefer to use something which has a proven capacity to enhance the adoption, the understanding and the work on these topics in the somewhat still infancy stage of this technology. And from this perspective, we felt that it was much more efficient to use, again, an outside proven reliable tool at this point in time. Now as you may know, if you're interested in topic, you may have read, we have also created a specific structure dedicated to, let's say, the research on these topics and to the selection of the biggest at-scale opportunities in terms of efficiency or cost reductions, et cetera, to make sure that all this, let's say, bottom-up interest and activity is channeled towards value creation, right? And that we have a level of control on the underlying costs that obviously this whole revolution potentially carries with itself. So it's a combination of we have our own internal approach to look at the use cases and at the opportunities, et cetera. But yes, trying to use the best of the breed in terms of technology. Operator: The next question is from Andrew Coombs of Citi. Andrew Coombs: If I could have a follow-up on Global Markets. You mentioned in answer to Jeremy's question that the EUR 5.1 billion to EUR 5.7 billion range is purely because you left it unchanged, but your base case is that you expect to be above that range. With that in mind, can you just confirm the sub-65% cost/income ratio target for Global Banking and Investor Solutions, is that predicated on the EUR 5.1 billion to EUR 5.7 billion? Or is it predicated on your base case that you're going to be above that range? That's the first question. Second question, France, net interest income, another big improvement in the net interest margin Q-on-Q. Perhaps you can just elaborate on if there was anything one-off in that NII result? And also how you expect the net interest margin to trend going forward into 2026? Slawomir Krupa: So on your first question, so again, maybe a precision. The range is what it is. It's proven to be on the conservative end in the last few years, again, in markets which were in the end, particularly conducive for this business overall for the industry and for us. So the idea that today, we're saying that we, in a base case scenario, expect to be above that range, it's a little more than just a target discussion. It's a sense of what we think will be the market conditions and our ability to navigate them in 2026. So it's an indication of where we think we will be in 2026. Now in terms of the relationship between this target and the cost-to-income target of GBIS, it is predicated on -- in the end, to keep it simple, on our budget, right? So on what we see as being our operational target and on the basis of which we communicate the annual targets for the group. So that's the underlying process, right? And so you should take away that it's based on this range, but it's not based on the low end of that range. It's based on the budget. And since I also gave you a sense of what the vision we have for the year, I think you have all the pieces to make your judgment. So that's that. In terms of the NII in Q4, you have a few things. There's no one-off. There's no one-off. It's the full effect of the Livret A repricing down, which happened in August. So you have that. You have a good momentum in deposit gathering and the deposits are up 1.5% versus Q3 '25 in the French retail pillar. And you have the continued process of repricing of the back book, right? And so the combination of all these things and in a loan growth dynamic, which was fairly stable, but with a slight price effect, which was positive because you have basically commercial loans marginally down, individual loans marginally up, overall stable, but from a pricing perspective, a slight tailwind. So you have the pieces that explain the Q4 dynamic, which is indeed positive. Going forward, what we expect is basically a continuation of moderate growth trend because now there is no more perimeter effect, right? Because in 2025, we still have a perimeter effect linked to private banking, which is within that pillar. We no longer will have that in 2026. So you have no more hedges, of course, no more perimeter impact and something which would normally be a continuation of this trend, which is moderate tailwinds supporting moderate growth, which will also obviously depend on the macro dynamics in France, which at this point in time, we forecast to be in terms of loan growth, typically a slight increase during the year. Operator: The next question, sir, is from Joseph Dickerson of Jefferies. Joseph Dickerson: One question on the assumptions behind the greater than 10% return on tangible equity. If I look at the range that you have for markets revenues, if we assume the 10% return on tangible is the floor, does that assume, for instance, that the floor on market revenues is at the bottom end of your range? So in other words, if you were to print greater than the EUR 5.7 billion, we could assume a return on tangible above that. So I'm just trying to calibrate the bottom end of your ROE range, which, let's say, is 10% versus the bottom end of your markets range if the 2 can be compared. So that's question number one. And then question number two, is on how you define your balanced payout between DPS and share buyback? Because if we look this year, it was 45-55 in favor of buybacks. And then I think last year it was 50-50. Could it be 40 divi and 60 buyback next year? I guess, how do we think about calibrating that going forward? Slawomir Krupa: Thank you. Thank you very much. On the first question, so once again, our targets overall, the targets that we disclose here and commit to for the year are based on what we target operationally and the process that underpins this is obviously the process of budgeting. So the 10% ROTE target, above 10% ROTE target is not based on the bottom range of the market target. It is based on the target that we have for the year, and I commented upon that earlier saying that right now, we believe that it's going to be at the slightly above top of the range. So that's how you should think about this, right? Now slightly above top of the range, it's still less than what we've done this year. So just to make sure that this is clear, if we were to have a year better than 2025, it would support, obviously, mechanically, the performance from a group ROTE perspective. But that's how you should think about the targets are our best view of what we're going to achieve next year. So that's for the first question. And the second one, sorry, I'm blanking out. Okay, the distribution. So 55 -- 45. So first, the balanced mix between dividend and share buybacks was -- we were clear in the past about this was always something which meant that we had a leeway between basically 40 and 60 indeed to fine-tune the decision when it is made by the Board at the end of the year. So indeed, right, balanced means it's between 60-40, 50-50 as a base case scenario, but between 60-40 both ways, if you will. This year, the calibration, I mean, was simply -- you have a few inputs into the decision. One is the growth rate of the dividend. Two is the buyback opportunity in the context of a certain price to book. And the choice was made that with a 48% increase in dividend and the share where they traded, this seemed within the policy that I just referred to, the right choice. Operator: The next question, sir, is from Pierre Chedeville of CIC Market Solutions. Pierre Chedeville: Yes. One question regarding BoursoBank. I was wondering if you think that maybe you have to revise your future plan regarding investments and particularly marketing investment, considering the strong competition, particularly from one of your peers, which is targeting 10 million clients, I think, in 2027. And I was wondering if at the end of the day, your target of EUR 300 million in 2026 will remain at this level for the coming years because of this investment to counterattack this type of competition? My second question regards protection and P&C revenues, which are quite stagnant this year compared to last year. While when we look at our competitors, they are rather in good shape on this area. So I was wondering why it's not so good for you? And are you trying to hide, I don't know, but something like a bad combined ratio, for instance, can you give us a few numbers regarding undiscounted combined ratio in these 2 businesses, Protection and P&C? Slawomir Krupa: Thank you. So on the first question of basically the decision, the arbitration between growth and profitability. From a strategic standpoint, this is a growth asset. I was always very clear about this. This is why we took the decision at a time where we had lots of challenges, but we still took the decision in 2023 to continue investing substantial amount of money, energy and support to grow this asset. Now the growth at BoursoBank is not only about the number of clients, right? And we've been also very consistent providing some color about the assets under administration, which have simply nothing to do with most of our peers and certainly the one that you have in mind. And we have spend a lot of time and efforts also deepening the product offer, making sure that as a full-fledged bank, it can support customers in every single area of their banking needs and be able to do it at the highest level of client satisfaction and for the year in a row, BoursoBank remains the leading bank in France in terms of client feedback. And in terms of -- which also is reflected in a very low churn, which, again, despite the very dynamic acquisition of clients almost doubling in the last few years, you have a churn rate, which is substantially below 4%. So the point I'm making here is what we care about is that this bank right? This full-fledged bank with a complete product offer and a very high culture in terms of client satisfaction continues to deliver the service. The number of customers is a headline number, which in the end doesn't mean anything, right? Because what you really want to do is to provide the right service and generate the long-term profitability that you can extract from that particular business. So we're focused on this. Now is there going to be a slowdown in expenses in 2026, in particular, yes. But that doesn't mean that there's going to be a mechanical effect, one-for-one mechanical effect in terms of growth because obviously, we're not also static in the way we think about client acquisition and in the way we think about managing, let's say, this cycle of growth, which is going to continue way past 2026. I hope that gives you some color. On the protection side, there's -- let's say, I mean, in the end, you have choices to make, right? There are a lot of products in a bank that is -- that are offered to the customers. And you're focusing on this particular one, which has been basically stable. The premium are basically stable year-on-year. But you could point to the other piece of the insurance business, which is the investment piece, life insurance, where for a second year in a row, our pace of asset gathering is twice our market share, right? And we're leading the market from this perspective in a very substantial and meaningful way. So this is how you should look at this, right, that we make choices, including from a commercial standpoint. across all the businesses in French Retail in particular, has nothing to do with combined ratio, which is more than comfortable. Operator: The next question is from Matthew Clark of Mediobanca. Jonathan Matthew Clark: A couple of questions, please. Firstly, on the fee revenues in the French retail banking business. I mean, I think you've just described that the acquisition cost part of that is going to be coming down next year. But if we set that aside, does the 2% organic growth that you reported this year, is that a kind of good run rate for you? Or are there tailwinds or headwinds to that, again, if we set aside the BoursoBank acquisition cost aspect? And then other question is on the transaction banking business. in financing and advisory. Is the lower rate impact now digested there? And just your thoughts in terms of the outlook here. You had a very strong period of growth, but seems to be slipping a bit more recently. Slawomir Krupa: Thank you. So on your first question, I mean, you got it right. I think the base case scenario is the stability around the numbers that you have in mind. That's the base case scenario for the fee income with a substantial -- if you dig into the details, a substantial increase, as you would imagine, in terms of the financial fees, more than compensating a slight decrease in service fees, completely aligned with what I said earlier. And to your point, setting BoursoBank aside, the underlying trend should be this one. In terms of the transaction banking, yes, most, if not all of the effect of the rates obviously reducing and decreasing and thus impacting the NII generated in that business. So that trend is mostly behind us for 2026. And remember, on the flip side, it's a business which we have been investing in for the last now, I would say, 8 years. And we absolutely are determined to continue to invest in this business, both commercially and in terms of the technology that is used there. But like everything else we do in a controlled way and making sure that there's both an ability to self-finance, so to speak, this growth, but also that the returns remain meaningful. But from a rate perspective, the headwind that it was in particular, in '25 is mostly behind us. Operator: The next question is from Anke Reingen of RBC. Anke Reingen: The first is just on the core Tier 1 ratio at year-end 2026. Can you just talk about your thinking why is now specified at above 13% versus the 13% before? And then when you come to the second quarter and assess your potential extra distribution, what factors would you take into account? And should we look at the base last year, the EUR 1 billion or EUR 2 billion as a base basically? And then maybe just lastly, a tricky one, I guess you have the Capital Markets Day only in September, but is capital distribution another area that could be a topic? Slawomir Krupa: So if I forget something, let's -- please remind me, right? So first was CET1, so the fact that we added a little sign. So don't read too much into this, right? It's just like think about above 13% as 13.00001 is above 13%, right? Just to be clear, I mean, it was just a way of confirming that we do not intend in normal circumstances as a general rule to ever go below 13%. But it doesn't -- absolutely doesn't mean that there's any kind of accumulation above 13% as a matter of strategic intent. Second question is -- I'll take the last one first because I remember it. So would distribution and capital policy be a topic for the CMD? Yes, of course, right? There should not be a major surprises from an intent, right, from a general strategic approach, which is above 13%, we consider we have excess capital that we intend to use either in organic growth or in exceptional distribution or in inorganic growth. But of course, you will get much more color on these topics and a perspective that will cover the plan the plan -- the entire plan, right? So I think there's going to be a lot of content. But again, with the strategic thinking framework, which will remain unchanged. In terms of the one or EUR 2 billion in Q2, basically, well, we'll discuss that in Q2, right? Let me put it this way. Anke Reingen: But what factors will you be looking at basically as the capital ratio or... Slawomir Krupa: No, the factors is always the same. Okay. Thank you. No, listen, it's always the same story, right? It's always the same answer. It's -- I want to come back to this and make sure that this part is really heard. It's a strategic decision, right? This is not some everyday housekeeping, right? I have something left on my table, so I'm going to dispose of it, right, the fastest way I can. It's a strategic decision about the strategic resource for the company, right? And so the factors, very simple is the level of capital, the performance, the current performance and the strategic opportunities between organic growth, distribution to shareholders as an exceptional distribution or inorganic growth. Operator: The next question is from Alberto Artoni of Intesa Sanpaolo. Alberto Artoni: I have 2, please. The first one is on the tax rate. What do you expect for the tax rate for next year, also taking into account the changes in French law? And secondly, on the cost of risk on the French retail, what is the outlook there, please? Slawomir Krupa: Thank you. On the tax rate, I'll leave that with Leo. He's going to give you some color. Just one comment on the French context, which is that, as we've said in the past, because of the international nature of our business and the way it is operating mostly locally outside of France and the structure of the head office in France, et cetera, we are not experimenting a massive impact of some of the tax decisions in France. The impacts are rather marginal. But on the details, I'll let Leo answer in the second. In terms of the NCR for the retail in France, -- what you have is something which is fairly stable, as you see in the numbers, and that has a small increase on the SME side, very consistent, very granular, nothing specific and consistent with the increase in bankruptcies that we've seen throughout the year for the SMEs, a trend which is, by the way, decelerating recently, right? So right now, our vision for 2026 is fairly constructive. You have growth, albeit sluggish and small, but still you have growth and you have resilience in the system. So very consistent with the market trends at a granular level, nothing specific, neither from a specific fire perspective or specific sector to report at this point. Leo, on the tax rate, some more color. Leopoldo Alvear: Sure. So basically, in 2025, we've had a tax rate, which has been lower than the one that we had in 2024. That's basically been driven by the fact that we've had quite a few capital gains through the P&L, and those have relatively lower tax rate. So they had an impact on the mix. Now going forward for 2026, I think we're going to have a tax rate which is going to be higher than 2024 because of the reasons mentioned. So this year, we're not going to have so many capital gains coming through the P&L, and therefore, we will not have that mix impact, if you wish. So it will be higher than 2025, most likely will be perhaps lower than the one that we had in 2024. because the mix of our revenues from outside of France are still quite high. So we don't expect any big impact coming from the tax -- the potential tax changes within France for the overall tax rate. So basically, higher than 2025, but lower than 2024. Operator: The final question, sir, is from Sharath Kumar of Deutsche Bank. Sharath Ramanathan: I have 2. So I hear your -- hope I'm audible. So I hear your previous criteria for inorganic growth, but hypothetically speaking, should the relative valuation between SocGen and Ayvens shares turn more favorable for you, would you still be hesitant to buying out Ayvens minorities? In other words, is the residual value risk considering the fast-evolving automotive market, a constraint in your thought process? That is the first one. And second is a small follow-up on the equities question. Can you provide the revenue mix between the various products, i.e., cash equities, derivatives, prime and also by geography? Slawomir Krupa: All right. So thank you. On the inorganic growth question and specifically pointing to the, let's say, theoretical opportunity of buying minority stakes in Ayvens o increase our ownership there. So across any topic of using excess capital, first cornerstone statement, it has to make sense from a financial perspective, it's a decision that we will always take rationally. Is the opportunity good for the company and for the shareholders. So if we're talking about growth, whether organic or inorganic, the question is going to also be -- always be what is the expected marginal return and what is the risk attached to this investment, be it again organic or inorganic. So in that framework, it's clear that especially as at least from a theoretical standpoint, the obvious return of SBB, hopefully, will continue to decrease. You will have opportunities theoretically, like the one that you're referring to in Ayvens that would, in an Excel spreadsheet look potentially more and more attractive for sure. Now the second comment I've made in the past and today, I want to point you to is decisions we intend to make there need to be strategic, right? So today, the thinking is, right, we have control of this great asset, and we can continue to both improve its efficiency, improve its performance and position it for further growth without making from a strategic standpoint, any further investments, right? So I'm not saying never because you never should say never. But today, there is no strategic intent to do this because we believe that between the 0 execution risk share buyback opportunity and organic growth that we are able to do things that are strategically more meaningful for the group and for the shareholders at a level of risk, which we believe is acceptable. So that's how we think about this. In terms of the mix, we do not disclose the overall mix, but I gave you a few ideas in terms of the geographic split, the U.S. overall. So here, I'm not talking about the markets only, but the U.S. overall is roughly 27%, 30%, say, 25% to 30% of the overall GBIS business. In terms of the market, it's more or less the same, 25% to 30% U.S. from a geographical perspective. Then you can imagine a pretty significant weight of Europe and marginal and the marginal -- more marginal representation in Asia, but it's still meaningful, but smaller than the other 2 regions. And in terms of the businesses, what we do disclose is that you have basically a 60-40 more or less split between equities and fixed income. And in fixed income, you need to think about the mix as versus the average market, basically less commodities because there's none. So obviously, less commodities and a credit business, which is smaller and more focused on securitization and private credit than, let's say, on traditional marketable securities credit. So that's the color on fixed income and from a geographical standpoint there, heavy weighting towards Europe and Asia versus the U.S. In terms of the equity, you know that historically, our business has a big focus on the investment solutions, right? It remains true even if as intended and explained 5 years ago when we spoke at the Investor Day for GBIS when I took over, we did grow substantially the flow businesses, both on the equity derivatives side, as well and linear businesses as we call them and as well, notably through the acquisition of Bernstein, the cash equity piece, but we don't disclose further percentages. Thank you. Operator: Mr. Krupa, there are no more questions registered at this time, sir. Slawomir Krupa: Okay. Thank you very much. Thank you, everybody. Thank you for joining us this morning and sharing your valuable time with us. I thank you for your questions, and I wish you a nice day, a nice weekend, and I'll talk to you during the next release for Q1. Thank you very much. Take care. Leopoldo Alvear: Thank you. Bye-bye. Stephane Landon: Ladies and gentlemen, thank you for your participation. You may now disconnect.
Operator: Good day, and welcome to the Molina Healthcare Fourth Quarter 2025 Conference Call. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Jeff Geyer, Vice President of Investor Relations. Please go ahead. Jeffrey Geyer: Good morning, and welcome to Molina Healthcare's Fourth Quarter and Full Year 2025 Earnings Call. Joining me today are Molina's President and CEO, Joe Zubretsky, and our CFO, Mark Keim. A press release announcing our fourth quarter and full year 2025 earnings was distributed after the market closed yesterday and is available on our Investor Relations website. Shortly after the conclusion of this call, a replay will be available for 30 days. The numbers to access the replay are in the earnings release. For those of you who listen to the rebroadcast of this presentation, we remind you that all of the remarks are made as of today, Friday, February 6, 2026 and have not been updated subsequent to the initial earnings call. On this call, we will refer to certain non-GAAP measures. A reconciliation of these measures with the most directly comparable GAAP measures can be found in the fourth quarter and full year 2025 earnings release. During the call, we will be making certain forward-looking statements, including, but not limited to, statements regarding our 2026 guidance, the medical cost trend and our projected MCRs, Medicaid rate adjustments and updates, our recent Florida CMS, RFP win and contract inception, our M&A pipeline and deal activity, upcoming RFPs, our expected future growth, Medicaid, Medicare and Marketplace membership levels, earnings seasonality, the transition to Medicaid, Medicare integrated product designs, our G&A costs, our credit facility and the estimated amount of our embedded earnings power. Listeners are cautioned that all of our forward-looking statements are subject to certain risks and uncertainties that could cause our actual results to differ materially from our current expectations. We advise listeners to review the risk factors discussed in our Form 10-K annual report filed with the SEC as well as our risk factors listed in our Form 10-Q and Form 8-K filings with the SEC. After the completion of our prepared remarks, we will open the call to take your questions. I will now turn the call over to our Chief Executive Officer, Joe Zubretsky. Joe? Joseph Zubretsky: Thank you, Jeff, and good morning. Today, we will provide you with updates on our reported financial results for the fourth quarter and full year 2025. Our top line growth initiatives and our full year 2026 premium revenue and earnings guidance. Let me start with our fourth quarter performance. Last night, we reported an adjusted loss per share of $2.75 on $10.7 billion of premium revenue. Our fourth quarter results fell well below our expectations due to continued strong trend pressure in Medicare and Marketplace; and two, retroactive items in Medicaid, which totaled $2 per share. While disappointed in the performance for the quarter, we continue to remain confident in our durable and sustainable operating platform as the rate environment returns to equilibrium. In Medicaid, the MCR for the quarter was 93.5% and was impacted by unfavorable and unexpected retroactive premium rate actions taken by the State of California. Adjusting for these retroactive items, we produced a 2% pretax margin and the MCR was favorable to our prior guidance even as we continue to experience higher utilization of professional office visits, behavioral health services, LTSS and high-cost drugs. In Medicare, the MCR for the quarter was 97.5%. We continue to experience elevated utilization for LTSS and high-cost drugs and slower-than-expected margin improvement in our MAPD product. Finally, in Marketplace, the MCR was 99% which was impacted by elevated utilization and several prior period provider claim settlements. For the full year 2025, we reported premium revenue of $43 billion, (sic) [ $43.1 billion ] representing 11% year-over-year growth. Adjusted earnings per share were $11.03, and our pretax margin was 1.6%, which is below our long-term target range. 2025 was clearly a tale of 2 halves as the company earned over $11 per share in the first half, largely tracking expectations. Trend pressure work against us in each of the third and fourth quarters. Our fourth quarter performance resulted in our full year performance falling below our most recent guidance. As we compare our initial 2025 EPS guidance of $24.50 for our final result of $11.03, nearly half of the underperformance for the year was attributable to the unprecedented trend and increased acuity in our Marketplace segment. A very disproportionate outcome given that the segment is just 10% of our total premium. The rate in trended balance in Medicaid accounted for approximately 1/3 of the underperformance, while the remainder was due to persistent higher utilization in Medicare. In Medicaid, our flagship business, representing 75% of our total premium revenue, we reported an MCR of 91.8% and pretax margin of 2.8%. Rates increased from 4.5% in our initial guidance to 6% for the year, but medical cost trend continually increased from 4.5% in initial guidance to 7.5%, an unprecedented inflection in such a short period of time. 250 basis points of this 7.5% trend is attributable to the acuity shift from membership declines related to the final stages of redeterminations. While we are disappointed in our fourth quarter and full year results, many published reports indicate our Medicaid performance is industry-leading by 300 to 400 basis points in pretax margin. We believe the medical cost trend in 2025 was an aberration, an anomaly by historical standards. The important point, which I will get to in a moment, is what all of this means for 2026 and the longer-term outlook for the business. But first, turning to our growth initiatives. Despite the short-term margin challenges, 2025 was another extraordinary year for securing future growth for our flagship Medicaid business. We continued our successful track record of winning renewal and new RFPs. During the quarter, Molina secured a historic RFP win in Florida where the state awarded Molina, the sole Children's Medical Services or CMS contract. This contract is expected to yield $6 billion in annual run rate premium and is expected to go live late 2026. This award in Florida complements our previously announced contract win in Wisconsin, where we renewed our Wisconsin MyChoice LTSS contract in Regions 2 and 7. The significant win in Florida in our previously announced Georgia and Texas start ship wins represent over $9 billion of Medicaid premium and significantly contribute to our embedded earnings. Since we embarked on this growth strategy, we have achieved an RFP win rate of 90% on renewal contracts, representing $14 billion in retained revenue and 80% on new contracts representing $20 billion of new revenue. We are engaged in active RFPs in several states and have an active pipeline of $50 billion of new opportunities over the next few years. On the M&A side, our acquisition pipeline contains a number of actionable opportunities. The current challenging operating environment is a catalyst for many smaller and less diverse health plans to consider their strategic options. We remain opportunistic about deploying capital to accretive acquisitions. In this temporary period of rate and trend imbalance, we will work to acquire as much Medicaid revenue as possible, as we have done in the past, manage it to target margins. Turning now to our 2026 guidance. We project 2026 premium revenue of approximately $42 billion, which is slightly lower than 2025. The premium growth from the new Florida CMS contract in Medicaid and higher revenues in our Medicare segment are more than offset by the planned reduction in the Marketplace segment. Our 2026 adjusted earnings per share guidance is at least $5. This guidance is burdened by $1.50 of new contract performance of the Landmark Florida CMS contract and a dollar due to the underperformance of our traditional MAPD product. We have determined that the MAPD product does not align with our strategic shift to focus exclusively on dual eligible members in Medicare and we will exit the traditional MAPD product for 2027. After adjusting for these 2 items, our 2026 guidance produces underlying earnings of approximately $7.50 per share. There are 3 aspects of the business that represent significant upside to our guidance. First, our view on Medicaid cost trend could moderate from our initial estimates. Second, Medicaid rates may develop favorably due to on and off-cycle adjustments as they did in 2025. Recall that every 100 basis points on the Medicaid MCR from this current rate and trend relationship, is worth nearly $5 per share. Finally, Medicare and Marketplace are both going through transformations for very different reasons. Our guidance assumes these segments combined for a headwind of $1 per share in 2026, but both contain significant upside as we priced conservatively. Mark will take you through the detailed 2026 earnings guidance build in a few minutes, but let me highlight the major assumptions underlying our $5 per share guidance. In Medicaid, 2026 rates are expected to average approximately 4% and will not offset medical cost trend projected at 5%. This trend outlook for 2026 is comparable to the 2025 trend without the 250 basis point impact of the redetermination related acuity shift. In Medicare, members are transitioning to new integrated product designs, which we expect to produce lower margins in their first year before reaching their full margin potential. Finally, in Marketplace, we made the conscious decision to reduce our exposure and stabilize margins in this highly volatile risk pool, which we expect to yield a 50% decline in our annual marketplace premium. Early enrollment results drove a larger mix of renewal members, which we expect will improve the stability and predictability of our member acuity profile. In summary, our 2025 results did not meet our expectations, but I am pleased with our team's focus on managing through these industry headwinds and producing in the fourth quarter a normalized pretax margin in Medicaid of 2%. There is little question that Medicaid rates and medical cost trends are in balance. We believe our 2026 forecast for Medicaid is the trough for managed Medicaid margins. In this margin trough, we expect that Molina Medicaid will produce a low single-digit margin, not losses, and that the market is underfunded by 300 to 400 basis points. We are confident in the outlook for this business and that rates and trend will eventually reach equilibrium. Even at this low point in the cycle, we remain optimistic about the future earnings trajectory of the enterprise, which is a function of anticipated rate restoration and future embedded earnings. Of note, we anticipate that actuarial soundness will ultimately prevail as Medicaid rates are restored by state actuarial processes, and that will allow us to achieve target margins. This potential is significant as every 100 basis points on the Medicaid MCR is worth nearly $5 per share. Then our existing new store embedded earnings, which represent future contract revenue at average target margins, are additive to the earnings accretion implied by the rate restoration cycle. Embedded earnings are now greater than $11 per share. The intrinsic value of our businesses remains unchanged. Modest capital requirements, mid-single-digit pretax target margins, robust parent company cash flow and ample organic and inorganic growth opportunities will combine to yield significant shareholder value. The cycle will turn and these underlying valuation parameters will again become apparent. Finally, we look forward to updating you on our outlook for sustaining profitable growth at an Investor Day event on Friday, May 8. We will provide you with our long-term goals as well as the detailed playbook for achieving our growth rates and maintaining industry-leading margins. With that, I will turn the call over to Mark for some additional color on the financials. Mark? Mark Keim: Thanks, Joe, and good morning, everyone. Today, I'll discuss some additional details on our fourth quarter and full year performance, the balance sheet and our 2026 guidance. Beginning with our fourth quarter results. For the quarter, we reported approximately $10.7 billion of premium revenue with an adjusted loss of $2.75 per share. Adjusted earnings were approximately $3 below our expectations with approximately $2 driven by unexpected retroactive premium items in California Medicaid and the remainder due to continued trend pressure in Medicare and Marketplace. In Medicaid, our fourth quarter MCR was 93.5%. As Joe mentioned, this result includes both a retroactive risk corridor and a retro rate reduction in California, totaling 160 basis points. Both were driven by new and unforeseen state actions impacting the full year but introduced late in the fourth quarter. Adjusting for these retroactive items, our reported MCR restates to 92.3% and our pretax margin was 2% both better than our expectation for the quarter. For the full year, the reported Medicaid MCR was 91.8% and pretax margin was 2.8%. We take some comfort that even in this unprecedented medical cost trend environment, the stat filings continue to show our Medicaid margins remain best-in-class. Simply put, rates have not kept up with trend over the past 6 quarters. Looking at the stat filings for all MCOs in our markets, we believe Medicaid plans are underfunded by 300 to 400 basis points. In Medicare, our fourth quarter MCR was 97.5% and our full year MCR was 92.4%. Our results for the year reflected elevated utilization of LTSS and high-cost drugs among our high-acuity dual populations. Margin recovery in the MAPD product was slower than we expected. In Marketplace, our fourth quarter reported MCR was 99%, and our full year MCR was 90.6%. In the quarter, the MCR reflected elevated utilization across nearly all services, particularly behavioral health, high-cost drugs and professional outpatient visits and several prior period claim settlements with providers. The adjusted G&A ratio for the quarter was 6.9%, and our full year was 6.5%. Our cost management remains disciplined, and we continue to harvest fixed cost leverage as we grow. Recall, the full year G&A ratio reflects added expense for implementation costs in the new integrated tools products, offset by a reduction in management incentive compensation expense. Turning to the balance sheet. Our capital foundation remains strong. Positive full year earnings continue to add to our capital base and drive parent company cash via dividends. In the quarter, we harvested approximately $337 million of subsidiary dividends and our parent company cash balance was approximately $223 million at the end of the year. RBC ratios, which test the level of capital at the subsidiary level compared to regulatory requirements, are 305% in aggregate, more than 50% above state minimums. In November, we closed a bond offering of $850 million of senior notes due 2031. The proceeds were used to repay the outstanding term loans and general corporate purposes. Debt at the end of the year was 3.7x trailing 12-month EBITDA and our debt-to-cap ratio was about 49%. Based on our current guidance, we took action to address any issues with our debt covenants. We have secured an agreement with our bank syndicate to appropriately amend these metrics. Our operating cash flow for the full year 2025 was an outflow of $535 million due to the settlement of Medicaid risk corridors, the timing of tax payments and lower operating performance in the second half of the year. Turning to reserves. Days in claims payable at the end of the quarter was 47. We remain confident in the strength and consistency of our actuarial process and our reserve position. Even in this period, a sustaining high trend. Moving to guidance. We project 2026 premium revenue of approximately $42 billion, a 0.8% pretax margin and adjusted EPS of at least $5. Our guidance is lower than the $14 per share initial outlook we provided on the third quarter call due to a number of factors. First, in Medicaid, our full year 2026 MCR guidance is 92.9%. That's 140 basis points higher than previously expected, driving $6.50 of the shortfall. The higher MCR results from several items. The fourth quarter retro revenue items in California, which resulted in $2 per share impact will continue in 2026, yielding 40 basis points of margin pressure across the year. Our Florida CMS contract incepting in the fourth quarter will add 30 basis points of full year pressure as that initial quarter will run significantly higher before reaching target margins as new stores typically do. And expected rates for 2026 are approximately 50 basis points lower than our initial outlook. We previously projected rates exceeding expected trend to improve MCR by 50 basis points off the second half of 2025. While our initial discussions with states were encouraging, particularly in the presence of demonstrated underfunding across most of our markets, the rates we finally received fell short, now matching expected trend off second half with no benefit to the MCR. Second, in the items driving our lower EPS guidance, underlying performance in our Medicare business deterred by $1 per share, largely due to the MAPD product. And finally, G&A efficiencies only partly offset a higher effective tax rate interest expense and lower volumes, resulting in a headwind of $1.50 per share. As Joe mentioned, upside components to this guidance include moderation in Medicaid cost trends, off-cycle and late 2026 rate adjustments as we sell in 2025 and Medicare and Marketplace performance. Now some additional details on our 2026 guidance, beginning with membership. In Medicaid, we expect year-end membership of approximately 4.6 million members to be flat compared with 2025. We expect modest contraction in our current footprint as some states continue to review membership eligibility to be offset by the implementation of the new Florida CMS contract incepting October of 2026. In Medicare, we expect to begin and end 2026 with approximately 230,000 members based on open enrollment and transition to our integrated tools products. In Marketplace, we expect approximately 280,000 members at the end of the first quarter, down more than 50% from the end of 2025. Recall that we sought to stabilize margins in 2026 and reduce our exposure to the shifting risk pool caused by the expiration of enhanced subsidies and new program integrity initiatives. Our average pricing increased 30% and range from 15% to 45% across our footprint. Renewing members now represent 70% of our current book and retention through the grace periods is less certain than in prior years. We expect to end the year with 220,000 members. Our 2026 premium revenue guidance is approximately $42 billion. The small decline versus 2025 is driven by several items. Medicaid is up $1.1 billion due to the new Florida CMS contract and the modest rate cycle, partially offset by the Virginia contract loss in 2025 and slight market contraction in our current footprint. Medicare is up $300 million due to the product mix shift in our Medicare portfolio as members transition to new integrated products, which have a higher average PMPM. This is partly offset by a decline in our MAPD product. Finally, Marketplace premium declined $2.3 billion pursuant to the plan to reduce exposure to that segment. Our 2026 premium guidance does not include the Georgia Medicaid and Texas STAR CHIP contracts, which are now expected to go live in 2027. Turning to earnings guidance within our segments. In Medicaid, we expect a pretax margin of 1.2% on $33.4 billion of premium. The MCR of 92.9% includes a 30 basis point headwind due to the new Florida CMS contract. I'll remind you that our Medicaid MCR guidance assumes year-over-year rates of approximately 4% and trend of 5%. In Medicare, we expect $6.6 billion of premium revenue with the MCR at 94% and pretax margin of negative 1.7%. Excluding the MAPD product, which we will exit for 2027, the pretax margin is closer to breakeven. Within the segment, margin improvements in the legacy products in the new rate cycle are offset by MMP members transitioning to new integrated products. These integrated products are expected to achieve lower margins in their first year before reaching their full margin potential in years 2 and 3. In Marketplace, we project a 1.7% pretax margin on $2.2 billion of premium revenue. The MCR of 85.5% reflects continued conservatism given market volatility and risk pool acuity shifts resulting from the expiration of enhanced subsidies. We expect the adjusted G&A ratio at 6.4%. This is slightly lower than 2025 as the tailwind from duals contract implementation costs, cost management discipline and mix within our business is partly offset by the Florida CMS contract implementation costs and the return of management incentive compensation. Rounding out the other guidance metrics, we expect the effective tax rate at 30% and weighted average share count of 51.1 million shares. Our earnings seasonality is expected to be much more front-end loaded this year with 2/3 of earnings in the first half of the year, reflecting the Medicaid rate cycle and the implementation of Florida CMS in the second half. Our Medicare and Marketplace segments are expected to follow normal seasonal patterns. Turning to embedded earnings. At the end of 2025, we reported $8.65 of new store embedded earnings. Our 2026 guidance harvest $0.60 for Medicare tools implementation costs net of the Virginia contract loss. Updates include the addition of the new Florida CMS contract of $4.50 and a reduction for the MAPD exit. Embedded earnings now exceed $11 per share and form a compelling view of long-term future earnings power on top of our legacy business rate recovery. We will outline the components and expected realization time line at our May Investor Day. This concludes our prepared remarks. Operator, we are now ready to take questions. Operator: [Operator Instructions] The first question comes from Joshua Raskin with Nephron Research. Joshua Raskin: Sort of a 2-parter on the Medicaid side. Is there a large variance that remains across your states with regard to Medicaid margins? And are you at the point in any state where you're contemplating a potential exit? And sort of part b would be, what were the drivers of the negative retro adjustments in California that seems incongruous with what you were seeing in terms of rate increases and margins? Is California just a market that happen to be running higher than average margins? Joseph Zubretsky: Josh, on part A of your question, no. Rates are generally underfunded across the universe of our portfolio and there's no state where the regulatory environment is so unfriendly to managed care in the rating environment that we are contemplating an exit. We believe, as we've said in our prepared remarks, that these will come back into equilibrium over time for many, many reasons, which I'll cover in a moment. To your second question, the 2 issues in California were very situational. They were event-driven. The undocumented population, which we serve, I think, 180,000 members for a lot of reasons, which are pretty obvious, did not use services during the year that we're priced to. And therefore, the state decided to, I'll call it, claw back due to the introduction of a retroactive corridor. And in L.A. County -- separately in L.A. County, there was a dramatic shift of churn in the membership roles during the year, which caused a disequilibrium and risk profile amongst the various carriers. They did a risk adjustment update at the end of the year, moved money around, and we had to pay it back. Mark, anything to add on those 2 items? Mark Keim: No, Joe, I think that's well summarized. Josh, it's about $135 million between those 2 items. That's the $2 per share. And they're both pretty unusual in nature. On the corridor from the undocumented immigration status normally, CMS has a rule that they can't put retro corridors in place. That rule went back in place during the pandemic. However, since this undocumented program in California is state funded, it doesn't -- the CMS restriction doesn't apply. So they were able to put that restriction in place on the corridor on that population. So I don't know of another state where that could happen. On the risk adjustment, risk adjustment data refreshes are common. We have them all the time. Normally, they're de minimis up or down. In this case, there was enough change in the population in LA, as Joe mentioned, that it was material to us. Joseph Zubretsky: And one final point, Josh, you didn't ask, but inherent in the movement from our $14 per share outlook and $5 per share guidance, we pulled through that California effect to 2026 because we believe those same situations will apply to the 2026 operation. So we pulled it through a lot of conservatism. Operator: The next question comes from A.J. Rice with UBS. Albert Rice: Just want to think a little bit more about what you're seeing in the Medicaid book. We've heard some of the other companies talk about states working with them to allow them to make adjustments to benefit design in addition to just absolutely hoping for a better rate update. Are you seeing any of that play out? And you're saying you're going to bottom in Medicaid in 2026 and recover. Obviously, some of the Big Beautiful Bill, work rules, et cetera, kicking in '27. Does that -- you're confident you can overcome that and still show margin improvement in '27 and beyond? Joseph Zubretsky: A.J., let me answer the second question first, and I'll come back to benefit design. But the context is even in what we consider to be a trough environment in Medicaid, we are operating at low single-digit margins, 2% in the fourth quarter, 1.6% adjusted for Florida Kids in 2026. By analysis of the regulatory filings and other public company reports, the market appears to be 300 to 400 basis points underfunded. If we get even partially way there, we're back flirting with our target margins in Medicaid, number one. Number two, don't forget that last year, we got 150 basis points of mid-cycle updates. Now it wasn't enough to offset a 300 basis point increase in trend during the year, but states are recognizing that aspects of this program are underfunded. Next point on rates. Generally speaking, the states are using a 2024 cost baseline. That baseline does not include the full impact of what we're calling the great inflection here over the last 2 years. When the 2025 cost baseline fully developed begins to be used as the baseline off of which the trend rates will become stronger. Next point, discrete rating factors. LTSS benefits, pharmacy benefits and behavioral, all trending up, and those are very discrete rating components, very transparent. Actuaries can debate and have clinical and actuarial debates over how those costs are being burned into rates in a very transparent way. And lastly, in 2025, we are experiencing the tail end of the redetermination acuity shift, 250 basis points to our estimation that will not recur in 2026. But to your point, in '27, '28 and '29, we will begin to see the emergence of perhaps a small acuity shift related to OB3. Mark, do you want to take that part? Mark Keim: I think that's well covered. Across the next 3 years, we see any place between 2% and 4% annual impact on One Big Beautiful Bill. But that's also before any influx of new members, as you've typically had in the past, or even a recessionary impact as jobs are lost to AI and who knows what else. So the outlook, I think, if there's membership decline over the next 3 years is rather small. And as Joe always says, the small changes in membership or cohorts don't really get you because they sort of even out with everything else going on and rates do adequately reflect them. It's the big jumps in population that are problematic like the 20% decline we had in the pandemic with redetermination. So I don't really see a meaningful impact on membership here going forward, either in magnitude or impact on acuity. Joseph Zubretsky: A.J., the first part, part of your question was about benefit design. We're seeing some of that. During the pandemic, states really loosened the utilization control requirements on things like behavioral health. They were paying for -- they required us to pay for GLP-1s for weight loss and not accompanied by diabetes diagnosis. Those things are starting to close up. States are reintroducing our ability to have tighter utilization control global behavioral. And most of our states, I think, 12 out of 15, now have a diagnosis requirement, diabetes diagnosis requirement for GLP-1s. There's things like that. But I wouldn't say there's a wholesale shift to benefit design. It's on the margin, and it's sporadic from geography to geography. Operator: The next question comes from Justin Lake with Wolfe Research. Justin Lake: I wanted to ask Joe about your attrition assumption in 2026. Looks like you're assuming down about 2% membership attrition, and that's offset by, I think, 100,000 members in Florida coming on. Let me know if I'm wrong on that. But 2% versus what it appears some of your peers are talking about mid- to high single digits, it looks like you had some pretty significant attrition just in the last quarter. Why are you assuming that attrition is going to be so modest next year relative to what you're seeing just in the last quarter or 2 and what some of your peers are talking about? And then maybe you could talk about if you do see attrition hire, would we assume that, that would impact risk pool and cost trend? Joseph Zubretsky: Sure. Going back a little bit historical here is clinical data. The industry and Molina on a same-store basis, not counting our new store growth, lost 20% membership organically over the past number of years. It is 13% in 2024, 4% in 2025. And now we're projecting it to be 2%. We believe that the redetermination effects are largely over. We're feeling the tail end of that. And now it's just about program integrity. It's about tightening up on -- before OB3 kicks in, that will kick in for '27 to '28. So we're talking about '26. Due to just more rigor around the enrollment process, the redetermination process, we believe that 4% we experienced in 2025, which is exact -- that's the exact number will fall to 2% next year. Now if we're wrong, it ends up being a little higher, Mark -- I'll kick it to Mark here in a minute. We've done an exhaustive analysis of low users. And it depends on what your definition is over what period of time what's a lower-than-average loss ratio. Everybody doesn't use services at 90% of premium. Some use a lot more, some use a lot less. And so your question you're asking is, if we won about it, is there an acute shift coming and we don't think so. Mark, do you want to take that? Mark Keim: Joe, that's well summarized across the board. So Justin, to your framing question, yes, we're 4.6% roughly flat across the beginning of the year to the end of the year. That's a 2% decline organically offset by Florida. So you got that exactly right. And then to Joe's point, the market is down about 20% since the start of redetermination. We've done exhaustive cohort analysis of who were the joiners, who were the levers. And it's really interesting. Of the people that left since the start-up redetermination we estimate about 5% fewer people in our population are low users or no users. So if you look at any given quarter, how many folks didn't use it all, or used very low, say, $200 PMPM, something like that, that population is now 5% smaller within our current population than it was 2 years ago. That's not the only impact. Many of the cohorts changed around, but that's the one that kind of grab your attention. So that's a lot of what's driving trend over the last 2 years as that mix shift happens, I think Joe referred to it in his prepared remarks. So going forward, most of those people are out now as a result of that. The low users and no users that were on there when redetermination was suspended mostly are gone now. So on a go-forward basis, we're estimating 2% attrition across the year organically, which is a relatively small number. Even if it's a little bit bigger -- the big driver of acuity shift or trend is those low users and no users, and those are mostly out of the system now. Operator: The next question comes from Stephen Baxter with Wells Fargo. Stephen Baxter: I was hoping if you could update us on the size of your Medicaid expansion enrollment both, I guess, enrollment and premiums would be great. And as we think about dimensioning the attrition that you saw throughout the course of 2025, how much of that came from Medicaid expansion versus other sources, other program types? Joseph Zubretsky: Just sizing Medicaid expansion, Mark will correct me, but I'll go from memory here. Medicaid expansion population is about 1.3 million members and about $8 billion of the $32 billion of premium. Now when we're talking about OB3 work requirements, semiannual determination -- semiannual redeterminations, et cetera, we still predict losing about 15% to 20% at the high end of that population, which is only 25% of the total Medicaid book. And as Mark said, when you're trying to calculate or estimate whether that causes a huge acuity shift, the fact that, that cohort is operating closer to the mean of portfolio average is a meaningful statistic. Mark, do you want to talk about the attrition in that population? Mark Keim: Sure. We definitely see more people coming out of expansion due to the OBB, just because that's where the policies are aimed, but that's also where you have more volatility in the population. As Joe mentioned, if you lose 15% to 20% of the folks in expansion, one, it's a quarter of our overall Medicaid population; and two, if it happens over 3 years, it's even smaller as an impact on the overall book. . So could be an impact there over time. But annually, I don't think it's meaningful. And again, if all folks are more gathered around the average MLR, the impact shouldn't be meaningful. Operator: The next question comes from Kevin Fischbeck with Bank of America. Kevin Fischbeck: Great. Just trying to understand a couple of things. First, I guess, in your commentary around 2026 guidance, you listed a number of positive potential levers to upside. There were no negative dynamics that you're thinking of. Obviously, things have been difficult the last couple of years to predict. I was wondering if there's anything that you would highlight as something you were watching? And then just -- if you could just follow-up on the commentary around risk pool shifts. Obviously, you said last year was 250 basis points of pressure on 4% membership, and now you're saying 2% membership is 0. So if you could just kind of square that a little bit better? Joseph Zubretsky: On the last point, yes, we've been asked that before. It's not linear, and it's not proportional. And the reason is, as Mark just described, it matters how many low and no users you actually have in your population. So if your supposition is it 4% created 250 basis points of pressure, why does it 2% create 125 basis points of pressure because largely speaking -- not largely speaking, the low and no user population as we define it, is down 5%. So people are operating closer to the mean and [ MOR ] rather than the SKUs. On the 2026 guide, I mean, suffice it to say, anything that is potentially upside is potentially downside. But we believe the rates at 4% of our floor -- we got 150 basis points of release last year and midyear. So we don't think there's downside to rates. We think it's all upside. Now medical costs trended 5%, medical costs is up 20% over the last 3-year period, baseline medical costs. And now we're trending in 2026 comparable to 2025 without the acuity shift. Same trend number, 5%. Is there downside? Sure, you could be wrong about it. But we believe that we have a reasonable -- a reasonably conservative trend assumption. The 4% rate or a floor, it's all upside from there on midyear on and off-cycle rate increases. And the reason we say there's upside to Marketplace and Medicare is because we were priced more conservatively than we're guiding to. Our pricing targets are low single-digit margins. As Mark said, we're expecting a 1.7% negative margin in Medicaid, and I think a positive 1.7% margin in Marketplace. Those could end up being higher. But could they be lower? Sure. Mark, anything to add there? Mark Keim: And just to begin, the 1.7% was Medicare, not Medicaid. Joseph Zubretsky: Medicare, sorry. Medicare. Mark Keim: The only other thing, Kevin, which might have been obvious to you, but the impact of -- on the cohorts of the low users and no users coming out isn't when they come out. It's the subsequent period, right? So if they come out in '24, you'll feel that in your trends in '25 because it's the year-over-year impact. It's not the day they come out. So if you're putting that all together, Joe mentioned it was 4% membership decline in '25 but the much bigger decline in '24 of 13% is would put the pressure on '25. So now that only 4% came out in '25, the implied rollover to '26 is much lower. More to the point, a lot of the low users, no users are already out of the system. So it's really a declining impact. Operator: The next question comes from Ann Hynes with Mizuho. Ann Hynes: I just want to follow-up on your trend assumptions. Obviously, trend has been very difficult, up 7.5% this year. But why do you have confident trend only increasing 5%? Is it a large number? Is there a sort of an area that you already see decreasing? Is it more utilization management? Just from our seats, this industry has underwritten all businesses run for 3 years. So when I just see a 5% trend going forward, for me personally, I would like more than just saying like trend has to come down at some point. That doesn't make sense to me. So if I could -- if we could have some more detail on specific state actions that utilization management, anything more than -- I personally just like more detail on why you think the rates -- the trend will only grow 5%? Joseph Zubretsky: Well, thanks for the question. And of course, it is a key assumption in our outlook through 2026. Context, we had a 7.5% trend in '25 off of '24. With perfect hindsight, 2.5 percentage points of that was related to the redetermination related acuity shift as we've just been describing in a couple of questions that were asked. So core trend is 5%. Core trend includes every impact. Supply -- it's a supply and demand economy. It includes the higher acuity of the American population that we serve. It includes any "upcoding" or aggressive billing from providers. 5% is what we experienced in 2025. And again, it's off a cost base that's increased 20% over the past 3 years. It's 50% higher than historical averages. Medicaid trend over the last 10, 15 years has been 2% to 3%. We're seeing BH behavioral health services now nearly 20% prevalence of BH diagnosis is now 20% prevalent in our population, up from 17% to 18% 3 years ago. Why is that important? It's trending at 9%, and the BH services themselves are trending at 18%. Our pharmacy trend, 13%. Top 10 therapeutic classes trending at 36%. These are in the 5% number. LTSS hours, SNF admits, professional office visits up 16% and the number of services, the number of procedures per office is dramatically higher this year than it was in the last 2. So we believe that the 2025 5% number includes a lot of the phenomenon that industry pundits and commentators talk about, and we believe that's a good number off of which to project. Are we seeing signs of, I call it, aggressive billing, but upcoding? Level 3 is becoming Level 4, Level 5 service intensity, psychiatric hours going from 30-minute visits to 60-minute visits sure. But that's in the 2025 trend. And that's why we think the 2026 number is fully loaded for all the supply and demand dynamics that are being experienced in the market. Operator: The next question comes from Andrew Mok with Barclays. Andrew Mok: I'll shift focus to the ACA. I wanted to ask how January open enrollment tracked relative to expectations and what's embedded in your membership assumption for non-effectuations and attrition this year? And if possible, it would be great to share how year-to-date effectuations are tracking now versus this time last year? Joseph Zubretsky: Sure. We're in real time. I'll give you a global answer and I'll give it to Mark because we're right in the middle of that process now. But as you recall, we ended the year with 650,000 members. We priced up 30% on average, ranging from 15% to 45%, consciously reduced our #1 and #2 position from 50% of our counties to 15% and reduced our footprint by 20%, conscious effort as we will not allocate capital to an unstable risk pool. . Our speculation or forecast at the time was we would come down into the 200,000 zone, 200,000 to 300,000 and reduce our revenue to $2.2 billion. As we're right in the middle of that story right now, I'll hand it to Mark to give you the latest tail and tape what we're forecasting and what's likely to happen with retention and effectuation. Mark? Mark Keim: Andrew, this year, forecasting marketplace members is a little more difficult than in past years. Big picture to get right to the answer to your question. I'm looking for about 280 at the -- 280,000 at the end of the first quarter, which will decline down to 220,000 at the end. The reason it's a little harder this year is new members are real obvious and clear. It's the renewals that are the wildcard. Now there's some confusion, I think, in the media, they're saying, gee, marketplace members are still quite high. Everyone thought they were going to come down. And what I think some of the media misses is that they're assuming the renewals all stick. Now as partly or fully subsidized people see what their new premium is in January and February, a lot of passive renewals will not renew. They'll go into grace period, not pay and they'll eventually fall off. That will be much bigger in past years, just given the price dynamics in the market. So right now, I think I'm at 280,000 in the first quarter. As Joe mentioned, we're about 70% renewal, about 30% new members. And I think the stats you're looking for is on the new members, the effectuation rate, I think it's 60%. Everything is telling me it's about 60%. Historically, I would have thought 70% to 80%. So effectuation is much lower. But remember, that's new members. On renewal, I think my renewal tension is more like 30%, whereas in the past, I would have expected more like 60% and that goes right to the dynamic of people possibly renewing seeing their new premium if they're not fully subsidized, which almost no one has and probably not going through the grace period of making the payments and falling off at some point in the first quarter, which is why I give you a March estimate, not a current estimate. Operator: The next question comes from Sarah James with Cantor Fitzgerald. Sarah James: Sticking on the ACA, MCR. Can you help clarify went on in fourth quarter? Was there a pull forward of utilization or any category that was running high? And then how do you think about the slope of the MCR curve for 2026, given the attrition and effectuation that you're assuming? Should we think that the peak to trough swing widens maybe by a few hundred basis points on what you've experienced historically? Joseph Zubretsky: Mark? Mark Keim: Sarah, it's Mark. A couple of things there. What you're calling pull forward, we don't see it. And I've gotten that question a lot. And just for everyone's benefit, the concept of pull forward might be if subsidies are declining and people might drop or lose their coverage in January, would they increase utilization in the fourth quarter in anticipation of that. And we're just not seeing it. If you look at my MORs, I'm only slightly up Q4 versus Q3 part of which is normal seasonality and a little bit of which is we talked about the out-of-period provider settlements. So you're just not seeing it in the MCR and I'm not seeing it in the utilization. Now on next year's seasonality, we're going to have to see exactly what the membership content looks like when it all settles in March. But I would expect a fairly normal seasonality as we've seen in the past. The only thing that might be a little bit different there is metallic mixes are shifting. In past years, we were more 70% silver. This year, we're more 50% silver. So with deductibles, co-pays, things like that, you might see some changes based on metallic mix. But I wouldn't think you'll see something much different seasonality than we normally have. Joseph Zubretsky: The only other point I would make is in 2026, we're projecting a much lower special enrollment period addition for the 3 quarters. And as you know, special enrollment is an invitation to buy insurance when you need it. They usually come in with very high MLRs until they settle down, and the SEP enrollment during the 2026 is forecasted to be much lower than it was in 2025 and prior. Operator: The next question comes from Scott Fidel with Goldman Sachs. Scott Fidel: Just so I'm interested in how you're thinking about, let's call it, maybe sort of underwriting around new business development? And I'm putting it that way because that would maybe include both sort of new contracts organically and then also M&A. And just around the downturn and sort of the pressures we're seen that -- just maybe curious around. I'm thinking about Florida, for example, your thoughts on pursuing that contract. And then maybe also just talk about how the overall book of M&A that you've built up over the last couple of years, how has that performed, would you say within the overall enterprise relative to, let's say, more of the ongoing operations? Joseph Zubretsky: Scott, first on the new business, we are still actively pursuing new contracts. Our win rate is 80%. $20 billion of run rate revenue over the past number of years, including the Florida Kids contract, which we believe is a very valuable contract. We have proven over time that we expertly handle high acuity, low-income lines, and these are very high acuity situations for young adult, young children in the state of Florida. . So we've worked hard for this contract. We believe it's accretive. We wouldn't have put $3 of ultimate run rate into our embedded earnings if that wasn't the case. And I want to clarify the start-up here. The fact that there is a $1.50 drag on 2026. The reason is you have to spend money before any revenue ever shows up. You got to hire people, number one. Number two, new programs, whether it's Nebraska, Iowa, or Florida Kids, a new program or a new entrant always runs higher as people get used to systems and business processes, et cetera. And third, as Mark would like to talk about, there is a financial implication of building reserves in the early years. So that $1.50 drag is not symptomatic or emblematic of the power, the earnings power of that business. We added a $3 run rate to our embedded earnings for the ultimate attainment of a target margin. Mark, anything to add on Florida? Mark Keim: Joe, I think there's some important distinctions there that you point out. One, the MOR always runs hot on a new property. And typically, we say it's a 2-year path to target margins. We have one quarter of performance of Florida which means these margins we put on top of our normal picks, which are onetime items, really exaggerate the performance in the first quarter. . So Florida will run a hot MLR in its first quarter, but a lot of it is new property getting everything settled and these margins we put on day one, which are part of our normal actuarial policy. The other part of the $1.50 is the business doesn't just start on the fourth quarter. We've got 2, 3 quarters here of prep, where we're hiring people in advance of revenue, incurring expenses. Obviously, that's not part of the run rate. So the $1.50 isn't meant to be -- this is an extrapolation of how it is. It's kind of an anomaly of one quarter of new business and a lot of G&A prep. Joseph Zubretsky: Yes, $6 billion of revenue, which to us is, you're adding 15% of revenue with one contract. And we never measure our acquisitions or contracts on contribution margin. But in this case, it's entirely appropriate. The contribution margin of this contract is going to be significant. To your question on M&A. This is the perfect environment to be exploring M&A and we have. Our pipeline is as actionable opportunities in it. Many of them are what I'll call challenging situations for single state, single geography payers who are in the same rate environment that everybody else is in and they're eroding capital. Without naming names or states, we've tried to action 2 or 3 of these in the past 6 months. And they were so troubled. They had to kind of seek other alternatives rather than to be acquired. But this is a great time to acquire revenue. At the heyday of [ margin ] attainment, we are still acquiring things at just over 20% of revenue which means very little goodwill value, you're mostly exchanging cash for regulatory capital. Now in this environment, Mark and I say, give me a property at book value, and I'm good to go, and we'll get it to target margins in our 2- to 3-year period. So this is the perfect time. We believe long term in the veracity of this business and its margin potential, and this is the perfect time to responsibly purchase long-dated revenue streams with stable membership in states where we want to do business, either states that we're already in and are underrepresented in market share or states that we're not in and want to create a foothold. Operator: The next question comes from Ryan Langston with TD Cowen. Ryan Langston: Maybe within the cost trend assumption of 5%, maybe give us a little sense on some of the components within that assumption, maybe cost categories, you assumed higher, lower and maybe any sort of swing factors with the widest range is positive or negative? Joseph Zubretsky: Sure. Sure, Ryan. I covered a few of these before. Behavioral health services are the cohort of Medicaid patients with a behavioral condition trends at 9%. We did reduce that at all, and the behavioral services themselves are trending at 18%, not only due to the prevalence of behavioral conditions, but let's face it, providers are using their judgment on diagnosis and treatment protocols. The pharmacy trend globally is 13%, the top 10 therapeutic classes are trending at 35% antiretrovirals, antipsoriatics, GLP-1s, all the things you read about. The cancer diagnosis are prevalent. We did not soften any of the current trends that we're experiencing in 2025. As I said, now that the baseline, the cost base line is 20% higher today than it was 3 years ago. LTSS, skilled nursing facility admits are up. LTSS hours, home service hours are creeping up, didn't reduce any of our trend assumptions there. And professional office visits is the one that doesn't get a lot of airtime, but that's trending at -- it trended at 16% in 2025 off '24. And one of the reasons it's not that the number of office visits is necessarily up per 1,000. But the number of procedures per diagnosis per visit is up significantly. One diagnosis code, 3 CPT codes in the past, maybe there's now 4 CPT codes. So we didn't soften any of what we experienced in '25 and '25 was, again, a year of medical cost inflection off '24, and we kept all those trends rolling through the 2026 numbers. There's probably others that are missing, but those are the big ones. Mark, did I miss anything? Mark Keim: No. I think that's good. So once the acuity shift is behind us, the 7.5% is now 5% in our projections. Joe, you hit the big ones, pharmacy, professional office visits and BH continued to be high considered within our 5% outlook. Operator: The next question comes from Michael Ha with Baird. Hua Ha: I appreciate your exhaustive cohort analysis commentary. But what assumption is currently embedded in your '26 guide relating to hospital risk, if more and more states are facing these mounting budgetary pressures and that more stringent eligibility requirements. And if this prompt spike in sort of procedure this enrollment, is there a range of outcomes embedded in your guide? And because there are states we actively track, where we're seeing pretty alarming procedural disenrollment rates, some up to 90%. And a lot of those trends are beginning to spike in more recent months, which is -- its impact is felt typically next year, it concerns us. I know they might not be 0% utilizers, but I know these lives are typically healthier overall. So stepping back, I know you're very confident given the much lower prevalence overall lower utilizers in your book. But I just wanted to ask again how should we think about the achievability of your guide if more states were to tighten eligibility? Joseph Zubretsky: We have confidence in it. And I will tell you this, Michael. We don't -- I mean we do top down. Everybody uses global assumptions to testing theories. This is all bottoms up. This is about [indiscernible] actuaries and our local resources, talking to our state customer on what they're up to and what they're all about and what they're going to do. . And it's with every state customers, it's in all their best interest to tell us exactly what to expect, so we can resource appropriately. So this is all bottoms up. We forecast in some states to retreat higher than others, but this all bottoms up based on what the state is telling us they intend to do, either with just more strict enrollment, eligibility requirements, et cetera, before the OB3 impacts of work requirements, we need a semiannual redeterminations and all that kicks in for 2027. So we're pretty confident in the 2%. And as we said, if we are wrong, we're very confident that a lot of the -- what we call low and no users have left the portfolio during the redetermination shift. And therefore, if we won by a percent they're closer to the portfolio average likely and therefore, a volume impact, for sure, but not a margin shift impact. Important point. Operator: The last question today comes from Erin Wright with Morgan Stanley. Erin Wilson Wright: Great. So I understand it's early, but what are some of those items that we should be thinking about in terms of the earnings growth profile into 2027? Do you get back to growth algo? Do you add back some of those burdens? I think you were talking about that earlier in terms of what's an anomaly, what's not or what's recurring in nature. And then is that the right way to think about it? And the $11 in earnings, embedded earnings power, the trajectory to get there, I guess, we'll hear more about it at Investor Day, but just higher level conceptually how we should be thinking about that as well in terms of the time frame from here? Joseph Zubretsky: Sure. On the embedded earnings, yes, thank you for that because we will give a more specific accounting of it at an Investor Day and obviously, not just the accounting of it, what's in it, whether it ends up being slightly higher or slightly lower or different, we'll update that at Investor Day. But to the point, how it rolls out into '27, '28 and '29, will be a key determinant, and we will update that at our Investor Day. Look, as far as '27 to '28 goes, we're not yet predicting because we can't exactly how rate versus trend is going to improve over the next 3 years. It's a valid question. I don't have an answer for you. But again, 100 basis points of MCR improvement in Medicaid is $5 a share. Now imagine a environment where the entire platform across all geographies, improves by 50, 75, 100 basis points a year for the next 2 or 3. But where we're starting from in the trough, what people are calling the trough of -- and some people think the trough is 2027, we believe it's '26. We're earning a 1.6% pretax margin, not a loss. Many of our competitors have said they're losing 1.5% to 2%. So if the market gets to 300 to 400 basis points, it needs to get back to, I'll call it, respectability, we're again at target margins. I can't give you an exact projection now. We'll update you at Investor Day, but imagine an environment that improves trend rates versus trend is positive by 50, 75 or 100 basis points a year for the next 2 or 3, recalling that given the leverage effect of $32 billion of revenue -- on $32 billion of revenue, 100 basis points to the MCR in Medicaid for Molina is $5 a share. Operator: This concludes our question-and-answer session and concludes the conference call. Thank you for attending today's presentation. You may now disconnect.
