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January 2026 delivered strong equity gains, with U.S. small/mid-caps and ex-US stocks outperforming, while bonds remained flat and bitcoin lagged. Resource sectors led early, but Financials underperformed post-earnings, signaling potential sector rotation to monitor in Q1.
Christopher David O'Reilly: [Interpreted] Thank you very much for taking time out of your busy schedule to join us for the earnings announcement for the third quarter FY '25 of Takeda. I'm the MC, O'Reilly from IR. [Operator Instructions] Before starting I would like to remind everyone that we'll be discussing forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Actual results may differ materially from those discussed today. The factors that could cause our actual results to differ materially are discussed in our most recent Form 20-F and in our other SEC filings. Please also refer to the important notice on Page 2 of the presentation regarding forward-looking statements and our non-IFRS financial measures, which will also be discussed during this call. Definitions of our non-IFRS measures and reconciliations with comparable IFRS financial measures are included in the appendix to the presentation. Now we would like to start with the today's presentation. Today, we have Christophe Weber, President and CEO; Milano Furuta, Chief Financial Officer; Andy Plump, President of R&D; and Julie Kim, CEO-elect. They will present, and this will be followed by Q&A. We'll get started right away. Christophe Weber: Thank you, Chris, and thank you, everyone, for joining us today. Our fiscal year 2025 third quarter results are confirming the strength of Takeda fundamentals and our ability to maintain disciplined cost management and operational efficiency while continuing to focus on innovation and long-term sustainable growth. Milano will explain our financial results in detail in his presentation shortly. Fiscal year '25 remains truly a pivotal year for Takeda. We are in a phase of preparing for significant new product launch, making major step forward in our new growth trajectory. In particular, I would like to focus on oveporexton, rusfertide and zasocitinib, which are key assets in our late-stage pipeline that we expect to launch over the next 18 months. Oveporexton is the first orexin agonist to be submitted to the FDA and has a considerable first-mover advantage. Phase III results were statistically significant across all primary and secondary endpoints, demonstrating clinically meaningful improvement on daytime and nighttime symptoms. This reinforce our belief that this medicine can truly transform the life of patient with narcolepsy type 1. Rusfertide is an hepcidin mimetic that has demonstrated durable and sustained hematocrit control in patients with polycythemia vera or PV. Nearly half of PV patients remain untreated in the U.S. today, and those that are treated still have significant challenge in managing their disease. The Phase III data underscore the potential for rusfertide to transform the standard of care for these patients. We have filed a new drug application with the FDA for oveporexton and rusfertide and are awaiting formal acceptance. Finally, at the end of last year, we announced positive Phase III psoriasis data for zasocitinib, our highly selective TYK2 inhibitors. Full detail will be disclosed at the upcoming congress, but this once-daily oral therapy offers a compelling profile to help shift the psoriasis advanced therapy market towards oral treatment. Regulatory filing preparations are underway, and we expect to launch zasocitinib in the first half of calendar year 2027. The positive data for all the three programs met or exceeded our expectation. Now we are focused on preparing for launch. We will update the peak revenue potential for these three programs in the future. Combined, we believe this product could more than offset the anticipated impact of ENTYVIO biosimilar entry from the early 2030s onwards. And in addition to these three, our transformative late-stage pipeline includes five other innovative programs, two of which we have recently added through our strategic partnership with Innovent Biologics. Each of our eight late-stage program has the potential to transform the current standard of care, providing strong and sustainable growth drivers for Takeda well into the future. Andy will share more details about our pipeline advancement later in this call. Now I will hand it over to Milano, who will discuss our financial results and the outlook for the rest of the fiscal year. Milano, over to you. Milano Furuta: Thank you, Christophe, and hello, everyone. This is Milano Furuta speaking. Slide 6 summarizes our Q3 year-to-date results. As you know, this year, we are managing the significant impact of VYVANSE generic erosion. However, if you look at the performance quarter-by-quarter, the headwind from VYVANSE is steadily tapering off as the year goes by, and we are maintaining strong cost discipline to limit this impact to profit. Revenue for the 9 months period was just over JPY 3.4 trillion, a decrease of 3.3% or minus 2.8% at constant exchange rate or CER. Core operating profit, core OP was JPY 971.6 billion, a year-on-year decrease of 3.4% at both actual FX and CER. This is a meaningful improvement from our first half results. Reported operating profit was JPY 422.4 billion, an increase of 1.2%. Core EPS was JPY 428, and reported EPS was JPY 137. Cash flow has been very strong this period with adjusted free cash flow of JPY 625.9 billion, even after the upfront payment of USD 1.2 billion to Innovent Biologics in December. Slide 7 shows our growth and launch products, which represents over 50% of total revenue and grew 6.7% at constant exchange rate. This is a steady improvement on the 5% growth rate we saw in Q1 and Q2. In GI, ENTYVIO grew 7.4% at CER. Growth in the third quarter was particularly strong as expected, partially due to a onetime gross to net true-up in the period prior year. ENTYVIO Pen continues to be the main driver, helping us maintain leadership share in a competitive IBD market. We are also pleased to report that as of this month, ENTYVIO Pen is now on formulary with all three large pharmacy benefit managers with commercial coverage of more than 80%, in line with competing products. With this progress, we are on track to achieve our full year projection of 6% growth. In rare diseases, TAKHZYRO has slowed to 2.4% growth at CER. Although we continue to see strong uptake in international markets, this is being offset by the impact of new competing products in the U.S. In PDT, Q3 revenue growth marked an improvement on the first half. That said, we acknowledge some headwinds, particularly in albumin. IG growth was 4.3% year-to-date, driven by subcutaneous IG products, which grew double digits. IVIG sales have been impacted by Medicare Part D redesign in the U.S., which we expect to normalize in Q4. Albumin has returned to growth of 1.3%, but this is slower than expected due to softening demand in China, which is also putting pressure on other markets where supply is reallocated. While we anticipate additional tenders in Q4 to support an uptick in growth, there's a possibility we'd finish the year below our full year forecast. In oncology, FRUZAQLA continues to expand as well as we roll out global launches. Finally, in vaccines, QDENGA growth has accelerated to 22.1%, driven primarily by Brazil. On Slide 8, you can see how incremental revenue of growth and launch products and the impact of the VYVANSE loss of exclusivity contributed to total revenue performance. With each quarter, the gap is becoming smaller as the VYVANSE decline was heavily weighted to the first half of the year and the growth and launch products are performing better in the second half. Slide 9 shows year-on-year core OP performance. Here, you can see that the LOE of high-margin VYVANSE was the main reason for the year-on-year decline of 3.4% at CER. However, we have been able to limit the VYVANSE impact through operational efficiencies with R&D and SG&A expenses, both lower than the prior year. As we explained at the Q2 earnings call, we continue to tighten the belt on expenses, building on the progress of the cost efficiency program we started in 2024. This will be critical as we ramp up investment behind the three new product launches. We will not compromise on the necessary investments for long-term growth. We also have multiple programs in the late-stage pipeline that will require additional R&D investments in the coming years. At the same time, we will continue to pursue opportunities to offset these investments where possible to minimize the near-term impact on profit. Next, reported operating profit on Slide 10. This was flat versus prior year, with the lower restructuring expenses more than offsetting an increasing impairment of intangible assets. The main impairment item was booked in Q2 related to the cell therapy, and there were no major new items in Q3. Slide 11 shows our updated full year outlook. Starting with management guidance, we are revising only revenue guidance to low single-digit decline at CER, primarily due to stronger-than-anticipated VYVANSE generic erosion in the U.S. However, our commitment to OpEx discipline allows us to offset the gross profit impact from VYVANSE, and we maintain full year guidance for core OP and core EPS. For our reported and core forecast, we have revised our FX assumptions. As a result, our revenue forecast is now JPY 4.53 trillion, core OP forecast is JPY 1.15 trillion and core EPS forecast is JPY 486. We have also upgraded our adjusted free cash flow forecast. On Slide 12, we show more detail about the updated revenue and core OP forecast. For revenue, we are reflecting latest momentum of VYVANSE and other products, which includes plasma-derived therapies under TAKHZYRO. However, this is more than offset by FX upside, resulting in a net increase of our forecast of JPY 30 billion. For core OP, continued OpEx discipline fully offset the impact of VYVANSE. We also have FX benefit for a net increase to our forecast of JPY 20 billion. Thank you, and I will now pass over to Andy. Andrew Plump: Thank you, Milano, and hello to everyone on today's call. Takeda is entering an exciting new period of growth powered by our late-stage pipeline. As Christophe mentioned, in 2025, we were 3 for 3, delivering positive Phase III data readouts for oveporexton, rusfertide and zasocitinib. These exciting results are at the high end of our expectations, further strengthening our belief that these new medicines have the potential to fundamentally reshape their respective therapeutic landscapes, bringing transformative benefits to patients in the next 18 months. Let me begin with oveporexton, our expected first-in-class orexin 2 receptor agonist, which can transform the treatment paradigm for narcolepsy type 1. Approximately 85% of patients in the Phase III oveporexto trials saw measurable improvement, which brought them into the normative range on the Epworth Sleepiness Scale, or ESS, the gold standard measure of excessive daytime sleepiness. That means the majority of patients have the possibility of a normal day. In both Phase III studies, oveporexton achieved clinically and statistically significant improvements across all 14 primary and secondary endpoints with most participants reaching normative ranges. This normalization across such a broad range of NT1 symptoms, including daytime sleepiness, nighttime symptoms, cataplexy and cognitive function is unprecedented. Oveporexton doesn't just manage symptoms, it addresses the underlying orexin deficiency in NT1, offering patients a single, well-tolerated oral therapy that could restore how a majority of NT1 patients feel and function. We have submitted a new drug application to the FDA and are working to launch oveporexton this calendar year. Next is rusfertide, our hepcidin mimetic for polycythemia vera. One key data point from the Phase III study is the ability to maintain hematocrit control below 45% through 52 weeks. Real-world data shows that 78% of PV patients experience uncontrolled fluctuating hematocrit, leading to a fourfold increase in the risk of thrombotic events, including stroke, deep vein thrombosis, pulmonary embolism and acute coronary syndrome. Rusfertide targets the biology upstream, offering more stable and durable hematocrit control and fewer variable swings in hematocrit. Durable hematocrit control with impressive safety and tolerability also led to clinically meaningful and statistically significant benefits to patients' quality of life as measured by the PROMIS Fatigue Scale and myelofibrosis symptom assessment form. By reducing fatigue and other key disease-related symptoms as well as the need for phlebotomy, rusfertide enables patients to spend less time managing their disease and more time engaging in everyday activities. We have submitted an NDA to the FDA and are working to launch rusfertide in PV this calendar year. And finally, we have zasocitinib, our next-generation TYK2 inhibitor for immune-mediated diseases. In our Phase III psoriasis studies, zasocitinib worked fast with significant improvement in PASI 75 within 4 weeks. Patients, of course, want clear skin. At week 16, more than half of patients on zasocitinib achieved PASI 90 or almost clear skin, and approximately 30% achieved PASI 100 or completely clear skin. PASI scores continue to improve through week 24. These results are at the very high end of reported results for all therapies in development. Zasocitinib is a once-daily, well-tolerated pill that does not have any food interactions. We are looking forward to sharing the complete data at a medical conference in the near future and expect to launch zasocitinib in psoriasis during calendar year 2027. In addition, we remain confident in future indication expansion opportunities for zasocitinib, including psoriatic arthritis and inflammatory bowel disease. Together, oveporexton, rusfertide and zasocitinib represent three transformative medicines we plan to bring to patients over the next 18 months. They demonstrate the strength of our R&D engine, the speed and quality of our clinical execution and our commitment to delivering therapies that meaningfully change how patients live. Next slide, please. These first three approvals are just the beginning. I want to highlight some additional bright spots within our late-stage pipeline. Building on our success, a head-to-head study of zasocitinib versus deucravacitinib is fully enrolled and on track to read out in 2026. These data are not required for filing, but will be insightful to further differentiate zasocitinib from other oral psoriasis medicines. Last November, at the American Society of Nephrology Kidney Week, we presented new IgA nephropathy data from a proof-of-concept study for mezagitamab, our anti-CD38 monoclonal antibody. IgAN is a progressive autoimmune disease that causes irreversible damage to kidney function. Patients receiving mezagitamab demonstrated durable kidney function for about 2 years. This is an incredible 18 months after the initial 5-month treatment period, suggesting a disease-modifying effect sustained long after dosing that could allow for extended treatment holidays, very important for patients with this lifelong disease where many progress to kidney failure within 10 years. In addition to oveporexton, we are excited about the potential of our second orexin 2 receptor agonist, TAK-360, which is initially focused on patients with normal orexin levels like those with narcolepsy type 2 and idiopathic hypersomnia. Phase II studies in NT2 and IH are enrolling well, and we expect to have data this year to inform Phase III development. Next slide, please. Turning our attention to oncology. Late-stage highlights include elritercept, our activin A/B ligand trap that showed compelling data in myelofibrosis as presented at this past ASH meeting. Phase II myelofibrosis data showed clinically meaningful improvements in anemia and thrombocytopenia alongside favorable trends in spleen volume and symptoms when added to ruxolitinib. Elritercept remains a late-stage, potentially best-in-class approach across MDS and myelofibrosis. And lastly, we recently licensed two new innovative oncology drugs from Innovent Biologics, now called TAK-928 and TAK-921. TAK-928 is a potential first-in-class alpha biased IL-2 PD-1 bispecific antibody designed to selectively activate tumor-specific cytotoxic T cells through activation of the IL-2 alpha CD25 receptor while reducing the risk of exhaustion through immune checkpoint inhibition. In early-stage clinical studies, TAK-928 has demonstrated encouraging activity in heavily pretreated immunotherapy and chemotherapy refractory lung cancer as well as in immunologically cold tumors such as microsatellite stable colorectal cancer. We have seen compelling high-quality data in well over 1,200 Chinese patients and consistent early signals from ex-China populations. We have completed the rapid transfer of data and materials and are now executing with speed to generate global data sets that will supplement the China data shared last year at ASCO. This will allow us to advance TAK-928 to treat a broad range of solid tumors, including non-small cell lung cancer and microsatellite stable colorectal cancer. These go to Phase III decisions will start as soon as 2026 and into 2027. The shared investment in TAK-928 has a 60-40 split with Innovent and is stage gated by these go decisions. TAK-921 is a Claudin 18.2 targeted antibody drug conjugate that couples a selective antibody with a silenced Fc region to a topoisomerase payload. This approach is designed for potent, tumor-specific delivery of this preferred payload to patients with pancreatic and gastric cancers where unmet need remains high. The engineered Fc silencing reduces off-target toxicity in the GI tract and lung, potentially allowing for more robust dosing and the ability to combine with first-line regimens. Clinical data shows lower rates of GI adverse events relative to other Claudin 18.2 targeted antibodies in development. We plan to develop TAK-921 in first-line gastric cancer and first-line pancreatic cancer. And now I'd like to turn it back to Christophe and Julie for a few closing remarks. Christophe Weber: Thank you, Andy and Milano. Before we start the Q&A, I would like to share that this is my last earnings call as a main presenter. I will be on the full year earnings call, but in a supportive role as Julie Kim, our CEO-elect, take the lead and sets guidance for fiscal year '26 ahead of our formal handover in June. This is part of our intentional and coordinated transition. Starting this month, Julie began taking on more operational responsibilities to ensure that we remain focused on our upcoming launches without interruption. I would like to thank all of you for the important dialogue we had over the years about our business. I am proud of the work we have done to position Takeda among the global R&D-driven pharma leaders and poised for growth in the years ahead. It has been a wonderful journey, and I am excited about Takeda's future and confident in Julie's leadership in its next era. Julie, over to you. Julie Kim: Thank you, Christophe, and thank you for your leadership and guidance over the last 12 years. Hello, everyone, and thank you for your trust that you're putting in me to lead Takeda's next era of growth. As Christophe shared, our transition has been incredibly collaborative. And one of the benefits of being an internal successor is that we don't have to slow down, we can keep the momentum going and continue to move the organization forward. To that end, you may have seen our post today about changes to our organizational structure and executive leadership we are making effective April 1. These changes are designed to position us for competitiveness, growth and speed in the years ahead, particularly as we plan for multiple launches. As we implement these changes, we expect the teams will identify opportunities to simplify their work further as we continue to redesign our processes to adopt AI and other advanced technologies. Next quarter, I look forward to taking the lead on the earnings announcement and providing guidance for fiscal year 2026. I value our ongoing dialogue and will stay closely engaged with all of you in the months and years ahead. Thank you. And with that, I will turn it back to Chris for Q&A. Christopher David O'Reilly: [Interpreted] [Operator Instructions] Morgan Stanley, Muraoka-san. Shinichiro Muraoka: [Interpreted] This is Muraoka, Morgan Stanley. I hope you can hear me. Christopher David O'Reilly: Yes, we can hear you. Shinichiro Muraoka: Maybe it's too early to ask, but Milano-san, what are your thoughts about the next fiscal year? Contribution from the new product is probably small, and you'll be spending a lot of marketing expenses for those new launches, I understand that. But live situation is coming down, it's getting better, and profit will be maybe flat or slight decrease. And I'm thinking that you can continue to increase dividend. But can you give us some suggestions about what will happen in the next fiscal year? Christopher David O'Reilly: Milano, please go ahead. Milano Furuta: [Interpreted] Thank you, Muraoka-san. Yes, it's a little bit too early, you're right. Our guidance will be provided as usual in May. And the next fiscal year's budget is being finalized as we speak. So please give us some more time. With regard to the current momentum, I believe that we can give you some more information. Top line. Well, growth of growth and launch products versus the LOE impact, I think it's a balance between the two. We expect the growth products and launch products to continue to grow. But as you saw in the numbers in this fiscal year, they are beginning to mature. This cannot be denied. But the gap between LOE and growth and launch products is shrinking every quarter. So we need to see how this balance will work out for the next fiscal year. We are trying to figure that out now. So please give us some more time. As far as expenses are concerned, this fiscal year, the whole company endeavored on saving the costs, and we will continue to make this effort. But Muraoka-san, like you said, launch costs, three products we launched within 1 year. This means that there will be some load burden. But this uptick is very important for the future growth as well. This is a very important timing for us. So we will be discerning in terms of which investments are necessary, and we will not compromise in investing these launches. As far as R&D is concerned, this fiscal year, we have been trying to save the costs and also at the same time, continue to drive various projects through the Innovent partnership. We have introduced new assets for Japan and full-scale development is expected to start. Considering that impact, R&D expenses are likely to go up. I think that would be the correct way of reading it. But again, I would like to emphasize that we will continue to tighten the cost wherever we can, and I hope that you can evaluate that as well. Shinichiro Muraoka: [Interpreted] Do you have any comments about the shareholder return? Milano Furuta: [Interpreted] Well, dividend, yes. Progressive dividend is something that we have been talking about for a long time. So this is the basic policy. So either keep it flat or try to increase the dividend. This is the basis. Whether or not the dividend will increase and by how much? Well, in order to decide that we have to look at the core EPS and also reported EPS as well as cash flow generating power and the speed of a reduction of debt-bearing -- interest-bearing debt. So we'll pay attention to those and decide. Shinichiro Muraoka: [Interpreted] Understand. I have great expectations. I have another question about zasocitinib. UC CD Phase II outcome, when can we expect it? And also what about dosing? Phase II for UC was 50 milligram or 30 milligram? And what about the psoriasis safety data based on that safety data? Can you perhaps comment on this? Christopher David O'Reilly: So the question on timing for the UC and CD readouts for zasocitinib and which doses we are using. Andy, if you could comment on that, please? Andrew Plump: Thanks, Chris. Thanks, Muraoka-san. So we'll have data from both the UC and Crohn's disease Phase IIb studies this year. Both are dose-ranging studies. As we've mentioned -- we haven't disclosed the precise doses, but as we've mentioned, the 30-milligram dose that we've studied in psoriasis and that we'll be registering for psoriasis is the low end of the dose range in IBD. We have reason to believe that higher exposures will be necessary for efficacy in UC and Crohn's disease, and we have significant upwards headroom in dose to study. So those studies are ongoing. And then your last question was with respect to safety profile for psoriasis. So we've just commented at the top line in December when the Phase III studies read out. We'll be presenting at a medical conference in the near future. You could probably guess which conference we're targeting. And overall, the safety profile that we've seen in both Phase III studies is very consistent with the profile that we had seen previously in our Phase II study. Christopher David O'Reilly: [Interpreted] The next question is Yamaguchi-san, Citi. Hidemaru Yamaguchi: [Interpreted] Can you hear me? Christopher David O'Reilly: [Interpreted] Yes, we can. Hidemaru Yamaguchi: This is Yamaguchi from Citi, I have two questions. First of all, the first one is more of a broad question because MFN situation or medical policy in the United States seems to be are coming down because the major companies are now settled with the U.S. comment on MFN. But a Japanese company, including your company, are still excluded from this discussion. But what do you think about this sort of activity, which you need to do regarding MFN or U.S. policy in the near future? That's the first question. My second question is regarding the organization change, which you announced today, especially on the strategic portfolio development, which it sounds like you're trying to speed up on the some of marketing activity in those areas. Especially in the U.S., U.S. marketing is a key for next few years. And it depends on the products, but your marketing activity in the past are not necessarily executing better than expected, to be honest. But how are you going to change, especially in the U.S. marketing organizations or activities in the near future through the Kim-san's roles or our CEOs roles in the near future? Thank you. Two questions. Christopher David O'Reilly: Thank you, Yamaguchi-san. So the first question on MFN and latest U.S. policy updates. The second question regarding the organizational updates that we announced today. So I'd like to call on Julie to address both of those questions, please. Julie? Julie Kim: Yes. Thank you, Yamaguchi-san for the questions. First, in regard to MFN, as you've noted, the number of companies, 17 companies that had originally received the letters from the White House, they have all gone in for negotiated agreements in regards to how they will approach MFN, how they're going to be managing tariffs with the relief that they received and further investments in the U.S. So since those agreements have been made, there were also releases from the government in terms of the generous model, which details how these agreements can be actually implemented through Medicaid. And there have been a release of GLOBE and GUARD CMMI demonstration projects for commentary by the public. So at this point, we have assessed both the impact of generous and looking at the potential design of the two CMMI products on Takeda and Takeda portfolio. So we are evaluating those impacts and taking necessary steps to address that within our approach to MFN. But let me end by saying that in general, MFN is not an approach that we support. Having price controls and importing one component of health care systems that have very, very different structures does not make sense for the U.S. and can impact future innovation. So we are not in favor of MFN, but we will continue to address the challenges that may face Takeda going forward. In regard to the organization changes that were announced today, you will see that from a commercial standpoint, there are basically two key structures that we are trying to focus on. One is a therapeutic one. And so you will see that the oncology business unit is still a separate business unit. Both Andy and Christophe have talked about the assets that we have brought in, particularly the Innovent ones will be a key part of our oncology portfolio, and we are very much looking forward to launching rusfertide later this year. So maintaining our focus on oncology to drive that growth and the potential that we have in our pipeline now is absolutely critical. And then for the upcoming launches, creating two primarily geographic focus, one in the U.S., maintaining the U.S. focus given the size of the market and the dynamics that exist that we have to manage, that is part of being able to set ourselves up for success going forward in terms of the commercial approach to the U.S. as well as the international markets. So what may not be as visible through the org changes that are announced is the work that we're doing in terms of our marketing excellence and sales excellence and commercial operations. So we are working on all those aspects, again, to ensure that we are ready and can deliver successful launches going forward. Thank you. Christopher David O'Reilly: For the next question, I would like to call on Stephen Barker from Jefferies. Stephen Barker: Steve Barker from Jefferies. I have two questions, both about ENTYVIO. The third quarter sales were very robust. The global third quarter sales expanded 17% year-on-year on a reported basis, much better than the 3% growth reported in the second quarter. You said that you are now confident that you can achieve your 6% guidance for the full year, but that would imply a 2% decline year-on-year in fourth quarter sales. So would you agree that your -- that there's a decent chance at least that you can beat the current guidance for full year, 6% growth. And if you could just talk a little bit more about what's driving the good performance in the third quarter and if it is something that can be sustained into next year? That's the first question. And then second question. A couple of days ago, CMS announced that ENTYVIO has been chosen as one of the drugs for the third cycle of IRA price negotiations, meaning that it's likely to get a substantial Medicare price cut from the start of 2028. Any comments on how big that price cut might be? And if you can still achieve your peak sales guidance of $7.5 billion to $9 billion even with the price cut? Christopher David O'Reilly: Okay. Thank you, Steve. So the question on ENTYVIO sales trend, impact of IRA inclusion and the implications on peak sales. So I'd like to ask Christophe to start with this one and then perhaps Julie can add some comments as well. Christophe? Sorry, Christophe, I think you might be muted. Christophe Weber: Thank you, Steve. Obviously, ENTYVIO is operating now in a very competitive market. We know that, but we are pleased by the Q3 performance. One important point is that we have improved our coverage situation in the U.S. All the big 3, now PBM, are reimbursing and covering ENTYVIO Pen. Took a while, but we have now a coverage at the level of our competitors around 80% since January. So it's quite recent. So we are hopeful that the Pen will continue to progress in the U.S. as it has progressed in other countries. And long term, we still aim to have a 50-50 split between the IV and the Pen. So overall, a good performance in Q3. Long term, we project ENTYVIO not to gain market share, but to remain stable and to grow at market pace basically. While the Pen is developing, that's our current estimation, but the market is changing quite a bit, but good performance for sure in Q3. Julie Kim: And then Steve, in regards to the IRA selection of ENTYVIO. As we've shared in the past, this was anticipated. And so we've been preparing for this eventuality. As you know, from a timing perspective, we have a period of time in which we have to confirm engagement in the negotiation. And then towards the end of the year, we will actually find out what price will be set. I think you are also aware, it's not really a negotiation, but we will be submitting our best evidence package to support ENTYVIO. If you look at what's been happening over the previous two cohorts, the second cohort had higher price cuts than the first cohort. So it is too early to say whether that trend will continue into the third cohort or whether it will be similar to the second cohort. So it really depends on where we'd land with the final pricing on ENTYVIO in terms of when that peak sale could -- sorry, peak revenue could be and also if we end up in the 7.5% to 9% or not. So we will update later once we understand what our pricing situation will be for ENTYVIO. Christopher David O'Reilly: [Interpreted] Next question is from Matsubara-san, Nomura Securities. Matsubara: [Interpreted] This is Matsubara, Nomura Securities. First question is about TAKHZYRO. On a CER basis from the second quarter, the growth rate seems to be slowing down. And is it affected by the competitor DAWNZERA? And the transition from TAKHZYRO to DAWNZERA and HAE template showing some 65% decrease. So what about the prescription rate in existing patients or new patients? Could you comment on those? Second is, as Milano-san mentioned, oveporexton and zasocitinib will be launched and also R&D spending -- more spending will be necessary. And in the midterm viewpoint, as you try to increase the operating profit, how are you going to take measures? Christopher David O'Reilly: Thank you, Matsubara-san for your questions. So the first around recent TAKHZYRO trends -- prescription trends in the U.S., I'd like to ask Julie to comment on that. And then the second question, looking at our outlook for profit over the medium term. I'd like to ask Milano to comment on that, please. First, Julie? Julie Kim: Yes. Thank you for the question, Matsubara-san. When it comes to TAKHZYRO, I will share a few comments. First, in terms of the overall market, this is a market that has been maturing. The diagnosis rate is high and the penetration of prophylaxis treatment has been high as well. So TAKHZYRO continues to be the gold standard for HAE patients. And you are correct that we have seen an impact of the launches of the two competitive -- recent competitive entrants. And so we are seeing an impact in terms of new starts from these new competitive entrants. But I also want to point out that part of the lower growth is also due from the impact of Medicare Part D redesign that we are experiencing a bit higher impact from that in the U.S. than anticipated. Now when it comes to long-term efficacy, if you look at the real-world evidence that we have for TAKHZYRO, no other product is able to demonstrate the level of efficacy that we have when you look at the data from an attack perspective. We have patients that are attack-free for over a year at any given point in time. And so from an efficacy standpoint, our real-world data for TAKHZYRO, it can't be beat. So that is something that I would like to highlight, and it's something that we continue to defend and support from a TAKHZYRO standpoint. Milano Furuta: [Interpreted] Thank you very much, Matsubara-san. And I'd like to answer to your second question. At the beginning as Muraoka-san also asked, and I mentioned about the pressure of overall expenditure increase. And therefore, I'd like to touch upon the potential contribution of new products to the profit. And this is a general comment that whenever new products come out, then in the second year or the third year since its launch, we will see a contribution to the profit. It depends on the timing of the launches. Therefore, it is difficult for us to say anything concrete whether it's going to be next year or the year after the next and how much. But amongst the three products, oveporexton's uptake after the launch is expected to be fast. Whereas zasocitinib will have to play in a very highly competitive market. Therefore, I think for zasocitinib, I think we need to take time to monitor. And rusfertide is in between. It is a highly innovative product. But at the same time, the market access may not necessarily be so easy. Therefore, how that will demonstrate the uptake, we would like to monitor. But the speed of uptake will be impacting on to the timing that we start to see the product contribution to the profit. And also not just these three products, but five new pipeline assets, readouts are coming. And in forthcoming 5 or 6 years, they will continue to be launched. And as a result, overall, I think that the overall profit level should be able to be enhanced. At the same time, not just the core OP, but the reported operating profit is also monitored. For instance, VYVANSE, the intangible asset, the amortization will be complete. And as a result, there will be also a positive contribution in that sense. Thank you. Christopher David O'Reilly: Moving on to the next question, I would like to call on from TD Cowen, Mike Nedelcovych. Michael Nedelcovych: I have two. My first is also related to the IRA impact on ENTYVIO. I believe it is Takeda's base case that ENTYVIO Pen will be included in the IRA price negotiation. But I'm curious if that is a completely settled matter or not. Is there any chance that ENTYVIO Pen is ultimately excluded from the IRA price negotiation? That's my first question. And then my second question relates to the partnered AC Immune asset in Alzheimer's. It looks like data may be anticipated in mid this year. Should we expect that to be the time when Takeda decides if it wants to opt in or not? And Andy, I'm curious to hear your thoughts more broadly on prospects for Alzheimer's disease prevention or delay based on early amyloid plaque clearance? What are your general thoughts on this approach? Christopher David O'Reilly: Mike, so I think the first question, Julie, can comment on IRA ENTYVIO impact on -- potential impact on Pen. And then the second question to Andy on the AC Immune partnership and AD in general. Julie? Julie Kim: Thanks for the question, Mike. And in terms of the negotiation with the IRA, we do expect that Pen will be included. Andrew Plump: And Mike, on the AC Immune program, so we won't have data this year to drive a decision that will come in subsequent years. And thanks for asking more generally. Of course, I've been working in this industry for almost 3 decades now. And the first project I worked on was a project of a gamma secretase inhibitor designed to reduce A-beta production. It's been one of -- to me, one of the most exciting and promising, but also one of the most challenging areas in our industry. I'm a big believer that if we could clear a beta plaque early in the longitudinal course of Alzheimer's disease that we could drive even greater benefits than what we see from the passive antibodies that have been used in demonstrated efficacy. So we're quite excited about the vaccine program. Of course, the challenge with the -- historically with the vaccines has been threading the needle of safety and efficacy. We think we have a shot with the -- with our AC Immune partners and still working towards that. Christopher David O'Reilly: [Interpreted] The next question is Wakao-san, JPMorgan. Seiji Wakao: [Interpreted] This is Wakao, JPMorgan. I have two questions. Firstly, regarding PDT, how do you assess the third quarter progress on PDT? Compared with your guidance, PDT progress seems to have been somewhat slower. And could you share your outlook for PDT in fourth quarter and next fiscal year? This is the first question. And second question is about zasocitinib. Should we expect zasocitinib Phase III data to be presented at AAD in March? If so, what key aspects should we focus on? As Icotrokinra and [indiscernible] programs have shown favorable data or so, where do you see zasocitinib's key point of differentiation? Christopher David O'Reilly: Thank you, Wakao-san. So the first question on the PDT business performance and outlook, I'd like to ask Julie to comment on that. And the second question on zaso data, where will it be presented and what should we focus on in that data, I'd like to ask Andy to comment on that, please. Julie Kim: Thank you for the question, Wakao-san. In regards to PDT, as Milano was sharing in his part of the presentation earlier, we do see some slowdown in demand, particularly in regards to albumin in China. As you may be aware, the Chinese government has put in place utilization guidelines that are impacting demand for albumin in China. And it will -- it has slowed down the growth, and it will take time for growth to return in China. When you look at the overall outlook for PDT overall, there, we still believe we will have mid-single-digit growth for this year as previously shared and longer-term outlook is still strong. The quarter-to-quarter, as you know, because there are lots of variabilities in regard to tender timing, et cetera, we do -- as Milano mentioned, we do believe that there is a possibility we will have a shortfall, particularly in regards to albumin. But overall, we will be meeting the forecast for PDT. Seiji Wakao: So could you also comment on the immunoglobulin? Julie Kim: Sure. Yes. From an immunoglobulin perspective, again, long-term growth, we believe will remain steady. And from a short-term perspective, we are expecting to be on forecast for immunoglobulin. Andrew Plump: Wakao-san, this is Andy. So thank you for your question on zasocitinib. So we haven't disclosed yet the conference that we'll be presenting at, but AAD certainly is like is a possibility. I just suggest that you watch out for the abstract when they're released in mid-February for AAD. And then in terms of what to look for, it's pretty straightforward. It's fast onset of action. It's clear skin and it's ease of administration. We have a once-daily oral pill that's well tolerated with a strong safety profile. And then when you double click, you'll see that in the two Phase III studies, we hit on every single primary and secondary endpoint, and that's 44 total endpoints. So there'll be a lot of data that will be shared, and we're quite excited to get it out there. Seiji Wakao: So what is our competitive advantage? Andrew Plump: Well, it's has -- as we mentioned over the last hour, it has an efficacy profile that at 16 weeks is at the very high end of what's been seen for oral agents. It's ease of administration without having any food effects and it's the overall profile, and it's the rapidity with which we generate clear skin in an oral agent. We believe and we think the data will demonstrate that it's as good or better than any other oral option in the moderate to severe plaque psoriasis space. Seiji Wakao: Okay. I'm looking forward to see the data. Christopher David O'Reilly: Okay. Thank you very much, Wakao-san. I think we have just time for one final questioner. So I'd like to call on Tony Ren from Macquarie. Tony Ren: Yes. Thanks for the chance to ask the last question. My first one, and I'll go back to the -- again, for Andy, the zasocitinib regulatory pathway. So assuming that you will present the data at AAD in March, the standard FDA review takes about 10 months. So do you think you can actually launch it earlier than the 18 months of a time line guided? Are you being a little bit too conservative in estimating the time line? So that's my first question. The second one is probably to Julie about the ENTYVIO biosimilar. Have you -- as you're thinking about the biosimilar entry changed because of the subcutaneous Pen, I noticed that a recent conference in San Francisco, you guys are now saying 2030 and beyond. So just want to confirm whether the launch of the Pen and the wide adoption of the Pen has anything to do with the biosimilar entry. Yes. So that's my second question. Christopher David O'Reilly: Okay. Thank you, Tony, for your questions. So the first on zasocitinib regulatory pathway and potential launch timing, Andy can comment on that. And then the second question on the ENTYVIO biosimilar entry timing, I think Julie can comment on that, please. Andy? Andrew Plump: Thanks, Chris. Thanks, Tony. So just to put perspective on the filing time line. So there are three elements that define the time line for filing. There's the Phase III studies, which we've completed. Those are ready to go. There's the overall patient safety database. So we have to accrue safety in about 1,000 patients on active drug for a full year, and then the third is the CMC package. So when you put all three of those together, Tony, we're looking at a submission that's likely to occur sometime in this summer. And then, of course, the time line for the review will be something that will be in dialogue with the FDA and once we've made that submission. Julie Kim: Thanks, Tony, for the question on the ENTYVIO biosimilar timing. So we have not really changed our timing expectations here. As we've shared previously, we do have patents that cover various different aspects of ENTYVIO that go out to 2032. But as you are also well aware, there are biosimilars in development, and they could file with legal challenges -- I'm sorry, they could file and we would then pursue legal challenges. So that's why the timing could be 2030, 2032, and that's why you hear us saying that. Also from an overall market attractiveness perspective for ENTYVIO, as now ENTYVIO has been selected for IRA negotiation. The pricing expectations for biosimilars will also be impacted by that. Thank you. Christopher David O'Reilly: Thank you, Tony, for your questions. With that, we'd like to bring this call to a close. Thank you all very much for participating in the call today. This concludes our Q3 earnings call. Thank you. Good night. [Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]
Suguru Miyake: Good afternoon, ladies and gentlemen. Thank you very much for coming to our third quarter results briefing for the fiscal year ending March 2026. And today, we also have a simultaneous translation. So we are communicating all around the world. For those in Europe, it must be in early morning. For those from the U.S., but I bet you are in very late at night. Thank you very much for joining this call for those hours. So I am the President of the company. And also, we also have Naraki-san and Takeuchi-san with me. Takamaro Naraki: I am the Vice President for the company. My name is Naraki. Naoki Takeuchi: And I am a Senior Managing Director. I am Takeuchi. Suguru Miyake: Okay. So let's get started. In 2026, we are having the 35th anniversary of the company. So we made the anniversary logo, which we put on the front page. The bird in the middle is a Mascot character. She is called MAppy, M and A and happy. And those 2 words were combined together to be named as MAppy. And let me first start with the summary. In this Q3, showing the 9 months total and Q3 alone, basically, we recorded the highest sales and recurring profit ever, and we were able to surpass 40% for our recurring profit margin. For 9-month total, we accomplished JPY 37.7 million, which is increasing by 26.5% year-on-year. And the recurring profit went up by 46.8% to be JPY 15.7 billion. The OP margin was 41.7%, which is up by 5.8 percentage points. The number of transactions closed increased by 9.8% to be 810 deals and also M&A sales per transaction increased by 15.3% to accomplish JPY 45 million. On a Q3 alone results was JPY 15.1 billion revenue, and that was a record high number, up by 34.6% year-on-year. And ordinary profit was JPY 7.1 billion, which increased by 51.5% and OP margin was 47.2%. And number of transactions closed was 322 deals, which are progressing pretty good. And M&A sales per transaction was JPY 45 million, maintained at a very high level. So where are we at for the overall against the guidance numbers? I think that is important to note it. And for the sales, our target was JPY 46.3 billion. We are at JPY 37.7 billion, which is 81.5% progress. And ordinary profit against the forecast of JPY 17 billion, we are at 15.7% with 92.5% progress. And even more, we are quite pleased to see a very steady progress in returning back to our growth cycle. So M&A jobs, we do see many different conditions and situations, and we do see a lot of extension of the deals. So in Q4, March, if we were to trying to target at Q3 to accomplish the target, then we tend to see some delays into the next year. So we need to accomplish the certain business performance while satisfying customers. We will need to bring up the high performance as much as possible in Q3. So we can work on more preparation work in Q4, so we can have a rocket start for the next fiscal year and matching and also receiving a lot of commission work. And so that way, we can accomplish the stable growth. And finally, I believe we were able to come back to such a business cycle, and that is the most pleasing information that I have for this time briefing results. And let me go one by one, a little bit more in detail on the sales of 37.7% -- sorry, JPY 37.7 billion. And of course, we saw increases both in the number of transactions closed and also the unit sales, and that helped to see a substantial increase in the sales. The best part was the number of consultants who accomplished budget. We saw a substantial increase in such a number, such members and also department who accomplished the budget increased drastically. At the same time, Takeuchi-san, who is the President of M&A Center, always talks about each individual will need to accomplish the target to be happy and also each department to accomplish the target to be happy. And as a result, the company to accomplish the budget to be happy. So he is always pursuing to accomplish both the individual and the whole group. And such a policy and thinking is now being understood and spreading among the employment -- employees, and that was accomplished this time. And I think now we were able to build a very solid foundation to accomplish that. And the number of transactions closed. I think we were quite successful in implementing a very scientific approaches. It wasn't the result of a coincidence to increase the number of success rate and also on time closure of the deals, and we implemented 2 measures to accomplish them. One, when we start the deal negotiation, we had -- we are now having kickoff meetings, both sellers and from the buyers, the person in charge and their managers and accountants, lawyers and tax accountants and all these professionals, they all got together to confirm the schedule. We also confirm the stakeholders, and we also confirm the challenges, which is more important. So we identified those challenges ahead of the project kickoff, and that is very important. And we are making a smooth flow in the deal procedure. We conducted an M&A audit. And if we were to find the challenges at the time, then that could actually cause a situation that people might wonder, maybe they were hiding this information or they were deceiving us. And such a concern will be rising. So at the beginning of the whole deal, we need to assume what the challenges are so that way, both sellers and buyers can prepare themselves to be able to take action towards them. And that will actually increase the trust in us and also trust in between sellers and buyers, and that helps to have a smooth process going forward. The other thing is, and since this scandal we had, we actually increased the number of managers drastically. Of course, some of the -- a lot of managers are still not fully experienced, but we created a role for the deal management in place. So every Monday, we instructed them to give right instruction of the deals to their subordinates. So those are the 2 actions we implemented, which supported us to have such successful results, which were led by the President Takeuchi as well as the sales General Manager and their leadership actually worked quite well to permit this type of thinking among all the staff members to increase the number of transactions closed as well. And we are also able to maintain a very high M&A sales per transaction. And as I've been talking in the past, we're not trying to grow the sales per transaction. That's not our main purpose. Our target is to maintain around JPY 40 million per deal. But as we grow the number of deals, the unit sales goes down. So to stop that, we basically trying to capture the mid-cap business deals as much as possible, and that was quite successful, and that's also sustaining good unit prices. And the number of large deal was 85 cases. We did see a huge increase, increased by 66%. So our volumes on the midsized deals are properly secured. And but also for small deals, actually, we passed those deals over to our affiliate companies, the companies by the equity method, the patents. We have patents to handle those smaller deals. And I think that was also effective at the same time. And because of that, the percentage of smaller deals are now declining with us, and that is actually helping to see a stronger performance. That's how we understand right now. And talking about the cost and expenses, I pass the floor over to Naraki-san. Takamaro Naraki: On this page, so we are showing the cost of sales and SGA expenses. So those costs and SGAs for this year, starting from March 2026, we have changed the classification of human resources that actually changed some of the number changes. And so we are talking about comparison after the reclassification change. Then cost of sales was increased by 19.1% to be JPY 13.7 billion. SGA expenses was JPY 8.37 billion, increased by 7.7%. Referral fees ratio was 13.1%, increased by 0.9 percentage point. For the SGA expenses, the IT cost was JPY 848 million, and it increased by 46.7%. And let me also touch on the overview of the expenses and numbers. This is the total income statement. And towards the top on the cost level in total as Line 3, JPY 13.725 billion, and it was 36.4% of the sales. Last year, it was 38.6% and this ratio went down year-on-year. And 2 lines down from here. the SGA and operational cost, so it was 22.5% with JPY 8.49 billion. It was 25.6% last year. So percentage reduced this year because of the sales increase. So as I mentioned, ordinary profit came out to be 41.7%. So now it's back in the 40s. Suguru Miyake: And next is talking about the commission status. So it's very important to understand how many that we are receiving as mandates. In total, we received 328 mandates, which is down by 3% year-on-year. Of that mid-cap mandates were the 58 deals, which is down by 10.8%. For the buy-side mandate was 383 mandates, which is down by 6.6%. And number of new transaction negotiations was 295 deals, which is down by 13.2% compared to last year. I will have more details to come later on. This is nothing really negative. Actually, in the first half last year, we did have a huge amount of mandates that we received. And based on that, we decided to focus on the business performance. We wanted to revive our business performance. That was the main purpose of this fiscal year. So the number of transactions closed, and we try to focus also on the track record of the closed contracts. So we did not focus too much on receiving mandates in the first half. But second half, we will focus more on the quality of the mandates. And that was the policy we had in the second half. For those with no possibility of getting concluded, we try not to pursue to conclude them and close them. And so that is why the number is declining, but this is not because of a negative situation. So I hope you can understand this is still a result of positive effort, and this is the overall flow. Mandates in the central area are in green. These are the mandates in the city areas. We've been acquiring city area mandates quite well and local area mandates are about 45% of the total. So revitalizing the local economy and also contributing to the central area I believe that we have a really good balance of achieving mission and achieving good results at the same time. And about the fourth quarter, when it comes to receiving mandates or matching, we will put in bigger efforts. So I believe that we will be able to have overall good performance in the whole year. And the summary of the status of acquiring mandates is this. These are detailed figures. So please take a look at this later. And about the number of new mandates we have acquired, we believe that we're not experiencing a deterioration. We think that we are in a transitional period. About last year, we, as a company, were finally trying to be revitalized. So our focus back then was on acquiring more mandates. We were going after volume. However, since the start of this fiscal year, our focus is more on closing mandates and eliminating troubles. Therefore, when it comes to acquiring mandates, we've been refraining from the mandates with limited possibility of closing them after -- later on. And also, there can be inappropriate buyers. So really delegate projects that are close to renewal type of mandates, we've been cautious in receiving those mandates to improve customer satisfaction rate and also to improve our productivity. So we've been raising our productivity, and we've also been trying to improve customer satisfaction. And also, we plan to further improve the quality of the mandates we receive. And at the same time, we plan to improve the quality of our business and our service and the customer satisfaction level. This is going to be our direction. And I would like to hand over to Naraki-san for summary. Takamaro Naraki: Okay. About our balance sheet assets. JPY 60.011 billion. And below that, total net assets, JPY 48.257 billion. So ratio of this was 80.4%. And we have the same for the previous fiscal year on the right-hand side, JPY 47.5 billion in net assets. The ratio of net asset was 77%. So there is an increase by 3.4%. And about headcount, as I said, we had a reclassification of employees. So at the top of this table, we have the role for M&A consultants. These are the sales representatives belonging to the sales headquarter of Nihon M&A Center and the sales staff at local -- foreign local entities. And as I said, we've been doing effective hiring in M&A consultants. However, we have the increase in turnover of our employees with tenure of less than 3 years. So we've been implementing measures to improve retention of our employees. And we plan to provide more information about that later. Next page, Page 14. This one is about our current fiscal year. This fiscal year, we've been showing numbers both as reported and both -- and also on a reclassified basis as well. Thank you. About our headcount. We've been doing a lot of things. And headcount is the area -- the only area where we feel there's an issue, especially turnover ratio of the employees with tenure of no more than 3 years is declining or rather it's worsening this fiscal year. So we have already started taking measures to address this. However, we have a lead time, about half year's lead time until we start to benefit from these initiatives. So until then, we are going to continue root cause analysis, and we've been taking measures. And we have multiple issues, but the issue of the increase in the turnover of the people with tenure of less than 3 years, this is the largest issue we think we have in our company. So we want to address this immediately. We want to reduce turnover. We want to have a net increase in sales representatives. Just having a net increase itself is not good because when there are a lot of turnover, that means that we have relatively beginners -- more beginners in the company that leads to lower productivity. So we have to reduce turnover while securing enough personnel. And we've been taking measures. So we think that we'll be able to have major improvement next fiscal year. Next, let me touch on the shareholder returns. So for this fiscal year, we try to face the change in the external environment and trying to go back to the accomplishing cycle that we used to do in the past. So we intend to continue sustaining the dividend JPY 29 same year. So we had JPY 29 for March 2025. Therefore, for March '26, we intend to go with JPY 29 with no change from the beginning. In during the midterm plan period, the dividend payout ratio is to be 60% or higher. So we maintain this basic policy as well. And next, the ROE trend. In 2024 March, we conducted share buybacks. And with that, we were able to get back on 20% -- and also March 2026, we expect to be at 22.9%. And next, shareholder situation and also the market cap trend. And shareholder mix is shown here. Individuals are decreasing. And now we see increases from institutional investors in this pie chart. Individuals showed 30.7%. And last year, a year ago, it was 33%, but it came down to 30.7%, down by 3.2 percentage points. For financial institutions, sales 30.2%. Last year, it was 25.1%. So it increased by 5.1 percentage points. The foreign investors -- foreign institutional investors was 28.9%. The last year, it was 30.4%. So it went down by 1.5%. And next, talking about the forecast number, there is no change to our forecast numbers. We maintain the same number. And so we can move forward according to the guidance numbers. In a midterm target, there is no change in our midterm target. And of course, we will make sure to have an upside to the midterm target to be accomplished. So we ensure to accomplish them, and we will try to have as much upside as possible so we can lead to the next phase from there on. And related activities. Currently, the other sales is about JPY 1.2 billion. This is only about 3.3% within total sales that's coming from fund business and PMI business. And so this is still a small business, and our intention is to grow this with other business. And also TOKYO PRO Market, we are making good progress. And this year, the number of IPOs were not that many. The listing to the market, it takes about 2 to 3 years for preparation. So those deals that came 3 years ago and 4 years ago are going to be IPO this year. With the scandal, right after the scandal, TPA commissioned project have decreased. So therefore, we see less IPOs this year, but we intend to accelerate the number of IPOs, and we do have enough backlog of the potential IPOs to come in, in the coming years. The most important thing is the PMI. Both FSA and SME agencies, they say not just closing M&A. What they need is having a successful PMI activities as well. That's their direction. And we think that we are the only company in Japan who is doing M&A consulting, but is also doing PMI support activities. And the plan for this fiscal year is to receive 120 mandates, and we have already acquired 95 mandates. 120. We think that we're going to -- we'll exceed 120 this fiscal year. And we think that this is going to be a major differentiating factor going forward for our company. So we're going to do more aggressive sales activities. And at the same time, we would like to enrich our activities or enrich our support to customers, but we cannot do this on our own. Therefore, we would like to do more collaborations of private, public and academia collaboration. And we have ASEAN-based local entities. And they have been working really well. they closed their financial years in December. And this fiscal year, they achieved their budget sufficiently. So from the next fiscal year, they are going to enter into the next stage of growth. So I have been really counting on this overseas business, and I am excited to see the development of this business going forward. And about our fund business, its contribution in terms of profit may be limited. However, A2G Capital, J-Search and Japan Investment Fund, they are all going quite successfully, respectively. And about J-Search, they have already established companies in 4 locations, and they've been working together with local banks. And Japan Investment Fund, they have launched their second fund that's been working effectively. And roll-up activities are done, which are the add-ons of generating synergies with companies with good affinity after acquiring a company. And we have done 2 of such roll-ups this fiscal year at the Japan Investment Fund. Topics. DX and AI usage, especially AI-based activities have expanded quite significantly. And Takeuchi-san has been talking about data-driven management. Bring out is a name of our analysis soft of conversations and discussions. With this AI-based software, we've been collecting a huge volume of various information that's used for our sales approach improvement. And we've been also accumulating customers' qualitative information. When it comes to quantitative information, we can accumulate the data by receiving financial documents. But when it comes to qualitative information, we have to do interviews to customers. And just like in human marriage, qualitative information can be more important than quantitative information. This is the same in M&A. So when we get more qualitative information, eventually, we believe that we will be able to have more accurate AI-based auto matching. So activities that we've been doing based on DX and AI are -- have huge potentials, and we've been doing all of what we can do. And about seminars, we've been holding physical marketing, and we've been getting a lot of applications. We had 80% more applications compared to the same time last year for these kind of events and 2 major reasons. One is that our planning has been quite getting better. And the second is that customers' interest in M&A are growing. And in the next fiscal year, we would like to do such real marketing more actively. And we've been having successful area marketing activities as well. For example, signage advertising that you often see at stations, railway stations, like you can find in the photo on this page, we've been doing advertising there. For example, in Tokyo, Osaka, Nagoya, Fukuoka, Hiroshima, Hokkaido, Okinawa as well. And it seems that we have one at Haneda Airport. I saw the video of our ad there. And also, we've been doing things that are based on the local communities. For example, local representative office with discussion desk. We now have one Yamaguchi, Niigata, Miyagi, Ibaraki, Shizoka and Yamaguchi finally. This is the fifth one that we have established. Thanks to customers' support and thanks to our efforts. We are recognized by Guinness World Records for 5 consecutive years. The number of closures last year was 1,088. This was the highest in the world. We would like to use such track records and awards for our branding activities. And the next one is about integrated report that I hope everybody will read. We publish them or we have published them at the same time in Japanese version and English version. And we plan to do the same in the same manner this year as well. And this is not just about senior management thinking. We have been including the dialogues and stories and thinking of the various people, including external directors, executive offices, et cetera. I hope that you will feel our culture and momentum. And about our industry trends, we are experiencing increasing the number of intermediary agencies and SME agency had the second revision of their guidelines and also introduction of qualification systems. So in such initiatives, they announced their skill map and qualification system committee was established and inappropriate buyers. We've been enhancing our activities to avoid getting involved by them at the M&A association. And also, we would like to be an exemplified or we would like to be a model in this industry. And our 3-party collaboration, tri-party collaboration, we've been doing that quite widely with University of Kobe, Kyoto, Waseda, Hitotsubashi, et cetera. We've been doing joint research with them. And also with Kwansei Gakuin University, we're going to do the same going forward. So we've been inviting many universities to do this. So the company is not an object. It is a place where we create and look at the lives of many different people. It's not just completing all the contract to be closed, but we hope to be able to be successful in accomplishing the best M&A to make everyone involved to be happy. So in order to accomplish such a success and the best closure, we intend to implement various measures, as I mentioned. So this is all for the results briefing. And now we want to move on to a Q&A session. Suguru Miyake: Thank you very much. So let's move on to the Q&A session. [Operator Instructions]. While we are waiting for your questions, first, we want to pick up some of the major questions that we received in our shareholder interviews in the Q&A session. This is a question first. So regarding your initiatives to maintain high retention, is there any issue in your hiring policy and hiring environment? Okay. Thank you for the question. This is the only challenge I am feeling the most and also the largest challenge that we are facing. And we are making a very detailed analysis and taking various actions. So we want to have Takeuchi-san to explain more details on this. Naoki Takeuchi: Thank you very much. Regarding the hiring environment, in the last time results briefing, so we are getting a good response in terms of receiving applications. But of course, we need to look at the conditions in market. So we have a close watch on the market situation. But currently, we are receiving good application, and we are selecting the right candidate. When it comes to hiring policy, so the turnover rate is on the rise. So -- what we did to address that for the past 6 months or 3 months, we try to understand the reason why they left the company and where they went. And what was the reason they decided to leave the company. So I myself went into more details to understand one by one. And the major reason for leaving the company was that they had an expectation for M&A Center before joining the company. But after joining the company, they saw a huge gap against the ideal they had. That's what we found, let's say, they thought, okay, they could do more, they could work a lot and hard. But due to the compliance and the governance, it wasn't really giving enough flexibility to do a lot of work. And some people thought this was a large company, but why do we have to be bound by certain behavioral rules. So those gaps, we thought that they were in the different directions. So basically, the major challenge was that in a final interview with those candidates, we needed to communicate our company core value to the full extent to them. So therefore, since February, every Friday, and I spent half day every week, I decided to be part of the final interview with a potential candidate, every interview. And we also had the channel General Manager as well. So in the final interview session, first, I'm trying to eliminate those gaps that they may have in the future. So that's why I'm now involved in a hiring process that we are able to improve the hiring situation. That is where we focus the most. May I add one more? Yes, there is one more thing. This is the biggest challenge I'm facing right now. So the other thing is once they join the company, once they start working, and then those who decide to leave the company. Of course, if they are not able to perform fully during the first year, they tend to leave. And what is the definition of being successful? So I think the important thing is to have closing the deal within a year. So last year, also the year before and even this year, for those who joined the company for the past year and only 60% of those members have accomplished closing deals. So we first want to raise this percentage to 80%. For those members who accomplished the first closure, those 60 members are not leaving. But the remaining 40 are the ones who are leaving. So that's why we are focused on increasing the number of success rate up to 80% during the first year. So as you can read on the slide, of course, I look at all the members, I see all the members through the hiring process interview. And then I myself will have an interactive communication with all the people so I can give them more confidence. And a year later, even with the channel General Manager, if they are having hard time getting closer, then we think about reassigning them to a different channel. So we want to show the value to those employees for the first year as a part of the flow. So we need to pay extra attention and proper care of those who joined -- who just recently joined the company and so we can develop their capability, and this will be led and adopt top-down manner. Suguru Miyake: Next question. M&A sales per deal has been trending at a high level. Is this a onetime trend? And how reproducible are mid-cap mandate-related initiatives? How do you see your current M&A sales per deal and the level you'd like to be in the future? Thank you. I have always been talking about JPY 40 million as our target M&A sales per deal. Our social mission is to grow in volume so we can save as many companies as possible. When we have more volume, it's natural that, that sacrifices our M&A sales per deal. That means lower productivity. So we want to acquire mid-cap mandates, both them so we can maintain M&A sales per deal. This is what we've been trying to do as mid-cap measure. And this measure has been actually been more successful than we had anticipated. Fortunately or unfortunately, it's not really coming from the mid-cap mandates per se. It's rather coming from the fact that we have established a team of mid-cap dedicated consultants and targeting all sales representatives, these mid-cap -- we have established a system where they can educate and instruct about acquiring mid-cap mandates. Actually, companies have only 2 ways of closing their business or getting acquired. These are the 2 only scenarios they have. However, with us, they have new options, for example, fund option and others or maybe handing over the business to their sons, owner, sons and so on, IPO possibly. So in order to convince customers, we need to create proposal documents and however, beginners are shy about those options. And we have established a consultant team that can make such proposal documents when they receive referrals about those mid-cap potential mandates. So this has been working effectively and leading to the improvement of our closure rate. Things have been more smoother -- more smooth than we had anticipated. And of course, increase in M&A sales per deal is something that we welcome. But we want to maintain this. And the level that we would like to be is JPY 40 million, in my opinion, basically JPY 40 million. So maybe JPY 42 million, JPY 43 million should be enough as our M&A sales per deal. So when it comes to JPY 45 million or JPY 46 million, I think that's too good for us. Next question. Could you tell us the number of the deals under negotiation, which are left open at the end of December? Thank you for the question. So the number of deals under negotiation, currently, there are about 944 -- right now, 449 deals, 449 deals are under negotiation. and 295 are newly opened deals. I believe this is a pretty good condition. We are coming to the end of the fiscal year in March. We are able to have enough negotiation. We have secured enough pipelines, which are those deals under negotiation. And for the next year, to have a rocket start in Q1, we want to actually increase more of such a pipeline. So in Q4, in February and March, we will be working more on matching activities that is going to be quite important. Next question, leading indicators that determine your business results from the next fiscal year. So the number of new negotiation starts and the number of consultants, these indicators are deteriorating for 2 consecutive quarters. Is there going to be any negative impact from this on the likelihood of exceeding your budget in the midterm plan? I don't have a concern about this because our productivity is increasing and our closure rate has been growing solidly, meaning that we are more capable of doing effective management than before. And also, the quality of our pipeline mandates or pipeline projects are improving as well. So I do not have a concern or anxiety about not being able to exceed our budget under the midterm plan. And about the number of new negotiation starts, I think there is limited possibility of not being able to achieve this indicator target. And even so, the shortfall -- potential shortfall can be covered enough by good closure rate. And also the number of consultants, I have a major concern about that. So we're going to reduce turnover rate enough, and we will establish a system where new people can grow sufficiently. And at the same time, we want to do more recruitment so we can have net increase. This cycle is something that we have been establishing in the recent 3 months. And we think that the level of success in this measure will impact the level of how much we can achieve our midterm guidance -- midterm plan targets. So we will do more about this. Next question. Regarding the decrease in number of sell-side mandates, do you think SME agency policy is affecting because they encourage the regional banks to be the intermediary for M&As. So can you tell us the current status of the direct network ratio in the sell-side mandates? And what do you think is the forecast? Regarding the first part, that is nothing to do with the situation. Actually, their policy is working on a positive way. The SME agency and FSA and they are talking regional banks to work on revitalizing regional economy and trying to accelerate M&As and also asking them to develop the businesses, which is making more than JPY 10 billion. And so regional banks are actually collaborating and working in tandem with us. So that's why the regional bank team in our company are going quite well so far. They're receiving a lot of mandates and having a lot of closures as well. So the decrease in number of sell-side mandate is because in the first half, as I mentioned earlier, so this year, we had -- this year will be almost a conclusion year coming out of the scandal. So it's going to be the year for recover from -- fully from the scandal 4 years ago. So first, we wanted to focus on the number of closures and also the amount, the yen amount as well. And so that's where we focused on first half. And that was affecting the result in the first half. But second half, now we are focusing on improving quality of the mandates, and that's what's also putting some pressure on the number of mandates. And so that's also causing a slight decline. But there is no major impact by them. And rather, we see a much positive impact on our business with those policies by the governments. And so the ratio between direct and network, the network is increasing for the mandates. And right now, in Q3 of fiscal '25, regarding sell-side mandates, in ratio-wise, 37% versus -- no, correction. 74% versus 26%. Network, 74% and 26% for direct. So ratio for network is increasing. And the network is increasing more. Of course, we need to increase the ratio -- direct ratio. But recently, pretty recently, direct market is exposed to very fierce competition. So, so many, too many boutiques out there in the market. And it's very difficult to obtain mandates. So that's why for network channels, we pretty much have an exclusive relationship, and we receive also the retainer fee as well from them. So we are receiving good revenue through the network. So that's where we can leverage on our strength. Next question. About dividend, do you have a plan to change your dividend of paying JPY 29, including special dividend of JPY 6? Thank you for the question. Of course, we have to make a decision to announce. So we cannot say anything definite on this occasion. But to share with you my thinking, we're not planning to cut dividends. At least when we are steadily growing and when our share price and our market cap are growing steadily, we would like to make sure that shareholders can enjoy capital gains. And until we go into that phase, we're not going to cut our dividends at least. So I would like our shareholders to be believed about the possibility of dividend cut. Next question. And so regarding returning to your normal performance achievement cycle, how do you think its repeatability or continuity for next year onward? Takeuchi-san, can you answer this question? Naoki Takeuchi: We next year beyond, repeatability and continuity have such a cycle. So this year, we are looking at this progress. And the answer could be a little abstract, but I think the people in the field did great work. You don't misunderstand this -- my comment, but I think it was actually too good to be true, but still, we are making such a great progress so far. And we have taken every strategy measures that we are able to take in details. The important thing is not to rush too much. If you rush too much, if you just try to accelerate the performance, that can actually cause too much pressure or the burden on the field members. So we need to avoid that. We need to focus on completing good quality M&A. And so the whole industry is focused more on safety and security and the responsibility accountability for the result. So we need to be seriously addressing that trend and what's been required by the society, and that will lead us over to a strong performance. So repeatability and continuity will be accomplished by pursuing this policy. Suguru Miyake: Next question. Your interim fee grew by 28% year-on-year. When does that lead to you receiving contingency fee or a success fee? If you go along with the flow that you were in, in the recent few years, I can assume that this level -- this increase in interim fee will lead to an increase in success fee in the next quarter. However, since your company seems to be able to get back to the customary cycle of achieving results earlier than planned, do you think that -- do you plan to carry this over to Q1 next fiscal year? This is not something that we're going to make a decision about because for M&A, we need a buyer and a seller. These are our customers and they have their schedule. They have their conveniences and they have emotions as well. So timing is not something we adjust. They determine the timing of M&A closure. So in accordance with the normal cycle, we tend to close deals in the following quarter. However, unlike major M&A, like an M&A between listed companies, they actually make decisions at respective Board meetings. So there is no change basically. But when it comes to M&A among SMEs, there can be pretty natural doubts. There can be a half month or 1 month deferral of closure and also buyer can be involved in a sudden major trouble and President of the buyer may have to go on a business trip to foreign country. So there are many cases where there is about a 1-month lag in closing deals. This can happen to us as well. There can be deals that can be closed smoothly by the end of this fiscal year. Takeuchi-san, what do you think? Naoki Takeuchi: I completely agree with what he has said. It's our customers who form and decide on market results. So of course, we pay attention to the expected results on a quarterly basis, but we pay attention to our customers. Our senior management will, at the same time, closely monitor our results. So I completely agree with what Miyake-san has said. Thank you. Suguru Miyake: Today, thank you very much for staying with us for a long time. We have explained our results for the third quarter, and we had a Q&A session as well. Thank you for staying with us till the end. And finally, from the appropriate incident, we experienced many things. And in FY '22, we had a shift to a compliance-based management, and we implemented many prevention measures. And in FY '23, we tried to be a more united company and a more cheerful company. And in FY '24, we received a huge volume of mandates in this fiscal year '25 is about recovering in our financial results and getting back to the primary customary cycle of achieving results. This has been the direction of our company's management. And thanks to these efforts, we had a rocket start, really good start in Q1 this fiscal year. And we had an upward revision in the second quarter. And in the third quarter, I think that we had good enough results that matches with what we have been doing, and we are now almost back to the customary cycle and the level of enthusiasm among our employees is quite high. It's been rising. And of course, we have some issues, including an issue of higher turnover rate. There can be some potential issues. However, we are trying to be transparent to shareholders and investors and we've been discussing with them about our issues. And we will continue to do the same as our manager company going forward. And our Q4, the next briefing session will be the full year briefing session -- full year results briefing session. So our company will be united and make efforts and also acquiring mandates, so we will be able to have a rocket start next fiscal year. We will not ease up on our efforts for that. Please continue to support us. Thank you. [Statements in English on this transcript were spoken by an interpreter present on the live call.]