Operator: Hello. My name is Vanessa, and I will be your conference call facilitator this afternoon. At this time, I would like to welcome everyone to Envista Holdings Corporation's Fourth Quarter 2025 Earnings Results Conference Call. [Operator Instructions] I will now turn the call over to Mr. Jim Gustafson, Vice President of Investor Relations at Envista Holdings. Mr. Gustafson, you may begin your conference call. Jim Gustafson: Good afternoon. Thanks for joining Envista's Fourth Quarter 2025 Earnings Call. We appreciate your interest in our company. With me today are Paul Keel, our President and Chief Executive Officer; and Eric Hammes, our Chief Financial Officer. Before we begin, I want to point out that our earnings release, the slide presentation supplementing today's call and the reconciliations and other information required by SEC Regulation G relating to any non-GAAP financial measures provided during the call are all available on the Investors section of our website, www.envistaco.com. The audio portion of this call will be archived in the Investors section of our website later today under the heading Events and Presentations. During the presentation, we will describe some of the more significant factors that impacted year-over-year performance. The supplemental materials describe additional factors that impacted our results. Unless otherwise noted, references in these remarks to company-specific financial metrics relate to the fourth quarter of 2025 and references to period-to-period increases and decreases in financial metrics are year-over-year. During the call, we may describe certain products and solutions that have applications submitted and pending certain regulatory approvals or are available only in certain markets. We will also make forward-looking statements within the meaning of the Federal Securities laws, including statements regarding events and developments that we believe, anticipate or may occur in the future. These forward-looking statements are subject to a number of risks and uncertainties, including those set forth in our SEC filings, and actual results may differ materially from any forward-looking statements that we make today. These forward-looking statements speak only as of the date that they are made, and we do not assume any obligation to update any forward-looking statements, except as required by law. With that, I'll turn the call over to Paul. Paul Keel: Thanks, Jim. Good afternoon, and welcome, everyone. On today's call, I'll kick us off with some opening thoughts on our Q4 and 2025 performance, our progress implementing the value creation plan that we communicated in March of last year and our guidance for 2026. Eric will then take us through the numbers in more detail, and I'll wrap up with some closing thoughts before we open it up for Q&A. Let's start with the value creation plan that we shared at our Capital Markets Day early last year. In our view, a good plan should be both achievable and aspirational, timely as well as timeless. A good plan should authentically describe who you are today and who you're striving to be tomorrow. Centered on the 4 foundational components that you see here, we think our plan does exactly this. We're guided by our purpose of partnering with dental professionals to improve patient lives. We're centered on our circle values of customer centricity, innovation, respect, leadership and continuous improvement. We're focused on our 3 key priorities of growth, operations and people. And our plan is framed by our medium-term financial objectives of 2% to 4% core growth, driving 4% to 7% EBITDA and 7% to 10% EPS growth, all underpinned by free cash flow conversion of 100% or better. Today, I'll focus on the strategic and operational progress that we're making in implementing this plan as well as our financial performance relative to our medium-term objectives. Let's begin with Q4 and 2025 progress on the next slide. Slide 5 is organized by the 3 priorities that I just mentioned. Beginning with growth on the left side of the chart, ours was widespread. All businesses posted positive growth for the quarter and year and all outgrew their respective markets in Q4, resulting in continued share gains across the portfolio. Consistent with what we've discussed on previous calls, increased new product activity and clinical training are contributing meaningfully to our accelerating growth. We trained 30% more customers in 2025, and we generated close to $100 million in revenues from products introduced in just the last 12 months. I'll touch on a few of these new products on the next slide. And looking to build on this momentum in 2026 and beyond, Q4 marked another quarter of double-digit increases in R&D investment. On the operations front, we continue to enjoy strong contributions from EBS, our continuous improvement methodology that is central to how we deliver results, develop our people and advance our culture. We reduced G&A spending by over $35 million last year or about 10% while maintaining our world-class safety, quality and customer service levels. We took action in 2025 that we expect will result in roughly a 4-point tax rate reduction in 2026. And supported by strong cash flows, we put in place a $250 million share repurchase program in early '25, a first for Envista and returned over $160 million to shareholders across the year. Finally, with respect to people, we're working to advance our high-performing continuous improvement culture. We refreshed our management team in mid-2024, bringing in new leaders from the outside to supplement a strong core team that was already in place. 18 months in, we're working very well together and stability and collaboration at the senior ranks have cascaded across our organization. We saw record participation in our 2025 employee survey with broad-based increases in employee engagement. We've redoubled our commitment to talent development with better than half of all management promotions going to the existing employees last year, a 40-point increase over 2024. And in addition to taking care of our customers, colleagues and shareholders, we've also stepped up support of our communities by reaching more than 19,000 underserved patients last year and donating over $2 million to charitable causes through our Envista Smile Project. New product innovation has long been the lifeblood of Envista. Having served dentists now for over 130 years and with more than 1,500 patents to our name, we've had a hand in several of the most important dental innovations over time, including the invention of dental implants, the introduction of both self-ligated and conventional orthodontic bracket systems, the first panoramic radiograph and the now ubiquitous endodontic K-file. We built on this strong heritage in 2025 with key new product launches in all major businesses, and you see some of those listed here. Four major new product introductions in Spark last year supported that business' robust growth. New platforms in both premium and challenger contributed to multiple consecutive quarters of growth for our implants franchise and our fastest full year performance since 2022. In consumables, launches like OptiBond 360, SimpliCore Composite and CaviCide HP helped propel above-market growth for that business. And we enjoyed another strong year of new product launches in diagnostics with an entirely new intraoral scanning platform as well as novel cloud and AI features for our market-leading DTX Studio suite of solutions. We have another strong wave of launches lined up for 2026, and we look forward to sharing more about these as they come to market. Now having given you a flavor for where we're investing our time, attention and resources, let's turn to the output from all this work. We'll begin with Q4 results on the left side of the slide. We posted another strong quarter, delivering good revenue, EBITDA and EPS growth. Core growth came in around 11% or something closer to the mid-single digits, excluding certain factors that Eric will explain shortly. Strong core growth converted to even stronger EBITDA growth of 22%, driven by Spark turning profitable in Q3 and continued good execution on price, tariff mitigation and G&A productivity. Adjusted EPS was $0.38, up more than 50% from Q4 '24, supported by strong operating profits, share repurchases and a lower tax rate. Moving to full year performance in the center of the slide. Core growth for 2025 was 6.5%, again, broad-based across the portfolio. Adjusted EBITDA was up 26%, resulting in a margin of around 14% or a 2-point improvement over 2024. And EPS was up over 60%, aided by many of the same drivers as Q4. All of this contributed to strong free cash flow conversion for 2025 of 114%. Rounding out the slide, you'll see our 2026 guidance in the column on the right. This year, we expect core revenue growth of 2% to 4% and free cash flow conversion around 100%, both directly in line with our value creation plan. We're guiding to adjusted EBITDA growth of 7% to 13% and adjusted EPS growth of 13% to 22%, both above our medium-term objectives. To summarize my introductory comments, Q4 capped a strong year of progress and performance for Envista, positioning us well for continued improvement here in 2026. And with that, I'll turn it over to Eric to cover the financials in more detail. Eric Hammes: Thanks, Paul. In the fourth quarter, we delivered sales of $751 million. Core sales in the quarter increased 10.8% and FX added nearly 400 basis points. As Paul mentioned, Q4 was another strong quarter for Envista with broad-based growth. It is worth noting upfront that our Q4 growth benefited from several items, which we do not expect to recur over the long term, namely Spark deferral and lower 2024 comparables, which I'll say more about in just a moment. Excluding some of these items, our Q4 core growth was closer to the mid-single-digit range. Q4 adjusted gross margin was 55%, a decrease of 220 basis points versus the prior year due to a significant FX transaction benefit in Q4 of 2024. Our adjusted EBITDA margin for the quarter was 14.8%, which was 90 basis points better than the prior year as benefits from volume, price and productivity were partially offset by investments and the prior year FX impact just mentioned. Adjusted EPS for the quarter was $0.38, up $0.14 compared to the same quarter of last year. Our non-GAAP tax rate for the quarter was 30.3%, slightly better than our expectations. We saw a beneficial trend throughout 2025 in our non-GAAP tax rate as a result of our strong business performance in the United States. As we've discussed previously, U.S. GAAP limits the amount of interest expense that companies can deduct to a portion of their taxable income. Our U.S. earnings have improved on several fronts, namely growth, Spark profit and G&A, all enabling higher deductibility of our third-party and intercompany interest expense. This drove the lower effective tax rate in 2025. Rounding out Slide 8. In Q4, we generated $92 million of free cash flow, down slightly from last year. The year-on-year cash flow decline in Q4 was primarily the result of a working capital improvement in Q4 of last year. Our absolute levels of free cash generation and conversion were strong in Q4 2025. Now I'll take you through our full year financials. In 2025, we delivered sales of $2.7 billion with core sales for the year increasing 6.5% over 2024. Similar to our trends in Q4, the business performed well throughout 2025. Our core growth was aided in part by the Spark deferral change and softer 2024 comparables, all netting to an underlying core growth of around 4%, in line with both our revised 2025 guidance and the medium-term objectives Paul covered earlier. 2025 adjusted gross margin was 55.1%, a slight decline year-over-year due to the impact of transactional FX penalties in the first half. Our adjusted EBITDA margin for the year was 13.7%, a 190 basis point improvement over 2024, with volume, price and productivity, all delivering well throughout 2025. Adjusted EPS for the year was $1.19, up $0.46 compared to the prior year as our growth and profit improvements were aided by a reduced tax rate and the share repurchase program we started in Q1 2025. Now let's turn to 2 bridges to help break down our fourth quarter year-over-year results, beginning with sales. Core revenues grew 10.8% in the quarter with positive growth in all businesses. We had good performance in both volume and price with a small tailwind from the Spark deferral change. Adding in the benefit of FX, a $25 million tailwind and 2 small acquisitions that contributed around $2 million, reported growth came in at 15%. As I mentioned previously, Q4 growth did benefit from 2 notable items we do not expect to repeat over the long term. The tariff price increases of 2025 are the first. We generated about 3 points of price in Q4 with tariff-related increases accounting for approximately 2/3 of this amount. Favorable comps are the second. As you recall, our China business experienced a high double-digit contraction in Q4 of 2024 due to VBP preparations and other market-specific factors. In addition, our Diagnostics business was down high single digits globally in Q4 2024. All in, prior year comps yielded about a 3-point benefit in Q4 2025. Turning to the adjusted EBITDA margin bridge on Slide 11. Volume, mix and the Spark deferral benefit combined to deliver a 330 basis point improvement. The previously mentioned price actions helped margins by 260 basis points. We had a net gain of 100 basis points from improved productivity with continued strong performance within our supply chains as well as year-over-year reductions in G&A. Partially offsetting these gains, gross tariff expense was about $10 million in the quarter or roughly 160 basis points. We continue to reinvest a portion of our productivity gains back into sales, marketing and R&D to support future growth, which amounted to 170 basis points in the quarter. And as mentioned before, year-on-year FX was a headwind to margins of 270 basis points as a result of the FX transaction gain in Q4 2024. Turning to segment performance. Revenue in Specialty Products & Technologies grew nearly 16% year-on-year with core sales up 10.9%. In our Orthodontics business, Spark was up high single digits before the additional benefit from the net deferral change. Brackets & Wires were up double digits year-on-year, aided by the low China comparable in Q4 last year that I mentioned previously. Excluding this, Brackets & Wires were up low single digits. Our Ortho business continues to capture share as having leading offerings in both Brackets & Wires and Clear Aligners provides us a distinct portfolio advantage. On the implant side, we grew mid-single digits globally, led by above-market performance in several geographies, including North America. Growth was especially strong in both the digital and regenerative segments of this business. Customers are looking for solutions that support both clinical efficacy as well as practice efficiency, and our products are helping meet these needs. In Q4, Specialty Products & Technologies posted an adjusted operating margin of 16.2%, up 470 basis points, driven by good growth as well as the year-over-year impact of Spark profitability. Volume, price and net productivity were all positive in this segment and consistent with prior comments, a portion of the gains were reinvested into commercial and new product development activities. Moving to our Equipment & Consumables segment. Core sales in the quarter increased 10.7% versus prior year, including high single-digit growth in consumables, where we delivered broad-based growth across the portfolio, including solid price performance. Diagnostic core sales was up double digits globally with high single-digit growth in North America. While our Diagnostics business did benefit from a soft Q4 2024 comparable, Q4 of 2025 was our third consecutive quarter of Diagnostics growth, driven by strong commercial execution, new product introductions and improving trends in the North America market in the second half of 2025. Adjusted operating profit margin for the segment was down 510 basis points, driven by continued investment for future growth and the prior year FX transaction benefit that I noted earlier. Now let's turn to cash flow. Q4 free cash flow was $92 million, a decrease of about $32 million when compared to the fourth quarter of last year, driven by very strong working capital results at the end of 2024 and higher CapEx in Q4 of 2025. For the full year, we delivered $231 million of free cash flow with a conversion of 114%. Free cash flow dollars were down year-over-year, primarily as a result of lower incentive bonus payments in 2024 related to 2023 performance and higher CapEx in 2025. Our balance sheet remains strong with net debt to adjusted EBITDA of approximately 0.6x, providing welcome stability in the current environment. In Q4, we deployed approximately $24 million in cash to repurchase 1.2 million shares of stock. On a full year basis, we repurchased $166 million or a total of more than 9 million shares at an average price of around $18 per share, making strong progress against our $250 million 2-year repurchase authorization. As Paul mentioned, today, we're providing guidance for 2026 using the same measures we introduced at the 2025 Capital Markets Day. Core sales growth of 2% to 4%, adjusted EBITDA dollar growth of 7% to 13%, adjusted EPS of $1.35 to $1.45 and free cash conversion of approximately 100%. Slide 16 provides additional detail on key assumptions underlying this guidance. First, we expect the dental market in 2026 to be similar to what we've seen this past year, continued stability with the potential for modest improvement across the year. Quarterly sales in 2026 will cadence a bit differently than last year and that we have 4 more selling days in Q1 and 4 fewer in Q4 relative to 2025. Specific to this effect, we expect stronger Q1 core growth and slower Q4 growth. The straight math on the days would imply a 6- to 7-point shift in growth, although with about 1/3 of our business going through distribution, we expect this to be closer to 4 to 5 points of additional growth in Q1 2026. We will update you throughout the year on how we see the progression playing out. We're assuming December ending exchange rates for our guidance. With the dollar ending 2025 at EUR 1 to USD 1.17, this would imply a 1.5% revenue benefit from foreign exchange in full year 2026. The impact of the 2024 change in the Spark deferral will continue to subside with about $15 million of remaining tailwind landing in the first half of 2026. We expect pricing to moderate across the year as we lap the tariff-related price increases implemented in Q2 of 2025. As the tariff environment has proven to be difficult to forecast, we have not modeled any material changes to tariffs in 2026. We incurred about a $30 million tariff headwind in 2025, and we expect around $40 million from tariffs currently in effect in 2026 due to annualization. We were able to offset tariff impacts in 2025 from a combination of price increases, cost reductions and supply chain adjustments and expect to cover tariffs currently in effect again in 2026. And finally, on the tax rate, as a result of improving U.S. profitability and the resolution of the intercompany loan that we discussed last quarter, we expect our 2026 non-GAAP tax rate to be approximately 28% of adjusted pretax income. Now back to you, Paul, to wrap things up. Paul Keel: Thanks, Eric. I'll start by circling back to our value creation plan. While we're still in the early days of unlocking the vast potential of our company, our first year executing the plan has us pointed in the right direction as we delivered above-target performance on all 4 of our medium-term financial objectives in 2025. As noted earlier, we're guiding to continued progress in 2026 with core growth, EBITDA, EPS and free cash flow conversion all at or above medium-term targeted levels. A few closing thoughts as we put a cap on 2025 and turn our full attention to 2026 and beyond. First, across most of last year, we described the dental market as slow but stable. On balance, that's still the best descriptor, although we are beginning to see some signs of market improvement. For example, the North American diagnostic market returned to growth in H2 and Q4 was the third straight quarter where all of our businesses posted positive growth. As we're a top 3 player in all of our categories, the breadth and consistency of our performance should be a positive signal for the broader market as well. Second, we feel good about the progress we're making in implementing the value creation plan that we shared with all of you last year. Underlying growth in 2025 was consistent with our medium-term plan, converting to even stronger earnings and EPS gains. Third, the full year guidance that we shared today reflects our confidence in building on this momentum here in 2026. Guidance for core growth and free cash flow conversion are right in line with our medium-term objectives, and EBITDA and EPS guidance are above the medium-term plan. Importantly, I'll close by noting that all this progress is made possible by the commitment, collaboration and deep capability of our global Envista team. We accomplished a great deal together in 2025, and we've only scratched the surface of what's possible. We're excited to build on this momentum here in 2026. That completes our prepared remarks for today, and we'll now open it up for Q&A. Operator: [Operator Instructions] We have our first question from Brandon Vazquez with William Blair. Brandon Vazquez: Congrats on a nice end of the year here. Can you -- maybe let's start at a high level, just talk to us a little bit about guidance. What are the potential upsides here? What are the risks to guidance, especially as we look at the top line and the bottom line, especially in the context of what is some pretty good momentum, I think, even when you back out some of these moving pieces exiting the year? Paul Keel: Thanks for the question, Brandon. Why don't I cover the growth part of your question, and then I'll ask Eric to cover the profitability component. Maybe I'll just begin by reframing core guidance for the year, 2% to 4% for 2026. And a reminder that this range is directly in line with the medium-term financial objectives that we communicated last year. And the high end of the 2026 range maps well to the roughly 4% underlying growth that we just delivered. I guess I would also say in terms of context that since we've not observed any material change in the underlying dental market, 2% to 4% feels like a good jumping off point for 2026. Again, noting that we expect relatively faster Q1 and slower Q4 growth due to the billing day effect that we just mentioned. Now having set the frame, let me answer your question, a couple of upsides and then maybe a few risks. I'd say there's 3 upsides worth noting consistent with your question. I guess I'd have to start with our momentum. Not only did we have positive growth across all the businesses, we had accelerating sequential growth across the 4 quarters. So carrying that momentum into '26 is naturally helpful. And related to this, with all of the businesses positive and generally accelerating, there's 2 businesses in particular that we don't typically say a lot about that I think do have upside this year. The first is Diagnostics. The overall diagnostics market, as we mentioned, turned positive in the second half of '25 after 3 years of contraction. We're a large player both in North America and globally. And while it's still far too early to say with confidence that, that market has turned, if indeed it does, that would naturally be upside for us. The second market that we don't say much about is our consumables franchise. It was up high single digits in '25 behind some really good work by the team on fundamental things like price, new product introductions, DSO penetration, et cetera. We have been intentionally investing more in our consumables business of late, which could yield some upside. Let's see maybe the third upside I'd mention, Brandon, would be price. As we said in our prepared remarks, our guidance assumes that we return to more normal pricing levels, call it, 1 point or so per annum once we lap the tariff-related increases that we took mid last year. There's just too many moving pieces to put it in our guidance, but it's not hard to envision scenarios where inflation, both general to the economy and specific to dental, continue at elevated levels here in '26. We've been working hard at improving our price execution. And so if inflation stays at higher levels, I think we'd be positioned to take advantage of that. Now giving you a balanced response on the growth side before I turn it over to Eric for profitability. I think 2 risks warrant mention. The first, of course, you'd have to start with macro volatility. No one gives a confidence interval along with their guidance. But if we did, you'd have to expect that it'd be unusually wide for this year for the reasons we all know well. Factors like tariffs and interest rates, consumer confidence, et cetera, all impact dental demand. And as we saw pretty clearly in '25, there's a real possibility of some or all of those recurring here in '26, which brings me on to a second risk worth noting, that being China. China now represents about 7% of our total sales. While VBP and ortho and implants are very likely in 2026, the specific timing is difficult to forecast. There's been a number of delays. Based on prior experience, we feel like we generally have our arms around the impact of VBP across a 12- or 18-month horizon, but the specific quarter-by-quarter effects can vary quite a bit depending upon government timing. So in sum, 2% to 4% for the year. I would say -- I would shade the upsides a little bit above the risks, but there's plenty out in the world right now to keep us cautious. Eric, do you want to say same on the EBITDA side? Eric Hammes: Yes. Excellent. Thanks, Paul. Brandon, thanks for the question, a good forward lean for us to talk through. So maybe just before the headwinds, tailwinds, what I would just start with is the fact that our profit improvement and our margin improvement in 2025 was pretty solid, double-digit growth in profit, almost 200 points in year-over-year improvement in margin. And I think if you just follow our bridges as we provided through each quarter and now fourth quarter, what you saw in 2025 is good growth in productivity, more than offsetting tariffs and FX, all while being able to invest for future growth, which you saw more predominantly in Q3 and Q4. So a good year for us, good equation in total. Just as Paul said, just a reinforcement on guidance, we're guiding to 7% to 13% EBITDA growth in 2026, so slightly better than our Capital Markets Day guide or outlook, which was intended to be an average year. We do think it's important to focus on the dollar growth versus the margin percentage, although, of course, we manage both. We think the dollar growth aligns better with value creation. We know our investors like to see that, and it allows us a little bit of flexibility on trade-offs between growth and margin. That said, if you take our guide and you back into margins, you'll get a guidance that implies about 50 to 100 bps in margin improvement in 2026. Tailwinds, I would say, would be core growth. So margin improvement based on the strong gross margins that we get. Paul talked about the fact that we've got a good momentum right now in terms of growth heading into 2026, and we see that as a tailwind for margin rate. Productivity, just like 2025, we'll continue to drive productivity. Factory productivity, G&A discipline, we'll just put another focus on that this year like we did last year. We've got good momentum in Spark, both in terms of growth and profitability. And I think we can expect more of that in 2026. And then FX, while certainly less predictable as a forward projection, we do think FX is a year-on-year tailwind to our margins. That's mostly because we took losses on what we call transaction balance sheet revaluation in the first half of last year. We have a hedging program in place, and that's why you've seen sort of a settling and more of a neutral inter-quarter view of that in the second half. And then if we just flip for a moment to headwinds, I think we gave a pretty instructive view of tariffs in our guide assumptions. About $10 million per quarter is the run rate that we've been at in second half. If you just annualize that, it means we've got about a $10 million headwind next year. We'll continue to offset that with the actions that we've had thus far. China. Paul mentioned sort of the uncertainty of China. He mentioned the 7% of our revenues. But I think in general, you should see China as a margin rate headwind, maybe a slight profit dollar headwind just based on how we expect China to play out in terms of growth and profitability. And then lastly, I would just say investments, just as we saw in 2025, we'll continue to invest in R&D, sales and marketing. That will certainly be at the pace of our business performance, right, how well we grow and how well we fund that investment by delivering on productivity. You kind of take all that together and the cadence for the year probably looks like slightly lower margins first half, slightly higher second half, most of that just being defined by the revenue profile of our business. Brandon Vazquez: Got it. And that's super helpful, very comprehensive. So maybe I'll ask a quick modeling touch-up on so some others can get in the queue here. But Eric, as you think of the tax rate, you guys have clearly done some good work there. Is there more work to be done? What's kind of the expectations of tax rates to go lower? Eric Hammes: Yes. Great question, Brandon. So I mean just kind of taking everybody back, we finished the year just under 32%. We put in our guidance assumptions, just to give you the sort of the answer on our EPS equation. We expect tax to be this year, 2026, around 28%. That's fully inclusive of the resolution of the intercompany loan that we've talked about. That is the majority of our 4-point tax rate reduction. Future benefits, I would say, would primarily come from one of three things: continued U.S. profit improvement. We still pay third-party interest, that's interest on our debt, and we have a little bit of a deductibility cap that we still have there, which pressures our tax rate. Continued U.S. income improvement will just help to absorb that effectively. The second would be any kind of paydown in debt. So if we choose to capitally deploy our balance sheet towards debt paydown, that may help our tax rate. That's also linked to that interest expense just mentioned. And then the last would just be if we have any geo mix benefits and the ability to improve profits in lower tax jurisdictions. But I would say the 28% is a good view. It's obviously showing a lot of year-on-year improvement. And most of the mentioned items on favorability would be minor at this point in time. Operator: We have our next question from Jon Block with Stifel. Jonathan Block: Great color on '25 and the '26 outlook. I think the only thing that I was a little bit unclear on and sorry if I missed it, but just the detail or assumptions on VBP for ortho and/or implants. In other words, sort of what's embedded in the '26 guidance regarding those variables? Is it one? Is it the other? A stub? Again, I know it's a moving part -- or moving parts to it, but just curious on how you guys are thinking about that going into the year? Paul Keel: Jon, thanks for the question. Yes, we didn't say much about VBP because there's really not too much new news to report, but let me recap what we do know. We continue to expect a first round VBP for ortho and a second round VBP for implants sometime in 2026, but specific timing has proven to be difficult. In our guidance, we assume a second implant VBP to occur likely in Q2 and the most probable timing for the Ortho 1.0 VBP would be the second half. Just to give you guys a little bit of a context for why the timing is so uncertain here. Recall that there are dozens of medical VBPs currently underway across China. To increase the complexity, some of these are specific to one province, some are cross provincial, some are national. And most of the large hospitals participate in multiple VBPs. All big hospitals have an orthopedic department, urology department, cardiovascular, dental, et cetera. So it is a complex thing for Chinese authorities to manage and why continued shifts in timing are certainly possible. But hopefully, that gives you a flavor for the timing piece. Just as a reminder, the way this typically plays out is we see a quarter or two of negative order growth in advance of a VBP go-live as the channel draws down inventory to avoid a restatement penalty. And then you get the opposite of that once the VBP gets announced, you get a quarter or two of order acceleration as the channel replaces that drawn down inventory at the new price level. Hopefully, that gets to what you're asking. Jonathan Block: No, it certainly does, Paul. That was very helpful. And the second one, I don't know, I feel like you guys are almost being a little modest. I mean, look, I get the 10.8% core is not the new run rate. Hopefully, none of us are going to go ahead and plug that in the model and we get it. It had some benefits like you mentioned an easy comp. But you guys knew about the easy comp. Your '25 guidance was 4% top line and it implied, I believe, around 2% core for the fourth quarter of '25. And again, you knew the easy comp. You probably knew most of the stuff around price. So where I'm just going with this is like what deviated to the upside for you guys, for the company in the last 3 months of the quarter to put up that close to 11% versus the implied 2%. And again, I get the variables that you are calling out going forward. But it still seems like a notable step function from where your heads were at 3 months ago. Paul Keel: Well, Jon, both Eric and I grew up in Minnesota. So we think of modest as a complement. The 2% to 4%, I think you understand why we see that as the proper jumping off point for 2026, lines up exactly with the medium-term guidance that we gave roughly a year ago and lines up pretty well with the underlying growth. Embedded in your question, we certainly wouldn't want anyone on this call coming off feeling like we're signaling that Envista expects a slowdown in our underlying performance or that we've come anywhere close to realizing the full potential of this business. We've now posted 5 consecutive quarters of generally accelerating growth. And today, we indicated that we expect to build on that momentum in 2026. We're committed to rebuilding our track record of consistent delivery. I think this is now my seventh earnings call, and it's probably Eric sixth. And hopefully, you're seeing a pattern develop both of steadily improving performance but also credible transparent reporting. And that's what we're aiming to build on here in 2026. Eric Hammes: Jon, I'd give you just a couple of other points maybe to consider. So we look at the full year 2025. So fourth quarter was good. I take your point fully. For the full year, our sort of normalized growth rate is about 4%. Any quarter could be a little bit more dynamic. Two things did stand out in our fourth quarter growth, maybe differentiated from what we saw going into the quarter. One was the shift in the China ortho VBP. So remember, we were talking sort of going into that call about a December VBP implementation. That meant that the ortho bracket and wire market for us and generally the channel was just stronger, material enough to move our growth by a point or so. And then we had a very good growth result in implants. We saw mid-single-digit plus growth, very, very strong in the sort of the broad digital portfolio that we have. That's everything from our prosthetic from treatment planning before that to some of our equipment and guided surgery. I wouldn't call it a surprise. Our teams have been out there. We've been investing in it, but it was certainly a better growth for us than we anticipated at least midway through the quarter. Operator: Our next question is from Kevin Caliendo with UBS. Kevin Caliendo: In the fourth quarter, implants were up mid-single digit in both premium and value. Do you think -- how do you think that was compared to the market? And just kind to get a sense of how much you think your new products actually contributed to your growth, meaning was it Envista's new products? Was it the market? Was it your positioning already, you're capturing more share? I'm just trying to get a sense because we have new products again coming next year, and I'm trying to also gauge how much of your top line growth might be coming -- or you think might be coming from your new product launches? Paul Keel: Yes. Thanks for the question, Kevin. We think that global implant market is growing mid-single digits, call it 5%. We were a little bit north of that in Q4, which was good for us. That's the first quarter since I've been here where I think we did outgrow the market in implants in total. So that's also now 5 straight quarters for premium growth and generally accelerating quarter sequentially. So building good momentum in implants. Maybe 2 parts of your question you asked, what do I think is going on with the -- what do we think is going on with the market and then how do new products play into that. The market, I would say we don't yet see any credible evidence that the market has changed. We'll learn more in the coming weeks as our peers report, but we don't think market acceleration was a driver of our acceleration. We think a couple of things played into our advantage. The first is, again, we made a significant investment in this business in 2024. Put $25 million in to the commercial front end to customer training and then into new products. Now a year or so past that investment, we certainly see a return on the commercial front end of that and on the customer training. I made some mention of that in my prepared remarks. I don't think we yet see the new product impact of that. We have a number of products we've now advanced through our pipeline that will launch in 2026, and we'll tell you guys more about those as they come to market. But I don't think that new product piece was in the 2025 result. The other piece I would point to, consistent with the broader Envista is that we did take price in 2025 and the tariff environment aided that. So I think we were advantaged in 2025 by a little bit of extra tariff price. Kevin Caliendo: And that you don't expect to continue. Is that -- that's sort of what you're saying, right? There isn't necessarily any of that built into the 2% to 4%? Paul Keel: Correct. Our guidance for this year assumes that the midyear increases from last year carry forward for the first 2 quarters, then we lap them. And without any further information on tariffs, we've assumed that market dental inflation returns to kind of that what I consider more normal point to 1.5 points in the second half. So I think it was Brandon's question to kick us off. We do see pricing as an upside, but it's not in the guide. Operator: Our next question is from Jeff Johnson with Baird. Jeffrey Johnson: Can you hear me okay? Paul Keel: Yes, Jeff. Jeffrey Johnson: All right. Sorry about that. I'm driving. So if you hear any crashes or anything, just ignore it, I'll put you on mute. But -- so just a question on Spark. This quarter, the high single-digit growth. Obviously, it's still going to be above market. But I think last quarter, pre-deferrals, you were up high teens. Just any change in competitive positioning and/or market trends in the quarter? And then, Eric, maybe you can help us just understand, last quarter was the first quarter you swung the profitability on the Spark side. Did we see further improvements on top of that in Q4? And how should we think about the gating over the next 3 to 6 to 8 quarters or something like that on how we get to that fleet average that you've talked about someday getting to on the Spark side? Paul Keel: All right. I'll take growth. Eric will take profitability. Yes, we think we outgrew the market again, that's many, many consecutive quarters now that we've done that. Now with the 2 biggest players on the ortho side having reported pretty decent numbers, maybe that suggests that the clear aligner market is getting a little bit of a boost. Maybe that helped a bit. And we did have a very big new product year in 2025, and we had 4 real new product introductions and several of those were completely incremental growth. So our retainer offering, for example, that's all incremental, no replacement. So I think all of those things really helped us. I haven't seen or we haven't seen any material change in the competitive landscape. In the orthodontic segment where we compete, there's 3 main players. All of them are good. All of them are competing aggressively, and I think that's good for customers and ultimately good for the market. Eric, do you want to talk about the profitability side? Eric Hammes: Yes. Just a couple of points, Jeff. So I mean we talked last quarter about turning profitable. We won't give you kind of specifics on the call here, but we were certainly profitable again in fourth quarter at consistent levels with where we were in third quarter. So nothing of a dramatic departure. And in part, it's because now we're sort of getting into this period where every quarter sequentially will depend really on underlying Spark profitability improvement, operations, unit costs, design and less, of course, about the roll-through of the deferral, although both have contributed to the profitability path over the last year. We were down year-over-year in unit costs. So we've, I think, given sort of a view in past calls about how much did we have our cost per aligner down year-over-year. We were down mid-teens year-over-year. We were modestly down sequentially. So a little improvement quarter-to-quarter, but mostly year-over-year. And then as we see the cadence for the business going forward, I'd say you can depend on 2 things. One would be just the annualization, if you will, into 2026. So the business sort of reaching profitability. We've told you that third quarter, fourth quarter was a good like absolute level of business to depend on. But that means that next year, we've got just a nice carryover from that improvement trend. And then fleet average is still the best way to think about it on an operating level, and our improvement will come from really sort of the 4 things we've mentioned, right? Continued focus on automation and manufacturing cost out. Growth will be a portion of it, but it's not fully dependable on it or dependent on it. Portfolio, as Paul just talked about, we've been very focused on new products and making sure that we have the best play both for customers but also for profit levels. And then design costs. We've been bringing our design costs down consistently. That's aided actually by one of the products that Paul mentioned or had on the slide rather in the earnings call, which we call StageRx. That simply helps us translate efficiencies from the front end at the clinician level into our treatment planning and design and then ultimately into manufacturing. Paul Keel: And Jeff, we'll send you a transcript. So hopefully, you're not taking notes while you are driving. Operator: Our next question is from Elizabeth Anderson with Evercore. Elizabeth Anderson: I was wondering if, Paul, as you said, this is your seventh call. And I think there are obviously a lot of immediately like fires that have to be put out and then you sort of -- and then you did a great job stabilizing the business and sort of getting it to where we are now. As we kind of think about the business and the market maybe being a little bit stable, I know you've talked about some new products and things that you're excited about rolling out as we think about 2026 and beyond. How do you kind of think about like where your focus areas are like heretofore? Is it sort of continuing to refine sort of things that you've talked about for? Is it new vectors of growth in terms of maybe either organic or M&A driven? Maybe just sort of at a high level, help us think through that as things are moving -- everything moving in the right direction and you're kind of thinking about the next leg. Paul Keel: Yes. Thanks, Elizabeth. Both Eric and I grew up in dental. We were pretty familiar with the Envista portfolio before we joined. We had bid against the assets when we were at 3M and then we competed against the business. And so we had a pretty good understanding of what a strong fundamental business it was. And as I think we've talked about on previous calls, there were a couple of pieces that were disrupted in that kind of '23 and '24 time period. And I put them into 3 buckets. The first is I felt we had inappropriate guidance in the market. And being a highly accountable company, we did what good companies do when they miss, which is anything they can to not miss again. So we were chasing the quarter, which caused us to cut back on investments, which then gets you on that kind of downward spiral in a high-margin business like this. If you don't invest in growth, you lose growth and then you lose gross margin and then you lose ability to fund future growth. So the first thing we needed to do was get the flywheel turning back in the right direction and the $25 million investment that we made in 2024 in retrospect looks like it did that. The second thing related to that is we're a 130-year-old company. And if you go back over time, every period of sustained growth was because we had a heavy focus on new products, not just development but also commercialization. And so we've been very intentional, not just in Q4, not just in 2025, but I think every quarter that Eric and I have been here to make an aggressive but measured investment in new product development. Some of that has already hit. We talked about the Spark piece of that. Many of those programs were underway before we arrived. But we have more in the pipe that I think you guys are going to hear about in '26 and beyond that should be encouraging. And then the third, Elizabeth, was organizationally. There was a lot of turnover at the higher ranks in the business, and that cascaded down through the organization. So at the same time that we're hopefully rebuilding confidence with the investors, job 1 for us is to rebuild confidence with our employees. Fortunately, these are good, high-quality products, and we never lost the confidence with our customers. So we had that stakeholder in decent shape. But I think over the last several quarters, we've rebuilt that confidence in our employee base. You can see engagement going up, and you can feel the energy around here. And so looking forward to what are we focused on now, we just put out the new plan a year ago. So we're squarely focused on executing against that. The 3 priorities of growth, operations and people. And we now have a building sample set of when we deliver against those priorities, it's reflected in the financial output. So the plan seems to be working. And as they say, we'll keep working the plan. Operator: We have our next question from Steven Valiquette with Mizuho Securities. Steven Valiquette: Sorry, on there. A couple of questions here. I guess, just first on really more of a geographic question. I guess really across kind of global dental orthodontic market, some of your competitors are highlighting better end markets in Europe and APAC, but still suggesting challenging end markets in North America in various product categories. But you guys seem to be posting pretty strong growth in North America really across all your key product categories. So I guess I'm just curious, how you think about this way or not, but is there a key variable you can point to in your go-to-market strategy in North America that's leading to these results, whether it's DSO relationships or something else? Or is it just strong execution across each key product area that's just adding up to overall North American results? Just any color if you think about it that way might be helpful. Paul Keel: Yes. Steven, if I understood the question correctly, it's about any geographic differences. So let me answer the question for Q4 and for 2025. In Q4, no, we did not see any major differences by geography. We had strong growth in North America, in West Europe and in emerging markets. And then I think Eric mentioned, we had extra high growth in China because of that comp from Ortho VBP preparation in Q4 '24. So 2025, Q4, we saw strength across all regions. The answer is about the same for 2025. We weren't as strong on a full year basis in China, but North America and Europe were very similar. And then a couple of emerging markets were double digits as well. You're on mute. Operator: Our next question comes from Lily Lozada with JPMorgan. Lilia-Celine Lozada: One on margins, you showed a lot of SG&A leverage. So can you talk through some of the sources of leverage you saw there in the quarter and how you're thinking about SG&A as a driver of margin expansion in 2026? And on R&D, that's been pretty consistently increasing as a percentage of sales. And so should we think about that continuing to outpace revenue growth in 2026? Eric Hammes: Yes, I can take that, Lily. Appreciate it. So the first part, if you look at our adjusted EBITDA margin bridge, I'll just give you the high points on that one again. So overall margins improving in the quarter. I would say the quarter was fairly indicative of what we've seen in each quarter this year or most quarters this year and then for full year 2025. So volume benefits, price benefits. We delivered good productivity across most of our businesses. Our Spark margin improvement year-over-year was significant for us. And then as you mentioned, within kind of the bundling of SG&A, G&A, in particular, was strong for us in the quarter as it was for the full year, where for the full year 2025, we were down 11%. All of that effectively is helping us to offset tariffs and a little bit of FX penalty and then reinvest in the business. And I would say, if you sort of go back to the first question that was asked post-prepared remarks, our guide for next year is not too dissimilar. We'll continue to get margin expansion from growth and productivity. We'll continue to use that to invest in the business at the pace of our performance. And maybe the only difference into 2026 is that we expect FX to be a benefit just given the first half transaction costs that we had. And then sort of the third part of your question on sales and marketing, R&D, I would say, expect us to continue to invest in R&D at a not too dissimilar pace, improving each year and likely improving at a rate higher than growth so long as we can generate productivity, obviously, to be able to do that. Sales and marketing, probably more flat to maybe modestly increasing as an intensity. That's a nod to percent of sales, but certainly less so than R&D. Lilia-Celine Lozada: Great. That's really helpful. And then just another follow-up on VBP. I appreciate it's kind of tricky to call the timing, but I was hoping we could get a bit more color on how you're thinking about the impact when it does eventually come. I think last time you framed it as a net positive to revenues for implants. And so how would you characterize it this time around? Any color on the size of the business is being impacted, the magnitude of the potential impact and whether you're seeing it being a net headwind or tailwind after taking into account the potential volume impacts would be helpful. Paul Keel: Sure. Why don't I take that one? So again, there's 2 VBPs that we anticipate, the first VBP in ortho and then the second VBP in implants. So let me just comment on each in turn. So for VBP ortho, we expect it to look a lot like VBP 1 for implant. What we saw there was kind of a 40% to 45% price decrease that was then met with an equal inverse volume increase. So 100% volume increase to offset the 40% to 45% price increase. And for us, it was a net benefit to total revenues. So we expect something similar in ortho. Of course, there are nuances to ortho, and I'd mention 2. The first is -- in implants, it's easier for the market to expand volume. It's a faster procedure and easier -- easy for me to say anyway, easier to train a dentist to do it. So we saw a more rapid expansion in the patient demand. I think we're going to see less of that on the orthodontic side. It's typically an 18-month procedure treatment, so a little bit harder to expand. And certainly, on the traditional bracket and wire side, harder to expand that available supply through orthodontists as quickly. The other nuance worth mentioning is specific to us, there's both traditional and the clear aligner VBP. We're a large player on the traditional side in China. We're smaller on the clear aligner side. So the clear aligner question is going to impact some of our peers greater in China. Coming on to the anticipated second VBP for implants, it will be much smaller, we think, maybe in the 10% to 20% price decrease level. It benefited us greatly in VBP 1. Because those with large market shares going in tend to get even larger market shares coming out because in the case of premium to challenger implants, that price differential was compressed. And when the difference is smaller, we found more clinicians just trading up to premium. So we were a benefactor of that. Hopefully, that gives you a little flavor, Lily, of the 2 VBPs that should be coming here in '26. Operator: Our next question is from Allen Lutz with Bank of America. Unknown Analyst: This is Dev on for Allen. I just want to maybe double-click on the diagnostic and equipment growth in the quarter and just looking at what that looks into next year. Granted this may be a tough one to parse out even in your seat. But just curious how you think about underlying growth for equipment, call it, versus more onetime-ish benefits. I'm thinking here sort of pent-up demand, maybe an impetus from the advantageous tax code recently or level of inventory in the channel. How do you see underlying equipment diagnostic market volume growth in '26 and then maybe Envista specifically? Paul Keel: So diagnostics, I'll talk in general. So equipment is a bigger category. Equipment includes chairs, handpieces, et cetera. We exited that part of the business previously. So we participate in 3 categories within diagnostics. We participate in 2D and 3D imaging. You're familiar with that. You sit in the chair, they take a picture of your anatomy. We participate in intraoral scanning, IOS, which is a different image capture technology. And then we participate in the software piece, the treatment planning as well as the image management piece. Those 3 categories tend to be the faster-growing part of the broader equipment. We had double-digit growth in our Diagnostics business in Q4, but that was aided by the easy comp from Q4 '24 that Eric mentioned. I think right now, I would call it a low single-digit growing category, and we have outpaced the market for the last couple of quarters. I would expect something similar in the first half of 2026, low single-digit growth, us doing a little bit better than that. And then we'll just have to see how that -- whether that growth catches and the market moves to more sustainable growth. So I'm going to hold off forecasting market growth in the second half for now. Operator: That is all the time that we have for questions today. I will now turn the call over to Paul Keel, CEO, for closing remarks. Paul Keel: Okay. Thanks, Vanessa, and thanks, everyone, for tuning in. Maybe I'll just quickly underline a couple of quick thoughts to put a wrap around the quarter and the year. First, Q4 was another encouraging step forward for Envista with double-digit sales, adjusted EBITDA and EPS growth, and that capped off a strong 2025 with 6.5% core growth also converting to double-digit EBITDA and EPS growth for the full year. Second comment is that our performance was broad-based with all major geographies and businesses once again in positive territory and a good contribution from volume, price and new products. We also drove 2 points of margin expansion and returned over $160 million to shareholders. Third, we continue to focus on executing the value creation plan that we shared at our Capital Markets Day last March. And I think we are seeing encouraging progress on all 3 of our main priorities: growth, operations and people, which brings me to 2026. Our guidance for this year reflects our confidence in building on this momentum. Guidance for core growth and free cash flow conversion are right in line with our medium-term objectives and guidance for EBITDA and EPS are above that medium-term plan. I think that pretty much covers it for today. Thanks, everyone. Have a great day and a great remainder of the week. Operator: Thank you, ladies and gentlemen. This concludes today's conference call. We thank you for your participation. You may now disconnect.
Operator: Good day, and welcome to the Flowserve Fourth Quarter 2025 Earnings Call. Today's call is being recorded. At this time, I'd like to turn the call over to Brian Ezzell, VP of Investor Relations. Please go ahead. Brian Ezzell: Thank you, and good morning, everyone. Welcome to Flowserve's Fourth Quarter and Full Year 2025 Business Update. I'm joined by Scott Rowe, Flowserve's President and Chief Executive Officer; and Flowserve Chief Financial Officer, Amy Schwetz. Following Scott and Amy's prepared remarks, we'll open the call for questions. Turning to Slide 2. Our discussion will contain forward-looking statements that are based upon information available as of today. Actual results may differ due to risks and uncertainties, refer to additional information, including our note on non-GAAP measures in our press release, earnings presentation and SEC filings, which are available on our website. With that, I will turn it over to Scott. Robert Rowe: Thank you, Brian and good morning, everyone. Before I turn to the presentation, I would like to thank our associates around the world for their hard work and dedication throughout 2025. We have made tremendous progress as a company, advancing our 3D strategy to drive growth and leveraging the internal processes of Flowserve Business System to deliver results. Our associates embrace significant change in a complex macro environment and I could not be more pleased with what we have accomplished as an organization. These efforts culminated in outstanding financial performance in 2025 and achievement of our long-term margin targets 2 years ahead of plan. Let's start on Slide 3 with bookings. Bookings for the quarter were $1.2 billion, growing roughly 3% versus the prior year period. Aftermarket bookings grew 10% to $682 million, representing the seventh consecutive quarter of bookings greater than $600 million. Project activity was steady in the quarter. We remain excited about the significant opportunities in nuclear and traditional power with notable awards in these markets, in addition to broadly positive trends in most of the other end markets. Our largest booking in the quarter was a $28 million power award, and we delivered nearly $100 million in total nuclear bookings. Larger engineered projects in the energy end markets across both FPD and FCD remain muted impacting original equipment bookings in the quarter. Our 3D diversification strategy has made Flowserve more cycle-resilient than ever before, with consistent and durable bookings in diverse end markets that are supported by secular megatrends offsetting temporary pockets of softness and more cyclical end markets. We have diversified our portfolio mix, and we continue to expand our aftermarket opportunities while selectively focusing on high-margin engineered projects with strong aftermarket potential. Given our progress to date and positive momentum entering 2026, we are confident our strategic areas of focus will provide the opportunity to drive growth and deliver increasing shareholder value for years to come. I will now turn it over to Amy to review fourth quarter financial results in more detail. Amy Schwetz: Thank you, Scott, and good morning, everyone. Turning to the fourth quarter in more detail on Slide 4. Our strong results reflect the continued effectiveness and resilience of the Flowserve Business System, supported by excellent execution across our global teams. Total revenues grew 4% year-over-year to $1.2 billion, with organic sales growth of roughly 1% and 240 basis points of benefit from foreign currency translation. Sales performance continued to benefit from our diversified portfolio and strong aftermarket activity. Aftermarket sales increased 8% in the quarter, partially offset by a 2% decline in original equipment revenues. OE revenues were lower than we anticipated coming into the quarter, largely due to customer delays and the timing of receiving materials on percentage of completion projects. We anticipate these modest short-term impacts will abate in the first half of 2026. Turning to profitability. Adjusted gross margin reached 36%, a 320 basis point improvement versus last year and our 12th consecutive quarter of year-over-year margin expansion. We continue to advance operational excellence initiatives, 80-20 complexity reduction and cost performance improvements, leading to a full year incremental margin of 95%. With additional SG&A leverage, adjusted operating margin expanded 420 basis points to 16.8%, exceeding our 2027 long-term target range of 14% to 16%. These results drove adjusted EPS of $1.11, an impressive 59% increase compared to prior year. Moving to segment performance on Slide 5. FPD delivered another quarter of strong margin expansion with adjusted gross margin increasing 370 basis points to 37.1%, and adjusted operating margin expanding 350 basis points to 21%. FPD bookings grew 8%, led by aftermarket growth of 12%. Aftermarket momentum continues and we see substantial opportunity to capture more business from our large installed base. Original equipment bookings were up a modest 1% as large engineered project activity in the energy end market remain muted and offset growth in other areas. FPD sales grew 5% to $833 million. This segment exited the year with a Q4 book-to-bill of 1.06x, positioning FPD well for 2026. Moving to FCD. As expected, margin performance improved meaningfully compared to the prior year period, reflecting continued execution of the Flowserve Business System and solid contributions from Mogas. Adjusted gross margin expanded 220 basis points to 34% and adjusted operating margin increased 440 basis points to 19.7%. Mogas delivered accretive operating margins for the quarter, consistent with our expectations at acquisition. Turning to bookings. Although growth remains a priority for FCD, margin improvement has been the segment's primary focus. For the quarter, FCD bookings declined driven by headwinds from our continued focus on the 80/20 program, and lower original equipment awards from project delays. Aftermarket bookings were roughly flat year-over-year. FCD's book-to-bill for the quarter was 0.84x with overall strength in the power end market, reflecting our industry-leading position. Overall, both FPD and FCD posted adjusted operating margins well above our 2027 segment target ranges of 16% to 18%, reinforcing the operational excellence and 80/20 discipline are firmly embedded across our global operations. On Slide 6, excluding the impact of divesting our legacy asbestos liabilities, we generated $199 million of cash from operations in the fourth quarter, delivering 121% free cash flow conversion. This strong performance was driven primarily by growth in adjusted net income and continued working capital management under the Flowserve Business System. During the quarter, we returned $84 million in cash to shareholders, including $57 million in share repurchases. Looking at the full year, we delivered an outstanding $506 million in operating cash flow, a 19% increase versus 2024. Adjusting to exclude the net impact of the merger termination payment and asbestos divestiture, full year cash flow conversion was 97%. For the year, we returned $365 million to shareholders, including $255 million in share repurchases at an average price of $53 per share. We have an additional $200 million remaining on our share repurchase authorization. Our balance sheet remains healthy with net leverage of 1x, providing flexibility for allocating capital for strategic growth opportunities. I'll now turn it back to Scott to provide some context on the full year and our 2026 outlook. Robert Rowe: Thanks, Amy. Turning now to Slide 7. We delivered outstanding results in 2025, including 300 basis points of expansion in adjusted operating margins, significant adjusted EPS growth of 38% and strong operating cash flow for the full year. The persistent strength of our aftermarket business resulted in $2.6 billion of bookings in 2025, representing 9% year-over-year growth. Our 2025 book-to-bill ratio was in line with expectations at 1.0x, and we closed the year with a backlog of $2.9 billion. I'm incredibly proud of our progress with the Flowserve Business System. We are driving improved process and standardization across the enterprise. We are seeing exceptional results with operational excellence as we drive strategy deployment, perform daily operations management, optimize our materials management and conduct real-time problem-solving on the shop floor. We see continued opportunities as we advance these principles to further improve our response to customers, deliver improved financials and increase value for all stakeholders. Our portfolio excellence pillar is on track with all product business units having embedded 80/20 methodology and process into our product strategy and our daily operations. The cultural transformation we have undertaken is impressive and I'm confident that we have further opportunities to reduce complexity and simplify our operations for years to come. While our commercial excellence initiative is in the early phases of implementation, we are seeing wins with the program and are gaining confidence through our early projects that the visibility and processes we are putting in place will drive sustainable growth. Since the COVID pandemic, we have spent years building a more resilient supply chain that enabled us to quickly respond to shifts in evolving market conditions and the broader macroeconomic landscape throughout 2025. In response to tariffs, we successfully shifted sourcing and implemented pricing actions that allowed us to fully mitigate the tariff impact while maintaining a high level of service to our customers. We delivered $4.7 billion in bookings for the year, including $400 million in nuclear awards. Our 4 largest awards during the year were all global nuclear projects, combining to a total of over $150 million, highlighting our strong market position and key customer relationships in this exciting end market. We also entered several strategic commercial partnerships during the year, including an MOU with Honeywell to integrate our Red Raven digital offering into their Forge asset performance management system. This partnership will be instrumental in validating our innovative digital technology and its ability to enhance efficiency for our customers, allowing us to scale our offering for large industrial facilities over time. As Amy mentioned, the year was marked by disciplined capital allocation and a significant increase in cash returned to shareholders, supported by improved cash flow generation in the $266 million merger termination payment. We believe our strong execution and positive operational momentum provide the framework for continuing to deliver enhanced shareholder value in 2026 and beyond. Turning to Slide 8. The Flowserve Business System has transformed our company and the successful integration of Mogas onto the business system has proven that this is an effective model for integrating acquisitions. The realization of cost synergies from the Mogas acquisition contributed to progressive margin improvement throughout the year. Mogas is now accretive to FCD margins, and we believe we are in a position to drive growth and further margin expansion by leveraging all aspects of the Flowserve Business System. Turning to Slide 9. We continue to see M&A as an important element of our disciplined capital allocation strategy and an attractive way to increase shareholder value by growing the business, diversifying our end markets and expanding our margins. We announced an aftermarket focused bolt-on acquisition in December that fits our services and solutions model. And over time, we believe is highly scalable across the global Flowserve QRC network. We also announced yesterday that Flowserve has signed a definitive agreement to acquire the valve and actuation business from Trillium Flow Technologies. Trillium valve serves the nuclear, traditional power, industrial and infrastructure sectors through an offering of market-leading, mission-critical valves and actuators. This strategic acquisition strengthens our valve and actuation portfolio and expands our global reach in attractive end markets like nuclear. Trillium has an extensive installed base of over 200,000 units, including assets in 115 operating nuclear reactors, bringing significant recurring demand for high-margin aftermarket services and parts. This acquisition also increases our available content for new nuclear reactors. We shared last quarter that a large new reactor could represent $100 million of content opportunity for Flowserve and the expanded Trillium valves offering could increase that amount by 15% to 20%. By replicating the successful playbook that we used with Mogas, we expect to leverage all aspects of the Flowserve Business System to increase Trillium's margins and grow the business over time. Turning to Slide 10. I'll provide some context about the operating landscape as we move into 2026. Our end markets have stable, positive trends with the potential for outsized growth in the traditional power and nuclear segments. The general industries end market is benefiting from sustained industrial expansion, notably in mining, pharmaceuticals and water, particularly in North America and the Middle East. Within the energy end market, elevated utilization rates and maintenance activities for large process industries have remained robust. Our large installed base and our ability to drive a higher capture rate is delivering growth in this sector even as some project work has been slow to materialize. The chemical sector continues to represent our lowest growth end market. However, following a period of stabilization in 2025, we remain cautiously optimistic for a moderate recovery in an improved outlook in 2026. Our 12-month forward-looking project funnel remains healthy. All end markets show growth, both sequentially and versus the prior year. In 2026, we expect bookings to grow mid-single digits, assuming a generally consistent macroeconomic environment. Turning to Slide 11. I'll highlight a few key areas of opportunity in our strategy and the Flowserve Business System that support our efforts to deliver continued growth and value creation. First, our growth strategy continues to be aligned to the key global megatrends with significant investment in energy security, regionalization and electrification. As we highlighted last quarter, we are laser-focused on the growth opportunity in nuclear. Flowserve is uniquely positioned as a global leader in nuclear flow control, supported by specialized product offerings, established customer relationships and approvals as well as deep domain expertise, which is now further enhanced with the addition of Trillium Valves. Over the next 5 to 10 years, nuclear energy is projected to become an increasingly integral component of our business with the potential to accelerate our bookings growth above our long-term targeted growth rates. Additionally, we expect to see continued progress with the business system as commercial excellence delivers deliberate and sustainable growth. The strong progress in operational excellence and 80/20 is reducing overall complexity and freeing up capacity within our manufacturing footprint, allowing for the potential of further manufacturing consolidation. We will continue to redeploy resources to drive growth in our best products and deliver differentiated solutions for our customers. Finally, we believe that M&A can continue to play an important role in our long-term growth strategy, given our healthy balance sheet and proven ability to leverage the Flowserve Business System for integration. We will maintain a disciplined eye towards inorganic opportunities that build on Flowserve's current capabilities and create long-term value for our shareholders. With this backdrop, I'll now hand it over to Amy to discuss our 2026 guidance and updated long-term financial targets. Amy Schwetz: Thanks, Scott. Turning to our 2026 outlook on Slide 12. We are well positioned to deliver another year of profitable growth. We expect total reported sales growth of 5% to 7%, with organic sales growth of 1% to 3%, reflecting a healthy backlog, supportive end markets, advancement of our 80/20 initiatives and gradually increasing contributions from our commercial excellence efforts. Reported sales are expected to benefit 100 basis points from favorable foreign currency translation and roughly 300 basis points of benefit from the Greenray and Trillium Valves acquisitions. We have assumed the Trillium Valves acquisition closes midyear and anticipate refining this estimate later in the year based on the final closing date. Turning to profitability. We expect continued growth and operating margin expansion from higher sales and further cost reductions through 80/20 portfolio refinement. Assuming a midyear close, we anticipate Trillium will benefit adjusted operating income and be neutral to adjusted EPS given incremental financing costs. Overall, adjusted operating margin is expected to expand approximately 100 basis points for the full year. We expect adjusted earnings per share of $4 to $4.20, representing a midpoint increase of 13% versus 2025. Our guidance assumes an adjusted tax rate of 21% to 22%. We anticipate the quarterly revenue and earnings cadence to follow historical seasonality with first quarter revenue and earnings being the lowest of the year. Original equipment bookings are expected to accelerate in the second half of the year, largely driven by increased activity in the Middle East and escalating nuclear investments and we remain confident in continuing to expand our already healthy aftermarket capture. First half revenues will be impacted by ongoing headwinds from 80/20 and the backlog composition. As we enter 2026, we anticipate converting roughly 76% of our existing backlog into revenue in the next 12 months. A conversion factor lower than recent years, given an increasing mix of longer tenure nuclear projects and reduced OE energy projects. All in, first half earnings are expected to represent roughly 40% of full year earnings. Turning to Slide 13. Our consistent, disciplined approach to capital allocation continues to deliver value for shareholders. In 2025, we returned $365 million to shareholders through dividends and share repurchases, completed the acquisition of Greenray to strengthen our aftermarket capabilities and divested legacy asbestos liabilities, all while improving our leverage levels. Moving into 2026, we remain focused on strategically deploying capital towards growth-enhancing opportunities, while staying committed to maintaining our investment-grade rating. In 2026, capital expenditure investments to drive organic growth and efficiency in our operations are expected to be $90 million to $100 million and we anticipate at a minimum, repurchasing shares to offset equity dilution. Turning to Slide 14. I'm extremely proud of the progress we've made against our 2027 financial targets since establishing them in mid-2023. Though the macro environment has presented unforeseen challenges, we remain firmly on track to deliver our sales and adjusted EPS goals. We have also delivered exceptional margin expansion since launching the Flowserve Business System. Over the past 2 years, adjusted operating margins have improved by 530 basis points and we reached our 2027 margin target 2 years ahead of schedule. FPD contributed meaningfully to this performance, while FCD's margin improvement has accelerated recently, given progress on operational excellence in our 80/20 program. Importantly, the structural enterprise-wide improvements we've made through the Flowserve Business System along with sustained operational rigor, give us confidence that these gains are durable with more opportunity to enhance margins over time. Turning to Slide 15. Continued momentum in both growth and profitability forms the foundation of our new 2030 long-term financial targets. We are targeting a mid-single-digit organic sales CAGR from 2025 to 2030, supported by ongoing commercial excellence initiatives, our 80/20 progress and our expected growth across end markets over the cycle. We believe disciplined M&A represents an opportunity to further enhance our sales growth profile over time. Turning to margins. The success of the Flowserve Business System provides confidence in our ability to continue driving margin enhancements. Commercial excellence is in the early stages, and we anticipate our 80/20 program will continue delivering benefits through 2030. We also see ongoing benefits from operational excellence as we continue to improve our execution and accelerate roofline consolidation. Overall, we are targeting 20% adjusted operating margins by 2030, representing an average annual expansion of 100 basis points. With the expected top line growth, expanding operating margins and additional capital allocation opportunities, we are targeting a double-digit adjusted EPS CAGR from 2025 to 2030. I'll now turn it back to Scott for closing remarks. Robert Rowe: Let's turn to Slide 16 to close out the prepared remarks. 2025 was a tremendous year for Flowserve. I am proud of our achievements and the significant progress made by our associates, culminating and delivering our 2027 margin target 2 years ahead of schedule. Looking forward, we are well positioned to continue advancing and unlocking even greater potential for the company. Our updated long-term financial targets highlight our commitment to growth and further improve profitability. We are confident our strategic approach and the Flowserve Business System have positioned the organization for continued, sustainable growth and margin improvement. And with that, I'll turn the call back to the operator for Q&A. Operator: [Operator Instructions] We'll take our first question from Deane Dray with RBC Capital Markets. Deane Dray: Just I thought I'd give you a shout out for the quarter and for the year, great job on margins and free cash flow. So great progress there. And just maybe first question, can we talk about the organic revenue growth was a bit light this quarter and also the guide is a bit light for '26 on the organic side. And Amy mentioned some of the timing of projects, percentage of completion. Just some context there, size for us. And how does that -- especially percentage of completion, how does that kind of come through in the first half of '26? Amy Schwetz: Sure. So if we look at the fourth quarter revenue, probably about 50 basis points or a little bit higher than that of revenue headwinds from engineered projects on POC revenue that were pushed into the first half of the year. That was largely due to either customer delays or delays in getting inventory into some of our facilities that created that headwind. That will work itself out in the first half of the year. But as we look at our backlog that's in place in the first half of the year, we're really -- we're looking at revenue conversion in 2026. That's a little bit lower than what we've seen in prior years. So about 76% of our current backlog will turn in 2026. And it's really the tale of 2 cities, if you think about our business today, a really strong aftermarket, which can convert into revenue really quickly when it comes into the backlog. And then if we look at the strength of the nuclear market, that takes a little bit more time to develop through the system. And so that's the movement that you're seeing in revenue conversion. So in the first half of the year, we'd anticipate growth to be muted as we look at that. And so you think about that in 2 ways. One, both the backlog that's in place. And the second piece of that is really 80/20 efforts that accelerated in the second half of the year wrapping around into 2026. I'd just comment overall that what we've been trying to do with this business is create a much more resilient business model. And so if we think about where we're at from a margin expansion standpoint, we built a model that we think margin expansion can continue to happen even in periods of time when revenue growth is muted. So we remain bullish on our opportunities to increase margins in the first half of the year, but we'll expect for some of that revenue growth to accelerate in the second half. Deane Dray: Amy, that's really helpful. And just as a follow-up and I really didn't think I'd be asking this question last quarter, but here I am asking it now. Can you talk about the opportunity in Venezuela. I mean I covered Flowserve for a long time, Venezuela was a meaningful business for you up until like 11 years ago. So you've had a presence, you probably have good content there. And maybe just how -- what is the opportunity? What's the time frame? And what should we be watching for? Robert Rowe: Yes, you've Flowserve for a very long time, Venezuela was a meaningful market for us. This was before I got here, kind of that 2010 to 2014 time frame. And at one point, we were doing probably at the most roughly $80 million of revenue a year. We had 3 QRCs that were fully operational and quite frankly, a very healthy business. The good news today is we have a large installed base across pumps and valves. And so if somebody were to go in and resume operations and start to invest in the country, we are well positioned to support that. We currently have 1 QRC operational with a handful of people and we're confident that we could kind of restart operations when appropriate. With all of that said, we don't have that in our 2026 numbers. I'm not going to predict or forecast to win if somebody will commit to go into the country and get things moving. But I would say if and when it happens, Flowserve is prepared to kind of pick back up and it will be a really nice opportunity that wasn't planned. And like you said, I certainly did not expect this in the last time we spoke in the Q3 earnings call. Operator: We'll take our next question from Mike Halloran with Baird. Michael Halloran: Can we just talk through the simple question here, the confidence in the mid-single-digit order progression this year. I know I certainly heard the front back half but maybe some more detail on where that's stemming from what your customers are saying and any specific areas that you think drive it more than others? Robert Rowe: Yes, absolutely. I'd say, Mike, we feel really good right now about mid-single digits. Obviously, the world is a dynamic place and we just talked about Venezuela, we can talk about other countries. With that said, we've got a lot of confidence in what we're doing. The teams are working really hard to grow the business. And I'll just kind of run through some of the reasons why we believe that mid-single digits is a good number. And I'll also just add, we believe that's an organic number. And so I'm sure we'll talk about Trillium here very soon in one of the Q&A. But when we talk mid-single digits on the bookings side, we were really thinking organic. And so maybe I'll start with our aftermarket, and you've seen the numbers here. Our aftermarket continues to grow as we get more focused on our installed base and improving our capture rates. We believe that momentum is incredibly strong and we believe that we can continue to grow the aftermarket at least at the mid-single-digit levels. And so that's half of our business. And so we've got a team that's highly focused on that, great customer relationships and we continue to find more opportunities to expand that. And then on just the end markets, the single largest growth factor for us in 2026 and beyond is the power end market. And we talked a lot about nuclear in the Q3 earnings call. But traditional power is doing incredibly well additionally. And so we feel really good about those end markets in power being at least a double-digit number for us. And then general industries is also strong. And so we're seeing an uptick in general industry kind of project and base activity that's primarily in North America and a little bit in the Middle East and in some parts of Latin America as well. And then finally, just geographically, we didn't have a great year in the Middle East on the project side. Some of that was timing. Some of it was delays in spending on the type of work that we do really well in the Middle East. But we do have visibility to Middle East spending accelerating and picking up in 2026. And that's going to be a little bit more kind of mid- to back year weighted but we feel really good about our ability to convert orders in the Middle East. And then just lastly, when we look at our project funnel, we have seen an increase both sequentially and year-on-year in our project funnel, again, giving us confidence that mid-single digits is a place that we feel pretty good about. Michael Halloran: Great. Super helpful. And then on Trillium, congrats on getting that portion of the company, good assets. So twofold question here. First, with the 70% power exposure, what kind of momentum are they seeing on the order side? Is it similar to what you just talked to? And then secondarily, maybe just talk through the commercial and cost synergy opportunity as well. Robert Rowe: Sure. Yes. We're excited about Trillium. It's a good asset. For those that remember, this came out of the Weir business. And we're buying -- just to be super clear, we're buying the valve portfolio of Trillium. And we believe that they've got kind of best-in-class valve assets that serve mission-critical flow control solutions, primarily in nuclear and the traditional power markets, and that makes up 70% of the business. Additionally, it's a high aftermarket contributor. And so we feel really good about our ability to leverage our QRC network to tap into their 200,000 valves and actuators that are around the world and continue to grow that. Like us, they've seen a nice healthy kind of run rate in both the nuclear and the traditional power bookings. And so this is something that we like the positive momentum in those end markets and building backlog as we kind of moved into the transaction. And so we believe that with our kind of nuclear relationships, the strong customer presence, the end market kind of tailwind on power, we're pretty excited about the commercial opportunities here to leverage what we have the ability to grow this business with some of the nuclear outlook. And I would say that's obviously the new nuclear reactors some of the life extensions in nuclear and then potentially and when things move forward in SMR, this business is positioned well to take share in that upcoming and emerging market. And so all in all, we feel good. Just on the synergy side, we didn't publish a number on the cost synergy. I would say that there are cost synergies in this business. It would be exactly what you would expect. We'll use our operational excellence program in the Flowserve Business System to do exactly what we did with Mogas to get the manufacturing improvements, the supply chain savings. We will run 80/20 very quickly in the portfolio. In fact, we had a conversation last week about starting to pull that data in the right way that allows us to launch 80/20 right out of the gates. And there will be some roofline consolidation as we move forward as well. The one thing I will highlight that this is a carve-out, so it's owned by private equity today. We're carving out the valve business. And so the overhead and some of that corporate synergies won't come through like you would normally see. But overall, I'd say a high level of confidence that we can continue to grow this business and that we can move the margins forward running the Flowserve Business System playbook. Operator: We'll take our next question from Amit Mehrotra with UBS. Amit Mehrotra: I wanted to talk about the 2030 outlook and obviously, the implied acceleration in growth after '25 and what you're guiding for '26. I assume it's because of what you're seeing in the power bookings. I think there was -- they were up mid-teens in the quarter. And obviously, now that's becoming a bigger part of the business with Trillium, maybe high teens or something like that and nuclear in particular. Maybe just talk about that and what you think those things actually mean for kind of the structural change in through-cycle growth once we get towards the end of this year into '27? Robert Rowe: Sure. Yes. I'll just tie it to like some of the mega themes that we're seeing. Obviously, electricity is a big one, and that's something that's important around the world to drive security and then further regionalization and then there's a digital component. And so all of those things have played into kind of how do we think about the long term and how do we grow our business. The other thing I would say is when we think about our Flowserve Business System, we've been hitting 80/20 hard. We've put a little bit of a dampener on some of the growth as we've been focusing on our margins and cleaning up that portfolio, the heavy lift of SKU reductions is essentially complete, and now we've launched commercial excellence. And so we're about 6 months into commercial excellence. We believe we have a long way to go. We are in the very early innings here. And that, again, gives us a foundation to grow the business for years to come. And so I think mid-single digits here on the long-term 2030 makes a lot of sense. We've got many levers to pull to drive that growth. And we need the macro environment to hold up. But right now, we think the mega trends and what's going on in the world should support this target and the team is very focused to drive this growth. Amy Schwetz: Amit, the other thing that I've mentioned, and this is more formulaic in nature, is that if you look at our backlog conversion in 2026, which is a bit of a headwind in terms of organic growth. With the nuclear component, that's really a tailwind for us in terms of 2030 targets. So we've got a large portion of our backlog that's going to materialize over the next 5 years and really presents an opportunity for us to compound from a revenue growth perspective. Amit Mehrotra: Right. I guess that was my point, right? At the end of the day, if you look at the compounded growth over time versus what you're doing in '26, it implies a step-up in '27, exactly that point. Can I just ask another question on general industrial and what you saw? Because obviously, there's a view right now that cyclicals are doing quite well because of this anticipation of some improvement. Are you seeing any evidence of that in your bookings? And then just related to that backlog conversion, I think you might have mentioned that earlier, I joined a little bit later. But is there an EPS cadence that gets maybe pushed out a little bit more to the back end because that backlog is converting a little bit later? Robert Rowe: Yes. I'll let Amy hit the backlog conversion. I'll start on the general industrial side. So general industries has been really strong for us this year. We continue to make progress. A lot of that's part of our 3D strategy and the diversification and just getting the teams very focused in this market. And so I think we've been able to take a little bit of share here as we lean in on the diverse end markets that we've got a product and offering for. And quite frankly, we're seeing nice growth in North America, parts of Latin America on general industries and then there's parts of the Middle East that this is working as well. Some of the themes here would be the water markets, pharmaceuticals and then just to say just kind of broader industries across the board where we're able to put full control product in. Amy Schwetz: Yes. And from an EPS cadence, obviously, it's going to be impacted by some of the revenue cadence that we talked about. We're really going back to a more typical Flowserve year, which looks more with the first half being muted from a volume perspective. We're still confident about our ability to perform well and expand margins over that period of time, but probably about 40%, maybe a little bit more of our EPS will come in the first half of the year, with the remainder in the second half. And as this is always the case, our first quarter, we would expect to be the lowest quarter of the year from an EPS perspective. Operator: We'll take our next question from Joe Giordano with TD Cowen. Joseph Giordano: So we've touched on this. But like on the 2030, how much of that -- sorry, how much of that margin guide is dependent on volume. Because, we're being fair, that's where you're going to get the biggest pushback in the mid-single-digit order growth this year. A lot of that's probably in 2Q on an easier comp. Like organically, we just haven't seen really going above that $1.25 with like a thrust. So like if I told you that the top line, if I wanted to push back on that a little bit, how much of that margin do you think you still get independent of volume. Robert Rowe: Yes. So Joe, I'll start. I'm sure Amy will chime in on this one, too. I'd say we feel really good about our ability to drive margins. And so when we think about our plan, the way we look at things is the initiatives and the actions we need to do to drive margin expansion. And if you kind of look backwards, right, we haven't had significant revenue growth over the last 2 years but we've been able to expand margins significantly. And so obviously, some of the, I'm not going to call it, low-hanging fruit because it was a lot of work, but a lot of the bigger gains have been realized. And we've got, what I'll call is to get to the 20%, a steady progression of margins of 500 basis points or 100 basis points approximately every year. And I just think through operational excellence 80/20 still has more room to run. The ability to continue to get a better mix with aftermarket, all gives us confidence that we can continue to do this. And so obviously, revenue growth and leverage would help us substantially but I feel confident that we can get to these margins even without significant revenue growth. Amy Schwetz: Yes. And I -- the only thing I'm going to add to what Scott has said is those actions have begun. So as I referenced in my remarks, roof line actions are accelerating. We're seeing the benefits of 80/20. That program is well established now within our -- within our BUs and as part of our Business System. And so we feel very confident that the actions have been put in motion to help deliver those margin -- or to help deliver those improved margins regardless of what happens from a volume perspective. That said, it's a two-pronged approach. We are focused on growth, commercial excellence, is in its early days. I'm excited about that program. I think it's something that's going to pay dividends. And so when you combine the focus on commercial excellence with the end markets that we're serving, I think it's going to be a good recipe for revenue growth over time. Joseph Giordano: Fair enough. And then on -- you're making a bet here on nuclear, both with your wallets and with your messaging and I think all of us understand why. If, for whatever reason, like the power build-out is just significantly more gas turbines and things like that and less nuclear than what the current view is, what are the implications for Flowserve in terms of -- I know you're on those things, but lower content and what that would mean for like these targets and things like that. Robert Rowe: Yes. I mean I'll just start by saying, we do believe that nuclear progresses forward. I've had several conversations with customers, even in the last couple of weeks. And so I just think nuclear has to be a part of the equation as we go forward. Let's just say that it's not as optimistic as some of the numbers we put out in Q3, which I think were right down the fairway of what would be kind of public commentary on nuclear growth. But if that were to happen and the shift goes towards more of the traditional power, we're well positioned for that growth. Like we've got products that support single cycle combined cycle, we can support coal in China, we get a little bit of content on some of the renewables as well. And so maybe the content isn't as high. Certainly, the barriers to entry in those products are not the same as nuclear but will still drive growth, and we're well positioned to do that as we go forward. The Trillium acquisition supports that as well, right? So they have a nice traditional power part of their business, and we'll continue to work that. And then finally, I'd just say that on the aftermarket side, we continue to get -- we'll continue to get the nuclear aftermarket and even on the traditional power side, folks are investing in whatever form of power generation do an upgrade or a re-rate or get more capacity out of that asset. And so as that work evolves, we're typically well positioned to get the aftermarket work around both traditional and nuclear. Operator: We'll take our next question from Andy Kaplowitz with Citi. Unknown Analyst: This is actually Jose Sulca on for Andy. I did want to touch on Mogas. It seems like you've been able to integrate that now and you're getting that accretion to segment margins. So maybe you can talk a little about what you've learned from that integration. But I'm also curious, if you could talk about what you're seeing for bookings opportunities for that business, given that Mogas is about 50% mining exposed and some of the mining read-throughs, there's been recently has been positive. Robert Rowe: Yes, absolutely. So we remain incredibly excited about the Mogas transaction and the product we got. And as a reminder for folks, this is a critical service ball valve kind of at the highest end in terms of the coatings and the technology and it works in the harshest environments. And so it works in refining harsh chemicals. And then on mining as part of the kind of that asset leaching process to extract minerals that would be -- Amy likes to say, this measured by the ounce and not the ton. And so these are the precious metals. And so we feel good about the end markets here. On the bookings, I'll just say, quite frankly in 2025, we're slow to materialize. The project funnel for 2026 looks really healthy. And so we've got a good line of sight in terms of the ability to grow this business. Just on the integration, I would say we followed, what I would call, a very traditional playbook in terms of how to run an integration. We had our day 1 activities. We implemented the Flowserve Business System, we drove towards synergies very much a programmatic way or approach to do this, and I couldn't be more pleased with the process and the results of the integration itself. And so everyone got paid on day 1. We moved our systems conversions over very quickly. We got the business system in place. We did massive fixes on the shop floor. It looks completely different than what it did a year ago, and we're able to serve our customers at a much higher level. And so with all of that, the margins have moved up significantly and progressively throughout the year, and we're confident we've got a really nice business as we go forward in 2026 and beyond. Amy Schwetz: And Jose, one thing I might add on this one as well is this is a technical sale in terms of the types of valves that Mogas is as part of our commercial excellence program. We have trained over 100 of our valve sales force members on the Mogas valves technically and vice versa within the sales force that we brought with us from Mogas on our severe service applications and products. And so we really feel like going into 2026, we're well positioned in this area of the business. Unknown Analyst: Thanks for the color. I did also see there was a comment on the slide about you guys haven't fully mitigated tariff impacts in 2025. And I'm sure that wasn't easy. But with regards to the 2026 guide, I was curious if you guys could talk about what you're baking in for tariffs? And how much of the higher metal prices is accounted for in the guide currently? Robert Rowe: Yes. So the team has done a really nice job in what I'll call an incredibly dynamic environment. And so our -- we learned a lot of lessons with our supply chain team in 2020 and 2021. We've been able to implement that and put that in place here to really be more nimble than ever before. And we were able to successfully through the combination of repositioning the supply chain and driving some cost savings with supply chain, combined with pricing actions to fully mitigate the impact in 2025. And I would just say the guide in 2026 is net of tariffs. And so we believe that we can continue to carry that momentum forward. We're doing that through pricing and we continue to take supply chain actions. And hopefully, we won't be talking about tariffs for much longer, but I can't predict that. And so we'll continue to be nimble. We'll continue to be able to reposition, but we're in a really good place with the health of our supply chain and our -- just our team has done a really nice job working through an incredibly dynamic situation. Operator: We'll take our next question from Brett Linzey with Mizuho. Brett Linzey: I wanted to come back to the procurement issue in the quarter. Can you just talk about the nature of the dynamic and which components you might be referring to? And then anything on the remedy actions in place that give you the better visibility this year? Amy Schwetz: Yes. I wouldn't necessarily call it a procurement issue. I'd call it delays in timing of receipts, not necessarily on one specific type of part or component. These things happen from time to time when they happen at the end of the year, it's a little bit more painful than others. But the supply chain is functioning well, and we continue -- when we see isolated incidents like this, we deploy expeditors to our vendors pretty quickly so we can get back on track. Brett Linzey: Okay. Great. And then just a follow-up on nuclear. So on Slide 9, you gave the content opportunity is now 15% to 20% on new nukes. Where was that previously? And just I guess the spirit of the question is trying to take your Q3 commentary on some of the dollar figures and where that's moved to with the content expansion. Robert Rowe: Yes, absolutely. No, it's a good question. We'll just be super clear. And so in Q3, we said for a new nuclear reactor and that's roughly the 1 gigawatt reactors, so the large ones that Flowserve's historical content is roughly $100 million per reactor. Obviously, it depends on who the operator is and where it is geographically but that's kind of our opportunity now with Trillium Valves. We believe that the $100 million expands by 15% to 20%. And so now we're at $115 million to $120 million per reactor. And so the other thing I would just add is, we've done -- on the valve side, we've done really well on our mainstream isolation valve, which is gate valve technology. We've done well on actuators also. With Trillium, we pick up essentially 4 new products. And so we get a triple offset butterfly valve that's nuclear certified. We get a check valve. We get a different type of actuator and we get a control valve. And so we're pretty excited to round out that portfolio and that's what increases our content. And so this is something that our team is really excited to get a hold of and get in front of the right customers and grow our nuclear opportunity. Operator: We'll take our final question from Nathan Jones with Stifel. Andres Loret de Mola: This is Andres on for Nathan Jones. Just regarding 80/20, you talked a little bit about this earlier, but maybe after 2, 3 years of 80/20 implementation, can you maybe talk about successes and where the company still needs to improve? You made note of a couple of improvements earlier, just to round it about. Robert Rowe: Sure. Yes. 80/20 is a great thing to talk about. And we're incredibly excited about the success that we've achieved on 80/20, and we're now kind of going into that -- we're in our third year. It will be the second kind of full year of this. But all of our product business units are now fully on the 80/20 program. We've seen incredible success on the reduction of complexity, a more focused organization. We're seeing the margins come through. And we're also starting to see growth where we focus on our best products and our best customers. In the Q3 earnings deck, we put some numbers out on one of our business units, actually, the industrial pumps that was our initial one. And so just as a reminder, we showed 150 basis points of margin improvement with industrial pumps attributed to 80/20. We saw a 45% SKU reduction. We saw a 21% increase in that target selling. And I would say that, that is represented across all of our business units, and we certainly expect to see similar wins as we go through the 2026 program. Companies that do this incredibly well would see roughly 100 basis points of margin improvement a year, over kind of a 4- to 5-year period. And so I think we're fully on track. We've had a little bit more success in 2025, but I feel like we're going to be in a great place to continue our efforts. And the other thing, I'd just say, is as we reduce complexity of the products, it just allows us to do things differently, operationally, potentially reduce our roof line over time and continue to reduce cost in the overall Flowserve. And so this has been, quite frankly, an unlock for us and continue to be excited about the progress that we can make in 2026 and beyond. Andres Loret de Mola: Awesome. And then just on the balance sheet, obviously, still remains flexible after the deal with capacity for further capital allocation, is the focus on just maybe further M&A or the integration of Trillium in the short term? Amy Schwetz: Yes. So we do feel like we're in a great place from a balance sheet health perspective, about 1x net levered at the end of the year. And so it does give us an opportunity with the substantial cash flow generation that we have and expect to continue to have to look for ways to allocate capital, to create value from our shareholders. I think the last 6 months has been a really good road map of how we think about capital allocation. We've been relatively balanced. But in 2025, we saw a really great opportunity to invest in Flowserve. And so we bought back about 250 million shares at an attractive valuation. And you also saw us be active in the M&A space. And so whether it's the small tuck-in that we had with Greenray or the slightly larger Trillium announcement from today, we think that M&A can play a role in growth of the business. And just to remind everyone what our filters are, when we look at that, one, it's got to fit the strategy. We look at Greenray from an aftermarket perspective and the ability to expand that business and you look at Trillium in terms of the diverse markets that they serve, including a really heavy emphasis on power and both tick the boxes there. And then lastly, we're going to do this in a way that financially makes sense. So we expect accretion to margins and cash flow and we're going to protect our balance sheet going forward. But we're excited about the ability to really continue to broaden the product portfolio to continue to make our end markets very resilient and using M&A to do that. Operator: That will conclude our question-and-answer session. At this time, I'd like to turn the call over to Brian Ezzell for any additional or closing remarks. Brian Ezzell: Yes. Thank you to everyone for joining the call today. One item I'll note, we are planning to host an Investor Day later this year to provide further insight on our strategic and financial plans. We're going to provide more information soon about that event, so you can plan accordingly. In the meantime, if you have any questions on Q4 results, please reach out to the Investor Relations team. And with that, we appreciate the time, and have a great day. Operator: That will conclude today's call. We appreciate your participation.
Operator: Ladies and gentlemen, welcome to the Soci�t� G�n�rale conference call. Gentlemen, please go ahead. Slawomir Krupa: Good morning, everyone, and thank you for joining us today. I'm very proud to report strong performance numbers for 2025. As a result, we are upgrading our 2026 target for profitability and confirming all other CMD targets as well. 2025 was a defining year. We set new records for revenues with EUR 27.3 billion and for group net income, which reached the EUR 6 billion mark. The successful transformation sets the stage for us to sustain long-term profitable growth. Significant improvement in our financial results in 2025 cuts across all metrics, outperforming the targets we upgraded in Q2 '25. Our revenues were up by almost 7%, excluding asset disposals. That's more than double our target of more than 3%. Even more remarkable is that all our businesses contributed to the strong performance. As you know, our commitment to reduce our cost base, both structurally and significantly is absolute. The proof point here is the 2% decrease in costs, excluding asset disposal over the past year. That's that 2% is far better than what we targeted, which was a decrease of at least 1% and it translates into a cost-to-income ratio of 63.6% in 2025, an improvement of more than 5 percentage points over the last year. Keep in mind, this is also better than the 2025 target we set of a cost-to-income below 65%. Cost of risk is within our guidance at 26 basis points, reflecting the strength of our asset quality and our capacity to effectively manage risks across the cycle. All of this has significantly boosted our profitability with a ROTE reaching 10.2% for the year and 9.6%, excluding capital gains on disposals. This is above our 2025 target of around 9%. These earnings allowed us to further strengthen our capital by 20 basis points. CET1 ratio now stands at 13.5% after Basel IV regulatory impact and after the extraordinary distribution of EUR 2 billion through 2 additional share buybacks. As a result, the Board has decided to propose a total ordinary distribution of EUR 2.7 billion, up 54% compared to 2024, including a dividend per share of EUR 1.61 and a share buyback of EUR 1.462 billion. Let me put all this into perspective. These results underscore the priorities we established 2.5 years ago and have consistently executed on ever since. Our first decisive step to significantly strengthen the bank's capital. ensuring us both ample capital buffers as well as means to support our growth. Today, with a CET1 ratio of 13.5%, the group is fully dedicated to fostering a sustainable long-term growth and consistently creating value for shareholders. Our second strategic priority to enhance efficiency. The decrease in our cost-to-income ratio of more than 10 percentage points versus 2023 is a significant accomplishment. We still have a lot more work to do, and we will do everything to make sure this positive trend continues. Third, to significantly improve profitability. In 2025, we achieved exactly that. Our ROTE is now more than 4 percentage points higher compared to the 2018, 2022 average. results, sustainable value creation is now a reality with a total shareholder return of 237% over the past 3 years. As I mentioned a moment ago, all our businesses contributed to the strong performance. First, French Retail, Private Banking and Insurance recorded strong revenue growth of 4.2% versus 2024, restated for asset disposals and the impact of short-term hedges. It was driven by a pickup in the net interest income and also by a record high assets under management, both in life insurance and private banking activities, where Bank gained 1.9 million new clients, and that brings its total close to 9 million. It is leading the market as a fully fledged bank with average client maintains a balance of around EUR 9,000 in assets under administration, remained profitable for a third year in a row, proving the strength and sustainability of its business model. BIS had a record year in terms of revenues, delivering another excellent performance with a high RONE of 16.7% under Basel IV. The result of our strategy, Global Markets continue to deliver current and predictable revenues reaching in 2025, a 16-year high and with a high RONE above 20%. FMA increased substantially its origination volumes at a high marginal rate of return, thanks to increased capital velocity. Business also benefits from strong positioning on key sectors like energy and infrastructure. Within International Retail, KB and BRD consistently demonstrated solid commercial performance with the successful optimization and continued digitalization of their respective distribution networks. And last, our teams at Ayven have done an outstanding job managing all the challenges that come with a complex integration. That integration is progressing as planned, and our decision to focus on profitability and risk management has resulted in a steady margin improvement throughout the year, but also allowed Ayven to maintain a sound position while reaching its 2025 financial targets. In light of this performance, the total distribution for 2025 will amount to EUR 4.679 billion, a growth of 169% versus last year. On ordinary distribution for 2025, we are proposing a dividend per share of EUR 1.61, of which EUR 0.61 were already paid in October 2025 through the introduction of our first interim dividend. As a result, the final dividend of EUR 1 per share will be paid in June 2026, subject to the AGM approval. All in all, the total dividend per share represents an increase of 48% versus last year. Our ordinary distribution also includes a share buyback of EUR 1.462 billion, up 68% versus last year. We have already obtained the ECB approval for this program. There's no change in our ordinary distribution policy with a 50% payout ratio, an interim dividend and a balanced mix between cash dividends and share buybacks. In terms of extraordinary distribution, as you know, in 2025, the group launched 2 extraordinary share buybacks for a total amount of EUR 2 billion. Please note here that in the resolutions, authorizing share buybacks is mandatory to include a maximum purchase price. The resolution voted during the last AGM when the share was around EUR 40, maximum purchase price authorized was EUR 75. Therefore, as the share price reached the maximum purchase price authorized by shareholders, we had to pause the buyback launched in November 2025 to remain compliant. This does not change our capital return strategy. And obviously, we will submit a new resolution to the next AGM to increase this limit substantially. Going forward, distribution of excess capital will continue to depend on our capital allocation decisions. And as stated last year, in the best interest of shareholders, we are proactively managing our capital above 13% CET1 ratio. This may include both extraordinary distributions and disciplined profitable growth. We will address potential extraordinary distribution once a year during the release of the Q2 results. At the same time, we will continue to apply strict capital allocation criteria towards the most profitable businesses. Given our current capital position, we are increasing our RWA growth target for the businesses. And in 2026, we expect an organic RWA growth of around 2%. Now our 2026 targets reflect our continued focus on value creation through growth, operating leverage and sound risk management. Execution of our road map to date leads us to upgrade our ROTE target versus the one set at the CMD in 2023. So for 2026, we expect an NBI growth above 2% versus 2025 on a reported basis, a net cost decrease of around 3% versus 2025 on a reported basis, cost-to-income ratio below 60%, cost of risk within the 25, 30 basis points range. And finally, a ROTE above 10%. In 2026, we will continue to deliver solid revenue growth plus strict cost discipline. We expect revenues to grow by more than 2%, driven by strong commercial momentum across all businesses. We'll support that growth by allocating higher levels of capital to the most profitable businesses. Revenue growth will also benefit from a strong decrease in BoursoBank's planned acquisition costs as we target a net profit above EUR 300 million in 2026 at BoursoBank. Global Markets revenues are expected to be above the top end of the guidance range between EUR 5.1 billion and EUR 5.7 billion. This new range is in line with our former guidance actually as we fully consolidate Bernstein U.S. starting January 1. And of course, cost control remains a top priority for the group. We're confident in our ability to further reduce operating expenses by around 3% in 2026. What makes this possible is our ongoing group-wide transformation process. Now at the business level, all of our 2026 financial targets are confirmed. As mentioned before, the Global Markets target is adjusted for the consolidation of Bernstein U.S. and is now between EUR 5.1 billion and EUR 5.7 billion. It's also consistent is our resolve to pursue these goals with precision, determination and a strong sense of discipline. I will now turn things over to Leo, who will review our Q4 performance. Leopoldo Alvear: Thank you, Slawomir, and good morning, everyone. Let's now deeper dive deeper into the details of Q4 '25 performance. The group's net income stands at EUR 1.4 billion, up 36% versus Q4 '24, resulting in a ROTE of 9.5% versus 6.6% in the same period the previous year. These solid results are supported by the continuation of the strong commercial momentum in all businesses as well as by a tight discipline over costs. Looking more closely, revenues are up 6.8% versus Q4 '24, excluding disposals, well above our natural target of above 3%. Meanwhile, costs fall further in absolute terms, down by minus 1.4%, excluding asset disposals and confirming, therefore, our constant cost control. As a result, our operational leverage improves further, the cost to income of 64.6% in Q4 '25, down from 69.4% in Q4 '24. Asset quality-wise, the cost of risk remains contained at 29 basis points within our annual guidance of 25 to 30 basis points. Let's move now to Slide 12 to further explain the main revenue and cost drivers in Q4. Group revenues increased by 6.8% in Q4 compared with the previous year when removing for comparison purposes, around EUR 325 million of revenues related to completed disposals. In French Retail, Private Banking and Insurance, revenues grew by 7.9% in Q4, excluding disposals. The increase is mainly driven by NII, which is up by 8.5%, excluding asset disposals. In Global Banking and Investor Solutions, revenues eased by 2.3% compared to a very strong Q4 '24, which was the best quarter ever in Global Markets. Revenues in Mobility, International Retail Banking and Financial Services were up by 8.6% versus Q4 '24, excluding disposals. Finally, revenues at the Corporate Center grew by EUR 157 million, supported by efficient management of our liquidity position. Regarding costs, operating expenses, excluding disposals, declined further by 1.4% this quarter. Group reports a structural cost reduction of EUR 89 million, which more than offsets the EUR 26 million of higher CTA. Moving on to cost of risk on Slide 13. Cost of risk stands at 29 basis points in Q4 '25 and 26 basis points for the whole year '25. This is in the lower range of our through-the-cycle guidance. Cost of risk this quarter mainly comprises Stage 3 provisions, which accounts for EUR 435 million and remained broadly stable versus Q3 '25. In Stage 1 and Stage 2 provisions, we had a limited net reversal of EUR 26 million, which conceals our prudent approach. As a result, total outstanding Stage 1 and Stage 2 provisions remained high at EUR 2.9 billion and stable from last quarter. Asset quality remains solid, as illustrated by the NPL at 2.8% in Q4, broadly stable when compared with last year and last quarter. And finally, the net coverage ratio remained high at 82% in Q4 '25 and stable versus Q3 '25. Let's now turn to Slide 14, where we can see the evolution of our strong capital position. The CET1 ratio closed at Q4 at 13.5%, which is 320 basis points above NPA. The ratio also reflects the minus 27 basis point impact from new additional share buyback of EUR 1 billion, which we announced and started executing in November. Before adjusting the additional buyback, the CET1 ratio increased by 9 basis points from Q3 '25, reflecting the following impacts shown from left to right in this slide. Retained earnings contributed with 16 basis points after accruing a 50% payout. RWA valuation represents an impact of minus 1 basis point. We had minor regulatory adjustment that had an impact of 5 basis points. And finally, other impacts account for 1 basis point. In addition, as you can see on the bottom right-hand side of the slide, all other capital ratios are comfortably above the regulatory requirements. On Slide 15, liquidity reserves remained high at EUR 318 billion in Q4 '25 with a relatively balanced mix between cash and securities. The liquidity profile of the group remains strong with strong sound liquidity ratios. The LCR ratio was 144% this quarter, and the NSFR ratio was 116%, both well ahead of regulatory requirements and in line with our steering targets. 45% of the 2026 long-term funding program has already been completed. We maintain good access to liquidity in all currencies on the back of strong long-term ratings from all agencies. The deposit base remains strong, granular and highly diversified. Overall, the loan-to-deposit ratio remains at 77% at group level. On Slide 16, we show a summary of the P&L for the group for Q4 '25, which we will cover in more detail in the following slides. Let's move now to the individual businesses on Slide 18, starting with subject network, private banking and insurance. In Q4 '25, loans outstanding increased by 1% compared to last year or by 2% if we exclude state-guaranteed loans, this is PGEs. Corporate loans production was sound and increased 19% versus Q3 '25. Outstanding deposits fell 3% versus Q4 '24 but increased 2% versus Q3 '25 in the context of continued strong growth of retail savings and investment products. These off-balance sheet products contribute to the continued strong momentum in overall asset gathering. On one side, AUM in private banking increased by 9% versus Q4 '24, we adjust for disposals and reached EUR 137 billion at the end of December '25. This is EUR 2 billion higher than at the end of September '25. On the other side, life insurance outstanding reached EUR 158 billion, increasing by 8% versus Q4 '24 or by EUR 5 billion versus Q3 '25, thanks to continued strong net inflows. Moving now to BoursoBank. In Q4, BoursoBank acquired a record number of 575,000 new clients. Since Q4 '24, it represents an increase of 1.9 million new clients or 22% with a consistently low churn rate, which remains below 4%. Assets under administration continued to grow steadily, reaching EUR 78 billion at the end of December or around EUR 9,000 per client. This represents an 18% increase versus Q4 '24, thanks in particular to the continued strong increase in deposits of 15% versus Q4 '24. Similarly, life insurance outstandings increased by 13% versus Q4 '24. Bank also saw record high openings of brokerage accounts, which grew by 25% compared to the previous year. On the lending side, total loans outstanding are up 9% versus Q4 '24. Looking now at the whole pillar on Slide 20. Retail Banking, Private Banking and insurance posted a solid increase in revenues of 4.2% versus 2024 when we exclude disposals and the impact of short-term hedges. And this included a sound 3.1% growth in NII. At the same time, operating expenses fell by 3.9% from '24, excluding disposals. As a result of both, the jaws widened significantly. And therefore, the cost-to-income ratio, it stood at 61.1% in 2025, represents a substantial improvement of 10 percentage points from 76.4% in 2024. All in all, net income lands at EUR 1,815 million for the year or up 80% versus 2024 with a ROE above 10% under Basel IV versus 6% last year under the previous Basel III standards. Let's move now to Global Markets and Investor Services on Slide 21. Global Markets consolidated a fairly strong year in 2025 with revenues reaching a record since 2009 of EUR 5.98 billion, while growing 2.7% versus 2024 in constant currency. In Q4 '25, revenues eased by 8% versus Q4 '24. Equities posted 5% lower revenues, affected by a high base in Q4 '24 and currency headwinds. Performance also reflected the lower commercial activity in Europe and Asia as well as our geographic mix, where Europe and Asia represent around 3/4 of 2025's total revenues. However, if we focus on the Americas, where market conditions were more conducive, we posted a very strong performance with revenues up by 24% versus Q4 '24. In fixed income and currencies, revenues fell by 13% from an also very strong Q4 '24 and affected by negative currency impact. Performance reflects as well the more challenging commercial dynamics in rates products, notably in Europe. Lastly, Securities Services revenues grew by 3% versus Q4 '24 on the back of sound activity levels and the continuation of a strong commercial momentum in all the main markets. Let's turn to Slide 22 on the evolution of Financing and Advisory. Again, it maintained a very strong performance with revenues growing by 5.1% versus Q4 '24. This strong momentum is even more visible when focusing on Global Banking and Advisory, where revenues grew by 8.6% versus Q4 '24, accelerating from last quarter. It represents our best quarter ever, driven by the solid performance in financing activities, combined with the continuation of good momentum in both originated and distributed volumes. In addition, our DCM and ECM franchise delivered one more quarter of sound revenue growth. Lastly, in Transaction Banking and Payment Services, revenues declined by 5% versus Q4 '24 due to negative interest rates and currency impacts. That, however, shadows the good underlying commercial momentum and the continued growth in deposits. For the whole of 2025, GTPS total revenues eased marginally by 1.2% versus 2024. Moving now to Slide 23 for the overall view of GBIS pillar. You can see that GBIS recorded record revenues this year at EUR 10.4 billion, growing by 2.6% versus 2024. That combined the 1% growth in Global Markets and Investor Services with a 5% growth in Financing & Advisory. Moreover, we managed to grow our revenue base while maintaining our strict cost discipline showed by reduction in operating expenses by minus 1% versus 2024. The results just widened and the cost of -- cost-to-income ratio improved 2.3 percentage points from 64.4% in '24 to 62.1% in '25. At the same time, cost of risk remained moderate at 18 basis points in '25. So all in all, GBIS posted a net income of EUR 2.9 billion in '25, up by 3.7% versus '24, which translates into a high ROE of 16.7% under Basel IV. Let's now focus on International Retail Banking in Slide 24. Overall, revenues improved by 2.7% versus Q4 '24 at constant perimeter and exchange rates. Europe posted a solid commercial momentum in both countries with an 8% increase in loans outstanding and 7% in deposits versus Q4 '24 at constant perimeter and exchange rates. The revenues were slightly down 1% at constant perimeter and exchange rates with lower fees in the Czech Republic compared to an exceptionally high Q4 '24 level. Situation is different in Africa. Outstanding loans and deposits were broadly stable versus Q4 '24 at constant perimeter and exchange rates, while revenues increased strongly by 9% in the same period, driven by strong fee income growth. On Mobility and Financial Services in Slide 25, the revenues increased by 11.7% in Q4. At constant perimeter, this is excluding staff. Ayvens revenues grew by 15% versus Q4 '24 on a reported basis, while when adjusted for depreciation and nonrecurring items, they fall by 8% -- this evolution reflects the continued normalization of used car sales results as anticipated. In Q4 '25, the results per unit sold was EUR 702 compared to EUR 1,267 in Q4 '24. On the other hand, the margin increases to 567 basis points in Q4 '25 or 26 basis points higher than in Q4 '24. This highlights the continued ramp-up in synergies and the strategic focus on profitability and asset risk. In 2025, Ayvens successfully reached all its financial targets, delivering total synergies by EUR 360 million, while the average UCS results for the full year '25 stand at EUR 1,075 per unit. This is at the high end of the EUR 700 to EUR 1,100 guidance. And the cost-to-income ratio was finally 56.1%, better than the guidance range of 57% to 59%. Regarding Consumer Finance, the business delivered a solid revenue growth of 5.9%, thanks to better margins. In Slide 26, focusing on the whole MIBS pillar, you can see that revenues increased by 6.1% in '25, excluding disposals and FX impacts, notably driven by Ayvens. Costs in '25 fell by 3.3% versus '24, excluding also disposals and FX impacts. The strong positive jaws evolution drove a substantial improvement in the cost-to-income ratio from 59.6% in '24 to 54.2% in '25, highlighting the strict cost discipline across the pillar despite the high inflation in certain geographies and the additional banking tax in Romania. Cost of risk improved from 42 basis points in '24 to 33 basis points in '25. And all this led to a net income of EUR 1.5 billion in '25, increasing by 28% after disposals and FX adjustments. This translates into a robust ROE of 13.9% in '25, up versus an 11% in 2024. To conclude with the quarterly results, let's move on to Slide 27 with the Corporate Center. In 2025, revenues increased by more than EUR 160 million, thanks to continued efficient liquidity management and improving funding conditions. Operating expenses in '25 include EUR 100 million related to the global employee share ownership program recorded in Q2 this year, which compared to only EUR 3 million in '24. In addition, the accounting impact for the various asset disposals closed this year, mostly SG Equipment Finance, Private Banking in Switzerland and the U.K. generated a positive impact accounted in net profits or losses from other assets of around EUR 300 million. On a quarterly basis, revenues increased by more than EUR 150 million for the same reasons I just mentioned for the full year, while costs are up by around EUR 50 million compared to a very low base in Q4 '24 and more in line with the quarterly historical average. I now give back the floor to Slawomir. Slawomir Krupa: Thank you, Leo. 2025 has been a year of accomplishments for the group in ESG as well. We are maintaining our pace and continuing to deliver on the commitments that we have set both in the decarbonization of portfolios and in the opportunities we see to support our clients with sustainable finance. Emerging leaders of the energy transition see us as a partner of choice. We are now deploying the EUR 1 billion investment envelope established at the CMD to support innovation in this sector. We have joined forces with partners like the EIB or the IFC to help design the best solutions to address the challenges of the environmental transition. Our Scientific Advisory Council helps us stay ahead in this world of rapid change. All these efforts have been recognized by external stakeholders. They have been upgraded to AAA by MSCI, making us 1 of only 2 major European banks to have received the star ESG rating. In conclusion, 2025 was a defining year for us. strong improvement in our performance, we still have a lot more work to do to realize our ambitions. Our objectives are clear and our progress is consistent, and we remain focused on delivering on the upgraded 2026 targets, and we will give you more details on the next phase of our plan during our CMD on September 21. Thank you very much, and let's now start the Q&A [Operator Instructions]. Operator: [Operator Instructions] The first question comes from Flora Bocahut of Barclays. Flora Benhakoun Bocahut: Yes. The first question I wanted to ask you is specifically on BoursoBank Bank because I think you said in the presentation that this is your third year in a row of being profitable, if I got it right Bourso. Could you give us a number because you give us the net profit target for next year -- I mean, this year, '26 of EUR 300 million, but so we have an idea of how big a swing this could be for the profit in French retail and at group level. And the next question is a broader question. I don't want to preempt, obviously, the September CMD, but I can't ignore either that you're not running at 1x the tangible book and you have this ROTE that is upgraded for this year, but still at 10% plus. So we need to start to have a better understanding on where it could go into the next 2 to 3 years. So can you maybe -- anything you can tell us there? What you think is plausible over the next 2 to 3 years? What can get you there would be helpful. Slawomir Krupa: Thank you. On BoursoBank, the short answer is no. We're not providing this number, but I'm, of course, going to try and give you a little bit of color. We have said minus EUR 100 million at the CMD, minus EUR 150 million of GOI to support the growth ambition. It has actually been positive. And -- but think about it as with 1.9 million additional new clients this year, you can see or feel that it can't be a big number because the level of our investment in client acquisition was very high, 1.9 million is, if not the best ever in terms of growth, close to it, right? So basically, it's been positive. So huge improvement over the minus EUR 150 million GOI that was initially our thinking. But obviously, at the annual level, not something that is very significant at this point. So the EUR 300 million improvement in terms of net income is the important number here, and it's a very strong commitment that we have for 2026. In terms of the CMD, so as mentioned in the presentation or in the past, we have basically close to double the our reported ROE, ROE performance if we compare the current performance versus the average of 2018 to 2022, for instance. So first spoiler alert, we're not going to double in the next phase of the plan. So that's one thing. But equally, you should take comfort in what we've done so far and in the way we try to speak about ourselves. So when we say that we do firmly intend to close progressively yet decisively the gap with our most comparable peers, you should build your reasoning around that, right? And we are committed in terms of the means to continue, and I know it's clear in the numbers to continue reducing our cost base regularly through deep transformational change in the way we operate the business in efficiency, right, in terms of sustainable cost savings because they are based on seeking out efficiency gains first that result in cost reductions, while growing and remember, growing not like in the phase we're in right now or finishing right now, meaning with a lot of fixing to do from a capital perspective, a lot of constraints, self-imposed constraints on, for instance, organic growth, right? These things because of our capital position right now are behind us. And so we will be able in a very controlled way, very mindful of risk management strategy and commitments from this perspective, but we will have means to sustain healthy levels of organic capital allocation to the most profitable business, right? So the combination of all this, an absolute commitment in terms of cost and efficiency with an ability to support and sustain basically higher level of profitable growth will be the main ingredients of the next plan. Operator: The next question is from Tarik El Mejjad of Bank of America. Tarik El Mejjad: A couple of questions on my side. First, on the -- on costs, just taken on the previous question. I want to go all the way to the plan, which I understand that cost will be a pillar -- cornerstone of your strategy. But looking at '27, I mean, you said '26 cost will be down, but there's still some effect of 3% effect of disposals. '27 will be a cleaner year from that aspect of scope effect. Should we still expect cost to go down in '27 versus '26? I mean you've talked in your introductory remarks about continuing trend and relentless effort to pursue that. So can you give an indication on '27? And on capital return, I mean, you took a decision to do it once a year in -- your competitor yesterday brought up FLTB as a kind of still a question mark, similar to what you've been doing last year, actually same time. Are you also factoring in into your buffer as potentially still a possibility that it will be a headwind? If not, doing the math as usual, you will be at 13.6 7% in Q2, keeping a small buffer, there is still a EUR 2 billion headroom of buyback. I mean you've asked for EUR 1.5 billion for the full year ordinary buyback. Is EUR 2 billion not too much to ask ECB in one go? I'll leave it there. Slawomir Krupa: All right. So first of all, thank you, Tarik. First of all, I have to present the cost number for '26 is a pretty clean one. because actually, it is in reported, obviously, as everything we do, right? And everything is on a reported basis. And we will not have major differences because most of the disposals were closed early last year. And so the 3% cost reduction in 2026 is actually a pretty clean number and doesn't benefit substantially from perimeter changes. So that's one. Second, on 2027, well, let me put it this way, right? It obviously depends also on the growth and the other opportunities that we will have. But certainly, what you should take away from these conversations is that we are committed to operating leverage, right? So imagine a 2027, which is very buoyant in terms of growth. Obviously, maybe the cost base doesn't go down in absolute terms. But definitely, we are deeply committed, should we experience higher levels of growth to a significant value creation through operating leverage. Now if everything continues as it was in the last few years, yes, further cost reductions are likely. It remains the bedrock of the improvement that we will continue to execute on in terms of transforming the group. As far as capital distribution is concerned, first, you should think about this decision, right, to discuss this at Q2 as the reflection of the fact that -- and I want to say this very clearly, this is a strategic decision for us, right? Last year, we had to make it a couple of times because we were getting out of a phase, which was, as you know, completely different, one of saving capital, one of restricting distribution, et cetera, et cetera. And because of all the progress we had made, we were able to shift quite rapidly from one, let's say, regime to a different one. But it is always a strategic decision, like I said in the past, between organic growth, return to shareholders or inorganic growth opportunities. And so from this perspective, we believe that this, let's say, once a year communication on this topic, the idea that this is a strategic decision. It's not an accounting decision that we make during closing. Oh, we have this excess capital, let's just dispose of it immediately right now. I think the pace for strategic decisions is the one we're setting here. So it's not about some logistics in terms of approval. At the end of the day, obviously, we have a very deep permanent dialogue with the supervisors who have insight into long-term capital projections and understand our trajectory at a very deep level. So it's not about logistics of approval. It's really about this idea that we have, and frankly, from a logistics perspective, we haven't even completely finished the share buyback from November. We're having an ordinary one coming our way right now. The dividend payment, et cetera, the decision -- strategic decision on exceptional distribution in Q2 and so on and so forth. So that's how you should think about this. Operator: The next question is from Giulia Miotto of Morgan Stanley. Giulia Miotto: I have 2. If I look at your target for '26, so first of all, taking a step back, you beat '25 where you had already upgraded the target. And so '26 doesn't seem particularly difficult to beat, especially on the cost side. So can you give us some color on how comfortable are you with these targets? Any initiatives, especially on the cost side that gives us conviction that you can do minus 3% or even more? And then secondly, F&A was quite high in the quarter. And you talked about financing activities led by infrastructure, transportation and fund financing. So is there -- when we forecast looking forward, is there any seasonality we should keep in mind? Was this an exceptional catch-up booking of some deals you had in the pipeline? Or yes, is it basically your growth strategy in this business coming through, and we should expect more of the same going forward? Slawomir Krupa: Thank you. Thank you very much. Listen, on the -- whether the minus 3% target is easy or difficult, Well, I'll leave that, obviously, with everybody on the call to make their own mind, but I'm going to still share my view. I mean, we're talking about 3% absolute decrease on a reported basis, and as I said earlier, without major perimeter changes. So from where we are, I mean, it's a fairly ambitious target. Let me put it this way. Now you do have our track record. So do we have the habit of giving you stretched targets that we're not going to meet? No, right? On the base case scenario, we do definitely intend to meet this target. If we can do better, we will. But again, right, I think it is an ambitious target from where we sit. We are doing everything we can to make sure that we will deliver on this, let's say, in normal circumstances. But on the cost side, I mean, normal circumstances are the rule. How -- it's everything we've already been doing. But as we go, right, so be it technology, efficiency of the technology spend, be it organizational changes that allow us to operate the same process better actually in the interest of everybody, both internally and externally in the interest of clients, getting a smoother client experience, working on efficiency and deepening the work on efficiency across the entire group through new programs, new ideas, et cetera, as you may have seen in the press recently. So it's really the continuation and the deepening of the work group-wide that we have been doing on efficiency throughout the group, right? And so this will continue to deliver not only actually in 2026, but it's going to be a process which we intend to make basically permanent to make sure that the company operates as close as possible to its highest potential in terms of efficiency, right? So that's the spirit here. And then some technicalities, you will have lower CTA expenses because we -- for the program that we had during the CMD, we've spent most of the CTA already. So there's a marginal spend to come in 2026. So that also supports the trajectory. But fundamentally, it's all the work we're doing. And as you may have seen in the latest adjustment project of adjustment that we announced and filed with the unions in France, we are also very careful to optimize execution, right? And for instance, this leg of our efficiency plan comes with no CTA, right? It's important to also recognize that pattern, which is -- not only are we working hard, but also trying to make sure that overall, right, overall, the expense stays under control and is optimized even in terms of the CTA itself. For the F&A question, you should think about this as -- no, there's no particular accumulation of closings or things like that. It's a genuine pretty wide momentum within this business, which, as you know, of course, has been historically a growth engine of GBIS and with a very good risk return profile. And it will continue as such with a very controlled approach in terms of risk still. But yes, it is an investment spot, a natural and very efficient investment spot for organic RWA growth, and it yields substantial marginal rates of return. Operator: The next question is from Delphine Lee of JPMorgan. Delphine Lee: So my first one is on your comments around '26, the 2% increase in RWAs, which is clearly a little bit of an acceleration. It looks like, I mean, volumes are still somewhat very moderate in France and feed volumes at Ayvens also are sort of still going down. So just wondering kind of like if you could give us a bit of color where that's coming from and where do you intend to step up a little bit growth? And my second question is on Global Markets. I was just trying to understand, if you take a step back, why compared to not just U.S. peers, but like some of the French peers, the trends have been a little bit weaker this year. Is that sort of less risk taking from your side? Or any color on how we should think about the trends going forward as well? Slawomir Krupa: Thank you. So on the 2% RWA increase on an organic basis allocated to businesses. So yes, it is an acceleration. Like I said earlier, one of the means that we have now is this one to support our growth in a very reasonable way. So I agree with you. The loan growth in France, especially on the retail side, should remain positive, but not very dynamic in 2026. In terms of the Ayvens opportunities, I would point to a slightly different statement, which is what we have done this past 2.5 years was to focus on a very significant merger, which we discussed in the past, but also on making sure that the business adjusts itself to both some rate environment and margin compression trends and working a lot on the margin on striking the right contracts on making sure that we do the right thing from this perspective, that we protect the value basically from a margin perspective, and you've seen the results of that. And the second piece is obviously risk management in a world which in these businesses was potentially challenged by some of the shifts in residual value or in all the electric vehicles topics, right? And so we've been very conservative from this perspective, precisely to come to, let's say, the new phase, both done with the restructuring, done with the integration, which will more or less be achieved during 2026, but also at the same time, have a very healthy base to resume growth, right? So while it shouldn't be an extremely high pace, let's say, in 2026, Ayvens is clearly well positioned today to be also an investment spot from this perspective. Now -- moving on. Clearly, International Retail has the capacity to deploy capital in a good way, in an efficient and profitable way. And finally, GBIS, starting with F&A, financing and advisory, but also within the cash management business as well can do better and will be one of the preferred spots for investments and again, providing high marginal returns. So that's the story on the organic growth. And your second question on Global Markets. It's really -- I mean, if you take a step back, it's a mix of -- if you look at the entire year, we're talking about the very good performance, which is the best revenue generation in 16 years, one. Two, and consolidating in 2025, which was a high point. And we're now close to EUR 6 billion, as you have seen. So that's one. Two, we've discussed this in the past. There is a perimeter, a business mix difference between us and a lot of our peers in the following way, right? One, we have exited commodities a way back and commodities were a driver of performance this quarter. Two, fixed income in our house is weighted towards rates and towards Europe more than the other jurisdictions. Three, we have prime brokerage businesses, which are smaller or substantially smaller than some of our peers. And so whenever the market dynamic is one which is particularly favorable to this business, you will always see us basically slightly different from this perspective. We are investing there. We are progressing, but in a very controlled way. But today, if you take a snapshot, it's a much smaller business at our shop than some of the others. And finally, our share in the business mix in terms of the U.S. business is also smaller, obviously, than our American peers, but also our competitors more actively, but also when you compare to some of our European competitors. And so when you combine all of this, you have most of the difference of Q4. But again, within a year, which has been good. I'm not going to go through some technical aspects. There is still some of that day 1. I mean, we were actually very dynamic in producing some of the solutions that carry negative day 1 accounting as they are originated when the origination is more dynamic stronger, right? But this is like a couple of percentage points, let's say, of difference since we're at minus 8% and the others are basically plus 5% in Europe. The rest of the gap is almost entirely explained by business and geographical mix differences. Two last comments on this topic. one, our U.S. business has grown in dollars. Remember also that we're reporting in euros, has grown 39%, which is actually well above the market average even in the U.S. So just showing you how we operate there successfully, but it's a 20%, 25% share of our Global Markets business. So that's one. And the last comment is going to your risk consideration and capital consumption consideration. Yes, in the last 5 years, we have dramatically turned the way of doing this business. And while reducing by a 20%, 30% our market risk RWA. We discussed that in the past, even much more so stress test consumption. We have been able to grow this business at a controlled pace with much lower capital allocation and a high ROE of 20%. I gave it all so that you have all the facts. Operator: The next question is from Jeremy Sigee of BNP Paribas Exane. Jeremy Sigee: My first question is just continuing on the Global Markets discussion, if we could. The guidance is unchanged at a level that's lower than both the 2025 run rate and the consensus. Is that just maintaining the existing target? It's conservative. It doesn't mean much you could well be better again? Or is there any kind of directional significance in that number that you're maintaining? And then a different question on Ayvens, the UCS results are normalizing down. And both from your comments and from their comments this morning, the indication is it could continue to go lower in 2026. And I just wondered, is that taken into account in your own guidance, including the 2% revenue growth? Slawomir Krupa: Thank you. So first topic on the markets, Global Markets target. So yes, I mean, we don't want to touch this at this point. So we simply adjusted for the perimeter change, if you will. And this is how we're ending up with that 5.7% top of the range. We're also saying that in our base case, we should be above the top of the range in 2026. So that's what we're saying, right? And the indication that you should, in my view, take from these statements is that we recognize and facts support this recognition that this is a target which -- target range, which has been conservative in a world which was, again, to say the least unusual if you compare the last few years versus, let's say, the previous decade. And so today, we think that, again, while maintaining this range, adjusting it for the perimeter change, we're also giving you the color that we believe that in a base case scenario, we should be above the top of the range in 2026. In terms of the UCS, it's exactly what you said, right? It is decreasing substantially, and we do forecast at this point that it will continue. And yes, this is taken into account in the projections, including in the growth projections and every other aggregate. Operator: The next question comes from Chris Hallam of Goldman Sachs. Chris Hallam: So I guess a couple of questions for me. A little bit of a follow-up on the markets. I think Slawomir great explanation as to how the footprint differs. I just wanted to take it forward a level. Do you feel any need to further address that sort of footprint imbalance versus the industry more broadly aside from what you've already done in Bernstein, i.e., you want to grow faster in the U.S., put more balance sheet to work, expand the product offering in FICC? Or should we just sort of assume that you're comfortable with the footprint and the plans you already have in place? And the reality is some quarters that will be a bit of a headwind versus peers and other quarters, that will be a bit of a tailwind. So that's the first question. And then second, it seems as though there is a bit of a sort of growing tech spend arms race across the industry, and you mentioned your real focus on transformational change in the way that you operate and how you become more efficient by design, I guess. With that in mind, there were some press headlines recently suggesting you've decided to focus your in-house AI infrastructure around Copilot. So just can you help us understand what the relative financial and nonfinancial advantages are of pivoting to a completely off-the-shelf solution versus the alternatives? Slawomir Krupa: So on -- the first question, on markets, I think a few -- it's a very important question. Thank you. So one, yes, unreserved, yes, we are continuing to work on the footprint. And you have some anecdotal at least, if not more, evidence of that through some of the hires we've made in fixed income, for instance, through some of the investments we're making through what I said earlier about continuing investments in the -- our prime brokerage business through also historically a real push to grow our business in the Americas and obviously, in the Americas, in particular and mostly in the U.S. So yes, we are -- and Bernstein is the other example that you gave, of course. And so yes, we are continuing to work on all these fronts to balance the business more from a mix perspective. and in order, yes, to make it both bigger over time, but also more -- even more diversified basically. But so far, it's exactly what you described. And actually, if you look at the patterns over the last few quarters and years, it were -- these were sometimes headwinds like in Q4 2025, but sometimes significant tailwinds when we were in some of the years of more significant trends and moves on the rate markets and in particular, in Europe. So it's exactly what you described, but we are working on making it different. Just one, for instance, example is the U.S. business is now double the size it was 10 years ago. in a very diversified, in a very sound way, which points to my last comment on the topic, right? Nothing will be done in terms of investments and execution on these investments in a hasty or oversized way. I'm explaining myself. In the past, we've tried that, right? We've tried that let's have this very big program to increase very substantially the fix size, and we're going to be competing with everybody across all the sub-asset classes, et cetera, never worked, right? So what we're doing right now is very controlled, slow progress, both to make sure, right, that we don't destroy profitability as we invest -- that's one. But two, that the investments are successful, right? And I don't believe in big moves, except when we had the opportunity to buy Bernstein, we did it. But I don't believe in, let's say, huge accelerations, revolutionary accelerations in organic investments in the market. That's not working usually. And when we're trying to do something right now, we're trying to make sure that this is going to work. That's for the market. In terms of the AI question and internal off the shelf, et cetera. I mean it's the idea more accurately that you need to use the best tools available at the moment in time where this whole AI opportunity and potentially threat, et cetera, is still partially unclear, right? Today, what works is effective summary and translation of text, effective extraction of data from large pools of more or less structured data and where it really works is indeed in IT services and coding, et cetera. These are the 3 areas where this new technology is actually able to perform at scale at a high level of reliability. And I remind you that in our business, the level of expectations from supervisors on, for instance, model validation is extremely high, right? So building on that, clearly, we prefer to use something which has a proven capacity to enhance the adoption, the understanding and the work on these topics in the somewhat still infancy stage of this technology. And from this perspective, we felt that it was much more efficient to use, again, an outside proven reliable tool at this point in time. Now as you may know, if you're interested in topic, you may have read, we have also created a specific structure dedicated to, let's say, the research on these topics and to the selection of the biggest at-scale opportunities in terms of efficiency or cost reductions, et cetera, to make sure that all this, let's say, bottom-up interest and activity is channeled towards value creation, right? And that we have a level of control on the underlying costs that obviously this whole revolution potentially carries with itself. So it's a combination of we have our own internal approach to look at the use cases and at the opportunities, et cetera. But yes, trying to use the best of the breed in terms of technology. Operator: The next question is from Andrew Coombs of Citi. Andrew Coombs: If I could have a follow-up on Global Markets. You mentioned in answer to Jeremy's question that the EUR 5.1 billion to EUR 5.7 billion range is purely because you left it unchanged, but your base case is that you expect to be above that range. With that in mind, can you just confirm the sub-65% cost/income ratio target for Global Banking and Investor Solutions, is that predicated on the EUR 5.1 billion to EUR 5.7 billion? Or is it predicated on your base case that you're going to be above that range? That's the first question. Second question, France, net interest income, another big improvement in the net interest margin Q-on-Q. Perhaps you can just elaborate on if there was anything one-off in that NII result? And also how you expect the net interest margin to trend going forward into 2026? Slawomir Krupa: So on your first question, so again, maybe a precision. The range is what it is. It's proven to be on the conservative end in the last few years, again, in markets which were in the end, particularly conducive for this business overall for the industry and for us. So the idea that today, we're saying that we, in a base case scenario, expect to be above that range, it's a little more than just a target discussion. It's a sense of what we think will be the market conditions and our ability to navigate them in 2026. So it's an indication of where we think we will be in 2026. Now in terms of the relationship between this target and the cost-to-income target of GBIS, it is predicated on -- in the end, to keep it simple, on our budget, right? So on what we see as being our operational target and on the basis of which we communicate the annual targets for the group. So that's the underlying process, right? And so you should take away that it's based on this range, but it's not based on the low end of that range. It's based on the budget. And since I also gave you a sense of what the vision we have for the year, I think you have all the pieces to make your judgment. So that's that. In terms of the NII in Q4, you have a few things. There's no one-off. There's no one-off. It's the full effect of the Livret A repricing down, which happened in August. So you have that. You have a good momentum in deposit gathering and the deposits are up 1.5% versus Q3 '25 in the French retail pillar. And you have the continued process of repricing of the back book, right? And so the combination of all these things and in a loan growth dynamic, which was fairly stable, but with a slight price effect, which was positive because you have basically commercial loans marginally down, individual loans marginally up, overall stable, but from a pricing perspective, a slight tailwind. So you have the pieces that explain the Q4 dynamic, which is indeed positive. Going forward, what we expect is basically a continuation of moderate growth trend because now there is no more perimeter effect, right? Because in 2025, we still have a perimeter effect linked to private banking, which is within that pillar. We no longer will have that in 2026. So you have no more hedges, of course, no more perimeter impact and something which would normally be a continuation of this trend, which is moderate tailwinds supporting moderate growth, which will also obviously depend on the macro dynamics in France, which at this point in time, we forecast to be in terms of loan growth, typically a slight increase during the year. Operator: The next question, sir, is from Joseph Dickerson of Jefferies. Joseph Dickerson: One question on the assumptions behind the greater than 10% return on tangible equity. If I look at the range that you have for markets revenues, if we assume the 10% return on tangible is the floor, does that assume, for instance, that the floor on market revenues is at the bottom end of your range? So in other words, if you were to print greater than the EUR 5.7 billion, we could assume a return on tangible above that. So I'm just trying to calibrate the bottom end of your ROE range, which, let's say, is 10% versus the bottom end of your markets range if the 2 can be compared. So that's question number one. And then question number two, is on how you define your balanced payout between DPS and share buyback? Because if we look this year, it was 45-55 in favor of buybacks. And then I think last year it was 50-50. Could it be 40 divi and 60 buyback next year? I guess, how do we think about calibrating that going forward? Slawomir Krupa: Thank you. Thank you very much. On the first question, so once again, our targets overall, the targets that we disclose here and commit to for the year are based on what we target operationally and the process that underpins this is obviously the process of budgeting. So the 10% ROTE target, above 10% ROTE target is not based on the bottom range of the market target. It is based on the target that we have for the year, and I commented upon that earlier saying that right now, we believe that it's going to be at the slightly above top of the range. So that's how you should think about this, right? Now slightly above top of the range, it's still less than what we've done this year. So just to make sure that this is clear, if we were to have a year better than 2025, it would support, obviously, mechanically, the performance from a group ROTE perspective. But that's how you should think about the targets are our best view of what we're going to achieve next year. So that's for the first question. And the second one, sorry, I'm blanking out. Okay, the distribution. So 55 -- 45. So first, the balanced mix between dividend and share buybacks was -- we were clear in the past about this was always something which meant that we had a leeway between basically 40 and 60 indeed to fine-tune the decision when it is made by the Board at the end of the year. So indeed, right, balanced means it's between 60-40, 50-50 as a base case scenario, but between 60-40 both ways, if you will. This year, the calibration, I mean, was simply -- you have a few inputs into the decision. One is the growth rate of the dividend. Two is the buyback opportunity in the context of a certain price to book. And the choice was made that with a 48% increase in dividend and the share where they traded, this seemed within the policy that I just referred to, the right choice. Operator: The next question, sir, is from Pierre Chedeville of CIC Market Solutions. Pierre Chedeville: Yes. One question regarding BoursoBank. I was wondering if you think that maybe you have to revise your future plan regarding investments and particularly marketing investment, considering the strong competition, particularly from one of your peers, which is targeting 10 million clients, I think, in 2027. And I was wondering if at the end of the day, your target of EUR 300 million in 2026 will remain at this level for the coming years because of this investment to counterattack this type of competition? My second question regards protection and P&C revenues, which are quite stagnant this year compared to last year. While when we look at our competitors, they are rather in good shape on this area. So I was wondering why it's not so good for you? And are you trying to hide, I don't know, but something like a bad combined ratio, for instance, can you give us a few numbers regarding undiscounted combined ratio in these 2 businesses, Protection and P&C? Slawomir Krupa: Thank you. So on the first question of basically the decision, the arbitration between growth and profitability. From a strategic standpoint, this is a growth asset. I was always very clear about this. This is why we took the decision at a time where we had lots of challenges, but we still took the decision in 2023 to continue investing substantial amount of money, energy and support to grow this asset. Now the growth at BoursoBank is not only about the number of clients, right? And we've been also very consistent providing some color about the assets under administration, which have simply nothing to do with most of our peers and certainly the one that you have in mind. And we have spend a lot of time and efforts also deepening the product offer, making sure that as a full-fledged bank, it can support customers in every single area of their banking needs and be able to do it at the highest level of client satisfaction and for the year in a row, BoursoBank remains the leading bank in France in terms of client feedback. And in terms of -- which also is reflected in a very low churn, which, again, despite the very dynamic acquisition of clients almost doubling in the last few years, you have a churn rate, which is substantially below 4%. So the point I'm making here is what we care about is that this bank right? This full-fledged bank with a complete product offer and a very high culture in terms of client satisfaction continues to deliver the service. The number of customers is a headline number, which in the end doesn't mean anything, right? Because what you really want to do is to provide the right service and generate the long-term profitability that you can extract from that particular business. So we're focused on this. Now is there going to be a slowdown in expenses in 2026, in particular, yes. But that doesn't mean that there's going to be a mechanical effect, one-for-one mechanical effect in terms of growth because obviously, we're not also static in the way we think about client acquisition and in the way we think about managing, let's say, this cycle of growth, which is going to continue way past 2026. I hope that gives you some color. On the protection side, there's -- let's say, I mean, in the end, you have choices to make, right? There are a lot of products in a bank that is -- that are offered to the customers. And you're focusing on this particular one, which has been basically stable. The premium are basically stable year-on-year. But you could point to the other piece of the insurance business, which is the investment piece, life insurance, where for a second year in a row, our pace of asset gathering is twice our market share, right? And we're leading the market from this perspective in a very substantial and meaningful way. So this is how you should look at this, right, that we make choices, including from a commercial standpoint. across all the businesses in French Retail in particular, has nothing to do with combined ratio, which is more than comfortable. Operator: The next question is from Matthew Clark of Mediobanca. Jonathan Matthew Clark: A couple of questions, please. Firstly, on the fee revenues in the French retail banking business. I mean, I think you've just described that the acquisition cost part of that is going to be coming down next year. But if we set that aside, does the 2% organic growth that you reported this year, is that a kind of good run rate for you? Or are there tailwinds or headwinds to that, again, if we set aside the BoursoBank acquisition cost aspect? And then other question is on the transaction banking business. in financing and advisory. Is the lower rate impact now digested there? And just your thoughts in terms of the outlook here. You had a very strong period of growth, but seems to be slipping a bit more recently. Slawomir Krupa: Thank you. So on your first question, I mean, you got it right. I think the base case scenario is the stability around the numbers that you have in mind. That's the base case scenario for the fee income with a substantial -- if you dig into the details, a substantial increase, as you would imagine, in terms of the financial fees, more than compensating a slight decrease in service fees, completely aligned with what I said earlier. And to your point, setting BoursoBank aside, the underlying trend should be this one. In terms of the transaction banking, yes, most, if not all of the effect of the rates obviously reducing and decreasing and thus impacting the NII generated in that business. So that trend is mostly behind us for 2026. And remember, on the flip side, it's a business which we have been investing in for the last now, I would say, 8 years. And we absolutely are determined to continue to invest in this business, both commercially and in terms of the technology that is used there. But like everything else we do in a controlled way and making sure that there's both an ability to self-finance, so to speak, this growth, but also that the returns remain meaningful. But from a rate perspective, the headwind that it was in particular, in '25 is mostly behind us. Operator: The next question is from Anke Reingen of RBC. Anke Reingen: The first is just on the core Tier 1 ratio at year-end 2026. Can you just talk about your thinking why is now specified at above 13% versus the 13% before? And then when you come to the second quarter and assess your potential extra distribution, what factors would you take into account? And should we look at the base last year, the EUR 1 billion or EUR 2 billion as a base basically? And then maybe just lastly, a tricky one, I guess you have the Capital Markets Day only in September, but is capital distribution another area that could be a topic? Slawomir Krupa: So if I forget something, let's -- please remind me, right? So first was CET1, so the fact that we added a little sign. So don't read too much into this, right? It's just like think about above 13% as 13.00001 is above 13%, right? Just to be clear, I mean, it was just a way of confirming that we do not intend in normal circumstances as a general rule to ever go below 13%. But it doesn't -- absolutely doesn't mean that there's any kind of accumulation above 13% as a matter of strategic intent. Second question is -- I'll take the last one first because I remember it. So would distribution and capital policy be a topic for the CMD? Yes, of course, right? There should not be a major surprises from an intent, right, from a general strategic approach, which is above 13%, we consider we have excess capital that we intend to use either in organic growth or in exceptional distribution or in inorganic growth. But of course, you will get much more color on these topics and a perspective that will cover the plan the plan -- the entire plan, right? So I think there's going to be a lot of content. But again, with the strategic thinking framework, which will remain unchanged. In terms of the one or EUR 2 billion in Q2, basically, well, we'll discuss that in Q2, right? Let me put it this way. Anke Reingen: But what factors will you be looking at basically as the capital ratio or... Slawomir Krupa: No, the factors is always the same. Okay. Thank you. No, listen, it's always the same story, right? It's always the same answer. It's -- I want to come back to this and make sure that this part is really heard. It's a strategic decision, right? This is not some everyday housekeeping, right? I have something left on my table, so I'm going to dispose of it, right, the fastest way I can. It's a strategic decision about the strategic resource for the company, right? And so the factors, very simple is the level of capital, the performance, the current performance and the strategic opportunities between organic growth, distribution to shareholders as an exceptional distribution or inorganic growth. Operator: The next question is from Alberto Artoni of Intesa Sanpaolo. Alberto Artoni: I have 2, please. The first one is on the tax rate. What do you expect for the tax rate for next year, also taking into account the changes in French law? And secondly, on the cost of risk on the French retail, what is the outlook there, please? Slawomir Krupa: Thank you. On the tax rate, I'll leave that with Leo. He's going to give you some color. Just one comment on the French context, which is that, as we've said in the past, because of the international nature of our business and the way it is operating mostly locally outside of France and the structure of the head office in France, et cetera, we are not experimenting a massive impact of some of the tax decisions in France. The impacts are rather marginal. But on the details, I'll let Leo answer in the second. In terms of the NCR for the retail in France, -- what you have is something which is fairly stable, as you see in the numbers, and that has a small increase on the SME side, very consistent, very granular, nothing specific and consistent with the increase in bankruptcies that we've seen throughout the year for the SMEs, a trend which is, by the way, decelerating recently, right? So right now, our vision for 2026 is fairly constructive. You have growth, albeit sluggish and small, but still you have growth and you have resilience in the system. So very consistent with the market trends at a granular level, nothing specific, neither from a specific fire perspective or specific sector to report at this point. Leo, on the tax rate, some more color. Leopoldo Alvear: Sure. So basically, in 2025, we've had a tax rate, which has been lower than the one that we had in 2024. That's basically been driven by the fact that we've had quite a few capital gains through the P&L, and those have relatively lower tax rate. So they had an impact on the mix. Now going forward for 2026, I think we're going to have a tax rate which is going to be higher than 2024 because of the reasons mentioned. So this year, we're not going to have so many capital gains coming through the P&L, and therefore, we will not have that mix impact, if you wish. So it will be higher than 2025, most likely will be perhaps lower than the one that we had in 2024. because the mix of our revenues from outside of France are still quite high. So we don't expect any big impact coming from the tax -- the potential tax changes within France for the overall tax rate. So basically, higher than 2025, but lower than 2024. Operator: The final question, sir, is from Sharath Kumar of Deutsche Bank. Sharath Ramanathan: I have 2. So I hear your -- hope I'm audible. So I hear your previous criteria for inorganic growth, but hypothetically speaking, should the relative valuation between SocGen and Ayvens shares turn more favorable for you, would you still be hesitant to buying out Ayvens minorities? In other words, is the residual value risk considering the fast-evolving automotive market, a constraint in your thought process? That is the first one. And second is a small follow-up on the equities question. Can you provide the revenue mix between the various products, i.e., cash equities, derivatives, prime and also by geography? Slawomir Krupa: All right. So thank you. On the inorganic growth question and specifically pointing to the, let's say, theoretical opportunity of buying minority stakes in Ayvens o increase our ownership there. So across any topic of using excess capital, first cornerstone statement, it has to make sense from a financial perspective, it's a decision that we will always take rationally. Is the opportunity good for the company and for the shareholders. So if we're talking about growth, whether organic or inorganic, the question is going to also be -- always be what is the expected marginal return and what is the risk attached to this investment, be it again organic or inorganic. So in that framework, it's clear that especially as at least from a theoretical standpoint, the obvious return of SBB, hopefully, will continue to decrease. You will have opportunities theoretically, like the one that you're referring to in Ayvens that would, in an Excel spreadsheet look potentially more and more attractive for sure. Now the second comment I've made in the past and today, I want to point you to is decisions we intend to make there need to be strategic, right? So today, the thinking is, right, we have control of this great asset, and we can continue to both improve its efficiency, improve its performance and position it for further growth without making from a strategic standpoint, any further investments, right? So I'm not saying never because you never should say never. But today, there is no strategic intent to do this because we believe that between the 0 execution risk share buyback opportunity and organic growth that we are able to do things that are strategically more meaningful for the group and for the shareholders at a level of risk, which we believe is acceptable. So that's how we think about this. In terms of the mix, we do not disclose the overall mix, but I gave you a few ideas in terms of the geographic split, the U.S. overall. So here, I'm not talking about the markets only, but the U.S. overall is roughly 27%, 30%, say, 25% to 30% of the overall GBIS business. In terms of the market, it's more or less the same, 25% to 30% U.S. from a geographical perspective. Then you can imagine a pretty significant weight of Europe and marginal and the marginal -- more marginal representation in Asia, but it's still meaningful, but smaller than the other 2 regions. And in terms of the businesses, what we do disclose is that you have basically a 60-40 more or less split between equities and fixed income. And in fixed income, you need to think about the mix as versus the average market, basically less commodities because there's none. So obviously, less commodities and a credit business, which is smaller and more focused on securitization and private credit than, let's say, on traditional marketable securities credit. So that's the color on fixed income and from a geographical standpoint there, heavy weighting towards Europe and Asia versus the U.S. In terms of the equity, you know that historically, our business has a big focus on the investment solutions, right? It remains true even if as intended and explained 5 years ago when we spoke at the Investor Day for GBIS when I took over, we did grow substantially the flow businesses, both on the equity derivatives side, as well and linear businesses as we call them and as well, notably through the acquisition of Bernstein, the cash equity piece, but we don't disclose further percentages. Thank you. Operator: Mr. Krupa, there are no more questions registered at this time, sir. Slawomir Krupa: Okay. Thank you very much. Thank you, everybody. Thank you for joining us this morning and sharing your valuable time with us. I thank you for your questions, and I wish you a nice day, a nice weekend, and I'll talk to you during the next release for Q1. Thank you very much. Take care. Leopoldo Alvear: Thank you. Bye-bye. Stephane Landon: Ladies and gentlemen, thank you for your participation. You may now disconnect.
Operator: Good afternoon, and welcome to Garanti BBVA's 2025 Financial Results and 2026 Operating Plan Guidance Webcast. Thank you for joining us today. Presenting on behalf of Garanti BBVA, we have our CEO, Mr. Mahmut Akten; our CFO, Mr. Atil Ozus; and our Head of Investor Relations, Ms. Ceyda Akinc?. [Operator Instructions] With that, I now would like to hand over to management for their presentation. Ceyda Akinc: Hello everyone, and thank you for joining us. We are excited to be with you on another earnings call. Before getting into our financial performance details, let's as usual, go over the broader macroeconomic environment. Turkish economy grew by 1% Q-on-Q in the third quarter and for the fourth quarter, we now cast a slightly positive quarterly growth. Therefore, parallel to our previous expectations, we maintain our GDP forecasts as 3.7% in '25 and 4% in '26, consistent with the still-resilient activity outlook. In terms of inflation and monetary policy, seasonally adjusted inflation improved into year-end, however, January CPI figure reinforces our view that the pace of monetary easing will become increasingly data-dependent and points to a slower pace of rate cuts compared to consensus. In this regard, we maintain our call of 25% inflation and 32% policy rate for 2026-year-end. In terms of current account deficit, it remains broadly manageable, although the trend has deteriorated, reflecting domestic demand dynamics and the gold channel. We expect the current account deficit to GDP to be around 1.5-2% range. The outlook remains sensitive to the Eurozone growth and Brent oil dynamics. In terms of budget deficit, we expect budget deficit to GDP to remain around 3.5%. led by tighter expenditures control and strong revenue generation. Now moving into our financials, I'll start with the headline figures. In '25 once again, we delivered a strong track record of achieving results in line with with our commitments. Our key P&L metrics came in fully consistent with our guidance, and cumulative net income reached TRY 111 billion, corresponding to 21% year-on-year growth and a 29% return on equity. In the fourth quarter, our bottom line was impacted by tax-regulation-related effects. Excluding this one-off impact, our ROE would have been around 30%, which was fully in line with our guidance. Despite operating with the lowest ratio, we continued to deliver an ROE above the sector average. As always, we maintained our focus on capital-generative growth, which is clearly reflected in our sector-leading CET1, Common Equity Tier 1 ratio. This earnings outperformance was once again driven by core banking revenues-and with that, let me move on to page 7. We have now delivered growth in core banking revenues for eight consecutive quarters. In the fourth quarter, core banking revenues grew by 11% Q-on-Q, driven mainly by higher net interest income, which was supported by a declining funding cost environment. Trading income declined Q-on-Q during the quarter, we repositioned our TL securities portfolio and we reduced our exposure to securities with relatively lower yields. Net fees also remained resilient, registered 5% quarterly growth with the increasing contribution from money transfer and lending-related fees. As a result, our core banking revenues reached TRY 300 billion, which suggests the highest level among peers. A big part of this success stems from our asset mix-now moving into Slide 8. Our asset growth continued to be fueled by higher-yielding customer driven sources namely loans. Performing loans share in assets further increased to 58% and lending growth was across the board. I will touch upon this on the next slide. In securities, I would like to highlight that we had a favorable securities mix with lower CPI and increase foreign currency share. During the year, we had strategic additions to foreign currency and TL fixed rate securities. Moving into Slide 9 our TL loan portfolio reached TRY 1.7 trillion, while we continued to maintain a well-balanced mix between consumer and business banking loans. In the fourth quarter, we sustained our quarterly growth pace of 10% in TL loans, bringing full-year growth to 45%, which is above our operating plan guidance. Throughout the year, we further strengthened our long-standing leadership in TL loans, with market share gains across all retail products and SME loans. As we grow, we remain highly disciplined and continue to keep a close focus on asset quality and with that, let's look at the evolution of our asset quality. In the third quarter, consumer and credit card related flow to Stage-2 restructured and SICR portfolio continued, yet the share of Stage-2 within gross loan remained flat at around 10%. Our Stage-2 coverage ratio declined due to improved repayment performance of some individual-assessed firms. While our stage-2 loans coverage is now 9%, if we look at the TL and foreign currency breakdown, our foreign currency Stage-2 loans coverage remains healthy at 16%. In terms of NPL movements, Now, let's walk through the evolution of our NPLs; our NPL ratio increased modestly to 3.1% in line with expectations, and we are witnessing the natural consequence of robust consumer and credit card growth that sector registered in the last couple years. Retail and credit card portfolio still accounted for 70% of net NPL flows. If we move on to the net cost of risk, on page 12. Net provisions increased in 4Q, reflecting the absence of the exceptional provision reversals recorded in previous quarters. On a cumulative basis, cost of risk closed the year better than the guidance with the impact of large-ticket provision reversals, which are not expected to repeat in this year, as I will explain in more detail on the guidance slide. Now moving to the other side of the balance sheet, how we are funding the balance sheet growth? Not only in assets but also in funding, we rely on customer-driven sources. Total customer deposits exceeded TRY 3 trillion and now make up 69% of total assets and remain TL heavy. This quarter, in TL deposits, we gained a notable market share and our TL deposit market share increased to 21% among private peers. On foreign currency side, deposits increased by 4%. Half of that growth was due to gold price increase related parity impact. The rest can be explained by the flow from maturing KKM deposits. Growing demand deposit base, which is one of the key pillar of our margin performance, continued to support deposit growth. Demand deposits currently make up 41% of total deposits. Our diversified and liquid funding mix is also backbone of our success. With two new transactions successfully completed in 2025, total volume of subordinated bond issuances over the past two years reached $2.45 billion, making us the bank with the largest subordinated bond issuance in the recent years. We achieved another major milestone by issuing Turkiye's first Biodiversity and Blue-Themed Bond. We also secured a syndicated loan from international markets with diversified maturities. This year, we introduced a 3-year tranche for the first time, and a 2-year tranche for the first time since 2017. Putting all of this together, our total external debt currently stands at $9.8 billion, of which $3.5 billion is short term. Against this, we maintain a comfortable and strong foreign-currency liquidity buffer of $7.1 billion. Our active funding management is also visible in net interest income, on page 15, in the fourth quarter, our net interest margin recovered by 60bps with the support of declining deposit costs. On an annual basis, net interest income including swap cost doubled which points to 1.2% annual margin expansion. Our net interest margin reached 5.4%, we continue to have by far the highest net interest margin and net interest income level among major peers and our aim is to preserve this leading position. If we look at the margin component, as shown on bottom-right side of the slide, TL core spread has started to recover as of 4Q, and we expect this recovery to continue throughout 2026. We utilized more swaps in 4Q due to its funding cost advantage relative to TL deposit costs. In terms of CPI linkers' income, CPI rate used in the valuation increased to 32.9%, based on actual inflation data. Therefore, on a quarterly basis, we had positive contribution from CPI linkers' income. However when looking at CPI interest, we should also take into account its funding cost and as of this quarter we have started to share with you the net contribution of CPI Linkers' to net interest margin. In the fourth quarter CPI Linkers' negative contribution is compared to 3Q due to increased income on an annual basis CPI increased net impact to margin was -0.4%. Let's move on the other P&L item fees. Our fee base remains robust, up 50% year-over-year. On an annual basis, payment systems fees were the main driver of the growth. In the fourth quarter, contribution from lending related fees and money transfer fees gained momentum. I would like to highlight that, we are number one in money transfer fees and in both life and non-life insurance fees. We increased our mutual fund market share by 1.3% to 11.6%, which also provided additional support to our fee base. Moving to our operating expenses, our OpExbase grew in line with our operating plan and was up by 67% in 2025. As we have been communicating, we have been investing in customer acquisition through salary promotions. And to enhance customer experience and increase customer penetration, we have been leveraging the power of artificial supports our revenue generation capability. As a result, significant portion of operating expense base is covered by fee income and we have the lowest cost/income ratio. As per our capital strength, In the fourth quarter, our solvency ratios improved with support from strong profitability and Tier-2 issuance we had in October. Our consolidated CET1 realized at 13.1%. Capital adequacy ratio reached 17.5% without BRSA forbearance. The foreign currency sensitivity on capital remains limited, 13bps negative for every 10% depreciation. With TRY 179 billion TL excess capital, we maintain a solid buffer to support our long-term growth strategy. With that, let me now summarize our performance before moving into operating plan. As I mentioned in '25, we sustained our unmatched leadership in earnings generation capability and once again demonstrated a strong track record of achieving results in line with our commitments. Net interest margin performance and cost growth were broadly in line with our operating plan, while fee growth clearly stood out, driven by strong momentum in payment systems and lending-related fees. In fact, in TL loans, our growth outpaced inflation, supported by consumer, credit cards, and SME loans. Net cost of risk performed well better than expectations, benefiting from provision reversals recorded during the year. Now, let me walk you through our operating plan guidance. I will begin with the macro assumptions on the left, as these form the foundation of our planning framework. Our baseline assumes a gradual easing cycle in the policy rate. The pace of monetary easing will become increasingly data-dependent and points to a slower pace of rate cuts in the second half of the year. Inflation will continue to decelerate, closing the year at around 25%. However, given the stickiness in services inflation, we believe CBRT will maintain a sufficiently tight stance, implying ex-post real policy rate of around 6-7 percentage points. Turning to balance sheet growth on the right-hand side, we expect TL loan growth to be in the range of 30-35% foreign currency loan growth at mid-single digit levels. Net cost of risk is expected to normalize, settling in the 2 to 2.5 percent range, reflecting the absence of large-ticket provision reversals and the natural impact of strong growth in consumer and credit cards. Regarding margins, we project net interest margin expansion of around 75 basis points, on top of its highest level. I would like to highlight that the extent of this improvement will largely depend on the pace of rate cuts and the evolution of macro-prudential measures. As I mentioned earlier, our assumption of 32% year-end policy rate represents the upper end of market expectations. We deliberately adopted a conservative approach during the budgeting process in order to prepare the balance sheet for funding costs remaining above the policy rate, particularly on the deposit side. On fees, we expect growth of 30-35%, as a result of strategic investments, we expect OpEx growth to exceed average inflation. And that said, on a bank-only basis, we expect approximately 80-85% of the OpEx base to be covered by fee income. Finally, bringing all these elements together, we are targeting mid-single digit positive real ROE. Since 2018, real ROE has remained negative; however, in '26, we expect this to turn positive, supported by declining policy rates. This concludes my presentation. Thank you for your listening. Now, we can take your questions. Operator: [Operator Instructions] Our first question comes from David Taranto, Bank of America. David Taranto: The first question is on costs. Your cost growth has been running above the sector for some time, yet your revenue margins have also been higher. So this hasn't weighed on your relative profitability. But for this year, guidance again suggests cost growth at the higher end of the sector. So could you elaborate on the key cost drivers for this year? Should we view this as front-loaded investment ahead of what will hopefully be a lower inflation environment? Or are these increases more structural? And looking ahead, should we expect Garanti's cost growth to move closer to or maybe potentially below the sector levels in the future years? The second question is on fees. Your fee growth guidance appears broadly in line with the volume growth expectations. Could you elaborate on your guidance here? I assume we'll see a meaningful deceleration in payment-related fees. And in which segments do you expect to see stronger growth this year? And is there a meaningful seasonality that we should be aware of in terms of fees? And the last question is on margins. Your year-end policy rate expectations of 32% seems slightly above the market review. How would your NIM expectations change if the policy rates were closer to 30% instead? And could you also share your expectations regarding the deposit rates under your base scenario? Do you assume deposit beta to improve at some point this year? Mahmut Akten: David, thank you for all the good questions. First of all, on the cost growth, as you noticed, yes, we have a higher than inflation cost growth for basically several reasons, but primarily one on non-HR, one on HR. In Turkey, for a while now, most banks and institutions makes 2 salary increases every year. And then therefore, second increase, which is July to December, is not fully reflected in the prior year. So when you make the increase in January, you also have further increase from the base. So there is a bit of higher than inflation increase in the cost base. But as inflation comes down, the impact of that increase in the second half of the year will be lower, as you can imagine. That's number one. But more important increase actually is related to non-HR. And within non-HR, we internally, we look at this differently, especially customer acquisition cost is a different animal. It's an investment for the future. And in Turkey, especially payroll or pension, we pay promotion as you are aware of, and that's every 3 years. So you get 3 years of inflation within those numbers as you replace 1/3 or slightly more than that of your acquisition cost suddenly with 3 years inflation. So those numbers are a bit investment for the future. We expect as we go forward as inflation comes down, and this will affect also this payroll acquisition cost as well that 3 years inflation will come down. The impact to the extent is reflected on cost-to-income ratio. But we expect that cost-to-income ratio slow down or reduce down to 40% going forward. That's our expectation. And we have been highly investing in the AI within the BBA framework, and we start to see impact in efficiency, as you will see in the coming year. That's number one. Number two, fee growth. Again, as you clearly and correctly point out, as interest rate and inflation comes down, some of the payment commissions will come down properly. But we are actually offsetting that with both loan commissions, a bit of regulation also positive effect on the FX loans. So that has happened last week. But more importantly, we have investment in especially insurance type of commission-generating products and wealth management. We are expecting that to be offsetting the decrease in payment commission. So we expect a similar pattern in terms of ratio going forward as well. That will be the positive side. And the third on deposit rates. Again, I think if you look at the third quarter and fourth quarter, even though the policy rate significantly reduced, we didn't -- we were not able to reflect all of it to the deposit cost up until very recently. That's part of it, a tight monetary policy and data-driven Central Bank policy, which came with certain regulatory measures on the banks and one of which that is very important and relevant was related to deposit rate. We had 4 weeks windows to have a certain Turkish lira total deposit ratio, and that has been recently extended to 8 weeks. That has been a big plus because every 4 weeks trying to hit the ratio, it creates this synthetic competition. And despite policy rate reduction, we are not able to reflect 100% of that reduction in deposit funding. But a few weeks ago, that time break has been extended from 4 weeks to 8 weeks. That has been clearly a positive news. And then also the -- we had some level of challenge with the gold prices, especially after, I think, starting October, right? As gold increases, the total Turkish lira deposit ratio came down. That also put certain pressure on deposit ratios or deposit rates. But we start to see with this 8 weeks interval and a bit of stability now this week on the gold prices, we see that more stability and better correction in the deposit ratios and deposit interest rate. It's getting very close to overnight repo rate, which is a good news for us. So we expect further improvement in deposit rates going forward in the next months. Operator: Our next question comes from Ashwath from Goldman Sachs. Ashwath PT: I have a few questions. The first one being on your NIM dynamics. You expect 75 basis points of expansion. Would you mind breaking that up between the impact from lower CPI and the impact on core spreads? And in relation to the topic on NIMs, when do you expect to see NIMs peak? Would that be in the second half of the year? My second question would be on the dollar exposures across your balance sheet. From what I can see, your loans are around 25% to 27% in terms of U.S. foreign currency exposure, your deposits a bit higher in terms of 37%. Would you mind also telling me how much of your equity is also held in dollars or in foreign currency terms? The third question I had was around the ROE. It's good that you're guiding for real ROEs to be in the mid-single digits. My question here would be more on your expectations on your long term. Where do you think this real ROE figure would settle in an environment where there's inflation settling below or at 20% or below. And in that scenario, where do you think currency's NIMs would be at and also its normalized level of ROE? Mahmut Akten: Okay. Let's try to answer all the questions. One of them was related to 75 bps improvement, if I took my notes right. We see a further improvement in loan-to-deposit margin, 150 bps actually, but reverse repo and swap is additional 0.7%. However, CPI income this year will be with the inflation coming down, minus 60 bps and the reserve remuneration will be another minus 70 bps as well. That's the reason we are conservatively forecasting 75 bps improvement. And regarding the improvement in NIM and spread, we expect towards the end of second quarter, we'll probably see the highest level this year as well as we start to see a slowdown in the policy rate reduction starting third quarter, and we'll see further emergence between the reduction in loans as well as spreads. There was a second question about equity. Can you? Ceyda Akinc: Yes, we will get back to you regarding the second question. Mahmut Akten: On the dollarization. Okay. And the third question was related to ROE, right? Atil, would you like to take that? Kemal Ozus: Yes. In terms of return on equity, our guidance for 2026 is a real return on equity improvement. Over the long term, when we assume that it was your question, normalized ROE over long term, when we assume that inflation will limit teens, like, I mean, 15% to 20% level. We expect a return on equity -- real return on equity above inflation around 8% to 10% could be our sustained long-term return on equity. Mahmut Akten: And I think there was a question also -- a follow-up question on the -- what's a stable NIM for long term. We expect that to be around 500 bps as well. We have been always relatively high. But conservatively, we think something around 500 bps will be a relatively good margin as we increase our customer base and loan book. Does that answer your question? Ashwath PT: But just wanted to clarify regarding the numbers in terms of expansions. You said 150 basis points in terms of core spreads, 60 negative from the CPI, 60 from the reserve requirements. What was the other 70 you mentioned? Ceyda Akinc: The rest was the -- between the repo and swap funding costs. So the other funding instruments. Mahmut Akten: That's also positive. Ceyda Akinc: Yes, because swap costs will also come down in line with the declining funding costs. So therefore, we are projecting to get a positive from swaps and repos. Mahmut Akten: And we are already seeing it actually in the swap markets... Operator: It seems like we don't have any more audio questions. So moving on to the written ones a bit. First of all, Valentina asks for some color on how loan and deposit spreads have been developing so far in first quarter and what we see as the main risk to our NIM guidance? Mahmut Akten: Valentina, we are seeing actually with this 4 weeks to 8 weeks conversion, we start to see a positive improvement in cost of deposits actually despite some volatility in the MTR market. So we might be even a bit conservative in first quarter, but we'll see an improvement to almost 50 bps in the first quarter, let alone. So it's a positive improvement, and we start to see it this week further. To be honest, there is a certain level of regulation that has been published last week related, for instance, growth in overdraft, which is highly profitable product as well as credit card. But not everything has been applied so far yet. This might be a bit more limitation on credit growth, especially on the most profitable one on the consumer side. And then there has been a bit of limitations on FX loans as well, further restriction given the higher inflation. As we point out all of this guidance, Ceyda, especially underlying is everything is data-driven a bit. That's the reason on our guidance, as usual, we are a bit conservative, at least whatever we say we want to deliver at minimum that level. But we see limited downside, but regulatory framework might be always a bit challenging. And then we forecasted even last year in our forecast, we have been a bit above the market in terms of our inflation expectation and policy rate expectation being year-end 25% and 32%. I think we have been the highest in terms of inflation and interest rate perspective. We are more emerging to those numbers. It sounds like based on the January and February data. At least for now, we don't see those are at risk because higher policy rate would definitely challenge us as well in terms of our expectation, but we are not at that point at the moment. Operator: Valentina's second question comes regarding insights on asset quality trends, particularly in the SME and corporate segments. Mahmut Akten: A perfect question. SME and? Operator: Corporate segment... Mahmut Akten: Now in reality, 60%, 70% of our NPL is related to consumer retail segment. There, we are -- we continue to see improvement. On consumer, we see substantial improvement versus a year ago, close to -- in terms of NPL roll rates, more than 40% improvement as well as we see further improvement in credit card, which is the highest NPL product normally. We also see an improvement of 20%, 25%. We see a good January start. And then when it comes to wholesale and SME, wholesale, we had an exceptional year last year. We had a lot of provision release because of the asset sales and collection efforts. This year, we have a bit of -- a bit more of those, but not at the same size. But regular NPL flow in January has been half of what we have seen in terms of NPL inflow of last year. On SME, SME, I think in one of these calls, we have discussed this in the past as well, has been only 13%, 14% of our NPL roles. It has been more like 16%, 17% lately. But when we look at the January as well, our NPL roll rate in SME has been 20% less than the last year. So there is an improvement. And then the recent development regarding to credit guaranteed fund support by the government will be helping on the SME segment specifically for those who are late in their payments will benefit from this credit guaranteed fund. So that will also further help our numbers. And in the third and fourth quarter numbers related to retail, I just want to underline that. Lately, we see a further regulation that helps us to extend the terms for the delayed consumer customers as well. In the third quarter, we restructured quite a bit of them. And then this reason our fourth quarter provision is higher than the third quarter because for those customers who were going to the NPL, we have deferred and restructured and some of them still went into the NPL. But lately, with the regulation last week and then similar to credit guaranteed fund in the retail side, -- the government also -- regulator also permitted us to restructure late credit and credit card and GPL loans for up to 48 months. So it's going to help further to reduce overall provision and NPL flow. And there might be, to an extent, a shift between first quarter and second quarter as well, but overall will help to relieve this. But overall asset quality is getting better, and we have regulator support and government support on both SME and retail customers. Operator: We have a couple of questions on the audio line. So our next question comes from David Taranto. David Taranto: Sorry I have one follow-up. Just wanted to confirm one technical point. Is your mid-single-digit positive real return on equity guidance based on your year-end CPI expectation of 25% or on your average CPI assumption, which I guess is a few percentage point higher. Mahmut Akten: Based on 25%... Operator: Our next audio question comes from Tomasz Noetzel. Can you hear us? Okay. I think he has some problem with the line. Tomasz Noetzel: Can you hear me now? Operator: Yes, we can hear you now. Tomasz Noetzel: Apologies for last time. I just have one clarification and follow-up questions that was asked before. Possibly, I may have missed that when you answered that. But what will be the potential NIM upside should interest rates go further down to, let's say, 28%, not 32% as you guided because that's some market expectation that rates could go down as slow in Turkey this year. How should we think about the NIM upside in that scenario? Thank you for confirming that... Mahmut Akten: Yes. Every 100 bps change in policy rate has -- for the full year, it affects the NIM by 15 bps. Operator: Our next audio question comes from Simon Nellis. Simon Nellis: I think I put these questions through the chat as well. But yes, my first one is on risk costs. So you're guiding for higher risk costs this year. Can you just run us through the key drivers of that? And where do you think risk cost normalizes kind of longer term? And my second question would just be on the effective tax rate. What should we pencil into our numbers this year and next year given the big jump in the fourth quarter and recent regulatory changes there? Mahmut Akten: Yes. Regarding first question, actually, we had a lot of one-off large ticket provision reversal this year. Excluding those, the bank only cost of risk could have been 2.4% this year. But we had all these one-off items that we successfully achieved this year for large ticket provision reversals, mostly related to sales and collection. And our consolidated figure was 2.1%. And regarding next year, we have different products with different rates, but we expect conservatively again between 2% to 2.5% cost of risk. Our credit card cost of risk has been historically as well around 4% for retail, 3% SME 2.5% and wholesale 0.5%. We don't expect that too much to change. But recent regulatory changes will provide further positive news for cost of risk. We have not incorporated those numbers yet. We are just starting on credit guaranteed funds potentially in 2 weeks or so on restructuring on retail, this extra relief on conditions will be starting next week. So there might be some positive news on that, which might get us to be closer to 2% rather than 2.5%. Our normalized cost of risk historically has been around 1.5% to 1.7%. But given the high interest rate environment, it's probably normal to be around 2%. That's our take. And there was a second question. Kemal Ozus: It was about the effective tax rate. Mahmut Akten: Yes. Kemal Ozus: It will be similar to 2025 because already there's a change in the tax law, and it has been reflected in the fourth quarter. So full year, you can consider is full year 2025 is reflecting the new normal, let me say. So you can use 2025 as a proxy for the next year as well. Mahmut Akten: Yes. And Simon, aside from this, I think when we show the numbers, there is always from one quarter to another, there is one-offs. So it's not very easy in banking to normalize all the numbers and make it an apple. But again, quarterly income, especially the fourth quarter doesn't reflect fully the improvement in NIM. One reason was tax rate that has been shown there are only 3 quarters of the tax around TRY 2 billion, but the full impact is TRY 2.7 billion if there wasn't any change in the tax regulation. So that will bring TRY 9 billion to TRY 9.7 billion actually, apple-to-apple, our profitability in the last quarter. And because of the restructuring in the third quarter, there has been a movement of NPL. We saved some of these customers, but the movement also understated the P&L on the fourth quarter and overstated the P&L in the third quarter because of the consumer credit and credit card provisioning. So quarter-by-quarter, if you correct those 2 items, our profitability last quarter would have been TRY 31.7 billion. And on top, we had certain security optimization, things like that. So actually, even though you don't see directly the improvement in NIM in those numbers, if you correct for one-offs, the trend has been positive, and we'll continue to see that in the coming quarters as well. From that perspective, we feel comfortable with the improvements. Simon Nellis: Okay. And -- just on the tax rate, if I calculate it right for the parent bank, you had an effective tax rate of around 22.5%, 23% for 2025. I mean that's still well below the statutory rate, right, which is 30%. Are you sure that effective tax rate will be around that level this year? Kemal Ozus: Yes, around 20%, 25%, you can use because although the tax rule change about the inflation accounting, but there's still some cause inflation accounting treatment of the revaluation of assets, which are bringing some deferred tax asset year-on-year. This is one reason why effective tax rate is below 30%. Mahmut Akten: And also because of subsidies, different tax rates and as well as subsidies income level is different. In some subsidiaries, we have lower tax rate and some subsidies, we have some tax cushion as well. So depending on the performance of all the subsidiaries and our consolidated figure will be still relatively good. Simon Nellis: And do you think that should be sustained further out? Or will the DTA effect fade and the tax rate go higher? Kemal Ozus: It could change depending on the revaluation rate or the inflation rate, let's say, which is interlinked. So when the inflation is lower in the coming years, let's say, mid-teen inflation or devaluation rate, we may see an uptick in the effective tax rate. Operator: Our next audio question comes from Mustafa Kemal Karakose. Mustafa Karakose: My first question is about loan pricing. What should we expect in terms of loan pricing for the next year? We have seen so much ups and downs in loan rates recently. And my second question about spread between policy rate and the deposit rate. How much -- how many spreads do you expect for the next year and beyond? And my third question is around about ROE guidance. Do you assume any mark-to-market gain in your ROE guidance? Because if there will be some mark-to-market gains, your equity base will be higher. Mahmut Akten: Thanks. First of all, loan pricing, as you point out, depending on the product, there has been some volatility on loan pricing. But overall, because of the positive side of the regulation in some sense, given the limits on loan growth, the expected decrease in loan pricing has not been realized, given that we don't have much room to grow in loan because of the caps. Depending on the product, as you said, there has been sometimes ups and downs that's related to 8 weeks window. Sometimes when we get close to the end of the 8 weeks, especially on very digital products, we might have sometimes need to change the pricing to be within the cap. But what is important is the trend in terms of trend the reduction or reduction in the loan prices is below our expectation, are not fully parallel with the policy rate reduction. So it's not a perfect 100% beta there. Regarding deposit pricing as well, because of, again, regulatory measures because of the Turkish lira ratio, typically, in the past, what we have seen, we are not seeing right now, which means normally our incremental deposit pricing is below the Central Bank policy rate around 50 to 100 bps below. And you see that right away in the 2 days after the Central Bank policy rate, we see a significant reduction. But given that there is ratios and there is a lot of dependency on the FX situation and interest, which has been recently realty has been around gold and silver, but regardless, because of those ratios, the incremental cost of deposit has been slightly higher than the policy rate nowadays 50 to 100 bps. So instead of actually 50 to 100 bps below the policy rate. So we are not seeing the similar reduction in deposit as well. But overall, despite all this, we are improving as we see on the fourth quarter, our margin regardless because of the duration differences. We have been always investing in the customer side on loans. As you see in this quarter as well, our security fixed book has not changed much. We actually had some optimization, which you don't see from the numbers to be more sustainable and more profitable security book, but we are still at 58% customer loan versus our peer group at 49%. So I believe this is going to be reflected relatively positively on our numbers going forward. But we see 50 bps to 100 bps above policy rate. This will diminish in the following weeks as well as volatility reduced in the market, given that we are switching from 4-week windows to right now 8 weeks, which is a big plus in terms of our major. And then there was the last question about return on equity guidance. Kemal Ozus: I can take that. I mean we did not incorporate a significant amount of mark-to-market gain in our ROE calculation. Our foreign currency -- our securities foreign currency TL, there's an increase in the foreign currency part toward 40%. And in TL, we have AFS book and the hold-to maturity book. So we don't have much exposure to interest rate changes in equity in total. So we did not incorporate a significant amount of mark-to-market. Mahmut Akten: We have significantly lower sensitivity to interest rates -- that has been our policy and strategy. Operator: Our next audio question comes from Ali Dhaloomal. Ali Dhaloomal: I had this question actually about the TL spread policy rate. My question is just actually about wholesale funding. I mean what should we expect from Garanti this year in terms of issuance? I mean, last year, you have been very active in the Tier 2 format. But also in terms of other instruments, I mean, are you looking to do more in the DPR format or others? That would be great to have some color. Mahmut Akten: Sure. Let me speak first and then Atil will add. On wholesale funding in the past as well, we have been opportunistic. We have relatively high liquidity always, but going to always grow -- further strengthen our capital as well. So we had, yes, Tier 2s. But at the time we did Tier 2s, there has been substantial spreads or cost between Tier 1 and Tier 2. Depending on the needs in the following months, we'll be, again, opportunistic on how we decide on funding, but we don't have a decision at the moment, but we see very much reduction in the overall spread between different instruments. But also from senior funding standpoint, we don't -- we are not in rush to do so. But DPR type of instruments or senior loans is always 2 depending on the cost, we might tap those markets as well. What do you think, Atil? Kemal Ozus: Yes. I mean, nothing to add. I mean, yes, DPR for many years, I mean, we were not in the market. I mean -- but with the new developments, DPR market could also increase. So we may be in the market depend on conditions and the pricing. Operator: Moving on with the written questions. The next question comes from, Valentina. She says, in first quarter, usually the banks take some one hit off it on capital due to operating risk adjustments. Can you share roughly what impact on capital we should expect? Mahmut Akten: 83 bps. Operator: Next written question comes from Orkun Godek. How do you evaluate the potential implications of the recent regulatory changes introduced over the weekend? In addition, there's an expectation for an easing of loan regulations in the final quarter of the year. What is your take on this view? Mahmut Akten: Yes. I think when do we see easing of the regulation, I don't really have an answer. Yes. I mean you would expect with the reduction in interest rates, there might be further reduction, but there are 2 main instruments on cooling down the economy. Number one, interest rates. And if you believe that interest rates are coming down, that will further strengthen growth and investment and loan book. So I'm not sure whether we will see a significant release on loan caps. However, having said that, as I said, it is not fully negative for us as one of the -- I mean, one of the largest bank in terms of balance sheet, given our customer base, we have a higher growth cap, and we are pretty much tapping that growth every quarter to meet our customer needs. And those caps also in parallel are requiring to interest rate or loan yields to settle at a higher rate, which also helps cooling down economy. So we'll see how it goes. Inflation is not an easy animal. So we'll see quarter-by-quarter, data by data. I would say that. And then that was the first part. The impact of regulation, the recent regulation, yes, there are several parts. One is significant growth in credit card limits and overdraft limits. Those have been 2 products used extensively. And there were other items, as we mentioned, one that was very helpful doing restructuring of the credit card blade loan book, which is significant. And then FX loan book growth has been reduced to 0.5%. Again, recently, we have seen on the FX loan book decreasing interest. So further limitation on the growth of FX will actually help in the NIM side, but it has a negative impact on the volume side. So it makes us more road focus in our customer day-to-day business. So I'm not concerned about that as well. On the credit card and overdraft, yes, I mean, Turkey is a consumption-driven market and credit card has been highly utilized versus the past 5 years, especially after COVID and after effective money being only TRY 200 and then rising of the e-commerce and online shopping, we have seen 40%, 45% credit card share in terms of day-to-day payment going up to almost 70%. I think still the tax -- still the regulation on credit card is being worked out. The details has not been fully published. Given that we have significant market share on credit card and overdraft, any optimization on limit or risk will adapt easily. Last year, we have captured a very high market share of the new credit card customers as well. Last year, our customer growth has been close to 3 million customers, and now we have more than 30 million customers who have account with us more than 50% of the total market. So I think any optimization that's guided by the regulator will apply it. And then we have -- we will have some effect, but will not be significant in my view. But we'll see how it turns out over the next few months. As you know, in the regulation itself, things are being worked out. What I mean is like, for instance, there has been regulation regarding the school payments, which is an important one ticket, large ticket item. There has been some exceptions on the overdraft. Potentially, there might be exceptions on credit card as well. That reason we'll see over the next few weeks and months how this play out. But as the largest player in the credit card market and overdraft, we believe that we can optimize and leverage our customer base and will not affect it negatively from this change as well. Operator: We have an audio question from Furkan Vefa Tirit. Furkan Tirit: Just to clarify, you said for every 100 basis points of rate cuts, 15 basis points of effect on ROE, right? Is that true? Mahmut Akten: On NIM, but full year -- so initially lower, yes. Operator: Moving on with the written questions. We have one from Bulent Sengonul. He asks, does your 75 bps margin expansion guidance include any easing in macro prudential measures? Mahmut Akten: No. Operator: Okay. Moving on to the next one from Bulent. Does your mid-cycle NIM and ROE targets assume that macro prudentials are fully normalized? Mahmut Akten: No, we don't expect macro prudential, which means around the ratios not fully normalized this year. So we still -- even in this environment, we expect to have a real ROE at the end of the year. So we are, again, I mean, I briefly said only no, but the prior question as well, we have been conservative in our approach. As I said, everything is data-driven. And so far, inflation and interest rate expectation of other banks has been wrong or it has been going up. So we have been conservative in our approach, and we expect no change on the regulation. Operator: We have an audio question from Tomasz Noetzel. Tomasz Noetzel: Yes. I can just ask for clarification on your fee guidance. Does this include any changes to regulation in terms of interchange fees or anything like this? Could you please clarify that as well? Mahmut Akten: Yes, we expect some changes and reduction interchange. But at the moment, the interchange is already set up a bit low. So we haven't seen a change recently, but it will, at some point, there's a breakeven policy rate. But we expect to compensate that with wealth management, insurance and other service and commissions. So we incorporate the reduction in payment. Normally, payment has not been that high as a percentage of total fee. We normally normalized rates around 55%. But nowadays REI is around 67%. So there will be a reduction to normalization, but the insurance and wealth management brokerage commissions and crypto type of commissions is increasing in our overall commissions. So that has been always within the plan, and that's the reason in our strategy, these type of commissions are important to offset the very strong payment commissions we have. I hope that answers. Operator: We have a written question from Cemal Demirtas. What's the sensitivity of your ROE assumption to 1 point lower or higher inflation? Mahmut Akten: We actually -- we have a perfect number of 1%, 15 bps. We didn't calculate, but back of the envelope, you would expect to around 0.5%, 0.6%. But Ceyda will get back to you on the exact number that Ceyda needs. These are the questions I need to answer. You need to calculate that as well. But definitely, that will be an improvement in ROE as well to get a better number. So I think we finish all the questions. There is one more. Okay. Let's go for it. Operator: It seems like we have one more question, a written one from Valentina. She asks a follow-up question on 83 bps negative impact. Do you think this can be easily offset? And expanding on this, why do you see your CET1 buffers throughout the year? Kemal Ozus: Yes. Of course, this 83 basis points is one-off impact since, I mean, in the new year, the operational risk is increased based on your prior year income calculation. With the current year profit, I think we will be compensating that. Of course, in the first quarter, there will be some reduction out of the dividend payment. And I think we will be compensating these... Mahmut Akten: There will be some baseline effect as well. Kemal Ozus: There could be baseline impact around 45 basis points in the second half, assuming that Basel IV will be enforced at that time. But with the internal revenue generation, we will be compensating those impacts. Mahmut Akten: Any further question? So I think we finished the questions. So it was really good list of questions. So thank you very much for everybody's participation. Really, we are pleased to conclude 2025 with very strong numbers. Again, reflecting our strategy, as I pointed out in the prior meetings as well. We are focused on customer-driven business. Our strategy is to expand our customer base and have sustainable profitability, not quarter-on-quarter, but on the long term. And so we continue to do some investment you see in the non-HR OpEx or trading, sometimes optimization, things like that. And -- but regardless, if you do one-off corrections, as I pointed out, our Q4 apple-to-apple is better than Q3. Q3 is better than Q2. So this continues like that. And then in the first month, January, we see also relatively good results for January above our budget, our internal targets. So we continue to make consistent progress. But our focus on digital transformation, AI transformation, efficiency, sustainability agenda, innovation continues to be our top of the agenda. And then going into new year, as you point out in your questions, our sensitivity of our security portfolio is relatively low. We are positioned ourselves in any situation. And then our focus is sustainable, delivering sustainable value for all of our stakeholders. So that's the strategy, hopefully, 3 months later, these days, we'll come together and we'll also show you even a better picture going forward. Again, thank you very much for everybody's participation and your patience late in the evening. So I hope to see you and to hear from you 3 months later in the next earnings presentation. Have a nice evening to all of you. Thank you.