Christopher David O'Reilly: [Interpreted] Thank you very much for taking time out of your busy schedule to join us for the earnings announcement for the third quarter FY '25 of Takeda. I'm the MC, O'Reilly from IR. [Operator Instructions] Before starting I would like to remind everyone that we'll be discussing forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Actual results may differ materially from those discussed today. The factors that could cause our actual results to differ materially are discussed in our most recent Form 20-F and in our other SEC filings. Please also refer to the important notice on Page 2 of the presentation regarding forward-looking statements and our non-IFRS financial measures, which will also be discussed during this call. Definitions of our non-IFRS measures and reconciliations with comparable IFRS financial measures are included in the appendix to the presentation. Now we would like to start with the today's presentation. Today, we have Christophe Weber, President and CEO; Milano Furuta, Chief Financial Officer; Andy Plump, President of R&D; and Julie Kim, CEO-elect. They will present, and this will be followed by Q&A. We'll get started right away. Christophe Weber: Thank you, Chris, and thank you, everyone, for joining us today. Our fiscal year 2025 third quarter results are confirming the strength of Takeda fundamentals and our ability to maintain disciplined cost management and operational efficiency while continuing to focus on innovation and long-term sustainable growth. Milano will explain our financial results in detail in his presentation shortly. Fiscal year '25 remains truly a pivotal year for Takeda. We are in a phase of preparing for significant new product launch, making major step forward in our new growth trajectory. In particular, I would like to focus on oveporexton, rusfertide and zasocitinib, which are key assets in our late-stage pipeline that we expect to launch over the next 18 months. Oveporexton is the first orexin agonist to be submitted to the FDA and has a considerable first-mover advantage. Phase III results were statistically significant across all primary and secondary endpoints, demonstrating clinically meaningful improvement on daytime and nighttime symptoms. This reinforce our belief that this medicine can truly transform the life of patient with narcolepsy type 1. Rusfertide is an hepcidin mimetic that has demonstrated durable and sustained hematocrit control in patients with polycythemia vera or PV. Nearly half of PV patients remain untreated in the U.S. today, and those that are treated still have significant challenge in managing their disease. The Phase III data underscore the potential for rusfertide to transform the standard of care for these patients. We have filed a new drug application with the FDA for oveporexton and rusfertide and are awaiting formal acceptance. Finally, at the end of last year, we announced positive Phase III psoriasis data for zasocitinib, our highly selective TYK2 inhibitors. Full detail will be disclosed at the upcoming congress, but this once-daily oral therapy offers a compelling profile to help shift the psoriasis advanced therapy market towards oral treatment. Regulatory filing preparations are underway, and we expect to launch zasocitinib in the first half of calendar year 2027. The positive data for all the three programs met or exceeded our expectation. Now we are focused on preparing for launch. We will update the peak revenue potential for these three programs in the future. Combined, we believe this product could more than offset the anticipated impact of ENTYVIO biosimilar entry from the early 2030s onwards. And in addition to these three, our transformative late-stage pipeline includes five other innovative programs, two of which we have recently added through our strategic partnership with Innovent Biologics. Each of our eight late-stage program has the potential to transform the current standard of care, providing strong and sustainable growth drivers for Takeda well into the future. Andy will share more details about our pipeline advancement later in this call. Now I will hand it over to Milano, who will discuss our financial results and the outlook for the rest of the fiscal year. Milano, over to you. Milano Furuta: Thank you, Christophe, and hello, everyone. This is Milano Furuta speaking. Slide 6 summarizes our Q3 year-to-date results. As you know, this year, we are managing the significant impact of VYVANSE generic erosion. However, if you look at the performance quarter-by-quarter, the headwind from VYVANSE is steadily tapering off as the year goes by, and we are maintaining strong cost discipline to limit this impact to profit. Revenue for the 9 months period was just over JPY 3.4 trillion, a decrease of 3.3% or minus 2.8% at constant exchange rate or CER. Core operating profit, core OP was JPY 971.6 billion, a year-on-year decrease of 3.4% at both actual FX and CER. This is a meaningful improvement from our first half results. Reported operating profit was JPY 422.4 billion, an increase of 1.2%. Core EPS was JPY 428, and reported EPS was JPY 137. Cash flow has been very strong this period with adjusted free cash flow of JPY 625.9 billion, even after the upfront payment of USD 1.2 billion to Innovent Biologics in December. Slide 7 shows our growth and launch products, which represents over 50% of total revenue and grew 6.7% at constant exchange rate. This is a steady improvement on the 5% growth rate we saw in Q1 and Q2. In GI, ENTYVIO grew 7.4% at CER. Growth in the third quarter was particularly strong as expected, partially due to a onetime gross to net true-up in the period prior year. ENTYVIO Pen continues to be the main driver, helping us maintain leadership share in a competitive IBD market. We are also pleased to report that as of this month, ENTYVIO Pen is now on formulary with all three large pharmacy benefit managers with commercial coverage of more than 80%, in line with competing products. With this progress, we are on track to achieve our full year projection of 6% growth. In rare diseases, TAKHZYRO has slowed to 2.4% growth at CER. Although we continue to see strong uptake in international markets, this is being offset by the impact of new competing products in the U.S. In PDT, Q3 revenue growth marked an improvement on the first half. That said, we acknowledge some headwinds, particularly in albumin. IG growth was 4.3% year-to-date, driven by subcutaneous IG products, which grew double digits. IVIG sales have been impacted by Medicare Part D redesign in the U.S., which we expect to normalize in Q4. Albumin has returned to growth of 1.3%, but this is slower than expected due to softening demand in China, which is also putting pressure on other markets where supply is reallocated. While we anticipate additional tenders in Q4 to support an uptick in growth, there's a possibility we'd finish the year below our full year forecast. In oncology, FRUZAQLA continues to expand as well as we roll out global launches. Finally, in vaccines, QDENGA growth has accelerated to 22.1%, driven primarily by Brazil. On Slide 8, you can see how incremental revenue of growth and launch products and the impact of the VYVANSE loss of exclusivity contributed to total revenue performance. With each quarter, the gap is becoming smaller as the VYVANSE decline was heavily weighted to the first half of the year and the growth and launch products are performing better in the second half. Slide 9 shows year-on-year core OP performance. Here, you can see that the LOE of high-margin VYVANSE was the main reason for the year-on-year decline of 3.4% at CER. However, we have been able to limit the VYVANSE impact through operational efficiencies with R&D and SG&A expenses, both lower than the prior year. As we explained at the Q2 earnings call, we continue to tighten the belt on expenses, building on the progress of the cost efficiency program we started in 2024. This will be critical as we ramp up investment behind the three new product launches. We will not compromise on the necessary investments for long-term growth. We also have multiple programs in the late-stage pipeline that will require additional R&D investments in the coming years. At the same time, we will continue to pursue opportunities to offset these investments where possible to minimize the near-term impact on profit. Next, reported operating profit on Slide 10. This was flat versus prior year, with the lower restructuring expenses more than offsetting an increasing impairment of intangible assets. The main impairment item was booked in Q2 related to the cell therapy, and there were no major new items in Q3. Slide 11 shows our updated full year outlook. Starting with management guidance, we are revising only revenue guidance to low single-digit decline at CER, primarily due to stronger-than-anticipated VYVANSE generic erosion in the U.S. However, our commitment to OpEx discipline allows us to offset the gross profit impact from VYVANSE, and we maintain full year guidance for core OP and core EPS. For our reported and core forecast, we have revised our FX assumptions. As a result, our revenue forecast is now JPY 4.53 trillion, core OP forecast is JPY 1.15 trillion and core EPS forecast is JPY 486. We have also upgraded our adjusted free cash flow forecast. On Slide 12, we show more detail about the updated revenue and core OP forecast. For revenue, we are reflecting latest momentum of VYVANSE and other products, which includes plasma-derived therapies under TAKHZYRO. However, this is more than offset by FX upside, resulting in a net increase of our forecast of JPY 30 billion. For core OP, continued OpEx discipline fully offset the impact of VYVANSE. We also have FX benefit for a net increase to our forecast of JPY 20 billion. Thank you, and I will now pass over to Andy. Andrew Plump: Thank you, Milano, and hello to everyone on today's call. Takeda is entering an exciting new period of growth powered by our late-stage pipeline. As Christophe mentioned, in 2025, we were 3 for 3, delivering positive Phase III data readouts for oveporexton, rusfertide and zasocitinib. These exciting results are at the high end of our expectations, further strengthening our belief that these new medicines have the potential to fundamentally reshape their respective therapeutic landscapes, bringing transformative benefits to patients in the next 18 months. Let me begin with oveporexton, our expected first-in-class orexin 2 receptor agonist, which can transform the treatment paradigm for narcolepsy type 1. Approximately 85% of patients in the Phase III oveporexto trials saw measurable improvement, which brought them into the normative range on the Epworth Sleepiness Scale, or ESS, the gold standard measure of excessive daytime sleepiness. That means the majority of patients have the possibility of a normal day. In both Phase III studies, oveporexton achieved clinically and statistically significant improvements across all 14 primary and secondary endpoints with most participants reaching normative ranges. This normalization across such a broad range of NT1 symptoms, including daytime sleepiness, nighttime symptoms, cataplexy and cognitive function is unprecedented. Oveporexton doesn't just manage symptoms, it addresses the underlying orexin deficiency in NT1, offering patients a single, well-tolerated oral therapy that could restore how a majority of NT1 patients feel and function. We have submitted a new drug application to the FDA and are working to launch oveporexton this calendar year. Next is rusfertide, our hepcidin mimetic for polycythemia vera. One key data point from the Phase III study is the ability to maintain hematocrit control below 45% through 52 weeks. Real-world data shows that 78% of PV patients experience uncontrolled fluctuating hematocrit, leading to a fourfold increase in the risk of thrombotic events, including stroke, deep vein thrombosis, pulmonary embolism and acute coronary syndrome. Rusfertide targets the biology upstream, offering more stable and durable hematocrit control and fewer variable swings in hematocrit. Durable hematocrit control with impressive safety and tolerability also led to clinically meaningful and statistically significant benefits to patients' quality of life as measured by the PROMIS Fatigue Scale and myelofibrosis symptom assessment form. By reducing fatigue and other key disease-related symptoms as well as the need for phlebotomy, rusfertide enables patients to spend less time managing their disease and more time engaging in everyday activities. We have submitted an NDA to the FDA and are working to launch rusfertide in PV this calendar year. And finally, we have zasocitinib, our next-generation TYK2 inhibitor for immune-mediated diseases. In our Phase III psoriasis studies, zasocitinib worked fast with significant improvement in PASI 75 within 4 weeks. Patients, of course, want clear skin. At week 16, more than half of patients on zasocitinib achieved PASI 90 or almost clear skin, and approximately 30% achieved PASI 100 or completely clear skin. PASI scores continue to improve through week 24. These results are at the very high end of reported results for all therapies in development. Zasocitinib is a once-daily, well-tolerated pill that does not have any food interactions. We are looking forward to sharing the complete data at a medical conference in the near future and expect to launch zasocitinib in psoriasis during calendar year 2027. In addition, we remain confident in future indication expansion opportunities for zasocitinib, including psoriatic arthritis and inflammatory bowel disease. Together, oveporexton, rusfertide and zasocitinib represent three transformative medicines we plan to bring to patients over the next 18 months. They demonstrate the strength of our R&D engine, the speed and quality of our clinical execution and our commitment to delivering therapies that meaningfully change how patients live. Next slide, please. These first three approvals are just the beginning. I want to highlight some additional bright spots within our late-stage pipeline. Building on our success, a head-to-head study of zasocitinib versus deucravacitinib is fully enrolled and on track to read out in 2026. These data are not required for filing, but will be insightful to further differentiate zasocitinib from other oral psoriasis medicines. Last November, at the American Society of Nephrology Kidney Week, we presented new IgA nephropathy data from a proof-of-concept study for mezagitamab, our anti-CD38 monoclonal antibody. IgAN is a progressive autoimmune disease that causes irreversible damage to kidney function. Patients receiving mezagitamab demonstrated durable kidney function for about 2 years. This is an incredible 18 months after the initial 5-month treatment period, suggesting a disease-modifying effect sustained long after dosing that could allow for extended treatment holidays, very important for patients with this lifelong disease where many progress to kidney failure within 10 years. In addition to oveporexton, we are excited about the potential of our second orexin 2 receptor agonist, TAK-360, which is initially focused on patients with normal orexin levels like those with narcolepsy type 2 and idiopathic hypersomnia. Phase II studies in NT2 and IH are enrolling well, and we expect to have data this year to inform Phase III development. Next slide, please. Turning our attention to oncology. Late-stage highlights include elritercept, our activin A/B ligand trap that showed compelling data in myelofibrosis as presented at this past ASH meeting. Phase II myelofibrosis data showed clinically meaningful improvements in anemia and thrombocytopenia alongside favorable trends in spleen volume and symptoms when added to ruxolitinib. Elritercept remains a late-stage, potentially best-in-class approach across MDS and myelofibrosis. And lastly, we recently licensed two new innovative oncology drugs from Innovent Biologics, now called TAK-928 and TAK-921. TAK-928 is a potential first-in-class alpha biased IL-2 PD-1 bispecific antibody designed to selectively activate tumor-specific cytotoxic T cells through activation of the IL-2 alpha CD25 receptor while reducing the risk of exhaustion through immune checkpoint inhibition. In early-stage clinical studies, TAK-928 has demonstrated encouraging activity in heavily pretreated immunotherapy and chemotherapy refractory lung cancer as well as in immunologically cold tumors such as microsatellite stable colorectal cancer. We have seen compelling high-quality data in well over 1,200 Chinese patients and consistent early signals from ex-China populations. We have completed the rapid transfer of data and materials and are now executing with speed to generate global data sets that will supplement the China data shared last year at ASCO. This will allow us to advance TAK-928 to treat a broad range of solid tumors, including non-small cell lung cancer and microsatellite stable colorectal cancer. These go to Phase III decisions will start as soon as 2026 and into 2027. The shared investment in TAK-928 has a 60-40 split with Innovent and is stage gated by these go decisions. TAK-921 is a Claudin 18.2 targeted antibody drug conjugate that couples a selective antibody with a silenced Fc region to a topoisomerase payload. This approach is designed for potent, tumor-specific delivery of this preferred payload to patients with pancreatic and gastric cancers where unmet need remains high. The engineered Fc silencing reduces off-target toxicity in the GI tract and lung, potentially allowing for more robust dosing and the ability to combine with first-line regimens. Clinical data shows lower rates of GI adverse events relative to other Claudin 18.2 targeted antibodies in development. We plan to develop TAK-921 in first-line gastric cancer and first-line pancreatic cancer. And now I'd like to turn it back to Christophe and Julie for a few closing remarks. Christophe Weber: Thank you, Andy and Milano. Before we start the Q&A, I would like to share that this is my last earnings call as a main presenter. I will be on the full year earnings call, but in a supportive role as Julie Kim, our CEO-elect, take the lead and sets guidance for fiscal year '26 ahead of our formal handover in June. This is part of our intentional and coordinated transition. Starting this month, Julie began taking on more operational responsibilities to ensure that we remain focused on our upcoming launches without interruption. I would like to thank all of you for the important dialogue we had over the years about our business. I am proud of the work we have done to position Takeda among the global R&D-driven pharma leaders and poised for growth in the years ahead. It has been a wonderful journey, and I am excited about Takeda's future and confident in Julie's leadership in its next era. Julie, over to you. Julie Kim: Thank you, Christophe, and thank you for your leadership and guidance over the last 12 years. Hello, everyone, and thank you for your trust that you're putting in me to lead Takeda's next era of growth. As Christophe shared, our transition has been incredibly collaborative. And one of the benefits of being an internal successor is that we don't have to slow down, we can keep the momentum going and continue to move the organization forward. To that end, you may have seen our post today about changes to our organizational structure and executive leadership we are making effective April 1. These changes are designed to position us for competitiveness, growth and speed in the years ahead, particularly as we plan for multiple launches. As we implement these changes, we expect the teams will identify opportunities to simplify their work further as we continue to redesign our processes to adopt AI and other advanced technologies. Next quarter, I look forward to taking the lead on the earnings announcement and providing guidance for fiscal year 2026. I value our ongoing dialogue and will stay closely engaged with all of you in the months and years ahead. Thank you. And with that, I will turn it back to Chris for Q&A. Christopher David O'Reilly: [Interpreted] [Operator Instructions] Morgan Stanley, Muraoka-san. Shinichiro Muraoka: [Interpreted] This is Muraoka, Morgan Stanley. I hope you can hear me. Christopher David O'Reilly: Yes, we can hear you. Shinichiro Muraoka: Maybe it's too early to ask, but Milano-san, what are your thoughts about the next fiscal year? Contribution from the new product is probably small, and you'll be spending a lot of marketing expenses for those new launches, I understand that. But live situation is coming down, it's getting better, and profit will be maybe flat or slight decrease. And I'm thinking that you can continue to increase dividend. But can you give us some suggestions about what will happen in the next fiscal year? Christopher David O'Reilly: Milano, please go ahead. Milano Furuta: [Interpreted] Thank you, Muraoka-san. Yes, it's a little bit too early, you're right. Our guidance will be provided as usual in May. And the next fiscal year's budget is being finalized as we speak. So please give us some more time. With regard to the current momentum, I believe that we can give you some more information. Top line. Well, growth of growth and launch products versus the LOE impact, I think it's a balance between the two. We expect the growth products and launch products to continue to grow. But as you saw in the numbers in this fiscal year, they are beginning to mature. This cannot be denied. But the gap between LOE and growth and launch products is shrinking every quarter. So we need to see how this balance will work out for the next fiscal year. We are trying to figure that out now. So please give us some more time. As far as expenses are concerned, this fiscal year, the whole company endeavored on saving the costs, and we will continue to make this effort. But Muraoka-san, like you said, launch costs, three products we launched within 1 year. This means that there will be some load burden. But this uptick is very important for the future growth as well. This is a very important timing for us. So we will be discerning in terms of which investments are necessary, and we will not compromise in investing these launches. As far as R&D is concerned, this fiscal year, we have been trying to save the costs and also at the same time, continue to drive various projects through the Innovent partnership. We have introduced new assets for Japan and full-scale development is expected to start. Considering that impact, R&D expenses are likely to go up. I think that would be the correct way of reading it. But again, I would like to emphasize that we will continue to tighten the cost wherever we can, and I hope that you can evaluate that as well. Shinichiro Muraoka: [Interpreted] Do you have any comments about the shareholder return? Milano Furuta: [Interpreted] Well, dividend, yes. Progressive dividend is something that we have been talking about for a long time. So this is the basic policy. So either keep it flat or try to increase the dividend. This is the basis. Whether or not the dividend will increase and by how much? Well, in order to decide that we have to look at the core EPS and also reported EPS as well as cash flow generating power and the speed of a reduction of debt-bearing -- interest-bearing debt. So we'll pay attention to those and decide. Shinichiro Muraoka: [Interpreted] Understand. I have great expectations. I have another question about zasocitinib. UC CD Phase II outcome, when can we expect it? And also what about dosing? Phase II for UC was 50 milligram or 30 milligram? And what about the psoriasis safety data based on that safety data? Can you perhaps comment on this? Christopher David O'Reilly: So the question on timing for the UC and CD readouts for zasocitinib and which doses we are using. Andy, if you could comment on that, please? Andrew Plump: Thanks, Chris. Thanks, Muraoka-san. So we'll have data from both the UC and Crohn's disease Phase IIb studies this year. Both are dose-ranging studies. As we've mentioned -- we haven't disclosed the precise doses, but as we've mentioned, the 30-milligram dose that we've studied in psoriasis and that we'll be registering for psoriasis is the low end of the dose range in IBD. We have reason to believe that higher exposures will be necessary for efficacy in UC and Crohn's disease, and we have significant upwards headroom in dose to study. So those studies are ongoing. And then your last question was with respect to safety profile for psoriasis. So we've just commented at the top line in December when the Phase III studies read out. We'll be presenting at a medical conference in the near future. You could probably guess which conference we're targeting. And overall, the safety profile that we've seen in both Phase III studies is very consistent with the profile that we had seen previously in our Phase II study. Christopher David O'Reilly: [Interpreted] The next question is Yamaguchi-san, Citi. Hidemaru Yamaguchi: [Interpreted] Can you hear me? Christopher David O'Reilly: [Interpreted] Yes, we can. Hidemaru Yamaguchi: This is Yamaguchi from Citi, I have two questions. First of all, the first one is more of a broad question because MFN situation or medical policy in the United States seems to be are coming down because the major companies are now settled with the U.S. comment on MFN. But a Japanese company, including your company, are still excluded from this discussion. But what do you think about this sort of activity, which you need to do regarding MFN or U.S. policy in the near future? That's the first question. My second question is regarding the organization change, which you announced today, especially on the strategic portfolio development, which it sounds like you're trying to speed up on the some of marketing activity in those areas. Especially in the U.S., U.S. marketing is a key for next few years. And it depends on the products, but your marketing activity in the past are not necessarily executing better than expected, to be honest. But how are you going to change, especially in the U.S. marketing organizations or activities in the near future through the Kim-san's roles or our CEOs roles in the near future? Thank you. Two questions. Christopher David O'Reilly: Thank you, Yamaguchi-san. So the first question on MFN and latest U.S. policy updates. The second question regarding the organizational updates that we announced today. So I'd like to call on Julie to address both of those questions, please. Julie? Julie Kim: Yes. Thank you, Yamaguchi-san for the questions. First, in regard to MFN, as you've noted, the number of companies, 17 companies that had originally received the letters from the White House, they have all gone in for negotiated agreements in regards to how they will approach MFN, how they're going to be managing tariffs with the relief that they received and further investments in the U.S. So since those agreements have been made, there were also releases from the government in terms of the generous model, which details how these agreements can be actually implemented through Medicaid. And there have been a release of GLOBE and GUARD CMMI demonstration projects for commentary by the public. So at this point, we have assessed both the impact of generous and looking at the potential design of the two CMMI products on Takeda and Takeda portfolio. So we are evaluating those impacts and taking necessary steps to address that within our approach to MFN. But let me end by saying that in general, MFN is not an approach that we support. Having price controls and importing one component of health care systems that have very, very different structures does not make sense for the U.S. and can impact future innovation. So we are not in favor of MFN, but we will continue to address the challenges that may face Takeda going forward. In regard to the organization changes that were announced today, you will see that from a commercial standpoint, there are basically two key structures that we are trying to focus on. One is a therapeutic one. And so you will see that the oncology business unit is still a separate business unit. Both Andy and Christophe have talked about the assets that we have brought in, particularly the Innovent ones will be a key part of our oncology portfolio, and we are very much looking forward to launching rusfertide later this year. So maintaining our focus on oncology to drive that growth and the potential that we have in our pipeline now is absolutely critical. And then for the upcoming launches, creating two primarily geographic focus, one in the U.S., maintaining the U.S. focus given the size of the market and the dynamics that exist that we have to manage, that is part of being able to set ourselves up for success going forward in terms of the commercial approach to the U.S. as well as the international markets. So what may not be as visible through the org changes that are announced is the work that we're doing in terms of our marketing excellence and sales excellence and commercial operations. So we are working on all those aspects, again, to ensure that we are ready and can deliver successful launches going forward. Thank you. Christopher David O'Reilly: For the next question, I would like to call on Stephen Barker from Jefferies. Stephen Barker: Steve Barker from Jefferies. I have two questions, both about ENTYVIO. The third quarter sales were very robust. The global third quarter sales expanded 17% year-on-year on a reported basis, much better than the 3% growth reported in the second quarter. You said that you are now confident that you can achieve your 6% guidance for the full year, but that would imply a 2% decline year-on-year in fourth quarter sales. So would you agree that your -- that there's a decent chance at least that you can beat the current guidance for full year, 6% growth. And if you could just talk a little bit more about what's driving the good performance in the third quarter and if it is something that can be sustained into next year? That's the first question. And then second question. A couple of days ago, CMS announced that ENTYVIO has been chosen as one of the drugs for the third cycle of IRA price negotiations, meaning that it's likely to get a substantial Medicare price cut from the start of 2028. Any comments on how big that price cut might be? And if you can still achieve your peak sales guidance of $7.5 billion to $9 billion even with the price cut? Christopher David O'Reilly: Okay. Thank you, Steve. So the question on ENTYVIO sales trend, impact of IRA inclusion and the implications on peak sales. So I'd like to ask Christophe to start with this one and then perhaps Julie can add some comments as well. Christophe? Sorry, Christophe, I think you might be muted. Christophe Weber: Thank you, Steve. Obviously, ENTYVIO is operating now in a very competitive market. We know that, but we are pleased by the Q3 performance. One important point is that we have improved our coverage situation in the U.S. All the big 3, now PBM, are reimbursing and covering ENTYVIO Pen. Took a while, but we have now a coverage at the level of our competitors around 80% since January. So it's quite recent. So we are hopeful that the Pen will continue to progress in the U.S. as it has progressed in other countries. And long term, we still aim to have a 50-50 split between the IV and the Pen. So overall, a good performance in Q3. Long term, we project ENTYVIO not to gain market share, but to remain stable and to grow at market pace basically. While the Pen is developing, that's our current estimation, but the market is changing quite a bit, but good performance for sure in Q3. Julie Kim: And then Steve, in regards to the IRA selection of ENTYVIO. As we've shared in the past, this was anticipated. And so we've been preparing for this eventuality. As you know, from a timing perspective, we have a period of time in which we have to confirm engagement in the negotiation. And then towards the end of the year, we will actually find out what price will be set. I think you are also aware, it's not really a negotiation, but we will be submitting our best evidence package to support ENTYVIO. If you look at what's been happening over the previous two cohorts, the second cohort had higher price cuts than the first cohort. So it is too early to say whether that trend will continue into the third cohort or whether it will be similar to the second cohort. So it really depends on where we'd land with the final pricing on ENTYVIO in terms of when that peak sale could -- sorry, peak revenue could be and also if we end up in the 7.5% to 9% or not. So we will update later once we understand what our pricing situation will be for ENTYVIO. Christopher David O'Reilly: [Interpreted] Next question is from Matsubara-san, Nomura Securities. Matsubara: [Interpreted] This is Matsubara, Nomura Securities. First question is about TAKHZYRO. On a CER basis from the second quarter, the growth rate seems to be slowing down. And is it affected by the competitor DAWNZERA? And the transition from TAKHZYRO to DAWNZERA and HAE template showing some 65% decrease. So what about the prescription rate in existing patients or new patients? Could you comment on those? Second is, as Milano-san mentioned, oveporexton and zasocitinib will be launched and also R&D spending -- more spending will be necessary. And in the midterm viewpoint, as you try to increase the operating profit, how are you going to take measures? Christopher David O'Reilly: Thank you, Matsubara-san for your questions. So the first around recent TAKHZYRO trends -- prescription trends in the U.S., I'd like to ask Julie to comment on that. And then the second question, looking at our outlook for profit over the medium term. I'd like to ask Milano to comment on that, please. First, Julie? Julie Kim: Yes. Thank you for the question, Matsubara-san. When it comes to TAKHZYRO, I will share a few comments. First, in terms of the overall market, this is a market that has been maturing. The diagnosis rate is high and the penetration of prophylaxis treatment has been high as well. So TAKHZYRO continues to be the gold standard for HAE patients. And you are correct that we have seen an impact of the launches of the two competitive -- recent competitive entrants. And so we are seeing an impact in terms of new starts from these new competitive entrants. But I also want to point out that part of the lower growth is also due from the impact of Medicare Part D redesign that we are experiencing a bit higher impact from that in the U.S. than anticipated. Now when it comes to long-term efficacy, if you look at the real-world evidence that we have for TAKHZYRO, no other product is able to demonstrate the level of efficacy that we have when you look at the data from an attack perspective. We have patients that are attack-free for over a year at any given point in time. And so from an efficacy standpoint, our real-world data for TAKHZYRO, it can't be beat. So that is something that I would like to highlight, and it's something that we continue to defend and support from a TAKHZYRO standpoint. Milano Furuta: [Interpreted] Thank you very much, Matsubara-san. And I'd like to answer to your second question. At the beginning as Muraoka-san also asked, and I mentioned about the pressure of overall expenditure increase. And therefore, I'd like to touch upon the potential contribution of new products to the profit. And this is a general comment that whenever new products come out, then in the second year or the third year since its launch, we will see a contribution to the profit. It depends on the timing of the launches. Therefore, it is difficult for us to say anything concrete whether it's going to be next year or the year after the next and how much. But amongst the three products, oveporexton's uptake after the launch is expected to be fast. Whereas zasocitinib will have to play in a very highly competitive market. Therefore, I think for zasocitinib, I think we need to take time to monitor. And rusfertide is in between. It is a highly innovative product. But at the same time, the market access may not necessarily be so easy. Therefore, how that will demonstrate the uptake, we would like to monitor. But the speed of uptake will be impacting on to the timing that we start to see the product contribution to the profit. And also not just these three products, but five new pipeline assets, readouts are coming. And in forthcoming 5 or 6 years, they will continue to be launched. And as a result, overall, I think that the overall profit level should be able to be enhanced. At the same time, not just the core OP, but the reported operating profit is also monitored. For instance, VYVANSE, the intangible asset, the amortization will be complete. And as a result, there will be also a positive contribution in that sense. Thank you. Christopher David O'Reilly: Moving on to the next question, I would like to call on from TD Cowen, Mike Nedelcovych. Michael Nedelcovych: I have two. My first is also related to the IRA impact on ENTYVIO. I believe it is Takeda's base case that ENTYVIO Pen will be included in the IRA price negotiation. But I'm curious if that is a completely settled matter or not. Is there any chance that ENTYVIO Pen is ultimately excluded from the IRA price negotiation? That's my first question. And then my second question relates to the partnered AC Immune asset in Alzheimer's. It looks like data may be anticipated in mid this year. Should we expect that to be the time when Takeda decides if it wants to opt in or not? And Andy, I'm curious to hear your thoughts more broadly on prospects for Alzheimer's disease prevention or delay based on early amyloid plaque clearance? What are your general thoughts on this approach? Christopher David O'Reilly: Mike, so I think the first question, Julie, can comment on IRA ENTYVIO impact on -- potential impact on Pen. And then the second question to Andy on the AC Immune partnership and AD in general. Julie? Julie Kim: Thanks for the question, Mike. And in terms of the negotiation with the IRA, we do expect that Pen will be included. Andrew Plump: And Mike, on the AC Immune program, so we won't have data this year to drive a decision that will come in subsequent years. And thanks for asking more generally. Of course, I've been working in this industry for almost 3 decades now. And the first project I worked on was a project of a gamma secretase inhibitor designed to reduce A-beta production. It's been one of -- to me, one of the most exciting and promising, but also one of the most challenging areas in our industry. I'm a big believer that if we could clear a beta plaque early in the longitudinal course of Alzheimer's disease that we could drive even greater benefits than what we see from the passive antibodies that have been used in demonstrated efficacy. So we're quite excited about the vaccine program. Of course, the challenge with the -- historically with the vaccines has been threading the needle of safety and efficacy. We think we have a shot with the -- with our AC Immune partners and still working towards that. Christopher David O'Reilly: [Interpreted] The next question is Wakao-san, JPMorgan. Seiji Wakao: [Interpreted] This is Wakao, JPMorgan. I have two questions. Firstly, regarding PDT, how do you assess the third quarter progress on PDT? Compared with your guidance, PDT progress seems to have been somewhat slower. And could you share your outlook for PDT in fourth quarter and next fiscal year? This is the first question. And second question is about zasocitinib. Should we expect zasocitinib Phase III data to be presented at AAD in March? If so, what key aspects should we focus on? As Icotrokinra and [indiscernible] programs have shown favorable data or so, where do you see zasocitinib's key point of differentiation? Christopher David O'Reilly: Thank you, Wakao-san. So the first question on the PDT business performance and outlook, I'd like to ask Julie to comment on that. And the second question on zaso data, where will it be presented and what should we focus on in that data, I'd like to ask Andy to comment on that, please. Julie Kim: Thank you for the question, Wakao-san. In regards to PDT, as Milano was sharing in his part of the presentation earlier, we do see some slowdown in demand, particularly in regards to albumin in China. As you may be aware, the Chinese government has put in place utilization guidelines that are impacting demand for albumin in China. And it will -- it has slowed down the growth, and it will take time for growth to return in China. When you look at the overall outlook for PDT overall, there, we still believe we will have mid-single-digit growth for this year as previously shared and longer-term outlook is still strong. The quarter-to-quarter, as you know, because there are lots of variabilities in regard to tender timing, et cetera, we do -- as Milano mentioned, we do believe that there is a possibility we will have a shortfall, particularly in regards to albumin. But overall, we will be meeting the forecast for PDT. Seiji Wakao: So could you also comment on the immunoglobulin? Julie Kim: Sure. Yes. From an immunoglobulin perspective, again, long-term growth, we believe will remain steady. And from a short-term perspective, we are expecting to be on forecast for immunoglobulin. Andrew Plump: Wakao-san, this is Andy. So thank you for your question on zasocitinib. So we haven't disclosed yet the conference that we'll be presenting at, but AAD certainly is like is a possibility. I just suggest that you watch out for the abstract when they're released in mid-February for AAD. And then in terms of what to look for, it's pretty straightforward. It's fast onset of action. It's clear skin and it's ease of administration. We have a once-daily oral pill that's well tolerated with a strong safety profile. And then when you double click, you'll see that in the two Phase III studies, we hit on every single primary and secondary endpoint, and that's 44 total endpoints. So there'll be a lot of data that will be shared, and we're quite excited to get it out there. Seiji Wakao: So what is our competitive advantage? Andrew Plump: Well, it's has -- as we mentioned over the last hour, it has an efficacy profile that at 16 weeks is at the very high end of what's been seen for oral agents. It's ease of administration without having any food effects and it's the overall profile, and it's the rapidity with which we generate clear skin in an oral agent. We believe and we think the data will demonstrate that it's as good or better than any other oral option in the moderate to severe plaque psoriasis space. Seiji Wakao: Okay. I'm looking forward to see the data. Christopher David O'Reilly: Okay. Thank you very much, Wakao-san. I think we have just time for one final questioner. So I'd like to call on Tony Ren from Macquarie. Tony Ren: Yes. Thanks for the chance to ask the last question. My first one, and I'll go back to the -- again, for Andy, the zasocitinib regulatory pathway. So assuming that you will present the data at AAD in March, the standard FDA review takes about 10 months. So do you think you can actually launch it earlier than the 18 months of a time line guided? Are you being a little bit too conservative in estimating the time line? So that's my first question. The second one is probably to Julie about the ENTYVIO biosimilar. Have you -- as you're thinking about the biosimilar entry changed because of the subcutaneous Pen, I noticed that a recent conference in San Francisco, you guys are now saying 2030 and beyond. So just want to confirm whether the launch of the Pen and the wide adoption of the Pen has anything to do with the biosimilar entry. Yes. So that's my second question. Christopher David O'Reilly: Okay. Thank you, Tony, for your questions. So the first on zasocitinib regulatory pathway and potential launch timing, Andy can comment on that. And then the second question on the ENTYVIO biosimilar entry timing, I think Julie can comment on that, please. Andy? Andrew Plump: Thanks, Chris. Thanks, Tony. So just to put perspective on the filing time line. So there are three elements that define the time line for filing. There's the Phase III studies, which we've completed. Those are ready to go. There's the overall patient safety database. So we have to accrue safety in about 1,000 patients on active drug for a full year, and then the third is the CMC package. So when you put all three of those together, Tony, we're looking at a submission that's likely to occur sometime in this summer. And then, of course, the time line for the review will be something that will be in dialogue with the FDA and once we've made that submission. Julie Kim: Thanks, Tony, for the question on the ENTYVIO biosimilar timing. So we have not really changed our timing expectations here. As we've shared previously, we do have patents that cover various different aspects of ENTYVIO that go out to 2032. But as you are also well aware, there are biosimilars in development, and they could file with legal challenges -- I'm sorry, they could file and we would then pursue legal challenges. So that's why the timing could be 2030, 2032, and that's why you hear us saying that. Also from an overall market attractiveness perspective for ENTYVIO, as now ENTYVIO has been selected for IRA negotiation. The pricing expectations for biosimilars will also be impacted by that. Thank you. Christopher David O'Reilly: Thank you, Tony, for your questions. With that, we'd like to bring this call to a close. Thank you all very much for participating in the call today. This concludes our Q3 earnings call. Thank you. Good night. [Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]
Operator: Welcome to the Enea Q4 presentation for 2025. [Operator Instructions] Now I will hand the conference over to the CEO, Teemu Salmi; and CFO, Ulf Stigberg. Please go ahead. Teemu Salmi: Thank you, and good morning to everyone. This is Teemu Salmi, CEO of Enea speaking here today to take us through the Q4 results in the next coming 30 to 45 minutes. Our agenda will be very much similar to the previous reports that we have made. We will have a short introduction of some highlights in quarter 4, and then we will deep dive deeper into our financial results, and we will also end up with a way forward and outlook for the year and the years to come. So let's get going with a bit of market and business development highlights from the quarter. Of course, I think we all see what's happening on the geopolitical scene and that the tensions and the development there are driving the demand for secure and controlled national communication solutions. And we see also a more nationalistic approach in sovereignty and when it comes to handling data, which is actually playing us well into our hands in Enea. Our solutions is definitely supporting nations, states and other governmental institutes as well as telco operators to up their security posture. We have had a tough year in 2025 with the FX. Swedish krona has strengthened almost 20% towards the U.S. dollar in the last 12 months. And it's 15 years since that happened last time in 2010. So it's nothing that happens every day. Obviously, having a majority of our net sales in U.S. dollars, it impacts our reported results. We will come back to later on in the presentation today. However, our underlying market development remains positive, and we actually have also a good pipe for the future in building. If we look at the business side, like I said, our underlying business development remains positive across both our focus areas, security and networks and in constant currency, both of them are actually growing in the quarter. And our core offerings continue to develop very well, in particular, Traffic Management and our Deep Packet Inspection, where we've had almost 20% growth in the Deep Packet Inspection and over 30% growth in Traffic Management, which is positioning us super well for the future and to the continued growth that we anticipate accelerating now moving ahead. Another thing that we really see taking off now is that our government customer base is increasing. We have announced 3 deals only in the end of the previous year in 2025. And we also have a good momentum there. We have other opportunities in the pipe as well in that segment, which is very good for us because it's going to diversify our customer base for Enea that today is quite heavily depending on CSP environment. So this is really good for us. Last but not least, I also want to mention a couple of words about cyber. We mentioned that cyber is something that is growing in the world. And unfortunately, we were also a victim in quarter 4 for this criminal activity. However, we were able to contain and execute and handle that cyber incident in a very good way, I should say. And today, it's handed over to authorities for -- and there's an ongoing criminal investigation. So I will not comment on that any further. We have had no financial impact, and there's been no impact to our customers either from this incident. In the quarter, we have reported or signed 10 new customers, 5 in EMEA, 3 in North America and 2 in Asia Pacific. And you can also see here in the textbooks, which solutions it's all about. It's about our growth products, Traffic Management, our ixEngine, our DPI solution and our firewalls. So that's good, great development for us, and that momentum will accelerate in 2026. Moving on to key numbers for quarter 4. We report a net sales of SEK 239 million, which is a reported decrease of 5% from Q4 last year, but it's a growth of 1% in constant currency. So the FX is still hitting us bad. And quarter 1 will still be comparability-wise, a very tough quarter for us because quarter 1 in 2025 was still a quite strong quarter for the U.S. dollar. And we see that the U.S. dollar is continuing to weaken against the Swedish krona now in the beginning of this year. Something that we are very proud of, and I am proud of is how we are working with our profitability. We are reporting the highest quarter 4 profitability in 4 years with an adjusted EBITDA margin of 40%. Obviously, that is good and playing us in favor when it comes to future investments now when we're going to accelerate and put our new strategy into motion. And I will come back to that already in the next slide and talk about what we have done and what we anticipate to do in order to accelerate our growth in 2026. Earnings per share, SEK 2.21 in the quarter and operating cash flow of SEK 45 million. And of course, we continue to invest in R&D and R&D for us is the key and critical engine to make sure that we continue to stay as relevant as we are today for our customers and for our future customers as well. On the full year, we report a net sales of SEK 889 million, which represents a 2% drop in reported numbers, but a 2% growth in constant currency. Our margin is on the same level as last year. Our adjusted margin ends up at 33% and operating cash flow of SEK 107 million. And we're going to dive deeper into these numbers in the section with Ulf a little bit later on as well. And also a couple of comments on the margin maybe there. In the quarter, we had a good business mix. We have proportionally sold more licenses in quarter 4 and also a bit of tailwind from the FX as well because we have a lot of our costs in euros, so helping us to achieve that good profitability. And of course, that higher license sale that we had in Q4 will eventually also turn into support and maintenance and professional services revenues in the coming years as well. Right. Let's take a couple of words about our strategy. We launched our strategy in Q4 as well, which is basically built on 3 pillars: market acceleration, vertical expansion and offering evolution. And in short, we can say that market acceleration is about investing in our sales and ensuring that we penetrate the markets where we think that we have a good potential to win and to -- or to accelerate our growth. So we have decided to invest in Latin America in selling our telco portfolio there. We have already a good presence in Latin America with parts of our portfolio with our firewall portfolio, and we need to leverage that also to sell the rest of our portfolio to do some cross-selling in Latin America. North America is one of our strongest regions, and there's still more to do in North America. So we're going to double down on North America and invest there as well. And then in Asia Pacific, we have good momentum, both with our telco portfolio and our embedded security portfolio. And also the government sector is developing nicely there. So we want to invest in order to grow faster in Asia Pacific as well. In the vertical expansion, it's more like broadening our customer base, how can we take our existing offerings and solutions and sell that more wider. So obviously, we mentioned already several times, but one vertical that is super relevant given also this time of the world with all the geopolitical development intentions. The government sector is investing heavily. National security is pouring money into building up and maintaining sovereignty around the world. And we will, of course, want to be part of that journey with the good solutions and offerings we have in that sector. So we are investing in both our -- selling our Traffic Management and our embedded security solutions into the government sector. And I'm going to come back just shortly to talk a little bit about some of the recent wins we've had in Q4, showing that we are already doing this and that we are already building on this relevance for the future. Last but not least, there is also a Tier 2 or mobile virtual network operator segment that is very important for us. So we will also make sure that we target that customer segment with our solutions, and we are developing our offerings for a more SaaS-ready business model addressing that customer base as well. And then in the offering evolution, finally, it's all about securing that we stay ahead of the curve and that we stay leading in the world like we are today. So that's more about building and developing our current offering and also looking at what potentially could be complementing our current portfolio looking outside of Enea as well. So what have we done so far? In the market acceleration, we are building now a sales organization that is much more customer-centric than a product-centric organization. I have recruited already a Chief Commercial Officer that will start now in quarter 1. Unfortunately, I can't name that individual yet because of confidentiality, but that will be communicated shortly, I hope. This will accelerate our investments in sales and making sure that we push the needle in bringing our offerings to the market. And then also strengthening the sales organization by simply employing more salespeople in those dimensions that I showed on the previous slide as well. We will do this in a controlled manner, of course. We will now start investing where we already see traction in order to make sure that we also secure that growing business that lies ahead of us. In the vertical expansion, like I said, already in quarter 4, we have communicated some wins. We have communicated 2 government wins, one in Asia Pacific and one in Africa during fourth quarter, where we have sold our DPI solution to one government and our telecom and security offering, including also DPI to an African government. Basically, this helps and ensures these governments and nations and countries to stay on top of the security posture by getting full transparency of the network communication going in and out of the country. And there, we can help. We have world-leading solutions for doing that, and this is a proof point of that journey that we have started into growing into the government sector is real. It's happening, and I see in front of me that, that will accelerate as we move ahead. Good. On the offering evolution, we are -- there's nothing new there yet. I mean we launched a strategy in the fourth quarter. There's many things that we are planning to do. We are investing quite a lot in AI, and I'm going to come back to that a bit later on to tell you a little bit what we have done in AI. We are also repackaging some of our offerings like our traffic management and our firewalls to become an as-a-service solution. So we can target Tier 2 operators that necessarily don't need as much of configuration when deploying our solutions as the Tier 1 CSPs needs. So we are also repackaging our offerings to fit another tier and another customer base, which I think is good for also accelerating the growth of our -- predominantly our firewall business and our traffic management business. More to come here later on in the year. Some of the highlights. I've already mentioned some of these, so I will not repeat them. Maybe a couple of additions. We have in North America during the quarter also secured a customer TextNow, which is an operator, a CSP in North America that predominantly competes with free texting and is now also going into the space of free calling. They have chosen our firewall solution to actually deploy that in their operations, and we are very proud to make sure that we continue to show in North America as well as globally that our firewall products are super relevant for the future. And also in -- we communicated late in December a prolonged partnership with an European Tier 1 operator for a cloud-native access control solution. This partnership is securing our cooperation for the next coming 7 years, and we come from a long partnership already shows just the relevance of what we're doing together and prolonging this for the next 7 years to come. Coming back to what I spoke about AI a couple of minutes ago. What we actually are doing, we are not talking about AI as a hype. We actually have AI as part of our solutions today, and we are continuing to deploy AI-based software in our offerings. Here are a couple of examples that I would like to highlight for you, starting from the left with our messaging firewall. For our CPaaS customers, when they are sending messages, of course, messages have different priority. One example being, of course, multifactor authentication passwords needs to be delivered immediately in order for end users and consumers to be able to sign in whatever they are signing into, while maybe commercials can be sent throughout a certain time span. And of course, the price for sending these kind of messages is different. And we can help our customers optimize their revenue base and their cost base by with our AI solution, defining when and how these messages should be sent based on the price pattern that is available. For the Traffic Management Solution, we are working with the mobile operator in Europe, where we are looking at with the help of AI, how we can predict traffic congestion in the network and also, well, of course, secure that our customers get the best -- delivers the best quality of service to the end users. And part of this solution, we also have an AI solution that optimize video content. So you always have the best end user quality of service when viewing -- when streaming video through the mobile networks. Last but not least, our Qosmos ixEngine DPI solution together with a mobile operator in South Africa, we are classifying the traffic. We are also able with AI now to classify encrypted traffic, which makes our solution future-proof to a certain extent. We are not yet able to classify 100% of encrypted traffic, but a high -- relative high percentage point of traffic can already now be classified even though it's encrypted. So this -- we are testing a mobile operator in South Africa right now, and we are hoping to be able to scale this very shortly as well. Let's see here now what happened here. Okay. Then we continue to my last and final slide before I will hand over to Ulf. Of course, we continue to drive the thought leadership across our ecosystems. We are very visible. We are invited to speak in different conferences, and we go and we are. And -- but this quarter, I wanted to highlight some of the recognition our products has been getting out in the world. And if we start from the left, we have the Kaleido Intelligence award that we won. Kaleido Intelligence is a respected independent research and advisory firm specializing in telecoms, roaming and digital infrastructure. Enea, we were recognized as Champion vendor, which is the highest vendor category in this award for our signaling and security firewall capabilities, and we are super proud of that. And we were acknowledged for our leadership in delivering intelligence-driven signaling security in all spectrums of mobile networks. Super good, very nice and just showing how relevant our firewalls actually are. The second prize in the middle is from Juniper Research, where we have been -- we've been winning the platinum category, which is the highest category. And this category highlights solutions that use advanced analytics and AI for image detection and our messaging firewall solution was recognized for our restricted image detection, which uses AI to detect images that violate industry guidelines and best practices. So basically, we are able to review and understand what kind of image is a part of a message