Christian Kullmann: Thanks a lot, and thanks, everybody, for joining our call today on such short notice. We have quite some news for you this afternoon and expect quite a few questions from you. So having said this, let's get right into it. To start, I would like to highlight 3 points. First, we've achieved our revised outlook for 2025. It was a tough finish in the last quarter, but we made it. Our EBITDA in the fourth quarter was solid enough to reach around EUR 1.9 billion for the full year, and our cash generation was more than just solid. We delivered almost EUR 700 million of free cash flow, resulting in a 37% cash conversion rate, making the upper half of our guidance corridor. This demonstrates once more no matter what the environment, we deliver on cash. Last year was not a great year for sure. But given the environment, I would say we came away with a black eye. So having said so, let's look ahead from there. And second, for 2026, we aim for broadly stable earnings at the midpoint of our guidance range in an environment which remains tough. And with normalizing methionine prices, delivering stable earnings, I guess, is a good thing. Claus will elaborate further on this in a second. And third, the consistent execution of our strategy is in this environment where challenges are everywhere as crucial as never before. To be able to do this, we need more financial flexibility. This is why we present a new dividend policy today, which combines a still attractive dividend for investors with more financial flexibility for us. The support from RAG Foundation on this change demonstrates their commitment to our success. More on this at the end of our prepared remarks. Before, ladies and gentlemen, I let Claus dive into the more operational topics, I would like to make a case for Evonik. Some of you would ask why invest in us? Why invest given all the headwinds for chemicals? It is true that right now, we face structural challenges and weak demand at the same time. This is, of course, not a good combination. But already in these challenging times, we are strong industry-leading cash generator. That is why despite investing and despite paying an attractive dividend, our leverage is moderate. This enables us to act from a position of strength. We, ladies and gentlemen, we do control our own destiny. From this relatively better starting point, we have significant potential to improve in the years to come, and we will realize this potential. We will reduce costs further. Our headcount will be another 1,000 lower at the end of this year or better at the end of last year. We have exciting applications and attractive growth niches such as for our batteries or drones. We still have significant portfolio optimization potential that lies within Oxeno, that lies within SYNEQT and more. And last but not least, as just mentioned, we'll adopt a more balanced capital allocation strategy. This means, in other words, in any kind of environment, we will improve in the years to come, and then we will generate a ROCE of around 11%. I have no doubts about this. By the way, ROCE will become part of our Board compensation with the approval at the upcoming AGM in June. This will help us to stay more disciplined and to align our interest and the interest of our investors. With that, I do hand over to Claus. Claus Rettig: Yes. Thank you, Christian, and to all the people listening to us online, a very warm welcome from my side as well. Before I go into the financial outlook, let's run through the puts and takes that are behind the numbers. On the side of the headwinds, we expect the demand environment to remain weak. We don't think -- we don't bet on a recovery. I think that's the best thing to do at the current moment in time. So in absence of a major demand recovery, competition, especially from Asia will stay tough. Of course, these are not Evonik-specific headwinds. Evonik specific is, in fact, that after 2 strong years, we now see a normalization in the methionine prices. I think this is well anticipated by the capital market. However, we will be partly offsetting these lower margins by our volumes and after a series of intense maintenance shutdowns last year, we have more capacity and a lower cost base in the U.S. once our backward integration is up and running, and this is the case from the mid of this year. Increasing support will come for us from our self-help measures with Evonik tailor-made and business optimization programs in full swing. On top, we will introduce short-term contingencies again, which we already had in the year 2023 and 2024. Also, we are expecting lower energy costs, mainly from regulation changes in Germany. That brings me to our guidance for the adjusted EBITDA in 2026, which we expect to be between EUR 1.7 billion and EUR 2 billion. The base assumption for our outlook is the aforementioned positives and negatives should largely balance out and leaving us at the midpoint of our guidance range with, you can say, broadly stable earnings versus last year. In Custom Solutions, we expect a year of slight growth, both in terms of volumes and earnings. In Advanced Technologies, we anticipate slightly lower earnings, mainly driven by the normalization of the methionine prices and less support from onetime effects, which we had last year. So interesting question certainly is what are we seeing for quarter 1, 2026. It's very early in the year, of course. And nevertheless, of course, we looked into this very, very intensively before we gave you this guidance range. So far, we see little change in Q1. So Q1 is more or less currently seen by us on the level of Q3 2025, in which we recorded an adjusted EBITDA of around EUR 450 million. So I guess this will be a good proxy for the start into the year, suggesting that our business in total is currently relatively stable. However, if all quarters continue on this level and even accounting for Q4 seasonality, we will be able to meet our outlook. But to reach the midpoint of our guidance, we need a small earnings improvement in the quarters to come. And we believe this is realistic, not because we are betting on any kind of support from the general environment, but because of specific elements in our business. So I'll give you some examples. Second half of Healthcare is always stronger than the first half. And we have seen this last year in a very, very strong Q4 of Healthcare that this is the case. Then we expect a stronger catalyst business in the second half partly because it's, say, normal seasonality, but also mainly because of change in, let's call it, regulations because there's regulation out for the use of biodiesel in Europe as well as in the United States, which has not been put into reality yet, and we expect that this is going to happen certainly in the second half of this year. We have Oxeno business where we believe there will be an improvement compared to Q1. And we have the second half in the year supported, let's say, margin improvement in our methionine business because our backward integration in methyl mercaptan in the U.S. is going online. Last but not least, also, we have a new hydrogen peroxide plant, which we are starting by the mid of this year in China. So just to give you a few examples, I could also even mention some more. So this gives us the confidence for the guidance level we gave to you. This brings me back to Christian. Christian Kullmann: Thanks a lot, Claus. Ladies and gentlemen, in this tough environment and facing clearly weaker results than we would like to see, the execution of our long-term strategy is more important than ever. We need both growth and cost optimization to be successful in the long run. Realizing growth is obviously more difficult than we thought 1 year ago. We are ramping up new capacities, as Claus has already mentioned, and attractive products and end markets. These are making a contribution, albeit a smaller one for now. We are complementing these with more focus on growth opportunities in attractive end markets. So we have interesting solutions, for example, for drones, for data centers and for consumer electronics. I can hear you. I can hear your skeptical question. These businesses are too small, Kullmann, to make a difference. Yes. They are small today. But this is how innovation or new application always starts in chemicals. For example, think about our Veramaris businesses. So it takes time to build sales and earnings, but that does not mean we should not be doing it because the opportunities we could have and we could benefit from are really attractive. The second pillar for future success, obviously, are our self-helping measures. Renting from Evonik tailor-made to various business optimizations and our procurement optimization, here, we have a lot of things in hand. All of these are pretty well on track, visible in a clear headcount reduction of more than 850 in the last year. And another 1,000 as part of these programs are to be reduced in this year. Unfortunately, the benefits of our cost reduction programs are partly eaten up by fixed cost increases. On average, these are around 4% a year or in other words, around EUR 200 million. In 2025, especially due to strong wage inflation in Germany, the increase was higher than normal. We were able to offset this higher inflation and expect that in 2026, the increase will be definitely lower. We will also bring back short-term contingency measures such as travel restrictions or training and communication spending reductions. Here are really saying we are used to it because we have proved to be successful in the years 2023 and 2024, and it is now urgent need again. In total, this means that more savings will come to the bottom line in 2026 compared to 2025. Before we jump into your questions, let me please close the presentation with the details of our new proposed dividend policy. First of all, in principle, our priorities of cash allocation remain unchanged. We focus on CapEx, we focus on dividend and deleveraging in that order. Note that we will still rule out M&A until 2027. In the past, we had a stable, very high dividend payout. This was favorable for and rewarded by mostly the REG Foundation. However, a rigid dividend is not adequate in this tough market environment and for a company in transformation. So we are switching to a dividend, which is tied to the financial performance of the company. This enables first, the long-term sustainability of our dividend; second, more financial flexibility for us to reach our strategic targets and goals. And third, investors to participate in future growth. And we will roll out the new policy in 2 steps. At the upcoming AGM in early June, we will propose to pay EUR 1 per share for last year. We offer this as a smooth transition from the previously fixed dividend to the performance-oriented dividend. This is still an outstanding dividend yield of around 7% today. From the AGM 2027 onwards, we will propose to pay out 40% to 60% of the adjusted net income. For this year, this would have resulted -- sorry, for last year -- excuse me, for last year, this would have resulted in a dividend between EUR 0.54 and EUR 0.82 per share. The range we provide for the payout ratio allows us to provide a good degree of dividend continuity and reliability in euro terms. That means we aim at a higher payout ratio in years of weaker financial performance and vice versa. So obviously, right now, payout would be rather 60%. At current share price levels, this would imply a yield of still around 6%. And let me stress again, the support from the RAG Foundation on this change demonstrates the commitment to our success. Thanks a lot for your attention, and now we are happy to take your questions. Operator: The first question comes from the line of Tom Wrigglesworth from Morgan Stanley. Thomas Wrigglesworth: Two, if I may. Firstly, just on the change in dividend policy. Clearly, your shares were not being rewarded for the high yield. But at the same time, I think investors would look at the challenging conditions and say this is not a market that needs more CapEx. You've talked in the past about share buybacks, probably more so in the last couple of years than you've ever spoken about potentially returning capital through other measures. Is the buyback -- does the cut of the dividend mean that a buyback becomes more attractive given how undervalued your shares are? I'm just trying to square where we sit on that. Then with regards to the strategic review of SYNEQT, can you give us an update there? Have you got a deadline as to when you think you'll come to the conclusion of a strategic review? What are the moving parts in terms of the process? I think we saw an announcement of an appointment of some bankers at the end of last year. So just keen to know what you think the time line is there? Unknown Executive: Thank you, Tom, for your questions. The first one on the capital allocation and buyback, I give to Claus. And the second one on SYNEQT, 2 questions, please. Claus Rettig: Yes. Okay. Yes. Thank you for the question. Dividend policy, I think Christian explained what are we looking for? We need more financial flexibility for, let's say, for our future. And of course, here, and Christian said it, we have to look for CapEx. Of course, we have projects, fast return projects, which are attractive. So these remain on the list. And as much as you are right, with the current utilization of plants, there is not much need for a huge investment at the moment, but there are smaller ones that really promise fast returns. So this is number one. The dividend, of course, is and will remain an important factor. We want to offer an attractive dividend yield. We are very high right now, but I think our share price is also too low and has to rise. And lastly -- or not lastly, then we will actually look for deleveraging. We are very stably financed. We have a very good financial -- solid financial foundation. And -- but here, we still want to reduce our debt. And of course, we also don't rule out buyback of shares. So that will depend very much on how strong the cash flow is going to be. But of course, it remains an option. Christian Kullmann: Tom, I'll take the second question. First of all, I really take pride in saying that we have successfully with high speed, carved out this business over the course of the last year. And now it is an independent company. What is next? Next is that -- that means we will tackle different options. Option one is joint venture or maybe specific cooperations. And of course, that goes without saying straight sales, straight divestment. That is what we will discuss over the course of the next weeks internally in the Executive Board, and then we will come along. That is where we are as of today. Operator: The next question comes from the line of David Symonds from BNP Paribas. David Symonds: I think I'm going to go to 2 as well, please. The first one is you mentioned an Oxeno improvement from Q1 onwards. And I've been noticing C4 prices rising recently. Is this the reason for the improvement that you expect there? Or is that just passing through higher energy costs that we've seen in the first part of this year? And then just maybe coming back on capital allocation. Am I right in thinking that buybacks are the lowest priority use of capital for you? Because it sort of comes bottom of the list, but at the current share price and given weekend market volumes, I would have thought deleveraging and new CapEx would be lower on the list than buybacks at this point. Unknown Executive: Yes. Thanks, David. Christian starts with Oxeno and what we see there. And then capital allocation, I give Claus again and comment on the priority list that we. Christian Kullmann: David, I guess it is fair to assume that the last year, our Oxeno business, let me say, has met the trough point. And for this year, having said so, we -- let me say, we see the chances for a slight recovery. How comes? First, there are first positive signs in respect of permissions given for -- in the area of construction. That is really helpful. It may be over the course of the year that the stimulus program of the government in Berlin could pay off in this direction. As you know, construction is one of the key areas where they want to see and where they want to, let me say, increase additional growth. So here might be a good chance. Second, and that is what we should not underestimate is the announcement of the commission in Brussels that they will overhaul the CO2 trading system because that means in future terms that we would, in respect of our Oxeno business benefit from this and that would even lift up the chances for the sales process to get a better price, referring to the announced changes of the commission in Brussels. So for 2026, however, there is a chance for a bettering for an uplift because of the construction and maybe for the construction impulse given by the government, which could pay off over the course of the second half of this year. And we do see and hope for some ups in the automotive businesses. So this altogether gives us some, let me say, -- it is a mixture of, let me say, underpinned confidence and good hope that it would turn into the better for Oxeno in this year than it has been last year. And please keep in mind that if -- and we do welcome and appreciate the announced changes of the CO2 emission trading system very much, this would additionally better the chances for our Oxano business getting a more attractive price than maybe before. With this, I hand over to Claus. Claus Rettig: Okay. Thank you, Christian. Maybe a few additions to this. Oxano, when you look into -- we don't expect -- we are not calculating a huge improvement, just to make it clear in terms of quantitative level, but a significant one. And Christian pointed it out very much. And there's also -- when you look into -- we had a major shutdown in 2025, which cost us quite a lot of money. This is not going to happen in 2026. So these maintenance costs are not there in 2026. We see currently also a little shortage in butadiene in Asia. So we will certainly benefit from this. If the freight route through the Suez Channel goes up again, we will save freight cost as well. All of this together, we put into this kind of assumption. And so I think it's not a hope. I think it's a clear fact-driven expectation. And coming back to your question with the priorities, I can only repeat what I said before. I think CapEx is number one. Like I said, we have topics which we get fast returns. And I mean fast means 1 to 2 years. We want to remain an attractive dividend company. And so this is, of course, also very important to us. And deleveraging is also clearly right now, when we look to our net financial leverage, it's only at 1.6, yes. If I take our pension obligations into account as well, then it's 2.4, still very much, let's say, maybe a little bit below average of the market. But I think we believe in the times ahead of us, it's very important to have a very, very sound balance sheet. And so this remains number three. And then again, I can only repeat if we really have a lot of free cash available, then, of course, share buyback remains an option. And so this is maybe just to clarify again, this would be the list priority list for what we do with our earnings. Operator: The next question comes from the line of Chetan Udeshi from JPMorgan. Chetan Udeshi: I had 2. First, can you remind us -- you mentioned this maintenance shutdown in C4 having an impact in 2025, but you then also had a lot of bonus accrual release through the year. So just remind us what were the key headwinds and tailwinds outside of the business conditions in your businesses that we should have in mind as we think about the bridge for 2026? And the second question, maybe for you, Christian. I mean, from your perspective, what do we need to actually see for this sector to really come out of this malaise because we've seen the industrial production globally improve last year PMIs in most regions, at least outside Europe, have been at 50 or above 50. But when we look at the numbers of Evonik, but also most of your competitors, they still look very, very tough. And I guess the question for a lot of us is what can change that? I mean from your assessment, what do you think we need for this sector to become, let's say, more interesting again for investors? Unknown Executive: Chetan, thank you very much for these. The first one on the special effects, bonds provisions and so on, goes to Claus. And then on the broader sector outlook and what we need for the improvement that's Christian done. Claus Rettig: Okay. Good. Then yes, going -- when you look back to 2025, of course, the major impact on bad results, don't get me wrong, that's why I said the improvement will be not a super huge one was, of course, volume and price. Price is down. But we also had -- we had only, I think, every 5 years or so a shutdown to do where we take all the entire chain out and have the maintenance. I think here, it was then, let's say, a lower double-digit million cost for us, which contributed to the result level of Evonik Oxeno. And of course, the bonus provisions, last year, we had good performance bonus. So we had high payouts. We -- and this is not the case this year. Of course, you are right. And from that point of view, this will also have a release. But of course, we also have -- also in Oxeno, we have our cost-cutting programs. This will contribute as well. We reduce still spendings in the unit. So that's all this together. But when you look to the biggest single portion, you are absolutely right, is the maintenance shutdown, middle double-digit million area plus less bonus payments in 2026. Christian Kullmann: Okay. Chetan, I try to answer your second question. And let's be -- maybe let's start in being very concrete on this. As of today, of course, the chemicals industry looks a little bit lackluster for the markets. But if you look behind the curtain, we could occur sexy. And why is it that I come to this kind of conclusion. Yesterday, the German newspaper has penciled and published that there is a good chance for the energy-intensive industries all over Europe to get a relief from the -- from an easing of the emission trading system. And out of a sudden, our share prices have remarkably risen up, which means, in other words, for me, that the investors do have realized that if we would -- that the pain from regulation, that the pain from the Evonik trading -- emission trading system would be eased. Hence to this, we could create a level playing field with our competitors abroad, it could really become a game changer and help us to become for capital markets more attractive. So first issue that we have to tackle is less regulation and create for Brussels and create a level playing field that we could be able to bring our performance straight -- straight on the street. Let's keep it like this. Second, I guess we have to differentiate between the company. As of today, there are companies maybe having reserves, in other words, having additional potentials, maybe by cost cutting, maybe by divestments, maybe by being in attractive growth niches, maybe by the geopolitical footprint and those who do not have. I'm convinced that Evonik belongs to the first group. So that is on top, a chance. In Germany, we should maybe give the acceleration of growth, the stimulus program of our government in Berlin, we should give it a chance. And it could start to pay off from the second half of this year onwards. And of course, maybe last comment about the politics of our days. If we could see an easing of geopolitical tensions, if we could see less tariffs between United States and China, then, of course, that would be helpful in an additional way. So that are my ideas about what is need. And I do really bank on the announcement of Brussels in respect of the emission trading system that could really become a game changer for us. And as I know the governments in France, in Belgium, in the Netherlands, in Poland, in Slovakia and in Germany, too, are elaborating here, let me say, new ideas of how to support the supply and value chains all over Europe that our economy could, in future, prosper in a better way. Operator: The next question comes from the line of Martin Roediger from Kepler Cheuvreux. Martin Roediger: Questions. Question number one is I have to come back to this CO2 topic with the EU Commission eventually softening this CO2 scheme, including the postponing of the deadline for the free CO2 allowances and also the auction time. Based on your talks with these guys, do you have the impression that the shift in the time line will be 1 to 2 years or 5 to 6 years or up to 10 years? Secondly, on cost savings, you expected incremental cost savings in the magnitude of a high double-digit euro million figure in 2025. Did you achieve that? And going forward, what are the incremental cost savings you expect for 2026? My guess would be EUR 100 million. Is that correct? And then thirdly, on energy costs. I recall that you intended to reduce energy costs from EUR 950 million in 2024 to EUR 900 million in 2025. Did that work out? And what is your best guess for energy costs in 2026, including your hedges? Unknown Executive: Yes. Thank you, Martin. The CO2 certificate question will go to Christian. And then on to Claus for the savings and the energy costs. Christian Kullmann: Martin, let's keep it like this. I'll give me a chance to split my answer up referring to your question. First, maybe as a sprinter, which would help us, where we would benefit from here, in particular, in Germany is about the new industrial electricity price system and the compensation of it. That is what would work for the next 3 years. Decisions in Berlin are already taken. And now they wait for the approval from the commission in Brussels. And here, I'm confident that it will come soon. So not in due course instead of soon. That would -- let me support our energy cost calculation over the run for the next up to 3 years. And then it is about the emission trading system. The emission trading system, there's desperate need to overhaul it in a radical way. As mentioned before, talks are ongoing, and that is what would pay off in the long run, which means if we take investment decisions for new technologies, ETC here in Europe, and we would be eased or the relief would be there in respect of the level of the CO2 fees we have to pay that would be somewhat like a game changer could come. Is it now possible for me to judge upon it about the, let me say, duration when it is going to happen. No. Here, we have to wait until July when the commission will provide us with a precise, let me say, proposal what they have in mind. And in the meanwhile, there will be a lot of negotiation and talks about how we could become -- or let me say, how we could bring this beef that it would be digestible in the future for each and everybody to the table. Claus Rettig: The next part of the question. Yes. So first, the cost question. So when we look into 2025, we can say our programs went very well. So we achieved more than a reduction of 850 headcount in 2025. That means these costs are really gone. Of course, they went over the course of the year. So it's not a full year impact. And we also heard Christian saying that we have the plan to have 1,000 more in 2026. Here, the same will apply over the course of the year. When I look into the numbers of 2025, I can tell you we reached almost the level we wanted to reach in terms of cost savings. However, and now it comes to, however, we also had a lot of cost increases that are more or less compensated the cost savings. So of course, we had huge increases in wages in last year. Germany alone, just to give you a benchmark here, was 7% wage increase in 2025. And we had also across the world, significant increases in wage because of inflation compensation. I don't have to explain it to you. You know it yourself very well. So this actually resulted that we kept our fixed costs more or less stable. This was 2025. 2026 will be totally different. We will have -- again, with our cost-saving measures, we have the program. We know that we will deliver. And I'm certainly not expecting that kind of increase in factor cost increase, fixed cost inflation in 2026. So that means at the year-end, certainly, alone from this portion, we will see quite a significant reduction in fixed cost. And so that is certainly happening in 2025. I don't think that we will see much more than 1% increase in fixed cost. That is at least the target of the CFO or interim CFO, if you want to say. But in 2026, you can take my words, you will see a significant increase in fixed costs, which we unfortunately for the reasons I have given could not achieve in 2025. 2026, I think -- yes, over and above, you heard Christian, we have also contingency measures. However, they will, like the word says, is not a permanent one. The headcount reduction, of course, is a permanent. And over and above, we have the temporary ones, which will support the results in 2026. Coming to your question about energy costs, Yes. In 2025, you are right, we saw quite a decline in energy costs, double-digit million decline in our energy costs, and we reached a level now below EUR 900 million in our total energy bill. Unfortunately, we will not see much more decrease in 2026. Here, it's a different story to what I just said on the fixed cost side. So we saw also pricing in the spot markets for energy, gas going up, strong winter in the U.S. contributed to this. Of course, it will not stay on forever. Nevertheless, in a nutshell, I have to say we believe in 2026, we will see a low double-digit million decrease in energy cost, but not more. Operator: The last question for today is from Christian Bell from UBS. Christian Bell: I've got 3. The first one is, if you are expecting significantly lower fixed costs, as you just explained in the previous questions, in 2026 alongside flat to slightly higher sales. Could you just help us understand why that does not translate into earnings growth for 2026? Unknown Executive: That's it? Christian Bell: Sorry, I was waiting for the answer. I can ask my second and third question as well. The second one would be the preannouncement today, together with the level of detail provided a month before the result is not something we typically see from Evonik. So I was just curious as to why you decided to preannounce today. And then finally, as a result of the new dividend policy and the current outlook, on our rough calculations, that suggests dividends to RAG could be around EUR 100 million lower. To the extent you can comment, do you know how RAG plans to address that potential shortfall? Or are they comfortable with a lower level of income? Sorry, that's the end of m questions. Christian Kullmann: Never mind, never mind. Maybe I take the one about the ad hoc communication style. I'm close to fall in love with my Chief Counselor, and he has given me strong advice to give this ad hoc communication. And that is what -- for me, it was a must to obey. So that is the reason why we have decided to have this ad hoc communication. In respect of RAG Foundation, first, it is to underpin that they do support the strategy of the company and that they do have totally agreed upon the suggestion saying, here we need a new Evonik strategy, dividend strategy because that is helping us in respect of future growth. And so here, they are totally supportive. That is what I could say. So comfortable and convenient for them, yes. And the first question about lower fixed costs, I have to now to hand over to Claus. Claus Rettig: Yes. Thank you, Christian. Maybe one addition. If you calculate the numbers, EUR 1 is actually resulting in EUR 466 million of dividend payment compared to the [ EUR 117 ] million we paid so far is EUR 545 million. So it's roughly, let's say, EUR 120 million below. And then you can see what the share of RAG and you get a feeling for what it means. Coming down to the other question, let's say, fixed costs not translating into earnings growth. Yes, this is a good question. And the major or the biggest point towards this one is the development in our methionine business. So here, we have I think that is also capital markets know well about it. You make your own assumptions. But we see the new capacities coming in. We have the new NHU capacity coming in, in Q4. We will have another new capacity from [ Leben ] coming in most likely Q2. And so we anticipate and we see it already from the decrease in price level. U.S., super stable, protected territory by tariffs. Europe, slight decrease so far, strong decrease in China and also moderate, let's say, in Asia. All of this together, unfortunately, has an impact, and it will consume, let's say, quite a bit of the fixed cost savings. That's why we put our guidance into see more or less stable kind of results in 2026 compared to 2025. That's the biggest single reason. Christian Bell: Sorry, I'm just still not fully able to understand. The impression I got from your previous answer -- on the previous questions was that we would see a net decline in fixed costs. But are you actually saying that we're going to see a net increase? Claus Rettig: No, no, sorry. I was talking about our methionine business, amino acid, as you -- and here, we have the situation that we are more capacity buildup in -- at the end of last year, and this is reducing the market price. And this is quite a significant counter effect to -- not on the fixed cost side, it's actually more or less on the contribution margin side. So -- and therefore, you don't see the full impact of the earnings -- on the fixed cost reduction, sorry. Fixed cost reduction on Evonik is compensated to some degree by decline in methionine business. Christian Bell: So I still don't fully understand at the group level, you're guiding to higher sales, but then you're also saying your fixed costs are going down, but you're still expecting flat to slightly lower earnings growth. So I still don't quite understand. Unknown Executive: Maybe we take this after the call, and we will call you later and clarify this. Christian Kullmann: Christoph, what a beautiful bridge you've built for me because that is now bringing us to the end of the first call of this young earnings session for our sector. All the best to you, and I hope we're meeting soon in person on the road. And that is the end for our call today. Thanks for your attention. Take care, and goodbye.
Paul Choi: [Interpreted] Analysts, investors, good morning. I am Paul Choi from the Capital Markets Office. First of all, I would like to thank you for joining NAVER's 2025 Q4 Earnings Presentation. On this call, we're joined by CEO, Soo-yeon Choi; and CFO, Hee-Cheol Kim, and they'll walk you through NAVER's business highlights and strategies and financial results, after which we'll entertain your questions. Please note that the earnings results are K-IFRS based provided for timely communication and have not been audited by an independent auditor and hence, are subject to change after such review. With that, I'll turn it over to our CEO to present on the business highlights. Soo-yeon Choi: [Interpreted] Good morning. I am Soo-yeon Choi, the CEO. In 2025, NAVER strengthened its technological competitiveness and personalized content recommendation by expanding its content supply and building an integrated foundation model while focusing on enhancing usability across services, including home feed and clip and introducing a new search experience through AI Briefing. As a result, user engagement metrics within the NAVER ecosystem showed improvement. And when combined with increased advertising efficiency driven by AI technologies, this enabled NAVER to deliver new value to users. In 2026, NAVER will focus on delivering new experiences in which GenAI is seamlessly integrated across its core services, including search, discovery and exploration and commerce. In the near term, NAVER will expand its AI Briefing coverage and within the first half of the year, launch its first shopping agent and AI Tab to provide more immersive user experience. In parallel, NAVER will continue to explore new monetization opportunities in line with these changes. In commerce, where a structural shift from search toward discovery and exploration centered around NAVER Plus Store is gaining full momentum. NAVER aims to continue delivering double-digit year-on-year growth in Smart Store GMV this year by taking the lead in this market shift. With a clear objective of making 2026 a turning point that accelerates the next phase of growth in our commerce business, the company plans to further strengthen AI-driven personalization, expand and delivery infrastructure and continuously enhance the competitiveness of its membership offerings. Building on this increasingly solid competitive foundation, NAVER will move beyond short-term growth to establish enduring leadership in the e-commerce market. In 2025, NAVER made meaningful progress by implementing and advancing AI technologies across the search and advertising services while validating the impact throughout the year. AI Briefing has expanded its coverage to 20% of integrated search queries, quickly establishing itself as a core search experience within NAVER and demonstrating strong user engagement metrics. Over 8 months since its launch, the service has gradually scaled up with clear shifts in user behavior being witnessed. Moving away from the traditional way of entering 1-to-2-word queries, the volume of long-tail queries consisting of 15 characters or more has increased by more than 2x since the early post-launch period of AI Briefing in April, indicating the emergence of a new search experience. In addition, the time spent in the top section, where a summary of search results is presented, has remained stable. Furthermore, clicks on the section suggesting follow-up questions related to the original query have increased by more than 6x compared to the early post-launch period. Notably, after the recent application of personalization technologies, the click-through rates for follow-up questions saw an additional increase of 20% or more, confirming that users are finding the AI-provided information useful. These metrics indicate a structural improvement in the depth of user exploration and search quality driven by AI Briefing with the results reflecting the combined impact of expanding the collection of reliable proprietary data and continued efforts towards quality enhancement. Based on the expertise and confidence accumulated through this process, NAVER aims to expand the AI Briefing coverage to approximately 2x its current level by the end of 2026. While the initial focus will remain on expansion within informational queries, this application will be extended to areas where NAVER has strong competitive advantages, including shopping and local services, and personalization will be further advanced to deliver more tailored experiences for users. At the same time, NAVER will carefully monitor factors such as contextual cannibalization of search and advertising to flexibly adjust the scope of deployment as needed. These experiences are expected to be further expanded through the launch of AI Tab in the first half of this year. While it shares the same starting point as AI Briefing in organizing and presenting the answers that users are looking for in a clear and concise manner, it is differentiated as a conversational AI search that is connected to NAVER's broader ecosystem services, including shopping, place and maps, ultimately designed to drive actions such as purchases, reservations and orders. Leveraging NAVER's unparalleled user data and increasingly advanced reasoning capabilities, this will deliver an entirely new search experience that accurately understands each user's search, discovery and exploration needs and in which AI proactively guides the entire search journey that leads up to execution, including purchases and reservations. Starting this year, NAVER plans to further secure content and data across the platform to strengthen its competitiveness in AI-driven discovery and exploration. Content is an area where user touch points and data accumulated across search, community and commerce converge and plays a critical role in expanding user traffic engagement while increasing the overall density of the NAVER ecosystem. The company is already seeing meaningful growth momentum across multiple areas, including CHZZK. In addition, securing premium content such as broadcast rights for League of Legends as well as the Olympic Games and the FIFA World Cup is expected to drive new user acquisition and further strengthen the company's content ecosystem by leveraging increased traffic and IP. Looking ahead, NAVER will continue to enhance its user experience including deeper integration with membership offerings while developing new monetization models aligned with such improvements with the goal of translating stronger user engagement into sustained revenue growth. Monetization of AI search is also planned as one of the key priorities. With a top priority on preserving the users' exploration flow, ways to embed advertising naturally with useful content are being reviewed, with a testing set to begin in the second half of the year. While 2025 marked the year of laying the foundation for next-gen and validating its potential as a user experience, 2026 will be the year the company builds on the accumulated know-how and proven AI technologies to expand into an agent AI experience that only NAVER can deliver. Through this, NAVER aims to further strengthen user loyalty and search satisfaction while striving to ensure that these efforts translate into the creation of new revenue streams. Building on the know-how accumulated over the past year through the deployment of AI Briefing, NAVER has also been making ongoing efforts to optimize the infrastructure costs that inevitably accompany the expansion of AI search. By consolidating GPUs that were previously managed separately at the individual service level into a unified operating platform and utilizing across both training and service, the overall GPU utilization has been improved. In addition, by transitioning to lightweight models optimized specifically for AI search services, the company has strengthened its ability to handle the same workloads in a more cost-efficient manner. Through this multipronged infrastructure efficiency project aimed at addressing the high-cost structure, a reduction of more than 30% in the inference cost has been achieved. Building on this foundation, NAVER plans to extend these efficiencies beyond AI Briefing to AI Tab, further establishing a sustainable operating model for AI services. Next, I'll discuss the performance of the advertising business. Of the 8.8% growth in total platform advertising revenue at NAVER in 2025, AI contributed 55%, enabling the company to outperform all overall market growth despite an unfavorable external environment. Looking ahead to 2026, AI's contribution is expected to expand further. In the fourth quarter, growth moderated slightly as advertising spend declined in proportion to the concentration of travel and tourism demand during the extended Chuseok holidays, which lasted for 10 days. The impact of the extended holiday on total platform advertising revenue growth at NAVER in the fourth quarter is estimated at 2 to 3 percentage points. This quarter, AI-driven optimization of ad inventory and the impact of ADVoost continued to drive revenue growth. Since the second half of last year, the integration of advertiser centers across search and display, together with the expansion of advertiser-friendly programs has significantly lowered barriers to entry for ad placement and led to a substantial increase in new advertiser acquisition. As of the end of December, the number of performance advertisers increased by more than 2x year-on-year and the number of advertisers utilizing ADVoost Shopping is also growing rapidly. Given that advertisers who currently use ADVoost Shopping account for approximately 30% of advertisers running shopping search ads, there is significant room for further expansion. In January, the company also introduced a simplified bid execution feature within the Smart Store Seller Center, enabling Smart Store sellers to experience NAVER advertising more easily and conveniently. In 2026, the company plans to strengthen its advertising competitiveness and expand inventory within the NAVER ecosystem while also pursuing new opportunities in external media, off-site channels and the out-of-home advertising markets. In the fourth quarter, NAVER successfully expanded its advertising inventory across existing internal media channels. In addition, since late November, the company has been testing enhancements to its off-site integration with Meta and plans to continue close collaboration with external partners in the first half of the year. Furthermore, a new advertising product that enables local advertisers within the NAVER ecosystem to run out-of-home advertising easily and at reasonable price points will be launched, and this offering will be scaled in earnest. By expanding presence in external media, off-site channels and the out-of-home advertising market in 2026, NAVER aims to enable domestic advertisers to execute campaigns seamlessly across both online and offline channels while also building sustainable growth momentum for its ad business. NAVER has continued to enhance the overall user experience through improvements in delivery, membership and a structural shift in shopping centered around NAVER Plus Store. As a result, Smart Store GMV accelerated to 10% year-on-year growth in 2025, which demonstrates that structural competitive advantages that NAVER has built are beginning to translate into tangible performance. 2025 was a turning point for commerce. NAVER made a bold decision to move beyond the limitations of search-centric shopping and pursue a new shopping structure built around NAVER Plus Store. While this was a challenging and risky decision, it was not merely the launch of a new service, but a core strategy to redefine the starting point of shopping around discovery and exploration. And this decisive move has delivered clear results within a short period of time. NAVER's commerce business is now ready to move to its next phase. Over the coming years, strengthening the delivery competitiveness will be set as a top priority of NAVER's commerce strategy, and this will be pursued through active investment and execution. This is not about feature level improvements or incremental enhancements. Rather, NAVER is taking an open and a comprehensive approach across partnerships, infrastructures and operations to fundamentally elevate its delivery competitiveness and deliver a level of experience that can reshape market perception. Through these efforts, end delivery coverage is targeted to expand to 25% this year and over 35% next year with a mid- to long-term target of reaching at least 50%, representing a minimum threefold increase from current levels within 3 years. Over time, the objective is to elevate delivery from a constraint on NAVER Shopping to a clear reason for choice. Membership has also emerged as a key pillar of NAVER's commerce growth. Over time, NAVER has continuously strengthened its membership value through global content partnerships, including Netflix, Spotify and Microsoft Game Pass as well as core commerce benefits such as free shipping and free returns. And these efforts have supported the stable retention of recently acquired users within the platform. This is functioning as a foundation for converting short-term users inflows into structural growth. And accordingly, a clear target has been set this year to increase active membership users by more than 20% year-on-year. Building on the competitive strengths established through these changes and investments, the goal is to achieve double-digit growth in Smart Store GMV in 2026. Within the growth framework of NAVER Commerce, the C2C business is also establishing a clear role and momentum. Wallapop, for which the acquisition was completed at the end of January, delivered solid double-digit performance in the European C2C market in 2025. Poshmark also showed a clear rebound from the second half of the year, achieving growth exceeding 20% in both revenue and GMV in the fourth quarter, with a similar level of growth expected this year. In addition, KREAM and SODA continued to strengthen competitiveness in their respective markets and maintain stable growth trajectories, positioning the C2C segment as another key growth pillar supporting NAVER Commerce performance. Starting from the first quarter, Wallapop's results will be consolidated and revenue will be disclosed under a separate classification to provide investors with a clear visibility into C2C performance. While 2025 was the year in which the structure of shopping was reshaped, the years from 2026 and onwards are expected to mark a phase in which meaningful change is delivered in earnest built on a stable foundation. With this foundation in place, NAVER Commerce is positioned to significantly accelerate the pace of execution. Lastly, I will discuss the performance of the B2B business. Fourth quarter enterprise revenue grew 16.6% year-on-year after excluding the base effect from LY-related settlement adjustments. In parallel, NAVER's software and AI business continues to progress in line with plan. Starting with Korea Hydro & Nuclear Power, customized software and AI projects are being rolled out across a wide range of sectors, including finance, economy and defense and the public sector based on detailed understanding of each customer's specific needs. Following the announcement of a Korea-specific medical LLM jointly developed with Seoul National University Hospital in the fourth quarter, a financial and economic AI platform was completed in collaboration with the Bank of Korea in January, making the world's first employment of such a platform by a central bank. Building on the successful use cases in Korea, multiple DX projects are currently underway in regions, including Saudi Arabia, Thailand and Japan. In particular, in Saudi Arabia, service revenue related to digital twin and super app initiatives has been generated since Q4 through a joint venture with the Saudi Ministry of Municipalities and Housing, establishing a monetization reference for sovereign AI. NAVER will continue to focus on strengthening AI technology competitiveness while actively identifying additional sovereign AI business opportunities, both domestically and globally. Going forward, NAVER will continue to focus on strengthening the competitiveness of core business, including search, advertising and commerce and through AI, while over the mid- to long term, expanding global growth initiatives by identifying additional opportunities in sovereign AI and incorporating future growth drivers such as Web3 upon completion of the Dunamu acquisition. Now CFO, Hee-Cheol Kim, will discuss the financial performance. Hee-cheol Kim: [Interpreted] Good morning. This is Hee-Cheol Kim, the CFO. I will now walk you through Q4 and full year financial performance. Q4 revenue increased 10.7% year-on-year to KRW 3.2 trillion, supported by growth across core businesses, including advertising, commerce and fintech. On a full year basis, growth accelerated with revenue rising 12.1% year-on-year to KRW 12 trillion. Despite continued investments to strengthen AI commerce competitiveness and expand strategic initiatives in commerce, Q4 operating profit increased 12.7% year-on-year to KRW 610.6 billion with an operating margin of 19.1%. For reference, excluding one-off effects such as the LY settlement impact recorded in the Q4 of 2024 and changes to the useful life of certain assets in the Q4 of 2025, fourth quarter operating profit grew 16.8% year-on-year. For the full year 2025, operating profit increased 11.6% year-on-year to KRW 2.2 trillion. Q4 NAVER platform -- fourth quarter NAVER platform advertising revenue, reflecting on the underlying competitiveness of NAVER advertising business increased 6.7% year-on-year as continued improvements, AI-driven optimization and automation initiatives that led to advertising efficiency began scaling in earnest from the first half of 2025 and offset the impact of fewer business days resulting from the Chuseok holiday in October. On a full year basis, growth accelerated to 8.8% year-on-year in 2025 with continued efforts planned to achieve growth above the market level this year. Q4 Search platform revenue recorded KRW 1.06 trillion, down 0.5% year-on-year. Excluding the impact of the LY settlement effect, revenue increased 1.8% year-on-year. For the full year 2025, Search platform revenue rose 5.6% year-on-year to KRW 4.17 trillion. With the transition to the era of GenAI, both user behavior and ad market are being reshaped rapidly. Against this backdrop, NAVER will continue its efforts to focus on building an advertising ecosystem optimized for the AI search environment while also securing differentiated growth drivers through expansion beyond this platform. Commerce revenue increased 36% year-on-year in the fourth quarter to KRW 1.05 trillion and rose 26.2% year-on-year for the full year to KRW 3.67 trillion. As of the fourth quarter, cumulative downloads of NAVER Plus Store app surpassed 12.9 million, while both GMV and new membership sign-ups continued to grow significantly. Notably, new membership sign-ups increased 71% month-on-month in December with the upward trend continuing into January. Commission and sales revenue grew 45.2% year-on-year in the fourth quarter, driven by the successful establishment of NAVER Plus Store, inflows of new users amid changes in the external environment, expanded year-end peak season promotions and the continued impact of the revised take-rate structure. At Poshmark, improvements in the search algorithm and delivery experience amid a recovering macro environment significantly enhanced the user shopping experience, resulting in both GMV and revenue growing by more than 20% year-on-year in the fourth quarter. Commerce advertising revenue grew 26.8% year-on-year in the fourth quarter, driven by continued improvements in ad placement optimization and the rapid increase in the number of advertisers experiencing its effectiveness. Membership revenue increased 17.0% year-on-year in the fourth quarter, supported by the addition of new benefits, including partnerships with Spotify and N Mart delivery, resulting in concurrent growth in both loyal customers and new subscribers. Fintech revenue increased 13% year-on-year in the fourth quarter to KRW 453.1 billion and rose 12.1% year-on-year for the full year to KRW 1.61 trillion. Fourth quarter total payment volume reached KRW 23 trillion, representing a 19% year-on-year growth, while continued expansion of the external ecosystem across both online and offline channels drove the proportion of off-platform payment volume to a record high of 56%. In November, Npay Connect, an integrated terminal supporting payments, reviews, coupons, orderings and rewards was officially launched. Going forward, integration with Place data, including reservations and orders will enable CRM capabilities, positioning the platform as a comprehensive business management solution for smart place business owners with continued feature enhancements planned to help more businesses build and retain loyal customer bases. Content revenue declined 2.3% year-on-year in the fourth quarter to KRW 456.7 billion, while on a full year basis, revenue increased 5.7% year-on-year to KRW 1.9 trillion. Within this segment, WEBTOON revenue based on NAVER's consolidated results in KRW terms declined 2.6% year-on-year in the fourth quarter. For more details, please refer to WEBTOON Entertainment's earnings announcement. For reference, strategic partnership with the Walt Disney Company announced in the previous quarter has been further strengthened following the completion of Disney's 2% equity investment. WEBTOON Entertainment Is currently accelerating development of an integrated platform targeted for launch within the year, enabling users to access Disney's flagship IP portfolio, including Marvel Universe and Star Wars alongside selective WEBTOON original titles in a single destination. This partnership is expected to serve as an important inflection point, extending beyond content distribution to accelerate the establishment of global IP hub and the expansion of presence within the North American content ecosystem. SNOW revenue increased 8.5% year-on-year in Q4, driven by continued growth in paid subscribers to camera apps. Fourth quarter enterprise revenue recorded KRW 171.8 billion, down 3.2% year-on-year, reflecting the full quarter contribution of new GPU as a Service revenue streams that began the third quarter as well as newly generated revenue from global DX projects in Saudi Arabia, including super app and digital twin initiatives. Enterprise revenue grew 16.6% year-on-year when excluding the base effect related to LY settlement adjustments. At LINE WORKS, double-digit revenue growth continued, supported by strengthened online direct sales and steady sales of SaaS products. In addition, expansion into the Taiwan market was completed during Q4, and efforts will continue to focus on accelerating the market penetration by leveraging the experience of maintaining the #1 position in Japan's business chat market for 8 consecutive years. Starting in 2026, revenue classification will be revised to more clearly reflect the performance of core businesses and new growth opportunities. Next, I'll discuss detailed cost items. Development and operation expenses increased 10.2% year-on-year in the Q4 and 8.7% for the full year, primarily reflecting head count growth associated with new hiring. Partner expenses rose 9.1% year-on-year in Q4 and 10.8% for the full year, driven mainly by higher revenue-linked costs, including sales commissions and payment processing fees. Infrastructure expenses increased 10.9% year-on-year in the Q4 and 15.1% for the full year, reflecting continued infrastructure investment as well as the impact of revisions to useful lives of certain assets, including infrastructure facilities. To lead the era of GenAI-driven search and agency services, AI technologies continue to be integrated across all service domains alongside sustained strategic infrastructure investments. Strategic investments will be further expanded this year to strengthen service competitiveness in the AI era, including initiatives such as the launch of a shopping agent and AI Tab. Marketing expenses increased 12.9% year-on-year in Q4 and 20.1% for the full year, driven by strength in strategic marketing initiatives in the Commerce segment as well as higher costs associated with revenue growth. Looking ahead, investments across the NAVER ecosystem will continue to focus on enhancing user experience, particularly in content, AI infrastructure and commerce delivery capabilities, which is expected to result in higher associated costs. They are considered essential to strengthening the competitiveness of NAVER's core businesses and expected to support accelerated revenue growth over the mid- to long term. Next, I'll explain NAVER's operating profit by business segment. First, the integrated Search platform and Commerce segment maintained a stable operating profit margin above 30% despite a slight year-on-year decline in profitability, driven by the accelerated adoption of AI across services, including the expansion of AI Briefing as well as year-end shopping promotions even amid continued solid revenue growth. In the Fintech business, profitability improved modestly, supported by the continued expansion of Smart Store-related and off-platform payment revenues. In Content, operating losses narrowed due to the dissipation of the base effect related to WEBTOON's IPO-related expenses in 2024, along with cost efficiency improvements at SNOW. Losses in the Enterprise business also narrowed, reflecting the full quarter impact of GPU as a Service revenue in Q4. Q4 consolidated net income totaled KRW 164.6 billion, declining 68% year-on-year, primarily due to an increase in goodwill impairment losses recognized at period end. For the full year, net income reached KRW 1.8 trillion, down 5.8% year-on-year. Q4 free cash flow totaled KRW 185 billion, decreasing by KRW 252.8 billion year-on-year as increased CapEx associated with expanded infrastructure investments more than offset solid operating cash flow. Finally, the new 3-year shareholder return program will be outlined. For each fiscal year from 2025 to 2027, shareholder returns are planned at 25% to 35% of the average consolidated free cash flow over the preceding 2 fiscal years to be delivered through share repurchases and retirements or cash dividends. Under this new program, the 2025 fiscal year dividend is expected to total KRW 393.6 billion, equivalent to 30% of 2-year average consolidated free cash flow, subject to approval at the Annual General Meeting of Shareholders in March with payment scheduled for April. The dividend record date as previously disclosed is February 27. This concludes the overview of our Q4 financial results. We will now move on to the Q&A session. Operator: [Interpreted] [Operator Instructions] The first question will be provided by Jae-min Ahn from NH Investment & Securities. Jae-min Ahn: [Interpreted] I am Ahn Jae-min from NH Investment & Securities. I would first like to ask a question relating to the agentic AI. In the earnings release call by Alphabet, your competitor, they're also talking about agent-based AI. And in the DAN conference, you also at NAVER had talked about how you would prepare for the shopping agent. In this age of agent-based AI, how would the release of such shopping agent impact your upward trend in terms of the top line revenue for your advertisement and for your commerce business going forward? Second question has to do with your recent setbacks that you experienced in the government-led sovereign AI projects. I would like to get some color as to what your future, I guess, approach and outlook is for your AI business particularly in the B2B space. Soo-yeon Choi: [Interpreted] Thank you for those questions. Relating to the update on our shopping agent rollout, we have actually completed the development up to a closed beta level, which means that starting next week, we can begin our in-house closed beta test, and we will be able to complete the product for a showcase to our customers by the end of February. So we will start applying the AI agent to shopping first and then expand to other verticals such as restaurants, place and travel up to finance vertical. And in regards to the AI Tab, which we are currently preparing to release it and to roll it out within the first half of the year, where we really bring the generative AI capabilities to our search features, so we will be rolling out and introducing these different agents for each of the verticals as we go forward. In regards to the AI strategy that NAVER employs in bringing its AI technology to the services that it provide from the time of building the service model up until the application of such models, we have a very close-knit connection to the data that NAVER has, search, shopping as well as other services that we provide. And hence, we expect going forward, there will be also continuous positive effect on the growth that we've seen in terms of AI having impact on advertisement as well as our Commerce business. If you look at the data for 2025, the amount -- the extent to which AI had contributed to our advertisement growth was 55%. And as such, especially for the shopping as well, we believe that there is still a lot of room for us to leverage that AI technology in driving further growth for shopping. So we do have expectation and high hopes for shopping as well. Responding to your question about the independent foundation model and the government project, with regards to the outcome of the competition, we accept and respect the decision that the government has made. Having said that, that does not, in any way, reflect on the competitiveness of the technology that NAVER currently has. We will, going forward, exert our utmost endeavors in further focusing on our R&D and in building the technological leadership that NAVER has. With regards to the impact of this on the sovereign AI-related challenge impacting our strategy or the profitability or on our B2B business endeavors, there is not going to be any significant impact. Operator: [Interpreted] The following question will be presented by Junhyun Kim from HSBC. Junhyun Kim: [Interpreted] I have 2 questions that I would like to ask. First, you did say that you are planning on expanding AI Briefing by twofold this year. So can you provide a little more color as to what your advertisement adoption plan is? And would there be any cannibalization with your current advertising model? Would there be any increase in the unit prices of the ad that is going to be run? So I would like to gain some understanding as to what the internal expectation is with regards to the expansion of AI Briefing. Second question is, aside from the fact that you -- for your core services, you're incorporating and taking the strategy of on-service AI. So aside from that, do you have any external GPU-related additional monetization opportunities that you are looking forward to? Soo-yeon Choi: [Interpreted] In terms of AI Briefing in the second half of the year, we will be testing AI Briefing features in the domains of shopping and connecting that to the place feature as well. As mentioned, for AI Briefing, we are seeing different behavior from the perspective of the users in terms of how they enter their queries. We're seeing it becoming more long tailed and also the way in which the response is given is also changing. So hence, with regards to AI Briefing and advertisement as well as those aspects, we will continue on considering those different aspects, including advertisement. So that is why we're looking at different ways to add and expand on the inventory as well as the advertisement model. And as we have said last year, we are expanding the application of the AI Briefing, and we were able to do automatic matching on certain aspects that the users would be exposed to in terms of the search ad. So we were able to increase on the coverage of the search ad, which led to a higher level of satisfaction of the users on the search ad that has been provided. And we also see metrics like the dwell time on the very top of the response page actually increase. And so we will be able to come up with an effective way in providing an efficient advertisement solution even with the increases in the unit cost of the ad. Regarding the question on enterprise, we are seeing good acquisition of customers for our GPU as a Service business. And from Q4, we've been fully reflecting the full quarter record or the financials on our top line revenue. And we are continuously in talks, quite active communication, with potential prospects in order for us to gain additional reference sites. Now NAVER has a distinct competitive position in the domestic market because we have a full stack capability starting from infrastructure, cloud business and also to build up of the models. So we are, at this point, closely working together with customers like Bank of Korea and also building up on our -- the portfolio of reference customers in areas such as Neurocloud as well as sovereign AI initiatives. So we look forward to additional added value projects, not just in the domains of GPU as a Service. Operator: [Interpreted] The following question will be presented by [ Min-Joo Kim ] from Bernstein. Unknown Analyst: [Interpreted] Kim Min-Joo from Bernstein. I have a question relating to your Commerce business margin under the Search platform. I understand that with your cooperation with companies like Spotify and Netflix on the membership side, I see that as a NAVER user, I see a lot of such advertisement on your inventory on your ad slots. So I can understand that this partnership would have a good impact on your ad and commerce business, but does it have a negative impact on the margin, especially for the core business of search and commerce. Recently, we've seen quarter-over-quarter margin decline. So I would like to gain some understanding on this aspect. Hee-cheol Kim: [Interpreted] This is the CFO responding to your question. You are correct that we've been expanding our membership partnership, but that does not have any meaningful impact on NAVER's advertisement margin. I think it is an outcome of certain other independent factors. If you look at the recent movement in the margin for search and commerce, it is mostly attributable to the change in the mix of the portfolio that led to certain changes. Having said that, because we are maintaining our profit margin level above 30% at a quite steady level, we're not too concerned about this recent trend. Soo-yeon Choi: [Interpreted] We are also making investments into the infrastructure to further bolster our search-related capabilities and so -- and have been running higher level of promotions in regards to our shopping services. Our margin level will be hovering around 30% level. But rest assured, we will defend any additional decline by a close management of the P&L. Operator: [Interpreted] The following question will be presented by [ Ahyung Cho ] from Merrill Lynch. Unknown Analyst: [Interpreted] I have 2 questions on Commerce. First, there has been certain change in the competitive landscape starting December. You've mentioned that your performance on the commerce side was quite strong. Would like to know as to how -- to what extent would it continue to improve going forward? And I understand that you've really had a strong marketing and promotion drive starting December. How does that impact your P&L? And especially if you look at the first quarter, I mean in Q4, you had that strong drive behind marketing from December, but for Q1, now that impact is going to be fully captured for the full quarter. So what implication would that have on your P&L? And second question is, we recently saw a news actually yesterday that there will be some legislative effort to allow hypermarkets or discount stores to start early morning deliveries. How will that impact you, especially because of this partnership that you have with Kurly? Soo-yeon Choi: [Interpreted] As you have correctly mentioned, recently, we've seen heightened level of users' awareness when it comes to the greater e-commerce market in terms of the trust that they have on the platform as well as data-related security aspect as well as creating an ecosystem that is healthy. And such change in the way -- such change in the users' awareness actually is in good alignment with NAVER as it was a company that has been making a significant investment in that regard. And so in terms of the GMV of the commerce as well as the metrics that show the -- the new subscribers to our membership, we've seen some meaningful trends and changes there. And so with heightened level of understanding, we believe that this is not going to just translate into a short-term spillover effect, but that it will become a very important standard for users when they come and pick, which platform to use. So we want to be able to convert this trend into a long-term trajectory. And what I have just said is also shown in the January data and metrics as well. And when we introduced NAVER Plus Store last year, we've mentioned that we have tried various different marketing approaches, which has led to some positive impact. And so in terms of marketing as well as investment, we will sustain that approach. And in terms of the delivery experience, we will make investments so that we can make that experience very distinct to NAVER. Regarding government regulation, there is not much I can say at this point. However, already the large-scale market or groceries that are offline at this point who have competitiveness are NAVER's partner already. And we have the 3PL model as well as advertisement model, which is going to benefit once this ecosystem actually expands with more players equipped with competitiveness. Paul Choi: [Interpreted] Due to the time constraint, we will be taking the final question. Operator: [Interpreted] The last question will be presented by Seokoh Kang from Shinhan Investment & Securities. SeokO Kang: [Interpreted] I'm Kang Seokoh from Shinhan Securities. I would have a question on robotics because there was a news article recently that said that NVIDIA and NAVER is going to collaborate. I would like to gain some more color as to what that collaboration is. Now would it be such that NAVER will develop its robotics control software and in so doing, collaborate with NVIDIA in that process so that the third-party companies would use and depend on NAVER Cloud or will NAVER be making use of the Omniverse platform that currently NVIDIA offers? And once you develop and commercialize this robotics solution, what business model could NAVER benefit from? Soo-yeon Choi: [Interpreted] Regarding the collaboration with NVIDIA at this point, there is not much that I can disclose. However, in terms of how the software will be used, it will be a model where it will be used based on NVIDIA's Omniverse platform that is currently under discussion rather than not just on single -- solely on NAVER Cloud. In the near future, we are clearly aware that this age of robotics and AI is coming. Our competitive edge is, of course, not in the hardware per se, the robots per se, but our capabilities and strength lie in that intersection between the human and robot interaction. So how will these robots collaborate with one another and how would it interface or interact with the humans in the process of transactions and from commerce, that will be an area where NAVER would be able to leverage its core capabilities. Over the past several years, inside NAVER building, we had hundreds of robots that were used for indoor delivery. And last year, we were able to expand that experience into countries like Japan and Saudi Arabia. And for this year, we are planning on a POC project or POC test in the outdoors, bringing together the capabilities we have in commerce and robotics-based delivery. And I believe that this could very closely couple with the future business model that we can envision. Paul Choi: [Interpreted] This brings us to the end of the earnings presentation for fourth quarter of 2025. Thank you to all of the investors for joining us, and we look forward to your continued support. [Statements in English on this transcript were spoken by an interpreter present on the live call.]
Operator: Ladies and gentlemen, we thank you for your patience. A good day, and welcome to the Tata Steel Analyst Call. Please note that this meeting is being recorded. All the attendees' audio and video has been disabled from the back end and will be enabled subsequently. I would now like to hand over the conference to Ms. Samita Shah. Thank you, and over to you, ma'am. Samita Shah: Thank you, Kinshuk. Good evening, everyone, joining us from India and the Far East, and good afternoon to those of you joining us from the West. We are starting a few minutes late, and thank you for your patience. I'm delighted to welcome you all to this call on behalf of Tata Steel, where we will discuss our results for the third quarter of FY '26. I hope you've had a chance to go through our press release as well as the presentation, which is up on our website. And to help you better understand the performance, we will walk you through some of the details and obviously take any questions you may have. We have with us today Mr. T.V. Narendran, our CEO and Managing Director; and Mr. Koushik Chatterjee, Executive Director and CFO. Before I hand it over to them, I would just like to remind you all that this call will be governed by the safe harbor clause, which is on Page 2 of the presentation. Thank you, and over to you, Naren. Thachat Narendran: Good evening, everyone. Sorry about the delay. So let me start with a few comments before I hand over to Koushik. The global operating environment remains complex with policy uncertainty and resource prioritization reshaping the interplay between geopolitics, social and market dynamics. At the same time, Chinese finished steel exports crossed 110 million tonnes for the second time in a row, which had a significant impact on the regional trade in steel as well as the global trade in steel. Steel prices diverged across the regions during the quarter and amidst this, Tata Steel has delivered a consistent performance with a consolidated EBITDA margin improving by about 300 basis points year-on-year for the 9 months ended 31st December 2025. India is a core market and the crude steel production rose about 12% quarter-on-quarter, and year-on-year, it went up to 6.34 million tonnes and -- year-on-year as well and went up to about 6.34 million tonnes. And the sales ramped up in line with the production and outpaced the domestic demand, taking quarterly deliveries past 6 million tonnes for the first time for Tata Steel in India. Along with the ongoing cost optimization, this helped offset the drop in net steel realizations on a quarter-to-quarter basis and delivered a 23% EBITDA margin during the quarter. Some of the segmental highlights are the Automotive and Special Products business delivered the best ever quarterly and 9-month volumes driven by rapid OEM approvals for the advanced steel grades from our Kalinganagar plant. The cold rolling mill and the galvanizing lines are ramping up very well. The auto downstream mix is now more than 50% at the 9-monthly sales level, reinforcing our leadership and preferred supplier position. We continue to strengthen our position in branded and in the retail segment. Our well-established retail brand, Tata Tiscon, achieved the best ever third quarter volumes, while our cold-rolled brand for MSME, Tata Steelium, grew 20% quarter-on-quarter, again, helped by the cold rolling mill in Kalinganagar. Our omnichannel model is deepening customer engagement. And with Aashiyana and DigECA, we achieved a gross merchandise value of almost INR 2,380 crores, which is 68% up year-on-year. Our commitment to product development and innovative solutions has helped secure internationally certified steel grades for oil and gas and shipbuilding. And we introduced mobile bore pile cages for the first time in India, offering a ready-to-use solution that enhances productivity and lowers project costs in challenging terrains. Our Tubes business achieved the best ever quarterly volumes on account of 0.3 million tonne capacity addition and a dominant share in the high-value infrastructure projects. We remain committed to the India growth strategy by investing in capacity, downstream facilities and sustainable steelmaking. And in relation to our recent announcements, I'm happy to share that we consolidated our stake in the Color-Coated business and completed the acquisition of the 50.01% stake in Thriveni Pellets Private Limited. Moving to U.K., our deliveries stood at 0.5 million tonnes, lower quarter-on-quarter due to the subdued demand and the U.K. steel safeguard measures due to expire in June '26. The framework needs to be revised to reflect the market conditions and narrow the policy gap with the EU. In Netherlands, the liquid steel production was broadly stable at 1.7 million tonnes with -- while deliveries were 1.4 million tonnes. Lower steel realizations were partly offset by better controllable costs and the sentiment in EU is improving, supported by the CBAM rollout and the expected safeguard revisions from June 2026. We also commissioned a new production line for packaging steel using patented Trivalent Chromium Coating Technology to enable sustainable and regulation-ready manufacturing. I will now hand over to Koushik for his comments. Koushik Chatterjee: Thank you, Naren. Good evening to all of you who's joined in. I will begin with some headline financial performance data for the 9 months ended December 31, 2025, before moving to the quarterly performance. Firstly, our consolidated EBITDA increased by 31% year-on-year from INR 19,040 crores in the 9 months ended December 2024 to INR 24,894 crores in the 9 months ended December 2025. EBITDA margin expanded by 300 basis points, as Naren mentioned, from 12% to 15% and reflects a disciplined execution in an environment marked by macro uncertainty, currency volatility and persistently high finished steel exports from China. Secondly, our performance demonstrates the impact of the cost transformation program, which has achieved INR 8,600 crores in the 9 months of savings across geographies. To put it in context, on a year-on-year basis, lower steel realization across geographies led to an adverse impact of revenue of about INR 7,400 crores, which was mostly offset by higher volumes and declining raw material-related costs. In terms of execution, the cost transformation program has achieved 93% compliance to the internal plan. The deviation is primarily on account of extended consultation with the Central Works Council in Netherlands. In November '25, we reached a formal agreement on the employee restructuring social plan, leading to the recognition of a restructuring provision of INR 737 crores in the consolidated accounts under the exceptional items. At a geographic level, India continues to be the anchor of our performance with EBITDA growing at 12% year-on-year to INR 24,431 crores. The EBITDA margin was 24% and remains close to the 10-year average. Our performance in U.K. and Netherlands has improved materially on a year-on-year basis. U.K. losses have narrowed down by EUR 135 million to a negative EUR 170 million, while negative -- while Netherlands' EBITDA nearly tripled to EUR 210 million. Combined, U.K. and Netherlands' EBITDA turned positive for the period. Overall, improved profitability and effective working capital management has enabled us to generate operating cash flows of INR 20,500 crores before CapEx and dividend and a free cash flow of INR 5,640 crores, which is significantly higher than the 9 months ended December 2025. Moving on to the third quarter performance provided on Slide 24 of the presentation. Our consolidated revenues stood at INR 57,000 crores and EBITDA at INR 8,309 crores, translating to a margin of 15%. While steel realizations declined in India and Netherlands, they were more than offset by the benefits of our cost transformation program. Expanding on the cost transformation program, as a company, we have delivered an improvement of more than INR 3,000 crores during the quarter. India delivered cost transformation benefits of around INR 890 crores. Key cost efficiencies were driven by purchase optimization of spares, reduced refractory consumption, increased use of coastal waterways, which offer a structural cost advantage over the other modes of transport and higher power wheeling and leaner coal mix. U.K. outperformed their cost plan by achieving a benefit of INR 570 crores, driven by calibrated maintenance cost, stronger spares management discipline, in-sourcing of product testing and improved efficiency in natural gas and electricity consumption. Netherlands delivered a quarterly benefits of around INR 1,600 crores, optimization of coal blend leading to decline in procurement cost and deployed value news concept to improve operating efficiencies such as fuel rate, scrap consumption, et cetera. Let me now provide a deeper understanding of India, U.K. and Netherlands' quarterly performance. Tata Steel stand-alone revenues for the quarter stood at INR 35,578 crores and EBITDA of INR 7,940 crores. Excluding the FX impact, the adjusted EBITDA stood at INR 7,900 crores and was marginally lower on an absolute basis versus the quarter 2 of this financial year. As Naren mentioned, our volumes crossed 6 million tonnes for the first time in a quarter, and this, coupled with the improvement in cost has helped partly offset the drop in the steel realization on a quarter-on-quarter basis. Separately, depreciation and amortization has increased by 6% quarter-on-quarter to INR 1,826 crores upon capitalization of downstream facilities; example, the CRM complex in Kalinganagar and the Combi-Mill in Jamshedpur. Our wholly owned subsidiary, Neelachal Ispat Nigam Limited, recorded a INR 350 crore EBITDA for the quarter, up 35% quarter-on-quarter and reflecting an EBITDA margin of 22%. Moving to U.K. The local steelmakers are having to contend with weak demand, volatile input costs and cheap imports. Steel prices continue to hover around GBP 500 to GBP 510 per tonne and have been in contraction for the last 2 years. Steel prices continue -- existing steel safeguard measures are set to expire in June 2026 and revised safeguard framework is yet to be formally announced. In this context, our EBITDA loss has remained broadly stable at about GBP 63 million on a quarter-on-quarter basis. Conversion costs per tonne were largely maintained, demonstrating cost discipline despite the adverse impact of lower volumes on operating leverage. Separately, work is progressing on the 3 million tonne scrap-based electric arc furnace. Major demolition work has been completed and securing access to high-power electricity is critical for our planned transition. We are working with the electricity system operator and National Grid for the new electrical infrastructure, which remains critical for the project commissioning. In Netherlands, the third quarter EBITDA stood at about EUR 55 million, which translates to about EUR 39 per tonne. Impact of lower volumes and realizations were partly offset by the improvement in the costs to the tune of about EUR 21 per tonne on a quarter-on-quarter basis. TSN performance for the quarter reflects the partial impact of the U.S. tariffs. The U.S. business of Tata Steel Nederland was a high revenue and high-margin business catering to automotive packaging, et cetera. The levy of tariff to the tune of 50% weighed on the performance. Overall, we generated more than INR 10,300 crores of operating cash flow before CapEx, aided by profitability and tight working capital management. Of the cash flows, we spend on capital expenditure of about INR 3,290 crores with majority focused in India. Free cash flows for the quarter was about INR 7,054 crores and significantly higher than the second quarter. As a result, the net debt at INR 81,834 crores was lower by about INR 5,200 crores versus the end of previous quarter in September and lower by about INR 3,900 crores versus December 2024. Our net debt-to-EBITDA stands at about 2.6, well within the stated range of around 3x for the cycle. Managing regulatory complexities has now become a strategic imperative across geographies. Let me put this in context on Tata Steel Nederland. In the 9 months ended December 26, TSN generated an EBITDA of around EUR 210 million after considering the emission rights related cost of about EUR 150 million and adverse impact of the tariff from the U.S. at about EUR 50 million. Excluding these costs, the TSN EBITDA works out to be more than EUR 400 million or around EUR 93 per tonne. This illustrates the cost of burden currently borne by the EU steel producers. On January 1, 2026, the CBAM entered its definitive phase with carbon costs being embedded into imports and structurally improving the competitive landscape for the EU producers. The CBAM's definitive phase requires importers to verify embedded emission intensity. Verification is expected to take time and importers who fail to verify will face carbon costs calculated using the default values by the country of origin. Separately, EU intends to revise its safeguard measures from June 2026 by reducing the product quotas and raising the duty for imports beyond the quotas from 25% to 50%. The effectiveness and timing of the CBAM effect and the trade-related quotas will determine how quickly the imports retreat from the EU market and the utilization of the local steel industry increases, which will have positive implication on the price regime. Before I close, I would like to reiterate our commitment to create a sustainable long-term value. India remains our core growth market, and we are scaling upstream as well as downstream capacity. In December 2025, we had outlined our India plans, including the strategic partnerships with an eye on the raw material security and growing markets in Western and Southern India. At the same time, we are progressing with the transition of the U.K. and Netherlands operations to a more sustainable operating models. Our capital allocation will be prioritized, optimized and sequenced across geographies to ensure consistent returns over time. With that, I'll end my presentation and open the floors for questions. Thank you so much. Operator: [Operator Instructions] The first question for today is from Vibhav Zutshi of JPMorgan. Vibhav Zutshi: First question is on Europe. Now some of the European players have come out with very strong commentary on pricing. ArcelorMittal has actually raised April delivery prices to EUR 700 per tonne, which is another EUR 60 higher than spot. Just want to understand how sticky and sustainable could these be? Because it looks like demand is still weak, but like you mentioned, expectations are around higher utilization levels as imports start to come down? Thachat Narendran: Yes. I think when you look at what's happening in Europe, while the demand has been quite stable around 130 million tonnes for the last few years, imports have gone up to about 30 million tonnes. And as Koushik mentioned, the quotas that have been announced are going to halve those imports to about 15 million tonnes. So that's going to happen by June. And in addition to that, you have the CBAM, which has already started, and the CBAM has an impact on the import prices as well. So if you're selling into Europe, even in this quarter, you'll have to factor in the CBAM prices and the impact of CBAM on the prices. And then on top of that, you're going to have a reduction in imports. And that's what is getting reflected in steel prices going up in Europe in the continent. So we -- over the last 2, 3 years, we have seen the European prices move more towards the Asian prices, but -- and increasing the gap with the U.S. prices. But because of these actions, we expect that prices in Europe will move away from Asian prices and move towards the U.S. prices. It may not reach the levels of U.S. prices, but certainly we will move closer to that. Vibhav Zutshi: Okay. That's helpful. Second question is on India. Firstly, congratulations on the improving leverage ratios. Just want to understand now the broad time line for all the capacity expansion, NINL, this 2.5 MTPA Meramandali and any indication that you can provide for the Maharashtra greenfield? And also how to think about debt as CapEx would likely accelerate from now on? Thachat Narendran: Koushik? Koushik Chatterjee: Yes. So I think in December, when we said that we had the in-principle approval of the consideration of the Board for the NINL expansion. We are working on it. We are maybe weeks away from getting the environment clearance. And once we get that, our basic engineering ordering is in progress. So I guess it will take about 40 months -- 35 to 40 months when we get into that execution level. I think it is also important to mention that we will get to the FID in the next couple of months. So that will stitch in as far as this expansion is concerned. Maharashtra is slightly longer term because it is at the enabling level, and we will have to get into the project and the DPRs, et cetera. So that's slightly longer, but that is -- parallel work is happening in terms of the planning and conceptualizing it. And as far as the Meramandali expansion is concerned, we have to get the EC clearance. So the first one is the NINL. The second one is the Meramandali and the third will be the Maharashtra or Kalinganagar expansion, whichever we are ready with. So that's the frame -- time frame or rather the sequence. The time frame will depend over the next 3 years or 5 years. The second point -- part of the question that you asked about debt, I think we've said that, that broadly, we would like to be up to about 3x net debt to EBITDA. And that actually, it is -- sometimes when you have cyclical issues, we move to 3.2. When in better times or when we are able to generate more cash flows, it comes down as you see, now it's 2.6. So that's the kind of range. We will not bust that range because we have a strong pipeline of CapEx, which are productive. There is a program for also the downstream projects, as we mentioned last time, the HRPGL has got approved, Tinplate is underway. Bluescope, we have completed now. And we have more downstream in the long products segment, including on wires, which are being worked on. So it is in that range of the balance sheet that we will work in the mid-cycle. Cycle becomes much better, then we will recalibrate. But effectively, the pace of growth will also be calibrated to that extent. I hope it clarifies. Thachat Narendran: Yes. And to add to what Koushik said, we also have the Ludhiana plant coming up in the next couple of months. Operator: The next question is from Sumangal Nevatia of Kotak Securities. Sumangal, we are unable to hear you. We request you to please send in your question via chat or rejoin the queue. We will now move to our next question. The next question is from Satyadeep Jain of AMBIT Capital. Satyadeep Jain: First question on Europe. What is the status now on U.K., the safeguard, what discussions are you having with government? Is there any progress there? And secondly, on that front in Europe, given CBAM and the emissions have not been verified for a lot of importers, what is the trend in imports? Have they significantly reduced in Europe given the uncertainty on verified emissions so far? Koushik Chatterjee: So -- shall I go ahead? Thachat Narendran: Yes, yes. Go ahead, Koushik. Koushik Chatterjee: So as far as U.K. is concerned, as I've said in the narrative and in the previous narrative also that we are deeply engaged at all levels to get the safeguard and quotas out. We are hopeful that it will happen soon. We know it is progressing, and we are encouraged by that. But unless it happens, it has not happened. So I think we are looking forward for that safeguard because it is in the interest of the U.K. domestic steel industry all around, not just us, to ensure that we have the recalibration of the quotas and the safeguards. It is also important for U.K. to do that in the context of the fact that EU has come out with the quotas and with their steel action plan. And therefore, there is a need to harmonize it. So that is work in progress. As far as the CBAM is concerned, I think it's very early days just now because there was some amount of stocking that happened pre-December. But we will have to get -- that's why I mentioned that the effectiveness of the CBAM, we will have to see as to how the imports reduce because the default rates are high at this point of time. So the first year default rates are significantly high. For example, in case of China, it's about 3.1. In case of India, it's about plus 4.2, 4.7. So I think we just need -- we need to see as to how it works. As Naren mentioned that irrespective of the demand condition, there will be an uptick in prices because arithmetically, it has to work in that manner. And then comes the steel action plan. So there are 2 very fundamental regulatory triggers in EU, which will push up the prices. And as Naren mentioned, it will have an effect of pushing it towards the U.S. prices, may not be exactly the same, but it will also develop. And the -- if you look at the markup in the CBAM, it is 10% markup in 2026. It's 20% markup on 2027. So till the verification happens, the markup keeps increasing. So technically, the prices will -- should increase. The marginal cost, so fundamentally, what's going to happen post the steel action plan comes in, in June, July is that the marginal cost of the new supplies, either beyond quota or within the EU, which are the capacities which are shut down, which will come at a marginally higher cost, which will also have a cost push element on the prices. So we are certainly expecting that the price buoyancy to remain in the EU for a longer period of time. Satyadeep Jain: Secondly, on India, I just wanted to seek your comments on the budget proposal for National Waterways 5 in Odisha linking Kalinganagar to Paradeep. What is -- I know these projects can be -- can take long. What's your expectation there in terms of time line and impact on cost? And does it -- if it comes through, does it make you rethink your decision to look at Maharashtra or -- because many players are also actively considering staying on East Coast, including ArcelorMittal also has announced a plan on greenfield plant on the East Coast. If that comes through, would that change your decision anyway or... Thachat Narendran: So if I can comment on that. Firstly, Maharashtra is in addition to our plans for the East Coast. It's not in place of any plans because if you look at our own plants on the East Coast, between the Kalinganagar complex that we have in Neelachal, which is across the road, we have the opportunity to build about 25 million tonnes of steel capacity there, which is today at 9 million, 8 million in Kalinganagar and 1 million in Neelachal, right? So that opportunity exists. And this water way that they're talking about will help that site. Then you have the Bhushan plant in Meramandali, which can go up to 10 million. So in Odisha, we have the opportunity to go up to 35 million as against the current 14 million, right? So that stands. Maharashtra is in addition to that. Maharashtra gives us optionality on the iron ore in Maharashtra. Maharashtra gives us optionality to service markets, Western markets and Southern markets. Waterways, India is one of those countries where waterways account for a very, very small percentage, almost negligible percentage of logistics. Whereas if you look at most other geographies, whether it's the U.S., whether it's Europe, whether it's China, a lot of material, including steel, a lot of steel moves on the waterways. And I think the government's ambition is to create a network of waterways, and we are glad that they picked this waterway, which is close to our Kalinganagar site because we think it will help us in bringing down the logistics cost, which, as you know, in India is still higher than what it is in other countries. And one of the reasons is the mix because in India, there's a higher mix of road compared to other geographies. There's a lower mix of waterways compared to other geographies. And having more waterways is certainly going to help the logistics cost. But I think we don't have a time line yet. I guess it will take some time because it means creating the infrastructure. It also means dredging, so to make it an all-season kind of waterway. You also need to have handling facilities, barges. So there's a lot that needs to be done, but we are happy that it's on the radar of the government. Operator: The next question is from Pinakin Parekh of HSBC. Pinakin Parekh: Sir, my first question is on U.K. The losses in the U.K. operations are relentless, and there does not seem to be any policy support coming through. So how should we look at U.K. over the next few quarters? There's a safeguard in India, there's CBAM in Europe, but there's nothing in U.K.? Thachat Narendran: So yes, it's like this. In U.K., a lot of actions have been taken by the team. We have ourselves reduced our fixed cost by more than GBP 400 million in the last 2 years, almost GBP 500 million. So I think in terms of cost takeout, all that could be taken out has largely been taken out. As Koushik explained, it is a problem because of the fact that the quotas in U.K. are higher than the demand in U.K., and that's what the government is expected to revise and more so because of the actions taken in the EU. So we've been promised that these revisions will happen soon. You must also realize that the U.K. government itself is invested in the steel industry because of the steel plants that they've taken over. So when the steel industry is losing money, it directly hurts the U.K. government as well. So we are hopeful that some actions will be taken in the market because obviously, with these levels of quotas and these prices, it's obviously not looking good from an EBITDA point of view. What has happened because of the actions we've taken, as Koushik said, the EBITDA losses have halved. It is still there. And we expect it to keep improving because of the actions we are taking. But it will not become positive till there is some action from the U.K. government on the imports or the steel prices go up in U.K. So I think we are more expecting that some actions will be taken in the next few weeks by the U.K. government. And once it happens, hopefully, we are on track to make sure that U.K. is on positive EBITDA territory. But yes, it is a challenge. But given the actions being taken in the U.S., in Europe, in India and elsewhere, we expect the U.K. government also to be taking this action. So Koushik, do you want to add to that? Koushik Chatterjee: No, I think that's perfectly fine. I just wanted to tell Pinakin that we also have some actions being planned up. But I think fundamentally, because we will also looking at building a new plant, and therefore, we don't want to do anything which will affect the long term. And therefore, we are also looking to ensure that the assets run at the most optimal ability and the conversion cost continues to be in a manner where we can be competitive post the build of the EAF. So I think just now, we are looking for more external policy support as an industry. Pinakin Parekh: So just continuing on that, Tata Steel has -- so it is doing everything it can, but it is facing the twin problems of making an investment while having EBITDA losses. On the policy perspective, you would expect support from the government on the existing steel environment, and I assume there would be policies related to the CapEx. So would the company at some point of time, wait for the policy to fructify before stepping up on the CapEx? Or will the CapEx continue irrespective of whether there is any immediate support from the government? Koushik Chatterjee: So if I may just try to articulate. See, the -- once the EAF is built, our cost structure will be different. So when our blast furnaces were running, our cost structures were high. We transited to plan for the EAF because the cost structure would be lower than what we were running at. We are at an intermediate phase where we are buying the substrate and then kind of working on the conversion cost. So the point is if we were to not progress with the EAF, we are going to delay that transition into a more profitable unit. So I think there is no upside in delaying the investment. There is -- on the other hand, if all factors are aligned -- and here also, we depend on the National Grid for the electricity connection and also our own internal projects for getting it done. But if the quicker we can convert it to that stable state, at least we will be in a better cost position, better working capital position, not cutting slabs and rolls from all over the world. So we have done that analysis and scenarios, and it makes sense to continue to do the project, take the money which the government has given. It is a participant. And based on that, that's the basis on which we continue to execute the project at this point of time. And in the longer term, we hope that the government for its own requirements, as Naren mentioned, is also a big participant now, a direct owner or a controlling entity of the rest of the steel industry in the U.K., is also very mindful of the fact that this bleed needs to stop, not just for us, but also for them. And it's -- I hope it is in a matter of weeks now. Pinakin Parekh: Got it. And just lastly, with the safeguard duty in place in India, the price hikes that we have seen in India in the spot steel market between December and 1st of Feb, is it fair to say that the December quarter EBITDA per tonne was probably the low till the safeguard duty is in place? Thachat Narendran: Yes. I think December quarter prices, particularly the first part of the quarter was probably the lowest in the last 5 years for flat products and pretty low for long products as well. So in some sense, that was the bottom as far as the prices are concerned. So yes, we expect better numbers this quarter. But we should keep in mind that coking coal prices are also going up. So we are conscious of that. But steel prices are certainly coming back to the levels where it should be because it used to be at a discount to import landed. Now it is caught up with import landed and maybe slightly better. Operator: The next question is from Prateek Singh of IIFL Capital. Prateek Singh: So the question is regarding a bit more strategic regarding the fixed cost takeouts in India and the medium-term human resources plan. So how are we preparing for the mines expiry, if any, in 2030? Any plans to move to an MDO model for mining in the medium term to smoothen the employee transition? I understand we mine much more than our peers, and there is always an element of contractual costs as well. But I think our stand-alone employee costs would be higher than that of our largest peers in the operations and that of the largest listed iron ore miner in India combined. So is there any way to get a sense as to what percentage of India employee cost is on mining? And how are we planning to do this transition over the next 4 years? Thachat Narendran: Yes. So I'll maybe give it a shot and then Koushik can supplement, right? So firstly, I'm not sure if our mining costs are much higher than others, et cetera, because we run a very, very efficient mining operation, both for coal and iron ore. If you look at Tata Steel's legacy cost, a lot of the legacy costs are in Jamshedpur, right? So if you look at the cost structure, the demographic profile of our employees in Kalinganagar and other sites, it's much better. So we don't have those legacy costs. As Tata Steel grows more and more in Kalinganagar, Meramandali, et cetera, the impact of the legacy cost in Jamshedpur keeps coming down. And plus we are addressing the legacy cost in Jamshedpur. So -- because of these actions, the cost disadvantage we may have in some sites vis-a-vis peers will keep reducing. So -- and we will be doing this, obviously, in an accelerated way until 2030. That is one part. The second part is because of the fact that all our sites are within 200 kilometers of each other, we have some advantages of scale because if we are moving to 40 million tonnes, 45 million tonnes, all of that is going to be producing about 200 kilometers from each other. And that gives us a lot of advantages on scale economies, et cetera, which will also help us negate some of the impact of post 2030. Thirdly, as we mentioned earlier, our move into Maharashtra, move into recycle-based steel in North and West, et cetera, are also actions that we are taking to mitigate the impact. And fourthly, the move into downstream basically looks at how do we improve the mix, how do we get better realizations, so on and so forth beyond all the cost takeouts that we are planning. So all these are expected to mitigate the impact of any cost increases that we will face in 2030. So this is broadly the plan, and Koushik, you can add to that. Koushik Chatterjee: Yes. I'll just add 2 points, Prateek. One is the fact that we are not going to exit captive mining. We have mining reserves, which are opening up. And therefore, the mining as an activity will continue for Tata Steel. MDO as an option will always remain, and we will be looking at certain opportunities if the MDO remains. We have also now the BRPL, which will be in that space also if required. So I think the transition planning for 2030 has already started. We are looking at various alternatives. As Naren mentioned, even Maharashtra is an important alternative. So the manpower cost is not so much of an issue. We also do a lot of contract workers in there. So it is not that we are very heavy. But in the sense -- because from a cost point of view and cost of ex-mines iron ore for us at this point of time is possibly one of the lowest. I think it is not at all high compared to the rest of the industry. And with more mines opening up, be it Kalamang, Koira, [ Gangulpara ], et cetera, we will be redeploying people and reworking on how we can ensure that the transition costs are minimized. Prateek Singh: Understood. So I understand that there would be no way to get a very ballpark sense as to what percentage of entire employee cost is on specifically mining operations? Koushik Chatterjee: I don't have offhand. Maybe we can do that later. Prateek Singh: And the second question is largely on Europe. As an earlier participant mentioned earlier as well that prices have risen quite a bit, $750 per tonne from $650-odd a few months back. So I wanted to understand the nature of our contracts? With what kind of lag do we see these prices coming up to our P&L? Koushik Chatterjee: So contracts are about 35%, largely in packaging, which is not in the -- packaging is one area where there are 1-year contracts, 6 months contracts. Automotive is the other. Automotive has its own cycle. I think 2026 calendar will, at different points in time, see -- that's the point I mentioned that the benefits of the EU domestic prices will depend on the effectiveness of the CBAM as well as the quotas, both together. So I think the full impact of that will come gradually and not in one jump. And I think the estimation is that it will -- there is an opportunity for almost about EUR 100 per tonne increase in prices over the full year. So we just need to watch the space and see. All said and done, if there is a euro on the table, our colleagues in Netherlands will certainly work to ensure that we get it. But it will happen in -- at least in 2 stages. One is CBAM now. And secondly is when the tariff comes in post June 2026. Operator: The next question is from Vikash Singh of ICICI Securities. Vikash Singh: Sir, my first question pertains to Netherlands. How much of the carbon credits we have as a percentage of overall requirement right now? And since in the last call, you said that your emission levels are already closer to 1.6. Does that mean that whatever carbon credits we have, these are surplus because -- or we still have to pay some additional or buy some additional carbon credits? Koushik Chatterjee: So the reference point -- I'm using the CBAM part. So the reference point for CBAM for EU domestic producers is 1.37. So if it is 1.37 and we are producing about 1.66 or 1.68, there is a gap, and there is a free allowance that comes in. So the net of that, we have to buy. So I think we need to -- we still will be buying and we will continue to buy until we do the transition because the reduction in free allowance is going to happen from this year to 2032 or '34. Vikash Singh: Noted, sir. And sir, second question regarding your outlook on the price increase on the 4Q, if you could give us that? Thachat Narendran: Price in India or Europe or? Vikash Singh: All -- both geography, India, Netherlands, price and the cost, especially the coking coal cost changes. Thachat Narendran: So I think the guidance we're giving is in India, the prices quarter-on-quarter will be about INR 2,300 higher. On a spot basis, of course, hot-rolled to hot-roll will be much higher. But I think when you look at the mix and you look at some of the contracts, et cetera, that we have, we see an improvement of about INR 2,300 per tonne. In U.K., it's going to be maybe about GBP 5 higher or so. In Netherlands, while again, on a spot basis, it is going to be higher on a hot-rolled coil, but because of the mix issues that Koushik referred to, because of the fact that the packaging contracts are getting renegotiated, et cetera, we're seeing a quarter-on-quarter reduction of about EUR 30, EUR 33 per tonne Q1 to -- I mean, Q4 to Q3. But having said that, we expect Netherlands to more than offset this reduction in realizations because of cost takeout. So we expect an EBITDA expansion in Netherlands, slight improvement in EBITDA in U.K. also because of the fact that we expect Netherlands to be selling almost 400,000 tonnes more in Q4 compared to Q3. And India will also see an EBITDA expansion because the coking coal cost impact is going to be about $15, but the benefits that we have from the prices, et cetera, and also the volume will be slightly higher. The mix is going to be better in India as well. So overall, we expect EBITDAs to be better in Q4 compared to Q3. Volumes to be almost 0.5 million tonnes better in Q4 compared to Q3. Operator: The next question is from Pallav Agarwal of Antique. Pallav Agarwal: So I just want to check with CBAM coming in, some of the exports that are going to Europe [Technical Difficulty] into India and pressurize domestic prices? Thachat Narendran: Exports from where? From India to Europe? Pallav Agarwal: From India to Europe. Thachat Narendran: You mean as an industry? Because Tata Steel doesn't sell much into Europe. We send slabs to U.K. for our plant. But otherwise, we are not a big exporter of steel to Europe. Maybe some of our peers are, but I don't think that volume will be so significant as to make an impact in the domestic market in India because the demand is pretty strong in India. So last couple of quarters, there was a little bit more ramp-up of capacities because our capacity ramped up and a few others. But now there's better balance in the domestic market. And so I don't expect that to have an impact on prices in India. Pallav Agarwal: Sure, sir. And any volume guidance for the next year for FY '27? Thachat Narendran: That we'll give you at when we -- because we are in the process of finalizing our plan, so we'll give you that guidance in the next analyst call. Pallav Agarwal: Lastly, are there any premium products in the U.K. or Europe that can actually come into India despite the safeguard duty? Is there any opportunities in the Indian market for that? Thachat Narendran: No, I think the competitiveness will not be there from -- if you look at the costs in Europe and the prices in Europe, it doesn't make sense to ship from there to India. But what we are certainly doing is working very closely together in many areas because there are many applications that we have in Europe, particularly in the construction industry, which we are bringing back to India from the experience that we have. There are, of course, some special products which come from U.K. For instance, IKEA, when they build their warehouses, the roofing sheets actually come from one of our U.K. plants. So there are these kind of specialized requirements, but not very significant volume. Operator: The next question is from Aditya Welekar of Axis Securities. Aditya, we are unable to hear you. We request you to please send in your question via chat or rejoin the queue. We will now move to the next question. The next question is from Ashish Kejriwal of Nuvama. Ashish Kejriwal: Two questions, one in Europe and second in India. India, is it possible to share how much price drop we have seen in Q3 versus Q2 and as well as how much coking coal cost reduction we have witnessed in Q3? Thachat Narendran: So for India, the price drop was about INR 2,100 Q3 compared to Q2. We had guided INR 1,500, but the market was softer, particularly in October, November. Prices started going up only towards the middle of December. In terms of coking coal, I think consumption cost was up by $4 for India compared to -- Q3 compared to Q2. Ashish Kejriwal: And secondly, is it possible to share U.K. conversion cost? Because what we understand is that U.K., even if government gives support and steel prices increases, obviously, our slab prices will also increase. So -- and the cost takeouts, which we have already taken and most of the efficiencies we have already taken place in terms of cost reduction. So what kind of government measures we are trying to look at to make EBITDA positive in U.K. And secondly, in Europe also, while you are guiding a reduction in prices because most of our contracts starts from Jan, and we have witnessed price -- spot price increases. So even if the entire price increase will take into account for the entire year, but how we are going to see the reduction in prices in Netherlands in fourth quarter? And at the same time, when you are saying that cost reduction will help in offsetting all the price decline and EBITDA will expand, this is on account of only cost reduction or when prices increase, can we expect higher EBITDA? Thachat Narendran: So I'll let address it -- Koushik address the U.K. question. So in Netherlands, what's happening is it's a little bit more of a mix issue than a price issue. The price at the hot rolled coil level is going up. I think -- because firstly, we don't do so much on spot basis. So -- but it's going up by about EUR 20, EUR 25, Q4 to Q3. Where we are getting hit a bit is the packaging -- 2 things are happening on packaging contracts. Firstly, there's a renegotiation of packaging contracts because of new contracts. And then there is a price drop, right? The second thing which is happening is a lot of volumes of packaging used to go to the U.S., which is now -- the volumes are being cut to the U.S. So that volume, which does not have so much of a market in Europe is being sold in, let's say, engineering grades and other grades. So from a mix point of view, there is a dilution. So this 33% is more a mix dilution impact than a price drop impact. So it's more a mix impact. But there are -- like I said, the cost takeouts are going to be more than this, and hence, we expect the EBITDAs to get better. But going forward -- as Koushik said, going forward, we expect this momentum on prices to keep getting better going forward in Europe, and that's why we are more bullish about the prices in Europe for this calendar year. So that's where I want to comment on Europe. Koushik, do you want to comment on U.K.? Koushik Chatterjee: Yes. So I think very broadly, if you look at the price drops that has happened over subsequent quarters or years actually in U.K., U.K. average price at a point in time used to be well over GBP 900. So we -- I think it's a question of looking at this -- and U.K., we now at this point of time, have multiple downstream products. So there is Tinplate, there is Color-Coated, there is Automotive, Tubes, et cetera. So what we are looking at essentially is if the quotas are in place and the tariffs are in place, then the spread will increase. And I think that spread increase of, say, GBP 75 to GBP 80 would be good enough for us to look at increase in the profitability to make it neutral. Ideally, if the right quota is in place in a similar manner in EU, the price increases should recover to somewhere around GBP 100 per tonne plus, and that will help in the profitability significantly. Ashish Kejriwal: So sir, you mean to say that at a spread of around GBP 100 per tonne, we will be breakeven? Koushik Chatterjee: Delta, from where we are today. Ashish Kejriwal: At what spread we will be breakeven at U.K. level? Koushik Chatterjee: So I'm saying today, wherever the spread is, that spread has to expand by about GBP 100 per tonne to make it a profitable entity. Operator: The next question is from Indrajit Agarwal of CLSA. Indrajit Agarwal: I have 2 questions. First, when are the next auto contracts renewal due in India? And what kind of price increase can we look over there? Thachat Narendran: I can't give you a guidance on the price increase, but certainly, prices will be higher. We expect it to be higher to reflect what's happening in the spot markets. Contracts are due for renewal in April. I think the next set of new prices will be effective April. So we are not seeing the benefit of auto prices this quarter. Whatever we see this quarter is a benefit of the spot orders. Indrajit Agarwal: And these are now quarterly pricing contracts, right? Thachat Narendran: Largely, yes. Auto is now largely quarterly contracts. Sometimes you may negotiate 2 quarters in one shot, but it's typically a quarterly contract in India. Indrajit Agarwal: Sure. That's helpful. My second question is on spot basis, what are the spot prices -- steel prices and coking coal cost versus the 3Q realization that we had? Thachat Narendran: In India, you're asking? Indrajit Agarwal: Yes, both in India. Thachat Narendran: Coking coal, like I said, on a consumption basis will be about $15 per tonne higher Q4 compared to Q3. And like I said, on a mix basis, $2,200. But if I were to look at the hot-rolled coil, I think it will be about INR 3,500 higher. Indrajit Agarwal: No, I want to check that you will have some inventory and some inventory in transit for coking coal as well, right? So let's say, if I were to look at 1Q, would there be a further, let's say, $10, $15 increase, 1Q '27? Koushik Chatterjee: Indrajit, it is -- what he's saying is on consumption basis. Thachat Narendran: Consumption. What I'm saying is on consumption. Koushik Chatterjee: That takes the stock into account. Thachat Narendran: Yes. So -- if I look at purchase, purchase is actually $22 higher, Q4 compared to Q3, but the consumption is $15 because of what you said. You have materials in transit and things like that. So if you're looking at, some of this will flow through into the next quarter. Operator: The next question is from Sumangal Nevatia of Kotak Securities. Sumangal Nevatia: So first question is on the volume growth headwind -- headroom, sorry. So I just want to understand, given our rated capacities, what is the potential volume we can achieve in the next 2, 3 years without the NINL? And I believe Koushik mentioned NINL would take around 40-odd months. So am I right in expecting commissioning of that not before FY '30? Koushik Chatterjee: FY '29. Thachat Narendran: Yes. Sumangal, what you need to look at -- if you look at next year volumes, while we give the specific guidance when we do the next analyst call, next year, we will not have any major blast furnace relines. This year, we've lost a significant volume because we had a blast furnace relining scheduled in Jamshedpur. So we won't have that. So that will be a positive for next year. Second thing is we'll have the Ludhiana plant starting up maybe by the middle of March, okay? So that's also a plus that we will have. Thirdly, which is not in the absolute volume, in terms of mix, you will see significant improvement because of the cold rolling mill, the galvanizing lines, the Combi-Mill in Jamshedpur, all this is ramping up in the second half of the year. So next year, you'll see the full year of the benefits of all this. So these are the areas where we see some benefits for next year at least as far as India is concerned. But we'll give you more specific guidance when we do the next analyst call. Sumangal Nevatia: Understood. But I mean, mathematically, 2 million to 3 million tonnes is the headroom before the next expansion kicks in. Is that right? And I mean, I'm just comparing with a few peers who are much more aggressive in expansion. So is a market share loss over the next few years, is it a point of worry or consideration for us in evaluating all the expansion plans? Thachat Narendran: So there are a couple of comments that I want to make. Firstly, the way we approach an expansion plan has now changed. We first get all the environment clearances and everything else before we get the FID done because we find that, that gives us more definitive time lines. And hence, let's say, in Neelachal also, as Koushik said, once the EC comes, we could have said last year itself that we are expanding, but then there's no EC, so there's nothing you can do till then, right? So we will -- so that's one thing that's a change that we think. Second thing is, as we said earlier, there is a lot of focus on increasing our downstream capacity and our product mix. And generally, in Tata Steel, we always look at, "Can our market share in attractive segments be twice the market share in our overall market share?" So if we are a 15%, 20% market share player in attractive segments, we should be at least 40% or more, right? So that's what we chase because that gives us a better realization, better product mix, less vulnerability to cycles. So that's why, let's say, whether it's auto, whether it's oil and gas, whether it's a retail business, or now more and more downstream, which is -- so our downstream mix, for instance, now we are moving towards 1 million tonnes or more than 1 million tonnes of tubes. We are -- we've just approved some expansion in wires. We are about 700,000, 800,000 tons of wires and that too very high-end wires. So I think these are the areas we will focus on. We will be looking at market share, but we will more looking at market share in the right segments, the attractive segments, more quality conscious and less -- segments less vulnerable to cyclicality. So -- but yes, we have the runway to grow, and we will continue to grow. Sumangal Nevatia: Understand. That's very helpful. One question on -- I mean, there's a lot of news flows with respect to thyssen and a few of -- one of Indian peer evaluating it. Just want to know your view on how do you see industry structure changing there? Any consolidation anywhere we are looking to participate in any form and how does it change the market? Thachat Narendran: No, I think in Europe, we are focused on transformation, transforming our facilities, as Koushik just explained some time back. In U.K., the transformation -- I mean already, there are a lot of cost takeouts and the transformation will put us in a better cost position. In Netherlands, it's more about driving more cost efficiencies. And again, the impact is already visible, but we need to do some more of it and then do the transition. So we are focused on these 2 sites and making sure that they are on the right place in the European cost curve. But the second point is, I do believe that in Europe, there will be supply side restructuring simply because anyone whose blast furnace is up for relining will think hard before relining a blast furnace, right? I mean, probably they will not reline a blast furnace and not everyone who has a blast furnace up for relining will have the ability to invest in new facilities, right? So that depends on your balance sheet. That depends on the support you get from the government, et cetera. So I do see some sort of supply side restructuring. There will be bigger players who have the ability to invest in the transformation. There will be some who will not have the ability to invest in the transformation. And so when their blast furnaces come up for relining, you will see some restructuring on the supply side, which helps the overall market dynamics in Europe. So that's why given CBAM, given quotas, given the supply side actions that happen in Europe, we do see Europe looking more attractive in the next few years than it was in the past few years. Operator: The next question is from Rajesh Mazumdar of 360 ONE Capital. Unknown Analyst: Sorry to harp on the Netherlands a little bit more, but I just had a question that are we to assume that the price increases we are seeing there are going to be a pass-through? Or are there any costs that we should be cognizant of in terms of the environment, something that is there more in the CBAM or what we already -- from what we're already paying or any other change in the cost from what it is there right now? I know that you have contracts at all. But ultimately, the price increase should pass through in terms of the bottom line? Or should there be any other cost that we should be aware of? Thachat Narendran: It should, but I'll let Koushik answer that. Koushik Chatterjee: Yes. No, the price increases that are looked at on account of CBAM and tariff are pass-throughs. There wouldn't be any impact on additional costs. In fact, these CBAM cost is a compensation of the cost that we pay vis-a-vis the imports that come in. So therefore, it is more, if I may say, a reimbursement of the cost that we pay. So I think that is how we should look at it. And the quotas are effectively related to the imports that are happening. So that has no additional cost implication from us as such. So short answer is -- the answer is no in terms of any relatable cost on this. There are other cost factors that are there in EU, but those are unrelated. Thachat Narendran: In fact, if at all, we are focused on cost takeouts, which, as you're aware, has been effective in the last 1.5 years and will continue to be so going forward. Unknown Analyst: Sure, sir. Also, there is a class action lawsuit filed against Netherlands in December by an environment-related company. What is the status of that? And is there any development on that front? Koushik Chatterjee: So that has been filed, as you know, by a foundation or a trust, which is backed by professional litigation financiers. And it is kind of a suo moto class action, which is currently in the phase of -- there is a 3 months or 4 months phase during which we are required to submit our defense, and that's the process that is currently going on. And we are obviously looking at it carefully and seriously to ensure that we can put in what is actually the truth on the ground. So that is in the initial phases at this point of time. Unknown Analyst: My second question was on the Color-Coated business. What is your target capacity in this business because that is a high value-add business where I think the realizations can be quite significantly higher. So what is the kind of capacity you're targeting in this business and over what period of time? Thachat Narendran: Koushik, do you want to answer? Or Samita? Koushik Chatterjee: Samita, you want to do that? Thachat Narendran: Yes. Samita Shah: The current capacity is around 600 KT. And the idea is to actually also change the product mix more favorably in the Color-Coated business. We are obviously doing a lot of retail, but the idea is to increase that further. So there will be an improvement in the overall product mix. And in the next stage, we will then evaluate capacity expansion in this business. Thachat Narendran: I think the -- what it does is apart from giving us the ownership of the JV, which was there, it also frees us up from some of the JV kind of conditions, which limited our opportunities to get the most out of all the color-coating lines that we got when we acquired Bhushan. So there is an opportunity for us to make better use also of the lines -- some of the lines which were underutilized because we were restricted to participate in the construction market other than through the JV. So I think there are a lot of advantages we are seeing. And obviously, beyond debottlenecking and increasing production, we will work on the product mix. We will also want to scale up. We have an opportunity to also expand in Kalinganagar as a downstream. So there are multiple options. We also have an opportunity or an option in Jamshedpur, where we have a 250,000 tonne line to convert the metal coating into color coating. So there are many options that we have and our object -- or our aim is to actually double the profitability of the business in the next year or 2. Operator: The next question is from Prateek Singh of IIFL Capital. Prateek Singh: Any update or how are we going ahead with the Hisarna pilot project? I understand that Nucor also is looking into it. And I think the Department of Energy also proposed a funding for this pilot project. Can we expect any such thing by the Indian government as well in our case? Thachat Narendran: Go ahead, Koushik. Go ahead, go ahead. Koushik Chatterjee: So I think -- so we -- as we mentioned that it is fundamentally a Tata Steel IP, and we will be looking at -- we are looking at doing it in Jamshedpur. Yes, the conversations with Nucor is happening at this point of time. And -- but this is something that we will set it up in Jamshedpur. Nucor, the mechanism or method of participation is under discussion. And then we will see as to when we can go post the engineering work, which is commencing, then we go for the FID to develop this plant in Jamshedpur. Thachat Narendran: And yes, we will, of course, work with the government if there are any opportunities to get some support. But largely, the value we see in this project is you have far more flexibility in use of raw materials. You don't need to have a sinter plant, a pellet plant, coke plant, et cetera. The CO2 that you emit is far more amenable to carbon capture and utilization. And we've been working on this for more than 10 years, and we worked along with Nucor in running the pilot plant in IJmuiden quite successfully for the last 2, 3 years. So we are very bullish about the prospects of this project. And as Koushik said, we'll be setting it up in Jamshedpur. Prateek Singh: And given the expansion that we are seeing in the data center space, government also announcing tax holiday, any plans for electrical steel like CRGO because I think the transformer industry has been kind of complaining for some time that India is short of electrical steel capacity. So any plans there? Thachat Narendran: So there are 2 aspects to what you said. Data centers don't -- data centers in itself offers a lot of opportunities for steel because of the fact that the buildings will use steel, the storage racks and everything else will use steel. So there is a focused effort on looking at what can we supply to the data centers and what are the steels that we can develop and provide. So I think that is one part of it. The second part, yes, CRGO is part of our plans. We are assessing it. Most likely, the plant will come up in Jamshedpur, but we are still looking at various aspects of it. So we are working on it. Prateek Singh: And just one last question. Can we get a number of overall deliveries from Europe because there might be intersegment deliveries as well between U.K. and Netherlands? Koushik Chatterjee: No. There are not too many. Prateek Singh: If we can just add them up and take it. Koushik Chatterjee: Yes, there is some amount of slabs, which goes to the U.K., but it is not material. I mean it is not the biggest part of their transfers. Operator: Next question is from Siddharth Gadekar of Equirus Securities. Siddharth Gadekar: Just on the European side, if we look at the OECD capacities, they are around 213 million tonnes, 215 million tonnes, while Europe production has been in the range of 130 million tonnes, 140 million tonnes. So any sense of how much is the effective actual capacity in Europe? And over the next 5, 6 years, given that everyone will have to transform -- or go for the transformation journey, what would be the effective capacity in the next 5, 6 years that would be there in Europe? Thachat Narendran: So -- just a minute. Yes. So capacity is a very -- sometimes a very misleading kind of number, right? I mean how much of that 220 million tonnes is produced steel and when is a question to ask. So to me, generally, in Europe, you will see that production is roughly around 130 million tonnes. There is exports and there is imports. And imports has largely been about 30 million tonnes, exports has been around that level. So that's been the balance, right? Second part is a lot of these capacities are very high-cost capacities because if you look at the European cost curve of production, there are efficient or low-cost plants like some of our plants, some of the ArcelorMittal plants, et cetera and then there are high-cost plants. And those are the ones which tend to get mothballed and even in terms of some of them are inland, logistics costs are higher, so on and so forth. So we -- like I said, if the quotas are reduced, that means more capacity will come on, but those capacities which come on or mothballed capacities which come back on are higher cost. And that's why we believe that our plant in IJmuiden is well positioned to have the advantage of higher prices in Europe. That is one. Secondly, like I said, I think any blast furnace due for relining in Europe, people will think hard. I don't think anyone is going to reline a blast furnace in Europe now. So it's more a question of run it as long as you can. And then if you have the ability, invest in a new process route. So that's where I feel there will be -- over the next 5, 10 years, there will be a fair amount of restructuring on the supply side in Europe. I think we're already seeing that. Even some of the bigger guys have announced closures of some of the blast furnaces and not necessarily replacing all that capacity with the new process routes. Siddharth Gadekar: But then is it fair to assume that over the next couple of years, we can see if things stand where they are, demand outpacing the production, that would be there in Europe? Thachat Narendran: No, I don't see demand growing -- demand will grow. So what's happening in Europe is given the intention to spend a lot more money by European countries in Europe, we do see a pickup in infrastructure spend, particularly led by Germany. We do see increase in defense expenditure. I'm not even counting what happens if the Ukraine war stops and there's reconstruction there, right? So even as it is, we do see growth in some sectors. But there is also a bit of degrowth in some other sectors. For instance, if, let's say, we were exporting a lot of automobiles from Europe to the U.S., some of that may get impacted, right? So you will have some volumes dropping, some volumes increasing. But overall, I don't see demand growing very significantly. I don't see it shrinking. It will go up maybe 5 million tonnes, 10 million tonnes at best, right? But it's more the supply side, which we are talking about, both from imports being limited to domestic capacities also going through this transition either to new process routes or closing down blast furnaces. Operator: I would now like to hand over the conference to Ms. Samita Shah for closing comments. Over to you, ma'am. Samita Shah: Thank you, Kinshuk. I think we have answered all the chat questions which have been asked. We'll not raise them again. Thank you very much for joining us today, and we look forward to connecting again with you all next quarter. Thank you. Thachat Narendran: Thank you. Thank you, everyone. Koushik Chatterjee: Thank you very much.
Operator: Ladies and gentlemen, welcome to the Coloplast Interim Financial Statement for Q1 2025-'26 Conference Call. I am [indiscernible] chorus Call operator. [Operator Instructions] the conference has been recorded. [Operator Instructions] The conference must not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to Lars Rasmussen, Interim CEO. Please go ahead. Lars Rasmussen: Thank you, and good morning, and welcome to our Q1 '25/'26 conference call. I'm Lars Rasmussen, Interim CEO of Coloplast. And I'm joined by CFO, Anders Lonning-Skovgaard and our Investor Relations team. We will start with a short presentation by Anders and myself and then open up for questions. And please turn to Slide #3. We delivered 6% organic revenue growth and 3% EBIT growth in constant currencies before special items. Return on invested capital after tax and before special items landed at 15% on par with last year's adjusted figure. We had a soft start to the year as expected. However, with a significant more turbulent quarter in Kerecis than we would have anticipated. I'll get back to that in a moment. For the year, we maintained our guidance of around 7% organic growth. We lowered our growth expectations for our Kerecis to around 10% amid significant market uncertainty in the outpatient setting, but raise our outlook for interventional urology to high single digits following a strong start and improved outlook for the year. Before we dive further into the quarterly performance and outlook for the year, let me begin with a brief comment on our leadership team. In December, we announced two important changes to the executive leadership team. EVP of People and Culture, Dorthe Ronnau, has decided to leave Coloplast to pursue the next chapter in her career and Tommy Johns, Executive Vice President of Interventional Urology, has decided to retire after more than a decade in Coloplast and more than three decades in the global life science industry. An external search is currently ongoing to identify a new leader for the Global People and Culture Function while Kevin Hardage will step into the role of EVP of Interventional Urology on February 9. Kevin brings extensive experience from the global medtech industry, including senior leadership experience from Teleflex in the urology space, and I look forward to welcoming Kevin to Coloplast. Dorthe and Tommy have both played key roles in ensuring a smooth leadership transition. I want to thank them for the continuity and stability they have provided throughout this period and wish them all the best in the future endeavors. Additionally, I would like to mention that the search for Coloplast's new CEO is progressing well and remains on track. I would also like to put a few words to key developments in Q1. Interventional, we already delivered a strong start to the year with 8% organic growth driven by the Men's Health business. The product recall in Kidney and Bladder Health is now behind us, and we are looking at a very healthy business expected to deliver high single-digit growth in '25, '26. During the quarter, we reached the important milestone of submitting INTIBIA, our investigational tibial nerve stimulation device to the FDA. This marks an important advancement towards the future launch of the device and our goal of bringing innovative and clinically differentiated solutions closer to the patients. INTIBIA plays an important role in delivering on our Impact4 strategy for Interventional Urology and I'm encouraged by the fact that we continue to see clear external confirmation of the relevance of the implantable tibial nerve stimulation space. Industry activity and investments in implantable tibial nerve stimulation continues to increase indicating broader confidence in the therapy area and the role it may play in the future management of overactive bladder. These developments reinforce our long-term view of the opportunity within this segment. I would also like to highlight that we are further strengthening our product portfolio in Interventional Urology through an agreement to purchase the outstanding shares of Uromedica, a commercial stage company with a minimally invasive solution for treating stress urinary incontinence, complementary to our existing men's health business. The transaction is expected to close here in February, and we have an immaterial impact on the group financial performance in '25, '26, while being accretive to Interventional Urology's financial metrics in the second half of the impact for our strategic period. Finally, I would like to spend a moment addressing the development we have seen in Kerecis in Q1. Kerecis delivered 10% organic growth in the quarter with an EBIT margin of only 1%. While we continued to see a healthy momentum in the inpatient setting in Q1, Kerecis overall performance was subdued due to significant sales disruption from Medicare reimbursement changes in the outpatient setting, which resulted in negative growth in the outpatient setting. Effective January 1, 2026, Medicare has introduced a single fixed payment of USD 127 per square centimeter for all products in the outpatient setting covered by Medicare. At the same time, Medicare has withdrawn, the already announced LCD also set to go into effect January 1. Combined, this has triggered significant uncertainty in the skin substitute market as the channel adjusts, and we expect the heightened market uncertainty to persist throughout the year. As part of the shift towards a fixed payment rate, the Shield product brand will be phased out of the Medicare market and replaced by a renewed portfolio of the product brand MariGen which is well positioned to take market shares under the new fixed rate. This shift will create a negative mix effect as MariGen volumes are scaling. There is no doubt that the many unprecedented changes by CMS and the recent pivot with regards to the LCD in fiscal Q1 has made the operating environment increasingly difficult to navigate as a manufacturer. Similarly, we have seen an increased level of customer hesitancy to place large orders amid the significant market uncertainty. However, we're looking ahead, we remain optimistic about the outlook for the category and Kerecis long term. We support CMS' efforts to clean up the market. And we see both the now canceled LCD and the fixed payment rate as evidence that Kerecis remains well positioned to compete and win in the skin substitute market. Only 18 out of more than 300 products were in the final LCD and of these, 2 were Kerecis products. That is a clear testament to the clinical efficacy and differentiation of Kerecis products offerings. Kerecis is the only product in the market based on intact fish skin. It has a high resemblance to human skin and is proven to be more effective than the standard of care in healing severe wounds. In addition to being incredibly potent, the technology is also highly scalable based on its unique waste-to-value proposition, allowing for a highly efficient production setup. No other products in the markets share the unique characteristics of the fish skin, and we have moved quickly in response to the changes. We have enhanced our go-to-market model to align with the new requirements and will roll out a series of product launches during the year -- or during this year to support this updated approach. I'm deeply impressed by the agility, ingenuity and the grit of the Kerecis team and the way that they've handled the situation. Long term, we therefore continue to believe Kerecis will see continued strengthening of its competitive position relative to peers due to its unique technology and strong clinical documentation. With this, let's now take a closer look at the details by business area. In Ostomy Care, organic growth was 4% and growth in Danish kroner was flat in the first quarter. Ostomy Care delivered a soft start to the year as expected due to negative growth in China, a high baseline in the U.S. and order phasing in emerging markets. Rest of the year, we expect the gross momentum to pick up. In the U.S. business, the underlying performance continues to be strong. And in Q1, Premier has renewed Coloplast Group's purchasing agreement. The contract remains multi-source and effective for 3 years starting April 1, 2026. In China, sales declined in the quarter, impacted by a continued weak consumer sentiment and competitive pressures from domestic players in the community channel, further amplified by a high baseline last year. From a product perspective, the SenSura Mio portfolio was the main contributor to growth, followed by the Brava range of supporting products. The latest product launches within SenSura Mio, the black bags and the new 2-piece offering both continue to perform well. Additional variance of the black bags were launched in Q1 and further variance are expected throughout '25-'26. In Continence Care, organic growth was 7% and growth in Danish Kroner was 2% for Q1. The Luja portfolio was the main growth contributor in the quarter, driven by both the male and female catheters in Europe, most notably in the U.K., France and Germany and also in the U.S. Growth in the SpeediCath portfolio was driven by flexible catheters in the U.S. and LatAm. Within our two smaller segments in Continence Care, Bowel Care made a strong contribution to growth, while collecting devices saw a slight decline in the quarter. From a geographical perspective, growth was driven by Europe and the U.S., while growth in emerging markets was impacted by order phasing. Voice & Respiratory Care posted 8% organic growth for Q1 with growth in Danish Kroner of 5%. Laryngectomy delivered high single-digit growth in the first quarter, driven by an increase in the number of patients served in existing and new markets and an increase in patient value, driven by the Provox Life portfolio. Tracheostomy delivered mid-single-digit growth driven by solid underlying demand, partly offset by phasing in distributor markets. Growth in tracheostomy is expected to be back-end loaded and will pick up momentum in the second half of the year. In Wound and Tissue repair, organic growth were 5% for Q1. In Danish Kroner, sales declined 8 percentage points or 8% due to 8 percentage points negative impact from the skin care divestment in December 2024. As mentioned earlier, Kerecis delivered a soft quarter with 10% organic growth due to the significant sales disruption from the Medicare reimbursement changes in the outpatient setting. The Advanced Wound Dressings business declined 3% in Q1 and China detracted significantly from growth, impacted by the product return initiated last year with a negative revenue impact of around DKK 25 million in the first quarter. From a product perspective, Biatain Superabsorber was the main growth contributor. The Contract Manufacturing business posted solid double-digit growth in the first quarter, reflecting a front-end loaded year. In Interventional Urology, organic growth was 8% and growth in Danish Kroner was 3% for Q1. As mentioned earlier, the Men's Health business in the U.S. delivered a strong first quarter and was the main contributor to growth. Our flagship products within Men's Health, the Titan Penile implant, continue to perform well with the patient funnel positively impacted by our patient support program targeted at prospective patients. The Women's Health business and the Kidney and Bladder Health business also contributed to growth. With this, I'll now hand over to Anders, who will take you through the financials and outlook in more detail. Please turn to Slide #5. Anders Lonning-Skovgaard: Thank you, Lars, and good morning, everyone. Reported revenue for Q1 increased by DKK 17 million or 0% compared to last year. Organic growth contributed around DKK 393 million or around 6% to reported revenue. Divested businesses related to skin care in December '24, reduced reported revenue by DKK 77 million or around 1%. Foreign exchange rates reduced reported revenue by DKK 299 million or around 4%, mostly related to the depreciation of the U.S. dollar, the British pound and the basket of emerging market recurrences against the Danish Kroner. Please turn to Slide #6. Gross profit for Q1 amounted to DKK 4.7 billion, corresponding to a gross margin of 67% compared to 68% last year. The gross margin was negatively impacted by currencies of around 30 basis points and ramp-up costs in Costa Rica and Portugal. This was partly offset by a favorable impact from lower inflation on raw materials, freight and utilities. Country and product mix also had a positive impact. Operating expenses for Q1 amounted to around DKK 2.9 billion or 2% increase compared to last year. The distribution to sales ratio for Q1 was 33% on par with last year. In absolute terms, the distribution costs were also in line with last year. The flat development in distribution costs reflects DKK 20 million in one-off logistics costs in Q1 related to the new distribution center and lower sales costs in China following the organizational restructuring in Q1 last year. This was partly offset by one-off costs to enhance Kerecis' go-to-market model under the new Medicare reimbursement model. The development in distribution costs were also positively impacted by the depreciation of the U.S. dollar against the Danish kroner. The admin to sales ratio for Q1 was 5%, compared to 4% last year and includes around DKK 15 million in one-off advisory costs incurred by Kerecis in connection with the recent CMS regulatory changes in the U.S. outpatient setting. The R&D to sales ratio for Q1 was 4% compared to 3% last year, reflecting phasing our costs within the chronic care R&D and high activity levels in Kerecis. Overall, this resulted in operating profit before special items of DKK 1.9 billion in Q1. In constant currencies, EBIT grew 3% compared to last year, while reported EBIT declined 3%. The EBIT margin before special items for Q1 was 26% compared to 27% last year, negatively impacted by the significantly reduced EBIT margin in Kerecis due to lower organic growth and large one-off costs. Currencies also had a negative impact on the reported EBIT margin of around 30 basis points, mostly related to the depreciation of the U.S. dollar, the British pound and the basket of emerging market's currencies against the Danish kroner as well as appreciation of the Hungarian Forint against the Danish Kroner. Financial items in Q1 were a net expense of DKK 24 million compared to a net expense of DKK 69 million in Q1 last year, reflecting low interest expenses and gains on exchange rate adjustments, mostly related to the U.S. dollar. The blended interest rate was around 2.6% in Q1, down from around 3.1% in Q1 last year. The tax expense in Q1 was DKK 394 million compared to an ordinary tax expense of DKK 389 million last year and a total tax expense of DKK 725 million last year. Due to a nonrecurring expense of DKK 336 million related to the transfer of Kerecis' intellectual property from Iceland to Denmark. The tax rate was 22% on par with ordinary tax rate last year. As a result, the net profit before special items and adjusted for the nonrecurring tax expense last year decreased by DKK 14 million in Q1 and adjusted diluted earnings per share before special items decreased by 1%. Please turn to Slide 7. Operating cash flow for Q1 was an inflow of DKK 2.2 billion compared to an inflow of DKK 2 billion in Q1 last year. The positive development in cash flows was mostly driven by lower financial items, partly offset by higher income tax paid. Cash flow from investing activities was an outflow of DKK 412 million compared to an outflow of DKK 133 million last year. The increase partly reflects a low baseline due to the DKK 192 million impact from the divestment of skin care business last year. CapEx in Q1 amounted to DKK 414 million with a CapEx to sales ratio of 6% compared to 4% last year. CapEx in Q1 includes around DKK 97 million related to the new manufacturing site in Portugal, which is expected to be in operations in Q4 this year. As a result, the free cash flow for Q1 was an inflow of DKK 1.8 billion compared to an inflow of DKK 1.9 billion last year. Excluding benefit from the divestment last year, the free cash flow increase in the first quarter was 8%. The free cash flow to sales ratio was 26% compared to 24% last year, and the trailing 12-month cash conversion was 82%. Net working capital amounted to around 25% of sales on par with last year. Finally, the return on invested capital after tax and before special items was 15% on par with last year, adjusted for the impact from the Kerecis IP transfer last year. In January, we refinanced our EUR 800 million credit facility, retaining the facility's existing terms and conditions. The structure remains a standard credit facility, and the facility now matures in January '29. Now let's look at the guidance for the '25-'26 financial year. Please turn to Slide #8. For the '25-'26 financial year, we continue to expect organic revenue growth of around 7% and around 7% EBIT growth in constant currencies before special items. We also continue to expect a return on invested capital of around 16%, up around 1% percentage points from 15% adjusted last year. The organic revenue growth guidance of around 7% assumes continued good momentum in Chronic Care. In Interventional Urology, we now expect high single-digit growth versus mid-single-digit growth previously following a strong quarter. In Wound Tissue Repair, we now expect Kerecis to deliver growth of around 10% versus around 20% previously, reflecting the significant sales disruption from Medicare reimbursement changes in the outpatient setting and the high uncertainty around the timing of the recovery. Within Advanced Wound Dressings, we continue to expect negative impact from the product return in China in the first 9 months of the year. Reported revenue growth in Danish kroner is now expected at around 4% from around 4% to 5% previously and assumes around 3 percentage points negative impact from currencies, up from around 2 to 3 percentage points previously. The worsened currency outlook is mostly driven by the further depreciation of the U.S. dollar. For the year, we continue to expect the negative currency impact to be driven primarily by the U.S. dollar, and to a smaller extent, the British pound, the Chinese yuan and now also the Japanese yen. The EBIT growth in constant currencies of around 7% assumes stable inflation levels and continued ramp-up costs related to our manufacturing sites in Costa Rica and Portugal. The EBIT growth guidance also includes the initiation of Impact4 investments, including Global Technology investments and AI, investments towards the new Bowel Care opportunity in the U.S. and investments related to INTIBIA. For Kerecis, we expect a significant EBIT margin uplift rest of the year with Kerecis full year EBIT margin around double digit compared to 1% in Q1. We expect currencies to have a negative impact on the reported EBIT margin of around 50 basis points, driven by the depreciation of the U.S. dollar and the British pound against the Danish kroner and the appreciation of the Hungarian forint against the Danish kroner. In terms of phasing, we expect the organic revenue growth and EBIT growth in constant currencies to be second half weighted following a soft start here in Q1 as expected. For '25-'26, we continue to expect around DKK 50 million in special items. And we also continue to expect net financial expenses of around minus DKK 500 million based on spot rates as of February 4, down from around DKK 1 billion in '24-'25. The effective tax rate for '25-'26 is still expected to be around 22%. Net profit is expected to significantly increase year-over-year as '24-'25 was impacted by extraordinary high special items, high financial items due to negative exchange rate adjustments. And finally, the extraordinary tax expense related to the transfer of Kerecis' intellectual property. The CapEx to sales ratio is still expected at around 5% and net working capital is still expected at around 25%. Our guidance is based on the knowledge we have today and assumes immaterial impact from tariffs as we expect our products to remain exempted. Thank you very much, operator. We are now ready to take questions. Operator: [Operator Instructions] The first question comes from the line of Hassan Al-Wakeel from Barclays. Hassan Al-Wakeel: Three, please. Firstly, just on the reiterated guidance, can you talk us through the offsets you see, given the Kerecis lower growth and margin expectations for the full year and how they should be a headwind to group profitability? Secondly, can you help us unpack the further weakness you're seeing in skin substitutes. And why you expect this to persist over the course of the year? And you've obviously noted more favorable pricing versus peers. What is the level of growth you're seeing in the inpatient setting? And how do you see this over the course of the year? And if you can put all of this into context with your longer-term ambition for Kerecis, that would be helpful. And then thirdly, if you can walk us through the confidence that you have in terms of the raised Interventional Urology guide, where you see Women's Health and Men's Health growing in the first quarter and expectations for the full year. Are we past the risks from bulking agents to the Women's Health business? Anders Lonning-Skovgaard: Yes. Hassan, thanks for your questions. I will start with the first one. As I understood your question, that was the moving parts on our organic growth and EBIT growth guidance. So as I just mentioned, we are keeping our organic growth and EBITDA growth guidance in fixed currencies of around 7%. We are expecting our urology business to improve after a good first quarter, but also due to the fact that we have now the recall of the product we made last year behind us. The underlying Men's Health business continued to be strong. So that is an important assumption. Secondly, we see good growth in the rest of the year for our chronic business, and that is then offset by the adjustment in terms of the Kerecis outlook for the year. As I just mentioned, we have reduced our outlook for Kerecis to now around 10%. In terms of the EBIT growth guidance, I also just mentioned that we are expecting the rest of the year that EBIT growth will improve as a result of higher growth, but also as a result of a significant improvement in the underlying Kerecis margin we had in Q1, quite significant one-offs related to Kerecis, and we expect that to be fully behind us. So that's the other key element. So we are expecting the Kerecis underlying margin to improve to double-digit levels. So that's some of the key moving parts. Lars? Lars Rasmussen: Yes. So on the Kerecis side, this is a really strange situation to be in because we have known for such a long time now that there would be an LCD that was finally announced on the 16th of December. So I can't even imagine what kind of situation we would be in if we had not been on the short list of 18 products having this discussion. So we are very satisfied to see that we -- out of 340 products we're one of the -- two of the products that were mentioned on the list of 18 products that were covered by the LCD. And we had two products in the market. So therefore, it's everything that we had in the market that was covered by that. There was also a time or a price point on this on $127 per square centimeter. And one of the products could pass that one, and that is the MariGen product. So we have immediately also taken steps to enlarge that portfolio of products to be more competitive, even more competitive in this space in the future. We also see that there are a pretty large number of competitors that would not be able to meet the price criteria. So therefore, we actually see this movement in the, you could say, the 20% of the total sales of Kerecis that are the outpatient Medicare covered part of the portfolio. We actually see that as a positive future omen, so to speak. The other positive part about this is that more or less the rest of the portfolio we have is an inpatient. And that is an environment where clinical data, historically, have been much more important. And now we basically have Medicare's own verdict that the clinical efficacy of our products are stellar. So in that sense, we see this really as a short-term disruption. And the disruption is that the payers or the offices, the private offices that are using our products, they don't have clarity at this point in time of what is covered by Medicare and what is not. And that is -- therefore, we basically see some hesitancy from the professionals to buy the products right now. But the fact of the matter is that there are fewer products available in the market to cover the same number of wounds that we had before. So we see this as positive. And then we have question number 3? Yes. Anders Lonning-Skovgaard: Yes. Question number 3, Hassan, that was related to urology, as I remember. And I think actually, I talked a bit to it earlier. But overall, the urology business, as I said, is off to a good start in Q1. We had -- or continued to have a good Men's Health development in Q1, actually, as we had last year in the second half as well. So we expect that to continue. And then the other important factor is that now the recall of the product we had last year is now fully behind us. So we're actually seeing a good underlying development within our urology business, and that's also why we see that business to deliver high single-digit growth for this financial year. Operator: The next question comes from the line of Jesper Ingildsen from DNB Carnegie. Jesper Ingildsen: Also just I'm curious, you mentioned in the outpatient setting a decline in Q1. I was curious to hear what you have seen here at the beginning of the year after the implementation of the fixed price cap. And then maybe also if you could specify how much one-off effect you had in Kerecis' EBIT margin here in Q1, just to understand where the underlying margin would be? And then also, if you could just give us an indication of what it would take to end up in a situation where you would have to write off this asset? Anders Lonning-Skovgaard: So in terms of your questions, Jesper, thank you for that. Lars now just talked about Kerecis. We expect that the Kerecis growth for this financial year to be around the double-digit, and we are still expecting some turmoil in Q2 before it's starting to improve in the second half. But overall, for the year, we are looking at growth with the current knowledge of around double-digit. In terms of EBIT margin, as I mentioned, we have included some one-offs in the first quarter related to advisory in relation to the reimbursement changes. And we have also included one-offs related to our go-to-market model. And in total, it is around DKK 30 million. So that is fully behind us, and that's also why we now expect from this quarter and onwards, that the underlying Kerecis margin will improve, but it will not improve to the levels we had anticipated when we started the year. So right now, I'm expecting the underlying Kerecis margin to be around double digit. And the last question, can you just repeat that? Jesper Ingildsen: Just the -- I mean, clearly, the growth has deaccelerated and margins to some extent compared to what you expected from when you recently bought the assets. I'm just wondering if this doesn't improve, will be end up in a situation where you have to do a write-off of the book value of the asset? What scenario will be -- what will require to get to that? Anders Lonning-Skovgaard: Yes. So it's clearly that this year, so the third year where after we acquired Kerecis due to the turmoil that Lars described earlier, is not developing as we had anticipated. But we see this as a temporary dip. We are still focusing a lot on delivering on the case, and we also see that the case is intact long term. But short term, we have some challenges this year related to the growth and the margin. In terms of your other question, the impairment test, it's something we are evaluating on an annual basis. But again, we are looking at a business that we believe will deliver the long-term expectations that we also communicated at the Impact4 strategy back in September last year, where we said that the overall Wound Tissue Repair business would grow around double digit. Operator: The next question comes from the line of Jack Reynolds-Clark from RBC Capital Markets. Jack Reynolds-Clark: I have three also, please. The first is on Kerecis' profitability. So thinking longer term, given the new environment, have your assumptions changed around where peak profitability for Kerecis could be in terms of EBIT margin? The next question on Wound, on Dressings, so excluding the recall and obviously, the Contract Manufacturing business, growth here still looks challenged. What drove this? And was this in line with your expectations? What are your expectations for the remainder of the year? And then my last question was on INTIBIA. So now that it is submitted for PMA approval, can you share any data on clinical performance? When do you expect approval? And can you talk about your expectations for launch? Anders Lonning-Skovgaard: Yes. So thanks a lot, Jack. Your question around the Kerecis EBIT margin. Yes, as I mentioned earlier, we had anticipated that the EBIT margin would improve further this year. Originally, as I explained earlier to a level of around 20%. Now it is sitting, that's at least our expectation, around 10%, including the one-offs in the first quarter. But I'm still expecting that over the Impact4 for strategy, we will improve also the underlying EBIT margin of Kerecis to a level of around the group margin as we have said, when we acquired the Kerecis business 2.5 years ago. Lars, number two? Lars Rasmussen: On the Wound Care, well, yes, technically, it is a recall. I would say that it's maybe a kind of -- it's basically a consequence of the long-term plan for China to be self supplying inside of pharma and medical devices and we -- there are no product flaws on the product that we have taken out, but it's basically just been replaced with a Chinese product in the market. And that was, of course, unexpected when it came last year, but we can't say that we have not heard that this is a movement that you -- that happens in that country and many other industries and also other competitors have experienced the same. However, we have still a very large business in China that we are protecting to the best of our abilities, but it means that our growth have temporarily been set back. And it also means that we don't foresee that we will have growth in China, which is more than low single digit in the coming -- in the strategic period that we are in, and we still expect that, that will be the case. Anders Lonning-Skovgaard: Yes. And your final question, Jack, related to INTIBIA, it is following the plan. We have submitted it to FDA and we are still expecting that we will be able to launch next financial year, '26-'27 and we still have high expectations for this technology to support our long-term growth ambition for the Urology business to be in the high single-digit level. So that is tracking as planned. Operator: The next question comes from Oliver Metzger from ODDO BHF. Oliver Metzger: First one is also on Kerecis. So you described well also the positive dynamics. So according to your statement, the inpatient setting should be pretty fine. But if outpatient is just 20% of Kerecis and you reduce your segmental guidance for Kerecis by 10 percentage points, it means mathematically that the outpatient sales [ expect ] a very hard stop. Could you, therefore, also comment about some inpatient dynamics, whether do you see there any underlying growth deterioration? And the second question is on Ostomy Care. So you said about a pretty harsh headwind coming from China. So can you comment how Ostomy Care growth would have been excluding this China effect, please? Lars Rasmussen: So on Kerecis, the -- in a sense, the inpatient part of the sales should be completely unchanged. There is a little bit of effect on it because some of the vendors that has only participated in the outpatient setting, they are now testing their products, of course, in the inpatient setting. So that gives a little bit of turmoil there, but prices and everything else is completely unchanged on the inpatient side. And as also said, it is a very clinically driven environment and we have just gotten sort of a very strong underlying testament to the fact that our products, they really have strong clinical efficacy. So that's -- we actually see that as an opportunity. But it is a strong growth environment also in the inpatient clinic. So of course, over time, that is also covering for what is happening now on the outpatient side. The whole reform's aim and purpose was to take value out of the outpatient segment seen from a Medicare point of view, and that is definitely happening. But as I said before, we see this as a potential upside for us. So longer term, we definitely see this as a positive development. We understand the actions that the government are taking and we see ourselves even better positioned than we would have hoped for in this situation. On the Ostomy side, I don't think we give a number when we take China out. But of course, we are market leaders in China. We have a very, very high market share in the community market. So the fact that we have this part is not growing, that impacts the numbers. But we are going to see much better numbers in Ostomy in the rest of the year. We are basically just having a very low first quarter due to comparison numbers. So we see that going up. Oliver Metzger: Just a very quick follow-up. So for the inpatient setting at Kerecis, so would you describe a 20% growth momentum still as valid? Lars Rasmussen: So I don't have a comment to the exact number there, but it's definitely a very healthy double-digit growth. Operator: Next question comes from the line of Aisyah Noor from Morgan Stanley. Aisyah Noor: My first one is on the Uromedica acquisition or agreement to acquire. Can you talk a bit about the competitive KPIs of this product versus bulk of it or the standard of care and what you think this product could take share? And then my second question is on the MariGen phaseout. So what's the mix of the MariGen versus Shield product in your outpatient sales today? And why do you think those customers will shift over to your new MariGen products? And will this come with new costs embedded in the double-digit margin guide for Kerecis? Lars Rasmussen: So on Uromedica side, as I said, this is complementing our portfolio in the Men's Health. So today, in Men's Health, we have the penile implant for erectile dysfunction. And we basically have one competitor in that space, and they also address urinary incontinence in men in the same space, and that's also what we do with this device. The difference is that this is minimally invasive. And therefore, we see it as a very good way to complement our product portfolio and increase our competitiveness in this specific market segment. So those are really the benefits. We know it works. It is in the market already. It is accepted by the professionals, and now we can put effort behind it and thereby also help getting it into the market and educating much more doctors to use it. Could you take the second question, Anders? I didn't write it down. Anders Lonning-Skovgaard: So the second question was around MariGen. and Shield. So we have not really disclosed the split between these two from a revenue point of view. We have said that Shield product's price was above the cap of USD 127 per square centimeter and the MariGen is lower then the cap. And the whole work is now about to convert from the Shield to the MariGen. And that's what we have initiated, and that's the focus we are having the rest of the year, including launching new products within the MariGen portfolio. So that's really the focus we are having. Aisyah Noor: And if I could follow up with Lars on the Uromedica comment. I know you mentioned the impact on financials is immaterial but do you anticipate having to ramp up the sales force for this business? Or can your existing urology sales force sell this product? Lars Rasmussen: So it fits directly into the existing sales force that we have because it's the same call points that we're having. But of course, if we -- when we see it take off, we also are going to step up accordingly. But from the beginning, it's going to be in the hands of us and we have significantly higher sales pressure in the market than the former owner. Operator: The next question comes from the line of Veronika Dubajova from Citi. Veronika Dubajova: I apologize, but I'm going to come back to Kerecis. And I wanted to ask a couple of questions here. The first one is that, Lars, you've described the disruption at the moment is temporary. I guess I'm curious to hear what give you the confidence? In conversations we've had with physicians, many of them are simply discontinuing the use of skin substitutes and switching instead to traditional wound care dressings. So I'd love to kind of get your perspective as to why you see this issue is temporary? And why you think the market will recover? And I guess that sort of also fits into my sort of second question, which is, would your expectation be that Kerecis can be back at sort of around 20% growth rate as we move into fiscal '27? And if it's not, what implications does that have on midterm guidance? So that's my first question. And then I have a follow-up, but maybe I'll let you answer this one first. Lars Rasmussen: Yes. So I think that's a super good question, Veronika, because we are talking about the outpatient clinic here and as I said, that's -- of our total sales in Kerecis, the 20% comes from the Medicare reimbursed outpatient setting. And there's no doubt that, that has been an exceptionally fast-growing market. So if you see the market data on it, you just see that it's literally exploding within the last three years. So it makes a lot of sense that is being addressed, of course, by the payers. So for some doctors, of course, they would discontinue using it because the financial incentive to use it is simply too low compared to what they have been used to. And I don't know the price of the products that they are shifting to. So -- but you also know that these are real businesses that we are selling into. These kind of wounds, they don't go away. So there will still be lots of need for these kind of products, but it's, of course, a different price level. It is, however, a price level that we have been used to living with. That's what we have been making most of our sales on. And therefore, we see -- we don't see that the need goes away. But of course, since it's both a doctor and a business person, they will find a way to try to substitute in the most sort of -- with a good fit between what is helpful for the patient and what is a good financial outcome also for the doctor. With the prices that we are having and the efficacy of MariGen, we think that we are super well positioned. So that's the reason why we think that we're in that position. This whole change is then not affecting the biggest part of our business, which is the inpatient part that goes on as it was before. We just think that we have a better position or we have a potentially have a better position than we had before because we have Medicare's own assessment of all the clinical data they have received, and we simply have super strong clinical data that we can take to these payers and users, and that puts us in a better position. And that is such a big part of the business, and it's growing so fast that it is also covering parts of the downside that we see in the outpatient clinic on the short term on outpatient segment. But we see the outpatient segment will have a healthy growth going forward after we have sort of having this shake up. And we think that we are super well positioned for that. Veronika Dubajova: Okay. And then my second question is for Anders. It's a bit financial in nature, but just obviously looking at the year, I know you always said to us, we'd start below the full year guide, but a few especially on EBIT growth, we still have quite a ways to go to get to the full year. So I don't know Anders, if you can give us a little bit of color on how you'd expect the growth phasing, both from an organic sales perspective and from adjusted EBIT perspective to look like through the remainder of the year? Anders Lonning-Skovgaard: Yes. Thanks a lot, Veronika, for your second question. So for the rest of the year, first and foremost, we are expecting growth will improve from this quarter and onwards, driven by the factors we have been discussing. So we are expecting Ostomy/Chronic business to improve, we are expecting the Urology business to continue at the levels we have seen in Q1. And then we have been talking about Kerecis quite a few times during the call that we are expecting that business to sit around the double digit. So overall, we are expecting growth to improve versus Q1, so that's an important factor. Secondly, gross margin ballpark in -- at the levels we had anticipated for Q1. However, the FX impact is, yes, real also due to the Hungarian Forint. But I'm expecting the gross margin to develop as we have said previously. And then on the cost side, I have -- we have talked quite a bit now to the one-off costs related to Kerecis, that is behind us. We are expecting the underlying Kerecis margin to improve. We will continue to also run a prudent cost across the business. But we have also agreed to initiate the impact for investments, especially related to some of the opportunities we see in the U.S. We have this Bowel Care opportunity. We are initiating investments in technology AI. And then when we are ready, we will also initiate the investment to support the INTIBIA launch. So overall, we are expecting both the top line growth, but also the EBIT growth to improve from this quarter versus Q1 to deliver the full year of around 7% organic growth and 7% EBIT growth in constant currencies. Operator: The next question comes from the line of Julien Dormois from Jefferies. Julien Dormois: I have three, and I'm going to give you a break from Kerecis. The first one relates to Voice and Respiratory Care. You have indicated that tracheostomy was a little weaker in Q1 and you ascribe that to the phasing in distributor markets. So just curious what's your visibility on the pickup in the back half of the year. And just remind us of what is the proportion of sales in tracheostomy that are made distributor markets, that would be helpful. And the second and third question relates to the Wound and Tissue Repair. So the first one is just I would love to know what was the growth in the business overall, if you exclude Kerecis and you exclude the China recall effect, just wondering whether the underlying business was growing when you exclude those two elements. And the last one, still in Wound and Tissue Repair, you have also commented that the contract manufacturing business helped a lot in Q1. You had double-digit growth, so I just can't recall what's the proportion of sales you made in the contract manufacturing business just to get a sense of how this could impact the remainder of the year. Anders Lonning-Skovgaard: Thanks a lot, Julien. Let me start with the first one related to our Voice & Respiratory Care business. So we delivered 8% growth in the first quarter. Our laryngectomy business continued to develop really well with high single-digit growth, and we continue to see our laryngectomy business to perform well here in Europe, but also in the U.S. and across our distributor markets, also supported by the Provox Life launch that is still ongoing in a few markets as well. The tracheostomy business was a little bit more soft than we also anticipated. So it was growing mid-single digit, but it's really due to some order phasing in our emerging markets, and we expect that to improve the rest of the year. But overall, 8% growth in Q1 was okay, but we also expect the total Voice and Respiratory Care business to improve especially driven by the tracheostomy business the rest of the year. Lars Rasmussen: On the Wound and Tissue repair. So we don't break it down to that level where we take the growth when we have taken out a couple of the more programmatic areas, but actually, when we take them out, it's actually quite positive. And then the Contract Manufacturing, we -- it's double-digit growth in Q1 but we don't have a lot of visibility on it, to be honest. So therefore, we believe it to be flat for the year, but that can vary. We don't expect it to be more negative than that, but we keep it in our own books there, we keep it just neutral. Operator: The next question comes from the line of Tobias Nissen from Danske Bank. Tobias Nissen: I have a few also stating -- going back to Kerecis. If you can then talk a little bit more to the assumed time line for stabilization here in the Medicare outpatient challenge and what the really key drivers are for this? And what visibility you have at this point? And what -- like the key risks are for driving growth for Kerecis below the 10% you're guiding for, for the full year? Are we looking into like an inflection in the second half of the year or is it likely to remain heavily disrupted? And then also just on potential spillover to the inpatient segment here. How confident are you that we will not see like a downward pricing pressure over to this area, which is like still like 70% of Kerecis revenue? And then just the last one on urology, like 8% organic growth this quarter, very strong. Can you talk to how much, if any, was due to some one-off factors related, after this, you can say, post [ recall ] catch-up, and how much of this growth rate is sustainable for the rest of the year? Lars Rasmussen: Yes. I would love to have an answer to the time line on this also. We have not tried this before, to be quite honest. I don't think that the market has seen anything like this before. So what we do know is that the change -- Medicare is changing their prices. It shouldn't be hard because there is a limit to what you can get out $127 but we have asked what is the normal time line when Medicare is changing the pricing. And they have a database with all the prices in them and that's normally three months. So that's at least what we anticipate will happen and it's important that the price list is updated for people who are using Medicare or using products that are covered by Medicare. So it is within three months. That's also why we say that we expect that the effect will be the hardest in this quarter. Any sort of effect on the inpatient side, it's a very different market dynamic. It's also different products that you have inside in the inpatient setting and in the outpatient setting so we don't anticipate a lot of turmoil going in that direction from it. What the government have been addressing here is the cost -- explosive costs, so to say, in the outpatient setting, and it's not the same picture internally in the hospitals or in the inpatient setting. So we don't assume anything there. I don't know if it's a help to you, but what I can do here is I can share with you what we know. And of course, we're also guessing how long time does it take for us to be on the safe side, but we expect, in the way that we see it right now, that it is bottoming out in this current quarter. Anders Lonning-Skovgaard: Yes. The second one, that was again the urology business. So no, there was no one-offs in Q1. And again, the Men's Health business has actually been looking very solid from a growth point of view for quite a number of quarters in a row now. So I just want to remind you that last year, both Q3 but also Q4, so last year, the second half was also at a double-digit level, and we saw that again in Q1. So the underlying momentum in Men's Health is strong, and we're expecting that to continue for the rest of the year. And on top of that, we had this recall last year that we have now fully behind us. So that's why the underlying momentum within neurology, we have increased to now high single-digit versus mid-single digit when we started the year. Lars Rasmussen: And we are a couple of minutes after the hour. So that was, unfortunately, the last question, but we will have a chance to catch up in the near future. Thank you very much, everybody.