before it's sent and then block it if it contains content that is abusive or violating whatever rules that have been set up. Last but not least, we have the Fast Mode award where we -- in the category of video experience, we have been winning with our solution traffic management. Fast Mode is a leading industry platform that analyzes and recognizes innovation and performance across telco, cloud and digital infrastructure. And we were recognized as the video experience leader for traffic management, as I said. And it focuses on that our solution, how we enhance our video quality by intelligently managing network traffic to ensure consistent, high-quality user experience. We are very proud and happy for these wins, and it just shows once again that our solutions are very relevant, good and future-proof, building the way for future growth for Enea. With that, I would like to hand over to Ulf to take us through some of the financials. Ulf? Ulf Stigberg: Thank you, Teemu. Let's see here. So we are reporting a 5% decline in the quarter, but in fixed currency, we report 1% growth. And you can see the seasonal variations between the quarters during the year. This is typical that we have a strong quarter 4, but this year, we didn't reach the quarter 4 for previous year in reported figures. For the full year, a decline of 2%, but in fixed currency, 2% growth. In the quarter, we are proud to present a report the 40% adjusted EBITDA margin, which is highest in many years. And we can see also that compared to the previous quarter last year or quarter 4 last year, we report SEK 7 million increase in absolute figures. And reaching this EBITDA level is, of course, a combination of sales and cost. But on the cost side, we have a stable cost development and also we have had some impact from FX development on the positive side for the result. We also proudly report a 21% EBIT margin for the quarter and reaching SEK 48.9 million in Q4 compared to SEK 45 million in quarter 4 last year. And this translates down to earnings per share in SEK 2.21 for the quarter compared to SEK 4.7 quarter 4 for 2024. Looking into the revenue split within the different product areas. In Security Solutions, we can see a strong sales of license for the quarter. Professional services and support and maintenance are quite stable, but the main increase has been related to more license deals in the end of the year. Similar pattern actually within Network Solutions. Q4 this 2025 was higher than Q4 2024 in license sales and professional services and support and maintenance are quite stable, although we had a step down in support and maintenance with some contract terminations in 2024, which leaves us on a little bit lower level in '25 going forward. However, based on that, we are now also signing new license deals, we will expect a good development of support and maintenance contracts going forward. Looking at the product areas development between the years, we can see a decline in security and also in networks. But in fixed currency, we report a plus 2% growth for security area and plus 1% within networks areas. Operating systems are declining 3%, but this was actually a lower decline than expected. So we're happy to report that. And overall, a plus 1% growth in fixed currency. The same analysis over the year, we'll see a 4% decline in security areas, but a flat development in fixed currency. And within networks, we see a flat development in reported net sales, but an increase or a growth of 5% for the networks area in fixed currency. One item that has been on the board this year is the development of the financial net. And for this quarter, we can report less exposure in financial net and the figure for quarter 4 2025 is a currency net of minus SEK 2.6 million. And in the graph to the right, you can see the development of the U.S. dollar compared to the Swedish krona. And in quarter 4 last year, we had quite a big increase of the dollar rate, which left us with a quite positive currency net for that quarter. Now we have worked with our balance sheet and reduced our exposure. So these swings will be less or limited in the future. In the cash flow analysis, we can also see the effects here on the financial net in quarter 4 this year, we have minus SEK 6 million and quarter 4 last year, we had plus SEK 41 million, and that gives quite a big impact on the cash flow. However, we want to reduce these swings, and that's what we have done now. Compared to quarter 4 last year, we had amortization of our term loan of EUR 15 million. So that figure is higher than normal. But for quarter 4 2025, we reported total net cash flow of plus SEK 10 million. Our net debt is SEK 208 million, and our balance sheet is strong in terms of capitalization, and we are -- we have a headroom for leverage going forward based on a stable capital situation. And finally, in the quarter, we bought back 166,000 shares to a value of SEK 11.8 million. And this program continues until the Annual General Meeting in May 2026. Teemu Salmi: Good. Thank you, Ulf. And before questions, we will round up a little bit with the key takeaways and guidelines. Some key takeaways from the fourth quarter. Like I said, we have a very strong profitability, building for the future, best quarter 4 in 4 years and EBITA margin of 40%. In constant currency, growth continues in networks and security, one respective 2% in constant currency, and we intend to accelerate this growth in the year. We have good momentum in our government business, like I said, 2 strategic customers signed in quarter 4, and I hope more to come in the coming periods. And of course, on the negative side, our headwind in FX continues, which has been putting pressure on our reported numbers in 2025. And like I said in the beginning of the call as well, I think first quarter of 2026 will still be comparability-wise, quite a tough quarter given where the dollar was standing in the first quarter in 2025. Then we should see -- starting quarter 2, we should see improved comparability numbers year-over-year, unless, of course, the dollar continues to drop compared to the Swedish krona now in the beginning of 2026. On the short-term outlook, market remains stable to positive. I think our pipeline is fairly good. We have a relevant -- highly relevant portfolio for the markets and segments we're serving. And the diversification that is now starting for our customer base is great and building for the long-term development of Enea and of course, gives us also access to new and bigger revenue pools as well. So this is good for continued business development for us. And one of those pools is the government sector, which is growing well, and we will continue to focus on that heavily in 2026 and the years to come. And then, of course, like I said, the FX headwind in quarter 1 will put pressure on us comparability-wise still. So that's just a fact that we know given where the dollar stands now and where the dollar was in quarter 1 in 2025. So our guidance of 2026 is a single-digit growth and an adjusted EBITDA over 30%. We will make some investments in 2026 that is then, of course, the starting of the acceleration of our growth to be able to then meet our long-term financial ambition, which we presented during fourth quarter last year. And that is to have an average growth over 10% on an annual base throughout the full period of 2026 to 2028. And you can already now see that it's not going to be a linear growth because we are saying that our short-term outlook is single-digit growth for this year, but we stay firm and we believe strongly that this is something we can make in the next 3 years to come. And we're also saying that our profitability at the end of the period when we exit 2028 we will have an EBITDA over and above 35%. So this is our long-term guidance that we keep from our strategy that we communicated in quarter 4. And with that, 30 minutes as promised or 31 minutes, I will then actually open up for questions and answers. Operator? Operator: [Operator Instructions] Teemu Salmi: All right. We have some written questions here. Let's take them in order. We have a question from Matias. Why did the order bonanza in quarter 4 not translate into higher growth? Well, I mean, the business mix that we are having, I think that we have our normal business, and we had some good wins at the end of the quarter, right? I think that it's paving the way for the future. But I mean, it is the total business mix that gives us the result where we're standing today. We have another question, how come there is no growth in Q4 despite the large announced contracts? That's the same question as we had before. Can you comment on the decline in operating cash flow before changes in working capital? Ulf? Ulf Stigberg: Yes. Partly that was explained by the financial -- big swings in financial net. We reported a positive SEK 41 million in financial net in quarter 4 2024. And now in '25, we have minus SEK 6 million, and that relates both to the -- our balance sheet composition, but also to the development of the dollar. But during the year, we have reduced the exposure. So these swings will be less. But just quarter-by-quarter, we see a big swing here. Teemu Salmi: Thank you, Ulf. And then we have a couple of questions here from Rasmus, growth constraints. What is the #1 restraining factor in your growth today? Is it driven by market dynamics or the current market cycle? Well, I think that there's a couple of things that -- we are now restructuring and reorganizing a little bit how we do our sales, like I said in the beginning, we will be much more customer-centric, and we will also be selling a broader portfolio to our customers, which we haven't maybe done in the past. And we are also now getting a more focused setup on our sales. I think that there's a lot we can do in our sales. We have a great sales force, but we just need to focus it in a bit of a different way. The market dynamics actually are positive. So I think that -- and the development, even though it comes late in the year and in 2025, I think the momentum we have to diversify our business is good, right? So that's also answering the second question and how confident are we that we can grow in 2026? Well, we are fairly confident given where we stand and what we see in the dialogue with our existing customers and with our new customers, and we look at our pipe. So -- and the investments we are doing, they are not going to pay off immediately. We have quite long sales cycles, but we will eventually also see good results from the investments that we are making, both in sales and product development. Ulf, the last question is for you. Net working capital relative to sales seems to have been growing for several years. Is there any specific within this that is causing the increase? Ulf Stigberg: Our business mix and the deal mix, customer base mix is we have increased development in areas in the world with a little bit lower or longer payment patterns. And I think that's one explanation why we now see a slight increase in the working capital. But that's something we are working on and take the challenge and solve the problems with the customers, of course. Teemu Salmi: And I think one comment to that, if we look at Q4 isolated, actually our working capital is declining year-over-year, quarter 4, right? So we are on top of it. We are not happy with it. And we, of course, are actively working with getting it down. You mentioned good pipeline and better billing going forward. Can you elaborate on the better billing? What do you mean? Better billing? Sorry, I cannot recall I said better billing. But the good pipeline, I can comment. I mean, we have a solid pipeline in both customer segment or both -- in all customer segments, I should say, where we are working. We've had some pushouts of some deals that we've been working on, not necessarily saying that we are losing them or we have lost them, but our customers are taking a bit longer time to decide. And we are positively looking at materializing these deals in the coming quarter. And adding to that a fairly stable and good pipe gives me confidence that we will be able to turn this around into growth numbers. Also, hopefully, in reported numbers, obviously, FX is nothing we can do anything about, but that is definitely our ambition, yes. Then a question in Swedish. I will translate it into English. What can one expect when it comes to growth within security and 2026 and up till 2029? We are not guiding on the segments or focus areas, security and networks in our guidance. It's the business mix in totality that will deliver the growth that we are seeing. But of course, personally, I see good momentum both in networks and security. And we've also seen that in the recent quarters that even though we've had a different business mix in quarter 4 that they have been growing steadily previously. And that's what I perceive going forward as well. Your SG&A is down quite a lot. Is that really sustainable? Given dollar weakness, will you be able to increase prices over time? Ulf, do you want to comment on SG&A? Ulf Stigberg: This -- I mean, increased prices over time, I think it's a development and our product mix and product capabilities and features going forward, we see a possibility to price -- have a good price development with the customer. Teemu Salmi: Yes. And it's a competitive market, right? I mean we also have market pricing. We are unfortunately not alone. So of course, competitive pricing. But we, of course, try to stay ahead of that when it comes to feature development, our investments in AI and all of that is going to make our products stand out and be better than competition where we also are able to price that. So of course, we're investing quite a lot in R&D, as you can see, and that in itself is going to make sure that we have a headroom and headwind when it comes to -- sorry, tailwind when it comes to how to price our products compared to competition. Where are we there? Does your growth guidance for 2026 include FX or? No, it includes FX. It includes FX. So we are -- our guidance is in reported numbers, if I put it like that. So it includes FX. Are you hearing that customers are shying away from U.S. and Israeli competitors, i.e., are you benefiting as a Swedish company from -- very good question. And even though it's a bit early days to say that, but at least the dialogues I have with our customers, I definitely see this. Yes, we are well positioned to be a Swedish company in this geopolitical turmoil that is seen. Sweden as a nation, as a country is still seen, I wouldn't say as neutral, but at least as a trusted partner, someone you can trust in and have a long-term engagement with. So yes, I hear this discussion more and more. And another topic I hear, especially in Europe is about data sovereignty and how can we -- I mean, a lot of European companies, of course, are relying on U.S.-based cloud providers for ensuring their operation works. And of course, that question is parking also now a lot of dialogue about how to -- how can we trust our current allies or our previous allies for the future in order to secure that there are no problems or issues with services that are being delivered today. So I don't know if it's good or bad, but the nationalistic view and the world getting smaller again is a fact. And we, of course, have to navigate that and play our cards well there. And I think that we are super well positioned in that dialogue as a company. Those were the questions written. Do we have any more? If not, then I'd like to thank you all for listening. And I will hand over the call back to the operator. Thank you for now, and have a good day ahead. Ulf Stigberg: Thank you.
Kentaro Asakura: Ladies and gentlemen, thank you very much for your patience. Now we would like to start FY 2025 Third Quarter Financial Results Presentation. I am from Corporate Communications. My name is Asakura. I will be facilitating today's session. In this presentation, we are going to use Japanese and English. We have simultaneous interpretation service available. [Operator Instructions] We have uploaded Japanese and English presentation material in IR library on our corporate website. Whenever necessary, please feel free to download the material. Today's presenters are Mr. Ogawa, Senior Executive Officer, CFO; Mr. Abe, Head of R&D Division; and Mr. Ken Keller, Head of Global Oncology Business. Now Ogawa and Abe are going to take you through the financial results for the third quarter FY 2025, and then we are going to open the floor for the Q&A. Today's session will be recorded. I would like to ask for your cooperation. Now Ogawa-san, please. Koji Ogawa: This is Ogawa. Thank you for participating in Daiichi Sankyo's earnings briefing today despite your busy schedule. Now I will explain the consolidated financial results for the third quarter of fiscal year 2025 announced at 15:00 today based on the materials. Please look at Slide 3. The content I will discuss today is as follows. Fiscal year 2025 third quarter consolidated financial results, business update, research and development update. The research and development update will be explained by Abe, Head of R&D Unit. We will take your questions at the end. Please look at Slide 4. These are the highlights of the current earnings. Our flagship products, the anticancer agents, ENHERTU and DATROWAY continued to grow steadily and revenue increased significantly. The cost of sales ratio improved compared to the second quarter and core operating profit increased by 8.8% year-on-year. No additional major temporary expenses were incurred in the third quarter. There are no changes to the fiscal year 2025 consolidated earnings forecast from the October announcement. Please note that as reference information, the latest sales forecast for each product are listed in the supplementary earnings materials. Although there are some movements in individual products, there is no change in total revenue from the October announcement. Please look at Slide 5. This slide shows an overview of the fiscal year 2025 third quarter consolidated financial results. The revenue was JPY 1,533.5 billion, an increase of JPY 165.9 billion or 12.1% year-on-year. Cost of sales increased by JPY 13.8 billion year-on-year. SG&A expenses increased by JPY 93.7 billion, and R&D expenses increased by JPY 38.1 billion. As a result, core operating profit was JPY 249.2 billion, an increase of JPY 20.2 billion or 8.8% year-on-year. Operating profit, including temporary income and expenses, was JPY 233.8 billion, a decrease of JPY 14.5 billion or 5.9% year-on-year and profit attributable to owners of the company was JPY 217.4 billion, an increase of JPY 8.8 billion or 4.2% year-on-year. Regarding actual exchange rates, the dollar was JPY 148.75, yen appreciation of JPY 3.81 compared to the same period last year and the euro was JPY 171.84, yen depreciation of JPY 7.02 compared to the same period last year. Please look at Slide 6. From here, I will explain the factors for increases and decreases compared to the same period last year. Revenue increased by JPY 165.9 billion year-on-year, and I will explain the breakdown by business unit. First, for the Japan business unit and others. Sales of DATROWAY, Belsomra for the treatment of insomnia and Lixiana, direct oral anticoagulant and Tarlige, the pain treatment drug increased. On the other hand, sales of Inavir, influenza treatment drug decreased. And unrealized profit on inventory of Daiichi Sankyo Espha was recorded as realized profit in the previous period, resulting in a revenue increase of JPY 10.7 billion. The actual increase or decrease in the vaccine business, which is affected by seasonal demand after provision for returns was an increase of JPY 300 million. Next, I will explain the overseas business units. Here, the foreign exchange impact is excluded. Oncology business increased by JPY 113.3 billion due to growth in sales of ENHERTU and contribution of at DATROWAY sales. American region decreased by JPY 24.3 billion due to the impact of generic entry for the iron deficiency anemia treatment, Venofer, and the impact of price competition for Injectafer. EU Specialty business increased by JPY 13.6 billion due to growth in sales of Nilemdo/Nustendi for the treatment of hypercholesterolemia. ASCA business, responsible for Asia and Latin America increased by JPY 35 billion as ENHERTU grew mainly in China and Brazil. Contract upfront payments and development sales milestones related to partnerships with AstraZeneca and U.S. Merck in the third quarter resulted in an increase of JPY 20.9 billion. We received development milestone income from AstraZeneca associated with approval for first-line treatment of HER2-positive breast cancer in the U.S. for DESTINY-Breast09 and received a second upfront payment from U.S. Merck for R-DXd, which were recorded as sales revenue. The foreign exchange impact on revenue decrease was JPY 3.3 billion overall. Slide 7 shows the factors for increase and decrease in core operating profit. I will explain the JPY 20.2 billion increase by item. As explained earlier, revenue increased by JPY 165.9 billion, including a foreign exchange impact decrease of JPY 3.3 billion. Next, regarding the cost of sales and expenses. Excluding the foreign exchange impact, Cost of sales increased by JPY 12.4 billion due to increased revenue and the recording of inventory valuation losses for ENHERTU and others in the second quarter. SG&A expenses increased by JPY 100.3 billion, mainly due to an increase in profit sharing with AstraZeneca. R&D expenses increased by JPY 42.6 billion due to increased R&D investment associated with development progress of 5DXd ADCs. The expense decrease due to foreign exchange impact was JPY 9.7 billion in total and the actual increase in core operating profit, excluding the ForEx impact was JPY 13.8 billion. Next, on Slide 8, I will explain the profit attributable to owners of the company. As explained earlier, core operating profit increased by JPY 20.2 billion, including the impact of ForEx. Regarding the temporary revenue and expenses, again, as explained at the second quarter briefing in late October, same period last year included temporary income from the sale of shares in Daiichi Sankyo Espha. However, this year, we don't have such impact. Although there were incomes related to litigation with former shareholders of Ranbaxy, overall income decreased. Furthermore, there was a JPY 34.7 billion negative impact due to CMO compensation fee associated with the change in the launch timing of HER3-DXd as well as write-down of inventories of DATROWAY and HER3-DXd. Financial income and expenses contributed positively to earnings by JPY 9.5 billion, mainly due to improved FX gains and losses. Income taxes and so on decreased by JPY 13.9 billion, reflecting lower pretax income and the lower effective tax rate compared to the same period last year. As a result, profit attributable to owners of the company increased by JPY 8.8 billion year-on-year to JPY 217.4 billion. Next is business update. Please turn to Slide 10. This slide shows the sales performance of ENHERTU. Global product sales for the third quarter of FY 2025 increased by JPY 102.4 billion year-on-year to JPY 506.8 billion. New patient share remains #1 in all major countries and regions for existing indications such as breast cancer, gastric cancer and lung cancer. Regarding the new indications, we've started promotion for first-line treatment of HER2-positive breast cancer in the U.S. last December, driving growth in new patient share. In China, we've initiated promotion for hormone-positive HER2 low or ultra-low chemo-naive breast cancer patients in December, followed by promotion for second-line treatment of HER2-positive gastric cancer in January. The NCCN guideline has seen new additions and updates for multiple cancer types. First, ENHERTU has been newly added as a Category 1 recommendation for adjuvant therapy in HER2-positive breast cancer with high recurrence risk. For HER2-positive metastatic breast cancer, HER2 monotherapy was already recommended as first-line therapy based on data from the DESTINY-Breast03 trial, a second-line trial, which demonstrated extremely high efficacy. Additionally, based on data from the DESTINY-Breast09 trial, combination therapy with pertuzumab has been newly added with a category 2A recommendation. For HER2-positive uterine cancer, in addition to existing recommendations for endometrial cancer, ENHERTU has been newly listed with a Category 2A recommendation for endometrial carcinosarcoma. For HER2-positive esophageal and gastric cancers, the recommendation level has been elevated from Category 2A to category 1. ENHERTU is already listed in the NCCN guidelines for numerous cancer types and is recommended for use. We'll continue to generate data to pursue further new listings and category updates. Next, I will explain the sales status of DATROWAY. Please refer to Slide 11. Global product sales for the third quarter fiscal 2025 reached JPY 31.6 billion, representing 83.8% of the October forecast. In addition to steady market penetration for the breast cancer indication in Japan and in the U.S., the lung cancer indication rapidly gained market traction in the U.S., significantly increasing the number of new patients. Globally, prescriptions were issued to over 3,000 cumulative patients, approximately 1.5x more than the end of the previous quarter. Sales growth significantly exceeded expectations in both the U.S. and Japan with lung cancer indication, particularly driving sales in the U.S. Given these circumstances, we've updated our full year forecast to JPY 47 billion, up by JPY 9.2 billion from the October forecast. For both breast cancer and lung cancer, prescriptions have expanded beyond the projections. This is primarily due to much higher-than-expected unmet needs, especially in the third line and later, leading to prescriptions for more patients than expected. Additionally, awareness among health care professionals regarding AE management such as stomatitis and dry eye, an area where we have focused on since the launch has increased and experience is being accumulated. Furthermore, DATROWAY has seen new additions and updates in the NCCN guidelines. For triple-negative breast cancer, it's been newly added as a Category 2A recommendation for first-line treatment. For EGFR mutated NSCLC, recommended EGFR mutation coverage has been expanded from the existing category to existing, widening the opportunity for DATROWAY to make further contribution. We'll continue to pursue further market penetration in existing sales regions and expand into new countries and regions while advancing efforts to obtain new indications. We are committed to delivering ENHERTU and DATROWAY to as many patients as possible who need these medications. Slide 12 shows an update on Seagen U.S. patent dispute related to our ADC. Last December, the U.S. Court of Appeals for the Federal Circuit issued a ruling reversing the District Court's decision that ordered us to pay damages and royalties to Seagen, finding that Seagen's U.S. patent was invalid. The court issued a ruling affirming the U.S. Patent and Trademark Office decision that Seagen's U.S. patent is invalid, dismissing Seagen's appeal. We highly value this ruling by the court. Slide 13 is information about the briefing session. On April 8, Japan time, we will hold the sixth 5-year business plan briefing. Once details are finalized, we will inform you. From here, this is the R&D update. I will hand it over to Abe, Head of R&D. Yuki Abe: Thank you. This is Abe. I will talk about the R&D update. First, I will explain about 5DXd ADCs. Next slide, please. In December last year, ENHERTU in combination therapy with pertuzumab obtained approval for the first-line treatment of the patients with HER2-positive unresectable or metastatic breast cancer in the U.S. As you know, this indication based on the DB09 study was approved under breakthrough therapy designation, priority review and real-time oncology review program. Regulatory filings have also been accepted in Japan, China and Europe. And through Project Orbis, multiple regulatory authorities are proceeding with reviews. Next, please. I will talk about the final analysis results of the DESTINY-Breast03 study presented at the San Antonio Breast Cancer Symposium in December last year. This is a Phase III study that compared and verified the efficacy and safety of ENHERTU and T-DM1 for second-line treatment of HER2-positive breast cancer. As you can see in ENHERTU group, the median OS was 56.4 months and estimated 5-year survival rate was 48.1%, showing long-term significant efficacy compared to the T-DM1 group's median OS of 42.7 months and estimated 5-year survival rate of 36.9%. In addition, no new safety findings were observed through long-term follow-up. And the incidence rate of ILD adjudicated to be drug related in the ENHERTU group was 17.5% with no Grade 4 or 5 ILD observed. This indication has already been approved and launched in many countries and regions, including Japan, the U.S. and Europe. But these results reconfirmed ENHERTU's consistent sustained efficacy and long-term safety and substantiated its contribution to improving survival. Next, please. This slide summarizes updates toward expanding indications for ENHERTU. ENHERTU is making steady progress in expanding indications in various countries and regions centered around breast cancer. And in December last year, based on the results of DB05 for post neoadjuvant therapy for HER2-positive breast cancer with high recurrence risk, it received breakthrough therapy designation in the U.S. Also in December, based on the results of DB06, approval was obtained in China for the indication of chemotherapy naive hormone receptor positive and HER2 low or HER2 ultra low breast cancer. And this month, based on the results of DG04, approval was obtained in China for the indication of second and later line treatments for HER2-positive gastric cancer. Previously, in China, third-line treatment for HER2-positive gastric cancer had conditional approval. But with this approval, full approval has been obtained for second and later-line treatment. Next, please. This slide shows the progress of each ENHERTU study. Aiming to contribute to more HER2-expressing cancers, we started DESTINY-Lung06 in October last year, targeting first-line treatment of HER2 overexpressing non-squamous NSCLC. And in December last year, we started the randomized phase of DESTINY-Ovarian01 targeting first-line maintenance therapy for HER2-expressing ovarian cancer and DESTINY-Endometrial-02 evaluating adjuvant therapy for HER2-expressing endometrial cancer. Next slide, please. From here, this is the progress of DATROWAY. Data from the TROPION-Breast02 trial targeting TNBC not eligible for PD-1, PD-L1 inhibitor treatment was presented at ESMO in October last year. Based on this data, filings for approval were submitted in Europe and China and were accepted in December last year. Procedures toward filing are also progressing in other countries and regions. For TNBC, as shown in the table on the left, in addition to the TB02, 3 Phase III studies are ongoing in early stage and recurrent metastatic stage. Next, please. This slide introduces new Phase III trial. The TROPION-Lung17 trial compares DATROWAY monotherapy with docetaxel in patients with non-squamous NSCLC in second line or later setting. Building on insights from prior studies such as TROPION-Lung01, we target at patients with TROP-2 NMR biomarker positive. This trial aims to expand the treatment opportunity for DATROWAY monotherapy in NSCLC. Next slide. This slide introduces the latest status of the ongoing DATROWAY trials. The first is the TROPION-Lung07 trial, which targets first-line treatment for non-squamous NSCLC with PD-L1 expression below 50%. This trial had not previously applied the TROP-2 NMR biomarker, but following a protocol amendment, PFS and OS in the TROP-2 NMR-positive population were newly added as primary endpoint. The second is the TROPION-Lung12 study. This is an adjuvant therapy trial for Stage 1 NSCLC with ctDNA positive or high-risk pathological features evaluating combination therapy with rilvegostomig. Regarding this trial, due to complexity of study operation, we've decided to discontinue patient recruitment. No new safety concerns were identified, and there is no impact on other DATROWAY trials. Next slide, please. From here onward, I would like to talk about the progress of next wave. For EZHARMIA, we are preparing a Phase I trial combining darolutamide with EZHARMIA for metastasic CRPC. Regarding DS-9606, a modified PBD ADC targeting Claudin 6, we've decided to discontinue its in-house development following a strategic portfolio review. Meanwhile, DS-3610, a STING agonist ADC introduced at last year's Science and Technology Day commenced its first in-human trial in November last year. This slide shows that EZHARMIA received Prime Minister's award. EZHARMIA was approved in Japan 2022 for the treatment of relapsed/refractory adult T-cell leukemia lymphoma and in 2024 for relapsed or refractory peripheral T-cell lymphoma. Japan was the first in the world to obtain approval. This time, in combination of health care -- in recognition of health care contribution through establishing a new cancer therapy targeting EZH1/2 epigenetic regulation, we've received the Prime Minister's award at the 8th Japan Medical Research and Development Awards following Enhertu's award at the 6th ceremony. We are extremely pleased that the drug independently developed by Daiichi Sankyo is contributing to patients' treatment and that its achievement has been recognized by the society. Finally, news flow from now onward. Regarding upcoming regulatory decisions, we anticipate review results for DESTINY-Breast11 trial from the U.S. FDA in the first half of next fiscal year. As for the upcoming key data readouts, for the DESTINY-Lung04 trial of ENHERTU for the first-line therapy of HER2-mutated NSCLC, data is expected in the first half of next fiscal year. For the TROPION-Lung07 and Lung08 trials of DATROWAY for first line of NSCLC, data is expected in the second half of next fiscal year. Furthermore, AVANZAR trial data is now expected in the second half of calendar year 2026. Additionally, data from TROPION-Lung 15 trial, which targets EGFR mutated NSCLC after osimertinib is still expected in the next fiscal year as previously planned. Slide 29 and onwards are appendix. Please take a look at those slides later. That's all from myself. Operator: [Operator Instructions] The first question is from Yamaguchi-san, Citigroup. The sound is back now to the translation line. Sorry, we missed the question from Yamaguchi-san. Unknown Executive: Well, regarding 9606, we stated that our in-house development will be discontinued. As we proceeded in our development, we had the result. And regarding mPBD itself, its utility was confirmed. Hidemaru Yamaguchi: And then how should we do moving forward? Unknown Executive: We may have an option taking partnership with other companies who may be interested in out-licensing of this asset, but in-house development will be discontinued. Therefore, regarding mPBD technology, its usefulness has been confirmed. Therefore, the subsequent researches are ongoing. Therefore, changing the targets, the clinical programs will continue. That is our policy. Hidemaru Yamaguchi: So I'm sorry. But including the competition, for clothing -- regarding 9606, given the strategic value, you decided not to do it on your own. Is that right? Unknown Executive: In giant cell tumor, we had a positive result. So there is a room of making more development in that area. But given the portfolio perspective, we decided not to continue the in-house development in this field. I see. Hidemaru Yamaguchi: Another question is ENHERTU marketing. First, starting from December, promotion started. And I'm sure if it's already appearing quantitatively in the numbers, but what is your feeling in the market, DB09 marketing promotional activities, how effective the activities are producing the results? Unknown Executive: Thank you for your question. Regarding DB09 current status, Ken Keller is going to give you a comment, please. Joseph Kenneth Keller: Yes. Thank you very much for the question. So DESTINY-Breast09, which is the first-line HER2-positive metastatic breast cancer indication, it's been launched in the U.S. The team is now educating our oncology customers in the U.S. The data, as you know, is really outstanding. It's being received very, very well. I would expect the adoption to be very, very quick. At this point, the oncology community knows ENHERTU very well. They're comfortable with it. And with this data, I think they will embrace it very quickly. Hidemaru Yamaguchi: Do you have some sense of penetration rate as of today or it's too early to say? Joseph Kenneth Keller: It is too early to say what it is. We just launched it really just a little while ago. And so we'll be able to provide you with more information in about a quarter from now. Operator: Next question is from Daiwa Securities, Hashiguchi-san. Kazuaki Hashiguchi: This is Hashiguchi speaking. My first question is related to ENHERTU Japan, your sales situation. So this time, you have made a downward revision of your forecast slightly compared to the original forecast, what's going -- what is going differently? What is the background for you to take your forecast downward? Can you explain about the reason and the background for that? Unknown Executive: Yes, I would like to make one comment first, and then I would like to ask Ken Keller to make some additional comments. In Europe, we are seeing some adjustment. When we look at the quarter-on-quarter situation in Europe, there has been a change to the ERP system. As a result, we had to do some shipment in the second quarter, and that was affecting the quarterly sales. But I would like to ask Ken Keller to comment on the situation in Europe and sales from a full year sales perspective. Joseph Kenneth Keller: Thank you very much. When we look at ENHERTU in Europe, we're in a situation where all of the countries have launched the HER2-positive second-line metastatic breast cancer indication. And the market share, the penetration has already achieved a very, very high level. And so we see continued growth in that setting. But now as we look forward, we're going to see substantial growth in Europe as the different countries obtain access for the HER2-low indication. We've got the HER2-low indication in most countries in Europe, but now we're working through the typical reimbursement approval. As these occur, you'll see an acceleration of growth in Europe. Kazuaki Hashiguchi: For Japan, what's the situation in Japan? Unknown Executive: Yes. Let me respond to that question regarding Japan. Last year, in April, we had seen some impact. NHI drug price revision just before -- just before the start timing in April, we had seen some last minute on demand and that impact still lingered. Overall, ENHERTU future growth trajectory in Japan remains unchanged. Kazuaki Hashiguchi: Next, DATROWAY NSCLC Phase III trial progress, that's what I would like to understand. Avanzar study was changed from the first half to the second half in terms of the timing. And for TL07, your disclosure was always saying that FY 2026, but AstraZeneca is saying first half of the calendar year. And in your fiscal year, latter half, you've made a timing change to the latter half of your fiscal year. And what is the reason behind this timing change? Unknown Executive: Thank you very much, Mr. Hashiguchi. First, regarding AVANZAR, enrollment has been complete. And with the event -- with the incidence of event, we understand that there has been change made, and that's all we know. And for TL07, 08, we've disclosed second half of this fiscal year. So it's still being in line with our initial plan. Kazuaki Hashiguchi: Regarding 07, primary endpoint was added this time. And so when you get the overall primary endpoint data, I guess you are going to make a disclosure. Is that the case? Or if you collect -- can collect the data on already set endpoint, are you going to disclose those endpoints first or like all of them altogether? Unknown Executive: Thank you very much for your question. Regarding 07, NMR biomarker has been added to primary endpoint, as we have explained. And next year, second half, the PFS data is expected to be disclosed. So whenever we have event, we are going to make a disclosure. And as we have experienced at AVANZAR, when event becomes long or takes longer, then the timing of the disclosure may come later. But when that happens, we are going to communicate to you. This time it's protocol amendment, with regard to that, we've had a lot of sufficient discussion. And what's more important here is that is that we are going to get the positive study results. So we do our best, and we continue this study. Operator: Next question is Sakai-san from UBS. Fumiyoshi Sakai: This is Sakai, UBS. My first question is about the follow-up question of TL-07. There are 4 primary endpoints now. Is that right? And then what is the hierarchy of the statistical analysis? And how should we consider the alpha? And TL-08 and 10, don't you have to change their primary endpoints? Unknown Executive: Thank you for your questions. Whether or not in total, there are 4 endpoints in ITT and NMR positive population, PFS and OS will be evaluated as primary endpoints. And as a result, how we will be leading to the filing, we will consider risks and benefits, taking a look at the study results and make a strategy for filing. Therefore, at this point in time, which is going to be included or not, I may have to expect that anything is not yet definite. Therefore, I'd like to reserve my comment this time. But based upon data, we will proceed our filing. Fumiyoshi Sakai: What about 08 and 07. Unknown Executive: regarding TL-08, we are also having discussion. And we are currently considering to include NMR as of today. And if we decide and add to this change, then we will also let you know. Concerning TL10, we don't have any idea at the moment to make such an aggressive change. Fumiyoshi Sakai: Second question is the inventory write-down on the balance sheet. I think it was towards the end of the year, and it increased remarkably. What are the items contributed to that increase? And like the past case, don't we have to worry about any potential write-off of inventories? Unknown Executive: Thank you for your question. At this point in time, there is no potential impairment we anticipate. So that's one point. And for ENHERTU and DATROWAY, overall, they are accelerating the growth globally. And especially the stock takings are accumulating in the U.S. for the purpose of growth, and that is affecting most. Operator: Next question is from BofA Securities, Mamegano-san. Koichi Mamegano: I am Mamegano from BofA Securities. I would like to make one clarification on IDX. Phase III trial received a clinical hold, but I heard that this clinical study was reconvened -- recommenced. Is that the case? And for this, I think it was a trial to support the filing. And can you tell me like whether you've made -- you've submitted the filing already or not? Unknown Executive: Yes. Thank you very much for your question. And sorry that we've concerned you I-DXd, we've received a partial clinical hold, and it's been lifted already. However, I would like to explain the current situation. ED8-Lung-02 study shows ILD series serious, may have ILD serious cases and our R&D team came to realize that and we stopped the patient recruitment, and we made a report to the FDA. And then FDA has issued partial clinical hold and that's been already disclosed -- sorry, that's been already lifted. But in a meantime, ourselves and Merck decided to have a more strict risk management for ILD. So ILD high-risk patients are now excluded from the trial, and we have more strict inclusion criteria. Independent data monitoring data is looking at the safety and efficacy data more frequently. And on top of that, participating investigators and clinical site staff are receiving additional education and updated training amendment of protocol, ILD symptoms and ILD management are now more thoroughly implemented with those partial clinical hold has been lifted. Koichi Mamegano: And for ED801 study submission. What is the impact on the filing? Unknown Executive: There is no impact on such filing. So we are having a discussion with the regulatory authorities in different countries and regions. And we stick to the original time line. That's all. Koichi Mamegano: One more question. You're going to announce MTP, midterm business plan in April. And that's -- with regard to DATROWAY, I'm sure this is a growth driver for you. But now you have a AVANZA trial. And in the second half, you're going to have top line result. And in midterm business plan, DATROWAY's assumption. How should we expect DATROWAY's assumption to be laid out in the MTP? Unknown Executive: Thank you very much for your question. Well, we would like to make a detailed presentation on MTP when we make announcement. So I can't make a detailed comment at this point of time. But DATROWAY study result such as AVANZA study result and the others will make a big difference in coming 5 years business. So when we make announcement of MTP, we will explain about the assumptions and the scenario on which MTPs being formulated. We would like to offer you as much explanation as possible. Operator: Next question is from Ueda-San, Goldman Sachs Securities. Akinori Ueda: This is Ueda, Goldman Sachs. I have a question about clinical trials of DATROWAY. This time, TROPION-Lung07, which biomarkers were used. As a result, enrollment increased in terms of number of patients and the data affect to the data announcement timing? Or do you think that you still need to review all those? And also for 08 study, biomarker usage is now under review. And if you decide to use it, then should we anticipate that the timing of announcement will be changing. Unknown Executive: Thank you for your question. Regarding the timing, this time, the enrolled patients numbers have been increased and already we completed enrollment. Therefore, there is no delay anticipated. It's already complete. But as we experienced with AVANZAR, if any events happen and causing any delay, we will let you know. So for the enrollment of the patients compared to the original plan, we added on NMR, and we have already completed the enrollment. Did I answer to your question? Akinori Ueda: Yes. And it's the same situation for 08? Unknown Executive: Regarding 08, as of today, I'm sorry, I cannot comment in details, but a similar strategy is taken to move forward. Akinori Ueda: I understood. My second question is about ENHERTU indication expansion impact. First, in the first-line treatment, as you expand the indication more, I think the sales will be accelerated. And already in the U.S. DB09 positive results has been disclosed. And as a result, do you see already some positive impact in the clinical practice? Or can we expect more acceleration of the sales expansion? And DB05 and 11, those approvals are also expected. And number of patients seems to be big. But given the number of cycles of treatment, I may consider 09 contribution may be big or if actual the target population expands and if the clinical practices are conducted more efficiently, then there will be also a major contribution expected from 11's result. Which way do you consider? Unknown Executive: For this question, Ken Keller will answer to your question. Joseph Kenneth Keller: So if I heard the question correctly -- we're already seeing some spontaneous use in DESTINY-Breast09, from almost the moment when that data became public. So we are seeing people adopting it and using it already, even though commercially, we've launched this just a little while ago. As we project out to the early-stage breast cancer settings of DESTINY-Breast11 and 05, in these early settings, the goal is cure. And both of these studies provide standard of care changing new data. And I expect them and everything we're hearing from the community is that they will -- it will be embraced very, very quickly. Did that answer your question? Operator: Next question is from JPMorgan Securities, Mr. Wakao, please. Seiji Wakao: This is Wakao from JPMorgan. My first question is as follows. This time, you didn't have a temporary expense. But wasn't there any special factor? And then for the CMO compensation fee, I thought that there is something which is still under negotiation. What's the status right now? Unknown Executive: Temporary expense that we disclosed. And on top of that, is there anything else? The answer is no. And going forward, with regard to the CMO compensation fee, we did -- if we scrutinize the situation and when something comes up, we are going to disclose. But at this point of time, we don't -- we haven't identified any outstanding remaining compensation fee that we need to pay to CMO. Seiji Wakao: When are we going to see the conclusion of this? Unknown Executive: We are having an ongoing discussion with CMO and we cannot determine when is the expected timing of the conclusion of this negotiation. Seiji Wakao: TL-07 and 08, you are now adding NMR marker -- biomarker. And can you explain about the background why you've decided to do so? I understand that you are trying to improve the probability of success. But if you are confident in the result of Dato, I don't think it was necessary, but what's the reason behind? Unknown Executive: Thank you very much for your question. We've had a lot of internal discussion on that. And at one point of time, we thought that this biomarker is not necessary. But pembrolizumab and Dato-DXd, as we have experienced in breast cancer, these 2 are good match. And for lung cancer -- in lung cancer, patients are hetero as based on our experience. So NMR biomarker in lung cancer is very critical. That's one of the reasons. And although you haven't asked this, but TL-17 NMR biomarker study is going to take place. So in the area of lung cancer, with the existence of biomarker, we can offer better benefit to the patients. And in 07, 08, by using biomarker, we can enhance the probability of success. That's why we've decided to add biomarker in the protocol. Seiji Wakao: So I understand that you've discussed with FDA on this. And for NMR-positive population, if you meet endpoint, I would understand that you can successfully make submission and of course, depending on the data, but I think you can get the approval from FDA. Unknown Executive: Yes, we've consulted with FDA before we amended protocol. And it all depends on how good our clinical trial result is. MTP is to be announced in April. The other day, in the JPMorgan Healthcare Conference, CEO mentioned regarding the profit outlook into 5 years. So in 5 years from now, you have a sales milestone for ENHERTU, and you have cliff with Lixiana. So the profit somewhat may decline. However, if things go well, you can make some growth. Seiji Wakao: And I think that's the outline of the message of you. But can you explain about that once again? Unknown Executive: Well, with regard to the next MTP to be announced in April, I am very sorry, but we cannot offer you any detailed comment because we are having an ongoing discussion to formulate MTP. Lixiana, LOE, Injectafers being impacted by generic, you understand those things quite well. Those would be the downside factor, negative factors. So with 5 ADC growth, we are hoping to catch up or compensate those decline as much as possible. And that's all I can tell you for now, but we are still committed to improve profitability and that's the baseline for the next MTP. Operator: Next question is Muraoka-san, Morgan Stanley MUFG Securities. Shinichiro Muraoka: I'm Muraoka from Morgan Stanley. I have a follow-up question about Wakao-san's conference-related item. I'd like to understand the wording exactly. Did you say decline or a slight decline? And I think it depends on how much inclusion you assumed. And if you included Dato conservatively, is it a decline or slight decline? Could you share that part once again with us? Unknown Executive: In terms of wording, the word we used is slight decline. And overcoming the factors against the profit, we will be putting ourselves back on track for growth. And in that context, this wording was used. But how much -- I'm sorry, we cannot talk about it specifically. But at any rate, there would be some directions, negative direction putting us downside, but we would like to recover from that as much as possible and all those measures will be incorporated in our 5-year business plan. So if it is a slight decline, then I think naturally thinking you should be able to achieve a V-shaped recovery after that. Shinichiro Muraoka: Another question is smuggling point, are you going to make acquisition by the time of next 5-year business plan? And how many deals at what the scale? Unknown Executive: Well, excuse me, what you're asking about is to acquire external assets? Shinichiro Muraoka: Yes, yes. Unknown Executive: At this point in time, we don't have anything that we can talk about. But again, in our 5-year business plan, we look at our pipeline, especially in early-stage pipelines, if there are anything which we can expect working as a complementary, we would like to pursue toward the growth during the 5-year business plan and beyond, we'd like to explore externally any good candidates of assets. So that strategy is unchanged. And before the announcement of April, the announcement of the 5-year business plan, nothing is now moving at the moment in this regard. Shinichiro Muraoka: And just one more point. Well, actually, your stock price went down much, but it came back quite quickly. Did you conduct a buyback, share buyback? It is a sharp decline and recovery. So I think probably in the next week, you will disclose whether you conducted the share buyback or not. But could you comment regarding share buyback, as we have been talking about it. Unknown Executive: We will take into the stock price and others, and we make a comprehensive review and make a decision. And so far, on a monthly basis, we have the timely disclosure in the first operating day. And on that timing, we will continue disclosing the information. Operator: Next question is from Bernstein, Sogi-san. Miki Sogi: Regarding TL-07 and TL-08, I have question. NMR biomarker is now added in the primary endpoint. And I think this is a good news. Regarding this, I have 2 questions. Regarding 07, 08, it was a combination with KEYTRUDA and you use NMR and then this will increase the probability of success. And I think it will have a big commercial impact because you can combine with standard of care KEYTRUDA. 07, 08, for those 2 studies, I think you are done with the patient recruitment. And within 12 months, the result will be presented. So you have come to this end. Now you're making amendment. But you've got the kind of like consensus from the FDA. Does that mean that FDA understands the significance of NMR as a biomarker? Unknown Executive: Thank you very much. In terms of the marketability, I would like to ask Ken Keller to make some comment. And I would like to respond to your second part of your question, whether -- how FDA sees the significance of NMR. Well, this relates to the discussion of contents of FDA, so I can't make any comment. But by including biomarker, our intention is to improve the probability of success of this trial. That was the main intention, and please allow me to repeat that point once again. And depending on the result, study result, we will consult with FDA and figure out how we want to do with the filing. Joseph Kenneth Keller: And the question in terms of adding in and working with the standard of care, you are absolutely correct. KEYTRUDA is clearly the market leader, and we've got a number of first-line non-small cell lung cancer studies with KEYTRUDA. And also, to remind you, we've got the AVANZAR study with Imfinzi which is AstraZeneca's I/O drug. So we feel that whatever the preference is of that specific oncologist, we're adding DATROWAY in a way that is very convenient, and it should lead to very quick confidence in our drug adding to whatever they prefer. Miki Sogi: Next, regarding MTP, regarding health care conference hosted by JPMorgan. I know you're announcing MTP in April, so you can't talk much about it now, but slight decline, as you say, with regard to profit, It's not margin. Are you talking about absolute amount? Is that correct, not margin? And also when the profit declines, the driver behind is, I guess, the aggressive R&D cost assumption. So in your case, 5 ADC has many trials and you have partners. So with regard to the R&D cost, I would assume that with AstraZeneca, Merck, you've already, I guess, made alignment on the cost. And I don't think you alone cannot make adjustment or changes by yourself, correct? Unknown Executive: With regard to the future R&D spending, splitting R&D cost between us and the partner has been determined. So we stick to that. Which study is to be dealt by who. This is different in different trial. And when we've made agreement and then we just stick to the cost split structure we've predetermined with the partner. During the MTP period, how are we going to control R&D cost? I think that's what you wanted to understand. So to that end, we have trials where we work with partners, and we have development that we take care of all by ourselves. So in coming 5 years, what are going to be -- which projects are we going to prioritize. That project prioritization and the resource allocation needs to be well managed. Miki Sogi: Okay. I have a follow-up question. In next 3 years -- well, in next 3 years, not 5 years, am I correct to understand that you've already had a lot of discussion with your partners as to what kind of trials are going to take place for what product. Unknown Executive: Yes, depending on the product, we are in a different stage. And for each product, we have formulated joint team. So rest assured, we have sufficient discussion going on between us and our partner through the joint team. And we stick to the priority that we decide on. Operator: The last question is from Tony Ren from Macquarie. Tony Ren: So I want to go back to your Claudin 6 ADC, the decision to discontinue DS-9606. My question is about the construct of the modified PBD construct. You mentioned its clinical utility has by now been established. Can I confirm that the decision -- because I also noticed your peer company, Chugai also discontinued a Claudin 6 T cell engager in October. Can I confirm that it might be an issue with the target of Claudin 6. Can you also give us any sense about the toxicity of the modified PBD construct? So that's my first question. Unknown Executive: Thank you for your question. Regarding mPBD. In terms of technology, yes, we confirmed that technology utility, as I mentioned earlier. And the reason we selected Claudin 6, there are several reasons. Therefore, we expected in this asset, but there are things that turned out as it's expected or unexpected. And in terms of science contents, we'll be discussing it in some medical conferences. So allow me not to touch upon those. But in terms of utility in the giant cell tumors, if we can confirm the efficacy, then technology-wise, it should be very good. And for that point, we could confirm. And also side effect was manageable as well. Therefore, amongst the difficult challenging technology with PBD, we believe that our technology utility level is high. And talking about the Claudin 6 in, giant cell tumors, can't it be developed for this particular type of tumor. Well, I think it is possible. Therefore, any companies interested in this may consider development, including in-licensing. But what about the business viabilities or in terms of portfolio. Well, given our business portfolio overall, we decided to discontinue. That is the background reason. Did I answer to your question? Tony Ren: Yes. Yes, answered very well. I was mostly concerned about the toxicity. My second and the last question is about your CapEx plan. So Nikkei Asia reported that you guys were considering spending JPY 300, that is close to USD 2 billion on CapEx, right, in 4 different countries, Germany, Japan, U.S. and China. This obviously feels pretty big in relation to the JPY 800 billion in CapEx you guys already disclosed in the last 5-year plan. Can I confirm that this JPY 300 billion is in addition to above and beyond the JPY 800 billion already committed? Unknown Executive: Thank you for your question about our CapEx. Well, it is not a new additional investment. So what we announced is as we have been explaining so far within the range that we have been already talking about, this spending will be incurred. Therefore, there is nothing new, nothing additional to the CapEx that we have already announced. Tony Ren: Okay. So it is part of the JPY 800 billion already announced? Unknown Executive: Yes. Sorry. I'm not familiar with the articles detailed content. But yes, your understanding is correct. Operator: Thank you very much. So with that, we would like to conclude today's earnings call. Thank you for your participation today.
Jane Morgan: Good morning, and welcome, everyone. My name is Jane Morgan, and thank you for joining us today for this webinar with archTIS Limited, a global provider of data-centric security solutions for the secure collaboration of sensitive information, listed on the ASX under the ticker code AR9. Just this morning, the company has lodged their quarterly report for Q2 FY 2026. And today, I am joined by both Daniel Lai, who is archTIS' CEO and Managing Director; as well as Mr. Kurt Mueffelmann, who is archTIS' Chief Strategy Officer and the U.S. President. Both presenters will be covering off the quarter's activities, the ongoing strategy and developments in the U.S. market and are here to guide us through what's ahead for the 2026 calendar year. Following the presentation, we will have time for questions. [Operator Instructions] Kurt, I'll hand to you. Kurt Mueffelmann: Yes. Great. Thank you, Jane, and good morning, everybody. We're really excited, and thank you for attending today's presentation. And during today's session, we'll update you on some great happenings around our quarterly performance, provide an in-depth financial review, update the U.S. DoD opportunity, obviously, the Spirion integration, how that's really progressing in a wonderful manner and further discuss the go-to-market strategy around how we're growing and where we see the markets going into the future. So what I'd like to do initially is send it over to Dan and start off with some of the Q2 FY '26 quarterly highlights. Dan? Chun Leung Lai: Thanks very much, Kurt. Welcome, everybody, and thanks for attending this webinar. So I'm going to start from the bottom O and then work my way around. Obviously, the biggest -- big elephant in the room is updating you on the U.S. DoD deal. The first thing that we announced this week was the U.S. DoD custom development milestone was achieved. Now that was work that the U.S. Department of Defense requested for us to make amendments to our software so that it could be more deeply integrated into their environments and expanded to a broader customer base. We finished that software custom development, and we've provided that back on time to the U.S. DoD for their acceptance and evaluation. So we're very happy about that. We have one component left to do, which is a piece of integration with the third-party software, which is more configuration work. So we expect that to go fine through with flying colors, and that's all on track to be delivered as well. So the next step there, which I think is a great milestone is that NC Protect has been deployed into the U.S. DoD365 environment. That is a production trial so that the system integrator can make sure they can manage that software in multiple different locations across the U.S. DoD environments, which are located around the world. We have expanded the client base there for more trials in that sense to be done. We expect that to be a 30-day deployment trial with real live data. And that's really important because this is the final milestone before that we would see our licensing for larger users to be issued. So that's critical. It's something that we've been expecting, and it's something that we see as an extremely positive sign. That, combined with the software development, gives you a very clear indicator that we have great confidence in this deal. The ARR for the company, obviously, with the integration of Spirion, we've increased that ARR. It's up 308%, $16.3 million, a strong performance. And what's really important about that now is that our gross margins are still above 75%, which gives us good cash back into the business, but licensing revenue sits at around 83% of total revenue, which is good as well. Total funds available, $7 million, and we also announced that we've had agreed to terms with an $8 million debt facility to make sure that we've got that runway with any variance of expectations of delivery of this U.S. DoD licensing deal that we're expecting. 76% gross margin, as I said. And of course, the main activity for the last quarter has not just been U.S. DoD but other deals as well and working out how we're going to cross sell to that 150 clients in the U.S. that we have acquired with the Spirion acquisition, integration of their teams, standardization of the software development life cycles and how to -- and working through how we integrate the products as well to take this forward in a very strategic manner to pivot into this U.S. market, which is 40% of the data-centric security market globally and really start to ramp the business up. And of course, that's what we're trying to achieve strategically, and we're looking for those short, medium and long-term results. Over to you, Kurt. Kurt Mueffelmann: Yes. I think the main financial aspects were really revolving around Spirion, and so when we look at that acquisition was really October 1. It was the first quarter of operating together. And I've done 20, 25 different M&As, and actually, it was one of the smoother ones that we've done. And if you look at the [ 4C ], you'll see generally staffing. Staffing costs are generally high in the first or second quarters that come out of such deals like this. And so we were fortunate enough to have a really good pre-acquisition understanding of where the business was. And as we'll talk about, we were able to cut some real solid expenses out of the business and start to look at where we get to a real runway of the business as we go forward. So if we dive a little deeper, ARR in the December quarter was $16.3 million, a 308% increase over the prior comparative period. We know that ARR did drop from the prior quarter. We understand that there was churn from the Spirion acquisition. We did a really good job in really digging into our understanding from a due diligence standpoint, and we knew what churn was forecast and what was taken into consideration and where we need to be from the purchase price. So our purchase price is still under 1.25 of the current revenue, which is really attractive by any market analysis that's out there today. So we feel really good that we have our hands around where the churn rate goes on Spirion and where the go-forward revenue is coming from. Total revenue for the quarter was $4.6 million, and that was comprised of $1.5 million from Australian operations, which is in line from the prior comparative period and $3.1 million from U.S. operations, including U.S. archTIS and Spirion. And we continue to see really software licensing being really strong as a percentage of overall revenue. Software revenue was $3.8 million, and services and equipment was only $800,000. So again, it's a real focus on where we want to take the business. Gross margin for the quarter, which is really showing where that strategy around driving software licenses came, really came in strong at 76%, a bit of an improvement of 73% from the prior corresponding period. And again, it's that transition away from lower-margin services, equipment, third-party software and really driving the licensing that archTIS has from a proprietary standpoint. Operating expenses for the quarter, excluding one-off transactions and integration costs, yes, it did increase to $5.9 million from $1.5 million in the December 2024 quarter. This increase, as I said, was anticipated. A lot of staffing in there reflects expanded headcount and operating capability aligned with the U.S. market expansion. Our one-off costs were a little bit over $1 million and included the Spirion transaction and integration costs. However, at the end of the quarter and as part of the global integration plan to include Spirion, we really implemented a workforce and cost synergy realignment initiative, which expects to deliver over $4.5 million in operating efficiencies on an annualized basis. So we're really being strongly driven by where our operating cash flow goes, what our cash runway is and where we drive the business forward from an overall cost standpoint. Operating cash flow for the quarter was negative $4.1 million, reflecting the temporary elevated costs aligned with the Spirion acquisition, further U.S. market expansion and the timing delays from the U.S. government delays from the government shutdown. The company closed the quarter, as Dan mentioned, with cash balance of $6 million and a total available funds of a little over $7 million, and that does exclude the $8 million Regal debt facility. So overall, we feel that we have a really good handle on where our costs are going. We have a strong understanding of where our total ARR is going and locking that in to limit the churn and the loss of any customers as we move forward and really drive where we need to go from a strategic standpoint. So let me just turn it back to Dan to talk a little bit about how we're pushing to supporting the global scalability and growth of the business for the coming quarters. Chun Leung Lai: Yes. Look, we've seen good traction obviously. We discussed the momentum in the U.S. They renewed that 1,000 licenses. It had expired. They needed to do that to do a production trial for deployment of the product into different [ co-cons ] as we call them, and that has happened. That's underway, and we expect that to last approximately 30 days for that period of time for that trial to be done. And it's more so about how they manage it, what [ order logs ] they can get back and make sure that they can maintain that software. Post that, we expect to have -- see some sort of licensing deal come through for the organization. Importantly, what was really an impressive milestone was not only seeing it being deployed, but the fact that they had such confidence in it, they were expanding those commands for it to be trialed across, and we were very happy to hear that. So we feel that there's strong indicators coming out of the U.S. DoD at this point in time. In terms of the U.S. expansion, the cost synergies, Kurt's already been across that. I think that it's really important to understand that we're taking it very seriously that we found more synergies than we expected. We acted upon them, and we're taking those type of actions to make sure that we're looking after that capital very tightly. Of course, the other aspect there is the cross-sell and upsell that we are looking at with these customer bases. We've already identified $2 million worth of opportunities in the first 3 months, which we have commenced starting to execute and engage, start to demonstrate. Obviously, there's a process there of training the U.S. team into our product suites, how to present that, where it fits and of course, also that vice versa, the opportunities that we're now finding in Australia where we can pitch the Spirion products, which is that discovery of that information and that labeling of the information for NC Protect then to be able to enforce that data-centric security process. And of course, out of that 150 global blue chip, it's really important that we market to them and the branding to them and they see a strategy not from a best of breed but to an integrated platform future that this is a long-term investment, and we are their partner of choice for data-centric security along that journey to continue that growth. Kurt? Kurt Mueffelmann: Yes. I think what was interesting, so I spoke to our partners over at Copper River, and they were blown away that we were able to actually commit and deliver to the January 16 delivery of a customized software development. It was over the holidays, and they said we were one of the few vendors that had the ability to actually say we were going to do something and get it done. So that builds huge credibility, and that goes straight up the chain right up to the U.S. DoD. I know we were presented by one of our other partners associated with Copper River, right up to the #2 person at U.S. DoD that handles this within the IT operations, and again, they passed on their thanks down to the level of individuals within archTIS for performing and getting that done. And that just doesn't stretch into the U.S. It stretches back into the development teams and the project management teams and everybody across the archTIS employee base and delivering that. It's a true team effort, which is really nice to see. It's nice to get those accolades when you're in the trenches. The other nice thing about being in the trenches was when you start to talk about that $2 million of cross-sell and upsell, you start to look at what the scope and the breadth of that is. In looking at our pipeline and looking at the individual opportunities, there's 1 opportunity in there that has 30,000 users, which is fantastic. That's a significant opportunity for us to do. We're really tied into that. I think we did our fourth or fifth demo on that over the last month. So you really see the excitement around where you take that to the next step around going from discovery and classification up to enforcement and governance that NC Protect provides. But on the other side, we also have smaller organizations. We had a couple of small educational institutions that had 1,000 users. We have a small manufacturer of 500 users. So we really go up and down the scale of Spirion 150 users -- 150 customers that Dan talked about and really driving that cross-sell, upsell opportunity. So we see tremendous opportunity there as we continue to move forward. So Dan, as we look at kind of kicking off calendar 2026, let's talk a little bit about where we're going with the market and where is the market going because it's still continuing to boom from a cybersecurity perspective. And when you start to look at the scope and the scale of the number of vendors and where we are in the market, it sometimes becomes a little mind-boggling. So I think it's good at the beginning of the calendar year to bring it back in to say where are we and where do we compete and how do we differentiate ourselves in the market. Chun Leung Lai: Yes. Well, this could be somewhat terrifying if you didn't have a plan. Luckily, we've got a plan. So there's probably about 12 major organizations out there, which dominate the cybersecurity market. There's your CrowdStrikes, your Varonises, Microsoft, AWS, Ciscos, Palo Altos and so on. They're the big guys, the big dogs, as we like to call them. They control a vast amount of that security budget. But there's about 4,500 other vendors out there vying for visibility and usually filling a gap or is the best-of-breed product, which has been adopted over time and is working. And I think the real question that you've got to look at from your strategy is how do we differentiate, how do we partner and value add to those big players in a space where they don't have that capability, and we can extend their value propositions to their customer bases as well as for us, exploit their customer base for selling. And I think that that's really, really critical to have those differentiations in the strategy. And I think with data-centric security, we're extremely well placed to do that and most importantly, leverage that, as I said, that cooperation in terms of selling and structures. And again, I think that we're well placed to do that, but we'll go through a bit of a detail here. So why don't you talk a little bit about that strategy, Chief Strategy Officer, Kurt Mueffelmann. Kurt Mueffelmann: Yes. So I think what's really interesting, though, is when you start to look at what's around us, right? And there's a lot of activity going on, right? There's a lot of M&A. There's a lot of roll-ups. There's a lot of money coming into the space. And of the $300 billion that are out there today, as an Australian micro-cap, we can't compete with that. We can't be all things to all people. So we really look at where we target our business and market opportunity around data-centric posture management, data loss prevention and data access governance. That's about an $11 billion market that's out there today. So we're trying to really scope down of where we compete and how we do that. And when we start to look at where that M&A activity, where market valuations come in and everything, companies that are driving right around USD 100 million in revenue, there are some massive transactions that are out there today. One of them includes the Israeli firm, Cyera. They just received $400 million in a December raise, and that's implied valuation of $9 billion. They sound just like huge numbers, but again, $9 billion valuation for $100 million in revenue. You do that multiple of revenue, and it's just mind-boggling. BigID, U.S. firm, $1.25 billion valuation, $100 million in revenue. Securiti AI, they just got acquired by Veeam for $1.8 billion. So that reinforces really that institutional conviction and scalable data-centric platform. And we need to continue to execute our strategy, expand, obviously, where we're going with the U.S. DoD and the government enterprise adoption and really create that pathway towards where we believe we can drive the business. And ultimately, our available market opportunity is not defined by how many feature sets we can build or how many adjacent categories we can claim. It's really all about how we focus on complementing that hyperscaler platform, remain essential to large market consolidation and really drive those partnerships and building what we think is really strong in the message that's out there today. And so from a strategy standpoint, we start to focus on that modern data fragmentation that -- the DSPM, the DLP and the DAG markets. They're still big at $11 billion. So we're trying to even be really focused on that center intersection of all those 3. And Dan, do you want to talk a little bit about what that entails? Chun Leung Lai: What that's really about is that as a business today, I exist in a hybrid environment. I've got AI driving my data usage. I've got IoT. I've got data analytics. I'm using SaaS platforms such as Salesforce, which is taking my information from my on-prem to the cloud. I might be using different cloud vendors for different infrastructure purposes or different services, digital services. So I exist in a hybrid world. And what's really difficult about this is how do I extend my current investments to maximize those investments without having to replace all the functions that I've already got and the capabilities that already exist. And the way of doing that is essentially about creating a fabric between all of those points. How do I get visibility of my data? What are the threats? What is sensitive? How do I label that? How do I protect it? How do I prevent data loss prevention? And how do I do access and governance? And most organizations today have a myriad of different products and aren't consolidated into any one vendor because, quite simply, not one vendor can do it all. And where they all got vulnerabilities is they do that at the application layer, the network layer, but they don't do it to the data object, and this is where our competitive advantage is. And with the introduction of TDI, Trusted Data Integration platform from the acquisition of Direktiv, we now can become that fabric, which enhances that value for the customer and provides a single point to manage and control and orchestrate policies across their entire security ecosystem to give them a zero trust fabric. That's really key. Kurt Mueffelmann: Then, I think the way we really drive that across the product lines is through policy. We've always talked about policy-based orchestration. And so when you look at data-centric policy orchestration, it really unifies these 3 different markets through a data control plane, as Dan talks about. It really abstracts the business and regulatory intent in the policy, evaluates the policy in real time. It drives that attribute-based access controls that we know we have out there. And the result is really this closed-loop security in real time, consistent decisions and really turned fragmented controls into a single operating control plane across all data, not just unstructured that we've been historically but across all types of data that are out there today. And so Dan, can you talk a little bit about and explain maybe what the control plane is because that will be a big vernacular aspect that we bring into the business as we move forward? Chun Leung Lai: Well, we see this race from all of these companies, Microsoft included, to be what they call the control plane. We see it with Varonis. We see it with BigID. We see it with Cyera. We see it with Zscaler. However, what they're really talking about is if you put all of your information into my cloud or my product suite, you can have a control plane. And as I just said, we're living in a hybrid environment and what they're not doing [ is that ] to the data. That's really hard to do. So we're not going to go out there and compete with CyberArk or Palo Alto or Cyera. What we're going to do is integrate with them and extend their capabilities across that hybrid environment by providing that policy. But if you're in a Microsoft environment, our platform might call and produce a policy to run NC Protect or it might take the CyberArk identity as a trusted identity and then put that into that process for SharePoint Online protection but also then extend that out to a data set in an AWS cloud environment. So we become the fabric that integrates all of those products that already exist to leverage that investment for our clients but also has the ability to integrate into any data source, any device, any structured data source, AI, particularly, which is really important with the advent of agentic AI and the usage of that. We're seeing now employees coming to the table and bringing their digital twin for -- as part of the interview. So this is changing very rapidly. And how do we protect that intellectual property and then also use that -- share that information with other organizations and still protect it? That's the play here. And I think we've got a very strong play. Kurt Mueffelmann: And I think what that does is it takes kind of where we are with best-of-breed products that are out there today across a number of different areas and pulls it into this data-centric or data security policy orchestration and control plane. And the individual point solutions, we address individual discrete problems such as data discovery, classification, enforcement, customers looking at ways of requiring unified layers, translating security, looking at what the business intent is and how you pull that all together. And really, this transition expands archTIS' addressable market, strengthens our strategic relevance within the hyperscaler without competition. It drives further government ecosystems across playing well and nicely in the same sandbox and creates that foundation for that durable platform level creation over time. And Dan, maybe you can talk a little bit about how the move from best of breed to platform is something that as we start to look at where we go over the coming horizons of the business itself. Chun Leung Lai: Well, all of this sounds very highfalutin. And when will that be? It sounds a bit like it's far out. It's actually not. What we've been doing is collecting companies that give us a best-of-breed solution, which -- and we've done that for any data-centric security problem. So we can now discover data. We can label data. We can actually then integrate it and provide enforcement controls, which is where our competitive advantage is. We can do that with using Direktiv as the foundation and adding our policy enforced ABAC controls into that platform. We now have the foundations to rapidly build out a platform offering for our customers. And these use cases that we did for BAE about integrating multiple parties and consolidating that information for manufacturing supply chain, the deployments that we're doing currently in the military for allied force integration, they're all providing the input into this and referenceability for the market. The acquisition of Spirion also gives us commercial clients to explore with these synergies and strategies. And we're expecting before the end of the financial year that we're going to have a minimum viable product for that platform to exist off and integrated with things like NC Protect and Spirion. Now what does that mean for execution for short-term revenue, medium-term revenue and long-term revenue where we believe we can really disrupt the market and become -- coexist with the big dogs and provide value add and really ramp up the ARR? Well, really, that comes down to these 3 horizons. And Kurt, you can talk about some of the opportunities here, but it starts with things like the U.S. DoD, winning NATO and Japan to get that referenceability and build along with them solutions for -- to implement that strategy with them. Kurt? Kurt Mueffelmann: Yes. I think what you find is that a lot of companies come out with these grandiose strategies, but they forget where they need to be and where they are, right? We're a public company. We need to report back to shareholders. We need to be very concerned about where our expenses go, our total cash runway. And our strategy, we're structuring it across these 3 horizons that really address immediate needs around, number one, defending and extending the base. We now have 200 customers that we can go in. We can do upsell, cross-sell. We obviously have some strong opportunities with the U.S. DoD, NATO and other coalition forces. So we feel like we can continue to drive really aggressive top line, be very conservative from an expense standpoint and really try to drive where we need to be in a business. But yet being in a competitive sector that we are, we need to look at where we go. And that next stage or next horizon is really taking that and building, as Dan said, the TDI into a policy orchestration engine but going through not only that from a technology standpoint, because it's easy to get lost in that, but taking what we've learned and taking it to the next level, expanding where we're going, taking that initial U.S. DoD opportunity and expanding it broadly into a broader 3 million to 4 million U.S. DoD licenses that are possibly out there today, continuing to work with the Microsofts, continuing to work with organizations that are coalition partners. We've had prior successes in the global DIB supply chain. How do we take that and drive that together? And then Spirion brings a whole different opportunity around regulated industries across state and local education, across health care, which is where one of our big pipeline opportunities is coming up. When we take that and take that into financial services and regulated industries there, you start to see where we can take that over the next -- between now and the next 18 months and then work towards that repeatability and commercialization that takes us to scale across the platform of where we drive that. So we think that there's some good opportunity. There's some good tailwinds behind us around zero trust mandates, driving that urgency, the compelling events around what customers are looking for. We're hearing that all the time. We're looking at how we take that and bring this to a simplified market opportunity that really leverages where we want to go, be strong today but drive towards the future to where we can start to look at and expand some of those market opportunities of valuation, driving shareholder value, which is one of the key opportunities that we need to consider on a daily basis, wake up every day and say what are we going to do to drive shareholder value and build the business and how do we maximize where our shareholders need to be as we go forward. Dan, any summaries on that? Chun Leung Lai: No. Look, I think the Horizon 1 is sell what we've got today. We're selling those best of breeds. We're doing that cross-sell. Horizon 2 is really about that orchestration, TDI sales. We know we've got a number of opportunities in the market. And it paves the way for that to become Horizon 1 pretty quickly. And that's really the progress that we want to make. And of course, this Horizon 3 is about the interfacing to those large, big dogs we've talked about, your Varonises, your Cyeras, your Zscalers. And of course, we've already got that relationship with Microsoft. So we see that as fueling the fire not only across defense and intelligence but also expanding us back into those commercial environments. Once we get that success there, I think it's going to really start to roll. So really important that we get the foundations right now, we get the strategy and the focus right now. I think the other part of this strategy is it really keeps you clear on what you're not developing, where you're not competing and where you do have to compete and win. And I think that brings us back to the focus that Kurt talked about, which is going to be key for our success as a small player and growing -- to get that growth strategy really, really running. Kurt Mueffelmann: Great. Why don't we turn it over to some Q&A, Dan? So we're talking a little bit about product strategy, and the big thing that's on everybody's front of mind is AI. So can you talk a little bit about how archTIS is using AI in product development? So I think this is a 2-phase question. How are we using it in product development, I think, to become more efficient? And how can we use that as market opportunities to sell more product and where we will be securing AI into the future? Chun Leung Lai: Okay. I can do that very quickly. So part of the integration with Spirion was to get a corporate AI from the development platforms and increased productivity from our developers but also particularly in making sure that our testing and quality assurance is being higher productivity and higher levels of assurance in that, particularly against security frameworks and security code and all of that sort of thing. So we're not only just using it in the business at all levels. We're experiencing that levels of how do we integrate this securely, and we are eating our own dog food first. So one of the great things about Direktiv, it was a really early product to secure, let's just say, a code from AI, particularly for defense environments. So it has been deployed to do that -- exactly that. So we have a demonstration being built today for how it would work with agentic AI. And the big challenge for adoption in most organizations are twofold for AI. The first one is compute capacity; and the second one, obviously, is security. There's no questions about the productivity gains people get. It's about how do I make sure that the productivities I get don't undervalue the business through a data spill. And that's the challenge that companies are looking at from the adoption. We certainly have already adopted it in our innovation framework, and we are building demonstrators much faster than we have ever done before to demonstrate the value of our products using AI. Kurt Mueffelmann: Great. Why don't we jump into -- there's a couple of questions around cash flow and the raise potential and what Regal facility adds to that. Could you interpret the Regal facility because you talk about nondilution funding and where that goes? And how does that come across versus what a traditional cap raise maybe look like? Chun Leung Lai: Yes. Look, I think we always keep all options as a Board on the table for making sure that we have runway as people -- as shareholders are referring to. Obviously, when we close some of these big deals that are in the pipeline, it's fantastic that you get a lot of cash in. You can do multiyear deals. You get a lot more cash in and you solve those issues, and you don't dilute your shareholders through any raises. There are a number of nondilutionary options out there, including the Regal debt facilities, which we've agreed the terms on. But there's also other options as well. So we're looking at -- to balance dilution versus strategic investment from raisers and if we have a partner that really wants to come and is going to be a long-term shareholder and can grow -- help us grow the businesses, we'll obviously look at that, too. But at this point in time, we've announced that debt facility because it is a nondilutionary way of extending our runway and ability. And look, we are just as frustrated as shareholders trying to pin down the U.S. DoD in a country. And I think everyone is clearly aware of the turmoil that's going on in the U.S. at the moment and a different day changes, a different decision from the President, which can backflip on a decision. It creates uncertainty. The business environment has uncertainty. That's the nature of the beast, so we're looking to protect that runway. However, the indications that we are getting from our customer is that this is the time frame that we are -- and that's all we can relate to you, and that's the expectation from us in terms of when we will get this deal done. Kurt Mueffelmann: So when we talk about the U.S. DoD, there was a question about do you see any licensing in the next 30 days because you talked about the different commands adding on and using some of the custom code that was delivered just recently and how they're going to go out and test it. What does it look like over the coming weeks or months from a licensing standpoint in your estimation? Chun Leung Lai: I'll talk people through that whole actual life cycle if you like. The first thing that you do with your customer is socialization, problem identification. Tick, we've done that. Compelling event established, tick, we've done that. In fact, not only has the President mandated zero trust across the federal government, the Department of War CIO has mandated and provided a date that this must be accomplished by -- which is 2027. So they've got real motivators to solve this problem. We know that we -- our product has got a sponsor, who has got budget and that we have to find the use case. We've done the proof of concept. We've done the customer identification. And in this case, that customer identification are those commands. We've done the security accreditation process. We've done the custom software development. We've done the licensing purchase for the trial, and that is where we are today, a 30-day production deployment exercise to those different commands, and that's what is being conducted. So do I see licenses happening in the next 30 days? No, I don't because we've got 30 days of that process to go through. I expect something to happen shortly after that and of course, given that there's the stability in the U.S. environment, the political environment, I'm saying there. So -- and then I expect us to be deployed, and then I expect us to be able to look at -- commence conversations on that 120,000 licenses that we expect to come through. Kurt Mueffelmann: Yes. And I think having feet on the ground here in the U.S. and having a little bit more, I think, insight, you hear these stories about a second government shutdown and what have you. The first government shutdown, it hurt more around the timing of getting things such as security certifications or what they call the STIG finalized. All of that blocking and tackling and ticking of boxes is done. The government shutdown should not affect any funding because we're dealing with frontline war fighter networks. We are actually right in the [ co-cons ] themselves, and those don't get affected by government shutdown from a funding perspective. Where a government shutdown could affect something is if someone needed to come back and said, hey, you need to revalidate this, what have you. And the person that's doing that revalidation is furloughed because of the government shutdown. I don't expect that to happen. Now again, silly if things will and have taken place before around government shutdowns, but number one, I think it's a stretch to have another shutdown. I don't think the politicians within the U.S. can go through that. They can't go through that for their constituents on either side of the aisle. So I think that will be a big challenge for them. And we've gone through a lot of the administrative stuff that would not be affected by a second government shutdown. And we know that the funds are there from a flow-down standpoint. We've seen them, and that's what we've been looking at as we move forward around the purchase around the -- extending the licenses themselves. So I guess, Dan, last question I thought would be good and this is kind of an interesting one. So we're at the beginning of 2026. When do you see or hope to see archTIS at the end of 2026? Chun Leung Lai: Look, obviously, where I see the business is that we're cash flow positive. We're starting to build that EBITDA up. I would love to see very, very strong new logos in that business with strong, sticky ARR, all the things that you're looking for, high gross margins, all of that sort of stuff. But I really think that what we want to be able to do is move out of that, really, survive phase where we sort of have been burning some capital for the opportunity to arrive. And I think we'll have transcended that into that. We've got our own destiny in our hands because we have had that success of those deals driving and expanding the growth of the business. So really, that's where I see the business at the end of these 12 months. You've seen the plan that we've just put up. It is an 18-month strategy. These are not long time frames. Technology moves far too quickly for us to have big 5-year plans and all the rest of it. AI is moving quickly. These are organizations moving quickly. And part of this is that exploitation of those strategic alliances. And that's something by the end of the year that I really want to see that we have this platform base, and we're starting to being sold and referenced by our alliance partners, those big dogs, and we're starting to access their customer base. And then I think, in 2027, it's about that growth story, a really strong growth story, and that's where I hope to see the business. Kurt Mueffelmann: No, great. Yes, I think it's -- the industry is moving very quickly. You see a lot of consolidation. You see a lot of money coming into the business, so we need to stay ahead of that curve. We need to drive this recurring ARR. We need to get ARR moving in a much more aggressive fashion. We can't be solely dependent on the U.S. DoD deal, right? We know that 8,000 users is not going to move the needle. That's not our expectation. What we do expect 8,000 users from a licensing standpoint is lean into a broader enterprise agreement. It also brings us back into how do we address what we're doing at the Australian DoD, where do we go with other coalition forces, whether it's in the U.K., Japan, Taiwan, Korea, across Western Europe and what have you, going back and leveraging that back into the various defense industrial base partners that we have and look at the primes of the Lockheeds, the Boeings, the Raytheons and carry that across into some of the prime delivery vehicles that are out there from a partnering standpoint. And then remember, we still have Microsoft out there. And there's been a lot of great meetings going on with them. We need to continue to drive that and really push that. And I think if we can accomplish those kind of areas across 2026, maintain costs, drive towards where we're going to be from a strong business perspective around cash, making sure our investments are providing returns, making sure that we have an understanding of where we're going from our overhead and operating standpoint, I think that would be a good year and drive that -- continue to drive that forward. So Dan, any closing comments? Chun Leung Lai: Might be in that top right-hand quadrant where people who go to those research organizations such as Gartner and Forrester, they're saying, these are the guys. And you want your customers to be saying these are the guys. And if we can get that by the end of 2026, happy days. No, I'd just like to thank everybody for attending. It's been a really dynamic last 3 months in terms of the integration and the repositioning, formulating our combined strategies, setting the sales targets and making sure that the sales force is executing and that being supported by the technical resources and then getting up to speed on the whole, I guess, the suite of the products that we now have. It's now going to be about -- probably all about focusing on that Horizon 1 and generating that ARR and revenue and setting the foundations with that Horizon 2 for that control plane to be established. Kurt Mueffelmann: Great. Well, thank you, everybody, for attending. I know Jane from JMM will have the recording available, and we're going to distribute that out. And so we'll be able to follow up on that. And please feel free to reach out to us through investors@archtis.com. So at this point, I'll turn it back to Jane for any closing comments. Jane Morgan: Yes, absolutely. Again, thank you, gentlemen, for the insights today, and thank you, everybody, for joining us. As Kurt and Dan have just mentioned, if we do have -- we missed any of your questions, reach out via the contact details, which can be found on the bottom of our ASX releases. But we look forward to hosting you again next time. Chun Leung Lai: Thank you very much. Kurt Mueffelmann: Thank you. Have a good day.
Unknown Executive: It's time for us to start the third quarter financial results briefing for fiscal year ending March 31, 2026 for LIXIL Corporation. This briefing is streamed live online. The materials for this briefing is on our website for the shareholders and investors. I would like to introduce to you the presenters. Kinya Seto, Director, Representative Executive Officer, President and CEO; Mariko Fujita, Executive Officer, Executive Vice President, CFO; Aya Kawai, Senior Vice President, Leader of the Investor Relations office. I will be serving as the MC. My name is Setoguchi from IR office. I would like to explain to you the proceedings for today. First, Fujita, the CFO, will be providing you the overview of the financial results for the third quarter. That will be followed by a presentation by Mr. Seto to explain to you about the earnings structure of LIXIL. The presentation will be followed by Q&A. We are expecting to end the session at 3:45 p.m. I would like to invite Mr. Fujita, the CFO, to give you the financial results briefing. Mariko Fujita: Hello, everyone. This is Fujita. I would like to give you the overview of the financial results for the third quarter. This is a summary of results for the third quarter. Core earnings is JPY 36.5 billion and EBITDA is JPY 98.4 billion. In Japan, LWTJ and Living have continued to do well with increase in revenue and earnings. The renovation products was robust even though the new housing demand was sluggish. As for LHT, it was on par with the previous year, both for the revenue and earnings. The subsidy eligible products contributed to the sales growth. In Europe, Middle East and India, has seen strong performance. The Americas and China's sluggish business had been covered by the strong performance from Europe, Middle East and India. So there was ForEx losses. And because of that financial cost had increased year-on-year. Just like Q2 the expense consolidated subsidiary decreased year-on-year due to changes in the corporate tax rate in Germany. Next, I would like to talk about the outlook for fiscal year ending 2027. This talks about business environment. Overall, the commodity prices are going up, ForEx as well as the government policies have changed from what we had first expected. The commodity prices had significantly increased. In January, there was a rapid increase. And it is hovering high. In Japan, new housing starts -- remain weak, but the subsidy for the window renovation would continue. As for Europe, we had expected in our road map that in fiscal year ending 2027, the housing market would recover, but the timing of the recovery is being delayed. As for IMEA, it's doing well, and China continues to be sluggish. Those are the outlook for fiscal year ending 2027. Next is performance highlights for the third quarter. Revenue decreased slightly, but core earnings increased year-on-year. Revenue was JPY 1,138.5 billion, core earnings and EBITDA as well as profit have improved. Next is consolidated business results. What I would like to highlight here is a gross profit. It was 1.3 points up year-on-year. Because of this, core earnings ratio had improved by 0.5%. And here is the overview of business results by segment. LWTJ performed well. And -- so the improvement in revenue in Europe and the Middle East has contributed, LHT improved and price optimization and renovation sales contributed enabling the segment to maintain the level from last year. Living, we saw a strong performance of the renovation area. And this is the business results by segment using the former segments, which I will skip. Next is consolidated financial position. And the assets in Europe, this has increase due to currency translation impact. Equity ratio is at 34.4%. Lastly is cash flow status as well as cash balance. And because of the accounts receivables and inventories increasing operating cash flow has decreased year-on-year. However, as for the free cash flow, we have been able to maintain the positive territory. So that completes my report. Thank you very much. Unknown Executive: Thank you, Ms. Fujita. Next, I would like to invite CEO, Mr. Seto, to talk about LIXIL's earnings structure. Mr. Seto, please. Kinya Seto: So we talk -- we have been talking about this to the investors as well as institutional investors, but I would like to give you more detailed information, so to avoid misunderstanding. So moving on to the first slide. Compared to EBITDA, the core earnings as well as the net profit tend to be lower. So that's our structure. However, this is because of large depreciation. In the past, we had used a lot of cash for acquisition. And because of that, our core earnings tends to be smaller because of the depreciation. So the tax expenses increase, it's due to the unoptimal tax management, but we do have cash at hand, and our strength is not shown in those numbers. So going back to Page 1. So in our case, PER, PBR, ROA, EBITDA multiple had not been explained in a coordinated manner. PER, because the profit seems to be low, it tends to be very high at 65x. PBR is 0.8x. On that matter, the -- there are assets which are -- with whose utilization is not high, but the -- it's generating cash. And as for ROA and ROE, the after-tax profit compared to cash, it is evaluated low on an accounting basis, and that has become a huge issue. So in improving these figures, so we would, of course, work to improve the business for the improvement of EBITDA. But at the same time, we -- there are -- we are looking at the assets which are not generating cash, and we will be sorting that out so that we can have improved efficiency in the assets. So the -- so there will be less difference between EBITDA and core earnings. And we will also work on to better manage taxes. This is something that we will be working in the coming 1 to 2 years. It's not just about improvement of EBITDA, but we will make reform so that we can have better core earnings. So EBITDA for cash earning power. I think that we are doing fairly well. This slide shows the comparison with competitors. On the far left is LIXIL followed by TOTO, then Takara, Cleanup, YKK. Compared to those companies, you can tell that EBITDA, the earning power that we have is very high. In the case of TOTO, they have semiconductor products. The -- so we are not able to make apple-to-apple comparison with our competitors, but our EBITDA level is quite high. So in the Masco, Fortune Brands, Geberit, those are the highest earnings companies and their EBITDA is high. But from FY '23 to FY '25, the reason for growth, you need to have some footnote. So Geberit is using Swiss franc and has been appreciated from JPY 140 to JPY 200 and euro is also being appreciated. So there are positive factors for Masco as well. The Fortune Brands, they are working centering around U.S. dollars. So the growth rate compared to the other 2 is lower. However, their profitability rate is very high, 70% gross profit for Geberit and Fortune Brands and Masco, and in the faucet, they are -- that's their main product. So we have a bigger line of product. So our EBITDA level is quite good. So Roca and Villeroy & Boch in 2025, you see a significant increase in the numbers. This is because they have acquired Ideal Standards. So Fortune and Masco, they have been growing because of M&A. So considering that our organic numbers is not bad. So our -- we want the world to understand our core earnings power. So we want to normalize our core earnings and EBITDA. And lastly, where we generate the EBITDA and from our perspective, we've been saying this, we have too much asset. And so we don't have to have too much capital expenditure. And investment was the software element like a brand or intellectual property or R&D-related investments. For those areas, they are essentially expensed. And because of that, they do lower the profit margin directly. But in the end, we are not investing in hardware, but we are investing in software that does linked to generating a large amount of cash in the end. So I'm sure some of you are fully versed in this type of information, so nothing new. But just in case, we wanted to provide this explanation. Thank you. Operator: Thank you, Mr. Seto. We would like to now move on to the Q&A session. [Operator Instructions] First, I would like to ask Fukushima-san from Nomura Securities. Daisuke Fukushima: This is Fukushima. I have 2 questions. My first question, the price strategy in Japan is my first question. As you have said at the onset, the commodity prices are going up. On the other hand, if we look at the competitive environment, YKK had acquired the subsidiary of Panasonic and there is a big company who would be competing against you, under that environment, how would you be pricing your products? How would you be profitable in that environment? Kinya Seto: So can I answer the first question? Operator: Yes, please. Kinya Seto: As you have said, what I am concerned the most about is the aluminum and copper prices, which have risen very rapidly. You may be aware of this, but it is not the increase in the demand. So there has been sluggish supply for aluminum [indiscernible] last year because the power -- electricity prices had gone up, they decided to conduct maintenance for a year. And Century, because of the operational issues, they had shut down and they decided to continue because of the electricity prices and also there is reluctancy from Rio Tinto. And the supply of aluminum to Europe had dwindled and the price increase, the premium had gone up. The -- so because that's the situation. And when the prices had gone up at this level for April, because we had assumed last year's levels, we have to think about whether we would be increasing the price. We have to think strategically and we have to think about the competitive environment. One thing that works in our favor is that we are using scrap to 80%. So there will be a time difference in getting the impact and the merger of YKK and Panasonic subsidiary. The -- it is not an increase in the competition because the lineup is separate and the number of competitors would remain the same. The competitors like YKK, so they were -- they had seen the less profitability when decided -- they decided not to raise the prices, but gotten the share. So for them -- so considering the business environment, I don't think that they would be taking that choice again. Daisuke Fukushima: Thank you very much. So from April, you will not be -- you may not be able to respond to the price increase, but considering the ratio of scrap, you would not be facing a situation where the profitability will be deteriorating rapidly, you would still have some time. Kinya Seto: Well, there will be deterioration in the profitability, but it would not be in the extremes. And also, we would be able to buy time to take new initiatives. Daisuke Fukushima: Understood. My second question, I would like to ask about the U.S. business. So the U.S. Standard, it is posting the ordinary losses and the operational losses and you would be stopping the outsourcing, and you would be making the improvements. But as for the sanitary ware, I think last time you said that you would be increasing the prices to improve the profitability. So I would like to know the progress towards the next term, how do you see the situation of the profit for the U.S. business? Kinya Seto: So having better product mix and better pricing that is being accepted in the market. So I think that the profitability will be improved but the environment is worse than what we had expected, and that's our concern. In terms of the deterioration in the market environment, One thing that concerns us is the ceramics and also the housing distribution is 30% less. And so there is an affordability issue. President Trump had said that he would be making huge announcement in January, but he has not been able to do much so far. So I don't think that there will be easy improvement in the demand unless something happens towards the midterm elections. The market recovery is being delayed than what we had assumed. But we have been taking measures for rationalization. So I think that we would be good for the next term. But for -- but the bathtub business losses would continue, so we would still be in difficulties, but we will be able to improve next year. The competitors for the U.S., like China or the Asian players. Daisuke Fukushima: So if they are not able to sell because of tariffs, are you -- have you been able to improve the share? Kinya Seto: Since November, we had seen increase in the share. So up to October, the inventories that the players had acquired before the tariffs had remained. But from November, we have been able to do take shares, but the demand is not increasing. So it's still sluggish. So thank you very much. Operator: [Operator Instructions] So Miki-san from Citigroup Securities. Masashi Miki: This is Miki from Citigroup Securities. I hope you can hear me. I'd like to ask 2 questions myself. The first question, you talked about the dispersing assets generating cash. But what type of the asset reserve are you thinking of right now? For example, structural reform in Japan. And from 2019, I think you've done something quite significant and you worked on the international after that. But -- so in the meantime, so you had inflation or interest rate increasing, which has caused the business environment to change quite significantly. So do we expect a very large structural reform in Japan domestically over the next year or so? That's my first question. Kinya Seto: So as we have announced recently that we're going to stop. This is a subsidiary for exterior works, and so we will stop the operation of this entity and we announced that this will be embedded into the LIXIL. But your question, it's very sensitive. So anything we haven't announced, we can't talk about, of course, because from our perspective, whether it be Japan, domestically or for international, as I said before, we want to look at those businesses with a very low level of asset efficiency. So we have this course of direction to try to -- we organized -- reorganized those or disposal of them. But even if the core earnings is negative, but we have already acquired, and we have already paid the cash. But on the other hand, the gas distribution is still being done right now. For those, we won't sell unless there are buyers for that. So it's difficult for me to give any further, I suppose, response in regards to your question. I hope you understand. Masashi Miki: Well, then for the second question. You did not adjust your -- the earnings forecast. So whether it be core earnings or the net profit when you look at the progress, and I think you are performing well against the full year plan. So why didn't you not make adjustments? And segment-wise, if there are any changes to the initial -- the forecast? And so JPY 45.5 billion, but the JPY 29.6 billion, there is the slowness in terms of progress with zero buffer. So maybe if you could at least explain about the situation there? Kinya Seto: So what we have not announced and we certainly cannot talk about, that's quite obvious. But for January to March quarter. Basically speaking, there are increasing, as opposed to uncertain elements. And the biggest one and the commodity price increasing to this level in January, this may have some impact on a short-term basis. We need to ascertain that. So that's one point. And subsidy in Japan, and decision has been made to have that being provided. But the next subsidy -- and for this year's, the subsidy starting in April, the details have not been finalized as yet. We have not been able to engage in activities on that at this point in time, not just the commodity pricing now, but whether it be Europe or U.S. or the world is seeing a lot of developments. But for the demand for the new builds, I think there is people are waiting for the new policy to be announced. And so how would that reflect into the fourth quarter numbers. We don't have, I suppose, the conviction on that as yet. And also something that I mentioned before, we need to implement various initiatives, address various things. And so jump into the conclusion, we can't announce what we don't know. That is where we have kind of arrived at. And the numbers right now is good. We -- and probably the numbers until now have been better than we had thought, but fourth quarter, this is going to be a quarter we need to be very careful about, be cautious about and this is as a result of the commodity price, the global situation as we have explained thus far. And also the new housing starts in Japan too. This year, so we expected about 2% decrease, but we saw a 13.7% decrease from April to November. And this is unlikely from the impact of amendment or Building Standards Act abolition article for special provision. So would there be a pent-up demand associated with going forward, would we see further deterioration of the succession from where we are? We don't the science of where we may end up with at this point in time. And also the general construction companies may be announcing this, but the projects are delayed all around the world. As of March, project that we had expected completion, but the Japanese general construction companies are saying that they are likely to be pushed back into April onwards. And the reason for that is lack of the craftsman and in the case of Japan, the facility providers lack capability or capacity, not being able to address the demand and so this is happening in other countries in different ways. So in the case of U.S., immigrant workers cannot go to the site of work, and that has led to the project not being completed, leading to delay in the case of Europe politically and, inability to make decisions. And there were -- there's been a lack of strong majority, have not been able to make decision about policies, which has led to delays in permit leading to the project delays. And so overall, there are projects being delayed. The demand does exist, but the projects are being delayed. This is also a worrying situation for us as well. Operator: The next question is from Goldman Sachs, Okada-san. Sachiko Okada: This is Okada from Goldman Sachs. I have 2 questions for you. As for the European market as well as the Middle East market. It is doing well in the cumulative third quarter, Germany and France, which are the central players in Europe. Overall, the economy is weak, is what I have heard. The growing sales growth is in the positive. But I would like to know the background to it. And France and Germany are sluggish. But would they be giving a negative impact to the overall business? That's my first question. Kinya Seto: As for the market in Europe, we have the same view. The reason why growing has been doing well is because of the high-end products like G4, G5 applied products, which are the color products. So the -- so it is replacing a Nickel-Chromium products. And even though the number of units does not change so much, the ASP is higher. And because of that, we have been able to grow in Europe. So going forward, the situation is mixed. So when we look at the project pipeline, we have a very enhanced pipeline but in Europe, the administration is unstable and the approval is now lagging behind in European countries. In 2026, we had expected that starting from April, there would be a recovery of the economy, but the policies, which were supposed to be in place is not in place yet. So we believe now that the recovery will be towards the second half of the year. Sachiko Okada: You talked about the earnings structure. And you talked about tax management. And with regards to that, you talked about the potential of divesting assets. But is there a need to have negotiation with the competent authorities or with the accounting firms, and the reason why the tax management is not optimal, it's probably because of the acquisitions that you have made in the past. But could you talk a little bit more about that? Kinya Seto: We are working for optimization in this area. We don't need to convince the tax authorities or the accounting firms. But when we had acquired the companies in the past, we did not think thoroughly and we were not able to get to the optimal tax management. So we would like to fix that. And we are not getting any warnings or anything from the tax authorities or the accounting firms at this moment. So how we distribute the product, how we allocate our technology. We need to scrutinize that, we believe that the burden is too high for Japan. So we need to sort that out. But to your question, we do not need to change the formalities that we have in place. But rather it will be about where to place the earnings and where to allocate the technology too. So we need to review those things. And it would take about 1 to 2 years on that. Mariko Fujita: Yes. I would like to make a supplementary comment on that matter. As Mr. Seto mentioned, so where IP is as well as how the distribution system works. So upon the acquisition, we were not able to structure it in an optimal manner. So we would work on to optimize that within our compliance framework and the tax expenses, which go beyond the effective tax levels, we would like to get it to the effective tax levels. Operator: So next question is from SMBC Nikko Securities, Kawashima-san. Hiroki Kawashima: This is Kawashima from Nikko Securities. I would like to ask 2 questions. The first question is in regards to the image for the medium-term performance, and so you shared with us the image for the 2027 and 2028, March and the outlook and the commodity and the market condition, I think you talked about that external environment remains to be tough, but positive impact internal factors, which is going well towards those -- if you could share some information in that regard? Kinya Seto: Well, things that's not going as well as back then. Well, the recovery in Europe the economic condition, this has been slower than what we had expected, but something that has performed better than we had expected that is conversion to the renovation business in Japan. And as I was explaining before, but the Japanese housing starts from April to November and the 8 months, it came down by 13.7% year-on-year, but we were still able to increase the revenue and profit. And the reason why we were able to do that was firstly, and this is something that we always talk about that the renovation business has higher profit margin, but SG&A also ends up being higher. And so that does have impact on profitability. So we were using AI or DX digital transformation, utilizing digital technology. And we have essentially worked on lowering the cost, which has enabled us to improve profit margin, and we've been able to do that in terms of demand cultivation, and we were able to secure an extension of the subsidies on this occasion. So given the backdrop for us how can we have the understanding of our customers in regards to the window renovation. I think we have a better idea as to how we can do this. So despite the poor market condition, we have been able to grow the Japanese business despite the headwind. I think this is a positive. And another positive factor and that's actually balanced against what is good, but China is probably worse than what you had expected, but we were able to see improvement in the middle and near East, which was able to offset that negative in China, which is a pretty good thing. Hiroki Kawashima: The second question, and I want to ask about numbers. In terms of the profitability structure as you have explained, right now, the depreciation is greater than investment and once they balance, then due to decreasing the depreciation and amortization, we expect there to be a profit improvement. But because of the FX impact, we are not seeing the decrease in differentiation and amortization cost. But in terms of the tangible asset, how many years are depreciated over, so that will have impact. But overall how long period can we see the balance between depreciation and investment and how -- do you have any numbers in mind of improvement? And so the depreciation of the acquisition of the tangible assets as reported in the financial statement. I think there is probably JPY 4 billion to JPY 7 billion -- sorry, JPY 6 billion to JPY 7 billion of the gap there. Kinya Seto: Well, it's not easy to respond because of various things. But from our perspective, the -- in terms of tangible fixed asset, what is the biggest factor for reduction and would be factory facilities. And there, from our perspective, and does relate to the previous question. But again, I can't talk about what we haven't announced as yet, but in Japan or in Japan and -- sorry, overseas as well to generate profit with a relatively small asset. That is the course of direction that we're trying to pursue. And so the facilities or the plants we have the possibility of being able to work on that aspect. It's not just the how many years that we have those plans are being depreciated over, but I think there are still a lot of room that we are able to work on to make improvements. But if I start to talk about numbers, I end up talking more specifics so I can't really do so. But we are looking at the greater number than what you have referred to in terms of reduction of depreciation expense. Hiroki Kawashima: So investment and the depreciation, it's not just the cycle there, but you're going to do something that is a little more significant. Is that right? Kinya Seto: Yes. Well, investment itself. So investment was a tangible asset, we are not thinking of doing anything major in that area. So conversely speaking, and by organizing the assets to an extent, we will no longer require maintenance investment for that, that would lead to a reduction in the amount of investment required. And so in that regard, so we already have a structure of being able to generate cash. And so in terms of accounting profit, in order for it to become more visible, I think there are things that we can do. Operator: We would like to move on to the next question from CLSA, Mochizuki-san. Masahiro Mochizuki: I have 2 questions. The first question is related to the outlook for the next fiscal year. I think you have given some tips today, but the business environment is very bad. So if we look just at the net profit, I -- is it okay to understand that the net profit may be in the losses. So I don't know about whether core earnings will be going up or not. But if you are going to conduct structural reform, then there will be costs associated with it. So I thought that you may be in the net losses, so regardless of the numbers. Kinya Seto: So well, we don't want that to happen. So in the past 2 years, we have worked on the areas where it would incur losses first in the past 2 years. So in terms of the structural reform, the area where we would work on, I would have less losses. And also, there are -- there is a possibility that it would generate the profit. So considering the net profit levels now, we cannot go lower than that. So we are not expecting the net profit to be in the negative, and we believe that we can increase the core earnings. But of course, the difficult environment continues. But what I would like you to understand is that this fiscal year, we had in a very severe situation even worse than last fiscal year. But we have been able to post better performance. In terms of next year, we don't believe it would be as difficult as the previous years. Of course, we need to wait and see how the commodity prices would impact us. But this is something that we have already experienced in the past. We would like to continue to work on things in a steady manner. Masahiro Mochizuki: My second question... Operator: Sorry, Kawai-san from IR has supplementary comment. Aya Kawai: So this year, there has -- a JPY 12 billion has been decreased from the tax system change, but this is one time. So it would not happen next year. So please understand that this JPY 12 billion is a onetime thing, which occurred this year. Masahiro Mochizuki: JPY 12 billion less tax. Aya Kawai: Right, that impacted net profit. But we would not have that kind of tax reduction next fiscal year. So please compare it to make the comparison without that JPY 12 billion. But we will not be decreasing the net profit. That's what we are aiming for. Masahiro Mochizuki: So the tax cost, onetime positive impact would not be there next year, but you want us to expect that you would work hard to improve your performance? Aya Kawai: That's correct. Masahiro Mochizuki: My second question is related to ROE. So Seto-san, you have said that we should look at EBITDA in terms of your earnings power? And the cost is different region by region under EBITDA, but the -- a lot of shareholders are focusing on ROA. And I think regrettably, that your level of ROA is still low. It -- so for the coming several years, I believe that it would be difficult to improve the ROE, considering the capital cost. Do you think you would be able to improve it? Kinya Seto: Of course, we believe that we can improve it. We would work on to reduce the depreciation and we will improve the tax management so that the net profit will be improved and thus better ROE. And also for the denominator, if we are able to sort out properly, we would be able to get better and ROE will be improved. But compared to capital cost, there may be some difficulties. So there are cash flows in the past, and how we view it is the issue here. For example, we had acquired something at JPY 10 billion, but the -- and the cash outflow is JPY 20 billion to JPY 30 billion. But the past cash outflow should -- it's a past cash flow. But if it's generating JPY 20 billion to JPY 30 million cash, that would be -- that's a good thing for the shareholders. And if it's in the negative like Permasteelisa, we should be divesting it right away. But even if it's inefficient, you -- it may be generating cash. And if it's hard to sell, we -- it may be better to keep it. So that's why I have been saying that please look at EBITDA. If we are to improve ROE, one way is to sell everything, which are inefficient, but that would not be at all positive for the shareholders. So of course, capital cost is very important to us, but capital costs should not be looked at just with snapshot. And so sometimes, we need to consider it as a sunk cost. So we should avoid the -- putting too much cost into the sunk cost. But Mochizuki-san, but I don't want to keep my company hovering low. And if it's optimal, we would be selling the assets where we can. So please monitor us. Masahiro Mochizuki: So we are supporting you, and I will do my best to write good reports. Operator: So next question is from Morgan Stanley MUFJ Securities, Yagi-san. Ryou Yagi: Thank you for the explanation. This is Yagi from Morgan Stanley MUFJ Securities. I have 2 questions. First question is regards to American Standard. So for the American Standard, if we only look at the third quarter, then the metal loss has deteriorated year-on-year. Now this is due to demand related reason only? Or is there other factors that has led to that result? And demand and forecast remains to be quite tough. But for next fiscal year to -- I think you expect a turnaround to generating profit, but based on the forecast right now, the timing of this, is it likely to be later than what you had initially considered. So please explain your thinking in regards to American Standard. Kinya Seto: As for the third quarter, what you said is right. Demand was quite significant. But another factor is that ourselves in the second quarter, we introduced a new system and the installation of the system did not go as well as hoped. And so there were delay in shipment to the customer. So that is what we have experienced in the second quarter. And so as a consequence, some of the orders were canceled in the third quarter. So we did have that kind of special reason. But the third quarter overall was not strong, mainly because of demand factors. And for the third quarter and the fourth quarter, home repair, the rose of Ferguson, they has downgraded their forecast more than we had expected. And so the demand is poor, that is without a fact -- without a question of fact. And that may have impact on turnaround next year. And so the fact that demand is weak. So we are implementing additional measures with that in mind, and that is what we are doing to reduce cost additionally. And so we don't feel that there is a need for us to change our position that we're going to achieve a turnaround next year. Ryou Yagi: If possible, anything you can mention in terms of measures to reduce cost? Kinya Seto: Well, sorry, I can't talk about the initiatives in that area. Ryou Yagi: Okay. My second question is in regards to your thinking about domestic business, so the new starts are quite poor right now, but the remodeling is quite good, but I can't really expect a significant increase in revenue. But in terms of the cost pass on, you have explained about this, but if this is delayed, then the impact of the cost increase, how can you offset that to achieve increase in profit going forward. So could you explain the factors to enable profit increase next fiscal year for Japan domestically? Kinya Seto: First, in regards to commodity pricing and just to make sure, aluminum and copper accounts for most largest portion, aluminum domestic, copper is more for international business. For international business, relatively speaking, we have G4, the product lineup, which is more premier and G3 is upper mass. This is also the main area. So it's easier to pass on cost. But for our medium product in Japan domestically on the other hand, so it's not that easy to pass on our cost. But our competitors, they didn't actually increase the price when a situation like this occurred, and they went after market share. But in the end, they did not really generate good business performance. So in that regard, from the number gains, and I think they will respond to that the next time. So that is likely to see greater progress in terms of the cost pass on. But for April, we have prepared until December to see the price increase. And so we probably have to do something additional to address that. Now in that regard, what can we do additionally? Well, what was successful in the past is for now, we have not been able to fully use our subsidy a couple of years ago. But last year, in the second half of the year, we were able to utilize the subsidy at quite a high ratio. So how can we consume a subsidy. We now know how to do that. So we should be able to make a good start post April with a new subsidy being provided. And we have this strength of the digital and AI progress. And so we still are able to generate profit even if we go to a smaller project, I don't think we have advantage of others in that regard. Operator: The next question from Jefferies, Fukuhara-san. Sho Fukuhara: This is Fukuhara from Jefferies. I have 2 questions. The first question. The raw material prices that you have mentioned, the copper and aluminum. Towards the end of the slides, there was a chart of the evolution of the pricing. And you also have written the assumption for those prices. So in the recent days, there has been rapid increase in the copper and aluminum. Could you explain about how much impact that there would be in terms of sensitivity of the price fluctuation in those raw materials. And in terms of the rapid increase of those raw materials, I would like to think that it would not be impacting the fourth quarter figures, but what's the situation? So please talk about sensitivity. Aya Kawai: Fukuhara-san, thank you so much. This is Kawai from IR office. And in terms of the sensitivity, we do not disclose that. So the -- and we do not disclose the amount of the procurement. So I would like to talk about that when you come for the IR meeting. Kinya Seto: So in terms of the fourth quarter impact, so the increase in the pricing in the third quarter will be impacting in the fourth quarter, and the price increase in fourth quarter will be impacting the first quarter. So when we look at the whole year, the project delays would be impacting the sales and the commodity prices, then will have a full effect in terms of the impact. So in terms of how much, well, we are calculating right now because this is ongoing in January. But what would be most beneficial for us is to increase the ratio of scrap. The scrap ratio at our company, the usage is a lot higher. So for aluminum, 80% is scrap. We had tried increasing the ratio, and we have experimented the 90% aluminum scrap ratio, and we have succeeded in that. So by using the scrap, we would be able to delay the impact of the price increase. So that would be a competitive edge for us. So under the current environment, what we don't know is the consumers' behavior, whether they would place an order before the price increase? Or would there be impact, more impact from the delay in projects. So there has been a rapid increase in prices of raw materials. So we have not decided the next step yet. That's my frank response to your question. Sho Fukuhara: Understood. My next question. So I think there are a lot of things that you still cannot say about the fourth quarter. But at the end of April, you have given us the outlook for next fiscal year in March. And for core earnings, you have eyed on JPY 65 billion, and you have not gotten to that level yet. So this JPY 65 billion in core earnings for the next fiscal year. To me, it seems that it's difficult to accomplish, but how close would you be able to get to the JPY 65 billion? Kinya Seto: I would not be able to provide an answer at this moment in time. But the environment surrounding us is changing and the delay in recovery of the European market is hurting us and also in the short term, the commodity price hike. And also, we did not envision that the new construction starts would be declined so much. And also now we have clarity to how we would be using the subsidy and also how we can reduce the cost in the renovation business is something that's more clear to us. And also in the mid- to nearest East, we are a forerunner there, and we are doing better than we had first expected in that market. So we would like to reflect that into the next budget. I am not able to talk about the specific figures because it would be misleading. Operator: So we have responded to all of the questions that we have been asked thus far. It seems that there are no further questions. So with this, I would like to conclude the Q&A part. So with that, we want to conclude the third quarter financial results for the fiscal year ended March 31, 2026, the analyst and investor explanation meeting. So thank you very much for your participation. The meeting is concluded. [Statements in English on this transcript were spoken by an interpreter present on the live call.]