Operator: Ladies and gentlemen, welcome to the Coloplast Interim Financial Statement for Q1 2025-'26 Conference Call. I am [indiscernible] chorus Call operator. [Operator Instructions] the conference has been recorded. [Operator Instructions] The conference must not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to Lars Rasmussen, Interim CEO. Please go ahead. Lars Rasmussen: Thank you, and good morning, and welcome to our Q1 '25/'26 conference call. I'm Lars Rasmussen, Interim CEO of Coloplast. And I'm joined by CFO, Anders Lonning-Skovgaard and our Investor Relations team. We will start with a short presentation by Anders and myself and then open up for questions. And please turn to Slide #3. We delivered 6% organic revenue growth and 3% EBIT growth in constant currencies before special items. Return on invested capital after tax and before special items landed at 15% on par with last year's adjusted figure. We had a soft start to the year as expected. However, with a significant more turbulent quarter in Kerecis than we would have anticipated. I'll get back to that in a moment. For the year, we maintained our guidance of around 7% organic growth. We lowered our growth expectations for our Kerecis to around 10% amid significant market uncertainty in the outpatient setting, but raise our outlook for interventional urology to high single digits following a strong start and improved outlook for the year. Before we dive further into the quarterly performance and outlook for the year, let me begin with a brief comment on our leadership team. In December, we announced two important changes to the executive leadership team. EVP of People and Culture, Dorthe Ronnau, has decided to leave Coloplast to pursue the next chapter in her career and Tommy Johns, Executive Vice President of Interventional Urology, has decided to retire after more than a decade in Coloplast and more than three decades in the global life science industry. An external search is currently ongoing to identify a new leader for the Global People and Culture Function while Kevin Hardage will step into the role of EVP of Interventional Urology on February 9. Kevin brings extensive experience from the global medtech industry, including senior leadership experience from Teleflex in the urology space, and I look forward to welcoming Kevin to Coloplast. Dorthe and Tommy have both played key roles in ensuring a smooth leadership transition. I want to thank them for the continuity and stability they have provided throughout this period and wish them all the best in the future endeavors. Additionally, I would like to mention that the search for Coloplast's new CEO is progressing well and remains on track. I would also like to put a few words to key developments in Q1. Interventional, we already delivered a strong start to the year with 8% organic growth driven by the Men's Health business. The product recall in Kidney and Bladder Health is now behind us, and we are looking at a very healthy business expected to deliver high single-digit growth in '25, '26. During the quarter, we reached the important milestone of submitting INTIBIA, our investigational tibial nerve stimulation device to the FDA. This marks an important advancement towards the future launch of the device and our goal of bringing innovative and clinically differentiated solutions closer to the patients. INTIBIA plays an important role in delivering on our Impact4 strategy for Interventional Urology and I'm encouraged by the fact that we continue to see clear external confirmation of the relevance of the implantable tibial nerve stimulation space. Industry activity and investments in implantable tibial nerve stimulation continues to increase indicating broader confidence in the therapy area and the role it may play in the future management of overactive bladder. These developments reinforce our long-term view of the opportunity within this segment. I would also like to highlight that we are further strengthening our product portfolio in Interventional Urology through an agreement to purchase the outstanding shares of Uromedica, a commercial stage company with a minimally invasive solution for treating stress urinary incontinence, complementary to our existing men's health business. The transaction is expected to close here in February, and we have an immaterial impact on the group financial performance in '25, '26, while being accretive to Interventional Urology's financial metrics in the second half of the impact for our strategic period. Finally, I would like to spend a moment addressing the development we have seen in Kerecis in Q1. Kerecis delivered 10% organic growth in the quarter with an EBIT margin of only 1%. While we continued to see a healthy momentum in the inpatient setting in Q1, Kerecis overall performance was subdued due to significant sales disruption from Medicare reimbursement changes in the outpatient setting, which resulted in negative growth in the outpatient setting. Effective January 1, 2026, Medicare has introduced a single fixed payment of USD 127 per square centimeter for all products in the outpatient setting covered by Medicare. At the same time, Medicare has withdrawn, the already announced LCD also set to go into effect January 1. Combined, this has triggered significant uncertainty in the skin substitute market as the channel adjusts, and we expect the heightened market uncertainty to persist throughout the year. As part of the shift towards a fixed payment rate, the Shield product brand will be phased out of the Medicare market and replaced by a renewed portfolio of the product brand MariGen which is well positioned to take market shares under the new fixed rate. This shift will create a negative mix effect as MariGen volumes are scaling. There is no doubt that the many unprecedented changes by CMS and the recent pivot with regards to the LCD in fiscal Q1 has made the operating environment increasingly difficult to navigate as a manufacturer. Similarly, we have seen an increased level of customer hesitancy to place large orders amid the significant market uncertainty. However, we're looking ahead, we remain optimistic about the outlook for the category and Kerecis long term. We support CMS' efforts to clean up the market. And we see both the now canceled LCD and the fixed payment rate as evidence that Kerecis remains well positioned to compete and win in the skin substitute market. Only 18 out of more than 300 products were in the final LCD and of these, 2 were Kerecis products. That is a clear testament to the clinical efficacy and differentiation of Kerecis products offerings. Kerecis is the only product in the market based on intact fish skin. It has a high resemblance to human skin and is proven to be more effective than the standard of care in healing severe wounds. In addition to being incredibly potent, the technology is also highly scalable based on its unique waste-to-value proposition, allowing for a highly efficient production setup. No other products in the markets share the unique characteristics of the fish skin, and we have moved quickly in response to the changes. We have enhanced our go-to-market model to align with the new requirements and will roll out a series of product launches during the year -- or during this year to support this updated approach. I'm deeply impressed by the agility, ingenuity and the grit of the Kerecis team and the way that they've handled the situation. Long term, we therefore continue to believe Kerecis will see continued strengthening of its competitive position relative to peers due to its unique technology and strong clinical documentation. With this, let's now take a closer look at the details by business area. In Ostomy Care, organic growth was 4% and growth in Danish kroner was flat in the first quarter. Ostomy Care delivered a soft start to the year as expected due to negative growth in China, a high baseline in the U.S. and order phasing in emerging markets. Rest of the year, we expect the gross momentum to pick up. In the U.S. business, the underlying performance continues to be strong. And in Q1, Premier has renewed Coloplast Group's purchasing agreement. The contract remains multi-source and effective for 3 years starting April 1, 2026. In China, sales declined in the quarter, impacted by a continued weak consumer sentiment and competitive pressures from domestic players in the community channel, further amplified by a high baseline last year. From a product perspective, the SenSura Mio portfolio was the main contributor to growth, followed by the Brava range of supporting products. The latest product launches within SenSura Mio, the black bags and the new 2-piece offering both continue to perform well. Additional variance of the black bags were launched in Q1 and further variance are expected throughout '25-'26. In Continence Care, organic growth was 7% and growth in Danish Kroner was 2% for Q1. The Luja portfolio was the main growth contributor in the quarter, driven by both the male and female catheters in Europe, most notably in the U.K., France and Germany and also in the U.S. Growth in the SpeediCath portfolio was driven by flexible catheters in the U.S. and LatAm. Within our two smaller segments in Continence Care, Bowel Care made a strong contribution to growth, while collecting devices saw a slight decline in the quarter. From a geographical perspective, growth was driven by Europe and the U.S., while growth in emerging markets was impacted by order phasing. Voice & Respiratory Care posted 8% organic growth for Q1 with growth in Danish Kroner of 5%. Laryngectomy delivered high single-digit growth in the first quarter, driven by an increase in the number of patients served in existing and new markets and an increase in patient value, driven by the Provox Life portfolio. Tracheostomy delivered mid-single-digit growth driven by solid underlying demand, partly offset by phasing in distributor markets. Growth in tracheostomy is expected to be back-end loaded and will pick up momentum in the second half of the year. In Wound and Tissue repair, organic growth were 5% for Q1. In Danish Kroner, sales declined 8 percentage points or 8% due to 8 percentage points negative impact from the skin care divestment in December 2024. As mentioned earlier, Kerecis delivered a soft quarter with 10% organic growth due to the significant sales disruption from the Medicare reimbursement changes in the outpatient setting. The Advanced Wound Dressings business declined 3% in Q1 and China detracted significantly from growth, impacted by the product return initiated last year with a negative revenue impact of around DKK 25 million in the first quarter. From a product perspective, Biatain Superabsorber was the main growth contributor. The Contract Manufacturing business posted solid double-digit growth in the first quarter, reflecting a front-end loaded year. In Interventional Urology, organic growth was 8% and growth in Danish Kroner was 3% for Q1. As mentioned earlier, the Men's Health business in the U.S. delivered a strong first quarter and was the main contributor to growth. Our flagship products within Men's Health, the Titan Penile implant, continue to perform well with the patient funnel positively impacted by our patient support program targeted at prospective patients. The Women's Health business and the Kidney and Bladder Health business also contributed to growth. With this, I'll now hand over to Anders, who will take you through the financials and outlook in more detail. Please turn to Slide #5. Anders Lonning-Skovgaard: Thank you, Lars, and good morning, everyone. Reported revenue for Q1 increased by DKK 17 million or 0% compared to last year. Organic growth contributed around DKK 393 million or around 6% to reported revenue. Divested businesses related to skin care in December '24, reduced reported revenue by DKK 77 million or around 1%. Foreign exchange rates reduced reported revenue by DKK 299 million or around 4%, mostly related to the depreciation of the U.S. dollar, the British pound and the basket of emerging market recurrences against the Danish Kroner. Please turn to Slide #6. Gross profit for Q1 amounted to DKK 4.7 billion, corresponding to a gross margin of 67% compared to 68% last year. The gross margin was negatively impacted by currencies of around 30 basis points and ramp-up costs in Costa Rica and Portugal. This was partly offset by a favorable impact from lower inflation on raw materials, freight and utilities. Country and product mix also had a positive impact. Operating expenses for Q1 amounted to around DKK 2.9 billion or 2% increase compared to last year. The distribution to sales ratio for Q1 was 33% on par with last year. In absolute terms, the distribution costs were also in line with last year. The flat development in distribution costs reflects DKK 20 million in one-off logistics costs in Q1 related to the new distribution center and lower sales costs in China following the organizational restructuring in Q1 last year. This was partly offset by one-off costs to enhance Kerecis' go-to-market model under the new Medicare reimbursement model. The development in distribution costs were also positively impacted by the depreciation of the U.S. dollar against the Danish kroner. The admin to sales ratio for Q1 was 5%, compared to 4% last year and includes around DKK 15 million in one-off advisory costs incurred by Kerecis in connection with the recent CMS regulatory changes in the U.S. outpatient setting. The R&D to sales ratio for Q1 was 4% compared to 3% last year, reflecting phasing our costs within the chronic care R&D and high activity levels in Kerecis. Overall, this resulted in operating profit before special items of DKK 1.9 billion in Q1. In constant currencies, EBIT grew 3% compared to last year, while reported EBIT declined 3%. The EBIT margin before special items for Q1 was 26% compared to 27% last year, negatively impacted by the significantly reduced EBIT margin in Kerecis due to lower organic growth and large one-off costs. Currencies also had a negative impact on the reported EBIT margin of around 30 basis points, mostly related to the depreciation of the U.S. dollar, the British pound and the basket of emerging market's currencies against the Danish kroner as well as appreciation of the Hungarian Forint against the Danish Kroner. Financial items in Q1 were a net expense of DKK 24 million compared to a net expense of DKK 69 million in Q1 last year, reflecting low interest expenses and gains on exchange rate adjustments, mostly related to the U.S. dollar. The blended interest rate was around 2.6% in Q1, down from around 3.1% in Q1 last year. The tax expense in Q1 was DKK 394 million compared to an ordinary tax expense of DKK 389 million last year and a total tax expense of DKK 725 million last year. Due to a nonrecurring expense of DKK 336 million related to the transfer of Kerecis' intellectual property from Iceland to Denmark. The tax rate was 22% on par with ordinary tax rate last year. As a result, the net profit before special items and adjusted for the nonrecurring tax expense last year decreased by DKK 14 million in Q1 and adjusted diluted earnings per share before special items decreased by 1%. Please turn to Slide 7. Operating cash flow for Q1 was an inflow of DKK 2.2 billion compared to an inflow of DKK 2 billion in Q1 last year. The positive development in cash flows was mostly driven by lower financial items, partly offset by higher income tax paid. Cash flow from investing activities was an outflow of DKK 412 million compared to an outflow of DKK 133 million last year. The increase partly reflects a low baseline due to the DKK 192 million impact from the divestment of skin care business last year. CapEx in Q1 amounted to DKK 414 million with a CapEx to sales ratio of 6% compared to 4% last year. CapEx in Q1 includes around DKK 97 million related to the new manufacturing site in Portugal, which is expected to be in operations in Q4 this year. As a result, the free cash flow for Q1 was an inflow of DKK 1.8 billion compared to an inflow of DKK 1.9 billion last year. Excluding benefit from the divestment last year, the free cash flow increase in the first quarter was 8%. The free cash flow to sales ratio was 26% compared to 24% last year, and the trailing 12-month cash conversion was 82%. Net working capital amounted to around 25% of sales on par with last year. Finally, the return on invested capital after tax and before special items was 15% on par with last year, adjusted for the impact from the Kerecis IP transfer last year. In January, we refinanced our EUR 800 million credit facility, retaining the facility's existing terms and conditions. The structure remains a standard credit facility, and the facility now matures in January '29. Now let's look at the guidance for the '25-'26 financial year. Please turn to Slide #8. For the '25-'26 financial year, we continue to expect organic revenue growth of around 7% and around 7% EBIT growth in constant currencies before special items. We also continue to expect a return on invested capital of around 16%, up around 1% percentage points from 15% adjusted last year. The organic revenue growth guidance of around 7% assumes continued good momentum in Chronic Care. In Interventional Urology, we now expect high single-digit growth versus mid-single-digit growth previously following a strong quarter. In Wound Tissue Repair, we now expect Kerecis to deliver growth of around 10% versus around 20% previously, reflecting the significant sales disruption from Medicare reimbursement changes in the outpatient setting and the high uncertainty around the timing of the recovery. Within Advanced Wound Dressings, we continue to expect negative impact from the product return in China in the first 9 months of the year. Reported revenue growth in Danish kroner is now expected at around 4% from around 4% to 5% previously and assumes around 3 percentage points negative impact from currencies, up from around 2 to 3 percentage points previously. The worsened currency outlook is mostly driven by the further depreciation of the U.S. dollar. For the year, we continue to expect the negative currency impact to be driven primarily by the U.S. dollar, and to a smaller extent, the British pound, the Chinese yuan and now also the Japanese yen. The EBIT growth in constant currencies of around 7% assumes stable inflation levels and continued ramp-up costs related to our manufacturing sites in Costa Rica and Portugal. The EBIT growth guidance also includes the initiation of Impact4 investments, including Global Technology investments and AI, investments towards the new Bowel Care opportunity in the U.S. and investments related to INTIBIA. For Kerecis, we expect a significant EBIT margin uplift rest of the year with Kerecis full year EBIT margin around double digit compared to 1% in Q1. We expect currencies to have a negative impact on the reported EBIT margin of around 50 basis points, driven by the depreciation of the U.S. dollar and the British pound against the Danish kroner and the appreciation of the Hungarian forint against the Danish kroner. In terms of phasing, we expect the organic revenue growth and EBIT growth in constant currencies to be second half weighted following a soft start here in Q1 as expected. For '25-'26, we continue to expect around DKK 50 million in special items. And we also continue to expect net financial expenses of around minus DKK 500 million based on spot rates as of February 4, down from around DKK 1 billion in '24-'25. The effective tax rate for '25-'26 is still expected to be around 22%. Net profit is expected to significantly increase year-over-year as '24-'25 was impacted by extraordinary high special items, high financial items due to negative exchange rate adjustments. And finally, the extraordinary tax expense related to the transfer of Kerecis' intellectual property. The CapEx to sales ratio is still expected at around 5% and net working capital is still expected at around 25%. Our guidance is based on the knowledge we have today and assumes immaterial impact from tariffs as we expect our products to remain exempted. Thank you very much, operator. We are now ready to take questions. Operator: [Operator Instructions] The first question comes from the line of Hassan Al-Wakeel from Barclays. Hassan Al-Wakeel: Three, please. Firstly, just on the reiterated guidance, can you talk us through the offsets you see, given the Kerecis lower growth and margin expectations for the full year and how they should be a headwind to group profitability? Secondly, can you help us unpack the further weakness you're seeing in skin substitutes. And why you expect this to persist over the course of the year? And you've obviously noted more favorable pricing versus peers. What is the level of growth you're seeing in the inpatient setting? And how do you see this over the course of the year? And if you can put all of this into context with your longer-term ambition for Kerecis, that would be helpful. And then thirdly, if you can walk us through the confidence that you have in terms of the raised Interventional Urology guide, where you see Women's Health and Men's Health growing in the first quarter and expectations for the full year. Are we past the risks from bulking agents to the Women's Health business? Anders Lonning-Skovgaard: Yes. Hassan, thanks for your questions. I will start with the first one. As I understood your question, that was the moving parts on our organic growth and EBIT growth guidance. So as I just mentioned, we are keeping our organic growth and EBITDA growth guidance in fixed currencies of around 7%. We are expecting our urology business to improve after a good first quarter, but also due to the fact that we have now the recall of the product we made last year behind us. The underlying Men's Health business continued to be strong. So that is an important assumption. Secondly, we see good growth in the rest of the year for our chronic business, and that is then offset by the adjustment in terms of the Kerecis outlook for the year. As I just mentioned, we have reduced our outlook for Kerecis to now around 10%. In terms of the EBIT growth guidance, I also just mentioned that we are expecting the rest of the year that EBIT growth will improve as a result of higher growth, but also as a result of a significant improvement in the underlying Kerecis margin we had in Q1, quite significant one-offs related to Kerecis, and we expect that to be fully behind us. So that's the other key element. So we are expecting the Kerecis underlying margin to improve to double-digit levels. So that's some of the key moving parts. Lars? Lars Rasmussen: Yes. So on the Kerecis side, this is a really strange situation to be in because we have known for such a long time now that there would be an LCD that was finally announced on the 16th of December. So I can't even imagine what kind of situation we would be in if we had not been on the short list of 18 products having this discussion. So we are very satisfied to see that we -- out of 340 products we're one of the -- two of the products that were mentioned on the list of 18 products that were covered by the LCD. And we had two products in the market. So therefore, it's everything that we had in the market that was covered by that. There was also a time or a price point on this on $127 per square centimeter. And one of the products could pass that one, and that is the MariGen product. So we have immediately also taken steps to enlarge that portfolio of products to be more competitive, even more competitive in this space in the future. We also see that there are a pretty large number of competitors that would not be able to meet the price criteria. So therefore, we actually see this movement in the, you could say, the 20% of the total sales of Kerecis that are the outpatient Medicare covered part of the portfolio. We actually see that as a positive future omen, so to speak. The other positive part about this is that more or less the rest of the portfolio we have is an inpatient. And that is an environment where clinical data, historically, have been much more important. And now we basically have Medicare's own verdict that the clinical efficacy of our products are stellar. So in that sense, we see this really as a short-term disruption. And the disruption is that the payers or the offices, the private offices that are using our products, they don't have clarity at this point in time of what is covered by Medicare and what is not. And that is -- therefore, we basically see some hesitancy from the professionals to buy the products right now. But the fact of the matter is that there are fewer products available in the market to cover the same number of wounds that we had before. So we see this as positive. And then we have question number 3? Yes. Anders Lonning-Skovgaard: Yes. Question number 3, Hassan, that was related to urology, as I remember. And I think actually, I talked a bit to it earlier. But overall, the urology business, as I said, is off to a good start in Q1. We had -- or continued to have a good Men's Health development in Q1, actually, as we had last year in the second half as well. So we expect that to continue. And then the other important factor is that now the recall of the product we had last year is now fully behind us. So we're actually seeing a good underlying development within our urology business, and that's also why we see that business to deliver high single-digit growth for this financial year. Operator: The next question comes from the line of Jesper Ingildsen from DNB Carnegie. Jesper Ingildsen: Also just I'm curious, you mentioned in the outpatient setting a decline in Q1. I was curious to hear what you have seen here at the beginning of the year after the implementation of the fixed price cap. And then maybe also if you could specify how much one-off effect you had in Kerecis' EBIT margin here in Q1, just to understand where the underlying margin would be? And then also, if you could just give us an indication of what it would take to end up in a situation where you would have to write off this asset? Anders Lonning-Skovgaard: So in terms of your questions, Jesper, thank you for that. Lars now just talked about Kerecis. We expect that the Kerecis growth for this financial year to be around the double-digit, and we are still expecting some turmoil in Q2 before it's starting to improve in the second half. But overall, for the year, we are looking at growth with the current knowledge of around double-digit. In terms of EBIT margin, as I mentioned, we have included some one-offs in the first quarter related to advisory in relation to the reimbursement changes. And we have also included one-offs related to our go-to-market model. And in total, it is around DKK 30 million. So that is fully behind us, and that's also why we now expect from this quarter and onwards, that the underlying Kerecis margin will improve, but it will not improve to the levels we had anticipated when we started the year. So right now, I'm expecting the underlying Kerecis margin to be around double digit. And the last question, can you just repeat that? Jesper Ingildsen: Just the -- I mean, clearly, the growth has deaccelerated and margins to some extent compared to what you expected from when you recently bought the assets. I'm just wondering if this doesn't improve, will be end up in a situation where you have to do a write-off of the book value of the asset? What scenario will be -- what will require to get to that? Anders Lonning-Skovgaard: Yes. So it's clearly that this year, so the third year where after we acquired Kerecis due to the turmoil that Lars described earlier, is not developing as we had anticipated. But we see this as a temporary dip. We are still focusing a lot on delivering on the case, and we also see that the case is intact long term. But short term, we have some challenges this year related to the growth and the margin. In terms of your other question, the impairment test, it's something we are evaluating on an annual basis. But again, we are looking at a business that we believe will deliver the long-term expectations that we also communicated at the Impact4 strategy back in September last year, where we said that the overall Wound Tissue Repair business would grow around double digit. Operator: The next question comes from the line of Jack Reynolds-Clark from RBC Capital Markets. Jack Reynolds-Clark: I have three also, please. The first is on Kerecis' profitability. So thinking longer term, given the new environment, have your assumptions changed around where peak profitability for Kerecis could be in terms of EBIT margin? The next question on Wound, on Dressings, so excluding the recall and obviously, the Contract Manufacturing business, growth here still looks challenged. What drove this? And was this in line with your expectations? What are your expectations for the remainder of the year? And then my last question was on INTIBIA. So now that it is submitted for PMA approval, can you share any data on clinical performance? When do you expect approval? And can you talk about your expectations for launch? Anders Lonning-Skovgaard: Yes. So thanks a lot, Jack. Your question around the Kerecis EBIT margin. Yes, as I mentioned earlier, we had anticipated that the EBIT margin would improve further this year. Originally, as I explained earlier to a level of around 20%. Now it is sitting, that's at least our expectation, around 10%, including the one-offs in the first quarter. But I'm still expecting that over the Impact4 for strategy, we will improve also the underlying EBIT margin of Kerecis to a level of around the group margin as we have said, when we acquired the Kerecis business 2.5 years ago. Lars, number two? Lars Rasmussen: On the Wound Care, well, yes, technically, it is a recall. I would say that it's maybe a kind of -- it's basically a consequence of the long-term plan for China to be self supplying inside of pharma and medical devices and we -- there are no product flaws on the product that we have taken out, but it's basically just been replaced with a Chinese product in the market. And that was, of course, unexpected when it came last year, but we can't say that we have not heard that this is a movement that you -- that happens in that country and many other industries and also other competitors have experienced the same. However, we have still a very large business in China that we are protecting to the best of our abilities, but it means that our growth have temporarily been set back. And it also means that we don't foresee that we will have growth in China, which is more than low single digit in the coming -- in the strategic period that we are in, and we still expect that, that will be the case. Anders Lonning-Skovgaard: Yes. And your final question, Jack, related to INTIBIA, it is following the plan. We have submitted it to FDA and we are still expecting that we will be able to launch next financial year, '26-'27 and we still have high expectations for this technology to support our long-term growth ambition for the Urology business to be in the high single-digit level. So that is tracking as planned. Operator: The next question comes from Oliver Metzger from ODDO BHF. Oliver Metzger: First one is also on Kerecis. So you described well also the positive dynamics. So according to your statement, the inpatient setting should be pretty fine. But if outpatient is just 20% of Kerecis and you reduce your segmental guidance for Kerecis by 10 percentage points, it means mathematically that the outpatient sales [ expect ] a very hard stop. Could you, therefore, also comment about some inpatient dynamics, whether do you see there any underlying growth deterioration? And the second question is on Ostomy Care. So you said about a pretty harsh headwind coming from China. So can you comment how Ostomy Care growth would have been excluding this China effect, please? Lars Rasmussen: So on Kerecis, the -- in a sense, the inpatient part of the sales should be completely unchanged. There is a little bit of effect on it because some of the vendors that has only participated in the outpatient setting, they are now testing their products, of course, in the inpatient setting. So that gives a little bit of turmoil there, but prices and everything else is completely unchanged on the inpatient side. And as also said, it is a very clinically driven environment and we have just gotten sort of a very strong underlying testament to the fact that our products, they really have strong clinical efficacy. So that's -- we actually see that as an opportunity. But it is a strong growth environment also in the inpatient clinic. So of course, over time, that is also covering for what is happening now on the outpatient side. The whole reform's aim and purpose was to take value out of the outpatient segment seen from a Medicare point of view, and that is definitely happening. But as I said before, we see this as a potential upside for us. So longer term, we definitely see this as a positive development. We understand the actions that the government are taking and we see ourselves even better positioned than we would have hoped for in this situation. On the Ostomy side, I don't think we give a number when we take China out. But of course, we are market leaders in China. We have a very, very high market share in the community market. So the fact that we have this part is not growing, that impacts the numbers. But we are going to see much better numbers in Ostomy in the rest of the year. We are basically just having a very low first quarter due to comparison numbers. So we see that going up. Oliver Metzger: Just a very quick follow-up. So for the inpatient setting at Kerecis, so would you describe a 20% growth momentum still as valid? Lars Rasmussen: So I don't have a comment to the exact number there, but it's definitely a very healthy double-digit growth. Operator: Next question comes from the line of Aisyah Noor from Morgan Stanley. Aisyah Noor: My first one is on the Uromedica acquisition or agreement to acquire. Can you talk a bit about the competitive KPIs of this product versus bulk of it or the standard of care and what you think this product could take share? And then my second question is on the MariGen phaseout. So what's the mix of the MariGen versus Shield product in your outpatient sales today? And why do you think those customers will shift over to your new MariGen products? And will this come with new costs embedded in the double-digit margin guide for Kerecis? Lars Rasmussen: So on Uromedica side, as I said, this is complementing our portfolio in the Men's Health. So today, in Men's Health, we have the penile implant for erectile dysfunction. And we basically have one competitor in that space, and they also address urinary incontinence in men in the same space, and that's also what we do with this device. The difference is that this is minimally invasive. And therefore, we see it as a very good way to complement our product portfolio and increase our competitiveness in this specific market segment. So those are really the benefits. We know it works. It is in the market already. It is accepted by the professionals, and now we can put effort behind it and thereby also help getting it into the market and educating much more doctors to use it. Could you take the second question, Anders? I didn't write it down. Anders Lonning-Skovgaard: So the second question was around MariGen. and Shield. So we have not really disclosed the split between these two from a revenue point of view. We have said that Shield product's price was above the cap of USD 127 per square centimeter and the MariGen is lower then the cap. And the whole work is now about to convert from the Shield to the MariGen. And that's what we have initiated, and that's the focus we are having the rest of the year, including launching new products within the MariGen portfolio. So that's really the focus we are having. Aisyah Noor: And if I could follow up with Lars on the Uromedica comment. I know you mentioned the impact on financials is immaterial but do you anticipate having to ramp up the sales force for this business? Or can your existing urology sales force sell this product? Lars Rasmussen: So it fits directly into the existing sales force that we have because it's the same call points that we're having. But of course, if we -- when we see it take off, we also are going to step up accordingly. But from the beginning, it's going to be in the hands of us and we have significantly higher sales pressure in the market than the former owner. Operator: The next question comes from the line of Veronika Dubajova from Citi. Veronika Dubajova: I apologize, but I'm going to come back to Kerecis. And I wanted to ask a couple of questions here. The first one is that, Lars, you've described the disruption at the moment is temporary. I guess I'm curious to hear what give you the confidence? In conversations we've had with physicians, many of them are simply discontinuing the use of skin substitutes and switching instead to traditional wound care dressings. So I'd love to kind of get your perspective as to why you see this issue is temporary? And why you think the market will recover? And I guess that sort of also fits into my sort of second question, which is, would your expectation be that Kerecis can be back at sort of around 20% growth rate as we move into fiscal '27? And if it's not, what implications does that have on midterm guidance? So that's my first question. And then I have a follow-up, but maybe I'll let you answer this one first. Lars Rasmussen: Yes. So I think that's a super good question, Veronika, because we are talking about the outpatient clinic here and as I said, that's -- of our total sales in Kerecis, the 20% comes from the Medicare reimbursed outpatient setting. And there's no doubt that, that has been an exceptionally fast-growing market. So if you see the market data on it, you just see that it's literally exploding within the last three years. So it makes a lot of sense that is being addressed, of course, by the payers. So for some doctors, of course, they would discontinue using it because the financial incentive to use it is simply too low compared to what they have been used to. And I don't know the price of the products that they are shifting to. So -- but you also know that these are real businesses that we are selling into. These kind of wounds, they don't go away. So there will still be lots of need for these kind of products, but it's, of course, a different price level. It is, however, a price level that we have been used to living with. That's what we have been making most of our sales on. And therefore, we see -- we don't see that the need goes away. But of course, since it's both a doctor and a business person, they will find a way to try to substitute in the most sort of -- with a good fit between what is helpful for the patient and what is a good financial outcome also for the doctor. With the prices that we are having and the efficacy of MariGen, we think that we are super well positioned. So that's the reason why we think that we're in that position. This whole change is then not affecting the biggest part of our business, which is the inpatient part that goes on as it was before. We just think that we have a better position or we have a potentially have a better position than we had before because we have Medicare's own assessment of all the clinical data they have received, and we simply have super strong clinical data that we can take to these payers and users, and that puts us in a better position. And that is such a big part of the business, and it's growing so fast that it is also covering parts of the downside that we see in the outpatient clinic on the short term on outpatient segment. But we see the outpatient segment will have a healthy growth going forward after we have sort of having this shake up. And we think that we are super well positioned for that. Veronika Dubajova: Okay. And then my second question is for Anders. It's a bit financial in nature, but just obviously looking at the year, I know you always said to us, we'd start below the full year guide, but a few especially on EBIT growth, we still have quite a ways to go to get to the full year. So I don't know Anders, if you can give us a little bit of color on how you'd expect the growth phasing, both from an organic sales perspective and from adjusted EBIT perspective to look like through the remainder of the year? Anders Lonning-Skovgaard: Yes. Thanks a lot, Veronika, for your second question. So for the rest of the year, first and foremost, we are expecting growth will improve from this quarter and onwards, driven by the factors we have been discussing. So we are expecting Ostomy/Chronic business to improve, we are expecting the Urology business to continue at the levels we have seen in Q1. And then we have been talking about Kerecis quite a few times during the call that we are expecting that business to sit around the double digit. So overall, we are expecting growth to improve versus Q1, so that's an important factor. Secondly, gross margin ballpark in -- at the levels we had anticipated for Q1. However, the FX impact is, yes, real also due to the Hungarian Forint. But I'm expecting the gross margin to develop as we have said previously. And then on the cost side, I have -- we have talked quite a bit now to the one-off costs related to Kerecis, that is behind us. We are expecting the underlying Kerecis margin to improve. We will continue to also run a prudent cost across the business. But we have also agreed to initiate the impact for investments, especially related to some of the opportunities we see in the U.S. We have this Bowel Care opportunity. We are initiating investments in technology AI. And then when we are ready, we will also initiate the investment to support the INTIBIA launch. So overall, we are expecting both the top line growth, but also the EBIT growth to improve from this quarter versus Q1 to deliver the full year of around 7% organic growth and 7% EBIT growth in constant currencies. Operator: The next question comes from the line of Julien Dormois from Jefferies. Julien Dormois: I have three, and I'm going to give you a break from Kerecis. The first one relates to Voice and Respiratory Care. You have indicated that tracheostomy was a little weaker in Q1 and you ascribe that to the phasing in distributor markets. So just curious what's your visibility on the pickup in the back half of the year. And just remind us of what is the proportion of sales in tracheostomy that are made distributor markets, that would be helpful. And the second and third question relates to the Wound and Tissue Repair. So the first one is just I would love to know what was the growth in the business overall, if you exclude Kerecis and you exclude the China recall effect, just wondering whether the underlying business was growing when you exclude those two elements. And the last one, still in Wound and Tissue Repair, you have also commented that the contract manufacturing business helped a lot in Q1. You had double-digit growth, so I just can't recall what's the proportion of sales you made in the contract manufacturing business just to get a sense of how this could impact the remainder of the year. Anders Lonning-Skovgaard: Thanks a lot, Julien. Let me start with the first one related to our Voice & Respiratory Care business. So we delivered 8% growth in the first quarter. Our laryngectomy business continued to develop really well with high single-digit growth, and we continue to see our laryngectomy business to perform well here in Europe, but also in the U.S. and across our distributor markets, also supported by the Provox Life launch that is still ongoing in a few markets as well. The tracheostomy business was a little bit more soft than we also anticipated. So it was growing mid-single digit, but it's really due to some order phasing in our emerging markets, and we expect that to improve the rest of the year. But overall, 8% growth in Q1 was okay, but we also expect the total Voice and Respiratory Care business to improve especially driven by the tracheostomy business the rest of the year. Lars Rasmussen: On the Wound and Tissue repair. So we don't break it down to that level where we take the growth when we have taken out a couple of the more programmatic areas, but actually, when we take them out, it's actually quite positive. And then the Contract Manufacturing, we -- it's double-digit growth in Q1 but we don't have a lot of visibility on it, to be honest. So therefore, we believe it to be flat for the year, but that can vary. We don't expect it to be more negative than that, but we keep it in our own books there, we keep it just neutral. Operator: The next question comes from the line of Tobias Nissen from Danske Bank. Tobias Nissen: I have a few also stating -- going back to Kerecis. If you can then talk a little bit more to the assumed time line for stabilization here in the Medicare outpatient challenge and what the really key drivers are for this? And what visibility you have at this point? And what -- like the key risks are for driving growth for Kerecis below the 10% you're guiding for, for the full year? Are we looking into like an inflection in the second half of the year or is it likely to remain heavily disrupted? And then also just on potential spillover to the inpatient segment here. How confident are you that we will not see like a downward pricing pressure over to this area, which is like still like 70% of Kerecis revenue? And then just the last one on urology, like 8% organic growth this quarter, very strong. Can you talk to how much, if any, was due to some one-off factors related, after this, you can say, post [ recall ] catch-up, and how much of this growth rate is sustainable for the rest of the year? Lars Rasmussen: Yes. I would love to have an answer to the time line on this also. We have not tried this before, to be quite honest. I don't think that the market has seen anything like this before. So what we do know is that the change -- Medicare is changing their prices. It shouldn't be hard because there is a limit to what you can get out $127 but we have asked what is the normal time line when Medicare is changing the pricing. And they have a database with all the prices in them and that's normally three months. So that's at least what we anticipate will happen and it's important that the price list is updated for people who are using Medicare or using products that are covered by Medicare. So it is within three months. That's also why we say that we expect that the effect will be the hardest in this quarter. Any sort of effect on the inpatient side, it's a very different market dynamic. It's also different products that you have inside in the inpatient setting and in the outpatient setting so we don't anticipate a lot of turmoil going in that direction from it. What the government have been addressing here is the cost -- explosive costs, so to say, in the outpatient setting, and it's not the same picture internally in the hospitals or in the inpatient setting. So we don't assume anything there. I don't know if it's a help to you, but what I can do here is I can share with you what we know. And of course, we're also guessing how long time does it take for us to be on the safe side, but we expect, in the way that we see it right now, that it is bottoming out in this current quarter. Anders Lonning-Skovgaard: Yes. The second one, that was again the urology business. So no, there was no one-offs in Q1. And again, the Men's Health business has actually been looking very solid from a growth point of view for quite a number of quarters in a row now. So I just want to remind you that last year, both Q3 but also Q4, so last year, the second half was also at a double-digit level, and we saw that again in Q1. So the underlying momentum in Men's Health is strong, and we're expecting that to continue for the rest of the year. And on top of that, we had this recall last year that we have now fully behind us. So that's why the underlying momentum within neurology, we have increased to now high single-digit versus mid-single digit when we started the year. Lars Rasmussen: And we are a couple of minutes after the hour. So that was, unfortunately, the last question, but we will have a chance to catch up in the near future. Thank you very much, everybody.