Anders Edholm: Good morning, and welcome to this presentation of SCA's 2025 Year-End Report. With me here today, I have President and CEO, Ulf Larsson; and CFO, Andreas Ewertz, to go through the results and take your questions. Over to you, Ulf. Ulf Larsson: Thank you, Anders, and also from my side, good morning, and a very warm welcome to the presentation of SCA's results for the full year and the fourth quarter 2025. During 2025, SCA showed resilience. Despite increasing wood raw material costs, a challenging market environment and a currency headwind, we reached SEK 6.6 billion on an EBITDA level and by that an EBITDA margin of 32% for the year. Our high degree of self-sufficiency in strategic areas continued to be an important factor to mitigate higher costs. Harvesting from our own forest increased and reached 5.4 million cubic meters during '25, partly offsetting the higher cost of wood raw materials. SCA continued to gradually increase production in the sites where strategic investments have been made, and this has resulted in higher delivery volumes in comparison to last year, driven by the new paper machine in Obbola, the grading mill in Bollsta Sawmill, the biorefinery in Gothenburg and so on. These investments will contribute to increased productivity and cash flow generation during the upcoming years. The book value of SCA forest assets decreased slightly compared to last year and amounted to SEK 104 billion at the end of 2025. As you already know, SCA bases the valuation of the forest on complete transactions in the region where SCA owns land. Turning over to some financial KPIs related to the full year '25. As already said, our EBITDA reached SEK 6.6 billion for '25, which corresponds to a 32% EBITDA margin. Our industrial return on capital employed came out to 4% for the full year '25 and the leverage was at 1.7 after having finalized our big strategic investments. The proposed dividend for the AGM to decide on is SEK 3 per share, and this is in line with our aspiration to provide a long-term stable and over time increasing dividend to our shareholders. We handed out SEK 3 per share also last year. And finally, earnings per share was SEK 4.56. This slide will give you an overview of KPIs for the fourth quarter of '25, and our EBITDA reached SEK 1.2 billion during the fourth quarter, which gave us an EBITDA margin of 25%, driven by a negative currency effect and lower selling prices. Our net debt to equity remains on a solid level of 11%. I will now give some comments for each segment, starting with Forest. Stable harvesting levels from our own forest have contributed to balanced supply of wood raw materials to our industries during the period. We have seen a continuous long-term trend of increasing prices for both pulpwood and sawlogs and as can be seen in the graph in the bottom left. Regarding pulpwood, we have now passed the peak and prices have continued to come down during the quarter. Demand for sawlogs continued to be high, especially for spruce logs. When one compares Q4 '25 with Q4 '24, sales were up 10%, while EBITDA was up 3%, mainly due to higher prices for Wood raw materials. The storm in mid-Sweden during the end of the year had a limited impact on SCA land. We estimate that approximately 100,000 cubic meters has fallen. When we widen the scope to Sweden, we estimate that around 10 million cubic meters has fallen and the majority in Gävleborg and East Dalarna County. I guess we have also another 3 million to 4 million cubic meters in Finland. SCA will prioritize harvesting windfall volumes to support private forest owners, and this might have a minor impact on the total level of harvesting from our own forest during 2026. Harvesting activities in windfall areas will primarily be carried out from Q2 and forward. Windfall volumes will contribute to an increased availability of wood raw materials in this region. Over to Wood. And in general, we still have a slow underlying market for solid wood products. We continue to note signs of improvement in the repair and remodeling segment as well as a decreased production level in Germany, generating better supply and demand balance, especially for spruce. Stock levels remain on the high side among producers for pine, but are on normal levels for spruce. Stock levels at customers continue to be on the high -- on the -- sorry, on the low side. SCA had strong deliveries in the fourth quarter, resulting in a seasonally low stock level of sawn goods for us at the end of 2025. The price for solid wood products decreased by 5% in the fourth quarter of '25 in comparison with the third quarter same year. And this development is in line with what I said when I presented the report for the third quarter. As expected, the cost for sawlogs has increased from the third to the fourth quarter, and we will also -- we also expect them to continue to increase going into the first quarter '26. Sales were up 5% lower in comparison with the same quarter last year. EBITDA margin decreased from 17% to 6% due to higher raw material costs and the negative currency effect. Today's stock level of solid wood products in Sweden and Finland is described at the top left on this slide and is shown in relation to the average for the last 5 years. As mentioned earlier, we note that the inventory level is on the high side, especially for pine, while the SCA level is seasonally low. As can be seen in the diagram to the bottom left, the Swedish and Finnish sawmill production has been on a normal level during '25. In the diagram to the top right, we can note that the price decreased during the fourth quarter. The decrease in pine has been higher in comparison with spruce. Coming into the next quarter, I estimate the price on average will be unchanged in comparison with the fourth quarter with a stronger tendency for spruce related to a better balance. Going forward, we will closely monitor the market development in Continental Europe that is impacted by lower production, not the least in Germany. So coming over to Pulp. When comparing Q4 '25 with Q4 '24, sales were down 14%, mainly due to lower prices and a negative currency effect. The negative EBITDA development was also driven by lower prices and a negative currency effect. The cost for the planned maintenance stop in Q4 '25 was SEK 198 million compared to SEK 250 million in Q4 '24. Global demand for pulp was at a healthy level during the first quarter of '25. During the second quarter, the market changed with reduced demand and prices came under pressure much due to uncertainty related to U.S. tariffs. During the third and fourth quarter, prices on NBSK pulp was stable at low levels. On the demand side, we saw an increased activity in China. The weakening of the U.S. dollar in relation to the Swedish krona, which started already in Q1 continued to have a negative impact on the price in SEK also in Q4. Tariffs on NBSK pulp from the European Union to the U.S. were removed during the third quarter. This allows us to maintain a competitive offering to the U.S. Market rebates are expected to increase by low single digits in the U.S. and mid-single digits in Europe. PIX prices are expected to start to increase to compensate for the rebate. Looking at CTMP, prices were mostly unchanged in Europe and Asia at low levels during the fourth quarter. Inventories of softwood pulp were on the highest level during the fourth quarter. Hardwood inventories on the contrary were on average. CTMP inventories came down during the quarter to a more normal level. Moving over to Containerboard. Sales were up 8% in Q4 in comparison with the same period last year, driven by higher delivery volumes somewhat mitigated by lower prices and the negative currency effect. EBITDA was down by 6%, driven by lower prices and a negative currency effect. We have seen box demand moving sideways in Q4, but still with a positive development on a year-to-date basis of around 1.5%. The retail business remains a positive driver. On the other side, we continue to see a weak European manufacturing industry, which, for the moment, has a negative impact on the demand. European demand of Containerboard has developed like the box demand and has moved sideways in the last quarter compared to Q4 '24, but with slight growth for the full year. During Q4, we saw some closures of capacity in testliner, although not yet enough to balance the capacity started up in previous quarters. As can be seen in the graph, Kraftliner inventories remain above average level in Q4. Prices for brown kraftliner in Central Europe decreased during Q4 with EUR 20 per tonne, while white kraftliner has remained stable. We can see another negative price adjustment of EUR 20 per tonne in January. On the other hand, we now hear announcements of around EUR 100 per tonne price increase for testliner. And if that succeeds, I guess, we will have a price push also in kraftliner at the later stage. So finally, I will say some words about Renewable Energy. And in Renewable Energy, we have had a strong quarter compared to the same period last year, mainly due to higher production and stronger margins in our -- with St1 jointly owned by refinery in Gothenburg. In addition, we have had higher production and stronger deliveries in solid biofuels. Electricity prices continued to be low during the fourth quarter, but slightly higher than same period last year. Low electricity prices in the market impact on our wind business negatively, but is positive for SCA as a net buyer of electricity. SCA land lease business increased to 10.6 terawatt hours according to plan. This is equal to 20% of installed capacity of wind power in Sweden. The Fasikan wind farm was taken over by SCA by the end of 2025 and is now ramping up production. And with the Fasikan adding to our current power production within the group, we increased our self-sufficiency rate to approximately 100%. The market for solid biofuels in Northern Sweden continues to be weak but stable, and this fact increases our European export share and by that, a somewhat reduced margin. For liquid biofuels, we have seen continuous higher margins compared to previous quarters. And the main reasons for our European countries implementing RED III and better control mechanism within EU regarding imported products and feedstocks. And we expect market volatility in renewable fuels to remain high as Europe ramps up the blending mandates both in HVO and SAF. And by that, Andreas I hand over to you. Andreas Ewertz: Thank you, Ulf, and good morning, everybody. I'll start off with the forest valuation and the 3-year average price, which we used in the forest valuation to get enough transactions decreased by 4% to SEK 372 per cubic meter. The 1-year average increased slightly and the market activity during the year was on the normal level. The valuation of SCA's forest assets decreased to SEK 104 billion in 2025. The decrease in the 3-year average price was partly offset by continued increase in standing volume to SEK 277 million cubic meters. Biological asset increased by just below SEK 1.8 billion, driven by increasing long-term prices for raw materials and higher standing volume due to the net growth, while the value of the land decreased due to lower prices for forest land. Prices for wood materials continue to increase. The slide shows the index price development for sawlogs and pulpwood paid by SCAs industries delivered to site. Prices are at a record high level with a continued tight market for sawlogs, especially on spruce, while the balance of pulpwood has improved. If we move on to the income statement and focus on the full year to the right. Net sales were stable at around SEK 20 billion. Higher delivery volumes and higher prices were offset by negative currency effect. EBITDA increased 8% to just below of SEK 6.6 billion, driven by negative currency effects and higher raw material costs, which were partly offset by higher delivery volumes and somewhat higher prices. The EBITDA margin was 32%. EBIT decreased to SEK 4.4 billion and financial items totaled minus SEK 433 million. With an effective tax rate of just below 20%, bringing net profit to SEK 3.2 billion or SEK 4.56 per share. If we look at the fourth quarter to left, EBITDA totaled SEK 1.2 billion and was affected by a planned maintenance stop in Ostrand by SEK 198 million. Net profit for the quarter totaled SEK 485 million or SEK 0.69 per share. Looking at the dividend. The Board has proposed a dividend of SEK 3 per share, which is unchanged from the previous year. On the next slide, we have the financial development by segment for the full year. Starting with the Forest segment to the left. Net sales increased to just below SEK 10 billion and EBITDA increased to SEK 3.8 billion, driven by higher prices for pulpwood and sawlog and increased harvesting from SCA's own forest. In Wood, net sales increased to SEK 6.1 billion driven by higher delivery volumes and higher prices, which was offset by negative currency effect. EBITDA increased to SEK 856 million, corresponding to margin of 14% and was negatively impacted by higher cost for sawlogs. In Pulp, net sales decreased to SEK 7.1 billion due to lower prices and negative currency effects. EBITDA decreased to SEK 752 million corresponding to a margin of 11%. The decrease was mainly related to lower prices, negative currency effects and higher cost for pulpwood. In Containerboard, net sales increased to SEK 7 billion, driven by higher volumes from Obbola and higher prices. EBITDA increased to SEK 1.1 billion, corresponding to a margin of 16%. In Renewable Energy, EBITDA was stable and totaled SEK 442 million, corresponding to a margin of 22%. The market for liquid biofuels improved during the later part of the year, while electricity prices continue to be low. Moving on to the quarter. And on the next slide, we have the sales bridge between Q4 last year and Q4 this year. Prices decreased 6% with lower prices in Pulp and Containerboard. Volumes increased by 7% due to higher volumes in mainly Containerboard but also Pulp. And lastly, currency had a negative impact of 6%, bringing net sales to SEK 4.9 billion. Moving on to EBITDA bridge. Starting to the left, price mix, a negative impact of SEK 370 million, and higher volumes had a positive impact of SEK 77 million. High cost for raw materials had a negative impact of SEK 37 million, which was mitigated by high degrees of self-sufficiency in wood raw materials. We had a positive impact from energy of SEK 41 million and a negative impact from currency of SEK 269 million. Others was impacted by lower costs from planned maintenance stops. In total, EBITDA decreased to SEK 1.2 billion, corresponding to a margin of 25%. Looking at the cash flow. We had an operating cash flow of SEK 3.1 billion for the year and SEK 529 million in the quarter. And as you know, other operating cash flow relates mostly to working capital currency hedges and should be seen together with changes in working capital. Moving on to the balance sheet. The value of the forest assets decreased to SEK 104 billion, working capital decreased compared to the previous quarter but increased year-on-year to SEK 5.3 billion. In the quarter, we have increased our harvesting rights of especially spruce, sawlogs for 2026 from private forest owners, which increased both inventories and payables, but no impact on the quarter's cash flow. Capital employed decreased to SEK 112 billion and net debt totaled SEK 10.9 billion, and we have now almost finalized our large ongoing investment projects. Equity totaled SEK 102 billion and net debt-to-equity was 11%. Thank you. With that, I'll hand back to you, Ulf. Ulf Larsson: Yes. I mean, I'll try to summarize 2025. I think we have delivered a solid result given the current market situation. When we compare 2025 with 2024, I mean, we are negatively impacted by almost SEK 1 billion related to currency and also to raw material costs. On the positive side, now I can see that our strategic investments, they have started to deliver, and it's -- it will be interesting to see when we have a turning point in the market, what kind of leverage we will get from those investments. So by that, I think that we open up for questions. Operator: [Operator Instructions] We will now take our first question from Ioannis Masvoulas of Morgan Stanley. Ioannis Masvoulas: Just two questions on storm Johannes where you've given us some very useful color. But just to get your perspective on how things develop from here, assuming we do have the additional wood supply coming into the market, shall we expect to see an acceleration in the decline in pulpwood prices? And what would it mean for solar prices that have remained stubbornly high? And then second and related to the storm. Your costs, harvest costs were likely a bit higher in Q4 going into Q2 where you expect to focus on harvesting windfall volumes. How should we expect your harvesting costs to develop in Q2 and Q3 this year? And would that have a meaningful impact on your P&L? Ulf Larsson: Okay. If we start with the cost, I mean, as I said, not more than 100,000 cubic meters has fallen on SCA land. And of course, when you take care of that part, that will increase the cost, but that's a minor part of the harvesting we do on our own land. But for private forest owners, okay, we will have increase in costs. And typically, I mean, the forest owner has to pay for the increase in cost level. So that will be no major impact on SCA in that perspective. When it comes to prices, I mean, as you say, for pulpwood prices, they have already start to decline, and that will step-by-step come into the accounts of companies as we have. I mean, we have a lagging effect, of course. But that will continue and maybe it will also -- yes, I mean it will not be -- pulpwood cost will not be -- that will be positively helped by the storm, that's for sure. When it comes to sawlogs, I guess the main part of what has fallen is pine. And maybe we start to see decreasing prices for pine and that will also, I think, after a while, come also for spruce. But during the first quarter, at least for SCA, I mean we have to take care of what we bought already in the fourth and third quarter. And that means, increasing sawlog costs in the first quarter. But then I guess, we start to see some decreases also for sawlogs. But as it is just now, I guess it's an oversupply. It will be at least in the second quarter an oversupply of pulpwood while it will be a little bit more stabilized situation for sawlogs. Ioannis Masvoulas: Okay. And sorry, just -- sorry, go on. Ulf Larsson: No, that's my view, more or less. Ioannis Masvoulas: Very useful. And so, just one follow-up on pulpwood. What sort of cost development into your industries shall we expect for Q1 versus Q4? Andreas Ewertz: Yes. On pulpwood, it's a low single-digit decline, around 2%. Ulf Larsson: But on the other hand, for sawlogs, I guess, we will have almost an 10%... Andreas Ewertz: Yes, 7%, 8%. Ulf Larsson: 7%, 8% price increase. And then step-by-step, we will see reducing prices. Operator: And we'll now take our next question from Charlie Muir-Sands of BNP Paribas. Charlie Muir-Sands: Just firstly, on currency, I know you gave the -- in the statement, you gave the average hedging rates. It looks like those are still meaningfully ahead of latest spot market rates. So as things stand, should we continue to expect, sort of, a sequential currency headwind over the next couple of quarters, I guess, particularly on the pulp segment given the movement of the dollar? And then secondly, I'm sorry if I missed it, but have you given or can you share your thoughts on CapEx for 2026? And any early thoughts on where that might go to in 2027 as you complete wrapping up any final expansionary projects? Andreas Ewertz: Yes. So, I'll start with the currency. You're absolutely right. We have -- I mean, for next year, on average, we hedge about 50% of our net currency exposure. So once those hedges goes out, of course, if the dollar stay at the same level, that will be a headwind. And if you look at our dollar exposure, if you include the indirect FX, meaning that we might sell in SEK or euro in pulp, but the price also depends on the fixed prices in dollar. If we include that indirect effect, our dollar exposure is around USD 700 million per year. And then on the CapEx side, our early estimate is around -- on current CapEx is around SEK 1.5 billion for next year and strategic CapEx, we have some spillover from this year to next year, suspecting that to be around SEK 400 million, maybe SEK 500 million. But after that, I mean, we have finished basically all of our strategic CapEx that we've currently decided on. Charlie Muir-Sands: And then just briefly on pulpwood, as you've acknowledged, it's coming down. I just wondered, are you seeing at all any of your customers start to pressure you to pass those costs on in terms of lowering your prices in any of the industrial output grades? Andreas Ewertz: I mean, prices are already very, very, I mean, low at the moment for our finished products. I think this lower cost will, of course, help our margins. Operator: And we will now take our next question from Robin Santavirta of DNB Carnegie. Robin Santavirta: First question I have is related to harvesting volumes. You have nicely increased those in line with your guidance a few years ago and land at 5. 4% now in 2025. What is the best guess for 2026 and 2027? Is it roughly harvesting volumes in line with what you achieved in 2025? Or is it higher or lower? What are the key, sort of, reasons for that? Ulf Larsson: So, if we start with that one. I mean, we will -- I guess, we might see a minor decrease from our own forest as we now have to support private forest owners in our region, and we have some also agreements in place already, which is long-term good for us. I mean, we will place some of our resources in South from Sundsvall in Gävleborg and even further south to help it. I mean, 10 million cubic meter in a rather limited area, that's quite a lot and that will, of course, need some extra resources to take care of it. And we also have -- we have to fight against the time because now we had more or less 1 meter snow, which -- I mean, it's not too easy to go in there and start to do the harvesting operations. So, I guess, we will have a peak in the second quarter and as fast as possible to avoid getting the wood destroyed, blue stain and things like that. So that might have a minor impact on the harvesting volume from our own forest -- on our own forest. Robin Santavirta: So for the full year, roughly the same or slightly lower, perhaps? Ulf Larsson: Yes. I mean, it is around this level. Robin Santavirta: All right. In terms of the European softwood pulp sales, can you shed some light on the discounts you have agreed for 2026, helping out with modeling here. And also in terms of the lease prices, where are they now at the end of January? And what's the outlook for the next month or 2 months? Just so we understand how the net price of the outlook is? Ulf Larsson: Sorry, I didn't get it. Was it pulp or was it solidwood products? Robin Santavirta: Yes, on pulp. I guess the discounts, the annual discounts for the year gone up a bit. Ulf Larsson: Yes. You're right. I mean fixed prices, they were on 1,500, and now they have started to increase. And I guess we will end up in 1,550, maybe at the end of January, and we start to -- by that start to compensate for increasing rebates. But we will, as you can calculate, we will not do it in one quarter. I guess, we will see another price increase in February. And I guess also, we will see a third price increase in March. And at that time, I guess, we have at least compensated for increasing rebates. But that's the case. So, if you compare sequentially, if you compare Q1 with Q4, I guess we will have a lower price. We will have a lower price in Q1 in comparison with Q4. And in addition, you also have a stronger SEK against dollar, which have an impact also. That's harder to predict, but that's the case as it is just now. Andreas Ewertz: And then Ulf guided previously on that the rebates in the U.S. is -- increases low single digits, while in Europe, it's mid-single digits. And that's the general market rebates. Operator: And we'll now take our next question from Johannes of SB1 Markets. Johannes Grunselius: Yes. It's Johannes. So I have two questions. The first one is on Containerboard. You did pretty well on volumes there or shipments, at least compared to my expectations. Could you share some color on that, sort of, ramp-up of volumes? And were you able to sell the new incremental volumes at market terms? Or were you -- did you have to, sort of, give hefty discounts there? If you could give some color there, please. Ulf Larsson: Yes. I mean, we are happy with the ramp-up in Obbola. And as I said also before, we are close to 600,000 tonnes in 2025, which is according to plan. So, we are -- we will continue that work also going in now to 2026. And I mean, it's more a question about mix. I mean, as it is just now with the current market situation in Europe, it's not possible to deliver the extra volume, so to say, in Europe, so that we have to find places overseas. And by that, of course, we have as it is just now substantially lower margin. But again, our main focus just now is the ramp-up. And then I guess, we are looking forward to the point when the market turns because then we will have a good leverage also from those volumes. But as it is just now, we are impacted price-wise due to the mix, geographical mix. Johannes Grunselius: Okay. That's clear. My second question is more on capital allocation. And of course, this is more of a question for the Board, but I try to ask it to you, Ulf, anyway. But the sort of SCA's way of distributing cash to shareholders has always been traditional dividends. But in the light that strategic CapEx is now coming to an end and in light of the share price valuation, are you increase -- do you have, sort of, more intense discussions about share buybacks going forward? If you can elaborate on that question, please? Ulf Larsson: I mean, as you say, that's a question for our owners and the Board. And I think it was a sign of stability to keep the dividend at the level we had last year. And I mean, that's a sign of -- we believe -- I believe that we are now at the bottom of this business cycle. It's volatile, and now we are at the bottom. And also, I mean, we know that we are well prepared when the market turns. We have done big investments now, and we have ramped up them in a rather good way. And we are looking forward now to see increasing prices and then leverage from those investments. And as Andreas said, I mean, we have no big investments in plan now coming years. So I mean then, then let's see what kind of discussion we will have at that time. But for now, I mean, we are happy to deliver the same dividend as we did last year. Operator: And we'll now take our next question from Oskar Lindstrom of Danske Bank. Oskar Lindström: Three questions from me. The first one is actually carrying on from Johannes' question a little bit here about capital allocation, but I'm not going to ask you about the share buybacks. I mean, given kind of weak markets, structural challenges and that the Energy segment, at least my book presumably is attractive as it did a few years back. Where do you see your potential to sort of structurally grow earnings in the coming years? I mean, where could you invest to drive your growth? That's my first question. Do you want me to ask the other ones as well? Ulf Larsson: No, if -- we can take the first one first, I'm happy. I mean, again, as we said, I mean, just now, we are in a challenging market environment. As you know, we have done a lot of big investments. We will grow our volumes. We have been growing our volumes also in both '24 and '25. And I mean, just now, we are 100% focused on delivering on those investments. I mean, of course, we will come back when this is fully ramped up and when we have started to see a slightly better market and by that also a strong cash flow, then I think it's the time to come back to the development. But just now, we are so focused on, do what we have started, to finalize what we have started. Oskar Lindström: Yes, right. My second question is maybe for Andreas. Is there any impact from loss of emission rights on earnings in Q1 or for full year 2026? And if so, how much? And where have they been reported so far? Andreas Ewertz: Look, we will have an impact if you look at '25 compared to '26 as now the new emission rules, ETS, is in place. That means that, if you look at our four big mills, Obbola and Ortviken will still be part of the ETS system, while Ostrand and Munksund, they are too good in their emissions. And therefore, they will strangely be removed from the system. On Ostrand, we don't have a surplus. That doesn't matter. But on Munksund mill, we will lose our emission surplus, which is about 100,000 tonnes of emission rights each year. And then if you look historically back, publication paper, Ortviken was the biggest receiver of emission rights. But that, we divested in -- or closed down in 2020. So that had the biggest impact, but now Munksund will be removed for next year. Oskar Lindström: And if I may just ask a follow-up on the Munksund. Have you been selling those, the full sort of all the emission rights that you've been given each year? Have you sold them each year? Or have you built up a backlog? Or how should we calculate that? Andreas Ewertz: We've usually -- some we sell internally to our logistics department, especially with 2025 when you have to have -- also buy emission rights for -- in the transportation sector, and the rest we have sold. So we will sell, we will lose 100,000 tonnes going forward. Oskar Lindström: So we should assume, sort of, loss of 25,000 tonnes per quarter times whatever the average price was for emission rights? Andreas Ewertz: Yes. That's correct. Oskar Lindström: All right. Just a final question, if I may, on, I guess, the Wood segment. You mentioned this sort of dramatic or lower harvesting levels in the Central U.S. I presume it's as a consequence of the bark beetle infestations there. So two questions there. How dramatic is this decline in harvesting levels in Central Europe? And is there any sense that this is impacting or will impact the sort of the long-term timber and sawn timber supply for that region? Is it's the competitor that's disappearing? Ulf Larsson: Yes. I guess, I mean, we see also as it is just now, the spruce market is substantially stronger than the pine market, and that's due to the balance, I would say. And the production level in Germany has been also lower for a while now. And I guess, one part of it is that it is trickier to get access to sawlogs and, of course, when you have a tighter balance, you have to pay more. And then as it is a marginal business, I mean, then they have in some areas taking curtailment. So the long-term effect, I mean, I don't -- typically, I guess, it will be tougher to get access to raw material in that area, especially in the Eastern part, where they were heavily hit by the spruce beetle and that is also -- I mean, long term, the estimation we've done is that we will have a strong balance for -- as a producer, we will have a strong balance for solid wood products going forward. But then, of course, it's also a volatile business. It will be impacted by the current business cycle. But we believe that solid wood products will be rather strong going forward as the material is needed, not the least. If we shall have a chance to mitigate the climate change and so on, I mean, we have to use non-fossil products, and that will be -- that will be good, I think, for that business going forward. Operator: And we will now take our next question from Andrew Jones of UBS. Andrew Jones: A couple of questions. First of all, on Containerboard. Obviously, we've seen some price hikes announced by some of recycled players. I'm curious what you make of the potential for price increases in the current market given the demand situation and oversupply? I mean, is there more potential in kraftliner, maybe given the market is a bit more balanced there? And my second question is on forest valuations. I mean, given, obviously, wood prices potentially coming down and obviously, rates going up as well. I mean, what are you seeing, hearing in your regions in Sweden in general on the sort of trends for valuations? Are you concerned about sort of more negative valuations as we go into 2026? Ulf Larsson: I'll take the Containerboard market first. I mean, as I said, I mean, we have seen now some announcements. I don't know if testliner producers, if they have come through with price increases, but they have asked for EUR 100 per tonne, and they certainly need it as I think that many testliner producers, they are bleeding just now. Short term, we have seen gas prices coming up 35%. OCC prices still on the same level, but typically, they -- I guess they will also start to ask for more if testliner producers will come through with their attempts to reach higher prices. And when that happens, then, of course, that will give price push also for kraftliner in a later stage. And I mean that is now needed in the market. But I guess we have a chicken race out there. There's a lot of capacity is coming on stream for testliner. And so, I don't know when it will happen, but it will happen, and we are at the bottom just now. That's my estimation. Andreas Ewertz: Yes. And if you look at the forest valuation, I don't want to speculate going forward. But if you look at 2025, activity was a normal basis and the 1-year average increased slightly during the year. And for next year, we see, in general, that the Swedish economy is improving. Wood raw material prices are coming down a bit. But usually, I mean, when you buy a forest asset, you have 100-year view on the forest prices or the wood raw material prices. So it's not -- I mean, it's the general long-term view that's the most important. But we'll have to see. But this year was slightly up on the 1 year average, but the 3-year average declined. Andrew Jones: Yes. Okay. That makes sense. And actually, just a follow-up on the wood prices. I mean, you're talking about relatively modest declines, obviously, prices being pretty flat so far for pulpwood. Given the decreases we've seen in Finland. I mean is there any -- I mean, I would assume that Sweden would have followed to a greater extent already. Is there anything stopping prices sort of gapping down lower given the potential for arbitrage across the border? I mean, what's the -- what's are the thoughts there? Ulf Larsson: Sorry, what was it wood raw materials? Was that pulpwood? Andrew Jones: Yes. Ulf Larsson: Pulpwood, yes, but I mean, we have seen pulpwood prices fallen also in our region. And as Andreas said, I mean, we will see some of it also in Q1, I guess, for pulpwood. Andreas Ewertz: But it's this lag effect because, I mean, you buy on stumpage what -- I mean, what we harvest in Q1, we bought in Q2 and Q3 and Q4, you had this delay effect because you buy stumpage to write the harvest from the private forest owner. Ulf Larsson: And also, you cannot just follow-up public announcements as you also, on top of that, have different premiums and things like that, which is individual for each buyer and for each market and so on. So, I mean, what you see announced will not be the -- exactly the same effect that you will have in the account, I guess. But you always have this lagging effect. But we are -- we have the same journey. And of course, now boosted by the windfalls we've seen in our region that will come -- that will also have definitely an impact on pulpwood prices. Andrew Jones: And actually, just final one, just on context. I mean, what is the total size of the market in Sweden in terms of pulpwood consumption per year? I mean, how significant is that in the broader market? Andreas Ewertz: I'm not sure. We have around 10% of the forest assets in Sweden, and we harvest around 5 million cubic meters from our own forest each year, just to have some kind of ballpark. Ulf Larsson: But was it the total harvesting volume in Sweden, was that the question? Andrew Jones: Yes, exactly. Ulf Larsson: Yes. It's -- okay, sorry, it's around 85 million cubic meters per year. Andrew Jones: Okay. So it's roughly 10% additional supply? Ulf Larsson: Exactly 10%, 15% -- 10% between -- I guess, it will be 15%. And then also in addition, you have 3 million to 4 million cubic meters on the Finnish side. Operator: [Operator Instructions] And we'll now move on to our next question from Cole Hathorn of Jefferies. Cole Hathorn: I'd just like to follow up on sawn wood business. I just missed your commentary on what your expectation is of price declines quarter-on-quarter into Q1? And just on your sawlogs, I know you said they were -- they're going to be up around 7%. But just to clarify, that is Northern Sweden, I imagine the rest of Sweden sawlog prices are lower, just a clarification there. Ulf Larsson: Yes. I mean, starting with the price development for Finnish products. As I said, from Q3 to Q4, we had -- the average price was down 5%. From Q4 over to Q1 2026, I guess we will have a flat price development. But what we didn't expect really was the -- we have had another impact from -- negative currency effect impact, of course. But I guess it will be close to zero. On the other hand, for us, as I said, we will have close to -- yes, 7%, 8%, you said, increasing log prices. And I mean, we cannot comment what will happen in other parts of Sweden, I guess. The reason for that for us is that we thought it would be a very tight situation coming into the first quarter, not the least for spruce log. So we bought rather big volumes in the fourth quarter. And I mean, we couldn't know or expect that we should have a big windfall in our region between Christmas and New Year. And if we would have knew that, then, of course, we should have acted differently. But now we have to take care of what we bought. Cole Hathorn: Also, and just a longer-term question on wood products. I mean, we've seen CBAM boosting the cost of cement, the cost of steel, import restrictions, increasing prices of these construction raw materials. Do we see wood as kind of an underappreciated beneficiary? When do people look at the construction costs of sawn wood and say, we should start using more of this product? Or is that just too far away into the future? And then following up on Containerboard, we've seen some of the U.S. players talk about slightly better order books, slightly better demand. I'm just wondering, are you seeing any more positive trends in the containerboard and bauxite at this stage or not yet? Ulf Larsson: I mean, starting with solid wood products. I guess, we are pretty positive to the future market for solid wood products. Then again, it's always a balance between what you have to pay for the raw material and what can you get out from the market. As you know, more than 70% of the cost for the sawmill is related to the raw material, of course. But I mean, we feel that the demand for solid wood products is -- I guess it's okay as it is just now, and we see an improving trend also for coming quarters now. And let's see where we will end up. But... Andreas Ewertz: I think, Q2 is usually typically a stronger quarter. Ulf Larsson: Structurally, I think that, I mean, in many cases, people have tried to turn from -- also from fossils over to non-fossil materials. And I mean, that will also benefit the solid wood business going forward. So I think we are positive long term in this field. And then about Containerboard. I guess, we had -- if we look into last year, I mean, the consumption was up 1.5% during last year. And also when you look at the box demand, as you saw maybe on the slide I did show, I mean, you have a positive -- the trend is positive. Then again, I think what is harming the balance just now is that we have seen a lot of new capacity coming on stream, not for testliner. I mean, the only capacity in kraftliner is what we are providing the market ourselves in -- from Obbola. But otherwise, in testliner, we've seen a lot of capacity coming on stream. Some has been closed, and I guess some more capacity will be closed. And I guess we have, for that reason, a little bit of chicken race just now out there, and let's see where and when that will -- how and when that will end up. So I guess, but then you asked about consumption. Honestly, I don't think -- I think we are -- it is a rather slow market out there, at least for us being in Europe and might be a little bit better in U.S. and also in other regions, we have a slightly better demand. But again, the price is, of course, lower when we have to go overseas with our volumes. So that is -- and that has also impacted the result for us as we are now ramping up Obbola. That was not a very clear answer, but it was a trial at least. Operator: And we will now take our next question from Pallav Mittal of Barclays. Pallav Mittal: I have two of them. So firstly, can you talk a bit about the adverse mix impact that you highlighted for your pulp and the containerboard business, especially over the last couple of quarters? And do you expect that to continue in 2026 given the weakest demand that we are seeing in Europe? And just to follow up, what are your expectations on CTMP pricing in the near term? Ulf Larsson: Did you get the first one? Andreas Ewertz: Can you repeat the first question, please? Pallav Mittal: Just asking about the adverse mix impact on your pulp and containerboard business? Andreas Ewertz: Okay, yes. Okay. Yes. So, what we saw in -- especially in Q4, as Ulf mentioned, we had lower delivery volumes in Europe due to a weaker market, which means that we sold a larger part in Q4 in overseas market. And I think that was partly because -- I mean the weak market, but also because that customers knew that the rebates were going to increase at the beginning of the year. So they ordered as little as possible, of course, during the quarter. As you know, the rebates were kicking in the 1st of January. So I think you might have some positive effect there, but the weak market. I mean, we still expect that in Q1. Ulf Larsson: And the second one was around CTMP. I don't know if I get you right. But I mean, the demand is still slow on CTMP. And I think we and also other producers are -- we are taking curtailments now when we have a high energy price. And so, I mean, we do a marginal calculation. And by that, we have reduced capacity as it is just now from Ortviken. Price-wise, we have not seen any increase in rebates in '26 in comparison with '25. So the price is more or less sideways. And the business we have in Europe is, it's okay. But then again, it's tough for us to come from Europe over to Asia not the least and make some money on it. So, we monitor this carefully, and we do this marginal calculation where we have to calculate on the marginal wood cost and also marginal energy cost for CTMP. Pallav Mittal: Sure. If I can just squeeze one more in, and this is regarding the first quarter of '26. I appreciate there are a number of moving parts. But can you help us understand, I mean, sequentially, how we should think about the first quarter, especially given the declining prices, negative effect but some support from the pulpwood cost side of things. So is it fair to assume a very similar EBITDA in Q1 despite having a zero maintenance? Andreas Ewertz: Yes. So we won't -- we don't give direct guidance. But if you just look at the moving parts, we had a maintenance stop in the fourth quarter, and we won't have any maintenance stops in Q1. On the pulp side, we see no maintenance stop, but the increase in rebates and negative currency effect as a negative and as a positive slightly lower pulpwood costs in containerboard. It's, as Ulf mentioned this in the beginning of the quarter, this minus EUR 20 per tonne in prices. And then we'll have to see if this testliner prices goes through, that might have a positive impact if you go through that at the end of the quarter or Q2. And then in solid wood products, we see fairly stable prices, a bit better on spruce, but increasing sawlog prices. And then in Forest, we harvest seasonally a bit lower in Q1 compared to Q4. And then other costs, OCC is slightly cheaper. Also transportation cost has go down slightly. Operator: And we'll now take our next question from Alexander of Pareto Securities. Alexander Vilval: Just a quick question regarding harvesting. If you could elaborate a little bit on expected -- the harvesting volumes sort of in the next few years? And also with regard to biological assets, what kind of long, sort of, term growth rate you see regarding harvesting specifically? Ulf Larsson: I mean, as I said, I mean, this year, we reached 5.4 million cubic meters. And I guess, next year, we will -- yes, if not do that as we have to support some forest owners in windfall areas, we will do that, of course. But I mean, we will remain on around 5 million cubic meters. So that's it. Andreas Ewertz: And on biological assets, we -- it will -- we expect it to be slightly lower, the revaluation, next year compared to this year. But we still have -- I mean, we look at the long-term average trend price of wood raw material prices, and that will still increase even if the prices go down next year, the long-term average will still go up. But impact will be a bit lower next year compared to this year. Alexander Vilval: And on volumes in that calculation? Ulf Larsson: In the volume term. Andreas Ewertz: No, the prices will go up and the volumes is based on our latest harvesting calculation, that would be unchanged. Operator: That was our last question, and I will now hand it back to the host for any closing remarks. Anders Edholm: And that concludes our presentation of the year-end report. Welcome back in April for our first quarter report. Thank you, ladies and gentlemen.
Anders Edholm: Good morning, and welcome to this presentation of SCA's 2025 Year-End Report. With me here today, I have President and CEO, Ulf Larsson; and CFO, Andreas Ewertz, to go through the results and take your questions. Over to you, Ulf. Ulf Larsson: Thank you, Anders, and also from my side, good morning, and a very warm welcome to the presentation of SCA's results for the full year and the fourth quarter 2025. During 2025, SCA showed resilience. Despite increasing wood raw material costs, a challenging market environment and a currency headwind, we reached SEK 6.6 billion on an EBITDA level and by that an EBITDA margin of 32% for the year. Our high degree of self-sufficiency in strategic areas continued to be an important factor to mitigate higher costs. Harvesting from our own forest increased and reached 5.4 million cubic meters during '25, partly offsetting the higher cost of wood raw materials. SCA continued to gradually increase production in the sites where strategic investments have been made, and this has resulted in higher delivery volumes in comparison to last year, driven by the new paper machine in Obbola, the grading mill in Bollsta Sawmill, the biorefinery in Gothenburg and so on. These investments will contribute to increased productivity and cash flow generation during the upcoming years. The book value of SCA forest assets decreased slightly compared to last year and amounted to SEK 104 billion at the end of 2025. As you already know, SCA bases the valuation of the forest on complete transactions in the region where SCA owns land. Turning over to some financial KPIs related to the full year '25. As already said, our EBITDA reached SEK 6.6 billion for '25, which corresponds to a 32% EBITDA margin. Our industrial return on capital employed came out to 4% for the full year '25 and the leverage was at 1.7 after having finalized our big strategic investments. The proposed dividend for the AGM to decide on is SEK 3 per share, and this is in line with our aspiration to provide a long-term stable and over time increasing dividend to our shareholders. We handed out SEK 3 per share also last year. And finally, earnings per share was SEK 4.56. This slide will give you an overview of KPIs for the fourth quarter of '25, and our EBITDA reached SEK 1.2 billion during the fourth quarter, which gave us an EBITDA margin of 25%, driven by a negative currency effect and lower selling prices. Our net debt to equity remains on a solid level of 11%. I will now give some comments for each segment, starting with Forest. Stable harvesting levels from our own forest have contributed to balanced supply of wood raw materials to our industries during the period. We have seen a continuous long-term trend of increasing prices for both pulpwood and sawlogs and as can be seen in the graph in the bottom left. Regarding pulpwood, we have now passed the peak and prices have continued to come down during the quarter. Demand for sawlogs continued to be high, especially for spruce logs. When one compares Q4 '25 with Q4 '24, sales were up 10%, while EBITDA was up 3%, mainly due to higher prices for Wood raw materials. The storm in mid-Sweden during the end of the year had a limited impact on SCA land. We estimate that approximately 100,000 cubic meters has fallen. When we widen the scope to Sweden, we estimate that around 10 million cubic meters has fallen and the majority in Gävleborg and East Dalarna County. I guess we have also another 3 million to 4 million cubic meters in Finland. SCA will prioritize harvesting windfall volumes to support private forest owners, and this might have a minor impact on the total level of harvesting from our own forest during 2026. Harvesting activities in windfall areas will primarily be carried out from Q2 and forward. Windfall volumes will contribute to an increased availability of wood raw materials in this region. Over to Wood. And in general, we still have a slow underlying market for solid wood products. We continue to note signs of improvement in the repair and remodeling segment as well as a decreased production level in Germany, generating better supply and demand balance, especially for spruce. Stock levels remain on the high side among producers for pine, but are on normal levels for spruce. Stock levels at customers continue to be on the high -- on the -- sorry, on the low side. SCA had strong deliveries in the fourth quarter, resulting in a seasonally low stock level of sawn goods for us at the end of 2025. The price for solid wood products decreased by 5% in the fourth quarter of '25 in comparison with the third quarter same year. And this development is in line with what I said when I presented the report for the third quarter. As expected, the cost for sawlogs has increased from the third to the fourth quarter, and we will also -- we also expect them to continue to increase going into the first quarter '26. Sales were up 5% lower in comparison with the same quarter last year. EBITDA margin decreased from 17% to 6% due to higher raw material costs and the negative currency effect. Today's stock level of solid wood products in Sweden and Finland is described at the top left on this slide and is shown in relation to the average for the last 5 years. As mentioned earlier, we note that the inventory level is on the high side, especially for pine, while the SCA level is seasonally low. As can be seen in the diagram to the bottom left, the Swedish and Finnish sawmill production has been on a normal level during '25. In the diagram to the top right, we can note that the price decreased during the fourth quarter. The decrease in pine has been higher in comparison with spruce. Coming into the next quarter, I estimate the price on average will be unchanged in comparison with the fourth quarter with a stronger tendency for spruce related to a better balance. Going forward, we will closely monitor the market development in Continental Europe that is impacted by lower production, not the least in Germany. So coming over to Pulp. When comparing Q4 '25 with Q4 '24, sales were down 14%, mainly due to lower prices and a negative currency effect. The negative EBITDA development was also driven by lower prices and a negative currency effect. The cost for the planned maintenance stop in Q4 '25 was SEK 198 million compared to SEK 250 million in Q4 '24. Global demand for pulp was at a healthy level during the first quarter of '25. During the second quarter, the market changed with reduced demand and prices came under pressure much due to uncertainty related to U.S. tariffs. During the third and fourth quarter, prices on NBSK pulp was stable at low levels. On the demand side, we saw an increased activity in China. The weakening of the U.S. dollar in relation to the Swedish krona, which started already in Q1 continued to have a negative impact on the price in SEK also in Q4. Tariffs on NBSK pulp from the European Union to the U.S. were removed during the third quarter. This allows us to maintain a competitive offering to the U.S. Market rebates are expected to increase by low single digits in the U.S. and mid-single digits in Europe. PIX prices are expected to start to increase to compensate for the rebate. Looking at CTMP, prices were mostly unchanged in Europe and Asia at low levels during the fourth quarter. Inventories of softwood pulp were on the highest level during the fourth quarter. Hardwood inventories on the contrary were on average. CTMP inventories came down during the quarter to a more normal level. Moving over to Containerboard. Sales were up 8% in Q4 in comparison with the same period last year, driven by higher delivery volumes somewhat mitigated by lower prices and the negative currency effect. EBITDA was down by 6%, driven by lower prices and a negative currency effect. We have seen box demand moving sideways in Q4, but still with a positive development on a year-to-date basis of around 1.5%. The retail business remains a positive driver. On the other side, we continue to see a weak European manufacturing industry, which, for the moment, has a negative impact on the demand. European demand of Containerboard has developed like the box demand and has moved sideways in the last quarter compared to Q4 '24, but with slight growth for the full year. During Q4, we saw some closures of capacity in testliner, although not yet enough to balance the capacity started up in previous quarters. As can be seen in the graph, Kraftliner inventories remain above average level in Q4. Prices for brown kraftliner in Central Europe decreased during Q4 with EUR 20 per tonne, while white kraftliner has remained stable. We can see another negative price adjustment of EUR 20 per tonne in January. On the other hand, we now hear announcements of around EUR 100 per tonne price increase for testliner. And if that succeeds, I guess, we will have a price push also in kraftliner at the later stage. So finally, I will say some words about Renewable Energy. And in Renewable Energy, we have had a strong quarter compared to the same period last year, mainly due to higher production and stronger margins in our -- with St1 jointly owned by refinery in Gothenburg. In addition, we have had higher production and stronger deliveries in solid biofuels. Electricity prices continued to be low during the fourth quarter, but slightly higher than same period last year. Low electricity prices in the market impact on our wind business negatively, but is positive for SCA as a net buyer of electricity. SCA land lease business increased to 10.6 terawatt hours according to plan. This is equal to 20% of installed capacity of wind power in Sweden. The Fasikan wind farm was taken over by SCA by the end of 2025 and is now ramping up production. And with the Fasikan adding to our current power production within the group, we increased our self-sufficiency rate to approximately 100%. The market for solid biofuels in Northern Sweden continues to be weak but stable, and this fact increases our European export share and by that, a somewhat reduced margin. For liquid biofuels, we have seen continuous higher margins compared to previous quarters. And the main reasons for our European countries implementing RED III and better control mechanism within EU regarding imported products and feedstocks. And we expect market volatility in renewable fuels to remain high as Europe ramps up the blending mandates both in HVO and SAF. And by that, Andreas I hand over to you. Andreas Ewertz: Thank you, Ulf, and good morning, everybody. I'll start off with the forest valuation and the 3-year average price, which we used in the forest valuation to get enough transactions decreased by 4% to SEK 372 per cubic meter. The 1-year average increased slightly and the market activity during the year was on the normal level. The valuation of SCA's forest assets decreased to SEK 104 billion in 2025. The decrease in the 3-year average price was partly offset by continued increase in standing volume to SEK 277 million cubic meters. Biological asset increased by just below SEK 1.8 billion, driven by increasing long-term prices for raw materials and higher standing volume due to the net growth, while the value of the land decreased due to lower prices for forest land. Prices for wood materials continue to increase. The slide shows the index price development for sawlogs and pulpwood paid by SCAs industries delivered to site. Prices are at a record high level with a continued tight market for sawlogs, especially on spruce, while the balance of pulpwood has improved. If we move on to the income statement and focus on the full year to the right. Net sales were stable at around SEK 20 billion. Higher delivery volumes and higher prices were offset by negative currency effect. EBITDA increased 8% to just below of SEK 6.6 billion, driven by negative currency effects and higher raw material costs, which were partly offset by higher delivery volumes and somewhat higher prices. The EBITDA margin was 32%. EBIT decreased to SEK 4.4 billion and financial items totaled minus SEK 433 million. With an effective tax rate of just below 20%, bringing net profit to SEK 3.2 billion or SEK 4.56 per share. If we look at the fourth quarter to left, EBITDA totaled SEK 1.2 billion and was affected by a planned maintenance stop in Ostrand by SEK 198 million. Net profit for the quarter totaled SEK 485 million or SEK 0.69 per share. Looking at the dividend. The Board has proposed a dividend of SEK 3 per share, which is unchanged from the previous year. On the next slide, we have the financial development by segment for the full year. Starting with the Forest segment to the left. Net sales increased to just below SEK 10 billion and EBITDA increased to SEK 3.8 billion, driven by higher prices for pulpwood and sawlog and increased harvesting from SCA's own forest. In Wood, net sales increased to SEK 6.1 billion driven by higher delivery volumes and higher prices, which was offset by negative currency effect. EBITDA increased to SEK 856 million, corresponding to margin of 14% and was negatively impacted by higher cost for sawlogs. In Pulp, net sales decreased to SEK 7.1 billion due to lower prices and negative currency effects. EBITDA decreased to SEK 752 million corresponding to a margin of 11%. The decrease was mainly related to lower prices, negative currency effects and higher cost for pulpwood. In Containerboard, net sales increased to SEK 7 billion, driven by higher volumes from Obbola and higher prices. EBITDA increased to SEK 1.1 billion, corresponding to a margin of 16%. In Renewable Energy, EBITDA was stable and totaled SEK 442 million, corresponding to a margin of 22%. The market for liquid biofuels improved during the later part of the year, while electricity prices continue to be low. Moving on to the quarter. And on the next slide, we have the sales bridge between Q4 last year and Q4 this year. Prices decreased 6% with lower prices in Pulp and Containerboard. Volumes increased by 7% due to higher volumes in mainly Containerboard but also Pulp. And lastly, currency had a negative impact of 6%, bringing net sales to SEK 4.9 billion. Moving on to EBITDA bridge. Starting to the left, price mix, a negative impact of SEK 370 million, and higher volumes had a positive impact of SEK 77 million. High cost for raw materials had a negative impact of SEK 37 million, which was mitigated by high degrees of self-sufficiency in wood raw materials. We had a positive impact from energy of SEK 41 million and a negative impact from currency of SEK 269 million. Others was impacted by lower costs from planned maintenance stops. In total, EBITDA decreased to SEK 1.2 billion, corresponding to a margin of 25%. Looking at the cash flow. We had an operating cash flow of SEK 3.1 billion for the year and SEK 529 million in the quarter. And as you know, other operating cash flow relates mostly to working capital currency hedges and should be seen together with changes in working capital. Moving on to the balance sheet. The value of the forest assets decreased to SEK 104 billion, working capital decreased compared to the previous quarter but increased year-on-year to SEK 5.3 billion. In the quarter, we have increased our harvesting rights of especially spruce, sawlogs for 2026 from private forest owners, which increased both inventories and payables, but no impact on the quarter's cash flow. Capital employed decreased to SEK 112 billion and net debt totaled SEK 10.9 billion, and we have now almost finalized our large ongoing investment projects. Equity totaled SEK 102 billion and net debt-to-equity was 11%. Thank you. With that, I'll hand back to you, Ulf. Ulf Larsson: Yes. I mean, I'll try to summarize 2025. I think we have delivered a solid result given the current market situation. When we compare 2025 with 2024, I mean, we are negatively impacted by almost SEK 1 billion related to currency and also to raw material costs. On the positive side, now I can see that our strategic investments, they have started to deliver, and it's -- it will be interesting to see when we have a turning point in the market, what kind of leverage we will get from those investments. So by that, I think that we open up for questions. Operator: [Operator Instructions] We will now take our first question from Ioannis Masvoulas of Morgan Stanley. Ioannis Masvoulas: Just two questions on storm Johannes where you've given us some very useful color. But just to get your perspective on how things develop from here, assuming we do have the additional wood supply coming into the market, shall we expect to see an acceleration in the decline in pulpwood prices? And what would it mean for solar prices that have remained stubbornly high? And then second and related to the storm. Your costs, harvest costs were likely a bit higher in Q4 going into Q2 where you expect to focus on harvesting windfall volumes. How should we expect your harvesting costs to develop in Q2 and Q3 this year? And would that have a meaningful impact on your P&L? Ulf Larsson: Okay. If we start with the cost, I mean, as I said, not more than 100,000 cubic meters has fallen on SCA land. And of course, when you take care of that part, that will increase the cost, but that's a minor part of the harvesting we do on our own land. But for private forest owners, okay, we will have increase in costs. And typically, I mean, the forest owner has to pay for the increase in cost level. So that will be no major impact on SCA in that perspective. When it comes to prices, I mean, as you say, for pulpwood prices, they have already start to decline, and that will step-by-step come into the accounts of companies as we have. I mean, we have a lagging effect, of course. But that will continue and maybe it will also -- yes, I mean it will not be -- pulpwood cost will not be -- that will be positively helped by the storm, that's for sure. When it comes to sawlogs, I guess the main part of what has fallen is pine. And maybe we start to see decreasing prices for pine and that will also, I think, after a while, come also for spruce. But during the first quarter, at least for SCA, I mean we have to take care of what we bought already in the fourth and third quarter. And that means, increasing sawlog costs in the first quarter. But then I guess, we start to see some decreases also for sawlogs. But as it is just now, I guess it's an oversupply. It will be at least in the second quarter an oversupply of pulpwood while it will be a little bit more stabilized situation for sawlogs. Ioannis Masvoulas: Okay. And sorry, just -- sorry, go on. Ulf Larsson: No, that's my view, more or less. Ioannis Masvoulas: Very useful. And so, just one follow-up on pulpwood. What sort of cost development into your industries shall we expect for Q1 versus Q4? Andreas Ewertz: Yes. On pulpwood, it's a low single-digit decline, around 2%. Ulf Larsson: But on the other hand, for sawlogs, I guess, we will have almost an 10%... Andreas Ewertz: Yes, 7%, 8%. Ulf Larsson: 7%, 8% price increase. And then step-by-step, we will see reducing prices. Operator: And we'll now take our next question from Charlie Muir-Sands of BNP Paribas. Charlie Muir-Sands: Just firstly, on currency, I know you gave the -- in the statement, you gave the average hedging rates. It looks like those are still meaningfully ahead of latest spot market rates. So as things stand, should we continue to expect, sort of, a sequential currency headwind over the next couple of quarters, I guess, particularly on the pulp segment given the movement of the dollar? And then secondly, I'm sorry if I missed it, but have you given or can you share your thoughts on CapEx for 2026? And any early thoughts on where that might go to in 2027 as you complete wrapping up any final expansionary projects? Andreas Ewertz: Yes. So, I'll start with the currency. You're absolutely right. We have -- I mean, for next year, on average, we hedge about 50% of our net currency exposure. So once those hedges goes out, of course, if the dollar stay at the same level, that will be a headwind. And if you look at our dollar exposure, if you include the indirect FX, meaning that we might sell in SEK or euro in pulp, but the price also depends on the fixed prices in dollar. If we include that indirect effect, our dollar exposure is around USD 700 million per year. And then on the CapEx side, our early estimate is around -- on current CapEx is around SEK 1.5 billion for next year and strategic CapEx, we have some spillover from this year to next year, suspecting that to be around SEK 400 million, maybe SEK 500 million. But after that, I mean, we have finished basically all of our strategic CapEx that we've currently decided on. Charlie Muir-Sands: And then just briefly on pulpwood, as you've acknowledged, it's coming down. I just wondered, are you seeing at all any of your customers start to pressure you to pass those costs on in terms of lowering your prices in any of the industrial output grades? Andreas Ewertz: I mean, prices are already very, very, I mean, low at the moment for our finished products. I think this lower cost will, of course, help our margins. Operator: And we will now take our next question from Robin Santavirta of DNB Carnegie. Robin Santavirta: First question I have is related to harvesting volumes. You have nicely increased those in line with your guidance a few years ago and land at 5. 4% now in 2025. What is the best guess for 2026 and 2027? Is it roughly harvesting volumes in line with what you achieved in 2025? Or is it higher or lower? What are the key, sort of, reasons for that? Ulf Larsson: So, if we start with that one. I mean, we will -- I guess, we might see a minor decrease from our own forest as we now have to support private forest owners in our region, and we have some also agreements in place already, which is long-term good for us. I mean, we will place some of our resources in South from Sundsvall in Gävleborg and even further south to help it. I mean, 10 million cubic meter in a rather limited area, that's quite a lot and that will, of course, need some extra resources to take care of it. And we also have -- we have to fight against the time because now we had more or less 1 meter snow, which -- I mean, it's not too easy to go in there and start to do the harvesting operations. So, I guess, we will have a peak in the second quarter and as fast as possible to avoid getting the wood destroyed, blue stain and things like that. So that might have a minor impact on the harvesting volume from our own forest -- on our own forest. Robin Santavirta: So for the full year, roughly the same or slightly lower, perhaps? Ulf Larsson: Yes. I mean, it is around this level. Robin Santavirta: All right. In terms of the European softwood pulp sales, can you shed some light on the discounts you have agreed for 2026, helping out with modeling here. And also in terms of the lease prices, where are they now at the end of January? And what's the outlook for the next month or 2 months? Just so we understand how the net price of the outlook is? Ulf Larsson: Sorry, I didn't get it. Was it pulp or was it solidwood products? Robin Santavirta: Yes, on pulp. I guess the discounts, the annual discounts for the year gone up a bit. Ulf Larsson: Yes. You're right. I mean fixed prices, they were on 1,500, and now they have started to increase. And I guess we will end up in 1,550, maybe at the end of January, and we start to -- by that start to compensate for increasing rebates. But we will, as you can calculate, we will not do it in one quarter. I guess, we will see another price increase in February. And I guess also, we will see a third price increase in March. And at that time, I guess, we have at least compensated for increasing rebates. But that's the case. So, if you compare sequentially, if you compare Q1 with Q4, I guess we will have a lower price. We will have a lower price in Q1 in comparison with Q4. And in addition, you also have a stronger SEK against dollar, which have an impact also. That's harder to predict, but that's the case as it is just now. Andreas Ewertz: And then Ulf guided previously on that the rebates in the U.S. is -- increases low single digits, while in Europe, it's mid-single digits. And that's the general market rebates. Operator: And we'll now take our next question from Johannes of SB1 Markets. Johannes Grunselius: Yes. It's Johannes. So I have two questions. The first one is on Containerboard. You did pretty well on volumes there or shipments, at least compared to my expectations. Could you share some color on that, sort of, ramp-up of volumes? And were you able to sell the new incremental volumes at market terms? Or were you -- did you have to, sort of, give hefty discounts there? If you could give some color there, please. Ulf Larsson: Yes. I mean, we are happy with the ramp-up in Obbola. And as I said also before, we are close to 600,000 tonnes in 2025, which is according to plan. So, we are -- we will continue that work also going in now to 2026. And I mean, it's more a question about mix. I mean, as it is just now with the current market situation in Europe, it's not possible to deliver the extra volume, so to say, in Europe, so that we have to find places overseas. And by that, of course, we have as it is just now substantially lower margin. But again, our main focus just now is the ramp-up. And then I guess, we are looking forward to the point when the market turns because then we will have a good leverage also from those volumes. But as it is just now, we are impacted price-wise due to the mix, geographical mix. Johannes Grunselius: Okay. That's clear. My second question is more on capital allocation. And of course, this is more of a question for the Board, but I try to ask it to you, Ulf, anyway. But the sort of SCA's way of distributing cash to shareholders has always been traditional dividends. But in the light that strategic CapEx is now coming to an end and in light of the share price valuation, are you increase -- do you have, sort of, more intense discussions about share buybacks going forward? If you can elaborate on that question, please? Ulf Larsson: I mean, as you say, that's a question for our owners and the Board. And I think it was a sign of stability to keep the dividend at the level we had last year. And I mean, that's a sign of -- we believe -- I believe that we are now at the bottom of this business cycle. It's volatile, and now we are at the bottom. And also, I mean, we know that we are well prepared when the market turns. We have done big investments now, and we have ramped up them in a rather good way. And we are looking forward now to see increasing prices and then leverage from those investments. And as Andreas said, I mean, we have no big investments in plan now coming years. So I mean then, then let's see what kind of discussion we will have at that time. But for now, I mean, we are happy to deliver the same dividend as we did last year. Operator: And we'll now take our next question from Oskar Lindstrom of Danske Bank. Oskar Lindström: Three questions from me. The first one is actually carrying on from Johannes' question a little bit here about capital allocation, but I'm not going to ask you about the share buybacks. I mean, given kind of weak markets, structural challenges and that the Energy segment, at least my book presumably is attractive as it did a few years back. Where do you see your potential to sort of structurally grow earnings in the coming years? I mean, where could you invest to drive your growth? That's my first question. Do you want me to ask the other ones as well? Ulf Larsson: No, if -- we can take the first one first, I'm happy. I mean, again, as we said, I mean, just now, we are in a challenging market environment. As you know, we have done a lot of big investments. We will grow our volumes. We have been growing our volumes also in both '24 and '25. And I mean, just now, we are 100% focused on delivering on those investments. I mean, of course, we will come back when this is fully ramped up and when we have started to see a slightly better market and by that also a strong cash flow, then I think it's the time to come back to the development. But just now, we are so focused on, do what we have started, to finalize what we have started. Oskar Lindström: Yes, right. My second question is maybe for Andreas. Is there any impact from loss of emission rights on earnings in Q1 or for full year 2026? And if so, how much? And where have they been reported so far? Andreas Ewertz: Look, we will have an impact if you look at '25 compared to '26 as now the new emission rules, ETS, is in place. That means that, if you look at our four big mills, Obbola and Ortviken will still be part of the ETS system, while Ostrand and Munksund, they are too good in their emissions. And therefore, they will strangely be removed from the system. On Ostrand, we don't have a surplus. That doesn't matter. But on Munksund mill, we will lose our emission surplus, which is about 100,000 tonnes of emission rights each year. And then if you look historically back, publication paper, Ortviken was the biggest receiver of emission rights. But that, we divested in -- or closed down in 2020. So that had the biggest impact, but now Munksund will be removed for next year. Oskar Lindström: And if I may just ask a follow-up on the Munksund. Have you been selling those, the full sort of all the emission rights that you've been given each year? Have you sold them each year? Or have you built up a backlog? Or how should we calculate that? Andreas Ewertz: We've usually -- some we sell internally to our logistics department, especially with 2025 when you have to have -- also buy emission rights for -- in the transportation sector, and the rest we have sold. So we will sell, we will lose 100,000 tonnes going forward. Oskar Lindström: So we should assume, sort of, loss of 25,000 tonnes per quarter times whatever the average price was for emission rights? Andreas Ewertz: Yes. That's correct. Oskar Lindström: All right. Just a final question, if I may, on, I guess, the Wood segment. You mentioned this sort of dramatic or lower harvesting levels in the Central U.S. I presume it's as a consequence of the bark beetle infestations there. So two questions there. How dramatic is this decline in harvesting levels in Central Europe? And is there any sense that this is impacting or will impact the sort of the long-term timber and sawn timber supply for that region? Is it's the competitor that's disappearing? Ulf Larsson: Yes. I guess, I mean, we see also as it is just now, the spruce market is substantially stronger than the pine market, and that's due to the balance, I would say. And the production level in Germany has been also lower for a while now. And I guess, one part of it is that it is trickier to get access to sawlogs and, of course, when you have a tighter balance, you have to pay more. And then as it is a marginal business, I mean, then they have in some areas taking curtailment. So the long-term effect, I mean, I don't -- typically, I guess, it will be tougher to get access to raw material in that area, especially in the Eastern part, where they were heavily hit by the spruce beetle and that is also -- I mean, long term, the estimation we've done is that we will have a strong balance for -- as a producer, we will have a strong balance for solid wood products going forward. But then, of course, it's also a volatile business. It will be impacted by the current business cycle. But we believe that solid wood products will be rather strong going forward as the material is needed, not the least. If we shall have a chance to mitigate the climate change and so on, I mean, we have to use non-fossil products, and that will be -- that will be good, I think, for that business going forward. Operator: And we will now take our next question from Andrew Jones of UBS. Andrew Jones: A couple of questions. First of all, on Containerboard. Obviously, we've seen some price hikes announced by some of recycled players. I'm curious what you make of the potential for price increases in the current market given the demand situation and oversupply? I mean, is there more potential in kraftliner, maybe given the market is a bit more balanced there? And my second question is on forest valuations. I mean, given, obviously, wood prices potentially coming down and obviously, rates going up as well. I mean, what are you seeing, hearing in your regions in Sweden in general on the sort of trends for valuations? Are you concerned about sort of more negative valuations as we go into 2026? Ulf Larsson: I'll take the Containerboard market first. I mean, as I said, I mean, we have seen now some announcements. I don't know if testliner producers, if they have come through with price increases, but they have asked for EUR 100 per tonne, and they certainly need it as I think that many testliner producers, they are bleeding just now. Short term, we have seen gas prices coming up 35%. OCC prices still on the same level, but typically, they -- I guess they will also start to ask for more if testliner producers will come through with their attempts to reach higher prices. And when that happens, then, of course, that will give price push also for kraftliner in a later stage. And I mean that is now needed in the market. But I guess we have a chicken race out there. There's a lot of capacity is coming on stream for testliner. And so, I don't know when it will happen, but it will happen, and we are at the bottom just now. That's my estimation. Andreas Ewertz: Yes. And if you look at the forest valuation, I don't want to speculate going forward. But if you look at 2025, activity was a normal basis and the 1-year average increased slightly during the year. And for next year, we see, in general, that the Swedish economy is improving. Wood raw material prices are coming down a bit. But usually, I mean, when you buy a forest asset, you have 100-year view on the forest prices or the wood raw material prices. So it's not -- I mean, it's the general long-term view that's the most important. But we'll have to see. But this year was slightly up on the 1 year average, but the 3-year average declined. Andrew Jones: Yes. Okay. That makes sense. And actually, just a follow-up on the wood prices. I mean, you're talking about relatively modest declines, obviously, prices being pretty flat so far for pulpwood. Given the decreases we've seen in Finland. I mean is there any -- I mean, I would assume that Sweden would have followed to a greater extent already. Is there anything stopping prices sort of gapping down lower given the potential for arbitrage across the border? I mean, what's the -- what's are the thoughts there? Ulf Larsson: Sorry, what was it wood raw materials? Was that pulpwood? Andrew Jones: Yes. Ulf Larsson: Pulpwood, yes, but I mean, we have seen pulpwood prices fallen also in our region. And as Andreas said, I mean, we will see some of it also in Q1, I guess, for pulpwood. Andreas Ewertz: But it's this lag effect because, I mean, you buy on stumpage what -- I mean, what we harvest in Q1, we bought in Q2 and Q3 and Q4, you had this delay effect because you buy stumpage to write the harvest from the private forest owner. Ulf Larsson: And also, you cannot just follow-up public announcements as you also, on top of that, have different premiums and things like that, which is individual for each buyer and for each market and so on. So, I mean, what you see announced will not be the -- exactly the same effect that you will have in the account, I guess. But you always have this lagging effect. But we are -- we have the same journey. And of course, now boosted by the windfalls we've seen in our region that will come -- that will also have definitely an impact on pulpwood prices. Andrew Jones: And actually, just final one, just on context. I mean, what is the total size of the market in Sweden in terms of pulpwood consumption per year? I mean, how significant is that in the broader market? Andreas Ewertz: I'm not sure. We have around 10% of the forest assets in Sweden, and we harvest around 5 million cubic meters from our own forest each year, just to have some kind of ballpark. Ulf Larsson: But was it the total harvesting volume in Sweden, was that the question? Andrew Jones: Yes, exactly. Ulf Larsson: Yes. It's -- okay, sorry, it's around 85 million cubic meters per year. Andrew Jones: Okay. So it's roughly 10% additional supply? Ulf Larsson: Exactly 10%, 15% -- 10% between -- I guess, it will be 15%. And then also in addition, you have 3 million to 4 million cubic meters on the Finnish side. Operator: [Operator Instructions] And we'll now move on to our next question from Cole Hathorn of Jefferies. Cole Hathorn: I'd just like to follow up on sawn wood business. I just missed your commentary on what your expectation is of price declines quarter-on-quarter into Q1? And just on your sawlogs, I know you said they were -- they're going to be up around 7%. But just to clarify, that is Northern Sweden, I imagine the rest of Sweden sawlog prices are lower, just a clarification there. Ulf Larsson: Yes. I mean, starting with the price development for Finnish products. As I said, from Q3 to Q4, we had -- the average price was down 5%. From Q4 over to Q1 2026, I guess we will have a flat price development. But what we didn't expect really was the -- we have had another impact from -- negative currency effect impact, of course. But I guess it will be close to zero. On the other hand, for us, as I said, we will have close to -- yes, 7%, 8%, you said, increasing log prices. And I mean, we cannot comment what will happen in other parts of Sweden, I guess. The reason for that for us is that we thought it would be a very tight situation coming into the first quarter, not the least for spruce log. So we bought rather big volumes in the fourth quarter. And I mean, we couldn't know or expect that we should have a big windfall in our region between Christmas and New Year. And if we would have knew that, then, of course, we should have acted differently. But now we have to take care of what we bought. Cole Hathorn: Also, and just a longer-term question on wood products. I mean, we've seen CBAM boosting the cost of cement, the cost of steel, import restrictions, increasing prices of these construction raw materials. Do we see wood as kind of an underappreciated beneficiary? When do people look at the construction costs of sawn wood and say, we should start using more of this product? Or is that just too far away into the future? And then following up on Containerboard, we've seen some of the U.S. players talk about slightly better order books, slightly better demand. I'm just wondering, are you seeing any more positive trends in the containerboard and bauxite at this stage or not yet? Ulf Larsson: I mean, starting with solid wood products. I guess, we are pretty positive to the future market for solid wood products. Then again, it's always a balance between what you have to pay for the raw material and what can you get out from the market. As you know, more than 70% of the cost for the sawmill is related to the raw material, of course. But I mean, we feel that the demand for solid wood products is -- I guess it's okay as it is just now, and we see an improving trend also for coming quarters now. And let's see where we will end up. But... Andreas Ewertz: I think, Q2 is usually typically a stronger quarter. Ulf Larsson: Structurally, I think that, I mean, in many cases, people have tried to turn from -- also from fossils over to non-fossil materials. And I mean, that will also benefit the solid wood business going forward. So I think we are positive long term in this field. And then about Containerboard. I guess, we had -- if we look into last year, I mean, the consumption was up 1.5% during last year. And also when you look at the box demand, as you saw maybe on the slide I did show, I mean, you have a positive -- the trend is positive. Then again, I think what is harming the balance just now is that we have seen a lot of new capacity coming on stream, not for testliner. I mean, the only capacity in kraftliner is what we are providing the market ourselves in -- from Obbola. But otherwise, in testliner, we've seen a lot of capacity coming on stream. Some has been closed, and I guess some more capacity will be closed. And I guess we have, for that reason, a little bit of chicken race just now out there, and let's see where and when that will -- how and when that will end up. So I guess, but then you asked about consumption. Honestly, I don't think -- I think we are -- it is a rather slow market out there, at least for us being in Europe and might be a little bit better in U.S. and also in other regions, we have a slightly better demand. But again, the price is, of course, lower when we have to go overseas with our volumes. So that is -- and that has also impacted the result for us as we are now ramping up Obbola. That was not a very clear answer, but it was a trial at least. Operator: And we will now take our next question from Pallav Mittal of Barclays. Pallav Mittal: I have two of them. So firstly, can you talk a bit about the adverse mix impact that you highlighted for your pulp and the containerboard business, especially over the last couple of quarters? And do you expect that to continue in 2026 given the weakest demand that we are seeing in Europe? And just to follow up, what are your expectations on CTMP pricing in the near term? Ulf Larsson: Did you get the first one? Andreas Ewertz: Can you repeat the first question, please? Pallav Mittal: Just asking about the adverse mix impact on your pulp and containerboard business? Andreas Ewertz: Okay, yes. Okay. Yes. So, what we saw in -- especially in Q4, as Ulf mentioned, we had lower delivery volumes in Europe due to a weaker market, which means that we sold a larger part in Q4 in overseas market. And I think that was partly because -- I mean the weak market, but also because that customers knew that the rebates were going to increase at the beginning of the year. So they ordered as little as possible, of course, during the quarter. As you know, the rebates were kicking in the 1st of January. So I think you might have some positive effect there, but the weak market. I mean, we still expect that in Q1. Ulf Larsson: And the second one was around CTMP. I don't know if I get you right. But I mean, the demand is still slow on CTMP. And I think we and also other producers are -- we are taking curtailments now when we have a high energy price. And so, I mean, we do a marginal calculation. And by that, we have reduced capacity as it is just now from Ortviken. Price-wise, we have not seen any increase in rebates in '26 in comparison with '25. So the price is more or less sideways. And the business we have in Europe is, it's okay. But then again, it's tough for us to come from Europe over to Asia not the least and make some money on it. So, we monitor this carefully, and we do this marginal calculation where we have to calculate on the marginal wood cost and also marginal energy cost for CTMP. Pallav Mittal: Sure. If I can just squeeze one more in, and this is regarding the first quarter of '26. I appreciate there are a number of moving parts. But can you help us understand, I mean, sequentially, how we should think about the first quarter, especially given the declining prices, negative effect but some support from the pulpwood cost side of things. So is it fair to assume a very similar EBITDA in Q1 despite having a zero maintenance? Andreas Ewertz: Yes. So we won't -- we don't give direct guidance. But if you just look at the moving parts, we had a maintenance stop in the fourth quarter, and we won't have any maintenance stops in Q1. On the pulp side, we see no maintenance stop, but the increase in rebates and negative currency effect as a negative and as a positive slightly lower pulpwood costs in containerboard. It's, as Ulf mentioned this in the beginning of the quarter, this minus EUR 20 per tonne in prices. And then we'll have to see if this testliner prices goes through, that might have a positive impact if you go through that at the end of the quarter or Q2. And then in solid wood products, we see fairly stable prices, a bit better on spruce, but increasing sawlog prices. And then in Forest, we harvest seasonally a bit lower in Q1 compared to Q4. And then other costs, OCC is slightly cheaper. Also transportation cost has go down slightly. Operator: And we'll now take our next question from Alexander of Pareto Securities. Alexander Vilval: Just a quick question regarding harvesting. If you could elaborate a little bit on expected -- the harvesting volumes sort of in the next few years? And also with regard to biological assets, what kind of long, sort of, term growth rate you see regarding harvesting specifically? Ulf Larsson: I mean, as I said, I mean, this year, we reached 5.4 million cubic meters. And I guess, next year, we will -- yes, if not do that as we have to support some forest owners in windfall areas, we will do that, of course. But I mean, we will remain on around 5 million cubic meters. So that's it. Andreas Ewertz: And on biological assets, we -- it will -- we expect it to be slightly lower, the revaluation, next year compared to this year. But we still have -- I mean, we look at the long-term average trend price of wood raw material prices, and that will still increase even if the prices go down next year, the long-term average will still go up. But impact will be a bit lower next year compared to this year. Alexander Vilval: And on volumes in that calculation? Ulf Larsson: In the volume term. Andreas Ewertz: No, the prices will go up and the volumes is based on our latest harvesting calculation, that would be unchanged. Operator: That was our last question, and I will now hand it back to the host for any closing remarks. Anders Edholm: And that concludes our presentation of the year-end report. Welcome back in April for our first quarter report. Thank you, ladies and gentlemen.