Operator: Ladies and gentlemen, we thank you for your patience. A good day, and welcome to the Tata Steel Analyst Call. Please note that this meeting is being recorded. All the attendees' audio and video has been disabled from the back end and will be enabled subsequently. I would now like to hand over the conference to Ms. Samita Shah. Thank you, and over to you, ma'am. Samita Shah: Thank you, Kinshuk. Good evening, everyone, joining us from India and the Far East, and good afternoon to those of you joining us from the West. We are starting a few minutes late, and thank you for your patience. I'm delighted to welcome you all to this call on behalf of Tata Steel, where we will discuss our results for the third quarter of FY '26. I hope you've had a chance to go through our press release as well as the presentation, which is up on our website. And to help you better understand the performance, we will walk you through some of the details and obviously take any questions you may have. We have with us today Mr. T.V. Narendran, our CEO and Managing Director; and Mr. Koushik Chatterjee, Executive Director and CFO. Before I hand it over to them, I would just like to remind you all that this call will be governed by the safe harbor clause, which is on Page 2 of the presentation. Thank you, and over to you, Naren. Thachat Narendran: Good evening, everyone. Sorry about the delay. So let me start with a few comments before I hand over to Koushik. The global operating environment remains complex with policy uncertainty and resource prioritization reshaping the interplay between geopolitics, social and market dynamics. At the same time, Chinese finished steel exports crossed 110 million tonnes for the second time in a row, which had a significant impact on the regional trade in steel as well as the global trade in steel. Steel prices diverged across the regions during the quarter and amidst this, Tata Steel has delivered a consistent performance with a consolidated EBITDA margin improving by about 300 basis points year-on-year for the 9 months ended 31st December 2025. India is a core market and the crude steel production rose about 12% quarter-on-quarter, and year-on-year, it went up to 6.34 million tonnes and -- year-on-year as well and went up to about 6.34 million tonnes. And the sales ramped up in line with the production and outpaced the domestic demand, taking quarterly deliveries past 6 million tonnes for the first time for Tata Steel in India. Along with the ongoing cost optimization, this helped offset the drop in net steel realizations on a quarter-to-quarter basis and delivered a 23% EBITDA margin during the quarter. Some of the segmental highlights are the Automotive and Special Products business delivered the best ever quarterly and 9-month volumes driven by rapid OEM approvals for the advanced steel grades from our Kalinganagar plant. The cold rolling mill and the galvanizing lines are ramping up very well. The auto downstream mix is now more than 50% at the 9-monthly sales level, reinforcing our leadership and preferred supplier position. We continue to strengthen our position in branded and in the retail segment. Our well-established retail brand, Tata Tiscon, achieved the best ever third quarter volumes, while our cold-rolled brand for MSME, Tata Steelium, grew 20% quarter-on-quarter, again, helped by the cold rolling mill in Kalinganagar. Our omnichannel model is deepening customer engagement. And with Aashiyana and DigECA, we achieved a gross merchandise value of almost INR 2,380 crores, which is 68% up year-on-year. Our commitment to product development and innovative solutions has helped secure internationally certified steel grades for oil and gas and shipbuilding. And we introduced mobile bore pile cages for the first time in India, offering a ready-to-use solution that enhances productivity and lowers project costs in challenging terrains. Our Tubes business achieved the best ever quarterly volumes on account of 0.3 million tonne capacity addition and a dominant share in the high-value infrastructure projects. We remain committed to the India growth strategy by investing in capacity, downstream facilities and sustainable steelmaking. And in relation to our recent announcements, I'm happy to share that we consolidated our stake in the Color-Coated business and completed the acquisition of the 50.01% stake in Thriveni Pellets Private Limited. Moving to U.K., our deliveries stood at 0.5 million tonnes, lower quarter-on-quarter due to the subdued demand and the U.K. steel safeguard measures due to expire in June '26. The framework needs to be revised to reflect the market conditions and narrow the policy gap with the EU. In Netherlands, the liquid steel production was broadly stable at 1.7 million tonnes with -- while deliveries were 1.4 million tonnes. Lower steel realizations were partly offset by better controllable costs and the sentiment in EU is improving, supported by the CBAM rollout and the expected safeguard revisions from June 2026. We also commissioned a new production line for packaging steel using patented Trivalent Chromium Coating Technology to enable sustainable and regulation-ready manufacturing. I will now hand over to Koushik for his comments. Koushik Chatterjee: Thank you, Naren. Good evening to all of you who's joined in. I will begin with some headline financial performance data for the 9 months ended December 31, 2025, before moving to the quarterly performance. Firstly, our consolidated EBITDA increased by 31% year-on-year from INR 19,040 crores in the 9 months ended December 2024 to INR 24,894 crores in the 9 months ended December 2025. EBITDA margin expanded by 300 basis points, as Naren mentioned, from 12% to 15% and reflects a disciplined execution in an environment marked by macro uncertainty, currency volatility and persistently high finished steel exports from China. Secondly, our performance demonstrates the impact of the cost transformation program, which has achieved INR 8,600 crores in the 9 months of savings across geographies. To put it in context, on a year-on-year basis, lower steel realization across geographies led to an adverse impact of revenue of about INR 7,400 crores, which was mostly offset by higher volumes and declining raw material-related costs. In terms of execution, the cost transformation program has achieved 93% compliance to the internal plan. The deviation is primarily on account of extended consultation with the Central Works Council in Netherlands. In November '25, we reached a formal agreement on the employee restructuring social plan, leading to the recognition of a restructuring provision of INR 737 crores in the consolidated accounts under the exceptional items. At a geographic level, India continues to be the anchor of our performance with EBITDA growing at 12% year-on-year to INR 24,431 crores. The EBITDA margin was 24% and remains close to the 10-year average. Our performance in U.K. and Netherlands has improved materially on a year-on-year basis. U.K. losses have narrowed down by EUR 135 million to a negative EUR 170 million, while negative -- while Netherlands' EBITDA nearly tripled to EUR 210 million. Combined, U.K. and Netherlands' EBITDA turned positive for the period. Overall, improved profitability and effective working capital management has enabled us to generate operating cash flows of INR 20,500 crores before CapEx and dividend and a free cash flow of INR 5,640 crores, which is significantly higher than the 9 months ended December 2025. Moving on to the third quarter performance provided on Slide 24 of the presentation. Our consolidated revenues stood at INR 57,000 crores and EBITDA at INR 8,309 crores, translating to a margin of 15%. While steel realizations declined in India and Netherlands, they were more than offset by the benefits of our cost transformation program. Expanding on the cost transformation program, as a company, we have delivered an improvement of more than INR 3,000 crores during the quarter. India delivered cost transformation benefits of around INR 890 crores. Key cost efficiencies were driven by purchase optimization of spares, reduced refractory consumption, increased use of coastal waterways, which offer a structural cost advantage over the other modes of transport and higher power wheeling and leaner coal mix. U.K. outperformed their cost plan by achieving a benefit of INR 570 crores, driven by calibrated maintenance cost, stronger spares management discipline, in-sourcing of product testing and improved efficiency in natural gas and electricity consumption. Netherlands delivered a quarterly benefits of around INR 1,600 crores, optimization of coal blend leading to decline in procurement cost and deployed value news concept to improve operating efficiencies such as fuel rate, scrap consumption, et cetera. Let me now provide a deeper understanding of India, U.K. and Netherlands' quarterly performance. Tata Steel stand-alone revenues for the quarter stood at INR 35,578 crores and EBITDA of INR 7,940 crores. Excluding the FX impact, the adjusted EBITDA stood at INR 7,900 crores and was marginally lower on an absolute basis versus the quarter 2 of this financial year. As Naren mentioned, our volumes crossed 6 million tonnes for the first time in a quarter, and this, coupled with the improvement in cost has helped partly offset the drop in the steel realization on a quarter-on-quarter basis. Separately, depreciation and amortization has increased by 6% quarter-on-quarter to INR 1,826 crores upon capitalization of downstream facilities; example, the CRM complex in Kalinganagar and the Combi-Mill in Jamshedpur. Our wholly owned subsidiary, Neelachal Ispat Nigam Limited, recorded a INR 350 crore EBITDA for the quarter, up 35% quarter-on-quarter and reflecting an EBITDA margin of 22%. Moving to U.K. The local steelmakers are having to contend with weak demand, volatile input costs and cheap imports. Steel prices continue to hover around GBP 500 to GBP 510 per tonne and have been in contraction for the last 2 years. Steel prices continue -- existing steel safeguard measures are set to expire in June 2026 and revised safeguard framework is yet to be formally announced. In this context, our EBITDA loss has remained broadly stable at about GBP 63 million on a quarter-on-quarter basis. Conversion costs per tonne were largely maintained, demonstrating cost discipline despite the adverse impact of lower volumes on operating leverage. Separately, work is progressing on the 3 million tonne scrap-based electric arc furnace. Major demolition work has been completed and securing access to high-power electricity is critical for our planned transition. We are working with the electricity system operator and National Grid for the new electrical infrastructure, which remains critical for the project commissioning. In Netherlands, the third quarter EBITDA stood at about EUR 55 million, which translates to about EUR 39 per tonne. Impact of lower volumes and realizations were partly offset by the improvement in the costs to the tune of about EUR 21 per tonne on a quarter-on-quarter basis. TSN performance for the quarter reflects the partial impact of the U.S. tariffs. The U.S. business of Tata Steel Nederland was a high revenue and high-margin business catering to automotive packaging, et cetera. The levy of tariff to the tune of 50% weighed on the performance. Overall, we generated more than INR 10,300 crores of operating cash flow before CapEx, aided by profitability and tight working capital management. Of the cash flows, we spend on capital expenditure of about INR 3,290 crores with majority focused in India. Free cash flows for the quarter was about INR 7,054 crores and significantly higher than the second quarter. As a result, the net debt at INR 81,834 crores was lower by about INR 5,200 crores versus the end of previous quarter in September and lower by about INR 3,900 crores versus December 2024. Our net debt-to-EBITDA stands at about 2.6, well within the stated range of around 3x for the cycle. Managing regulatory complexities has now become a strategic imperative across geographies. Let me put this in context on Tata Steel Nederland. In the 9 months ended December 26, TSN generated an EBITDA of around EUR 210 million after considering the emission rights related cost of about EUR 150 million and adverse impact of the tariff from the U.S. at about EUR 50 million. Excluding these costs, the TSN EBITDA works out to be more than EUR 400 million or around EUR 93 per tonne. This illustrates the cost of burden currently borne by the EU steel producers. On January 1, 2026, the CBAM entered its definitive phase with carbon costs being embedded into imports and structurally improving the competitive landscape for the EU producers. The CBAM's definitive phase requires importers to verify embedded emission intensity. Verification is expected to take time and importers who fail to verify will face carbon costs calculated using the default values by the country of origin. Separately, EU intends to revise its safeguard measures from June 2026 by reducing the product quotas and raising the duty for imports beyond the quotas from 25% to 50%. The effectiveness and timing of the CBAM effect and the trade-related quotas will determine how quickly the imports retreat from the EU market and the utilization of the local steel industry increases, which will have positive implication on the price regime. Before I close, I would like to reiterate our commitment to create a sustainable long-term value. India remains our core growth market, and we are scaling upstream as well as downstream capacity. In December 2025, we had outlined our India plans, including the strategic partnerships with an eye on the raw material security and growing markets in Western and Southern India. At the same time, we are progressing with the transition of the U.K. and Netherlands operations to a more sustainable operating models. Our capital allocation will be prioritized, optimized and sequenced across geographies to ensure consistent returns over time. With that, I'll end my presentation and open the floors for questions. Thank you so much. Operator: [Operator Instructions] The first question for today is from Vibhav Zutshi of JPMorgan. Vibhav Zutshi: First question is on Europe. Now some of the European players have come out with very strong commentary on pricing. ArcelorMittal has actually raised April delivery prices to EUR 700 per tonne, which is another EUR 60 higher than spot. Just want to understand how sticky and sustainable could these be? Because it looks like demand is still weak, but like you mentioned, expectations are around higher utilization levels as imports start to come down? Thachat Narendran: Yes. I think when you look at what's happening in Europe, while the demand has been quite stable around 130 million tonnes for the last few years, imports have gone up to about 30 million tonnes. And as Koushik mentioned, the quotas that have been announced are going to halve those imports to about 15 million tonnes. So that's going to happen by June. And in addition to that, you have the CBAM, which has already started, and the CBAM has an impact on the import prices as well. So if you're selling into Europe, even in this quarter, you'll have to factor in the CBAM prices and the impact of CBAM on the prices. And then on top of that, you're going to have a reduction in imports. And that's what is getting reflected in steel prices going up in Europe in the continent. So we -- over the last 2, 3 years, we have seen the European prices move more towards the Asian prices, but -- and increasing the gap with the U.S. prices. But because of these actions, we expect that prices in Europe will move away from Asian prices and move towards the U.S. prices. It may not reach the levels of U.S. prices, but certainly we will move closer to that. Vibhav Zutshi: Okay. That's helpful. Second question is on India. Firstly, congratulations on the improving leverage ratios. Just want to understand now the broad time line for all the capacity expansion, NINL, this 2.5 MTPA Meramandali and any indication that you can provide for the Maharashtra greenfield? And also how to think about debt as CapEx would likely accelerate from now on? Thachat Narendran: Koushik? Koushik Chatterjee: Yes. So I think in December, when we said that we had the in-principle approval of the consideration of the Board for the NINL expansion. We are working on it. We are maybe weeks away from getting the environment clearance. And once we get that, our basic engineering ordering is in progress. So I guess it will take about 40 months -- 35 to 40 months when we get into that execution level. I think it is also important to mention that we will get to the FID in the next couple of months. So that will stitch in as far as this expansion is concerned. Maharashtra is slightly longer term because it is at the enabling level, and we will have to get into the project and the DPRs, et cetera. So that's slightly longer, but that is -- parallel work is happening in terms of the planning and conceptualizing it. And as far as the Meramandali expansion is concerned, we have to get the EC clearance. So the first one is the NINL. The second one is the Meramandali and the third will be the Maharashtra or Kalinganagar expansion, whichever we are ready with. So that's the frame -- time frame or rather the sequence. The time frame will depend over the next 3 years or 5 years. The second point -- part of the question that you asked about debt, I think we've said that, that broadly, we would like to be up to about 3x net debt to EBITDA. And that actually, it is -- sometimes when you have cyclical issues, we move to 3.2. When in better times or when we are able to generate more cash flows, it comes down as you see, now it's 2.6. So that's the kind of range. We will not bust that range because we have a strong pipeline of CapEx, which are productive. There is a program for also the downstream projects, as we mentioned last time, the HRPGL has got approved, Tinplate is underway. Bluescope, we have completed now. And we have more downstream in the long products segment, including on wires, which are being worked on. So it is in that range of the balance sheet that we will work in the mid-cycle. Cycle becomes much better, then we will recalibrate. But effectively, the pace of growth will also be calibrated to that extent. I hope it clarifies. Thachat Narendran: Yes. And to add to what Koushik said, we also have the Ludhiana plant coming up in the next couple of months. Operator: The next question is from Sumangal Nevatia of Kotak Securities. Sumangal, we are unable to hear you. We request you to please send in your question via chat or rejoin the queue. We will now move to our next question. The next question is from Satyadeep Jain of AMBIT Capital. Satyadeep Jain: First question on Europe. What is the status now on U.K., the safeguard, what discussions are you having with government? Is there any progress there? And secondly, on that front in Europe, given CBAM and the emissions have not been verified for a lot of importers, what is the trend in imports? Have they significantly reduced in Europe given the uncertainty on verified emissions so far? Koushik Chatterjee: So -- shall I go ahead? Thachat Narendran: Yes, yes. Go ahead, Koushik. Koushik Chatterjee: So as far as U.K. is concerned, as I've said in the narrative and in the previous narrative also that we are deeply engaged at all levels to get the safeguard and quotas out. We are hopeful that it will happen soon. We know it is progressing, and we are encouraged by that. But unless it happens, it has not happened. So I think we are looking forward for that safeguard because it is in the interest of the U.K. domestic steel industry all around, not just us, to ensure that we have the recalibration of the quotas and the safeguards. It is also important for U.K. to do that in the context of the fact that EU has come out with the quotas and with their steel action plan. And therefore, there is a need to harmonize it. So that is work in progress. As far as the CBAM is concerned, I think it's very early days just now because there was some amount of stocking that happened pre-December. But we will have to get -- that's why I mentioned that the effectiveness of the CBAM, we will have to see as to how the imports reduce because the default rates are high at this point of time. So the first year default rates are significantly high. For example, in case of China, it's about 3.1. In case of India, it's about plus 4.2, 4.7. So I think we just need -- we need to see as to how it works. As Naren mentioned that irrespective of the demand condition, there will be an uptick in prices because arithmetically, it has to work in that manner. And then comes the steel action plan. So there are 2 very fundamental regulatory triggers in EU, which will push up the prices. And as Naren mentioned, it will have an effect of pushing it towards the U.S. prices, may not be exactly the same, but it will also develop. And the -- if you look at the markup in the CBAM, it is 10% markup in 2026. It's 20% markup on 2027. So till the verification happens, the markup keeps increasing. So technically, the prices will -- should increase. The marginal cost, so fundamentally, what's going to happen post the steel action plan comes in, in June, July is that the marginal cost of the new supplies, either beyond quota or within the EU, which are the capacities which are shut down, which will come at a marginally higher cost, which will also have a cost push element on the prices. So we are certainly expecting that the price buoyancy to remain in the EU for a longer period of time. Satyadeep Jain: Secondly, on India, I just wanted to seek your comments on the budget proposal for National Waterways 5 in Odisha linking Kalinganagar to Paradeep. What is -- I know these projects can be -- can take long. What's your expectation there in terms of time line and impact on cost? And does it -- if it comes through, does it make you rethink your decision to look at Maharashtra or -- because many players are also actively considering staying on East Coast, including ArcelorMittal also has announced a plan on greenfield plant on the East Coast. If that comes through, would that change your decision anyway or... Thachat Narendran: So if I can comment on that. Firstly, Maharashtra is in addition to our plans for the East Coast. It's not in place of any plans because if you look at our own plants on the East Coast, between the Kalinganagar complex that we have in Neelachal, which is across the road, we have the opportunity to build about 25 million tonnes of steel capacity there, which is today at 9 million, 8 million in Kalinganagar and 1 million in Neelachal, right? So that opportunity exists. And this water way that they're talking about will help that site. Then you have the Bhushan plant in Meramandali, which can go up to 10 million. So in Odisha, we have the opportunity to go up to 35 million as against the current 14 million, right? So that stands. Maharashtra is in addition to that. Maharashtra gives us optionality on the iron ore in Maharashtra. Maharashtra gives us optionality to service markets, Western markets and Southern markets. Waterways, India is one of those countries where waterways account for a very, very small percentage, almost negligible percentage of logistics. Whereas if you look at most other geographies, whether it's the U.S., whether it's Europe, whether it's China, a lot of material, including steel, a lot of steel moves on the waterways. And I think the government's ambition is to create a network of waterways, and we are glad that they picked this waterway, which is close to our Kalinganagar site because we think it will help us in bringing down the logistics cost, which, as you know, in India is still higher than what it is in other countries. And one of the reasons is the mix because in India, there's a higher mix of road compared to other geographies. There's a lower mix of waterways compared to other geographies. And having more waterways is certainly going to help the logistics cost. But I think we don't have a time line yet. I guess it will take some time because it means creating the infrastructure. It also means dredging, so to make it an all-season kind of waterway. You also need to have handling facilities, barges. So there's a lot that needs to be done, but we are happy that it's on the radar of the government. Operator: The next question is from Pinakin Parekh of HSBC. Pinakin Parekh: Sir, my first question is on U.K. The losses in the U.K. operations are relentless, and there does not seem to be any policy support coming through. So how should we look at U.K. over the next few quarters? There's a safeguard in India, there's CBAM in Europe, but there's nothing in U.K.? Thachat Narendran: So yes, it's like this. In U.K., a lot of actions have been taken by the team. We have ourselves reduced our fixed cost by more than GBP 400 million in the last 2 years, almost GBP 500 million. So I think in terms of cost takeout, all that could be taken out has largely been taken out. As Koushik explained, it is a problem because of the fact that the quotas in U.K. are higher than the demand in U.K., and that's what the government is expected to revise and more so because of the actions taken in the EU. So we've been promised that these revisions will happen soon. You must also realize that the U.K. government itself is invested in the steel industry because of the steel plants that they've taken over. So when the steel industry is losing money, it directly hurts the U.K. government as well. So we are hopeful that some actions will be taken in the market because obviously, with these levels of quotas and these prices, it's obviously not looking good from an EBITDA point of view. What has happened because of the actions we've taken, as Koushik said, the EBITDA losses have halved. It is still there. And we expect it to keep improving because of the actions we are taking. But it will not become positive till there is some action from the U.K. government on the imports or the steel prices go up in U.K. So I think we are more expecting that some actions will be taken in the next few weeks by the U.K. government. And once it happens, hopefully, we are on track to make sure that U.K. is on positive EBITDA territory. But yes, it is a challenge. But given the actions being taken in the U.S., in Europe, in India and elsewhere, we expect the U.K. government also to be taking this action. So Koushik, do you want to add to that? Koushik Chatterjee: No, I think that's perfectly fine. I just wanted to tell Pinakin that we also have some actions being planned up. But I think fundamentally, because we will also looking at building a new plant, and therefore, we don't want to do anything which will affect the long term. And therefore, we are also looking to ensure that the assets run at the most optimal ability and the conversion cost continues to be in a manner where we can be competitive post the build of the EAF. So I think just now, we are looking for more external policy support as an industry. Pinakin Parekh: So just continuing on that, Tata Steel has -- so it is doing everything it can, but it is facing the twin problems of making an investment while having EBITDA losses. On the policy perspective, you would expect support from the government on the existing steel environment, and I assume there would be policies related to the CapEx. So would the company at some point of time, wait for the policy to fructify before stepping up on the CapEx? Or will the CapEx continue irrespective of whether there is any immediate support from the government? Koushik Chatterjee: So if I may just try to articulate. See, the -- once the EAF is built, our cost structure will be different. So when our blast furnaces were running, our cost structures were high. We transited to plan for the EAF because the cost structure would be lower than what we were running at. We are at an intermediate phase where we are buying the substrate and then kind of working on the conversion cost. So the point is if we were to not progress with the EAF, we are going to delay that transition into a more profitable unit. So I think there is no upside in delaying the investment. There is -- on the other hand, if all factors are aligned -- and here also, we depend on the National Grid for the electricity connection and also our own internal projects for getting it done. But if the quicker we can convert it to that stable state, at least we will be in a better cost position, better working capital position, not cutting slabs and rolls from all over the world. So we have done that analysis and scenarios, and it makes sense to continue to do the project, take the money which the government has given. It is a participant. And based on that, that's the basis on which we continue to execute the project at this point of time. And in the longer term, we hope that the government for its own requirements, as Naren mentioned, is also a big participant now, a direct owner or a controlling entity of the rest of the steel industry in the U.K., is also very mindful of the fact that this bleed needs to stop, not just for us, but also for them. And it's -- I hope it is in a matter of weeks now. Pinakin Parekh: Got it. And just lastly, with the safeguard duty in place in India, the price hikes that we have seen in India in the spot steel market between December and 1st of Feb, is it fair to say that the December quarter EBITDA per tonne was probably the low till the safeguard duty is in place? Thachat Narendran: Yes. I think December quarter prices, particularly the first part of the quarter was probably the lowest in the last 5 years for flat products and pretty low for long products as well. So in some sense, that was the bottom as far as the prices are concerned. So yes, we expect better numbers this quarter. But we should keep in mind that coking coal prices are also going up. So we are conscious of that. But steel prices are certainly coming back to the levels where it should be because it used to be at a discount to import landed. Now it is caught up with import landed and maybe slightly better. Operator: The next question is from Prateek Singh of IIFL Capital. Prateek Singh: So the question is regarding a bit more strategic regarding the fixed cost takeouts in India and the medium-term human resources plan. So how are we preparing for the mines expiry, if any, in 2030? Any plans to move to an MDO model for mining in the medium term to smoothen the employee transition? I understand we mine much more than our peers, and there is always an element of contractual costs as well. But I think our stand-alone employee costs would be higher than that of our largest peers in the operations and that of the largest listed iron ore miner in India combined. So is there any way to get a sense as to what percentage of India employee cost is on mining? And how are we planning to do this transition over the next 4 years? Thachat Narendran: Yes. So I'll maybe give it a shot and then Koushik can supplement, right? So firstly, I'm not sure if our mining costs are much higher than others, et cetera, because we run a very, very efficient mining operation, both for coal and iron ore. If you look at Tata Steel's legacy cost, a lot of the legacy costs are in Jamshedpur, right? So if you look at the cost structure, the demographic profile of our employees in Kalinganagar and other sites, it's much better. So we don't have those legacy costs. As Tata Steel grows more and more in Kalinganagar, Meramandali, et cetera, the impact of the legacy cost in Jamshedpur keeps coming down. And plus we are addressing the legacy cost in Jamshedpur. So -- because of these actions, the cost disadvantage we may have in some sites vis-a-vis peers will keep reducing. So -- and we will be doing this, obviously, in an accelerated way until 2030. That is one part. The second part is because of the fact that all our sites are within 200 kilometers of each other, we have some advantages of scale because if we are moving to 40 million tonnes, 45 million tonnes, all of that is going to be producing about 200 kilometers from each other. And that gives us a lot of advantages on scale economies, et cetera, which will also help us negate some of the impact of post 2030. Thirdly, as we mentioned earlier, our move into Maharashtra, move into recycle-based steel in North and West, et cetera, are also actions that we are taking to mitigate the impact. And fourthly, the move into downstream basically looks at how do we improve the mix, how do we get better realizations, so on and so forth beyond all the cost takeouts that we are planning. So all these are expected to mitigate the impact of any cost increases that we will face in 2030. So this is broadly the plan, and Koushik, you can add to that. Koushik Chatterjee: Yes. I'll just add 2 points, Prateek. One is the fact that we are not going to exit captive mining. We have mining reserves, which are opening up. And therefore, the mining as an activity will continue for Tata Steel. MDO as an option will always remain, and we will be looking at certain opportunities if the MDO remains. We have also now the BRPL, which will be in that space also if required. So I think the transition planning for 2030 has already started. We are looking at various alternatives. As Naren mentioned, even Maharashtra is an important alternative. So the manpower cost is not so much of an issue. We also do a lot of contract workers in there. So it is not that we are very heavy. But in the sense -- because from a cost point of view and cost of ex-mines iron ore for us at this point of time is possibly one of the lowest. I think it is not at all high compared to the rest of the industry. And with more mines opening up, be it Kalamang, Koira, [ Gangulpara ], et cetera, we will be redeploying people and reworking on how we can ensure that the transition costs are minimized. Prateek Singh: Understood. So I understand that there would be no way to get a very ballpark sense as to what percentage of entire employee cost is on specifically mining operations? Koushik Chatterjee: I don't have offhand. Maybe we can do that later. Prateek Singh: And the second question is largely on Europe. As an earlier participant mentioned earlier as well that prices have risen quite a bit, $750 per tonne from $650-odd a few months back. So I wanted to understand the nature of our contracts? With what kind of lag do we see these prices coming up to our P&L? Koushik Chatterjee: So contracts are about 35%, largely in packaging, which is not in the -- packaging is one area where there are 1-year contracts, 6 months contracts. Automotive is the other. Automotive has its own cycle. I think 2026 calendar will, at different points in time, see -- that's the point I mentioned that the benefits of the EU domestic prices will depend on the effectiveness of the CBAM as well as the quotas, both together. So I think the full impact of that will come gradually and not in one jump. And I think the estimation is that it will -- there is an opportunity for almost about EUR 100 per tonne increase in prices over the full year. So we just need to watch the space and see. All said and done, if there is a euro on the table, our colleagues in Netherlands will certainly work to ensure that we get it. But it will happen in -- at least in 2 stages. One is CBAM now. And secondly is when the tariff comes in post June 2026. Operator: The next question is from Vikash Singh of ICICI Securities. Vikash Singh: Sir, my first question pertains to Netherlands. How much of the carbon credits we have as a percentage of overall requirement right now? And since in the last call, you said that your emission levels are already closer to 1.6. Does that mean that whatever carbon credits we have, these are surplus because -- or we still have to pay some additional or buy some additional carbon credits? Koushik Chatterjee: So the reference point -- I'm using the CBAM part. So the reference point for CBAM for EU domestic producers is 1.37. So if it is 1.37 and we are producing about 1.66 or 1.68, there is a gap, and there is a free allowance that comes in. So the net of that, we have to buy. So I think we need to -- we still will be buying and we will continue to buy until we do the transition because the reduction in free allowance is going to happen from this year to 2032 or '34. Vikash Singh: Noted, sir. And sir, second question regarding your outlook on the price increase on the 4Q, if you could give us that? Thachat Narendran: Price in India or Europe or? Vikash Singh: All -- both geography, India, Netherlands, price and the cost, especially the coking coal cost changes. Thachat Narendran: So I think the guidance we're giving is in India, the prices quarter-on-quarter will be about INR 2,300 higher. On a spot basis, of course, hot-rolled to hot-roll will be much higher. But I think when you look at the mix and you look at some of the contracts, et cetera, that we have, we see an improvement of about INR 2,300 per tonne. In U.K., it's going to be maybe about GBP 5 higher or so. In Netherlands, while again, on a spot basis, it is going to be higher on a hot-rolled coil, but because of the mix issues that Koushik referred to, because of the fact that the packaging contracts are getting renegotiated, et cetera, we're seeing a quarter-on-quarter reduction of about EUR 30, EUR 33 per tonne Q1 to -- I mean, Q4 to Q3. But having said that, we expect Netherlands to more than offset this reduction in realizations because of cost takeout. So we expect an EBITDA expansion in Netherlands, slight improvement in EBITDA in U.K. also because of the fact that we expect Netherlands to be selling almost 400,000 tonnes more in Q4 compared to Q3. And India will also see an EBITDA expansion because the coking coal cost impact is going to be about $15, but the benefits that we have from the prices, et cetera, and also the volume will be slightly higher. The mix is going to be better in India as well. So overall, we expect EBITDAs to be better in Q4 compared to Q3. Volumes to be almost 0.5 million tonnes better in Q4 compared to Q3. Operator: The next question is from Pallav Agarwal of Antique. Pallav Agarwal: So I just want to check with CBAM coming in, some of the exports that are going to Europe [Technical Difficulty] into India and pressurize domestic prices? Thachat Narendran: Exports from where? From India to Europe? Pallav Agarwal: From India to Europe. Thachat Narendran: You mean as an industry? Because Tata Steel doesn't sell much into Europe. We send slabs to U.K. for our plant. But otherwise, we are not a big exporter of steel to Europe. Maybe some of our peers are, but I don't think that volume will be so significant as to make an impact in the domestic market in India because the demand is pretty strong in India. So last couple of quarters, there was a little bit more ramp-up of capacities because our capacity ramped up and a few others. But now there's better balance in the domestic market. And so I don't expect that to have an impact on prices in India. Pallav Agarwal: Sure, sir. And any volume guidance for the next year for FY '27? Thachat Narendran: That we'll give you at when we -- because we are in the process of finalizing our plan, so we'll give you that guidance in the next analyst call. Pallav Agarwal: Lastly, are there any premium products in the U.K. or Europe that can actually come into India despite the safeguard duty? Is there any opportunities in the Indian market for that? Thachat Narendran: No, I think the competitiveness will not be there from -- if you look at the costs in Europe and the prices in Europe, it doesn't make sense to ship from there to India. But what we are certainly doing is working very closely together in many areas because there are many applications that we have in Europe, particularly in the construction industry, which we are bringing back to India from the experience that we have. There are, of course, some special products which come from U.K. For instance, IKEA, when they build their warehouses, the roofing sheets actually come from one of our U.K. plants. So there are these kind of specialized requirements, but not very significant volume. Operator: The next question is from Aditya Welekar of Axis Securities. Aditya, we are unable to hear you. We request you to please send in your question via chat or rejoin the queue. We will now move to the next question. The next question is from Ashish Kejriwal of Nuvama. Ashish Kejriwal: Two questions, one in Europe and second in India. India, is it possible to share how much price drop we have seen in Q3 versus Q2 and as well as how much coking coal cost reduction we have witnessed in Q3? Thachat Narendran: So for India, the price drop was about INR 2,100 Q3 compared to Q2. We had guided INR 1,500, but the market was softer, particularly in October, November. Prices started going up only towards the middle of December. In terms of coking coal, I think consumption cost was up by $4 for India compared to -- Q3 compared to Q2. Ashish Kejriwal: And secondly, is it possible to share U.K. conversion cost? Because what we understand is that U.K., even if government gives support and steel prices increases, obviously, our slab prices will also increase. So -- and the cost takeouts, which we have already taken and most of the efficiencies we have already taken place in terms of cost reduction. So what kind of government measures we are trying to look at to make EBITDA positive in U.K. And secondly, in Europe also, while you are guiding a reduction in prices because most of our contracts starts from Jan, and we have witnessed price -- spot price increases. So even if the entire price increase will take into account for the entire year, but how we are going to see the reduction in prices in Netherlands in fourth quarter? And at the same time, when you are saying that cost reduction will help in offsetting all the price decline and EBITDA will expand, this is on account of only cost reduction or when prices increase, can we expect higher EBITDA? Thachat Narendran: So I'll let address it -- Koushik address the U.K. question. So in Netherlands, what's happening is it's a little bit more of a mix issue than a price issue. The price at the hot rolled coil level is going up. I think -- because firstly, we don't do so much on spot basis. So -- but it's going up by about EUR 20, EUR 25, Q4 to Q3. Where we are getting hit a bit is the packaging -- 2 things are happening on packaging contracts. Firstly, there's a renegotiation of packaging contracts because of new contracts. And then there is a price drop, right? The second thing which is happening is a lot of volumes of packaging used to go to the U.S., which is now -- the volumes are being cut to the U.S. So that volume, which does not have so much of a market in Europe is being sold in, let's say, engineering grades and other grades. So from a mix point of view, there is a dilution. So this 33% is more a mix dilution impact than a price drop impact. So it's more a mix impact. But there are -- like I said, the cost takeouts are going to be more than this, and hence, we expect the EBITDAs to get better. But going forward -- as Koushik said, going forward, we expect this momentum on prices to keep getting better going forward in Europe, and that's why we are more bullish about the prices in Europe for this calendar year. So that's where I want to comment on Europe. Koushik, do you want to comment on U.K.? Koushik Chatterjee: Yes. So I think very broadly, if you look at the price drops that has happened over subsequent quarters or years actually in U.K., U.K. average price at a point in time used to be well over GBP 900. So we -- I think it's a question of looking at this -- and U.K., we now at this point of time, have multiple downstream products. So there is Tinplate, there is Color-Coated, there is Automotive, Tubes, et cetera. So what we are looking at essentially is if the quotas are in place and the tariffs are in place, then the spread will increase. And I think that spread increase of, say, GBP 75 to GBP 80 would be good enough for us to look at increase in the profitability to make it neutral. Ideally, if the right quota is in place in a similar manner in EU, the price increases should recover to somewhere around GBP 100 per tonne plus, and that will help in the profitability significantly. Ashish Kejriwal: So sir, you mean to say that at a spread of around GBP 100 per tonne, we will be breakeven? Koushik Chatterjee: Delta, from where we are today. Ashish Kejriwal: At what spread we will be breakeven at U.K. level? Koushik Chatterjee: So I'm saying today, wherever the spread is, that spread has to expand by about GBP 100 per tonne to make it a profitable entity. Operator: The next question is from Indrajit Agarwal of CLSA. Indrajit Agarwal: I have 2 questions. First, when are the next auto contracts renewal due in India? And what kind of price increase can we look over there? Thachat Narendran: I can't give you a guidance on the price increase, but certainly, prices will be higher. We expect it to be higher to reflect what's happening in the spot markets. Contracts are due for renewal in April. I think the next set of new prices will be effective April. So we are not seeing the benefit of auto prices this quarter. Whatever we see this quarter is a benefit of the spot orders. Indrajit Agarwal: And these are now quarterly pricing contracts, right? Thachat Narendran: Largely, yes. Auto is now largely quarterly contracts. Sometimes you may negotiate 2 quarters in one shot, but it's typically a quarterly contract in India. Indrajit Agarwal: Sure. That's helpful. My second question is on spot basis, what are the spot prices -- steel prices and coking coal cost versus the 3Q realization that we had? Thachat Narendran: In India, you're asking? Indrajit Agarwal: Yes, both in India. Thachat Narendran: Coking coal, like I said, on a consumption basis will be about $15 per tonne higher Q4 compared to Q3. And like I said, on a mix basis, $2,200. But if I were to look at the hot-rolled coil, I think it will be about INR 3,500 higher. Indrajit Agarwal: No, I want to check that you will have some inventory and some inventory in transit for coking coal as well, right? So let's say, if I were to look at 1Q, would there be a further, let's say, $10, $15 increase, 1Q '27? Koushik Chatterjee: Indrajit, it is -- what he's saying is on consumption basis. Thachat Narendran: Consumption. What I'm saying is on consumption. Koushik Chatterjee: That takes the stock into account. Thachat Narendran: Yes. So -- if I look at purchase, purchase is actually $22 higher, Q4 compared to Q3, but the consumption is $15 because of what you said. You have materials in transit and things like that. So if you're looking at, some of this will flow through into the next quarter. Operator: The next question is from Sumangal Nevatia of Kotak Securities. Sumangal Nevatia: So first question is on the volume growth headwind -- headroom, sorry. So I just want to understand, given our rated capacities, what is the potential volume we can achieve in the next 2, 3 years without the NINL? And I believe Koushik mentioned NINL would take around 40-odd months. So am I right in expecting commissioning of that not before FY '30? Koushik Chatterjee: FY '29. Thachat Narendran: Yes. Sumangal, what you need to look at -- if you look at next year volumes, while we give the specific guidance when we do the next analyst call, next year, we will not have any major blast furnace relines. This year, we've lost a significant volume because we had a blast furnace relining scheduled in Jamshedpur. So we won't have that. So that will be a positive for next year. Second thing is we'll have the Ludhiana plant starting up maybe by the middle of March, okay? So that's also a plus that we will have. Thirdly, which is not in the absolute volume, in terms of mix, you will see significant improvement because of the cold rolling mill, the galvanizing lines, the Combi-Mill in Jamshedpur, all this is ramping up in the second half of the year. So next year, you'll see the full year of the benefits of all this. So these are the areas where we see some benefits for next year at least as far as India is concerned. But we'll give you more specific guidance when we do the next analyst call. Sumangal Nevatia: Understood. But I mean, mathematically, 2 million to 3 million tonnes is the headroom before the next expansion kicks in. Is that right? And I mean, I'm just comparing with a few peers who are much more aggressive in expansion. So is a market share loss over the next few years, is it a point of worry or consideration for us in evaluating all the expansion plans? Thachat Narendran: So there are a couple of comments that I want to make. Firstly, the way we approach an expansion plan has now changed. We first get all the environment clearances and everything else before we get the FID done because we find that, that gives us more definitive time lines. And hence, let's say, in Neelachal also, as Koushik said, once the EC comes, we could have said last year itself that we are expanding, but then there's no EC, so there's nothing you can do till then, right? So we will -- so that's one thing that's a change that we think. Second thing is, as we said earlier, there is a lot of focus on increasing our downstream capacity and our product mix. And generally, in Tata Steel, we always look at, "Can our market share in attractive segments be twice the market share in our overall market share?" So if we are a 15%, 20% market share player in attractive segments, we should be at least 40% or more, right? So that's what we chase because that gives us a better realization, better product mix, less vulnerability to cycles. So that's why, let's say, whether it's auto, whether it's oil and gas, whether it's a retail business, or now more and more downstream, which is -- so our downstream mix, for instance, now we are moving towards 1 million tonnes or more than 1 million tonnes of tubes. We are -- we've just approved some expansion in wires. We are about 700,000, 800,000 tons of wires and that too very high-end wires. So I think these are the areas we will focus on. We will be looking at market share, but we will more looking at market share in the right segments, the attractive segments, more quality conscious and less -- segments less vulnerable to cyclicality. So -- but yes, we have the runway to grow, and we will continue to grow. Sumangal Nevatia: Understand. That's very helpful. One question on -- I mean, there's a lot of news flows with respect to thyssen and a few of -- one of Indian peer evaluating it. Just want to know your view on how do you see industry structure changing there? Any consolidation anywhere we are looking to participate in any form and how does it change the market? Thachat Narendran: No, I think in Europe, we are focused on transformation, transforming our facilities, as Koushik just explained some time back. In U.K., the transformation -- I mean already, there are a lot of cost takeouts and the transformation will put us in a better cost position. In Netherlands, it's more about driving more cost efficiencies. And again, the impact is already visible, but we need to do some more of it and then do the transition. So we are focused on these 2 sites and making sure that they are on the right place in the European cost curve. But the second point is, I do believe that in Europe, there will be supply side restructuring simply because anyone whose blast furnace is up for relining will think hard before relining a blast furnace, right? I mean, probably they will not reline a blast furnace and not everyone who has a blast furnace up for relining will have the ability to invest in new facilities, right? So that depends on your balance sheet. That depends on the support you get from the government, et cetera. So I do see some sort of supply side restructuring. There will be bigger players who have the ability to invest in the transformation. There will be some who will not have the ability to invest in the transformation. And so when their blast furnaces come up for relining, you will see some restructuring on the supply side, which helps the overall market dynamics in Europe. So that's why given CBAM, given quotas, given the supply side actions that happen in Europe, we do see Europe looking more attractive in the next few years than it was in the past few years. Operator: The next question is from Rajesh Mazumdar of 360 ONE Capital. Unknown Analyst: Sorry to harp on the Netherlands a little bit more, but I just had a question that are we to assume that the price increases we are seeing there are going to be a pass-through? Or are there any costs that we should be cognizant of in terms of the environment, something that is there more in the CBAM or what we already -- from what we're already paying or any other change in the cost from what it is there right now? I know that you have contracts at all. But ultimately, the price increase should pass through in terms of the bottom line? Or should there be any other cost that we should be aware of? Thachat Narendran: It should, but I'll let Koushik answer that. Koushik Chatterjee: Yes. No, the price increases that are looked at on account of CBAM and tariff are pass-throughs. There wouldn't be any impact on additional costs. In fact, these CBAM cost is a compensation of the cost that we pay vis-a-vis the imports that come in. So therefore, it is more, if I may say, a reimbursement of the cost that we pay. So I think that is how we should look at it. And the quotas are effectively related to the imports that are happening. So that has no additional cost implication from us as such. So short answer is -- the answer is no in terms of any relatable cost on this. There are other cost factors that are there in EU, but those are unrelated. Thachat Narendran: In fact, if at all, we are focused on cost takeouts, which, as you're aware, has been effective in the last 1.5 years and will continue to be so going forward. Unknown Analyst: Sure, sir. Also, there is a class action lawsuit filed against Netherlands in December by an environment-related company. What is the status of that? And is there any development on that front? Koushik Chatterjee: So that has been filed, as you know, by a foundation or a trust, which is backed by professional litigation financiers. And it is kind of a suo moto class action, which is currently in the phase of -- there is a 3 months or 4 months phase during which we are required to submit our defense, and that's the process that is currently going on. And we are obviously looking at it carefully and seriously to ensure that we can put in what is actually the truth on the ground. So that is in the initial phases at this point of time. Unknown Analyst: My second question was on the Color-Coated business. What is your target capacity in this business because that is a high value-add business where I think the realizations can be quite significantly higher. So what is the kind of capacity you're targeting in this business and over what period of time? Thachat Narendran: Koushik, do you want to answer? Or Samita? Koushik Chatterjee: Samita, you want to do that? Thachat Narendran: Yes. Samita Shah: The current capacity is around 600 KT. And the idea is to actually also change the product mix more favorably in the Color-Coated business. We are obviously doing a lot of retail, but the idea is to increase that further. So there will be an improvement in the overall product mix. And in the next stage, we will then evaluate capacity expansion in this business. Thachat Narendran: I think the -- what it does is apart from giving us the ownership of the JV, which was there, it also frees us up from some of the JV kind of conditions, which limited our opportunities to get the most out of all the color-coating lines that we got when we acquired Bhushan. So there is an opportunity for us to make better use also of the lines -- some of the lines which were underutilized because we were restricted to participate in the construction market other than through the JV. So I think there are a lot of advantages we are seeing. And obviously, beyond debottlenecking and increasing production, we will work on the product mix. We will also want to scale up. We have an opportunity to also expand in Kalinganagar as a downstream. So there are multiple options. We also have an opportunity or an option in Jamshedpur, where we have a 250,000 tonne line to convert the metal coating into color coating. So there are many options that we have and our object -- or our aim is to actually double the profitability of the business in the next year or 2. Operator: The next question is from Prateek Singh of IIFL Capital. Prateek Singh: Any update or how are we going ahead with the Hisarna pilot project? I understand that Nucor also is looking into it. And I think the Department of Energy also proposed a funding for this pilot project. Can we expect any such thing by the Indian government as well in our case? Thachat Narendran: Go ahead, Koushik. Go ahead, go ahead. Koushik Chatterjee: So I think -- so we -- as we mentioned that it is fundamentally a Tata Steel IP, and we will be looking at -- we are looking at doing it in Jamshedpur. Yes, the conversations with Nucor is happening at this point of time. And -- but this is something that we will set it up in Jamshedpur. Nucor, the mechanism or method of participation is under discussion. And then we will see as to when we can go post the engineering work, which is commencing, then we go for the FID to develop this plant in Jamshedpur. Thachat Narendran: And yes, we will, of course, work with the government if there are any opportunities to get some support. But largely, the value we see in this project is you have far more flexibility in use of raw materials. You don't need to have a sinter plant, a pellet plant, coke plant, et cetera. The CO2 that you emit is far more amenable to carbon capture and utilization. And we've been working on this for more than 10 years, and we worked along with Nucor in running the pilot plant in IJmuiden quite successfully for the last 2, 3 years. So we are very bullish about the prospects of this project. And as Koushik said, we'll be setting it up in Jamshedpur. Prateek Singh: And given the expansion that we are seeing in the data center space, government also announcing tax holiday, any plans for electrical steel like CRGO because I think the transformer industry has been kind of complaining for some time that India is short of electrical steel capacity. So any plans there? Thachat Narendran: So there are 2 aspects to what you said. Data centers don't -- data centers in itself offers a lot of opportunities for steel because of the fact that the buildings will use steel, the storage racks and everything else will use steel. So there is a focused effort on looking at what can we supply to the data centers and what are the steels that we can develop and provide. So I think that is one part of it. The second part, yes, CRGO is part of our plans. We are assessing it. Most likely, the plant will come up in Jamshedpur, but we are still looking at various aspects of it. So we are working on it. Prateek Singh: And just one last question. Can we get a number of overall deliveries from Europe because there might be intersegment deliveries as well between U.K. and Netherlands? Koushik Chatterjee: No. There are not too many. Prateek Singh: If we can just add them up and take it. Koushik Chatterjee: Yes, there is some amount of slabs, which goes to the U.K., but it is not material. I mean it is not the biggest part of their transfers. Operator: Next question is from Siddharth Gadekar of Equirus Securities. Siddharth Gadekar: Just on the European side, if we look at the OECD capacities, they are around 213 million tonnes, 215 million tonnes, while Europe production has been in the range of 130 million tonnes, 140 million tonnes. So any sense of how much is the effective actual capacity in Europe? And over the next 5, 6 years, given that everyone will have to transform -- or go for the transformation journey, what would be the effective capacity in the next 5, 6 years that would be there in Europe? Thachat Narendran: So -- just a minute. Yes. So capacity is a very -- sometimes a very misleading kind of number, right? I mean how much of that 220 million tonnes is produced steel and when is a question to ask. So to me, generally, in Europe, you will see that production is roughly around 130 million tonnes. There is exports and there is imports. And imports has largely been about 30 million tonnes, exports has been around that level. So that's been the balance, right? Second part is a lot of these capacities are very high-cost capacities because if you look at the European cost curve of production, there are efficient or low-cost plants like some of our plants, some of the ArcelorMittal plants, et cetera and then there are high-cost plants. And those are the ones which tend to get mothballed and even in terms of some of them are inland, logistics costs are higher, so on and so forth. So we -- like I said, if the quotas are reduced, that means more capacity will come on, but those capacities which come on or mothballed capacities which come back on are higher cost. And that's why we believe that our plant in IJmuiden is well positioned to have the advantage of higher prices in Europe. That is one. Secondly, like I said, I think any blast furnace due for relining in Europe, people will think hard. I don't think anyone is going to reline a blast furnace in Europe now. So it's more a question of run it as long as you can. And then if you have the ability, invest in a new process route. So that's where I feel there will be -- over the next 5, 10 years, there will be a fair amount of restructuring on the supply side in Europe. I think we're already seeing that. Even some of the bigger guys have announced closures of some of the blast furnaces and not necessarily replacing all that capacity with the new process routes. Siddharth Gadekar: But then is it fair to assume that over the next couple of years, we can see if things stand where they are, demand outpacing the production, that would be there in Europe? Thachat Narendran: No, I don't see demand growing -- demand will grow. So what's happening in Europe is given the intention to spend a lot more money by European countries in Europe, we do see a pickup in infrastructure spend, particularly led by Germany. We do see increase in defense expenditure. I'm not even counting what happens if the Ukraine war stops and there's reconstruction there, right? So even as it is, we do see growth in some sectors. But there is also a bit of degrowth in some other sectors. For instance, if, let's say, we were exporting a lot of automobiles from Europe to the U.S., some of that may get impacted, right? So you will have some volumes dropping, some volumes increasing. But overall, I don't see demand growing very significantly. I don't see it shrinking. It will go up maybe 5 million tonnes, 10 million tonnes at best, right? But it's more the supply side, which we are talking about, both from imports being limited to domestic capacities also going through this transition either to new process routes or closing down blast furnaces. Operator: I would now like to hand over the conference to Ms. Samita Shah for closing comments. Over to you, ma'am. Samita Shah: Thank you, Kinshuk. I think we have answered all the chat questions which have been asked. We'll not raise them again. Thank you very much for joining us today, and we look forward to connecting again with you all next quarter. Thank you. Thachat Narendran: Thank you. Thank you, everyone. Koushik Chatterjee: Thank you very much.
Operator: Good day, and thank you for standing by. Welcome to the Roivant Third Quarter 2025 Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Stephanie Lee. Please go ahead. Stephanie Lee Griffin: Good morning, and thanks for joining today's call to review positive Phase II results for brepocitinib and cutaneous sarcoidosis and Roivant's financial results for the third quarter ended December 31, 2025. The I'm Stephanie Lee with Roivant. Presenting today, we have Matt Gline, CEO of Roivant; and Ben Zimmer, CEO of Priovant. For those dialing in via conference call, you can find the slides being presented today as well as the press release announcing these updates on our IR website at www.investors.roivant.com. We'll also be providing the current slide numbers as we present to help you follow along. I would like to remind you that we will be making certain forward-looking statements during today's presentation. We strongly encourage you to review the information that we filed with the SEC for more information regarding these forward-looking statements and related risks and uncertainties. With that, I'll turn it over to Matt. Matthew Gline: Thanks, Steph, and thanks, everyone, for dialing in and listening this morning. I'm going to start our presentation on Slide 5. I was sitting and talked to the team, it was about a week ago today, looking at a draft of this morning's presentation and thinking it was going to be a pretty boring 10-Q. We had gotten together in December for the Investor Day, we had we've spoken a JPMorgan conference, and it turned out a really busy week. So we have some great updates, obviously, most notably, the Phase II data in brepo and CS, which Ben is going to present on momentarily. But truth is terrific execution and progress across the board for us this quarter. Obviously, that data is a highlight. But we also can announce today that the NDA for brepo was in dermatomyositis that the Phase IIb study for 1402 D2T RA has fully enrolled that the Phase II study for mostly in PH-ILD has fully enrolled, and obviously, all of the updates that we're known for, including the Immunovant offering earlier that gets us now financed to Graves' launch all behind us. So just a terrific quarter and a terrific set of updates even since early January when we last got together. On Slide 6, 2026 is, again, a very busy year for us ahead. Obviously, some major events later in the year on the brepo NIU Phase III, the pivotal readout in the second half. We're now going to be starting this year a Phase III study in brepo and cutaneous sarcoidosis. Ben will talk a little bit more about that. It's early days and getting that going, but that will be this year. The Phase IIb data for mostly is expected firmly in the second half of this year. We now know that because the study is fully enrolled, obviously. Same thing with the D2t RA data where all of that, both the open-label period and the randomized withdrawal period will be done by the second half of this year. We also are getting proof-of-concept data in 1402 and CLE. And finally, we are still on track for the jury trial against Moderna starting on March 9, so just a few weeks away now. So a really, really busy year ahead for Roivant. And really, if you look at Slide 7, before we get again to the data for CS, just a pipeline we're really proud of that continues to deliver across multiple dimensions would be obviously brepo with now three indications in the pivotal registrational programs, multiple registrational programs for FcRn franchise made, which we've talked about and mostly with top line data coming in the second half. So really excited about where we are as a business, really excited about the pipeline. I couldn't be more excited for the beginning of 2026 here. Certainly, it's off to a good start. And with that, what I'm going to do is turn to the Phase II data for brepo and sarcoidosis. So I'm just really briefly on Slide 9 of the presentation. I'm just going to walk through a couple of highlights, but mostly, I'm going to hand it over to Ben to take you through the data in detail. And the short answer, and we keep saying this, it's a tremendous fortunate, I think to be able to say that, this drug has done everything we could have asked for us for it in this -- of it in this study. We had a significant statistically sign. Remember, we had said before the bar for clinical success here, we thought was sort of 5 points of CSAMI was clinically meaningful. We got a placebo-adjusted almost 22 points, 21.6% point delta with a p-value, and again, the study was not powered for efficacy in this endpoint. 100% of patients on brepo 45 equivalent to 14 on placebo had a 10-point improvement. Again, clinically meaningful was 5 points. 100% of patients on our high dose had at least a 10-point improvement. So just a tremendous outcome across the board. There's some great supportive data on some of the other endpoints as well. And with safety and tolerability completely consistent with what we've seen for the compound in the past. So a really terrific outcome and in a disease that needs it, where there's never been a positive placebo-controlled study in an industry-sponsored study to our knowledge. So really a terrific day for those patients. So with that, I'm going to hand it over to Ben to walk you through a little bit about cutaneous sarcoidosis as a reminder. And then on to the study data as well. Ben, take it away. Benjamin Zimmer: Great. Thanks so much. Great to be here with everyone. Starting on Slide 10, I just wanted to bring back to what the disease is, walked through this at the Investor Day in December. But cutaneous sarcoidosis is a really debilitating skin disease. And among skin diseases stands out for its rapid progression towards permanent scarring and destruction of tissue as well as its disfiguring nature given the particular prevalence on the face and scalp of the disease. Turning to Slide 11. I would note that there is no approved therapies, not only for cutaneous sarcoidosis, but for any form of sarcoidosis. And so as we think about our development program in really a great opportunity for brepo to meet this overall unmet need and become the therapy of choice if we're going to be successful in Phase III as we hope and expect we would be on the basis data to really be a promising option for all patients with skin involvement in their sarcoidosis. That would include patients, both with only skin involvement as well as those with other organ involvement as well. Turning to Slide 12 really just briefly here on the alignment between the pathobiology of the disease and the mechanism. And I think this is important because as Matt alluded to, and I'll walk through in a bit more detail. We really have great data here that we're very excited about. And I think in a small study, the data is very compelling. It's hard to argue it on its own, but it also really aligns with what you would expect to see given the mechanism of this drug, sarcoidosis, all of the forms of sarcoidosis, including cutaneous disease are driven by the polarization and recruitment of effector T cells and particularly Th1 polarized cells and brepo really distinctively inhibits Th1-related pathways by hitting both IL-12 through TYK2 and interferon gamma through JAK1. So really an opportunity here mechanistically to see the benefits of JAK1, TYK2 inhibition specifically. And I think that's really part of what's flowing through to our clinical data that I'll walk through now. Slide 13, study design, very straightforward, 31 patients in the United States, randomized 3:2:2, the brepo 45 milligrams, 15 milligrams in placebo, a 16-week study evaluated several different efficacy end points that I will walk through. On the baseline demographics and disease activity, Slide 14. I do want to highlight a few things. First, if you look at the duration of disease and background damage of patients brepo 45 milligrams and placebo are very well balanced between those two arms. But 15 milligrams actually quite a bit lighter on duration of disease and damage, which would mean really a higher bar for both brepo 45 and placebo. And then I would also call attention to the plaque predominant morphology, cutaneous sarcoidosis can present through both plaques and papules. In general, the plaques are viewed as more treatment-resistant. And you see this plaque predominant morphology most pronounced and most common in the brepo 45-milligrams arm followed by 15 milligrams followed by placebo. So sort of punchline of this is there were some imbalances. Those imbalances actually made it harder for brepo 45 milligrams to demonstrate efficacy, both as compared to placebo and as compared to brepo 15 milligrams, and in spite of that, as I walk through, we really see exceptional data from the brepo 45-milligram dose arm. So turning to Slide 15 to get into the efficacy results. On the left hand of the slide, you see the mean to CSAMI activity score change from baseline, both doses statistically significant separation from placebo as early as week 4, the first time point evaluated and then sustained at every visit out to week 16 at the end of the trial. And then on the right here, we see the achievement of investigator global assessment 01 and a 2-point reduction. So as a reminder, this is -- the IGA are a standard FDA supported endpoint for cutaneous disease. This is similar to the is used in other skin indications with from 0 to 4, clear, almost clear, mild, moderate and severe. So to achieve both the 2-point reduction and at 0 or 1 is a very high bar -- and notably, it's a high enough for that 0 placebo patients clear it. So you may be confused where the placebo line, the placebo line and the x-axis line are the same thing on this chart. And you see here, again, some early progress for both of dose arm at week 4, really significant or substantial improvement at week 8 and then static improvement at week 12 and 16. And then here on this higher bar endpoint, you do start to see brepo 15 milligrams begin to -- sorry, brepo 45 milligrams, begin to separate from the 15-milligram dose arm. Slide 16 has the CSAMI responder data. Again, really compelling data. I think this chart on the left quite remarkable as Matt alluded to, we were hoping to see a mean improvement of 5 points and what we saw was as not only a mean far in excess of that, but we saw 100% of patients in the brepo 45-milligram arm achieve twice that, twice the minimum clinically important difference. Really every brepo 45-milligram patient, a responder in this trial and does all walk through momentarily, that that's really corroborated by an independent patient reported outcome as well. And then you see on the right-hand side of this chart, achievement of CSAMI less than 5, notable there's not an improvement by less than 5. This means that the absolute score end of the trial is 5% or less, which is a standard for functional remission. And you see 62% of brepo 45-milligram patients achieving that compared to no placebo patients. So again, this data are quite in line with the IGA 2-point improvement to 0/1 that I walked through before. So again, seeing pretty consistent data here across multiple endpoints. Turning now to the patient reported outcomes. Slide 17 has the Skindex-16. This is, again, a pretty established standard metric in inflammatory skin disease trials. You see excellent data here with the placebo group worsening brepo 45 milligrams and 15 milligrams, both improving substantially well above the minimum clinically important difference. Again, here with brepo 45 milligrams outperforming 15 modestly and both doses really far better than placebo. Slide 18, we have the KSQ skin domain. So this is the King's Sarcoidosis Questionnaire. It's a PRO for sarcoidosis overall map, just limited to skin disease. What we focused on in our initial [ TLR ] was skin-specific domains, and you see here very in line with the Skindex in terms of in terms of the data. So just yet another data point, a very compelling evidence of benefit. And finally, on the efficacy side, I alluded to this before, but on Slide 19, we call it the patient's global impression of change. So this is a single question where patients are asked since they started taking the study medication, how would they describe the overall change in the sarcoidosis symptoms and they can answer no change or some degree of improvement or some degree of worsening I think this is a powerful endpoint for simplicity and notably, 100% of brepo 45-milligram patients reported that they improved, again, consistent with the CSAMI data where we saw 100% response rate. So very compelling here. Brepo 15 milligrams also very considerable improvement for most patients, although two patients in the brepo 15-milligram group, did not -- not only do not report improvement, but actually reported worsening. And then in the placebo group, a very little improvement and most patients reported either worsening or no change. Turning to Slide 20. Safety data. I think very well, brepo was very well tolerated during the study when no SAEs in the study and all adverse events were graded mild or moderate in severity. So against the backdrop of this efficacy data, in particular, certainly, the safety data we see would tee up a potentially very favorable benefit risk profile for brepocitinib for these patients. Obviously, we have over 1,500 patients of data in brepocitinib, and so the overall safety database is characterized by much more than just these results. But certainly here, nothing that would really add anything to what's already known about the drug from that perspective. And I think, again, starting to dose it now in this particular patient population, I think we see the early signs of a very indication-specific compelling benefit risk profile. So just to wrap up very quickly, before handing it back to Matt, really compelling evidence of benefit. The effect sizes we see here are extremely large we see them very consistently across multiple different endpoints, including independent patient reported and physician-reported assessments, very high response rates, including the 100% response rate for the brepo 45-milligrams arm and the rapid onset of action sustained over time. So really exciting results. We're really excited to move this ahead to Phase III and potentially have the first approved therapy for sarcoidosis. So I look forward to discussing any questions later, and I'll hand it back to Matt. Matthew Gline: Thanks, Ben. Yes, look, we're just terrifically excited about the data about what it means for us and what it means for these patients. On Slide 22, just sort of as a reminder of what the picture for brepocitinib now looks like. People pass around the phrase pipeline and a product for a lot of different products I feel at this point, looking across the indication set for brepo, even with what we've talked about already with CS, DM and NIU, where we get to a very large addressable patient population. These are patients who -- in every one of these indications lacks efficacious therapies and is in need of options, and we continue to add legs of the stool or opportunities that grow into these sort of first-in-class orphan inflammatory diseases that are high unmet needs, important areas. And I think we've got more to come there. So stay tuned. But just starting to feel it brepocitinib is a really important medicine for us and hopefully for patients, so looking forward to continuing that journey. I'm going to brief through a couple of other highlights or updates across the portfolio, quick financial update, and then we'll do Q&A at the end. Super quickly on Slide '24. As a reminder, IMVT-1402 remains a huge focus for us at Immunovant. We think we've got an FcRn with potential best-in-class efficacy with a safety profile that looks favorably within the class. Obviously, convenient administration with a subcu auto-injector. And we [indiscernible] pipeline and product potential, again, with Graves' among our lead indications where we're expecting pivotal data in 2027. We're now, as I mentioned earlier, expecting the DTRA data later this year, and that study is fully enrolled. We actually enrolled 170 patients in that study up from the anticipated 120 originally, and that was in part just due to speed of enrollment and the level of enthusiasm from the patient in that community. Moving over to mosli on '25, and we'll definitely spend some time later this year talking more about PH-ILD and mostly in setting the stage for what we expect there. But that study is fully enrolled. With thanks those patients investigators in the Priovant team PH-ILD remains an exciting opportunity for us, where targeted delivery gets at a disease where lung is the primary site of disease activity. I think we have a convenient once-daily dosing regimen in a disease where existing therapies mostly have multiple daily inhalations there aren't very many existing therapies bluntly. We expect or hope for tolerability benefits. And then as I think you know, we showed really the best ever PVR reductions in the PAH population if that translates we'll be able to get some best in class efficacy as well. So really excited about what we could do there later this year. I think it will be a really important part of our story in the coming months. And then finally, and as I said before, I'm not going to spend a ton of time talking about this today because we're so close in here, but with the jury trial in the Moderna case is scheduled for March 9. We continue to make progress there and the sort of major update there in the recent weeks is that we got earlier this week, we got the first of the summary judgment decisions, which covered a few things and hand some puts and takes in it. But one thing we were quite happy with is a favorable decision on Section 1498 which sets us up for the case that we were sort of hoping for in this trial, where almost all of the doses that we had asserted are going to be covered in this jury trial. So looking forward to that and obviously, more to come there. Finally, just a really brief financial update on Slide 28. R&D expense of $165 million adjusted non-GAAP of $147 million for the quarter. G&A of $175 million, adjusted non-GAAP of $71 million, for total non-GAAP net loss of $167 million. Cash remains very strong, $4.5 billion of consolidated cash in the business. So plenty of capital to get us to profitability with dry powder to do other things as well. As a reminder, we still have share buyback authorization and are happy to have that sort of capability. On Slide 30, as discussed just a really catalyst-rich period ahead of us. A couple of these things checked off now. Obviously, the beginning of the summary judgment also make progress and just feeling good across the board with a lot more updates to come this year. It should be a big year for us. And a big few years on Slide 31 before I go to Q&A, multiple commercial launches potential in the coming years, obviously, brepo and DM would be first with that NDA now in multiple NDA and BLA filings. We continue to have even sort of more future POC study reads even among the ones we've already announced and now 9 or more pivotal study readouts, including cutaneous sarcoidosis coming over this time line, which is just a really exciting slate for us to build on. So with that, thank you again for listening. I'm going to stop talking and open up the line for Q&A. Thank you. Operator? Operator: Our first question comes from the line of Corinne Johnson with Goldman Sachs. Corinne Jenkins: I think you've mentioned today and previously that you consider further development expansion opportunities for brepocitinib. And I'm curious how these data kind of inform the direction you'd like to go. Maybe you could also help us kind of size the opportunity set, particularly with respect to like what percent of the patient population you think are great candidates for this relative to NIO and dermatomyositis. Matthew Gline: Thanks. It's a great question. Look, I think the first thing is we are absolutely enthusiastic about further development in brepo. We have other indications that Ben and the team are hard at work at. I don't -- I think the -- but I would say the main thing about this data is just that it continues to underscore how strong an agent brepo can be in these patient populations that need it. and sort of drives enthusiasm, but I don't know that it reveals anything specific or new. Other than we're continuing to think about other forms of sarcoidosis, et cetera. CS is another indication where we will be first and only drug approved if we're successful from here. And then on patient population, look, I think this is right in the sweet spot of what we've been trying to do, not just bluntly for brepo, but across the different drugs we're developing, where we're in this kind of large orphan market. And again, we might do things outside of this category, but it's been a really good space for us and for others with tens of thousands of patients, a big opportunity, high unmet need. And we think it will be the kind of thing that we can attractively launch and that we can that we can make a successful franchise around. So it feels great from an ability to benefit these patients perspective and from a commercial perspective as well. Ben, anything you'd add there? Benjamin Zimmer: I would just add that I think -- and this is something we've felt already, but this data really enforces that the alignment of TYK2, JAK1 inhibition to T cell polarization both as we see here, predominantly Th1 driven, but also Th17 driven. And the mechanism of TYK2, JAK1 inhibition really does aligned to that through IL-12 and interferon gamma for TH1, IL-6 and IL-23 for Th17. And I think that's really one of the mechanistic hypotheses around the distinctive benefits of TYK2, JAK1 inhibition, others are obviously the type 1 interferon suppression that's very important in dermatomyositis, in addition to the T cell polarization. But I would kind of highlight that this data really enforces that NIU has some overlapping mechanism as well, where obviously, we had really strong Phase II data, excited to see that Phase III result. But I think just as we think about not just kind of the unmet need of indications, as Matt articulated, but also diseases where TYK2, JAK1 inhibition is going to really be, in our view, potentially better than any other form of immunosuppression. I think this data kind of reinforces some of our hypotheses there. Operator: Our next question comes from the line of Dave Risinger with Leerink Partners. David Risinger: Let me add my congrats as well, Matt and team. So obviously, the data was phenomenal. I had a couple of questions. First, with respect to the headline CSAMI numbers, they were similar between the two arms. The press release, obviously, you mentioned different baseline characteristics. Could you just add a little more color on that? Second, with respect to the FDA timeline, obviously, Octagam is approved for dermatomyositis. But is there a chance for the FDA to elect to grant priority review? Could you talk about that a little bit? In DM, I'm talking about. Matthew Gline: Thanks, David. Both great questions. On CSAMI point, I think Ben hit on this well in his presentation as well. Look, I think if you look at the table, I can pull up the slides in a second, but if you look at the table in the presentation, on baseline characteristics, I'd say there are some relatively -- it's a small proof-of-concept study, it's a relatively small in each arm. And so you can see some relatively significant differences on some aspects, including duration of disease. As well as morphology of disease with more a plaque predominant patients, which are those more recalcitrant patients on our 45 arm than on our 15 arm. And I think that's probably in part what's responsible for the sort of headline numbers looking similar. And you can see that they separate more, again, as Ben hit pretty well in the presentation on the more stringent endpoints like the proportion of patients hitting a 10 or more point season benefit. So we feel pretty good about that translating into Phase II. And then on the FDA time line, look, I think the answer to that question is DM is a severe disease with not a lot of options. And so there's certainly a chance, but that ultimately is up to FDA. Thank you. Operator: Our next question comes from the line of Yaron Werber with TD Cowen. Yaron Werber: Great, really nice to see this data. I got a couple of questions. One is price. The IVIG is around $180, but the concomitant sort of price for Vyvgart for these indications around $870 gross. So maybe help us understand how you're thinking about pricing of brepo. And then secondly, as you -- and I know this might be a little premature, but from Pfizer owns 25% of the JV, you'll obviously consolidate all sales of brepo. How do we handle their 25% ownership because you're not going to be paying a dividend, but I imagine you'll have to sort of give them their 25% of the profits. What is that going to hit the P&L? Matthew Gline: Yes. Thanks, Yaron. Those are both good questions. Look, I think on price, we obviously have not decided on the price yet, it's too early to have an answer to that question. What we've said before is taking bookends that are not so different from the ones you quoted there. I think our view is IVIG is probably a little bit more expensive than that in practice. Those bookends are a reasonable place to think about in terms of the pricing envelope for these indications is what we said before, and I think that continues to stand. And I think it gives us a lot of room. So I think stay tuned, but this will be an orphan price drug. And then on the -- what I think is really sort of an accounting math question, so we'll fully consolidate all of the results, losses, sales of everything, and then there'll be a below-the-line minority interest that attributes a portion of Pfizer's earnings. But again, it will be below the net income line. And then in terms of how cash comes out, obviously, if we distribute cash out, Pfizer, we'll get their portion of that cash, and we'll get out a portion of that cash. The only other comment I'll make there is -- and we said this elsewhere, the early portion of the relationship with Pfizer had dilution protection for their ownership stake. That's been exhausted now. And so for any further capital into Priovant, Pfizer will either need to match their portion of our spend or will be diluted and we'll wind up owning more. Operator: Our next question comes from the line of Brian Cheng with JPMorgan. Lut Ming Cheng: Congrats on the data here. Two questions from us. As we think about the Phase III, what's your latest thinking about the size and the dose that you have picked?. And just curious if you have any thoughts about how we should think about the stability of efficacy going from a Phase II to Phase III for this indication, it seems that you have a pretty large gap going from 22 to the 5-point Delta that seems clinically meaningful. How should we think about deterioration, and I have one quick follow-up as a housekeeping question. Matthew Gline: Yes. Thanks, Brian. Look, I'm also going to hand over to Ben for these questions, but I'll just say it feels like we've got a fair amount of cushion in the quality of this data. And also, a, this was a relatively small study. You either aren't a lot of other studies to go on in CS. So we kind of got to take our guidance from here. But it was nice to see a low placebo response. Ben, do you want to talk a little bit about that and about whatever we can share at this point on Phase III design. Benjamin Zimmer: Yes, sure. I mean, first, just on erosion, obviously, would be hard to do any better than this. But I think that the minimum clinically important differences, as we've discussed, is 5 points here, we have over 20 points we could have significant erosion and still have a very compelling data set and a very compelling product profile for patients and physicians. That said, I would also note this was -- it was the U.S.-only study, but 15 sites for the 31 patients. So this was a multicenter, multidose, placebo-controlled trial, very rigorous for a smaller proof-of-concept study. So while I think that there's always some risk of erosion in particular, while the very low placebo rate is consistent with natural disease course, you can never be sure of the behavior of placebo and these inflammatory disease trials, particularly when you move to larger global trials. But broadly speaking, I think this data gives us an incredible cushion to still have an effect size in Phase III that maybe is large or maybe is not quite as large, but still would be extremely compelling. As far as the design of the Phase III in terms of size, I think we would probably be looking at a sort of similar size per arms to the DM trial roughly, but we need to kind of take this data into consideration and think more about the powering and have final discussions with FDA on it, including as related to the in indication safety set that they would want to see to support approval. So we'll have more to share on that after we engage with FDA. And the same is true on dose, I would say that I think our incoming hypothesis to this trial is that 45 milligrams based on the totality of the 1,500 patient data we have, a very compelling potential option for these patients balancing benefit and risk. And certainly, I would say, in totality, this data reinforces that, you see really excellent efficacy results from the 45-milligram arm, including on some of these higher bar, more stringent endpoints, starting to see real separation with 15 milligrams. And then certainly, in terms of the safety data, nothing that would suggest the overall safety profile of 45 milligrams that we've seen across all of the different indications in which it's been studied, that nothing in this data to suggest there's anything specific to cutaneous sarcoidosis separate from those. So I think broadly speaking, I would say we're very excited about 45 milligrams coming into the study. We're even more excited about it coming out of the study. 15 milligrams also performed very well, and that's great to see. It really just speaks to the overall efficacy potential of the product. And so we'll kind of have a final update on that after we engage with the agency. Operator: Got it. And maybe just one quick one on the housekeeping side. So looking at the 10-Q from Immunovant, can you give us a little bit more color on the return for certain rights around batoclimab back to HanAll? Is there any read-through to how we should think about the setup for the tech data readout later this year? Matthew Gline: No, it was the short answer to that question. meaning there's no read-through anything. It's just as we get closer to that data, depending on what we decide to do with batoclimab, if we decide to further development, we'll have to make a decision around how to work together with HanAll next steps there. So that's really nothing to say. Operator: Our next question comes from the line of Dennis Ding with Jefferies. Unknown Analyst: This is Anthea on for Dennis. And congratulations on the data. I wanted to ask two questions on upcoming catalysts. First on Daubert, can you explain how important Dr. Mitchell's testimony is to the case improving direct infringement and whether or not there's any risk to that being taken out, so to speak, ahead of trial? And then on PH-ILD, thoughts on the competitive landscape and if sotatercept could work in the disease as well? Matthew Gline: Both great questions. Look, on Daubert, as we said, we really can't talk too much about an ongoing litigation. There are a variety of Daubert motions in front of the court, what they are or visible and the judge will make a decision on all of them and anything within the range as possible. Obviously, we're hoping for favorable test outcomes in case. On PH-ILD question, look, I think the answer is, in theory, any drug that improves PVR could work in PH-ILD, systemic vasodilation has not, in and of itself, a been a great approach in PH-ILD but sotatercept certainly could work in PH-ILD. Right now, we are slated, I believe, to be the first non-prostacyclin, non-treprostinil in PH-ILD. I suspect given the amount of unmet patient need, there will be others behind us, but I think we have a really favorable profile as we enter that space. Operator: Our next question comes from the line of Yasmeen Rahimi with Piper Sandler. Yasmeen Rahimi: Thank you so much for all the color. As an Immunovant covering analysts would love to spend time on 1402 and get some color around here near term or a readout. Obviously, the study is upsized. Help us understand as the studies coming to end reading out what you hope to see and how you're sort of preparing for filing and how soon you could actually get ready for that first Phase II registrational study to be shared? And then I'll jump back in the queue. Matthew Gline: Thanks. I appreciate the question. Look, I think in terms of expectations for RA, I think the short answer to that question is, on the one hand, these are patients with high unmet need. And so in some sense, the bar for efficacy is relatively low compared to what we may be used to seeing in RA. On the other hand, there's just very little precedent data for drugs in late-stage RA with sort of this level of pretreatment. And so it's hard to know. I think we're doing some work on that very question now, and we will share some guidance on what would cause us to run the second study before we put out that data. So it's a stay tuned for that. Remember, these are burned out patients with pretty tough disease at this point. So obviously, if we're excited about the data, there's a potential for it to be a big product. Obviously, we will engage with the agency once we've got the data and think about what a plan looks like. I think the base case expectation should be that this is one of a couple of studies that we'll have to run just because this is a relatively smaller randomized withdrawal trial, but we'll see the data, and then we'll have better answer that question. Operator: Our next question comes from the line of Prakhar Agrawal with Cantor. Prakhar Agrawal: Congrats on these main results. So maybe on brepo and CS, just wanted to better understand the market opportunity here. You've talked about 40,000 eligible patients. would all of these be eligible for brepo therapy and meet the inclusion/exclusion criteria for the trial. And if that's the case, do you think this is a similar size opportunity as dermatomyositis? And maybe just one follow-up on the Phase III design. Would the time point of the endpoint the 16-week similar to your Phase II, given your -- you already have the safety database. Or would you have to test longer, just trying to figure out if there's any ways to accelerate development here? Matthew Gline: Yes. Thanks, Prakhar. Great questions. Look, I think the short answer of our market opportunity is this is a patient population that's sick with high unmet need. And assuming our Phase III data looks similar to our Phase II data, I think a lot of these patients are going to be enthusiastic about a better treatment option. It's probably a modestly smaller indication than dermatomyositis just in terms of total end. I mean, obviously, DM is 40,000 patients in treatment with 70-plus thousand total patients. So I'd probably think of this as an exciting opportunity, but a little bit smaller than the DM opportunity, although, again, depends on the Phase III data. And then I think the short answer on Phase III design is let's just wait until we've had the conversation with FDA before we sort of talk about final outcomes, but we're going to be looking to leverage as much as we can of what we've learned from the Phase II study. And obviously, to the extent that we can match parameters on which we're confident we'll do that. Thanks for the question. Operator: Our next question comes from the line of Samantha Semenkow with Citi. Samantha Semenkow: Congrats on this very good safe data. I'm wondering what percentage of patients in the BEACON study had organ involvement if you have that? And were you able to collect any data that would allow you to assess whether brepocitinib impacted organ-specific manifestations? And then just as a follow-up there, do you see a path to expand into other forms of sarcoidosis with brepocitinib? Matthew Gline: Yes. Thanks. Look, I'll take the second of those questions, which is certainly something we will evaluate in terms of further places to study brepo. And we -- as I said before, we have ideas inside and outside sarcoidosis that are exciting. So stay tuned we'll be back with it. On the first question, in terms of pace of organ involvement and what we can learn from it, Ben, anything you'd share about that? Benjamin Zimmer: Yes. Around 60% of the patients had some pulmonary involvement and around 30% inclusive of that 60% had some other organ involvement, mostly ocular involvement we did take some exploratory endpoints related to those in the trial. We haven't analyzed that yet. Ultimately, the study was not designed or set up to evaluate benefit in those other organ systems. So I don't expect us to learn anything too meaningful from that, but it's certainly something we will take. I look at it, and I think the important point to note is this is a real-world cutaneous sarcoidosis population, given these -- many of these patients do have multiple organs and involved. Operator: Our next question comes from the line of Yatin Suneja with Guggenheim. Yatin Suneja: A quick one for me on brepo on the data that you provided. Like if you look at the curves, they continue to deepen over 16 weeks. So I'm just curious to understand from you how should we think about further -- do you expect further deepening, further separation. Just talk about if somebody gets treated for a year, how should we think about it? And then if you can just talk about the scope and the size. I don't know if you touched on that already of the Phase III study, should it be similar to what you did in DM . Matthew Gline: Yes. I mean, just to reiterate on Phase III, and I think Ben shared a thought about that. But I think in general, we talked to FDA, it's like it's hard to commit to a specific study design. So I think like let us get through that, and then we'll be back with a full accounting of the study design. But I think we're prepared to run and enroll a nice sizable study, if that's what we need to do. I think we feel good about what we need there. And then in terms of -- look, in terms of continued deepening, we're just looking at the data for the first time this week. So I think we're continuing to explore all the various features. I think it's fun, one of the KOLs was also involved with the study gave a quote to some journalists. When I think his comment was if the data had been half as good and there have been twice as many side effects still would have been a great outcome. Look, obviously, long story short, there are certainly potential ways for this data to be even better with long with therapy with other parameters, but I think the answer is if we can come close to replicating this in a Phase III program, it would be a huge win. So I think we should be all set there. Operator: Our next question comes from the line of Douglas Tsao with H.C. Wainwright. Douglas Tsao: I guess, Matt, I'm just curious with brepo, how broad are you now thinking about the opportunity, right? I mean I think we've seen great results, obviously, in CS today DM as well as there is obviously a lot of data with JAK inhibitors in various indications, but not necessarily full randomized trials or proof of concept. I mean is that the breadth of universe? Or is there other white space that you're also thinking about where JAK hasn't been explored at all but perhaps it's worth exploration just given the magnitude of effect that you're starting to see. Thank you. Matthew Gline: So could you just -- yes, how broad we think about the rep opportunity. Thanks, Doug. Great question. Look, I think the short answer is, I think you can see from our indication selection already that we've been creative and thoughtful in going after indications with high unmet need, including lots of places where JAKs have not been explored. And I think there's a lot of opportunity here. I'll just reiterate something Ben said. And Ben, if you want to do it again as well, I think it's a really good point to hit. Look, I think anywhere that TYK and JAK are both important is a particular area of focus for it because it gets the uniqueness of our mechanism, but I think we've done a really nice job, again, thanks to Ben and a bunch of people in his team as well. The private team on exploring that biology. I think we have more ideas in that category. Ben, anything to add there mechanistically or otherwise? Benjamin Zimmer: No. I mean, I think I covered it earlier. I would say that the answer is both. I think there are some indications where there's maybe some IITs or clinical reports from off-label use of other JAK inhibitors, where we think TYK2, JAK1 inhibition is really optimally suited for it. And I think those are indications we're evaluating that would obviously be highly derisked. I also think as we -- to your point, as we continue to see more and more excellent data here, I think we're definitely looking into some obviously, higher risk but also exciting potential opportunities where there's less proof of concept, and we would see what we end up with there. Douglas Tsao: And Matt, if I can one follow-up, just obviously, business development has always been such a big part of the Roivant story. But just given the sort of expanding horizons for both brepo as well as IMP-1402, how are you thinking about capital allocation in terms of external versus sort of just internal R&D investment? Matthew Gline: Dollars go to the best opportunity wherever they are, the short answer to that question. Look, we're funded through profitability on our existing portfolio obviously, things like running the Phase III program in cutaneous sarcoidosis are no-brainers at this point. We were definitely going to do it. And adding additional indications, brepo or 1402 or for mostly are attractive options because those mechanisms are strong, and we'll work in other places. That said, and I'm sitting across the table from a right now, the world is full of attractive opportunities, and we look at all of them. So I think we've absolutely got opportunities to deploy sort of externally as well, and it continues to be a core part of what we believe we are good at. Operator: Our next question comes from the line of Derek Archila with Wells Fargo. Derek Archila: Congrats on the data. So just quickly on Immunovant in terms of -- we saw positive data for nipocalimab in systemic lupus. So curious about how you think about the read-through to cutaneous? And then second question, just in terms of commercial synergy between brepo and 1402, Obviously, we're Immunovant covering analysts. So just curious how you think about fielding a sales force in the most cost-effective manner to leverage both brepo and 1402 between the two companies? Matthew Gline: Yes. Thanks. Look, these are both really good questions and important areas for us. On SLE, first of all, I was on record long before the brepo study in SLE saying that anybody who isn't afraid of a lupus study, I think the word I used in it. And so I'll say congrats to J&J on the positive data in SLE, it's always impressive when people were able to deliver those kind of results. It certainly supports the use of FcRns in diseases with a lot of complicated immune activity going on at the same time. There's probably some read-through to CLE in the sense that in the sense that there's some pathophysiological overlap there. But every lupus study of any kind is its own special flower and we'll have to be successful in CLE on our own. We like cutaneous lupus in part because we know that forms are pretty good at reading those kinds of endpoints. And so we feel good about that. Again, CLE is a different competitive landscape in SLE and we're watching that bar as well. On the commercial question, look, the first thing I'll say is even bluntly within a big pharma company these days, the truth is that for de novo launches, mostly you deploy a field apparatus that is specific to the program because you want to engage with those very specific physicians because you want sort of full voice share of your field force on the product. And so I'm not sure I think of like sales force as the most important commercial synergy, but we are definitely thinking about things like contracting expansively to make sure that we can get maximum benefit from commercial scale across the portfolio, and there definitely are areas where that is top of mind for us, but I think will translate to benefit both for the commercial performance of brepo and for the commercial performance of 1402 as those launches progress. Operator: Our next question comes from the line of Ash Verma with UBS. Ashwani Verma: So for [ Barron's ], just upcoming the TED results, the data that you're expecting. Just curious how you're thinking about that in the light of recent Vyvgart setback in TED. In your case, how confident are you that a positive Graves' disease readout would translate to success in Thyroid Eye Disease? Matthew Gline: Thanks. Look, I appreciate the question. Obviously, TED is out there, and that data is coming when we have both studies in the first half of this year. I don't think there's like a ton of -- a ton to say about that at this point. Those studies are going to happen and will put the data out. Obviously, we know from our own Phase II study in TED as well as from our own Phase II work in Graves' that the drug is active in patients with hyperthyroidism. And I think that should translate in both indications to some degree of efficacy. And we don't think there's a lot of read-through from TED either in Argenx's case. And Argenx obviously also doesn't as well. or in our own situation in Graves' disease in the sense that we have -- look, obviously, both where we have all of our Phase II data in Graves' and the diseases are pretty different. Like the TED study enrolled mostly thyroid patients. So they're pretty different fundamentally in terms of who was in the studies. So I feel like we are confident in the efficacy or potential efficacy of FcRns in Graves' disease and not particularly focused on what information there is from TED. Obviously, once we get the TED data and can talk about it, there will be information there from patients who happen to be hyperthyroid at various points in that study and how those patients look and we'll take full advantage of that data in optimizing our Graves' program. But beyond that, I'd say not much read-through between the programs and looking forward to getting all that data together once we've got it. Thanks, Ash. Operator: Our next question comes from the line of Thomas Smith with Leerink Partners. Thomas Smith: Hey guys, good morning. Thanks so much for the update. Great to see the rapid enrollment and the over enrollment for 1402 from D2T RA and I appreciate the update on the data timing I just wanted to clarify, should we expect that you'll report both the open-label and randomized data from this study together? Or is there potential we could see some of that open-label period one data first? And then as a follow-up, we noticed on Slide 31, the expectation for Graves' launched by the end of '28, but not although you're expecting Phase III data for both indications in '27. I just wanted to ask if that's purely a function of data timing there? Or if there's some other strategic considerations with respect to pricing or competitive landscape? Matthew Gline: I appreciate both questions. Look, I think on the data release timing for the RA study, I don't think we've made a final decision on how exactly we'll put that data out and when, but I think it's reasonably likely now that we know both are coming this year. That we'll wait for the randomized withdrawal period before we talk about it. Obviously, that first period is open label, so we'll get some information from it as we go on. And then I don't think there's much to read into the exclusion from MG in 2028. In fact, there's probably some possibility it actually does, in fact, also launch in 2028. And so I think stay tuned once we get that data once those studies are -- once we know the exact timeline of those studies, we'll be able to provide more guidance on specific launch time lines. Operator: Our next question comes from the line of Alex Thompson with Stifel. Alexander Thompson: Maybe one on sort of the competitive landscape in Graves. I guess with Argenx entering the area and maybe trying to follow their strategy of chasing fast follower indications here. Like how confident are you that you can maintain your lead in Graves' if Argenx were to run maybe 26-week studies or even one instead of two studies. Matthew Gline: Obviously, the extent of our leading -- thank you for the question. The extent of our lead time in Graves' will depend a little bit on organic study design and what they decide to do. And until we know what that design is, it's going to be hard to say. Certainly, shorter studies will be faster than longer studies mechanically. I think we have a lead in Graves' that will be significant, roughly no matter what design organic runs. We have great relationships with those KOLs that community. We've been out there. One of our studies is also 26 weeks. As a reminder, the 2503 study is 26 weeks. So look, I think the answer is we will have a significant lead in Graves' disease. How significant that lead is may depend a little bit on what the competition does. But this is also one of those -- whatever may got to run the bar situations or whatever. I think mostly our focus is just getting those studies done and out as quickly as we can and getting out to that population, and it's such a large and exciting population that it doesn't really matter. The other thing I'll say is, as a reminder, we showed pretty conclusively in our Phase II data at the deeper IgG suppression that we expect to deliver will matter in this population. And I think especially on remission. And I think that will also be a significant factor in Graves' disease. So looking forward to getting all that data together. Operator: And this concludes the question-and-answer session. I'd now like to turn the call back over to Matthew Gline for closing remarks. Matthew Gline: Thank you, operator. Thank you, everybody, for the good questions. Thank you all for listening this morning. I want to once again thank everybody involved in all of this, including particularly with the cutaneous sarcoidosis data, the patients and investigators involved in that program. As well as the Priovant team for their execution there, but also everybody at Roivant, all the patient and investigators on all of our studies. And look, we've got a lot more to come this year. So I'm sure we'll be back together soon, and I'm looking forward to continuing the discussion. Thank you, everybody, and have a great day. Operator: This concludes today's conference. Thank you for your participation. You may now disconnect.