Operator: Hello. Welcome to the Signify Fourth Quarter and Full Year 2025 Results Conference Call, hosted by As Tempelman, CEO; Zeljko Kosanovic, CFO; and Thelke Gerdes, Head of Investor Relations. [Operator Instructions] I would now like to give the floor to Thelke Gerdes. Ms. Gerdes, please go ahead. Thelke Gerdes: Good morning, everyone, and welcome to Signify's Fourth Quarter and Full Year 2025 Earnings Call. With me today are our CEO, As Tempelman, and our CFO, Zeljko Kosanovic. During this call, As will discuss our full year 2025 results and business highlights. Zeljko will then walk you through the financial performance in more detail. As will then come back to discuss our fiscal year 2026 outlook and closing remarks. After the prepared remarks, we will be happy to take your questions. Our press release and presentation were published at 7:00 this morning on the Investor Relations website. A transcript of this call will be made available shortly after. And with that, I would like to hand over to As. A.C. Tempelman: Thank you, Thelke, and good morning, everyone, and thanks for joining us today. It's actually great to connect with all of you again in second earnings call, my second earnings call at Signify. Now 5 months in the role, I've learned a lot, and I feel that I've got a solid handle on the business, of course, really supported by great collaboration with the management team here at Signify. And I gained much more clarity about the business, the market dynamics we face and also the actions we need to take. And I want to express that I'm confident about the future and the strategy we're putting in place, and I'll come back to that a bit later in the call. But let me first comment on the full year results and the full year performance 2025. We delivered what I qualify as a mixed performance, as we are navigating a very challenging market environment. It's marked by reduced demand, price pressures in select markets, weakness in trade channels, and of course, the ripple effect of trade tariffs. And despite all these headwinds, I mean, if you look through it, our business has shown good resilience. In Professional, we delivered growth in the U.S. in the fourth quarter, while Europe remained under pressure, and that's particularly true in the trade channel. And we see in countries where we have large positions, like Germany, France and the Netherlands, that demand is sluggish. Our Consumer business grew in 2025 with momentum remaining strong across all the regions with the exception of China. We saw continuous growth -- strong growth in connected and specialty lightings, and that now -- that part now represents about 36% of our sales. And this strength of that connected and specialty lighting was really visible across both the Consumer and the Professional businesses. The OEM manufacturing business, on the other hand, has continued to experience reduced demand and persistent price pressures. And I'm pleased that we hold a solid gross margin, above 40%, and that was really supported by discipline on the cost side as well as price management across both the professional and the consumer business. For the full year, we delivered adjusted EBITA margin of 8.9% and strong free cash flow of 7.6% of sales. And this strong free cash flow is really driven by working capital discipline, and that really underscores our resilience when it comes to cash generation. Now, diving a bit into the respective businesses. Let me start with the Professional business. Comparable sales decreased by 1.4% as growth in the U.S. was offset by the weakness in Europe. And then, like I mentioned, particularly in the trade channel. The adjusted EBITA margin was decreased by 40 bps to 8.9%, mainly reflecting price and volume pressure in the European business. Our teams did a great job at mitigating the direct effects of tariffs, which resulted into a kind of neutral impact on sales and profitability. And that's something we should be really proud of. That was achieved through effective supply chain and price management. And the -- while the direct effect of tariffs was contained, of course, we clearly felt the ripple effect in other parts of the world, particularly through production overcapacities in China and the resulting price pressure in parts of our business. Now moving on to Consumer. Comparable sales increased by 1.4%, and this was driven by strong connected sales throughout the year. The adjusted margin decreased by 50 bps to 10.6%, mainly due to higher commercial investments, which we will discuss in more detail later on. Moving to the OEM business. Comparable sales were down 16.5%, and we mentioned that before as a result of weak demand and intense price pressure and that we also there felt the structural overcapacity in the market. Throughout the year, the business was also impacted by lower orders, and we mentioned that before of 2 specific major customers of the OEM business. Adjusted EBITA decreased to 4.8%, reflecting the impact of lower volumes and continued gross margin pressure. And then finally, wrapping up with the Conventional business. Comparable sales decreased by 23.1%, reflecting the structural decline of this business, and the adjusted EBITA margin decreased with 180 bps to 16.1%. So all in all, a mixed results, difficult quarter, but where we showed strong cash generation and good resilience. Now, let me move to showing you a few of the examples of what is -- how actually our business then works out in real life. With the professional business in Europe, while that business remained under pressure, our Connected business in the region continued to grow. And we had a recent project we completed in Madrid. And that this is a great example of this momentum, showcasing how connected outdoor lighting can completely transform what is a truly iconic landmark. And we carried out a full architectural lighting renewal of Teatro Real, some of you might know it, reworking both the exterior as well as the ornamental lighting. And the goal was to enhance the theater's presence in the city at night while fully respecting and preserving, of course, its nice historic character. And beyond aesthetics, the impact on energy efficiency is significant. We achieved over 40% savings, and that is kind of equaling 2 tons of CO2 avoided every year. And this installation is fully connected through our Interact platform, and this allowed cloud-based control, monitoring, and enables dynamic lighting scenes that can be adapted to different cultural events. So really great project that supports Teatro Real's net zero ambitions while combining sustainability, digital innovation and a richer visitor experience. So really cool example. And then on the Consumer side, I wanted to highlight a -- the Hue business. We'll focus on Philips Hue on this slide. Following a very successful new product launches in September, we delivered a very strong commercial execution in the fourth quarter, building on the momentum we have seen throughout the year, great momentum on Hue. During Black Friday and Cyber Monday, we exceeded expectations in both North America and Europe. And that also underscores the strength of the brand and our execution during these key commercial moments. And given our focused investments in Hue's social media presence, we saw a significant brand -- increase in the brand engagement in the fourth quarter as well with the social views -- media views rising more than 100-fold on a year-on-year basis. So we're really stepping up online. And we further invested in the Hue app. As a result, in-app sales also grew by more than 50%, reinforcing the strength of that connected system, and it also is a clear signal of its long-term value potential. And then finally, on Hue, we launched the Hue Essential range. That was a key step in making Hue more accessible to new customers by offering them a lower price entry point into the ecosystem. And this also successfully drove new customer acquisition. So once customers enter the Hue ecosystem, they typically continue to add products. So it's a real strong platform play. Moving on to our Brighter Lives and Better World program. That is now completed. The program ran until the end of '25, and we will be introducing an updated sustainability program later in this quarter. And that is really designed to further align our sustainability ambitions with our strategic business objectives and long-term value creation. So actually good for sustainability and good for business. In the final quarter of the 2025 program, we delivered following results. First, on the climate actions. We surpassed our targets, reducing greenhouse gas emissions across the entire value chain with 40% versus the 2019 baseline. And this is all SBTi-driven targets. Minus 40% was actually a target that was set by the Paris Agreement by 2031. So we got there much, much faster, and it's something we are very proud of. Secondly, on circularity, circular revenues reached 37% of sales, well ahead of the target of 32%. And then thirdly, we have our Brighter Lives revenue, so that relates to portfolio -- our product portfolio that benefits beyond lighting society. And you have to think about food availability, safety, security, health and well-being. And the Brighter Lives revenues reached 34% of sales, again, exceeding our targets. We have one red on the slide that is on diversity and inclusion. The percentage of women in leadership stood at 27%, which means we did not meet the target of 34%. And this is an area where we have -- progress has been slower. I want to highlight that we remain fully committed to improving the representation through focused diversity hiring, retention, but also attrition. We try to reduce attrition on the diversity side. With that, let me hand it to Zeljko. Zeljko Kosanovic: Thank you, As, and good morning, everyone. Let me begin with an overview of our fourth quarter performance on Slide 10. Starting with our Connected installed base. This continues to grow strongly, reaching 167 million connected light points at year-end. Turning to sales. Nominal sales declined by 9.9% to EUR 1.49 billion, mainly due to a negative currency impact of 4.7%, largely driven by the weaker U.S. dollar. On a comparable basis, sales declined by 5.2%, reflecting continued weakness in OEM, Professional Europe and the China Consumer business, and this was partially offset by ongoing growth in the other markets such as the U.S. and India. Excluding the Conventional business, the comparable sales decline was 4.2%. The gross margin was impacted by temporarily higher manufacturing costs in Conventional and OEM, while indirect costs increased as a percentage of sales due to lower volumes. On profitability, the adjusted EBITA margin declined to 10%. This was mainly driven by a lower contribution from the Consumer business as well as OEM and Conventional businesses as well as lower results in other. Overall, the dynamics and the drivers of our EBITA margin are well understood. Beyond the structural pressures we are targeting through our cost reduction program, the margin also reflects targeted commercial investments and other short-term factors. Finally, we delivered a strong cash flow generation of EUR 291 million, underscoring the resilience of our cash conversion and the effectiveness of our working capital management actions. Moving now on to the fourth quarter performance of the Professional business on Slide 11. Comparable sales in Q4 declined by 1.9%. This reflects a mixed regional performance as growth in the U.S. was more than offset by weakness in Europe and emerging markets, particularly in the trade channels, where demand remained under pressure. From a margin perspective, we maintained a solid gross margin, as we successfully compensated the effect of price erosion and tariffs with price increases and a bill of material savings. The adjusted EBITA margin declined by 40 basis points to 10.4%, mainly due to lower fixed cost absorption. Moving on to the Consumer business on Slide 12. Comparable sales declined by 2.7%, driven primarily by a significant weaker performance in China, where the consumer environment remains subdued and also Klite, our export business. At the same time, our connected home portfolio delivered a strong finish to the year. The adjusted EBITA margin declined by 330 basis points to 14.1% against a high base of 17.4% last year. This development reflects the higher investments and commercial activation behind our connected home products during the peak events. While these targeted actions temporarily weigh on the margin, they helped us drive momentum in a strategic growth category and are expected to support long-term customer acquisition. Importantly, the connected portfolio remained margin accretive to both the Consumer business and Signify overall in Q4 and also for the full year. Moving on now to the OEM performance on Slide 13. Comparable sales declined by 19.2%, reflecting very challenging market conditions in the Component business. Demand remained weak, and the business continued to face intense price competition. As a result, the decline in the adjusted EBITA margin to 1.5% primarily reflects a gross margin reduction caused by lower volumes and ongoing price pressure. The impact of lower orders from 2 customers was no longer material in Q4 compared to prior quarters and will roll off going forward. However, the market remains very challenging due to low demand and oversupplies, leading to price pressure in the market. And finally, the Conventional business on Slide 15 (sic) [ Slide 14 ]. Comparable sales declined by 19.6%, reflecting the continued structural decline of the Conventional business. Profitability was impacted by 2 transitory effects rather than a change in the underlying economics of the business. The first is the impact of the site rationalization and site transition, which temporarily increased costs and disrupted production efficiency. This effect is expected to normalize in the second half of 2026. The second effect is a short-term lag in the price realization following the implementation of tariffs, meaning cost increase were not yet fully passed through to customers. Moving on now to our adjusted EBITA bridge for the fourth quarter on Slide 15. Our adjusted EBITA margin decreased by 240 basis points from 12.4% to 10% in quarter 4. The volume decline impacted the adjusted EBITA margin by a negative 100 basis points. Price and mix had a combined effect of minus 200 basis points. Within this, the effect of price erosion has remained stable or slightly improving. As mentioned, we see higher effects of price erosion in some parts of the business, such as OEM and Professional Europe, but on the other hand, positive pricing in the U.S. Mix was a positive contributor, mainly to higher -- mainly due to higher connected sales. Cost of goods sold had an overall negative contribution of 50 basis points this quarter, driven by 3 main factors. First, we continue to deliver bill of material savings across all businesses. Second, the manufacturing productivity was impacted in OEM by the significant volume decline and in Conventional by temporarily higher manufacturing costs related to the site rationalization. And finally, COGS will also include the effect of incremental tariffs, which were mitigated through pricing action, and therefore, neutral at the gross margin level. Indirect costs improved by 40 basis points on adjusted EBITA margin level. Currency had a positive effect of 40 basis points. And finally, other had a small negative effect of 10 basis points. Turning to the working capital bridge on Slide 16. Compared to the end of 2024, our working capital decreased by EUR 93 million or by 120 basis points from 6.9% to 5.7% of sales. Within working capital, we saw the following developments: inventory decreased by EUR 106 million, receivable reduced by EUR 170 million, payables were EUR 225 million lower. Finally, other working capital items reduced by EUR 42 million. Thanks to disciplined execution, we brought working capital back into the mid-single-digit range by year-end, a solid improvement that contributed to our strong cash flow generation. I would like to share now an update on our capital allocation plans. First of all, the priorities within our capital allocation policy remain unchanged. We aim to maintain a robust capital structure and maintain an investment-grade credit rating to pay an increasing annual cash dividend per share year-on-year to continue to invest in organic and inorganic growth opportunities in line with our strategic priorities, and finally, to provide additional capital return to shareholders with residual available cash. In 2025, we paid a dividend of EUR 1.56 per share, representing a total cash dividend of EUR 195 million and a payout of 52% of continuing net income. We also repurchased shares for a total consideration of EUR 150 million and canceled 5.8 million shares. In 2026, we are proposing a dividend of EUR 1.57 per share, representing a total cash dividend of EUR 188 million and a payout of 61% of continuing net income. While our policy continues to include returning excess capital to shareholders, we will pause share buybacks for capital reduction purposes. This allows us to prioritize a robust capital structure while our portfolio and strategy review is underway. Once the review is complete, we will reassess the pace and scope of further capital returns under our existing framework. We aim to provide an update at the Capital Markets Day in June 2026. And with that, I will now hand back to As. A.C. Tempelman: Thank you, Zeljko. You covered a lot. You mentioned the strategy review. So let me update you a bit about the priorities as I see and what we have been doing in that space. There's 2 things really important -- I mean, on the strategy. Firstly is to outperform in what is a very tough market. That's kind of the near-term part of the strategy. And then, the second priority is to define a clear path to durable growth, and that includes a portfolio review. So let me comment on both. Starting with the first priority, outperforming in a tough market. We are now taking very concrete actions. We are stepping up operational excellence across sales, marketing, supply chain and IT with a clear focus on managing price pressure, improving efficiency and also strengthening the company consistently in its performance. So it's really a performance step-up. On the supply chain side, we already brought the inventory down, but there's more to go after. We want to lower transportation costs and also deliver our performance to customers with reliability. But in addition to these 3 items around focused marketing and sales investment, supply chain and IT, also, it is absolutely crucial that we keep our cost discipline and our cost base competitive. And therefore, we announced this morning a EUR 180 million cost reduction program. And the majority of the savings will be delivered throughout 2026 with the full benefit realized in '27. So we have to make sure we get to the right cost run rate in the fourth quarter. Now, let me briefly explain the aim of this program. First, of course, like I said, we need to ensure we maintain a competitive cost base and achieve that cost leadership while we rescale our cost structure to match today's sales levels. And we will fully leverage the operating model that we introduced 2 years ago by driving productivity and simplification across our business. So we stay with that operating model. It was the right thing to do, my predecessors put it in place. It was the right thing to do, much more customer-oriented, and we can now deliver the efficiencies and the productivity improvements within that operating model. So we are building on the strong cost discipline already present in the company, while we deliver the cost saving and increase our competitiveness. The program will unfortunately impact 900 roles worldwide. And of course, this is very painful when it affects people, and we need to manage that very carefully and with full respect for our colleagues. The second priority, I mentioned, is defining a clear path to durable growth. We are making good progress on the strategy and the portfolio review. And I would like to emphasize that I'm confident about the choices we will be making to focus the company and to grow value in the future. We are really -- we'll provide clarity at the Capital Markets Day in June about where do we want to invest and grow and what are the parts of the business that we see more for harvesting or divestment. This will be completed in the coming month. And like I said, 23rd of June Capital Markets Day is planned. On that day, we also intend to provide a clear update on our capital allocation strategy, linking our portfolios directly to value creation. So that's on the strategy. Now finally, I would like to discuss the elements of our guidance for 2026, and that is here on the slide now. You might have read that we are not providing guidance on comparable sales growth, and let me explain why we don't do that. We had a really good look, and we continue to see a huge divergence in dynamics across our markets globally and actually across the different parts of our portfolio. And combined with this is, of course, the ongoing uncertainty in the macro environment. And in this context, providing a very wide guidance range would, in our view, not be meaningful. So we thought we better than -- not provide guidance. That said, of course, I can comment on what our expectations are. We expect continued resilience in the U.S. We expect our OEM and professional business to remain challenging, so more of the same. At the same time, our Consumer business is expected to maintain its momentum, supported by the strength of our connected portfolio. Regarding the profitability, we expect an adjusted EBITA margin in the range of 7.5% to 8.5%. We are anticipating a soft start of the year and near-term view with headwinds that we experienced in Q4 to persist in the first half of this year. And of course, this will continue to weigh on the margins in the first half and the challenges we have then on the cost under absorption. For the second half of the year and onwards, the actions we are taking on costs are expected to start providing upsides. And finally, the free cash flow generation is expected in the range of 6.5% to 7.5%, so supported by that strong cash conversion that we have and the continued capital discipline. So with this, I would like to hand it back to the operator and start the Q&A session. Operator: [Operator Instructions] The first question comes from Goldman Sachs. Daniela Costa: Daniela from Goldman Sachs. I just wanted to ask how have the market shares by division trended recently? Yes. A.C. Tempelman: Thank you for the question. Market share is always a bit lagging because you asked about it recently. So typically, we have actuals for the quarter. The market data follows the quarter. So there's a bit of a lag effect. What we mentioned on the -- before on the results in Europe, the market has been a bit sluggish. But a lot of the revenue decline also is driven by lower prices. So when it comes to volumes, we feel that we are keeping or maybe even growing market share in many of the segments when it comes to projects. And then probably where there is the trade channel is where we see the steeper decline, and we probably lose some market share there. In the U.S., it's pretty stable. Yes, I think it will be the short answer what we know now. That said, I mean, maybe just to highlight on the Consumer and the Connected side, I think that's where we are actually -- we spoke about the momentum, and the comments I just shared were more on the Professional business. On the Consumer, we are building momentum. And in the Connected space, we're clearly gaining market share. So that's positive. Operator: The next question comes from Max Yates from Morgan Stanley. Max Yates: I maybe had just sort of 3 quick questions. Just firstly, on the Chinese competition, could you maybe give us a feel for kind of what kind of pricing you're seeing from those Chinese competitors? And I don't know whether you have any kind of good feel on the level of imports that are coming into Europe now as a result of obviously tariffs in the U.S. So maybe any feel of, yes, how the level of pricing is versus those competitors and the level of imports, if you have any kind of knowledge of that? A.C. Tempelman: Yes. Let me say a few things, and maybe, Zeljko, you can add to it. I mean, there's China in China and then there's China for the world. So within China, I think we saw growth in our professional business, where I think we have really outperformed market. So that's positive. On the consumer market in China, we saw quite a steep decline in the fourth quarter. And you see that the consumer demand in China is very dependent also on the subsidies provided. So absent subsidy, we saw quite a bit of decline. That weakness is not just in lighting, that is beyond in the broader consumer space. When it comes to exports, basically, the dynamic in China is such that there's overcapacity in the market. And of course, a lot of the LED is produced in China. Also to deal with some of the challenges around tariffs, we see Chinese suppliers building additional capacity in the East, but outside of China. So, therefore, the overcapacity is only increasing. And that, of course, results into price pressure. We see that in ASEAN. We also see that in Europe, particularly in the trade channels, the more commoditized part of the portfolio. On the positive side, on the Prof side and the project side and the connected lighting, that is a lot less impactful. And there, of course, we also retain our strong margins. Quarter-to-quarter, we don't see it worsening a lot. So it's pretty stable now. Has it bottomed out? Well, too early to tell, I guess, but we don't see a rapid further decline in that sense. Zeljko, is that -- do you want to add anything to that? Zeljko Kosanovic: No. I was going to confirm, indeed, if you look at the sequential, the drivers of price pressure that were there, especially in the non-connected and in the over-the-counter parts of our business, have been amplified indeed by the ripple effect of the tariffs. Having said that, the price pressure remains very, very strong in OEM, in Professional Europe. But at the same time, we've seen a positive dynamic in price in U.S. and also in the Conventional businesses. So I think overall, from a gross margin management perspective, that's very important because we do manage as a whole, and we've been able to extract and continue to extract strong bit of material savings to match the reality of those price pressures. Max Yates: Okay. And maybe just the second question, as maybe just on sort of the strategy, I know you're going through the strategy update. But obviously, the results show kind of quite a sort of difficult environment. So I guess some of the shareholders will be very keen to understand any initial takes. I hear you talk kind of quite a lot about getting growth back in the business. Any initial views on kind of how you do that? Will that require investment? Is that new product momentum? I realize we'll get a kind of full picture later this year, but maybe just any initial takes on sort of what direction you may take? And how you plan to sort of tackle the growth challenges, which the business is having? A.C. Tempelman: Yes. No -- I mean, like I said, I feel increasingly confident that we'll make the right choices and focus the company. And of course, focusing on where the growth is. So that is with -- we are really going quite granular on how do we expose our portfolio to growth and how do we then challenge our marketing and sales investments to those areas where we do see the growth. And so we look at where we can win in terms of geographies, in terms of value chain, but within the Prof and Consumer business also very much at the segment level and product market's combinations where we see the growth. So that's what we're currently working towards. And that will then ultimately result into, hey, these are the areas where we want to focus less. This is where we want to focus more. This is where we want to invest and grow, and this is what we want to harvest or consider for divestments. And I'm confident that in June, we can give you that full picture of what that results into. And I'm quite excited about the plan that we are piecing together. Max Yates: Okay. And maybe just the final one, and it kind of comes back to that growth. Obviously, you didn't do another share repurchase while you're doing the strategy review, but you did keep the dividend at last year's level. And obviously, that's quite a high level relative to your cash conversion. Do you think that's appropriate? And is that sort of consistent with what you need to do in terms of getting kind of growth back into the business and the investments that you'll have to make? Zeljko Kosanovic: Maybe just -- thank you for your question. I think first, what's important to -- that our capital allocation policy remains unchanged, and it's all about balancing growth, shareholder returns and financial strength. So maintaining a robust capital structure, of course, is very important. Now, while the returning excess capital remains part, and that's still a part of our capital allocation framework, we will pause beyond the first tranche that we have successfully implemented in 2025. And this is really to allow to sustain and maintain financial strength, balance sheet strength while keeping the flexibility. So it's really keeping the strategic flexibility as we are going through the strategic review and portfolio review that As was commenting upon. So we will reassess the timing, and that's one of the key elements, of course, that we will give full clarity upon during our Capital Markets Day in June. Operator: The next question comes from Sven Weier from UBS. Sven Weier: The first one is on the cost saving program. A few follow-ups there. I was just wondering because you said you have to unfortunately lay off 900 employees. But in total, you're seeing EUR 180 million of cost savings. So that sounds quite high relative to the number of headcount. So I was just wondering what else is in the cost savings here? And you just had a EUR 200 million program 2 years ago. So I was also wondering, you're now cutting quite a lot here again. Does that not automatically enforce also getting out of certain businesses because your basis becomes quite a bit lower? That's the first one. Zeljko Kosanovic: Yes. Thank you, Sven. Thanks for your question. So just as a clarification, I think, as you rightly pointed, we did go through a substantial cost resizing program a few years ago, but this is different. And the main important difference is that we are implementing that, as mentioned earlier, leveraging and fully leveraging our operating model. So the cost reduction program has different elements, and this is really going into all the layers of -- in particular, of our SG&A, R&D and on a business per business level. So there's a lot of granularity in the way we drive that. Of course, a big portion of that is relating to headcount, but not only. So there are different levels of optimization that we are also implementing, which are behind, and that is being, of course, underpinned at a very, very detailed level. So I can't give you the -- all the detailed breakdown of that. But to your point, I think there are different elements, including headcount resources redeployment, but also many other efficiency measures that we are implementing. A.C. Tempelman: Yes. And Sven, to add to what Zeljko is saying is that I see cost discipline and cost management in our industry as absolute critical to stay competitive. And therefore, it should be a continuous effort, right? And it's business as usual to drive productivity up, right? And of course, also with automation and applications of AI, I think in the future, we can continue doing that. This is, however, a reset that is now required with the new operating model in place. We can make this step change without harming the business. And then, from there on, it should be much more of a continuous effort. Sven Weier: And does that already preclude kind of what you do in June? Or could there be another round of major cost savings announced then after June? A.C. Tempelman: Sven, the current program is -- as a basis of the current program is the current portfolio. So of course, if we take decisive action on the portfolio, we will then again assess what is the appropriate cost base. Sven Weier: And then maybe finally, I just wonder, because if I take the guidance and you don't give a top line guidance, obviously, but let's, for the sake of the calculation, assume flat revenues and you take the midpoint of the margin target, that kind of implies already mid-double-digit EBIT decline. But on the other hand, you say the majority of the cost savings are going to be in 2026 already. So -- I mean, what's really happening on underlying business then because that sounds quite extreme in terms of what you're losing in terms of earnings? Are you assuming such steep revenue declines, price pressure or -- because as you can see that when you do the bridge, it sounds pretty drastical? Zeljko Kosanovic: So maybe, Sven, to give a bit of perspective on what's behind the guidance more as a dynamic of the main building bricks in our profitability, I think first, and that's important, as we've been able to sustain in 2025, gross margin resilience and robustness. So this is still something that we are driving and aiming to continue to drive, which is built in. Now, what we see in terms of the dynamic is we do anticipate a soft start of the year from a top line perspective with the headwinds that we've commented upon and that we experienced in Q4 that are expected to persist into the first half, and that will continue to weigh on margins in H1 just due to the fixed cost under absorption. Now, at the same time, as we are implementing and putting in place and putting in motion, now in execution, the cost resizing actions that will take -- which benefits will be more captured in the second half of the year. That will help to, of course, rebuild the strength of the bottom part of the P&L, and that's what is behind, let's say, included in the guidance or in the expectation on the EBITA margin. And as mentioned earlier, this is in the context of very diverse dynamics in the different businesses from the top line perspective. So these are the elements that we are -- that are to be understood in the evolution of our operating margin throughout 2026. Sven Weier: Are you assuming, again, 2/3 of the savings this year like in the last program? Zeljko Kosanovic: It's more back-end loaded. I think here, the aim is -- and of course, different impacts in different geographies and different businesses depending on the phasing. So it's mostly going to be as back-end loaded, a little bit different, as I said, from the previous program because the previous program was doing an organizational change at the same time as implementing cost resizing. Here, it's really the implementation within and leveraging the same operating model. So there's a different pace of capture in the different businesses. Obviously, in businesses like OEM, where we are facing, I think, action, have already been put in motion. So there, we expect to have much faster implication and much faster capture. So it's going to be a diverse pace of realization of the savings across the different businesses. But mostly in general and overall for Signify, mostly back-end loaded towards the fourth quarter of the year. The key thing, that's what As mentioned, we want to reset and resize to the reality of our revenue to make sure that we enter -- end '26 and entering into 2027 back to the right level of competitiveness of our cost base. A.C. Tempelman: Yes. Thank you, Zeljko. And we know -- yes, I was very impressed actually with the ability of Signify to pull off such a program at the -- in a very short window. So I think very impressive. We know how to do this. That said, I mean, about 25% of the savings will be in countries where there is a consultation process. So of course, with all the respect for the people and the colleagues, we will carefully also work this in consultation with our staff councils, and that takes a bit of time. Operator: The next question comes from Akash Gupta from JPMorgan. Jeremy Caspar: It's Jeremy asking on Akash's behalf. I just have one quick follow-up on the Asian competition topic. Maybe could you elaborate a bit? I'm wondering, are we talking about 1 or 2 competitors here that are showing aggressive pricing? Or are there more than a couple? And also just wondering how do those players compare to Signify in terms of size in their comparable businesses? Zeljko Kosanovic: Maybe -- yes, thank you for your question. I think what's important to remind is that if you look at the -- let's say, the non-connected landscape of our business, if you only look at the number, and this is public information, but always important element to have in mind, is we have over 15,000 registered LED companies in China. So it's very, very scattered. So you have a lot of intensity, which is very fragmented. And the level of fragmentation is particularly high in Europe, in particular in the Professional business. So in short, the price intensity that we see is, of course, across a very, very wide and fragmented landscape. Now, having said that, as soon as we move more into the Connected space, which is much more concentrated, then we have a totally different landscape of price competition dynamics. So this is -- but this is a reality that has been there, by the way, for several years that continues to be the case and which has been amplified, as mentioned earlier, with the ripple effect of the tariffs. A.C. Tempelman: Yes. And to your question, Jeremy, is it 1 or 2? It's multiple. I mean, you see a lot of these Chinese manufacturers that sit on an overcapacity of 30% to 50% of underutilization of their plants. So of course, that translates itself into lower prices. We benefit from that on our sourcing side. So that's the upside of it. But of course, on the lower end in the trade channels, you see these Chinese products under different brands coming to the market. Operator: The next question comes from Martin Wilkie from Citi. Martin Wilkie: It's Martin from Citi. Just a question in terms of what we can expect at the Capital Markets Day in terms of timing of any actions you might take? I mean, I guess you've obviously included disposals as one potential action at the CMD. But we know in the past, some of these assets are not necessarily having huge numbers of potential buyers. I don't want to obviously preempt what you might say, but if we think of the Conventional business, it's probably not obvious that there are lots and lots of buyers for that. Will your review include sort of how quickly you could take these actions? And so can we see that sort of level of detail at CMD? Or just to understand how quickly whatever you might announce in June then be implemented, just to understand sort of how quickly the portfolio might change? A.C. Tempelman: Yes. Good question. Well, we won't be sitting still until Capital Markets Day, so where we believe we have good actions to take, we will, of course, already start that. And the doability of our choices is an integrated part of the choice itself, right? So it's not that we are dreaming on all sorts of desired states not executable. So it's really -- that plan should be really anchored into realism. And we are actively engaging also, hey, if there's value and if it comes to harvesting or divestment, is that value best delivered within Signify or by others or with others. So that's all in scope of what we look at. So the short answer is, no, that is already kind of in motion, and we will update you in June about where we stand. I don't see June necessarily as a starting point. And so we are taking a decisive action and try to move quite swiftly. Martin Wilkie: That's great. And if I could just have an unrelated question just on how we think about the profit for next year. Am I right in thinking that the EUR 180 million all falls within the OpEx line? And so any savings that you have in COGS to offset price and these kind of things to protect gross margin is distinct from that, and therefore, this EUR 180 million is all inside OpEx? Zeljko Kosanovic: Yes, you're right, Martin. I think the cost is mostly our nonmanufacturing cost base optimization for all the other cost of goods sold, as we've mentioned, and we'll continue to do that. I think there, we are driving and exercising cost leadership and leveraging scale, of course, to the largest extent we can, but the cost reduction program that has been mentioned of EUR 180 million is non-manufacturing cost related. Operator: The next question comes from Chase Coughlan from Van Lanschot Kempen. Chase Coughlan: I just have 2. Maybe starting off with the U.S. market. I think you flagged that it's, of course, still growing in the fourth quarter. You said that 2026 expectations are for a resilient market in the U.S. I think it's a little bit, let's say, against the grain as to what I've heard elsewhere in the market from building materials or construction players. And I'm just curious on what's giving you that confidence in a resilient U.S. market for '26. A.C. Tempelman: Okay. While we see the U.S., we expect flat to moderate growth, Chase, and the expected increase in the bit of public spending also is supported by the recent bills. The residential market, I expect will remain soft. So I think when you say, I see more bearish fuse, then it's probably more related to the resi construction. Yes. We -- yes, so kind of flattish markets, low-digit growth potentially. On the consumer side, however, there, we are more optimistic, and we think we can keep the momentum and keep growing the business, particularly on the Connected side. Chase Coughlan: Okay. Great. That's very helpful. And then, my second question on China, so you've flagged that, of course, you're seeing some inflows there for several macroeconomic reasons and particularly in the commoditized sort of range that you offer. I'm just curious on, especially given the 5-year plan in China now, it seems that they're focusing a bit more on connected lighting systems as well being manufactured domestically. Do you see, let's say, a midterm risk that over time, yes, maybe the Chinese products in flowing into Europe are not just limited to this commoditized range? Or how might you protect against that? A.C. Tempelman: Well, what I can say is what we've seen so far. And there, I think we feel quite confident that we have a very strong competitive edge in that connected market, and we see no signals of that changing. I mean, we'll see how the market responds to offerings by others. But so far, I have no reason to believe that, that is where the Chinese commoditization will go. It's very much focused on manufacturing excellence on the hardware side. Yes. Operator: The following question comes from Marc Hesselink from ING. Marc Hesselink: Yes. First question is on your free cash flow guidance. If you look at the -- let's call it, the drop in the adjusted EBITA margin and then compare it to the free cash flow drop as a percentage of revenue, it is a bit better. I think you also started -- ended the year with very good working capital, good free flow of that. Do you expect more of those working capital improvements to support the free cash flow a bit? Zeljko Kosanovic: Marc, yes, the short answer is yes, definitely. As we've indicated in previous communication, I think working capital improvement in particular through inventory optimization, and that goes hand-in-hand with the supply chain excellence focus that As was commenting upon, is an important driver to our structural cash generation improvement. So that's an element that indeed is taken into account on driving the continued dynamic of strong cash generation in '26. Marc Hesselink: Okay. Second question is on your Conventional business. I think historically, you had -- did a very good job managing down that Conventional business and also protecting the margin in that process with the footprint rationalization. And now, you see actually quite a big hit on your margin. Did those dynamics that you can run down that business, did that materially change that it now is different? Zeljko Kosanovic: So actually, there are 2 elements. And so the answer is no. I think we do have -- and that's what we expect to normalize back to the entitlement of the teens' level of operating margin for that business in the context of continued decline. Two transitory elements that indeed weigh in the EBITA margin over the last 2 quarters, one, which is related to manufacturing process transition because as we are scaling down and adapting proactively that business, where we do a lot of site transition and manufacturing process in that context, can be impacted. So this is what we've seen a temporary increase of our manufacturing costs in the transition, and this is something we do expect to normalize by end of Q2, so into H2 back to normal. And then the second one, which was a little bit more specific to Q4, where we had the delayed effect of tariff cost increase, which are being mitigated through price. So the price-through had a bit of a lag effect compared to the cost impact in Q4, which will be normalized already in the first quarter. So 2 transitory elements that are impacting in what you see, but no change vis-a-vis our ability to bring the profitability again to the levels of entitlement of teens profitability that we had indicated earlier. So it's a transitory impact of a few quarters. Marc Hesselink: Okay. That's clear. And another bit smaller question is on the other division. You mentioned that you had less revenue from your ventures business. But then, it's quite a big hit on your profitability, almost EUR 10 million difference. I mean, that seems a bit big for a ventures business. But can you explain the dynamic? And if that's true, what does that mean for the coming quarters? Is this something where you will have quite significant higher cost than what you had in the previous quarters of '25? Zeljko Kosanovic: Yes. So look, first of all, and as the scope of what is reported in the other, so you have indeed the profitability of our central ventures. So you do have also other global costs, right, which are reported there. So I think the main impact, indeed, as you highlighted, is the effect of indeed a much lower sales volume in the ventures, and that impacted directly to the bottom line, which is -- one of them is also exposed to the dynamics of the consumer market in China, in particular, so this one. And it's good to remind that we had actually a comparison base that was very high in Q4 last year because this was a business that really had a very strong growth and strong dynamics. So we have a bit of a double whammy kind of comparison base effect. So it's transitory by nature, and this is the nature of those venture businesses, which are reported under other. But the other segment is not only venture P&L, just as a reminder. It includes also other global costs. Marc Hesselink: Okay. So what would then be like a normal level that you would have without these temporary effects? Zeljko Kosanovic: Yes. Look, I cannot disclose a specific guidance on the other. But I think what we've seen in Q4, I think we expect in the coming quarter to go back to kind of normalized level that we saw in the previous quarter. So there's a bit of volatility in the venture business. So I can't give you a precise guidance on that, but we do not expect coming quarters to be as low as what we saw in Q4 in terms of revenue for the ventures. Operator: The next question comes from Adam Parr from Rothschild & Co Redburn. Adam Parr: Just a question on CapEx, please. Could you just share a little bit more detail? It appears to have jumped to 2.7% in the fourth quarter versus the 2022 to 2024 range of about 1.7% of sales. Just wanted to ask what's been driving this increase? And what do you see as a sort of more normal level in 2026 and 2027? Zeljko Kosanovic: Yes. Look, in the CapEx line, so you have different elements. So the -- if you compare on the quarter-to-quarter or year-on-year, quarter-on-quarter basis, I think you may have a different dynamic. So typically you have 3 things. You have the tangible CapEx, which is, in general, quite stable. So no real volatility there. Then, we also had the effect of real estate transactions, so that impacted differently this year compared to the previous year. And then, we have also intangible CapEx, which are more related to product development to IT project capitalization. So different dynamics. But overall, I would say, as a percentage of sales, I think we should not expect any significant change of the level. I think our business has a very low CapEx intensity in general, and that will remain so. So a bit more volatility when you compare it on the quarter versus quarter because of those 3 buckets or 3 building bricks that have different dynamics. Adam Parr: Okay. Maybe I could just follow up. And when you say capitalizing sort of cost of product development, can we assume that's mostly connected there? Zeljko Kosanovic: It is indeed. Operator: The last question comes from Wim Gille from ABN AMRO-ODDO BHF. Wim Gille: I hope you can hear me. First question is on the, let's say, comments that you made around the consumer business. When you were looking into 2026, you mentioned you expect to keep momentum in Consumer. However, if I look at the comparable sales growth for the fourth quarter, it was actually quite weak. So what did you actually mean with that comment? So should we look at the comparable sales growth in Consumer for the full year? Or what exactly did you imply with keeping the momentum in the consumer space? And in relation to that, you mentioned specifically that the consumers in China have been weak. But if I read any other consumer company, the consumers in China have been absent since COVID. So they haven't done anything in the last couple of years. So do you actually see a material change here? And is that market-driven? Or is it more market share related, where you basically lose out against very desperate local producers there? And my follow-up question would be a much more optimistic one, and it's around the growth verticals. If I hear you correct, connected lighting in growth vertical actually stands at around 36% of group sales for the year. That's up materially from 33% last year. So is my math correct that the growth verticals, including connected lighting actually grew in 2025 in the low to mid-single-digit range? A.C. Tempelman: Thanks, Wim. And let me give it a go and maybe Zeljko wants to add. But indeed, for the consumer, I think if you have a reference point, the full year would be much more indicative of how we see the consumer business moving forward than the fourth quarter. We have great momentum. I think it's fair to say that we are confident about market, but we're also confident about gaining market share. And that is both on the Connected Hue range, but also on the luminaire side. We expect -- we see some real good growth opportunities, and that offsets a decline on the more commoditized and declining lamps business. So if you add the whole mix of consumer, we feel we can keep that growth momentum as we've seen for the full year last year, maybe more. On China, that, like I said before, it's -- the demand in China, it has been sluggish, but it's also heavily imported by the support schemes put in place by the government. And you see that once these subsidies do come in that you see demand popping up quite quickly as well. So it's a bit volatile and unpredictable. So we'll need to see how that plays out. But indeed, a decline -- sharp decline we've seen in China consumer markets in Q4. We think that, that will continue to be challenging at least in the first quarter of this year. On the growth of the verticals, you're quite right. I mean, we are very excited about the growth opportunities there. And we do see that growth that you spotted is indeed happening in '25. So that is -- I don't know what you said, low single digit. I think it's more higher single-digit growth that we see around Professional and Consumer. So we -- like Zeljko indicated, we will continue to invest in it. We also see that clearly as an area for future growth going forward. Wim Gille: And can you split the, let's say, penetration? So it's 36% on group level. Can you give us a broad indication where you are in Prof and where you are in Consumer? A.C. Tempelman: Well, that is the level of granularity that we typically don't provide. What I can say, Wim, is that it is -- in both businesses, it's growing at a similar high rate. Yes. So high single digit, if not double digit in some areas. Operator: Thank you. And with that, I will now hand the call back over to Thelke Gerdes for any closing remarks. Thelke Gerdes: Ladies and gentlemen, thank you very much for joining our earnings call today. If you have any additional questions, please do not hesitate and reach out to us. Thank you very much, and enjoy the rest of your day.
Jane Morgan: Good morning, and welcome, everyone. My name is Jane Morgan, and thank you for joining us today for this webinar with archTIS Limited, a global provider of data-centric security solutions for the secure collaboration of sensitive information, listed on the ASX under the ticker code AR9. Just this morning, the company has lodged their quarterly report for Q2 FY 2026. And today, I am joined by both Daniel Lai, who is archTIS' CEO and Managing Director; as well as Mr. Kurt Mueffelmann, who is archTIS' Chief Strategy Officer and the U.S. President. Both presenters will be covering off the quarter's activities, the ongoing strategy and developments in the U.S. market and are here to guide us through what's ahead for the 2026 calendar year. Following the presentation, we will have time for questions. [Operator Instructions] Kurt, I'll hand to you. Kurt Mueffelmann: Yes. Great. Thank you, Jane, and good morning, everybody. We're really excited, and thank you for attending today's presentation. And during today's session, we'll update you on some great happenings around our quarterly performance, provide an in-depth financial review, update the U.S. DoD opportunity, obviously, the Spirion integration, how that's really progressing in a wonderful manner and further discuss the go-to-market strategy around how we're growing and where we see the markets going into the future. So what I'd like to do initially is send it over to Dan and start off with some of the Q2 FY '26 quarterly highlights. Dan? Chun Leung Lai: Thanks very much, Kurt. Welcome, everybody, and thanks for attending this webinar. So I'm going to start from the bottom O and then work my way around. Obviously, the biggest -- big elephant in the room is updating you on the U.S. DoD deal. The first thing that we announced this week was the U.S. DoD custom development milestone was achieved. Now that was work that the U.S. Department of Defense requested for us to make amendments to our software so that it could be more deeply integrated into their environments and expanded to a broader customer base. We finished that software custom development, and we've provided that back on time to the U.S. DoD for their acceptance and evaluation. So we're very happy about that. We have one component left to do, which is a piece of integration with the third-party software, which is more configuration work. So we expect that to go fine through with flying colors, and that's all on track to be delivered as well. So the next step there, which I think is a great milestone is that NC Protect has been deployed into the U.S. DoD365 environment. That is a production trial so that the system integrator can make sure they can manage that software in multiple different locations across the U.S. DoD environments, which are located around the world. We have expanded the client base there for more trials in that sense to be done. We expect that to be a 30-day deployment trial with real live data. And that's really important because this is the final milestone before that we would see our licensing for larger users to be issued. So that's critical. It's something that we've been expecting, and it's something that we see as an extremely positive sign. That, combined with the software development, gives you a very clear indicator that we have great confidence in this deal. The ARR for the company, obviously, with the integration of Spirion, we've increased that ARR. It's up 308%, $16.3 million, a strong performance. And what's really important about that now is that our gross margins are still above 75%, which gives us good cash back into the business, but licensing revenue sits at around 83% of total revenue, which is good as well. Total funds available, $7 million, and we also announced that we've had agreed to terms with an $8 million debt facility to make sure that we've got that runway with any variance of expectations of delivery of this U.S. DoD licensing deal that we're expecting. 76% gross margin, as I said. And of course, the main activity for the last quarter has not just been U.S. DoD but other deals as well and working out how we're going to cross sell to that 150 clients in the U.S. that we have acquired with the Spirion acquisition, integration of their teams, standardization of the software development life cycles and how to -- and working through how we integrate the products as well to take this forward in a very strategic manner to pivot into this U.S. market, which is 40% of the data-centric security market globally and really start to ramp the business up. And of course, that's what we're trying to achieve strategically, and we're looking for those short, medium and long-term results. Over to you, Kurt. Kurt Mueffelmann: Yes. I think the main financial aspects were really revolving around Spirion, and so when we look at that acquisition was really October 1. It was the first quarter of operating together. And I've done 20, 25 different M&As, and actually, it was one of the smoother ones that we've done. And if you look at the [ 4C ], you'll see generally staffing. Staffing costs are generally high in the first or second quarters that come out of such deals like this. And so we were fortunate enough to have a really good pre-acquisition understanding of where the business was. And as we'll talk about, we were able to cut some real solid expenses out of the business and start to look at where we get to a real runway of the business as we go forward. So if we dive a little deeper, ARR in the December quarter was $16.3 million, a 308% increase over the prior comparative period. We know that ARR did drop from the prior quarter. We understand that there was churn from the Spirion acquisition. We did a really good job in really digging into our understanding from a due diligence standpoint, and we knew what churn was forecast and what was taken into consideration and where we need to be from the purchase price. So our purchase price is still under 1.25 of the current revenue, which is really attractive by any market analysis that's out there today. So we feel really good that we have our hands around where the churn rate goes on Spirion and where the go-forward revenue is coming from. Total revenue for the quarter was $4.6 million, and that was comprised of $1.5 million from Australian operations, which is in line from the prior comparative period and $3.1 million from U.S. operations, including U.S. archTIS and Spirion. And we continue to see really software licensing being really strong as a percentage of overall revenue. Software revenue was $3.8 million, and services and equipment was only $800,000. So again, it's a real focus on where we want to take the business. Gross margin for the quarter, which is really showing where that strategy around driving software licenses came, really came in strong at 76%, a bit of an improvement of 73% from the prior corresponding period. And again, it's that transition away from lower-margin services, equipment, third-party software and really driving the licensing that archTIS has from a proprietary standpoint. Operating expenses for the quarter, excluding one-off transactions and integration costs, yes, it did increase to $5.9 million from $1.5 million in the December 2024 quarter. This increase, as I said, was anticipated. A lot of staffing in there reflects expanded headcount and operating capability aligned with the U.S. market expansion. Our one-off costs were a little bit over $1 million and included the Spirion transaction and integration costs. However, at the end of the quarter and as part of the global integration plan to include Spirion, we really implemented a workforce and cost synergy realignment initiative, which expects to deliver over $4.5 million in operating efficiencies on an annualized basis. So we're really being strongly driven by where our operating cash flow goes, what our cash runway is and where we drive the business forward from an overall cost standpoint. Operating cash flow for the quarter was negative $4.1 million, reflecting the temporary elevated costs aligned with the Spirion acquisition, further U.S. market expansion and the timing delays from the U.S. government delays from the government shutdown. The company closed the quarter, as Dan mentioned, with cash balance of $6 million and a total available funds of a little over $7 million, and that does exclude the $8 million Regal debt facility. So overall, we feel that we have a really good handle on where our costs are going. We have a strong understanding of where our total ARR is going and locking that in to limit the churn and the loss of any customers as we move forward and really drive where we need to go from a strategic standpoint. So let me just turn it back to Dan to talk a little bit about how we're pushing to supporting the global scalability and growth of the business for the coming quarters. Chun Leung Lai: Yes. Look, we've seen good traction obviously. We discussed the momentum in the U.S. They renewed that 1,000 licenses. It had expired. They needed to do that to do a production trial for deployment of the product into different [ co-cons ] as we call them, and that has happened. That's underway, and we expect that to last approximately 30 days for that period of time for that trial to be done. And it's more so about how they manage it, what [ order logs ] they can get back and make sure that they can maintain that software. Post that, we expect to have -- see some sort of licensing deal come through for the organization. Importantly, what was really an impressive milestone was not only seeing it being deployed, but the fact that they had such confidence in it, they were expanding those commands for it to be trialed across, and we were very happy to hear that. So we feel that there's strong indicators coming out of the U.S. DoD at this point in time. In terms of the U.S. expansion, the cost synergies, Kurt's already been across that. I think that it's really important to understand that we're taking it very seriously that we found more synergies than we expected. We acted upon them, and we're taking those type of actions to make sure that we're looking after that capital very tightly. Of course, the other aspect there is the cross-sell and upsell that we are looking at with these customer bases. We've already identified $2 million worth of opportunities in the first 3 months, which we have commenced starting to execute and engage, start to demonstrate. Obviously, there's a process there of training the U.S. team into our product suites, how to present that, where it fits and of course, also that vice versa, the opportunities that we're now finding in Australia where we can pitch the Spirion products, which is that discovery of that information and that labeling of the information for NC Protect then to be able to enforce that data-centric security process. And of course, out of that 150 global blue chip, it's really important that we market to them and the branding to them and they see a strategy not from a best of breed but to an integrated platform future that this is a long-term investment, and we are their partner of choice for data-centric security along that journey to continue that growth. Kurt? Kurt Mueffelmann: Yes. I think what was interesting, so I spoke to our partners over at Copper River, and they were blown away that we were able to actually commit and deliver to the January 16 delivery of a customized software development. It was over the holidays, and they said we were one of the few vendors that had the ability to actually say we were going to do something and get it done. So that builds huge credibility, and that goes straight up the chain right up to the U.S. DoD. I know we were presented by one of our other partners associated with Copper River, right up to the #2 person at U.S. DoD that handles this within the IT operations, and again, they passed on their thanks down to the level of individuals within archTIS for performing and getting that done. And that just doesn't stretch into the U.S. It stretches back into the development teams and the project management teams and everybody across the archTIS employee base and delivering that. It's a true team effort, which is really nice to see. It's nice to get those accolades when you're in the trenches. The other nice thing about being in the trenches was when you start to talk about that $2 million of cross-sell and upsell, you start to look at what the scope and the breadth of that is. In looking at our pipeline and looking at the individual opportunities, there's 1 opportunity in there that has 30,000 users, which is fantastic. That's a significant opportunity for us to do. We're really tied into that. I think we did our fourth or fifth demo on that over the last month. So you really see the excitement around where you take that to the next step around going from discovery and classification up to enforcement and governance that NC Protect provides. But on the other side, we also have smaller organizations. We had a couple of small educational institutions that had 1,000 users. We have a small manufacturer of 500 users. So we really go up and down the scale of Spirion 150 users -- 150 customers that Dan talked about and really driving that cross-sell, upsell opportunity. So we see tremendous opportunity there as we continue to move forward. So Dan, as we look at kind of kicking off calendar 2026, let's talk a little bit about where we're going with the market and where is the market going because it's still continuing to boom from a cybersecurity perspective. And when you start to look at the scope and the scale of the number of vendors and where we are in the market, it sometimes becomes a little mind-boggling. So I think it's good at the beginning of the calendar year to bring it back in to say where are we and where do we compete and how do we differentiate ourselves in the market. Chun Leung Lai: Yes. Well, this could be somewhat terrifying if you didn't have a plan. Luckily, we've got a plan. So there's probably about 12 major organizations out there, which dominate the cybersecurity market. There's your CrowdStrikes, your Varonises, Microsoft, AWS, Ciscos, Palo Altos and so on. They're the big guys, the big dogs, as we like to call them. They control a vast amount of that security budget. But there's about 4,500 other vendors out there vying for visibility and usually filling a gap or is the best-of-breed product, which has been adopted over time and is working. And I think the real question that you've got to look at from your strategy is how do we differentiate, how do we partner and value add to those big players in a space where they don't have that capability, and we can extend their value propositions to their customer bases as well as for us, exploit their customer base for selling. And I think that that's really, really critical to have those differentiations in the strategy. And I think with data-centric security, we're extremely well placed to do that and most importantly, leverage that, as I said, that cooperation in terms of selling and structures. And again, I think that we're well placed to do that, but we'll go through a bit of a detail here. So why don't you talk a little bit about that strategy, Chief Strategy Officer, Kurt Mueffelmann. Kurt Mueffelmann: Yes. So I think what's really interesting, though, is when you start to look at what's around us, right? And there's a lot of activity going on, right? There's a lot of M&A. There's a lot of roll-ups. There's a lot of money coming into the space. And of the $300 billion that are out there today, as an Australian micro-cap, we can't compete with that. We can't be all things to all people. So we really look at where we target our business and market opportunity around data-centric posture management, data loss prevention and data access governance. That's about an $11 billion market that's out there today. So we're trying to really scope down of where we compete and how we do that. And when we start to look at where that M&A activity, where market valuations come in and everything, companies that are driving right around USD 100 million in revenue, there are some massive transactions that are out there today. One of them includes the Israeli firm, Cyera. They just received $400 million in a December raise, and that's implied valuation of $9 billion. They sound just like huge numbers, but again, $9 billion valuation for $100 million in revenue. You do that multiple of revenue, and it's just mind-boggling. BigID, U.S. firm, $1.25 billion valuation, $100 million in revenue. Securiti AI, they just got acquired by Veeam for $1.8 billion. So that reinforces really that institutional conviction and scalable data-centric platform. And we need to continue to execute our strategy, expand, obviously, where we're going with the U.S. DoD and the government enterprise adoption and really create that pathway towards where we believe we can drive the business. And ultimately, our available market opportunity is not defined by how many feature sets we can build or how many adjacent categories we can claim. It's really all about how we focus on complementing that hyperscaler platform, remain essential to large market consolidation and really drive those partnerships and building what we think is really strong in the message that's out there today. And so from a strategy standpoint, we start to focus on that modern data fragmentation that -- the DSPM, the DLP and the DAG markets. They're still big at $11 billion. So we're trying to even be really focused on that center intersection of all those 3. And Dan, do you want to talk a little bit about what that entails? Chun Leung Lai: What that's really about is that as a business today, I exist in a hybrid environment. I've got AI driving my data usage. I've got IoT. I've got data analytics. I'm using SaaS platforms such as Salesforce, which is taking my information from my on-prem to the cloud. I might be using different cloud vendors for different infrastructure purposes or different services, digital services. So I exist in a hybrid world. And what's really difficult about this is how do I extend my current investments to maximize those investments without having to replace all the functions that I've already got and the capabilities that already exist. And the way of doing that is essentially about creating a fabric between all of those points. How do I get visibility of my data? What are the threats? What is sensitive? How do I label that? How do I protect it? How do I prevent data loss prevention? And how do I do access and governance? And most organizations today have a myriad of different products and aren't consolidated into any one vendor because, quite simply, not one vendor can do it all. And where they all got vulnerabilities is they do that at the application layer, the network layer, but they don't do it to the data object, and this is where our competitive advantage is. And with the introduction of TDI, Trusted Data Integration platform from the acquisition of Direktiv, we now can become that fabric, which enhances that value for the customer and provides a single point to manage and control and orchestrate policies across their entire security ecosystem to give them a zero trust fabric. That's really key. Kurt Mueffelmann: Then, I think the way we really drive that across the product lines is through policy. We've always talked about policy-based orchestration. And so when you look at data-centric policy orchestration, it really unifies these 3 different markets through a data control plane, as Dan talks about. It really abstracts the business and regulatory intent in the policy, evaluates the policy in real time. It drives that attribute-based access controls that we know we have out there. And the result is really this closed-loop security in real time, consistent decisions and really turned fragmented controls into a single operating control plane across all data, not just unstructured that we've been historically but across all types of data that are out there today. And so Dan, can you talk a little bit about and explain maybe what the control plane is because that will be a big vernacular aspect that we bring into the business as we move forward? Chun Leung Lai: Well, we see this race from all of these companies, Microsoft included, to be what they call the control plane. We see it with Varonis. We see it with BigID. We see it with Cyera. We see it with Zscaler. However, what they're really talking about is if you put all of your information into my cloud or my product suite, you can have a control plane. And as I just said, we're living in a hybrid environment and what they're not doing [ is that ] to the data. That's really hard to do. So we're not going to go out there and compete with CyberArk or Palo Alto or Cyera. What we're going to do is integrate with them and extend their capabilities across that hybrid environment by providing that policy. But if you're in a Microsoft environment, our platform might call and produce a policy to run NC Protect or it might take the CyberArk identity as a trusted identity and then put that into that process for SharePoint Online protection but also then extend that out to a data set in an AWS cloud environment. So we become the fabric that integrates all of those products that already exist to leverage that investment for our clients but also has the ability to integrate into any data source, any device, any structured data source, AI, particularly, which is really important with the advent of agentic AI and the usage of that. We're seeing now employees coming to the table and bringing their digital twin for -- as part of the interview. So this is changing very rapidly. And how do we protect that intellectual property and then also use that -- share that information with other organizations and still protect it? That's the play here. And I think we've got a very strong play. Kurt Mueffelmann: And I think what that does is it takes kind of where we are with best-of-breed products that are out there today across a number of different areas and pulls it into this data-centric or data security policy orchestration and control plane. And the individual point solutions, we address individual discrete problems such as data discovery, classification, enforcement, customers looking at ways of requiring unified layers, translating security, looking at what the business intent is and how you pull that all together. And really, this transition expands archTIS' addressable market, strengthens our strategic relevance within the hyperscaler without competition. It drives further government ecosystems across playing well and nicely in the same sandbox and creates that foundation for that durable platform level creation over time. And Dan, maybe you can talk a little bit about how the move from best of breed to platform is something that as we start to look at where we go over the coming horizons of the business itself. Chun Leung Lai: Well, all of this sounds very highfalutin. And when will that be? It sounds a bit like it's far out. It's actually not. What we've been doing is collecting companies that give us a best-of-breed solution, which -- and we've done that for any data-centric security problem. So we can now discover data. We can label data. We can actually then integrate it and provide enforcement controls, which is where our competitive advantage is. We can do that with using Direktiv as the foundation and adding our policy enforced ABAC controls into that platform. We now have the foundations to rapidly build out a platform offering for our customers. And these use cases that we did for BAE about integrating multiple parties and consolidating that information for manufacturing supply chain, the deployments that we're doing currently in the military for allied force integration, they're all providing the input into this and referenceability for the market. The acquisition of Spirion also gives us commercial clients to explore with these synergies and strategies. And we're expecting before the end of the financial year that we're going to have a minimum viable product for that platform to exist off and integrated with things like NC Protect and Spirion. Now what does that mean for execution for short-term revenue, medium-term revenue and long-term revenue where we believe we can really disrupt the market and become -- coexist with the big dogs and provide value add and really ramp up the ARR? Well, really, that comes down to these 3 horizons. And Kurt, you can talk about some of the opportunities here, but it starts with things like the U.S. DoD, winning NATO and Japan to get that referenceability and build along with them solutions for -- to implement that strategy with them. Kurt? Kurt Mueffelmann: Yes. I think what you find is that a lot of companies come out with these grandiose strategies, but they forget where they need to be and where they are, right? We're a public company. We need to report back to shareholders. We need to be very concerned about where our expenses go, our total cash runway. And our strategy, we're structuring it across these 3 horizons that really address immediate needs around, number one, defending and extending the base. We now have 200 customers that we can go in. We can do upsell, cross-sell. We obviously have some strong opportunities with the U.S. DoD, NATO and other coalition forces. So we feel like we can continue to drive really aggressive top line, be very conservative from an expense standpoint and really try to drive where we need to be in a business. But yet being in a competitive sector that we are, we need to look at where we go. And that next stage or next horizon is really taking that and building, as Dan said, the TDI into a policy orchestration engine but going through not only that from a technology standpoint, because it's easy to get lost in that, but taking what we've learned and taking it to the next level, expanding where we're going, taking that initial U.S. DoD opportunity and expanding it broadly into a broader 3 million to 4 million U.S. DoD licenses that are possibly out there today, continuing to work with the Microsofts, continuing to work with organizations that are coalition partners. We've had prior successes in the global DIB supply chain. How do we take that and drive that together? And then Spirion brings a whole different opportunity around regulated industries across state and local education, across health care, which is where one of our big pipeline opportunities is coming up. When we take that and take that into financial services and regulated industries there, you start to see where we can take that over the next -- between now and the next 18 months and then work towards that repeatability and commercialization that takes us to scale across the platform of where we drive that. So we think that there's some good opportunity. There's some good tailwinds behind us around zero trust mandates, driving that urgency, the compelling events around what customers are looking for. We're hearing that all the time. We're looking at how we take that and bring this to a simplified market opportunity that really leverages where we want to go, be strong today but drive towards the future to where we can start to look at and expand some of those market opportunities of valuation, driving shareholder value, which is one of the key opportunities that we need to consider on a daily basis, wake up every day and say what are we going to do to drive shareholder value and build the business and how do we maximize where our shareholders need to be as we go forward. Dan, any summaries on that? Chun Leung Lai: No. Look, I think the Horizon 1 is sell what we've got today. We're selling those best of breeds. We're doing that cross-sell. Horizon 2 is really about that orchestration, TDI sales. We know we've got a number of opportunities in the market. And it paves the way for that to become Horizon 1 pretty quickly. And that's really the progress that we want to make. And of course, this Horizon 3 is about the interfacing to those large, big dogs we've talked about, your Varonises, your Cyeras, your Zscalers. And of course, we've already got that relationship with Microsoft. So we see that as fueling the fire not only across defense and intelligence but also expanding us back into those commercial environments. Once we get that success there, I think it's going to really start to roll. So really important that we get the foundations right now, we get the strategy and the focus right now. I think the other part of this strategy is it really keeps you clear on what you're not developing, where you're not competing and where you do have to compete and win. And I think that brings us back to the focus that Kurt talked about, which is going to be key for our success as a small player and growing -- to get that growth strategy really, really running. Kurt Mueffelmann: Great. Why don't we turn it over to some Q&A, Dan? So we're talking a little bit about product strategy, and the big thing that's on everybody's front of mind is AI. So can you talk a little bit about how archTIS is using AI in product development? So I think this is a 2-phase question. How are we using it in product development, I think, to become more efficient? And how can we use that as market opportunities to sell more product and where we will be securing AI into the future? Chun Leung Lai: Okay. I can do that very quickly. So part of the integration with Spirion was to get a corporate AI from the development platforms and increased productivity from our developers but also particularly in making sure that our testing and quality assurance is being higher productivity and higher levels of assurance in that, particularly against security frameworks and security code and all of that sort of thing. So we're not only just using it in the business at all levels. We're experiencing that levels of how do we integrate this securely, and we are eating our own dog food first. So one of the great things about Direktiv, it was a really early product to secure, let's just say, a code from AI, particularly for defense environments. So it has been deployed to do that -- exactly that. So we have a demonstration being built today for how it would work with agentic AI. And the big challenge for adoption in most organizations are twofold for AI. The first one is compute capacity; and the second one, obviously, is security. There's no questions about the productivity gains people get. It's about how do I make sure that the productivities I get don't undervalue the business through a data spill. And that's the challenge that companies are looking at from the adoption. We certainly have already adopted it in our innovation framework, and we are building demonstrators much faster than we have ever done before to demonstrate the value of our products using AI. Kurt Mueffelmann: Great. Why don't we jump into -- there's a couple of questions around cash flow and the raise potential and what Regal facility adds to that. Could you interpret the Regal facility because you talk about nondilution funding and where that goes? And how does that come across versus what a traditional cap raise maybe look like? Chun Leung Lai: Yes. Look, I think we always keep all options as a Board on the table for making sure that we have runway as people -- as shareholders are referring to. Obviously, when we close some of these big deals that are in the pipeline, it's fantastic that you get a lot of cash in. You can do multiyear deals. You get a lot more cash in and you solve those issues, and you don't dilute your shareholders through any raises. There are a number of nondilutionary options out there, including the Regal debt facilities, which we've agreed the terms on. But there's also other options as well. So we're looking at -- to balance dilution versus strategic investment from raisers and if we have a partner that really wants to come and is going to be a long-term shareholder and can grow -- help us grow the businesses, we'll obviously look at that, too. But at this point in time, we've announced that debt facility because it is a nondilutionary way of extending our runway and ability. And look, we are just as frustrated as shareholders trying to pin down the U.S. DoD in a country. And I think everyone is clearly aware of the turmoil that's going on in the U.S. at the moment and a different day changes, a different decision from the President, which can backflip on a decision. It creates uncertainty. The business environment has uncertainty. That's the nature of the beast, so we're looking to protect that runway. However, the indications that we are getting from our customer is that this is the time frame that we are -- and that's all we can relate to you, and that's the expectation from us in terms of when we will get this deal done. Kurt Mueffelmann: So when we talk about the U.S. DoD, there was a question about do you see any licensing in the next 30 days because you talked about the different commands adding on and using some of the custom code that was delivered just recently and how they're going to go out and test it. What does it look like over the coming weeks or months from a licensing standpoint in your estimation? Chun Leung Lai: I'll talk people through that whole actual life cycle if you like. The first thing that you do with your customer is socialization, problem identification. Tick, we've done that. Compelling event established, tick, we've done that. In fact, not only has the President mandated zero trust across the federal government, the Department of War CIO has mandated and provided a date that this must be accomplished by -- which is 2027. So they've got real motivators to solve this problem. We know that we -- our product has got a sponsor, who has got budget and that we have to find the use case. We've done the proof of concept. We've done the customer identification. And in this case, that customer identification are those commands. We've done the security accreditation process. We've done the custom software development. We've done the licensing purchase for the trial, and that is where we are today, a 30-day production deployment exercise to those different commands, and that's what is being conducted. So do I see licenses happening in the next 30 days? No, I don't because we've got 30 days of that process to go through. I expect something to happen shortly after that and of course, given that there's the stability in the U.S. environment, the political environment, I'm saying there. So -- and then I expect us to be deployed, and then I expect us to be able to look at -- commence conversations on that 120,000 licenses that we expect to come through. Kurt Mueffelmann: Yes. And I think having feet on the ground here in the U.S. and having a little bit more, I think, insight, you hear these stories about a second government shutdown and what have you. The first government shutdown, it hurt more around the timing of getting things such as security certifications or what they call the STIG finalized. All of that blocking and tackling and ticking of boxes is done. The government shutdown should not affect any funding because we're dealing with frontline war fighter networks. We are actually right in the [ co-cons ] themselves, and those don't get affected by government shutdown from a funding perspective. Where a government shutdown could affect something is if someone needed to come back and said, hey, you need to revalidate this, what have you. And the person that's doing that revalidation is furloughed because of the government shutdown. I don't expect that to happen. Now again, silly if things will and have taken place before around government shutdowns, but number one, I think it's a stretch to have another shutdown. I don't think the politicians within the U.S. can go through that. They can't go through that for their constituents on either side of the aisle. So I think that will be a big challenge for them. And we've gone through a lot of the administrative stuff that would not be affected by a second government shutdown. And we know that the funds are there from a flow-down standpoint. We've seen them, and that's what we've been looking at as we move forward around the purchase around the -- extending the licenses themselves. So I guess, Dan, last question I thought would be good and this is kind of an interesting one. So we're at the beginning of 2026. When do you see or hope to see archTIS at the end of 2026? Chun Leung Lai: Look, obviously, where I see the business is that we're cash flow positive. We're starting to build that EBITDA up. I would love to see very, very strong new logos in that business with strong, sticky ARR, all the things that you're looking for, high gross margins, all of that sort of stuff. But I really think that what we want to be able to do is move out of that, really, survive phase where we sort of have been burning some capital for the opportunity to arrive. And I think we'll have transcended that into that. We've got our own destiny in our hands because we have had that success of those deals driving and expanding the growth of the business. So really, that's where I see the business at the end of these 12 months. You've seen the plan that we've just put up. It is an 18-month strategy. These are not long time frames. Technology moves far too quickly for us to have big 5-year plans and all the rest of it. AI is moving quickly. These are organizations moving quickly. And part of this is that exploitation of those strategic alliances. And that's something by the end of the year that I really want to see that we have this platform base, and we're starting to being sold and referenced by our alliance partners, those big dogs, and we're starting to access their customer base. And then I think, in 2027, it's about that growth story, a really strong growth story, and that's where I hope to see the business. Kurt Mueffelmann: No, great. Yes, I think it's -- the industry is moving very quickly. You see a lot of consolidation. You see a lot of money coming into the business, so we need to stay ahead of that curve. We need to drive this recurring ARR. We need to get ARR moving in a much more aggressive fashion. We can't be solely dependent on the U.S. DoD deal, right? We know that 8,000 users is not going to move the needle. That's not our expectation. What we do expect 8,000 users from a licensing standpoint is lean into a broader enterprise agreement. It also brings us back into how do we address what we're doing at the Australian DoD, where do we go with other coalition forces, whether it's in the U.K., Japan, Taiwan, Korea, across Western Europe and what have you, going back and leveraging that back into the various defense industrial base partners that we have and look at the primes of the Lockheeds, the Boeings, the Raytheons and carry that across into some of the prime delivery vehicles that are out there from a partnering standpoint. And then remember, we still have Microsoft out there. And there's been a lot of great meetings going on with them. We need to continue to drive that and really push that. And I think if we can accomplish those kind of areas across 2026, maintain costs, drive towards where we're going to be from a strong business perspective around cash, making sure our investments are providing returns, making sure that we have an understanding of where we're going from our overhead and operating standpoint, I think that would be a good year and drive that -- continue to drive that forward. So Dan, any closing comments? Chun Leung Lai: Might be in that top right-hand quadrant where people who go to those research organizations such as Gartner and Forrester, they're saying, these are the guys. And you want your customers to be saying these are the guys. And if we can get that by the end of 2026, happy days. No, I'd just like to thank everybody for attending. It's been a really dynamic last 3 months in terms of the integration and the repositioning, formulating our combined strategies, setting the sales targets and making sure that the sales force is executing and that being supported by the technical resources and then getting up to speed on the whole, I guess, the suite of the products that we now have. It's now going to be about -- probably all about focusing on that Horizon 1 and generating that ARR and revenue and setting the foundations with that Horizon 2 for that control plane to be established. Kurt Mueffelmann: Great. Well, thank you, everybody, for attending. I know Jane from JMM will have the recording available, and we're going to distribute that out. And so we'll be able to follow up on that. And please feel free to reach out to us through investors@archtis.com. So at this point, I'll turn it back to Jane for any closing comments. Jane Morgan: Yes, absolutely. Again, thank you, gentlemen, for the insights today, and thank you, everybody, for joining us. As Kurt and Dan have just mentioned, if we do have -- we missed any of your questions, reach out via the contact details, which can be found on the bottom of our ASX releases. But we look forward to hosting you again next time. Chun Leung Lai: Thank you very much. Kurt Mueffelmann: Thank you. Have a good day.