Operator: Ladies and gentlemen, thank you for standing by. Welcome to Aptar's 2025 Fourth Quarter and Annual Results Conference Call. [Operator Instructions] Introducing today's conference call is Mrs. Mary Skafidas, Senior Vice President, Investor Relations and Communications. Please go ahead. Marry Skafidas: Thank you. Hello, everyone, and thanks for being with us today. Our speakers for the call are Stephan Tanda, our President and CEO; and Vanessa Kanu, our Executive Vice President and CFO. Our press release and accompanying slide deck have been posted on our website under the Investor Relations page. During this call, we will be discussing certain non-GAAP financial measures. These measures are reconciled to the most directly comparable GAAP financial measure and the reconciliations are set forth in the press release. Please refer to the press release disseminated yesterday for reconciliations of non-GAAP measures to the most comparable GAAP measures discussed during this earnings call. As always, we will also post a replay of this call on our website. I would now like to turn the call over to Stephan. Stephan Tanda: Thank you, Mary, and good morning, everyone. We appreciate you joining us on the call today. I will begin my remarks by highlighting our annual and fourth quarter results. And later in the call, our CFO, Vanessa Kanu, will provide additional details on the key drivers for the quarter. For the quarter ending December 31, 2025, we delivered very strong top line performance. Reported sales grew 14% to $963 million, up from $848 million in the prior year. Core sales increased 5%, reflecting healthy underlying demand across our portfolio. Our adjusted EBITDA margin was approximately 20%, impacted partially by a combination of higher-than-expected production costs in our Beauty and Closures segments as well as shifts in product mix, including the decline in demand for emergency medicine products that we discussed last quarter. Vigorous productivity measures will remain a major focus for us in 2026 and beyond. We are continuing to lean into our cost reduction initiatives and push further on back-office centralization through our global talent centers. Vanessa will speak in more detail about these dynamics in her remarks. Stepping back, our teams executed well with all 3 segments delivering core sales growth this quarter. In Pharma, growth was led by continued strong demand for our elastomeric components, ongoing momentum in our systemic nasal drug delivery technologies and a return to growth in our Consumer Healthcare division. Our Beauty segment delivered double-digit core sales growth with strong growth across each end market, fragrance and facial skin care as well as personal and home care. Based on what we have heard from our customers, their holiday sales, especially the pre-holiday events such as 11/11 in China and Black Friday in the U.S. were encouraging. And in Closures, we saw solid product volume growth, reinforcing the strength of our market positions. Vanessa will talk about the operational disruptions we experienced in Beauty and Closures, which were clearly disappointing. Our teams are actively working through these issues. Together, these results highlight though the resilience of our business, the strength of our global technology platforms and the benefits of our innovation-led application portfolio. Let me now take a moment to review our full year performance. For the year ended December 31, 2025, reported sales increased 5% to $3.8 billion compared to $3.6 billion in the prior year. Core sales were up 2%, reflecting steady demand across key product categories. On the bottom line, we also delivered growth for the full year. Reported net income increased 5% to $393 million, and reported earnings per share grew 7% to $5.89, up from $5.53 a year ago. Adjusted earnings per share were $5.74, a slight decline of 1% versus $5.81 in the prior year, including comparable exchange rates. We continue to take a disciplined and balanced approach to capital allocation. In 2025, we returned $486 million, so almost $0.5 billion to shareholders through share repurchases and dividends. Capital expenditures decreased year-over-year and represented about 7% of sales, which reflected our focus on efficiency and prioritization of high-return investments, a focus we fully intend to continue in 2026. Importantly, 2025 marked our 32nd consecutive year of paying an annually increasing dividend, a milestone that speaks to our commitment to shareholders and the resilience of our business model. Overall, these results demonstrate our ability to deliver consistent performance, invest for long-term growth and return capital to shareholders, all while navigating a dynamic operating environment. Before I turn the call over to Vanessa, let me turn to our very important Pharma pipeline, where our core business continues to deliver. In 2025, systemic nasal drug delivery accelerated and injectables accounted for a greater portion of our opportunity set. Core sales for our Pharma segment, excluding emergency medicine, grew 10% in the fourth quarter compared to the same period in 2024. We fully expect our pipeline and recent launches to support our ability to deliver our long-term core sales target of 7% to 11% growth with adjusted margins of 32% to 36%. Our prescription drug pipeline spans a broad range of therapeutic areas across respiratory, injectable, ophthalmic and dermal drug delivery routes. The top therapeutic categories in our pipeline ranked by weighted value include respiratory, biologics and injectable formats, systemic nasal drug delivery, especially in central nervous system, pain management, emergency medicine, small molecule injectables, ophthalmology, allergic rhinitis, vaccines delivered both intranasally and via injection and dermatology. The key message here is that we continue to build on a very well-diversified portfolio of medical indications and delivery technologies. Injectables have taken an increasingly prominent role in the pipeline and the systemic nasal drug delivery has expanded, nasally delivered central nervous system therapies has represented the majority of opportunities, which we expect to continue. Historically, our pipeline contributes about 10% of annual revenue, while the remaining 90% is driven by repeat business. Within that repeat business, we anticipate Pharma's primary growth engine continuing to be fueled by volume growth and mix enrichment. So overall, our core business performed very well in 2025. Systemic nasal drug delivery has accelerated and injectables represented a larger share of the pipeline. We see this supporting our sustained growth across multiple therapeutic areas. I would also like to highlight the exceptional progress across our Pharma pipeline and the strong momentum we are seeing with our customers. Over the last few months, several important programs have advanced, many of which rely on Aptar's market-leading nasal drug delivery technologies. Starting with CARDAMYST, Milestone Pharmaceuticals breakthrough first and only self-administered nasal spray delivered through our Bidose delivery system for adults with acute symptomatic PSVT for the experts that stands for paroxysmal supraventricular tachycardia or in layman terms, a fast heartbeat that starts and stops suddenly. This represents a major milestone for patients by offering rapid on-demand treatment that shifts care from the emergency room to the home. The U.S. FDA approval in late 2025 makes this the first new PSVT treatment in decades and supports future development of AFib or atrial fibrillation with rapid ventricular rate. Piper Sandler also noted that with the U.S. launch expected in the first quarter of 2026, this product is projected to scale meaningfully over the next decade. Additionally, our Active Materials Science division designed the portable dual container system for CARDAMYST that safely houses 2 Bidose devices and prevents accidental activation at the moment of need. In vaccines, our position as a partner of choice continues to grow. CastleVax's Phase II study of its intranasal COVID-19 vaccine is using Aptar's LuerVax and Spray Divider platforms to assess mucosal immunity in roughly 200 adults. This collaboration underscores our deep regulatory and technical strengths in nasal vaccine delivery. In ophthalmology, we signed an exclusive agreement with Bausch + Lomb for our Beat the Blink eye care delivery system, which delivers medication through a horizontal spray action. Internationally, regulatory milestones also validate our technologies. In Australia, for example, the Therapeutic Goods Administration, or TGA, approved neffy, the first needle-free epinephrine nasal spray for anaphylaxis, representing the most significant change in emergency allergy care in more than 20 years. And finally, LTR Pharma initiated its Phase II pharmacokinetic study of SPONTAN, a rapid-acting intranasal therapy for erectile dysfunction. The study includes both younger and older adult cohorts with data expected in the second quarter of 2026. This reinforces the broader shift towards fast, predictable intranasal delivery, an area we believe Aptar is exceptionally well positioned. Across all these examples, the message is clear. Aptar's innovation engine continues to enable major breakthroughs across Pharma and our technologies are at the core of some of the most important and exciting new drug platforms in development today. During the quarter, we also enabled numerous new product launches in Beauty and Closures. In Beauty, Unilever selected our new high-dose all-plastic pump technology for their Nexxus hair care launch for all of their 13.5-ounce and 33.8-ounce shampoo and conditioner lines in North America. We also developed a custom version of our premium Airless beauty pump solution for Chanel's, HYDRA BEAUTY Micro Serum in Europe. And finally, a new skin care line from the Chinese beauty brand, [indiscernible] features our airless pump and reloadable solutions, providing also shipping durability. All of these recent examples are using higher-value technologies from our beauty portfolio. Turning to Closures. McCormick launched a new condiment line called Cholula Cremosa using our flip top pour spout closure, which brings a new level of clean and controlled directional dispensing to their line of flavorful sauces in North America. And in beverages, Coca-Cola's Powerade and BonAqua water and energy drinks in South Africa feature our spout closure with Tamper-Evident technology. Unilever has partnered with us on a custom 100%, post-consumer recycled resin or PCR, dosing closure for their comfort concentrated line of fabric softeners in Brazil. And finally, let me touch on recent recognitions received in the quarter. We are pleased to continue our global leadership in sustainability by taking measurable actions on climate and demonstrating a strong commitment to transparency. In 2025, over 22,000 companies disclosed environmental data through CDP. These companies represent more than half of the global market cap, and we are again part of the CDP Climate A list placing among the top 4% of the companies with the highest score from CDP. In addition, for the seventh consecutive year, we are named one of America's most responsible companies by Newsweek, ranking 56 out of 600 U.S. companies. Now I would like to turn the call over to Vanessa. Vanessa Kanu: Thank you, Stephan, and good morning, everyone. Let me begin by summarizing the highlights for the quarter. As Stephan noted, our reported sales increased 14% and core sales, which adjust for currency effects and acquisitions, grew 5% compared to the prior year. We achieved adjusted EBITDA of $191 million, a decrease of 2% from the prior year and adjusted EBITDA margin of 19.8% compared to 23% in the prior year due to a combination of less favorable product mix and higher-than-anticipated production costs in our Beauty and Closures segments. I will touch on these factors momentarily. Adjusted earnings per share were $1.25 compared to the prior year's adjusted earnings per share of $1.62 at comparable exchange rates. With those high-level comments, let's take a closer look at segment performance. Our Pharma segment's core sales increased 4%. Let me break that down by market, starting with our proprietary drug delivery systems. Prescription core sales increased 1%, driven by strong year-over-year demand for dosing and dispensing technologies for systemic nasal drug delivery, especially for central nervous system and pain applications, asthma and COPD therapeutics. This growth, coupled with growing royalty payments, more than offset lower emergency medicine sales. Excluding emergency medicines, which declined 36%, prescription core sales increased 10% in the quarter. Consumer Healthcare core sales increased 3%, primarily due to an increase in sales for nasal decongestant and cough and cold solutions. This marks a shift back to positive growth in this division after a period of inventory normalization at the customer level. Injectables core sales increased 24% with strong demand primarily for elastomeric components used for GLP-1, antithrombotics and small molecules. Services also contributed positively in the quarter, and we continue to see strong pipeline build for Annex 1 and biologics projects. And for our Active Materials Science Solutions, core sales decreased 10%, driven by a challenging comparison from a large tooling sale in Q4 2024 that did not repeat. Pharma's adjusted EBITDA margin for the quarter was 32.4%, a 330 basis point decline from the prior year. The margin decline was driven by product mix and volume due primarily to a decline in demand for emergency medicine. Moving to our Beauty segment. Core sales increased 10% in the quarter, of which 1/4 of the growth was tooling. The double-digit growth in core sales provided a strong top line lift despite some operational disruptions. Looking at the two largest end markets for Beauty, Fragrance, Facial Skin Care and Color Cosmetics core sales increased 7%, primarily due to higher sales from both masstige and prestige fragrance pumps as well as color cosmetics. Personal Care core sales increased 17% with broad-based growth across all regions. Applications for body, hair and sun care continue to show strong demand. Beauty's adjusted EBITDA margin for the quarter was 10.2%, a decline of 220 basis points. The decline in Beauty's margin primarily reflects certain customer projects, including tooling at lower margins. Additional impacts included required environmental upgrades at one of our metal anodization plants as well as operational disruptions at an existing supplier that required us to qualify a new supplier and perform additional quality testing. These impacts will abate through the first half of 2026, and we expect to see steady improvement in Beauty's margin quarter-by-quarter. Moving to the Closures segment. Core sales increased by 1% compared with the prior year period. While volumes were up, core sales were impacted by the pass-through of lower resin pricing. Looking at the two largest end markets for closures, Food core sales decreased 1%, primarily driven by lower sales of infant nutrition and granular powder. Beverage core sales increased 7%, primarily driven by increased sales for dairy and functional drinks. The segment's adjusted EBITDA margin was 14.9%, representing a 120 basis point decline over the prior year, primarily due to continued equipment maintenance that impacted production and higher tooling sales that are typically at a lower margin. Our closures team is working through necessary repairs and the maintenance issue is expected to be transitory. At the total company level, consolidated gross margins declined by 371 basis points in Q4 year-over-year as a result of the mix and production impacts I just discussed. I also want to call out that Q4 2025 was a record quarter for tooling sales, culminating to full year 2025 being the second highest year for tooling sales in over a decade. Although tooling typically carries lower margins, this performance bodes well for customer retention and potential new business. SG&A expense in the quarter increased in absolute dollars, largely due to currency effects, nonordinary course litigation costs incurred in the quarter and the effect of acquisitions. SG&A as a percentage of sales decreased from 16.3% in 2024 to 15.7% in 2025, a 60 basis point reduction year-over-year. Overall, consolidated adjusted EBITDA margins decreased by 320 basis points to 19.8%, reflecting the dynamics I just highlighted. Adjusted earnings per share of $1.25 were down 23% year-over-year at comparable exchange rates due to higher depreciation and amortization expenses associated with our capital investments and acquisitions and higher interest expense due to a higher average debt balance compared to the prior year. Our adjusted effective tax rate for the quarter was 19.4% compared to the prior year's 13.5%, which, as a reminder, included a one-off benefit related to an acquisition. On November 20, we issued $600 million of 4.75% senior notes that are due in March 2031 through an underwritten public offering. The notes which pay interest semiannually are unsecured and rank equally with our other senior unsecured debt. And finally, during the quarter, we repurchased $175 million of common stock and returned $206 million to shareholders, inclusive of dividends. Now let's take a look at full year 2025 results. Reported sales increased 5% and core sales increased 2%. Adjusted EBITDA increased 5% and adjusted EBITDA margin remained consistent with the prior year at 21.6%. Reported earnings per share increased 7% to $5.89. Adjusted earnings per share were $5.74, a decrease of 1% compared to the prior year at comparable exchange rates, reflecting again higher depreciation and amortization expense and higher interest expense year-over-year. The adjusted effective tax rate for the full year was 21.4% compared to the prior year's 20.5%. Free cash flow was $303 million, comprising cash from operations of $570 million, less capital expenditures net of government grants of $267 million. Free cash flow was $64 million lower year-over-year, largely due to the timing of tax payments of about $44 million, along with higher pension contributions of about $10 million as well as some higher working capital. These were partially offset by lower capital expenditures. For the full year 2025, we repurchased 2.7 million shares for $365 million, the highest repurchase amount in the past decade and returned $486 million to shareholders, inclusive of dividends. Yesterday, we announced a new authorization from our Board of Directors to repurchase up to $600 million of the company's common stock. This new authorization replaces all existing authorizations. Finally, we ended the year with a strong balance sheet once again, reflecting cash and short-term investments of $410 million, net debt of about $1.1 billion and a leverage ratio of 1.38. Before we move to the outlook, I'd like to briefly update you on our emergency medicine portfolio and reaffirm the guidance we provided last quarter. We continue to anticipate near-term headwinds extending through 2026. Based on what we currently know about end market demand, funding dynamics and customer inventory levels, our outlook remains unchanged. Specifically, we expect the decline in emergency medicine to represent a 2026 revenue headwind of roughly $65 million. We expect the impact will be more pronounced in the first half of the year, driven by challenging comparisons to 2025. And while we do not anticipate a recovery in the second half, the year-over-year impact should moderate as we move through the back half of the year. Given the high-value nature of this portfolio, this dynamic will put some pressure on overall margins ahead of any mitigating actions we may take. This is a short-term headwind. Demand for nasal drug delivery technologies continues to be strong as we expand to new therapeutic areas, and we are able to deliver larger molecules through the respiratory system over time. Now on to our outlook for Q1. We anticipate first quarter adjusted earnings per share to be in the range of $1.13 to $1.21 per share. This reflects the higher interest rate environment and our bond offering completed in Q4, an effective tax rate range of 21% to 23% and a euro to USD exchange rate of $1.18. For full year 2026, capital investments are expected to be in the range of $260 million to $280 million, and depreciation and amortization expense is expected to be between $320 million and $330 million. As I mentioned during our Investor Day presentation in September, we have sustained cost savings and productivity improvements well north of $100 million. These savings are structural rather than onetime, resulting in a leaner cost base, improved scalability and lower cost intensity. We continue to drive productivity through footprint rationalization and targeted investments in automation and advanced manufacturing technologies, including AI, energy efficiency and continuous improvement initiatives. As we've noted before, structural actions are ongoing, and we regularly assess opportunities to optimize our global manufacturing footprint. Recent actions include further centralization of back office and support functions into global talent centers enabled by greater standardization and process automation. Within our Beauty segment, we are further consolidating our metal operations in France and rationalizing a U.S.-based beauty R&D office to better align and leverage resources. These actions reflect our continuous improvement mindset as we continue to pursue additional organization optimization opportunities. With that, I will turn it over to Stephan to provide a few closing comments before we move to Q&A. Stephan Tanda: Thank you, Vanessa. Looking ahead to 2026, Aptar is well positioned for broad-based growth across all 3 of our segments. We expect continued strong growth in our Pharma segment, excluding emergency medicine, which has experienced a period of destocking. We continue to see solid growth momentum across injectables, systemic nasal drug delivery and our consumer health care solutions, all of which remain well positioned for growth. In Beauty, improving demand in prestige fragrance is an encouraging sign that the category is beginning to return to growth. And in Closures, we expect a steady performance supported by ongoing innovation and continued category conversions. Our disciplined focus on productivity, together with our strong balance sheet gives us the ability to return capital to shareholders while also retaining strategic flexibility and investing in the business to support long-term value creation. And with that, we are looking forward to your questions. Operator: [Operator Instructions] Your first question comes from the line of Paul Knight with KeyBanc . Paul Knight: The first question is great performance in the elastomer business with GLP-1 growth. Do you see any deceleration in GLP-1 demand and elastomers in general in 2026? And then the second question is for Vanessa, your EBITDA margin trends as we roll out through the year. Stephan Tanda: Paul, good morning, let me take the first one, and then Vanessa will come back on the second one. So overall, we see injectables to grow in the high single digit, low double digits, you always have fits and spurts. If I go back a little bit as we constructed the new plant and validated equipment and put an ERP system that we were kind of not being able to deliver everything customers wanted. Now that we are able to deliver every customer want and catching up with demand, we had some strong quarters, and we expect that continue, but steady state, I would think about high single digit, low double digit. GLP-1 certainly is important for us, but let's put it in context, overall of our Pharma business, it's tens of millions, maybe from the low tens of millions to the mid-tens of millions, but it's still not the sole driver of the injectable growth. It's much broader-based vaccines, other biologic projects, blood factors and so on. Vanessa Kanu: Paul, and then on the second part of your question about margins, for the full year, we certainly expect margins to be significantly more robust in the back half of the year, driven by a couple of factors. So first, as I mentioned earlier in my prepared remarks, the year-over-year impact of the emergency medicine decline will be more pronounced in the first half. And of course, that being a very higher-margin portion of our portfolio. So therefore, the margin pressures will be stronger in the first half than the second half. We also expect sequential quarterly improvements in the margins for Beauty and Closures, as I mentioned as well, as we progress through the year, and that's driven by increased volume and also the production dynamics we saw in Q4 will start to abate as well. And then last but not least, across all the segments, as I mentioned, we are pursuing additional productivity measures that will help to partially mitigate the emergency medicine impact. And I would expect those measures to contribute more meaningfully in the second half of the year. So all that to say, while we don't guide for the year, and we certainly do have some moving parts in terms of mix and other dynamics, I would expect the second half to be much stronger than the first half. And for the full year, certainly at a total company level to be within the long-term target range. I hope that answers your question, Paul. Paul Knight: Yes, it really does. Operator: [Operator Instructions] Your next question comes from the line of George Staphos with Bank of America. George Staphos: I wanted to spend my 2 questions on Beauty and Closures, and understand a little bit more about what happened since in aggregate, I think you would agree the margin performance there was a bit disappointing. Vanessa or Stephan, I think you mentioned something about continued maintenance in Closures. And I'm not really sure what that means since obviously, there's always ongoing maintenance. In Beauty, it seems like you were surprised with demand and that created some issues that then flywheeled around the rest of the organization to lead to the margin that you had. Can you comment on some of the specifics and what happened for those 2 segments in terms of the fourth quarter? And then when should we expect margins to -- you said they're sequentially improving. When do they cross over and become positive again? Is that 1Q, 2Q? Any help you could give us here would be really appreciated. Stephan Tanda: Let's maybe tag team here. Hi, George. You raised a number of topics. Maybe a couple of things. One is we are, of course, very encouraged by the top line growth. of Beauty, noting a couple of things that Vanessa mentioned, about 1/4 of that growth came from tooling sales and fragrance coming back. And then the operational issues, I respectfully do not agree with your characterization. Basically, we had some new environmental measures that were required at one of our anodization plants at different permit levels and so on that required significant action, including once that hit the cost line. It's not ongoing, but it needed to be done to remain in compliance. And on the Closure side, I'll let Vanessa speak to that. But yes, I'm not happy with some of the uptime and unscheduled maintenance and the team has there a lot of work to do or has work to do to address that. But maybe, Vanessa, you try to fill in here what I didn't answer. Vanessa Kanu: Yes. And I don't know that I would add much more color to it than that. There's a backlog of maintenance that we're dealing with in Closures. The team is working through the repairs as we speak. And so we do expect those issues to start to improve. George, I can't specifically guide you to what quarter we expect Beauty and Closures to hit the long-term target range, but we do expect steady improvements quarter-by-quarter. And... George Staphos: Vanessa, but I wasn't asking about when you hit your guide, I want to know when you think you'll be up year-on-year, just to be clear. So -- but keep going. Sorry about that. Vanessa Kanu: Yes. Yes, we're working through these issues. Stephan Tanda: Yes. Let's be clear, we expect significant improvement in the margin already in Q1, and these are not repeat items. The supplier issue, just to give a little more color, we had -- one of our suppliers experienced a fire. So we had to qualify another supplier with worse pricing and worse quality. So that increased the cost. Now for the primary supplier to come back up, it will probably take a couple of months, but the environmental issues are behind us. So we don't plan for these things. But on the other hand, I'm quite proud that we landed EPS nevertheless, in line while overcoming these issues. And certainly, we don't expect them in quarter 1 to repeat at that magnitude. Operator: Your next question comes from the line of Matt Roberts with Raymond James. [Operator Instructions] Matthew Roberts: Stephan, Vanessa, and Mary, I appreciate the color given on emergency medicine, and it seems like it's unchanged from last quarter. But 4Q Pharma core sales were still up. So while that's good. Could you provide additional color on the emergency comp in 4Q and what it will be in 1Q and 2Q in emergency medicine and that 10% ex-emergency medicine in 4Q, are the drivers of that sustainable in the first half enough to again offset that tougher emergency comp you saw in 4Q? Or is it just that much harder and not expecting growth in first half? And then I'll go ahead with my second question. When you look at the Pharma margin, I think it was down 3 points year-over-year. How much of that was due to the mix of emergency medicine? And over the past couple of years, I think 1Q generally is the lowest margin for Pharma seasonally. Should we expect a similar 3-point decline we saw in this quarter? Or anything else that we should consider year-over-year? I think prior year had a royalty benefit as well, so maybe that was inflated. So just any additional color you could give there on the Pharma margin for 1Q? Vanessa Kanu: So Stephan, do you want me to start and you can pipe in. I'm going to try to make sure I capture as much of your questions, Matt. Thank you very much. And thanks for noting, I mean, Pharma did have a strong quarter, excluding emergency medicine, that overall revenues were up 10%, excluding emergency medicines, and that is just coming from strength in the other parts of the portfolio. We had really good demand, CNS, central nervous system sales were up in the quarter, asthma, COPD, sales were up in the quarter. Turning the tide on CHC, certainly was important because it did not create a drag to those -- to the other areas of growth. And of course, we've already talked -- or Stephan has already talked about the 24% growth in injectables coming from GLP-1s, but also antithrombotics and other parts of the portfolio. So all of those items culminated to the 10% growth, excluding emergency medicine. Now your question really then is, okay, well, are you going to see 10% growth ex emergency medicine for the rest of the year? And we can't comment to that level of specificity because we don't guide for the year, but certainly, we expect continuing strength across the Pharma portfolio. We don't see that as being a onetime item for Q1. We expect that broad-based growth in Pharma -- sorry, in Q4. We expect broad-based growth in Pharma, again, ex emergency medicine going forward. And then in terms of your question on margin, there wasn't really anything else on the Pharma margin side besides the mix and volume of emergency medicine. So you're absolutely right. That is the biggest -- that was the biggest driver in Q4. And we do expect Pharma margins on a full year basis to again improve from Q4 levels. Matthew Roberts: Okay. That 3-point decline in emergency medicine, can you comment, that would be similar in 1Q? Or is it comp harder so we should expect a greater magnitude? If you could give anything additional, that would be great... Vanessa Kanu: Yes. So we quantified $65 million as a full year headwind and most of that being in first half. I would give you maybe a rule of thumb as think 2/3, 1/3, H1 versus H2, 70, 30-ish in that ballpark. Stephan Tanda: But I just want to highlight that Vanessa said for the full year, we do expect to be within the long-term target. So we can't really give you the quarter-by-quarter evolution. But looking at everything that we see, we remain confident in that. Operator: Your next question comes from the line of Dan Rizzo with Jefferies. [Operator Instructions] Daniel Rizzo: Okay. Stephan Tanda: We heard you there for a second, Dan, then you were gone again. Daniel Rizzo: Yes. I'm sorry, I'm having more of technical issues. Can you hear me now? Stephan Tanda: Yes. Daniel Rizzo: Sorry about that. I was asking about NARCAN after the headwinds from this year when things kind of stabilize and get back to maybe a more normalized environment, how we should think about growth over the long term? I mean, obviously, there's a big surge. This is the offset of that. But I mean, how should it kind of shake out in the out years? Stephan Tanda: Yes. What we hear from our customers, Dan, is that they fully expect kind of a low to mid-single-digit growth rate from the new baseline. Where exactly that new baseline is, I think we all want to know very badly. But -- and the reason is quite simple. It's being used every day by first responders. People's lives are being saved on an everyday basis. It is still by far the easiest way to spend the harm reduction dollars at state level to spend the opioid settlement money. And if you compare it with some other things like where is a fire extinguisher around me, where is a defibrillator, our customers see a lot of room for growth, making them available and break the glass boxes in buildings, on airlines, in buses. So there's a lot of room for this to keep growing. And then on that, of course, you overlay geographic growth, although we have to admit the U.S. is by far has the biggest issues in that category, but we see growth in Canada, in Europe and so on. So low to mid-single digits. Daniel Rizzo: All right. That's very helpful. And then just with cough and cold with the nasal delivery. So you had kind of a soft winter maybe a year or so ago, led to some destocking afterwards. When do you kind of know if the winter was strong or soft or how it's shaping up for the outlook? So I mean, I'm assuming this year is actually pretty strong in terms of cough and cold. So would you know that by the second quarter? Or how does that read? Stephan Tanda: Yes, we certainly will be able to update you maybe as early as the Q1 call, but for sure, the Q2 call. Clearly, we see the consumer health care destocking behind us and back to growth mode and then how rapid that growth will be impacted by how strong the cold and cough and flu season is. And as we all know from experiencing ourselves or those around us, it's a pretty strong season this year. Operator: Your next question comes from the line of Matt Larew with William Blair. Matthew Larew: The first one I want to ask about was on margins. So leading into this quarter, you had improved your EBITDA margins 10 straight quarters, reflecting the great operational performance there. And then there were a number of one-off issues here. Vanessa, you called out the tooling mix, the maintenance issues, obviously, the loss of the NARCAN business. Is there any way you could quantify those issues? Or were you able to internally, to give you confidence that you still improved underlying margins? And it sounds like, Vanessa, based on your comments at the end of the call, that you still feel good about the trajectory and opportunity to expand margins from here. Stephan Tanda: Well, Vanessa is thinking about those numbers, let me just -- we didn't lose any NARCAN business. We were the sole supplier to that opportunity because of the strength of our intellectual property. But yes, we have the destocking or whatever you want to call it, the strong comparable. Vanessa Kanu: Yes. And Matt, I think you called it out. To be clear, we're not happy about the operational issues in Beauty & Closures, and you heard that in Stephan's script. So we certainly don't want to trivialize that. But those should be transitory, those should be nonrecurring, and the teams are actively working through those issues. So if I sort of isolate that and isolate the impact of the NARCAN mix, the rest of the business is quite healthy in margin. And as we progress through the year, as I mentioned earlier, I do expect margins to be stronger in H2 than H1 and for the full year to still be within the long-term target range at the total company level. So absolutely, some of these items are isolated to what we're going through right now, but should start to correct themselves as we proceed through the year. Matthew Larew: On capital allocation, you did a small deal in late 2025 with Sommaplast. You just announced a new buyback plan. Maybe just give us a sense for capital allocation priorities and what you're seeing out there in terms of Sommaplast or other interesting areas of potential investment in 2026? Stephan Tanda: Well, let me take the last part and then maybe Vanessa, you can talk a little bit more about the buybacks. Clearly, our M&A algorithm continues to execute. We look at plenty of opportunities. You look at 10 deals, maybe you do one. And you guys know what we're looking for. We're looking for bolt-ons that come with good management that wants to stay with us and continue to drive it. That's our sweet spot, that's our history, and that's what we're looking for. In addition to that, we look for technologies that we can acquire to strengthen our intellectual property portfolio and/or leverage across the company and further build out our kind of more Pharma packaging type business on building on the active material portfolio. And what we did in Brazil is certainly an indication of the kinds of things we are looking for. And in general, adding geographic breadth in the large markets is always of interest. And that's not only in Asia and the Middle East, although those are important growth regions for some of our Pharma business, the U.S. is a very important growth region. So -- but we always look to add some geographic footprint. And then with that, I'll hand it to you, Vanessa, on more... Vanessa Kanu: Sure. Yes, and... Stephan Tanda: Specific topics. Vanessa Kanu: Yes. And Matt, on the capital allocation policy, we're not changing our policy. We will continue to allocate capital towards our own growth and of course, return a portion of that capital back to shareholders. And we very much continue to see ourselves as a growth company. You've heard the numbers, Q4, the strength in Pharma and so on. And so we'll continue to invest for growth. But the Board authorization gives us the flexibility for us to buyback shares when it makes sense. And we like the flexibility, but it is completely discretionary, and we'll pull on that lever when it makes sense as you saw us do in certain quarters of 2025. Operator: Your next question comes from the line of Gabe Hajde with Wells Fargo. Gabe Hajde: Vanessa, you mentioned $100 million of cost savings and productivity. It sounds like there's a, call it a laundry list of things that you guys are chipping away at. I feel like the last formal number that you've given us was $80 million starting in 2021, getting after some of these, again, productivity initiatives and things like that. First time I'm hearing a number, can you tell us maybe how much you're going to get in '26 and what the runway is on that? Vanessa Kanu: Yes. Gabe, actually, we went -- we did share those numbers during our Investor Day. At the time, we actually shared about $110 million of cost -- annualized cost reductions over the last couple of years. So that's not new. It could be that you heard the $80 million perhaps a year earlier, you could maybe, but what we shared in September was about $110 million. And of course, we continue to execute against cost reduction since then. So hence, in my remarks, I mentioned well north of $100 million. And that is really just was in reference to how much we've taken out. It's not necessarily a guide to what is to come. All of the items that I went through in my script really is just to give you an indication of the different levers that we're looking to pull. And certainly, productivity is a big part of our -- we have a number of initiatives for 2026 and a big part of our priority for the year as well, particularly to help to combat some of the mix issues. But we haven't -- we're not guiding on a specific saving number for the year. Stephan Tanda: And maybe let me build on that. Clearly, as you guys know, we changed poise and rigor somewhere in COVID around '22 to get much more serious on productivity. We've done a lot of work in terms -- in the consumer-facing businesses with -- in Beauty and in Closures and a lot of work on back office streamlining, Vanessa talked about earlier. It's funny, when you build this muscle, you start to get additional ideas. So we ended the year with a very robust productivity agenda. And not only to address these short-term issues, but really to further drive efficiencies across the network, and we have ideas for '27 and beyond. It really is not part of our toolkit, and we've built the muscles and I'm very proud of the team that they come with additional ideas to reduce cost in place, so to speak, to further streamline the network, take less efficient operations offline, take advantage of more efficient operations and so on. So it's part of our DNA. Gabe Hajde: Okay. And I apologize, it struck me as something that was fresh or recently initiated. So apologies there. I wanted to ask about the CARDAMYST getting FDA approval. I know it's always tough with these things, but are you seeing initial pipeline fill in '26? Or do you expect to see -- you mentioned a 10-year runway in terms of ramping up to maybe its full potential. Again, I know it's always challenging when you have a new drug and getting physicians acclimated and then, of course, consumers using it. But maybe initial thoughts on even if it's offsetting some of the NARCAN drag in the first half of '26? Stephan Tanda: Yes. Indeed, I agree with you that it's not easy to kind of give projections on how a new drug will do, especially in the short term, as you know, you have to work through prescribers, payers, supply chains and so on. And our normal way of being in this industry is that it takes several years to kind of establish a trajectory. NARCAN certainly was an exception in terms of kind of steepness of the adoption curve and going generic and over-the-counter and all that. Other examples for Aptar, I will give didn't go anywhere for 4 years and then took off and now it's a blockbuster and continuing to grow and everything in between. So neffy seems to be a no-brainer, if you ask me, but it's not easy to go through all these hurdles from getting it prescribed, getting it reimbursed. And for me, the cardiac treatment also seems to be a no-brainer. But if you have to not go to the emergency room and just take a puff in layman's term of cardiac medication then that seems to be a no-brainer. But we will have to see how it plays out. I think I quoted Piper Sandler, I certainly don't pretend to be smarter than them. Operator: Your next question comes from the line of Ghansham Panjabi with Baird. Ghansham Panjabi: Can you hear me okay? Stephan Tanda: Yes, hi, Ghansham. Ghansham Panjabi: Okay. Perfect. Stephan, just going back to 4Q and the emergency medicine component. Did that come in, in line with your initial view? I'm just asking the question because, obviously, you're going through a chaotic sort of destocking in the supply chain, et cetera, visibility, I assume, is low. Just curious as to how 4Q specifically tracked relative to internal projections. Vanessa Kanu: It was in line. Ghansham Panjabi: Okay. And then in terms of 1Q guidance year-over-year on an EPS basis, we're within striking distance from a year ago. Is that a reasonable proxy for 2Q, again, given all the dynamics with the destocking, et cetera? Vanessa Kanu: Yes. That's a difficult question to answer without getting into sort of the quarterly guidance. Maybe the best way I'll answer it, Ghansham, is we think when we looked at what you guys have modeled for the full year, we think you guys have taken the input that we gave. You know, the -- we reaffirmed today the roughly $65 million year-over-year headwind on NARCAN because that's really where the headwind is coming from, which is roughly in line with what we had guided towards the end of last year. So that -- so we think you guys did capture that well in your models. We think your full year has captured that quite well. But getting into quarterly specifics, I think we can't provide any further guidance beyond the H1, H2 dynamic that I mentioned earlier, with H1 being the most severely impacted in terms of the year-over-year headwind. Ghansham Panjabi: Okay. That's helpful. And -- yes, go ahead, Stephan. Stephan Tanda: Yes. Just to add, say in different words maybe. We feel very good about the momentum with which we entered the year, emergency medicine aside, the rest of all the Pharma businesses, whether it's Rx, CHC, injectables, active materials is growing nicely. Beauty is returning to growth. Closures, we expect to continue to execute on category conversion. So yes, we have to overcome that high margin $65 million headwind. We also have to overcome some taxes and interest rate costs. But we feel very good about how we enter the year and how the full year should unfold. Ghansham Panjabi: And just one final one on the $600 million authorization. Just to clarify, is that -- is it your intent to fund that sort of with excess cash from free cash flow? Or should we think about flexing the balance sheet just given where your leverage position is at this point and that's another lever that you can pull? Vanessa Kanu: Exactly both. Yes. And we have flexibility on that $600 million, as you know. We had announced at the end of Q3 that at the time, we had about $275 million left on our prior authorization. And we did say that we would use all of that by the end of Q1. We used $175 million in Q4. So we have about $100 million of that, but that's been replaced by the refreshed authorization of $600 million. So we will -- we do have flexibility as to the exact timing of that -- of spending that. Operator: Your next question comes from the line of George Staphos with Bank of America. George Staphos: So Vanessa, I was looking at the cash flow statement, and it seemed like there was a bit more of a build in working capital and generally, the other balance sheet item changes this year versus last year, a bit more in the fourth quarter, if I'm not mistaken. Vanessa Kanu: Yes. George Staphos: What was driving that? And then not to pick on this, I just want to understand a little bit further, and I'll leave it here. Stephan, you said that you got behind on maintenance projects in Closures. How does that happen? Is that just a function of there was a lot of demand, and that's where the focus was? Or how would you have us think about it? Vanessa Kanu: So I'll start with free cash flow and then Stephan, if you want to give more color on the maintenance issues in that plant in Closures. On the free cash flow side, you're absolutely right, George. So we were down this year about $64 million in free cash flow year-over-year, but most of that actually was due to timing of tax payments. So $44 million of the $64 million was driven by timing of tax payments. Another $10-or-so million was driven by timing of pension payments -- or pension contributions, I should say. And then the balance was sort of the net change in working capital. So when I look at working capital, I don't see anything there that really sticks out. Our DSO went up very slightly, perhaps by a day or so. Our days of inventory came down very slightly by perhaps by about half a day or so. So I'm not terribly concerned on the quality of working capital or the quality of receivables. But certainly, the timing of that $44 million tax payment in addition to $10 million pension contribution did impact free cash flow. George Staphos: Okay, no, that's helpful. Thank you. And go ahead, Stephan. Stephan Tanda: Yes. On your second question, I don't want to make it too big, but this is at one site in North America, where some large equipment was taken offline for a period of time and then didn't come back up the way it should. And this -- in my 35 years of industrial career, this is what happens once in a while. We are not happy about it. And this is about we should have done this or this or this differently, but -- and the teams are learning from it and addressing it. George Staphos: Understood. Look, you guys run companies, we're just analysts, but appreciate the color there. Operator: Your final question comes from the line of Matt Roberts with Raymond James. Matthew Roberts: Stephan, I wanted to ask about the nasal and respiratory pipeline. As in the prepared remarks, I believe you noted respiratory was the top ranked by weighted value, which is somewhat surprising given there's been such strong growth in the nasal reformulation side. So is that a function of growth rate or revenue base? Or maybe said differently, how do you think about the underlying growth rate of respiratory and nasal categories in the pipeline? Or is it a function of maybe a higher revenue base on one of those? And any themes or what's driving the respiratory drugs in the pipeline? Stephan Tanda: Yes. I mean, first of all, it's a large and important business. And that category is going through a change in propellant with lower greenhouse warming potential. So I think that makes it maybe disproportionately bigger without getting into all the specific projects. And we're extremely excited about the systemic nasal drug delivery. But let's remember, a handful of years ago, that category was almost 0, so -- versus the existing base. So that it's already that high up on the list is actually pretty good news, but inhalation is an important part of our business. Matthew Roberts: Thank you again.. Stephan Tanda: Thank you. Operator: There are no... Stephan Tanda: Yes, let me -- operator, thank you. Let me summarize the call. Our teams delivered solid top line performance in quarter 4 with core sales growth from all segments. We feel really good about that momentum. Despite the unexpected cost challenges that we discussed, we stuck the landing and EPS came in line, wrapping up a strong year, especially when you consider the highly dynamic trading environment our customers had to navigate all year. We continue to be very, very excited about the strength and the diversity of our Pharma pipeline on the back, as we just discussed, of the ever-growing number of systemic nasal drug delivery projects and a higher participation in the injectable projects in the industry, including, of course, GLP-1s. We did talk about this pipeline and our excitement at the Investor Day in September, maybe it was drawn out a little bit by the NARCAN news. We gave you more color at JPMorgan last month. And again, the recent launches of 2 cardiac treatments, again, edema and tachycardia are the clear proof points of the power of that pipeline. And today, we gave you some more examples of the kind of clinical work that's going on, and these are just examples that we can talk about. As we enter '26, emergency medicine aside, we are well positioned for broad-based growth across all 3 of our segments. Of course, continued strong growth in Pharma, excluding emergency medicine with solid momentum across all the pillars, injectables, systemic nasal drug delivery, consumer health care and active materials. Beauty is returning to growth and Closures will continue to drive category conversions with innovations. We have a very rigorous productivity road map for the year and the years ahead and -- not only to address the short-term issues, but drive efficiencies across our operations and supply chain networks as well as SG&A expense. Last but not least, our strong balance sheet gives us the ability to both invest in the future and return capital to shareholders, while at the same time, retaining strategic flexibility to take advantage of any opportunities that may arise. With that, we look forward to talk to you on the road in the coming weeks. Operator: This concludes today's call. Thank you for attending. You may now disconnect.
Operator: Greetings, and welcome to Regency Centers Corporation Fourth Quarter 2025 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Christy McElroy. Thank you. You may begin. Christy McElroy: Good morning, and welcome to Regency Centers' Fourth Quarter 2025 Earnings Conference Call. Joining me today are Lisa Palmer, President and Chief Executive Officer; Mike Mas, Chief Financial Officer; Alan Roth, East Region President and Chief Operating Officer; and Nick Wibbenmeyer, West Region President and Chief Investment Officer. As a reminder, today's discussion may contain forward-looking statements about the company's views of future business and financial performance, including forward earnings guidance and future market conditions. These are based on the current beliefs and expectations of management and are subject to various risks and uncertainties. It is possible that actual results may differ materially from those suggested by these forward-looking statements we may make. Factors and risks that could cause actual results to differ materially from these statements may be included in our presentation today and are described in more detail in our filings with the SEC, specifically in our most recent Form 10-K and 10-Q filings. In our discussion today, we will also reference certain non-GAAP financial measures. The comparable GAAP financial measures are included in this quarter's earnings materials, which are posted on our Investor Relations website. Please note that we have also posted a presentation on our website with additional information, including disclosures related to forward earnings guidance. Our caution on forward-looking statements also applies to these presentation materials. As a reminder, given the number of participants we have on the call today, we respectfully ask that you limit your questions to one. Please rejoin the queue if you have any additional follow-up questions. Lisa? Lisa Palmer: Thank you, Christy. Good morning, everyone, and thank you for joining us today. I'm proud to close out another outstanding year for Regency. Our success in 2025 reflects the quality of our grocery-anchored shopping centers in strong suburban trade areas, the strength of our best-in-class operating and investments platforms and the hard work of our exceptional team. We delivered strong same-property NOI, earnings and dividend growth, driven by robust operating fundamentals and disciplined accretive capital allocation. Across our portfolio, we continue to see healthy demand for our space, historically low bad debt and continued growth in tenant sales and foot traffic, reinforcing the durability of our portfolio and the essential nature of the real estate we own. On the investments front, 2025 was another very active year for Regency, highlighted by accretive acquisitions and strong execution across our development and redevelopment programs. We had another excellent year growing our development pipeline with more than $300 million of new project starts. Over the past 3 years, we started more than $800 million of new projects. And importantly, that pipeline is now translating into deliveries that will contribute meaningfully to total NOI growth in 2026 and beyond, providing strong visibility into our forward growth. Regency's ground-up development platform continues to be a primary driver of our external growth and a key differentiator for the company. New retail development remains really difficult across the industry, and this is evidenced by historically low supply growth over the past 15 years. In that environment, Regency is uniquely positioned, leveraging our expertise, long track record, access to low-cost capital and long-standing tenant relationships to source and execute on opportunities to build high-quality shopping centers at meaningful spreads to market value. This allows us to create long-term shareholder value while amplifying our NOI growth profile. In closing, the broader backdrop remains favorable. Physical retail, particularly well-located grocery-anchored real estate like we own, continues to benefit from this limited new supply and a renewed appreciation among retailers for the role of stores. Strong tenant demand is driving rents and occupancy higher, and our substantial free cash flow and fortress balance sheet provide the foundation to continue investing capital accretively through the cycle. Our portfolio, development platform, balance sheet and team together are unequaled and give us an advantaged position. I'm very proud of the results our team delivered in 2025, and we are carrying that momentum into 2026 and beyond. With that, I'll turn it over to Alan. Alan Roth: Thank you, Lisa, and good morning, everyone. 2025 was one of the strongest operational years we've ever experienced as a company. We achieved remarkable same-property NOI growth of 5.3%, supported by substantial base rent contribution, including meaningful occupancy commencement and redevelopment impact. Impressively, our average percent commenced rate for the portfolio increased 150 basis points year-over-year, a testament to our team's ability to accelerate the rent commencement of tenants within our SNO pipeline and to successfully deliver redevelopment projects. Tenant demand remains exceptionally strong in nearly every category and across our portfolio, spanning both anchor and shop space. Shop momentum was especially impressive in the fourth quarter as we leased our largest percentage of vacant shop GLA in more than 5 years and increased same-property shop occupancy by 40 basis points, reaching yet another new record for us of 94.2% leased at year-end. Our grocery leasing activity in the quarter was significant, signing leases with Whole Foods, Sprouts and Trader Joe's, among others. Beyond grocers, we're continuing to see meaningful engagement and momentum from other anchor tenants such as TJX, Nordstrom Rack, Ulta, Ross, Burlington and Williams-Sonoma to name a few. Anchor leasing is one of our greatest opportunities to drive our portfolio occupancy beyond prior peak levels, and we are encouraged by the quantity and quality of the prospects for our high-quality anchor space. Our SNO pipeline at year-end was approximately $45 million of incremental base rent. We made substantial progress commencing tenants in Q4, while simultaneously backfilling the pipeline with strong new deals. In addition, we are also seeing a continued trend of tenants inquiring about and signing leases on currently occupied space. This is a testament to the desirability of our centers and the lack of available quality retail supply in our markets. Our rent growth also continues to benefit as high-quality retail space has become more limited. We achieved impressive cash rent spreads of 12% in Q4, including renewal spreads at a record 13% in the quarter. GAAP rent spreads of 25% in Q4 also marked an all-time high, underscoring the depth of embedded mark-to-market in our portfolio, combined with the benefit of annual rent escalators. Notably, more than 95% of negotiated leasing activity in 2025 included annual steps, further strengthening future rent growth. In closing, we are excited about the significant momentum we see into 2026. Demand for our space is robust with operating fundamentals as strong as they've ever been. Our leasing team remains very active, and our tenants are having tremendous success, empowering us to remain aggressive on rent growth and to drive occupancy higher. With that, I'll hand it over to Nick. Nicholas Wibbenmeyer: Thank you, Alan, and good morning, everyone. 2025 was a tremendous year for our investment's platform, both in terms of volume and quality. We deployed more than $825 million into accretive investments, including more than $500 million of high-quality acquisitions and $300 million in development and redevelopment projects in top markets around the country. In 2025, we started 24 development and redevelopment projects across 16 markets, with the majority of invested capital into ground-up developments. These projects are creating real value for our shareholders with ground-up development returns north of 7% at meaningful spreads to market cap rates. In the fourth quarter alone, we started more than $90 million of ground-up projects, including Oak Valley Village in Southern California, anchored by Target and Sprouts and Lone Tree Village, a King Soopers-anchored center in Denver. Importantly, our team is also delivering and bringing these projects online, including the completion of 13 development and redevelopment projects in the fourth quarter, totaling more than $160 million at attractive 9% blended returns. These projects are more than 98% leased and with many delivered ahead of schedule and several anchors opening early. Even with the high volume of completions, we are also backfilling our future pipeline. Our team continues to have great success sourcing and starting new projects, and our in-process pipeline remains strong at nearly $600 million. This includes several on track to reach 100% leased before the anchor even opens. Looking ahead, we believe we have good visibility into project starts of nearly $1 billion over the next 3 years. Our success has led to even greater momentum and our opportunity set has only grown with projects in the works across the country with top grocers in strong suburban communities. Our development platform is a distinct advantage for Regency, fueling our external growth engine. Our deep tenant relationships, access to capital and experienced team around the country enable us to execute on projects at a time when few others can. In closing, I'm incredibly proud of our team's execution and accomplishments in 2025. It has been extremely gratifying to see our hard work come to fruition, along with excitement from our local communities and tenants as these projects come online. Our success spans across the country from recent groundbreakings in Denver, Jacksonville and Southern California, the grand openings of H-E-B in Houston, Whole Foods in Connecticut, Publix in Atlanta and Safeway in the Bay Area, among others. As we look ahead, our investments team is energized by compelling opportunities to allocate capital accretively, and we continue to raise our eye level on how much we can grow our project pipeline. Mike? Michael Mas: Thank you, Nick. Again, Regency delivered exceptional results in both the fourth quarter and for the full year. We achieved Nareit FFO per share growth of close to 8% and core operating earnings per share growth of nearly 7% for the full year, driven by continued strong operating fundamentals and substantial external growth from accretive high-quality acquisitions and development projects. Same-property NOI growth finished north of 5% and was largely driven by our success growing commenced occupancy, pushing rents and recoveries higher and experiencing historically low levels of uncollectible lease income. Turning to 2026. Our guidance is consistent with the expectations we outlined on our October call, reflecting continued strong momentum across all facets of our business. I'll refer you to Pages 5 and 6 in our quarterly earnings presentation for a summary of our assumptions and the primary drivers of our forward growth outlook. We expect same-property NOI growth in a range of 3.25% to 3.75%, which we anticipate to largely be driven by rent spreads and steps and redevelopment deliveries as well as additional contribution from the commencement of our SNO pipeline. We are also planning for another year of uncollectible lease income falling below our historical average of 50 basis points of revenues. While the cadence of same-property NOI growth should be largely consistent between the first and second halves of the year, we do expect our Q1 growth rate to be above our full year guidance range, driven by a higher expense recovery rate this year versus last and an anticipated impact to other income, which can be uneven by its nature. Our Q2 growth rate is expected to be below our full year guidance range, largely due to a tough comparison related to our annual CAM reconciliation process that we discussed last year. Beyond same-property NOI, total NOI growth will benefit significantly from strong external growth this year, including the substantial progress we've made delivering ground-up development projects and sourcing accretive acquisitions. Our forecast for earnings also includes a 100 to 150 basis point anticipated impact from debt refinancing activity, again as discussed in October, excluding which the midpoint of our guidance would be in the mid-5% to 6% area, reflecting a continued strong fundamental backdrop. As a reminder and consistent with past practices, we do not include speculative acquisitions in our guidance, but our team is active in the market sourcing opportunities that meet our quality and accretion requirements. We will keep you updated as transactions are contracted and closed. As Lisa and Nick described today, ground-up development remains the prioritized and most visible driver of our external growth, and our near-term deliveries and growing pipelines are evidence of our strong position in the marketplace as a developer of choice. Importantly, our balance sheet and liquidity position remain a source of competitive strength, enabling us to remain opportunistic and execute on our development pursuits, acquire properties and achieve favorable debt and refinancing terms. We have A3, A- credit ratings from both Moody's and S&P. Leverage is within our targeted range of 5 to 5.5x. Free cash flow generation is strong with no need to raise equity or sell properties to fund our investment pipeline, and we have nearly full availability on our $1.5 billion credit facility. In closing, we are looking at a future from a position of significant strength operationally, financially and strategically. With that, we now welcome your questions. Operator: [Operator Instructions] Our first question comes from Samir Khanal with Bank of America. Samir Khanal: I guess, Mike, just following up on acquisitions and dispositions. I know you don't guide to those sorts of targets there. But curious, given where pricing is, right, for grocery-anchored today, I mean, how do you think -- sort of what are you seeing out there in the market opportunities? I mean you had a pretty active year for acquisitions. So I just would love kind of your thoughts on kind of how the year could play out. Nicholas Wibbenmeyer: Yes, Samir, this is Nick. I'll take the question and appreciate the question. Look, the reality is we are seeing demand in our sector continue to grow for a lot of good reasons. There's a lot of investors looking to invest in grocery-anchored real estate at the moment. And so we are seeing a broad range of opportunities in the 5% to 6% cap range is the range I would give you. But as we've always said, and I appreciate you reminding everyone, we don't guide the acquisitions because we don't have to do them in our fundamental business plan. And so we will lean in when we can find opportunities that are equal to our quality, our growth profile and very importantly, that we can fund accretively. And so those are the ones we're focused on. As you alluded to, we were very successful in that in 2025, finding over $0.5 billion of those. And our team is actively pursuing opportunities around the country right now. We do not have anything under contract currently or we would guide to that, as you're aware. And I do expect we will find some needles in the haystack out there as we continue to look throughout the country. But as we've continued to talk about, we're going to continue to focus our capital on the development program where we're getting development yields north of 7%, and we're very excited about that opportunity set as well. And so I feel really good about the development program and also confident we will find some acquisitions that meet our thresholds in 2026. Lisa Palmer: If I may, I just want to really -- sorry, Christy was ready to move on to the next question. It's not an either/or either. I think that's important, and that's what it has meant. There's no question that development is -- that is the priority for us, and we will do as much as we can. When we acquire centers, it's incremental to that. It's an end. It's not an either/or. And I think that, that's really important because it goes with what Nick said. We're only going to pursue those acquisitions that will be accretive to earnings, growth, quality, and we've been really successful in doing so. Operator: Our next question comes from Michael Goldsmith with UBS. Michael Goldsmith: Amazon is now -- they're closing their Amazon Fresh grocery stores. It looks like you have 4 of them. So I guess, maybe big picture, what do you think that means for the grocery sector as a whole? And then related to those boxes, have you gotten any indication that those would be converted to Whole Foods? Or have you received interest? Just trying to understand the underlying real estate of your Amazon Fresh locations as well. Lisa Palmer: Michael, I'll start with the bigger picture and then toss it to Alan for specific Regency impacts. Short answer is Amazon still owns Whole Foods, and we are really encouraged that with this announcement that they're leaning in even more into expanding Whole Foods, one of our best customers. This is certainly not a pullback from a physical store location. It's just a rebranding of where they do have stores. So we're really encouraged by that. The grocery business has always been tough. We know that. It's why our strategy is to ensure that we're investing with the top brands and then also the banners within those brands and then also the top sales productivity of those chains themselves. It's been a winning strategy for us, and we expect that will continue. Alan Roth: Yes, Michael. And I would layer on top of that, you're absolutely right. They announced their closure of their entire fleet. We do have 4 of them. All 4 of ours did, in fact, close. But the grocery sector is strong in terms of their expansion right now. And a few things could happen. You're absolutely right. Some of our stores could become Whole Foods in terms of conversion, but there's plenty of active grocers out there that are also very interesting. And the amount of inbounds we got immediately when that announcement came out, again, speaks to, I think, the strength of the real estate and the desire to fill it. Importantly, I would add there is significant term remaining on those leases. It is Amazon credit. And we're going to be patient, and we're going to make the right decision from a merchandising standpoint and something that is accretive to the portfolio and is right for the community. So more to come on that front for sure, but I am personally very comfortable given the existing makeup of those assets and directionally where we're going to take them. Operator: Our next question comes from Cooper Clark with Wells Fargo. Cooper Clark: I wanted to ask about the $325 million development and redevelopment spend guidance as you continue to lean more into ground-up development. Could you provide color on how we should think about the mix between ground-up development spend and redevelopment within the $325 million guide? Also, any color on the current pipeline for additional ground-up starts in 2026 following the fourth quarter activity would be helpful as well. Michael Mas: Let me start real quick, Cooper, and then I'm going to hand it over to Nick. Just fundamentally on the numbers, $325 million of spend is roughly 2/3 ground-up, 1/3 redev. So just to frame the conversation. And then Nick is going to take it from here and talk about the mix of starts in '25 and then what he thinks the direction is going forward. Nicholas Wibbenmeyer: Yes, absolutely. Appreciate it, Cooper. And so as Mike alluded to, strong starts in 2025 with over $300 million, and those continue to lean more into ground-up development. So as we look at 2025, 75% of those starts were ground-up development. And as we look forward into '26 and beyond, as I articulated in our prepared remarks, we believe we can be on a run rate here as we look at our shadow pipeline of $1 billion over the next 3 years of new investment. And I would think that approximately 75% of those being ground-up developments is a good placeholder in your mind. And so that's why we continue to be excited about not only the projects we've started, but this future pipeline that we have very good visibility to. Operator: Our next question is from Craig Mailman with Citi. Craig Mailman: Just wanted to follow up on the shop side of things. How much more room do you guys think you have kind of to push there given the demand? And also just kind of curious, Alan, you had mentioned that there's -- you're seeing people kind of line up for spaces that are already occupied. I'm just kind of curious how that translates into, are these upgraded tenants potentially where you could charge more rent? Are these kind of stalking horses on pushing renewals? Just kind of curious how that ultimately plays out. And then to slip in a follow-up on Michael's question. Should we expect any lease term fees on the Amazon goes? Or is that just they're going to pay out the rest of their term? Alan Roth: Craig, thank you for the question. I appreciate you pointing out the shop occupancy. It's one thing that I take pride in smiling about the success that the team has had. We are at peak. We did break another record, but I've had the good fortune of saying we broke a record again. So I am absolutely not putting a ceiling on that. And despite that peak occupancy, it did grow 70 basis points year-over-year. The demand is still there. And the lack of supply is real, the million square feet that we have in negotiations across all regions. And our teams are, as you pointed out, proactively leasing space. It was really all of the above of what you defined. And generally speaking, look, merchandising is really important to us, qualifying for the right operators and driving accretive returns is certainly the goal. So we are, in many instances, driving higher rents. But to the extent that it makes more sense after getting into that negotiation to keep a tenant in place, we will certainly do that as well. So I would say it's rarely a stalking horse situation. We will typically commit to who we think is right for the asset, right for the community and right for Regency. But I remain really encouraged in terms of where we are on the shop front. The term fee, actually, I'll even answer that. I think that was your third question, really well done, kind of getting them all in, Craig. TBD, again, it will depend on the circumstances of where we are. If there's significant term that remains and there's an opportunity to negotiate something that is favorable for all of us, we will evaluate all of those on a case-by-case basis. But there are certainly plenty of instances of lease termination negotiations where appropriate. Michael Mas: And just to be clear, there is no term fee from Amazon in any of our outlook guided items. Operator: Our next question comes from Greg McGinniss with Scotiabank. Greg McGinniss: So based on some recent retailer earnings and commentary, it appears we might be seeing some early signs of softening consumer resilience. Now obviously, spreads were good this quarter and development leasing seems to be going really well. But have you noticed any changes in store openings or closure discussions with tenants or the types of tenants looking to open and close? Are there any updates to your tenant watch list? Alan Roth: Greg, thanks for that question. Look, I guess I would first start, so tenant health, our ARs are below our historic norms. Our sales continue to trend up. Our foot traffic continues to trend up. So as we kind of look at it from a look backwards basis, I'm really comfortable with where we are. On a go-forward basis, I'm going to look at my pipeline, right? And I'm going to look at where are we at currently in terms of flow of inbound deals and also look to of those inbound deals and recently executed transactions that are coming through, how successful are we on growth. And again, you heard my opening remarks, we're having tremendous success with GAAP rent spreads by really focusing not just on that initial spread, but on the annual embedded rent steps. So as I sort of convert that back to the consumer resilience in our assets in our trade area, I'm not going to say it doesn't exist anywhere, but we feel really comfortable and really confident with the data that we have, both on a look backwards and a near-term look forward and where we stand. Lisa Palmer: It's important to remember the type of retail real estate that we do own and operate. As Alan said, we're not immune to consumer pressures and to downturns, but we're certainly much more insulated and really well positioned because of the essential nature of the -- our merchants essentially service providers, the convenience factor and close to the neighborhoods and the value that our centers provide. And on top of that, the neighborhoods in which we operate. So much more insulated and really well positioned. Operator: Our next question is from Todd Thomas with KeyBanc Capital Markets. Todd Thomas: I wanted to ask about development, and you talked about the favorable backdrop for development and for Regency, how it's a key differentiator in what's been a low supply growth environment in general. And historically, developers seek favorable risk/reward opportunities and the narrative around low supply growth seems broadly understood. And you talked about the strength in demand from grocers and shop tenants. So is development activity poised to increase? Do you see the competitive landscape changing at all for new development starts more broadly as you look out over the sort of next couple of years? Do you think that development activity in the open-air space starts to accelerate a little bit? Nicholas Wibbenmeyer: Todd, this is Nick. I appreciate the question. The answer is yes, but with an asterisk. And so there's no question we're seeing tremendous demand, as Alan just articulated, and as we're seeing in our development pipeline in terms of not only the velocity of new starts, but the velocity of the lease-up of those projects matching and/or and sometimes marginally beating our underwriting. And so I feel really confident in what we're working on and the underlying demand. And do I think there's going to be continued growth in the developments? Yes, but coming off a very low number. And so we are doing a large portion of the development around the country. But when you compare that amount of supply compared to the existing supply, it's a very, very small amount in the grand scheme of things. So yes, I think we're going to see more opportunities. Yes, we're excited about the developments we're working on. Yes, we are starting to see more competition for those opportunities. So I do think there's upward trajectory, but it's still going to be a very limited amount compared to the overall supply in the industry. Operator: Our next question comes from Michael Griffin with Evercore ISI. Michael Griffin: Alan, I wanted to go back to some of your comments during the prepared remarks, particularly around kind of occupancy and to be able to drive that on the anchor leasing side. It clearly seems like from a landlord perspective, just given the favorable supply-demand backdrop, you've probably got some decent leverage. So not asking you to give away the secret sauce, but could this maybe translate into whether it's shorter options that you're negotiating, maybe embedding some rent escalators? I know some of those grocery anchor leases can be flat for a pretty long period. Just give us a sense maybe of how you're able to leverage sort of the demand environment you're in to build that occupancy, particularly as it relates to the anchor leases. Alan Roth: Yes, Michael, thank you for that question. So a few questions ago, we talked about shop occupancy being at peak levels. We do see runway on the anchor front. We've got about 50 basis points of spread to get us back to that peak level. And so I'm really encouraged, and you heard in those opening remarks the comments of Whole Foods, Trader, Sprouts, grocers that are being executed for that space. But I would say, first and foremost, its quality, and that's where we have kind of the leverage of being able to choose who do we want to really interact with. And I look at our pipeline of anchors that are in negotiation, PGA Superstore, Arhaus, Pottery Barn, Total Wine. I mean I'm going non-grocery now, and that list continues on. And so I feel really comfortable about that. There is an opportunity certainly to lean more into the rent spread nature of it. Capital is also another lever that we can certainly pull in an environment like this in terms of how we're going to address a work letter and/or our contribution, which may be a bit more muted. But overall, there's a lot of users out there. I think you would hear from them. They've got bold growth plans and just the lack of supply is putting them in a position where there is more competition on their front. Operator: Our next question comes from Juan Sanabria with BMO Capital. Juan Sanabria: Maybe just a 2-parter, if I can try to be a little greedy here. You've talked about rent bumps and record GAAP leasing spreads. So curious on what you may be able to articulate on those bumps that you are achieving leading to the higher GAAP numbers? And then secondly, just curious on any color you could provide on build occupancy and the assumptions embedded in guidance as to how that will flow through the year. Alan Roth: Juan, I'll start with the first question, and I'll let Mike handle the second one. So 96% of our new and negotiated renewal deals had steps. I'll start with that. From a shop perspective, 85% were 3% or higher and 30% were 4% or higher. So I think you get the sense that it is a key focus for us in terms of leaning in. And that is clearly a big contributor of this kind of future long-term sustainable growth. And it is equally, if not more important than the initial spreads that we've been going after. Mike, I'll let you answer the... Michael Mas: Sure. From a commenced occupancy rate, let's first go back and just think about the material movement we made in 2025. So we moved commenced occupancy by 150 basis points on average over the course of the year. That's what contributed to that outsized same-property growth, namely coming from base rent and recoveries, all driven by that material increase in occupancy. As Alan has talked about today, we're approaching kind of peak occupancies, certainly in shop space, got some room to run in anchors, and we like to think we can continue to move that needle. When I think about the guide in the mid-3 area, I would characterize it as us continuing to kind of grind out commenced occupancy increases by compressing that SNO pipeline that we've built. It's currently standing at 240 basis points. Our average on a stabilized basis should be closer to 185 area. And we're certainly not planning for another 150 basis points of commenced increases on average. It's just -- I think that would take us beyond any kind of sense of reality. So a continued positive tailwind of commenced growth on the margin kind of moving up from where we stand today. Operator: Our next question comes from Floris Van Dijkum with Ladenburg Thalmann. Floris Gerbrand Van Dijkum: By the way, I don't think anybody has mentioned it, and I might be off, but I believe this is the first year that you guys achieved over $1 billion of EBITDA as a public company. So pretty meaningful signpost, I think. My question is on the capital allocation front and redevelopment versus development. Obviously, your returns on redevelopment are about 200 basis points higher than on developments, which makes sense because you own the land. Have you identified how much potential redevelopment could you do, or would you like to do? And what's the impediment to doing more redevelopments over the next 2 years? Nicholas Wibbenmeyer: Sure. Appreciate the comments, Floris, and I appreciate the question as always. So you're absolutely right. Look, and going back to kind of Lisa's comment earlier, we're in the great position to not be either/or. And so the reality is every time we can find an opportunity to invest in our existing portfolio creatively, we're going to take advantage of that. And our teams are motivated and focused on doing that every day. And so we continue to -- as I alluded to earlier, we continue to have our eyesight at $1 billion over the next 3 years. And of that, I think assuming about 25% of that is in the redevelopment bucket is the right place to think in terms of just generally where we expect that capital to be spent. But again, our teams are looking every day at those opportunities and what prevents them is, quite frankly, just getting access back to some of that real estate. And so we don't have full control over when we can bring those redevelopments online, but the teams are working to get back a hold of real estate that we think there's a tremendous value to invest some capital and reimagine. And so that's what we wake up doing every day. Lisa Palmer: The growth in percentage of ground-up versus redev isn't a function of us not being focused on the redevelopment. It's a function of us really growing our ground-up development pipeline. Operator: Our next question comes from Haendel St. Juste with Mizuho. Ravi Vaidya: This is Ravi Vaidya on the line for Haendel. I wanted to ask about your leasing spreads. I saw that this quarter that your renewal spreads exceeded your new spreads along with having lower TIs. Can you discuss some of the puts and takes and what drove this? Alan Roth: Yes, Ravi, thank you for that. So again, I guess I'll start supply and demand, right? I mean that's really a large part of where things are, but it can also be lumpy quarter-over-quarter. Generally speaking, our new transactions will lean in a bit more, but we just had the opportunity of some well below market leases that were expiring in the quarter, and we marked them to market. And so our teams are going to capitalize on that when the opportunity presents itself. Will it happen this upcoming quarter? Maybe, maybe not. But again, I feel really good about that nearly 13% in renewal spreads as our supply continues to dwindle down. Operator: Our next question comes from Ronald Kamdem with Morgan Stanley. Ronald Kamdem: Just I had a quick one on the -- if you could just talk about acquisition cap rates and where you're seeing it and how that ties back to the development yields. Obviously, I see it's been holding, but do you sort of anticipate some pressure on there? And then my follow-up, if I may, is just I saw the commenced occupancy slide was taken out of the presentation. Just any comments on that would be helpful. Nicholas Wibbenmeyer: Ronald, I'll start with the first question and then let Mike fill in on the second. And so you're absolutely right. I mean the good news of where we sit right now is from a value creation perspective, we are seeing cap rates continue to get pushed down for core grocery-anchored assets. And those are exactly the assets that we're coming out of the ground with and completing. But our eyesight continues to be at 150 basis point plus spread in terms of what we think our going-in yield on development should be compared to a core acquisition. And these developments take years to put together and start and come online. And so we are not moving our eyesight daily on a development like we are in the acquisition world, which is a little more fluid. And so I would expect our development starts for the foreseeable future to continue to be in that 7% plus range, which, again, we feel really, really good about given where we're seeing those assets trade out in the private market right now. Michael Mas: Ron, on the commenced occupancy slide that we did remove from the investor presentation, really that, I think, served the purpose in a post-COVID world of us compressing and returning to historical averages and highs on the occupancy front, and we've largely achieved that. So I think that's the reason we pulled the slide is it's really just about the narrative that's changed to forward growth from here. And Alan has spoken a lot today about the continued opportunity for us to grow our percent leased. I've spoken a little bit about our more limited opportunity in '26, but still opportunity to increase our percent commenced going forward. But we are back to where I think the portfolio needs to be and deserves to be given its quality. Operator: Our next question comes from Sydnie Rohme with Barclays Bank. Sydnie Rohme: I was wondering if you could elaborate a bit on the construction cost assumptions embedded in the 9% stabilized development yield and whether you're underwriting any cost relief or increased pressure there? Nicholas Wibbenmeyer: Yes, Sydnie, great question. The really good news right now is we feel really confident in our assumption on construction costs. So we obviously lived through a period of extreme volatility a couple of years ago regarding construction costs and really proud of our team's ability even in that volatile time to project construction costs appropriately. And so now as we sit here looking over our shoulder over the last 12 to 18 months and then also looking forward over the next 12 to 18 months, we feel really good that construction costs are stable. We have good visibility, and we are confident in our underwriting. Operator: Our next question comes from Alec Feygin with Baird. Alec Feygin: So can you provide some more color on the development pursuit costs and what led to the increase in the quarter? Is there anything structural that now the development platform is getting bigger that this line item will continue to increase? Michael Mas: Alex, I'll take that one. I wouldn't look into much there. I think that is -- we did have a slightly elevated fourth quarter. I think that is consistent with our pursuits. I mean we are working on a lot of projects. The pipelines that the teams have in process are deep. And as part of our annual kind of cleanup process as we go through each of those rosters, we're going to decide whether or not those projects are worth continued pursuit and will make a write-off decision. So I don't think there's anything to look into there. I would anticipate, though, that going forward, the teams are going to continue to cast wide nets. We're looking for opportunities across the platform. And I think if you think about the efficiency of our program and the lack of development pursuit cost expenses that we've recorded historically, I think you'll find it's a very efficient development platform. Operator: Our next question comes from Michael Gorman with BTIG. Michael Gorman: Just wanted to stick with capital allocation. I think it's been quite a while since Regency started a year with no assumed dispositions. So I was wondering if you could just kind of update us on your thoughts on the more programmatic capital recycling out of the existing portfolio and maybe how any changes in that viewpoint fits into the funding for the development program in 2026? Lisa Palmer: Yes, I'll take it. Our strategy has not changed over the many years that I've been here. Dispositions can and will be part of every year. We view it as a way when we're deciding on whether to sell a property, is it something that's either nonstrategic that we acquired through a portfolio, something that's non-core or perhaps something that we don't believe -- that we believe that the future growth isn't consistent with our expectations for our portfolio. And that's how we look at it. We believe it is key to fortifying the future growth rate of the entire portfolio as a whole. There are some years where we have more, some years we have less. Don't necessarily view it as a source of funding for our development program because our free cash flow does that. And again, we've said that multiple times on this call, development, redevelopment, our highest priority, and we do have the capacity to fund that self-funding with our free cash flow and we're not spending at all. We still have some more capacity to do so. And that's really how we think about it. When we do sell properties, we may sell a property as a source of funds for an acquisition. We think about it that way as we did with [indiscernible] pairing it with the asset that we bought in Nashville. And again, we look at it, can we source it and fund it accretively. And that's how the decisions are made. Operator: Our next question is from Mike Mueller with JPMorgan. Michael Mueller: The Crystal Brook acquisition going right into redevelopment is interesting. Can you talk a little bit about what's the scope of that project? And is this just a one-off opportunity? Or is it something that's going to be more of a focus on going forward? Michael Mas: I will -- let me start with why we handled it the way we did it in our materials, and then Nick will color up the actual investment. But it's a unique opportunity, and it's not quite an acquisition and it's not quite a ground-up development. It's very classically a redevelopment, but it's an acquired redev. We're starting the project day 1. We're going to reach stabilization in what I would call a normal time frame for a ground-up development project. And so given that the cash flows kind of resembled an investment of a development, we're going to put it right into that pipeline from day 1. It won't be the same property. It won't impact same-property growth until well past stabilization. We just felt like that was the best bucket for it, nor does its acquisition cap rate really match what you would consider a market cap rate. So putting in it as an acquisition didn't feel right to us as well. And then Nick can speak more about the investment itself. Nicholas Wibbenmeyer: Yes, Mike, we're really excited about the investment. I mean when you just step back and again, think about our platform, we have a lot of tools in our tool belt. And so as you've heard us articulate about 30 times today, ground-up development is one of them. We can go source our own ground and build an entire shopping center, which we're very active in doing. And on the flip side, we can acquire a core asset, but then we can do everything in between. And this one is exactly in between. We found a very underutilized piece of real estate on Long Island, and we've now acquired it. But as Mike alluded, it's very much in our mind, similar to a development where before we close, we've locked up an anchor tenant that will be anchored by Whole Foods. We've fully entitled it. We've got drawings in hand, and we're starting construction right away. And so although we acquired it for $30 million, we do anticipate investing about the same amount of capital over the next couple of years, bringing Whole Foods and other exciting tenants online. And we expect that project to stabilize similar to our ground-up developments north of a 7% return. And so just a really phenomenal opportunity to, again, lean into Long Island. Our Holbrook redevelopment that many of you are familiar with, ground-up development that Whole Foods is opening here shortly. And so just again, success throughout the country is driving additional opportunities, and this is one we're excited about, and we'll talk more about in the future. Operator: [Operator Instructions] Our next question is from Omotayo Okusanya with Deutsche Bank. Omotayo Okusanya: Just curious what commentary you're hearing from your tenants just about the ongoing situation with tariffs. Again, just curious how they're factoring that into their plans going forward in terms of kind of open to buys, whether, again, some of the near-term confusion with the Supreme Court and what happens next, if that's kind of giving them any near-term trepidation about store openings? Or just kind of curious what kind of feedback you're hearing from them and how it's kind of impacting how they're thinking about their store strategies going forward? Alan Roth: Thank you for that question. So I'll start with what Lisa had previously mentioned in terms of just the portfolio being essential retail, right? And so we do believe it's a bit more insulated given our tenant base. And look, I'm really proud that we have a whole lot of time-tested operators that really know how to operate and that are very agile through what could be some uncertain times with tariffs. But are we immune to it? No, we're not. But I think many of our retailers that do have -- could have exposure have been diversifying their supply chain for quite some time. And so we're hearing very little, if any, in the way of any tariff impacts within our portfolio. One example I can give is we had a great restaurant operator that said, I used to have imported wines and specialty food on my menu, and I'm just going to switch to local wine, and I'm going to change to more local food for better cost control. So we're going to continue to monitor it for sure, but there's no read-through and no feedback from our retailers that the tariffs are impacting their business at any way. Operator: Our next question is from Paulina Rojas with Green Street. Paulina Rojas Schmidt: Historically, you have tended to outperform the midpoint and even the high end of same property guidance by a significant margin actually. What would need to happen to exceed this 3.75% upper end this year? Where could the biggest surprise -- positive surprise upside come from? Michael Mas: Paulina, it's Mike. I appreciate the question. You're right. In our recent history, we have had a track record of more material outperformance. And I think it goes back to my comments on the more material changes that are occurring in the portfolio from a commenced occupancy rate. At the end of the day, that's going to be the biggest lever from an internal growth perspective is how -- what changes in commenced occupancy. We talked a little bit about our base case outlook for the year being flat to slightly positive on that front. So I think my comment would be the opportunity set within internal growth is a little -- is less than it has been. We're going to keep leaning on renewal rates. As I said, we're going to move commenced occupancy up. Where we fall on ULI, it would be another factor. We are planning for a more of a historically average year, slightly below historical averages when, in fact, '25 was materially below historical averages. If we extend that to earnings, the factors that could move us to the upper end and potentially beyond would include capital allocation. And we talked a little bit about today. We don't guide on speculative acquisitions. To the extent we find those opportunities and we find high-quality properties that are accretive to our cost of capital, we'll take advantage of them, and that would be additive to our outlook for the year. Operator: We have reached the end of the question-and-answer session. I'd like to turn the call back to Lisa Palmer for closing comments. Lisa Palmer: Thank you, Rob. Appreciate that. First, I want to just one last shout out to every Regency team member that's listening for a fantastic year. Really grateful. And then secondly, thank you all for your time and interest in Regency, and we'll see you all soon. Have a great weekend. Operator: This concludes today's conference. You may disconnect your lines at this time, and we thank you for your participation.