Unknown Executive: It's time for us to start the third quarter financial results briefing for fiscal year ending March 31, 2026 for LIXIL Corporation. This briefing is streamed live online. The materials for this briefing is on our website for the shareholders and investors. I would like to introduce to you the presenters. Kinya Seto, Director, Representative Executive Officer, President and CEO; Mariko Fujita, Executive Officer, Executive Vice President, CFO; Aya Kawai, Senior Vice President, Leader of the Investor Relations office. I will be serving as the MC. My name is Setoguchi from IR office. I would like to explain to you the proceedings for today. First, Fujita, the CFO, will be providing you the overview of the financial results for the third quarter. That will be followed by a presentation by Mr. Seto to explain to you about the earnings structure of LIXIL. The presentation will be followed by Q&A. We are expecting to end the session at 3:45 p.m. I would like to invite Mr. Fujita, the CFO, to give you the financial results briefing. Mariko Fujita: Hello, everyone. This is Fujita. I would like to give you the overview of the financial results for the third quarter. This is a summary of results for the third quarter. Core earnings is JPY 36.5 billion and EBITDA is JPY 98.4 billion. In Japan, LWTJ and Living have continued to do well with increase in revenue and earnings. The renovation products was robust even though the new housing demand was sluggish. As for LHT, it was on par with the previous year, both for the revenue and earnings. The subsidy eligible products contributed to the sales growth. In Europe, Middle East and India, has seen strong performance. The Americas and China's sluggish business had been covered by the strong performance from Europe, Middle East and India. So there was ForEx losses. And because of that financial cost had increased year-on-year. Just like Q2 the expense consolidated subsidiary decreased year-on-year due to changes in the corporate tax rate in Germany. Next, I would like to talk about the outlook for fiscal year ending 2027. This talks about business environment. Overall, the commodity prices are going up, ForEx as well as the government policies have changed from what we had first expected. The commodity prices had significantly increased. In January, there was a rapid increase. And it is hovering high. In Japan, new housing starts -- remain weak, but the subsidy for the window renovation would continue. As for Europe, we had expected in our road map that in fiscal year ending 2027, the housing market would recover, but the timing of the recovery is being delayed. As for IMEA, it's doing well, and China continues to be sluggish. Those are the outlook for fiscal year ending 2027. Next is performance highlights for the third quarter. Revenue decreased slightly, but core earnings increased year-on-year. Revenue was JPY 1,138.5 billion, core earnings and EBITDA as well as profit have improved. Next is consolidated business results. What I would like to highlight here is a gross profit. It was 1.3 points up year-on-year. Because of this, core earnings ratio had improved by 0.5%. And here is the overview of business results by segment. LWTJ performed well. And -- so the improvement in revenue in Europe and the Middle East has contributed, LHT improved and price optimization and renovation sales contributed enabling the segment to maintain the level from last year. Living, we saw a strong performance of the renovation area. And this is the business results by segment using the former segments, which I will skip. Next is consolidated financial position. And the assets in Europe, this has increase due to currency translation impact. Equity ratio is at 34.4%. Lastly is cash flow status as well as cash balance. And because of the accounts receivables and inventories increasing operating cash flow has decreased year-on-year. However, as for the free cash flow, we have been able to maintain the positive territory. So that completes my report. Thank you very much. Unknown Executive: Thank you, Ms. Fujita. Next, I would like to invite CEO, Mr. Seto, to talk about LIXIL's earnings structure. Mr. Seto, please. Kinya Seto: So we talk -- we have been talking about this to the investors as well as institutional investors, but I would like to give you more detailed information, so to avoid misunderstanding. So moving on to the first slide. Compared to EBITDA, the core earnings as well as the net profit tend to be lower. So that's our structure. However, this is because of large depreciation. In the past, we had used a lot of cash for acquisition. And because of that, our core earnings tends to be smaller because of the depreciation. So the tax expenses increase, it's due to the unoptimal tax management, but we do have cash at hand, and our strength is not shown in those numbers. So going back to Page 1. So in our case, PER, PBR, ROA, EBITDA multiple had not been explained in a coordinated manner. PER, because the profit seems to be low, it tends to be very high at 65x. PBR is 0.8x. On that matter, the -- there are assets which are -- with whose utilization is not high, but the -- it's generating cash. And as for ROA and ROE, the after-tax profit compared to cash, it is evaluated low on an accounting basis, and that has become a huge issue. So in improving these figures, so we would, of course, work to improve the business for the improvement of EBITDA. But at the same time, we -- there are -- we are looking at the assets which are not generating cash, and we will be sorting that out so that we can have improved efficiency in the assets. So the -- so there will be less difference between EBITDA and core earnings. And we will also work on to better manage taxes. This is something that we will be working in the coming 1 to 2 years. It's not just about improvement of EBITDA, but we will make reform so that we can have better core earnings. So EBITDA for cash earning power. I think that we are doing fairly well. This slide shows the comparison with competitors. On the far left is LIXIL followed by TOTO, then Takara, Cleanup, YKK. Compared to those companies, you can tell that EBITDA, the earning power that we have is very high. In the case of TOTO, they have semiconductor products. The -- so we are not able to make apple-to-apple comparison with our competitors, but our EBITDA level is quite high. So in the Masco, Fortune Brands, Geberit, those are the highest earnings companies and their EBITDA is high. But from FY '23 to FY '25, the reason for growth, you need to have some footnote. So Geberit is using Swiss franc and has been appreciated from JPY 140 to JPY 200 and euro is also being appreciated. So there are positive factors for Masco as well. The Fortune Brands, they are working centering around U.S. dollars. So the growth rate compared to the other 2 is lower. However, their profitability rate is very high, 70% gross profit for Geberit and Fortune Brands and Masco, and in the faucet, they are -- that's their main product. So we have a bigger line of product. So our EBITDA level is quite good. So Roca and Villeroy & Boch in 2025, you see a significant increase in the numbers. This is because they have acquired Ideal Standards. So Fortune and Masco, they have been growing because of M&A. So considering that our organic numbers is not bad. So our -- we want the world to understand our core earnings power. So we want to normalize our core earnings and EBITDA. And lastly, where we generate the EBITDA and from our perspective, we've been saying this, we have too much asset. And so we don't have to have too much capital expenditure. And investment was the software element like a brand or intellectual property or R&D-related investments. For those areas, they are essentially expensed. And because of that, they do lower the profit margin directly. But in the end, we are not investing in hardware, but we are investing in software that does linked to generating a large amount of cash in the end. So I'm sure some of you are fully versed in this type of information, so nothing new. But just in case, we wanted to provide this explanation. Thank you. Operator: Thank you, Mr. Seto. We would like to now move on to the Q&A session. [Operator Instructions] First, I would like to ask Fukushima-san from Nomura Securities. Daisuke Fukushima: This is Fukushima. I have 2 questions. My first question, the price strategy in Japan is my first question. As you have said at the onset, the commodity prices are going up. On the other hand, if we look at the competitive environment, YKK had acquired the subsidiary of Panasonic and there is a big company who would be competing against you, under that environment, how would you be pricing your products? How would you be profitable in that environment? Kinya Seto: So can I answer the first question? Operator: Yes, please. Kinya Seto: As you have said, what I am concerned the most about is the aluminum and copper prices, which have risen very rapidly. You may be aware of this, but it is not the increase in the demand. So there has been sluggish supply for aluminum [indiscernible] last year because the power -- electricity prices had gone up, they decided to conduct maintenance for a year. And Century, because of the operational issues, they had shut down and they decided to continue because of the electricity prices and also there is reluctancy from Rio Tinto. And the supply of aluminum to Europe had dwindled and the price increase, the premium had gone up. The -- so because that's the situation. And when the prices had gone up at this level for April, because we had assumed last year's levels, we have to think about whether we would be increasing the price. We have to think strategically and we have to think about the competitive environment. One thing that works in our favor is that we are using scrap to 80%. So there will be a time difference in getting the impact and the merger of YKK and Panasonic subsidiary. The -- it is not an increase in the competition because the lineup is separate and the number of competitors would remain the same. The competitors like YKK, so they were -- they had seen the less profitability when decided -- they decided not to raise the prices, but gotten the share. So for them -- so considering the business environment, I don't think that they would be taking that choice again. Daisuke Fukushima: Thank you very much. So from April, you will not be -- you may not be able to respond to the price increase, but considering the ratio of scrap, you would not be facing a situation where the profitability will be deteriorating rapidly, you would still have some time. Kinya Seto: Well, there will be deterioration in the profitability, but it would not be in the extremes. And also, we would be able to buy time to take new initiatives. Daisuke Fukushima: Understood. My second question, I would like to ask about the U.S. business. So the U.S. Standard, it is posting the ordinary losses and the operational losses and you would be stopping the outsourcing, and you would be making the improvements. But as for the sanitary ware, I think last time you said that you would be increasing the prices to improve the profitability. So I would like to know the progress towards the next term, how do you see the situation of the profit for the U.S. business? Kinya Seto: So having better product mix and better pricing that is being accepted in the market. So I think that the profitability will be improved but the environment is worse than what we had expected, and that's our concern. In terms of the deterioration in the market environment, One thing that concerns us is the ceramics and also the housing distribution is 30% less. And so there is an affordability issue. President Trump had said that he would be making huge announcement in January, but he has not been able to do much so far. So I don't think that there will be easy improvement in the demand unless something happens towards the midterm elections. The market recovery is being delayed than what we had assumed. But we have been taking measures for rationalization. So I think that we would be good for the next term. But for -- but the bathtub business losses would continue, so we would still be in difficulties, but we will be able to improve next year. The competitors for the U.S., like China or the Asian players. Daisuke Fukushima: So if they are not able to sell because of tariffs, are you -- have you been able to improve the share? Kinya Seto: Since November, we had seen increase in the share. So up to October, the inventories that the players had acquired before the tariffs had remained. But from November, we have been able to do take shares, but the demand is not increasing. So it's still sluggish. So thank you very much. Operator: [Operator Instructions] So Miki-san from Citigroup Securities. Masashi Miki: This is Miki from Citigroup Securities. I hope you can hear me. I'd like to ask 2 questions myself. The first question, you talked about the dispersing assets generating cash. But what type of the asset reserve are you thinking of right now? For example, structural reform in Japan. And from 2019, I think you've done something quite significant and you worked on the international after that. But -- so in the meantime, so you had inflation or interest rate increasing, which has caused the business environment to change quite significantly. So do we expect a very large structural reform in Japan domestically over the next year or so? That's my first question. Kinya Seto: So as we have announced recently that we're going to stop. This is a subsidiary for exterior works, and so we will stop the operation of this entity and we announced that this will be embedded into the LIXIL. But your question, it's very sensitive. So anything we haven't announced, we can't talk about, of course, because from our perspective, whether it be Japan, domestically or for international, as I said before, we want to look at those businesses with a very low level of asset efficiency. So we have this course of direction to try to -- we organized -- reorganized those or disposal of them. But even if the core earnings is negative, but we have already acquired, and we have already paid the cash. But on the other hand, the gas distribution is still being done right now. For those, we won't sell unless there are buyers for that. So it's difficult for me to give any further, I suppose, response in regards to your question. I hope you understand. Masashi Miki: Well, then for the second question. You did not adjust your -- the earnings forecast. So whether it be core earnings or the net profit when you look at the progress, and I think you are performing well against the full year plan. So why didn't you not make adjustments? And segment-wise, if there are any changes to the initial -- the forecast? And so JPY 45.5 billion, but the JPY 29.6 billion, there is the slowness in terms of progress with zero buffer. So maybe if you could at least explain about the situation there? Kinya Seto: So what we have not announced and we certainly cannot talk about, that's quite obvious. But for January to March quarter. Basically speaking, there are increasing, as opposed to uncertain elements. And the biggest one and the commodity price increasing to this level in January, this may have some impact on a short-term basis. We need to ascertain that. So that's one point. And subsidy in Japan, and decision has been made to have that being provided. But the next subsidy -- and for this year's, the subsidy starting in April, the details have not been finalized as yet. We have not been able to engage in activities on that at this point in time, not just the commodity pricing now, but whether it be Europe or U.S. or the world is seeing a lot of developments. But for the demand for the new builds, I think there is people are waiting for the new policy to be announced. And so how would that reflect into the fourth quarter numbers. We don't have, I suppose, the conviction on that as yet. And also something that I mentioned before, we need to implement various initiatives, address various things. And so jump into the conclusion, we can't announce what we don't know. That is where we have kind of arrived at. And the numbers right now is good. We -- and probably the numbers until now have been better than we had thought, but fourth quarter, this is going to be a quarter we need to be very careful about, be cautious about and this is as a result of the commodity price, the global situation as we have explained thus far. And also the new housing starts in Japan too. This year, so we expected about 2% decrease, but we saw a 13.7% decrease from April to November. And this is unlikely from the impact of amendment or Building Standards Act abolition article for special provision. So would there be a pent-up demand associated with going forward, would we see further deterioration of the succession from where we are? We don't the science of where we may end up with at this point in time. And also the general construction companies may be announcing this, but the projects are delayed all around the world. As of March, project that we had expected completion, but the Japanese general construction companies are saying that they are likely to be pushed back into April onwards. And the reason for that is lack of the craftsman and in the case of Japan, the facility providers lack capability or capacity, not being able to address the demand and so this is happening in other countries in different ways. So in the case of U.S., immigrant workers cannot go to the site of work, and that has led to the project not being completed, leading to delay in the case of Europe politically and, inability to make decisions. And there were -- there's been a lack of strong majority, have not been able to make decision about policies, which has led to delays in permit leading to the project delays. And so overall, there are projects being delayed. The demand does exist, but the projects are being delayed. This is also a worrying situation for us as well. Operator: The next question is from Goldman Sachs, Okada-san. Sachiko Okada: This is Okada from Goldman Sachs. I have 2 questions for you. As for the European market as well as the Middle East market. It is doing well in the cumulative third quarter, Germany and France, which are the central players in Europe. Overall, the economy is weak, is what I have heard. The growing sales growth is in the positive. But I would like to know the background to it. And France and Germany are sluggish. But would they be giving a negative impact to the overall business? That's my first question. Kinya Seto: As for the market in Europe, we have the same view. The reason why growing has been doing well is because of the high-end products like G4, G5 applied products, which are the color products. So the -- so it is replacing a Nickel-Chromium products. And even though the number of units does not change so much, the ASP is higher. And because of that, we have been able to grow in Europe. So going forward, the situation is mixed. So when we look at the project pipeline, we have a very enhanced pipeline but in Europe, the administration is unstable and the approval is now lagging behind in European countries. In 2026, we had expected that starting from April, there would be a recovery of the economy, but the policies, which were supposed to be in place is not in place yet. So we believe now that the recovery will be towards the second half of the year. Sachiko Okada: You talked about the earnings structure. And you talked about tax management. And with regards to that, you talked about the potential of divesting assets. But is there a need to have negotiation with the competent authorities or with the accounting firms, and the reason why the tax management is not optimal, it's probably because of the acquisitions that you have made in the past. But could you talk a little bit more about that? Kinya Seto: We are working for optimization in this area. We don't need to convince the tax authorities or the accounting firms. But when we had acquired the companies in the past, we did not think thoroughly and we were not able to get to the optimal tax management. So we would like to fix that. And we are not getting any warnings or anything from the tax authorities or the accounting firms at this moment. So how we distribute the product, how we allocate our technology. We need to scrutinize that, we believe that the burden is too high for Japan. So we need to sort that out. But to your question, we do not need to change the formalities that we have in place. But rather it will be about where to place the earnings and where to allocate the technology too. So we need to review those things. And it would take about 1 to 2 years on that. Mariko Fujita: Yes. I would like to make a supplementary comment on that matter. As Mr. Seto mentioned, so where IP is as well as how the distribution system works. So upon the acquisition, we were not able to structure it in an optimal manner. So we would work on to optimize that within our compliance framework and the tax expenses, which go beyond the effective tax levels, we would like to get it to the effective tax levels. Operator: So next question is from SMBC Nikko Securities, Kawashima-san. Hiroki Kawashima: This is Kawashima from Nikko Securities. I would like to ask 2 questions. The first question is in regards to the image for the medium-term performance, and so you shared with us the image for the 2027 and 2028, March and the outlook and the commodity and the market condition, I think you talked about that external environment remains to be tough, but positive impact internal factors, which is going well towards those -- if you could share some information in that regard? Kinya Seto: Well, things that's not going as well as back then. Well, the recovery in Europe the economic condition, this has been slower than what we had expected, but something that has performed better than we had expected that is conversion to the renovation business in Japan. And as I was explaining before, but the Japanese housing starts from April to November and the 8 months, it came down by 13.7% year-on-year, but we were still able to increase the revenue and profit. And the reason why we were able to do that was firstly, and this is something that we always talk about that the renovation business has higher profit margin, but SG&A also ends up being higher. And so that does have impact on profitability. So we were using AI or DX digital transformation, utilizing digital technology. And we have essentially worked on lowering the cost, which has enabled us to improve profit margin, and we've been able to do that in terms of demand cultivation, and we were able to secure an extension of the subsidies on this occasion. So given the backdrop for us how can we have the understanding of our customers in regards to the window renovation. I think we have a better idea as to how we can do this. So despite the poor market condition, we have been able to grow the Japanese business despite the headwind. I think this is a positive. And another positive factor and that's actually balanced against what is good, but China is probably worse than what you had expected, but we were able to see improvement in the middle and near East, which was able to offset that negative in China, which is a pretty good thing. Hiroki Kawashima: The second question, and I want to ask about numbers. In terms of the profitability structure as you have explained, right now, the depreciation is greater than investment and once they balance, then due to decreasing the depreciation and amortization, we expect there to be a profit improvement. But because of the FX impact, we are not seeing the decrease in differentiation and amortization cost. But in terms of the tangible asset, how many years are depreciated over, so that will have impact. But overall how long period can we see the balance between depreciation and investment and how -- do you have any numbers in mind of improvement? And so the depreciation of the acquisition of the tangible assets as reported in the financial statement. I think there is probably JPY 4 billion to JPY 7 billion -- sorry, JPY 6 billion to JPY 7 billion of the gap there. Kinya Seto: Well, it's not easy to respond because of various things. But from our perspective, the -- in terms of tangible fixed asset, what is the biggest factor for reduction and would be factory facilities. And there, from our perspective, and does relate to the previous question. But again, I can't talk about what we haven't announced as yet, but in Japan or in Japan and -- sorry, overseas as well to generate profit with a relatively small asset. That is the course of direction that we're trying to pursue. And so the facilities or the plants we have the possibility of being able to work on that aspect. It's not just the how many years that we have those plans are being depreciated over, but I think there are still a lot of room that we are able to work on to make improvements. But if I start to talk about numbers, I end up talking more specifics so I can't really do so. But we are looking at the greater number than what you have referred to in terms of reduction of depreciation expense. Hiroki Kawashima: So investment and the depreciation, it's not just the cycle there, but you're going to do something that is a little more significant. Is that right? Kinya Seto: Yes. Well, investment itself. So investment was a tangible asset, we are not thinking of doing anything major in that area. So conversely speaking, and by organizing the assets to an extent, we will no longer require maintenance investment for that, that would lead to a reduction in the amount of investment required. And so in that regard, so we already have a structure of being able to generate cash. And so in terms of accounting profit, in order for it to become more visible, I think there are things that we can do. Operator: We would like to move on to the next question from CLSA, Mochizuki-san. Masahiro Mochizuki: I have 2 questions. The first question is related to the outlook for the next fiscal year. I think you have given some tips today, but the business environment is very bad. So if we look just at the net profit, I -- is it okay to understand that the net profit may be in the losses. So I don't know about whether core earnings will be going up or not. But if you are going to conduct structural reform, then there will be costs associated with it. So I thought that you may be in the net losses, so regardless of the numbers. Kinya Seto: So well, we don't want that to happen. So in the past 2 years, we have worked on the areas where it would incur losses first in the past 2 years. So in terms of the structural reform, the area where we would work on, I would have less losses. And also, there are -- there is a possibility that it would generate the profit. So considering the net profit levels now, we cannot go lower than that. So we are not expecting the net profit to be in the negative, and we believe that we can increase the core earnings. But of course, the difficult environment continues. But what I would like you to understand is that this fiscal year, we had in a very severe situation even worse than last fiscal year. But we have been able to post better performance. In terms of next year, we don't believe it would be as difficult as the previous years. Of course, we need to wait and see how the commodity prices would impact us. But this is something that we have already experienced in the past. We would like to continue to work on things in a steady manner. Masahiro Mochizuki: My second question... Operator: Sorry, Kawai-san from IR has supplementary comment. Aya Kawai: So this year, there has -- a JPY 12 billion has been decreased from the tax system change, but this is one time. So it would not happen next year. So please understand that this JPY 12 billion is a onetime thing, which occurred this year. Masahiro Mochizuki: JPY 12 billion less tax. Aya Kawai: Right, that impacted net profit. But we would not have that kind of tax reduction next fiscal year. So please compare it to make the comparison without that JPY 12 billion. But we will not be decreasing the net profit. That's what we are aiming for. Masahiro Mochizuki: So the tax cost, onetime positive impact would not be there next year, but you want us to expect that you would work hard to improve your performance? Aya Kawai: That's correct. Masahiro Mochizuki: My second question is related to ROE. So Seto-san, you have said that we should look at EBITDA in terms of your earnings power? And the cost is different region by region under EBITDA, but the -- a lot of shareholders are focusing on ROA. And I think regrettably, that your level of ROA is still low. It -- so for the coming several years, I believe that it would be difficult to improve the ROE, considering the capital cost. Do you think you would be able to improve it? Kinya Seto: Of course, we believe that we can improve it. We would work on to reduce the depreciation and we will improve the tax management so that the net profit will be improved and thus better ROE. And also for the denominator, if we are able to sort out properly, we would be able to get better and ROE will be improved. But compared to capital cost, there may be some difficulties. So there are cash flows in the past, and how we view it is the issue here. For example, we had acquired something at JPY 10 billion, but the -- and the cash outflow is JPY 20 billion to JPY 30 billion. But the past cash outflow should -- it's a past cash flow. But if it's generating JPY 20 billion to JPY 30 million cash, that would be -- that's a good thing for the shareholders. And if it's in the negative like Permasteelisa, we should be divesting it right away. But even if it's inefficient, you -- it may be generating cash. And if it's hard to sell, we -- it may be better to keep it. So that's why I have been saying that please look at EBITDA. If we are to improve ROE, one way is to sell everything, which are inefficient, but that would not be at all positive for the shareholders. So of course, capital cost is very important to us, but capital costs should not be looked at just with snapshot. And so sometimes, we need to consider it as a sunk cost. So we should avoid the -- putting too much cost into the sunk cost. But Mochizuki-san, but I don't want to keep my company hovering low. And if it's optimal, we would be selling the assets where we can. So please monitor us. Masahiro Mochizuki: So we are supporting you, and I will do my best to write good reports. Operator: So next question is from Morgan Stanley MUFJ Securities, Yagi-san. Ryou Yagi: Thank you for the explanation. This is Yagi from Morgan Stanley MUFJ Securities. I have 2 questions. First question is regards to American Standard. So for the American Standard, if we only look at the third quarter, then the metal loss has deteriorated year-on-year. Now this is due to demand related reason only? Or is there other factors that has led to that result? And demand and forecast remains to be quite tough. But for next fiscal year to -- I think you expect a turnaround to generating profit, but based on the forecast right now, the timing of this, is it likely to be later than what you had initially considered. So please explain your thinking in regards to American Standard. Kinya Seto: As for the third quarter, what you said is right. Demand was quite significant. But another factor is that ourselves in the second quarter, we introduced a new system and the installation of the system did not go as well as hoped. And so there were delay in shipment to the customer. So that is what we have experienced in the second quarter. And so as a consequence, some of the orders were canceled in the third quarter. So we did have that kind of special reason. But the third quarter overall was not strong, mainly because of demand factors. And for the third quarter and the fourth quarter, home repair, the rose of Ferguson, they has downgraded their forecast more than we had expected. And so the demand is poor, that is without a fact -- without a question of fact. And that may have impact on turnaround next year. And so the fact that demand is weak. So we are implementing additional measures with that in mind, and that is what we are doing to reduce cost additionally. And so we don't feel that there is a need for us to change our position that we're going to achieve a turnaround next year. Ryou Yagi: If possible, anything you can mention in terms of measures to reduce cost? Kinya Seto: Well, sorry, I can't talk about the initiatives in that area. Ryou Yagi: Okay. My second question is in regards to your thinking about domestic business, so the new starts are quite poor right now, but the remodeling is quite good, but I can't really expect a significant increase in revenue. But in terms of the cost pass on, you have explained about this, but if this is delayed, then the impact of the cost increase, how can you offset that to achieve increase in profit going forward. So could you explain the factors to enable profit increase next fiscal year for Japan domestically? Kinya Seto: First, in regards to commodity pricing and just to make sure, aluminum and copper accounts for most largest portion, aluminum domestic, copper is more for international business. For international business, relatively speaking, we have G4, the product lineup, which is more premier and G3 is upper mass. This is also the main area. So it's easier to pass on cost. But for our medium product in Japan domestically on the other hand, so it's not that easy to pass on our cost. But our competitors, they didn't actually increase the price when a situation like this occurred, and they went after market share. But in the end, they did not really generate good business performance. So in that regard, from the number gains, and I think they will respond to that the next time. So that is likely to see greater progress in terms of the cost pass on. But for April, we have prepared until December to see the price increase. And so we probably have to do something additional to address that. Now in that regard, what can we do additionally? Well, what was successful in the past is for now, we have not been able to fully use our subsidy a couple of years ago. But last year, in the second half of the year, we were able to utilize the subsidy at quite a high ratio. So how can we consume a subsidy. We now know how to do that. So we should be able to make a good start post April with a new subsidy being provided. And we have this strength of the digital and AI progress. And so we still are able to generate profit even if we go to a smaller project, I don't think we have advantage of others in that regard. Operator: The next question from Jefferies, Fukuhara-san. Sho Fukuhara: This is Fukuhara from Jefferies. I have 2 questions. The first question. The raw material prices that you have mentioned, the copper and aluminum. Towards the end of the slides, there was a chart of the evolution of the pricing. And you also have written the assumption for those prices. So in the recent days, there has been rapid increase in the copper and aluminum. Could you explain about how much impact that there would be in terms of sensitivity of the price fluctuation in those raw materials. And in terms of the rapid increase of those raw materials, I would like to think that it would not be impacting the fourth quarter figures, but what's the situation? So please talk about sensitivity. Aya Kawai: Fukuhara-san, thank you so much. This is Kawai from IR office. And in terms of the sensitivity, we do not disclose that. So the -- and we do not disclose the amount of the procurement. So I would like to talk about that when you come for the IR meeting. Kinya Seto: So in terms of the fourth quarter impact, so the increase in the pricing in the third quarter will be impacting in the fourth quarter, and the price increase in fourth quarter will be impacting the first quarter. So when we look at the whole year, the project delays would be impacting the sales and the commodity prices, then will have a full effect in terms of the impact. So in terms of how much, well, we are calculating right now because this is ongoing in January. But what would be most beneficial for us is to increase the ratio of scrap. The scrap ratio at our company, the usage is a lot higher. So for aluminum, 80% is scrap. We had tried increasing the ratio, and we have experimented the 90% aluminum scrap ratio, and we have succeeded in that. So by using the scrap, we would be able to delay the impact of the price increase. So that would be a competitive edge for us. So under the current environment, what we don't know is the consumers' behavior, whether they would place an order before the price increase? Or would there be impact, more impact from the delay in projects. So there has been a rapid increase in prices of raw materials. So we have not decided the next step yet. That's my frank response to your question. Sho Fukuhara: Understood. My next question. So I think there are a lot of things that you still cannot say about the fourth quarter. But at the end of April, you have given us the outlook for next fiscal year in March. And for core earnings, you have eyed on JPY 65 billion, and you have not gotten to that level yet. So this JPY 65 billion in core earnings for the next fiscal year. To me, it seems that it's difficult to accomplish, but how close would you be able to get to the JPY 65 billion? Kinya Seto: I would not be able to provide an answer at this moment in time. But the environment surrounding us is changing and the delay in recovery of the European market is hurting us and also in the short term, the commodity price hike. And also, we did not envision that the new construction starts would be declined so much. And also now we have clarity to how we would be using the subsidy and also how we can reduce the cost in the renovation business is something that's more clear to us. And also in the mid- to nearest East, we are a forerunner there, and we are doing better than we had first expected in that market. So we would like to reflect that into the next budget. I am not able to talk about the specific figures because it would be misleading. Operator: So we have responded to all of the questions that we have been asked thus far. It seems that there are no further questions. So with this, I would like to conclude the Q&A part. So with that, we want to conclude the third quarter financial results for the fiscal year ended March 31, 2026, the analyst and investor explanation meeting. So thank you very much for your participation. The meeting is concluded. [Statements in English on this transcript were spoken by an interpreter present on the live call.]
Operator: Good afternoon, ladies and gentlemen, and welcome to the Coveo Solutions Third Quarter Fiscal 2026 Financial Results Conference Call. [Operator Instructions] This call is being recorded on Thursday, January 29, 2026. And I would now like to turn the conference over to Mr. Adhir Kadve, Head of Investor Relations. Please go ahead. Adhir Kadve: Good afternoon, everyone, and thank you for joining us. With me to discuss Coveo's fiscal third quarter 2026 results are Laurent Simoneau, Coveo's Co-Founder and Chief Executive Officer; Louis Têtu, Coveo's Executive Chairman; and Brandon Nussey, Coveo's Chief Financial Officer, and Karine Hamel, Coveo's incoming Interim Chief Financial Officer. A reminder that some remarks made today will be forward-looking statements within the meaning of applicable securities laws including those regarding our plans, objectives, expected performance and our outlook for the fourth fiscal quarter and full year fiscal 2026. These are forward-looking statements given out of January 29, 2026, and while we believe any statements we make are reasonable, they are based on current expectations and assumptions, which are subject to risks and uncertainties. Actual results could differ materially from those expressed or implied. Coveo disclaims any intent or obligation to update our forward-looking statements, whether as a result of new information, future events or otherwise. Further information on factors that could affect the company's financial results is included in filings we make with Canadian securities regulators, including in the Risk Factors section of the company's most recently filed annual information form as well as the key factors affecting our performance section of the company's most recently filed MD&A, both of which are available on our SEDAR+ profile at sedarplus.ca and on ir.coveo.com. Additionally, some of the financial measures and ratios discussed on this call are either non-IFRS measures, ratios or operating metrics used in our industry. A discussion on why we use these metrics and where applicable reconciliation schedules showing IFRS versus non-IFRS results are available in our press release and our MD&A issued today. Finally, please note that unless otherwise stated, all references and financial figures made today are in U.S. dollars. Our presentation slides accompanying this conference call can be accessed on our IR website under the News and Events section. I will now turn the call over to Louis for an overview of our third quarter, followed by Laurent, taking us through a strategic update and we will end off with Kevin, taking us through the financial details and providing our outlook for the fourth quarter and fiscal 2026. We will then open the line to your questions. With that, over to you, Louis. Louis Tetu: Thank you, Adhir, and thanks, everyone, for joining us today. We have excellent news to discuss. In the third quarter, we broke new records in both subscription bookings and net bookings. This is the strongest new bookings performance in the company's history. Total revenue and SaaS revenue both came in above guidance. And as a result, we are reaffirming guidance for fiscal '26 and are now expecting SaaS subscription revenue and total revenue at the top end of the previously guided range. Customer momentum remained very strong during the quarter with a healthy balance between new customer wins and expansion within our existing base. We signed major new contracts with leading brands such as GE, Liberty Mutual, Total Tools and Insight to name a few. Notably, we secured the largest new customer win in Coveo's history, a 7-figure deal with a Fortune 500 global leader in the industrial sector. We also expanded more than 80 subscriptions and deployments with existing customers, including Deloitte, United Airlines, Ticketmaster, Cardinal Health, Anderson Windows, Thomson Reuters, USAA, Vanguard and Workday, all of whom increased adoption of our AI platform. Our commerce offering continued to deliver exceptional growth. Retailers, distributors and manufacturers increasingly recognize the imperative for AI-powered relevance and are seeing measurable results from Coveo-AI. During the quarter, we closed the second largest AI commerce expansion transaction in our history with Cardinal Health, a customer we discussed last quarter. Cardinal supports more than $220 billion in health care commerce distribution and have validated our ability to deliver enterprise-grade AI at massive scale. How we operate in highly complex environments and generate tangible financial results. Our generative AI solutions also sustained strong growth. Laurent will expand on this opportunity and the growth levers enabled by our continued platform innovation. Overall, it was an outstanding quarter, and Karine will provide the financial details. During the quarter, we announced a strategic partnership with Deloitte, a global leader in digital transformation. Deloitte shares our belief that the future of enterprise digital experiences is AI and relevance first, and this partnership expands our reach across joint customers. We also signed an important memorandum of understanding with the government of Canada to support the modernization of digital services using Coveo AI. We already serve the governments of Australia and New Zealand with modern search and generative solutions for citizens and civil servants. And with Canada, discussions are underway to evaluate large-scale deployments across agencies coast-to-coast to improve efficiency, service quality and digital sovereignty. I am pleased with the pace and value of our innovation. Our strong bookings and increasing number of larger transactions confirm that these breakthroughs are resonating and that our customers anchor Coveo in their core AI plans. We're particularly excited about our RAG as a service and Coveo hosted MCP server offerings. These solutions allow customers to securely ground generative AI and digital agents in permission-aware, context-aware enterprise data, one of the most difficult challenges in enterprise AI. Coveo removes the complexity around retrievals, security and relevance. Building on this, we announced the availability of RAG-as-a-Service for AWS Agentic services, helping AWS accelerate customer adoption in Agentic. We also recently launched the Coveo app for Open AI ChatGPT Enterprise. This brings secure, enterprise-grade relevance directly into natural language workflows. The key takeaway here is that our flexible, agnostic RAG and MCP architecture significantly expands our integration and partnership opportunities across the rapidly growing Agentic ecosystem. Investors often ask us why Coveo is so valuable and sustainably differentiated in an increasingly crowded AI landscape. Why do enterprises choose Coveo often investing millions in subscriptions instead of building these capabilities themselves? The answer is twofold. First, Enterprise AI does not inherently know your data. One of the major most profound breakthroughs of generative AI is its ability to synthesize and stitch fragmented siloed information into coherent answers in real time. However, securely connecting models to complex fragmented enterprise data at scale remains extremely difficult. Second reason, AI does not understand context by default. Enterprises cannot tolerate hallucinations. Customers, employees and stakeholders require accurate answers based on current context and governed data. Achieving this level of precision requires surgical governance of relevance. It's a science. Coveo has spent years building and refining AI models that govern relevance and intelligently connect enterprise data to digital experiences. That technology is critical. Customers consistently measure superior outcomes with our platform, validated through A/B testing and reflected in cost reductions, revenue growth, margin improvement, productivity gains and better decision-making, just to name a few. In the past, search was just retrieval embedded in apps. Today, relevance is what matters. In fact, during the quarter, Salesforce reconnected Coveo Search within its global support portal after customer dissatisfaction during a brief disconnection. While Agentforce is designed to answer questions from within Salesforce Data Cloud, Coveo search relevance is still necessary to surface the exact issue resolving content for these millions of Salesforce users. In our view, Coveo is complementary to agents such as Agentforce. As Laurent will discuss in a moment, AI search and relevance is needed to enrich and augment Agentic, and we have multiple examples of this with Agentforce customers in particular. Today, relevance is a necessary enterprise-wide capability that powers interaction channels and Agentic workflows with consistent precision, security and governance across all data silos. That relevance and connectivity layer is what Coveo-AI delivers, and replicating it requires years of deep enterprise engineering and real-world experience. We are more convinced than ever that Coveo's addressable market is large and expanding. We've built defensible moats and relevance for knowledge-intensive industries and an AI-powered search and discovery for complex consumer and B2B commerce. We have rapidly evolved Coveo into a highly flexible AI platform that allows enterprises to access data anywhere, adapt to multiple AI and large language models and inject context-aware intelligence into any application or conversational agent. This flexibility significantly expands our use cases and market verticals potential. We're particularly excited about the large and fast-growing market for Coveo AI in the industrial sector. Think about manufacturing, distribution, aerospace, energy, medical devices or hardware, for example. Here, we're addressing the economics of uptime and dependability with AI. In the U.S. alone, nearly 10,000 companies generate revenues above $250 million across these industrial segments. Think about assets such as MRI machines, aircrafts, HVAC systems or heavy equipment, downtime costs for these are significant, often in the millions of dollars annually. This creates very compelling economics for our software. As we help increase efficiency and uptime with 360-degree customer care intelligence. Industrial data and content are highly complex and siloed. Our AI can unify it and turn it into context aware intelligence for issue diagnosis, prescribed solutions, service intelligence and complex parts recommendations. So our manufacturing customers can deploy a single Coveo platform as the real-time orchestrated intelligence for self-service, contact center agents, search portals, field service, and of course, linked to complex aftermarkets parts commerce, advice and recommendations, something that is very time consuming and more costly to do without AI. Our AI insights can even be embedded within connected products that then continuously feed back data into our AI models for even greater speed and precision. We are not aware of any other platform that delivers this breadth of experiences from a unified AI intelligence layer. Our mission and conviction remain unchanged since we began combining enterprise search and machine learning in 2012. The world runs on digital experiences. It is now widely understood that all of them will be transformed by AI. Coveo is uniquely positioned as a mature platform that governs and optimizes AI-powered experiences on enterprise data. Before passing it to Laurent and Karine, I want to thank Brandon Nussey, who is stepping down in a few days for his years as our CFO. After a 20-year career as a public company CFO, Brandon is moving to the private company side. Brandon, we're deeply grateful for your contributions and for helping build our solid growth foundation. With that, Laurent? Laurent Simoneau: Thank you, Louis. First, I'm extremely proud of our team during this record third quarter and how we are positioned for continued growth acceleration. The applied AI market is moving from confusion to clarity. Organizations are now more educated buyers, shaped by early experiments and in many cases, inflated AI claims that failed to deliver. Customers some to Coveo with a strong appreciation for platform maturity and more importantly for provable results. while investment in foundational AI remains strong, the market is shifting towards operationalizing AI with company-specific data and use cases with a focus on tangible outcomes rather than AI as technology and search of problems. One of the largest and most immediate areas of impact is digital experiences, serving buyers, customers, citizens and employees. Persons online with high relevance expectations. Digital and Agentic experiences must be grounded in secure proprietary enterprise data with relevance that remains coherent across the entire journey. Governing AI models to deliver precise relevance is therefore critical. Given the rapid commodization of AI models, flexibility and agnosticism are no longer optional. This is where Coveo plays, providing the trusted foundational plumbing that allows enterprises to realize value from AI at scale and adapt over time. As CEO, for close than a year now, I'm focused on 5 priorities: innovation, value to customers and differentiation, growth and market expansion, disciplined execution and, of course our healthy business economic model. First, innovation. I could not be more excited about the pace and impact of the innovation we're delivering with our customers. The progress is driven 100% by the intentional flexibility of our platform. We covered our MCP server and RAG-as-a-Service launches. The takeaway is straightforward. Coveo delivers out-of-the-box connectivity and governed relevance across digital experiences with security and precision. Our platform is easily accessible to developers, applications and Agentic systems, enabling consistent unified intelligence layer across multiple channels. This capability is central to our expansion into new markets and higher-value use cases. Coveo is now available in ChatGPT Enterprise, AWS Quick Suite and Salesforce Agentforce, for example. In addition, we see many customers independently leverage Coveo through MCP with AI systems such as Anthropic [ Claude ] and others. Organizations will adopt multiple Agentic platforms over time. It is imperative those platforms rely on a common relevance and connectivity layer and Coveo is designed to be that stack. As CEO, I'm fully committed to a strategy centered on interoperability, flexibility and unique value. This capability has allowed Coveo to evolve from addressing a limited set of use cases to broaden its scope across more strategic vertical specific challenges. From a growth perspective, this is also driving broader expansion and more 7-figure subscriptions for Coveo. Once we land in an account with initial more urgent use case, our ability to expand meaningfully with the same platform increases. Second, value to customers and differentiation. Let me share concrete examples. First in commerce, we built on our platform Agentic Discovery solution that moves Coveo from ranking results to orchestrating the storefront experience. Now an intelligent agent can dynamically select and present the optimal mix of products and content to serve both user and business objectives. Over time, Agentic Discovery will evolve into a true end-to-end agent that guides customers seamlessly from free purchase discovery to post sales support proactively recommending products, providing guidance and resolving needs across the entire customer journey. Louis highlighted our growing presence in the industrial sector, including a new 7-figure customer in industrial automation. Their decision reflects our ability to unify content across their complex technology stacks and improve knowledge access and service efficiency. As you know, Coveo AI was built over more than a decade working with leading tech companies. They were the early adopters of relevance driven across their engineering and customer service operations. Today, Coveo is trusted by many of the world's leading technology companies from AMD, Intel, Dell and NVIDIA to SAP, Snowflake and DocuSign. The same dynamic lies across aerospace, energy, transportation, heavy industry, companies such as Halliburton, Schlumberger, Cummins, Honeywell already relying on Coveo. We recently successfully built an AI-powered diagnostic solution for global medical devices company, synchronized with intelligent aftermarket parts commerce. In environments where equipment failure carries high financial and human states, such as an MRI machine, for example, rapid resolution depends on securely interpreting siloed engineering data maintenance, history and parts compatibility and availability through context-aware routes. Without the ability to securely connect and interpret the siloed information at scale, resolution times lengthen, cost rises, revenue declines and outcomes suffer. Related to this, our partnership with SAP remained a key driver of bookings during the quarter and also an anchor in industrial segments where SAP has a deep market penetration. What began with SAP commerce and global retailers is now expanding into multiple knowledge use cases, reinforcing the strategic importance of this partnership. In 2025, Coveo was one of the SAP's fastest-growing endorse partner in the SAP CX ecosystem. I'm also pleased with our momentum in Financial Services, the core knowledge industry vertical for Coveo. During the quarter, a leading global asset manager overseeing nearly $10 trillion in asset under management significantly expanded its Coveo subscription. This customer initially deployed our Generative Answering to support financial advisers handling complex investor questions in real time. The results were compelling, driving meaningful improvements in productivity, consistency and overall customer experience. Based on this success and strong internal confidence in our accuracy and security, they have now extended these capabilities to investor-facing self-service experiences. Today, they are using Coveo AI across more than 40 internal and external digital properties. This, for us, is a big deal. First, this represents a growing 7-figure subscription and constant expansion, but more importantly, this validates Coveo as a core technology platform, delivering relevant accuracy and reliability in highly regulated, high-stakes environment. It also reflects the confidence to move from adviser-assisted to a probably more unforgiving direct customer-facing self-service. These marketing wins with industrial leaders who have the scale to build in-house or choose from many vendors highlight why they partner with Coveo, our agnostic tech stack, platform maturity, and proven ability to manage complexity and govern relevance at scale are the reasons. As Karine will explain, many of our largest customers continue to increase their spend with Coveo. To us, this validates our platform and reinforces Coveo's position as a vendor of choice for generative and Agentic AI road maps. These are powerful illustrations of our long-standing vision of unified relevance in action, a single AI platform connecting internal advisers and customer self-service for a bank, a single AI platform, unifying diagnostics, aftermarket parts and service in one coherent intelligent layer for an industrial company. By delivering high-impact use cases on a shared foundation, we increasingly address strategic challenges for customers and open the door to new vertical markets and expanded technology alliances. Our third area of focus is our growth and market expansion. We are building a powerful growth engine on a single, flexible agnostic AI platform. On the one hand, the strategy drives consumption and subscription expansion with our existing customers by broadening use cases and solving more strategic, higher-value problems in a more integrated way. On the other hand, it fuels market expansion by enabling applications and Agentic to leverage the Coveo platform across multiple new vertical industries. Today, Coveo is focused on commerce for retailers, brands, large distributors, and B2B industrial customers, while remaining a leader in search and generative experiences for knowledge industries, such as financial and professional services. These segments represent a large and growing TAM. We see significant upside from further verticalizing our applications into new markets. So net-net, our customers are expanding with us and we're increasing our ability to serve a broader and more diverse set of customers. Finally, my overarching priority is disciplined execution and a strong sustainable economic model. Focus matters for any successful business. At Coveo, our focus is on playing where we win and where our customers win. Vertical markets where we deliver the highest financial and operational value operates with repeatability and consistency and where we're the most trusted partner for our customers, of course, in markets we carefully select I've shared multiple proof points, and we continue to build a roster of leading innovative global enterprise customers with close to 1,000 brands and organizations with thousands of use cases deployed. And we're widening our competitive advantage and expanding into markets, industries, use cases and channels that were previously unimaginable. At the same time, we remain disciplined about economics. We operate with high product gross margins above 80%, very sticky recurring revenue that grows organically and a favorable customer acquisition costs relative to the lifetime value of our customers. We manage the business with a long-term mindset. We have built a real company with clear strategy to scare, and we believe this is only the beginning. To wrap up, I'm in freely proud of our team's execution in this record quarter. Our focus on innovation and obsession with customer outcomes continues to differentiate Coveo and the flexibility of our platform positions us well to capture the significant market opportunity ahead. Finally, I also want to thank Brandon for his contribution and for being such an outstanding colleague and leader over the years. With that, I'll turn it over to Karine to walk through the financial details. Karine? Karine Hamel: Thanks, Laurent. As you've heard from Louis and Laurent, we're pleased to report that Q3 was a record quarter for Coveo delivering the strongest bookings performance in the company's history. This was driven by meaningful lend and extend transactions across our core growth drivers, especially our Gen AI and commerce solutions. First, I will quickly summarize our Q3 fiscal 2026 results. SaaS subscription revenue was USD 36.6 million coming in ahead of guidance and representing a 13% year-over-year growth. Within this, Coveo Core platform subscription revenue was $35.8 million, growing 15% year-over-year with ARR growth roughly. As previously announced, we have now fully deprecated the Qubit platform and no longer expect any further Qubit revenue beyond this quarter. Total revenue was $38 million, up 12% from last year. NER on the Coveo Core platform was 105%. Gross margin and product gross margin remained strong and broadly in line with last year at 78% and 81%, respectively. Adjusted EBITDA was in line with our expectations at negative $0.2 million, down from positive $0.6 million in the prior year. Cash flow from operating activities was $0.5 million compared to negative $0.2 million a year ago. Our cash position remained strong at USD 100.8 million as of December 31 with no debt. Getting into further details. As you've heard from Louis and Laurent, Q3 was a strong quarter across the business, marked by high-quality wins, meaningful validation from new and existing customers' transactions and solid and efficient execution by the team. This performance reinforces Coveo's position as a strategic platform supporting our customer search, Gen AI and Agentic AI use cases. NER for the Coveo Core platform was 105% in Q3. As a reminder, from last quarter earnings, this continues to reflect the impact from a single onetime contract renegotiation that took effect last quarter. Without this event, NER would have been 108% in Q3. We emphasized last quarter that this was a unique customer-specific event. What we see from our largest customer is Coveo becoming a core AI tech partner with impressive expansion. To give you some context, our current top 20 customers, none of which individually represent more than 5% of total revenue and averaging more than $1 million in ARR have achieved a 3-year net expansion rate of nearly 150%. Over the past 3 years, this group has materially increased its spend with Coveo. Notably, this period aligns with the broader emergence of generative AI, underscoring how large enterprises are increasingly turning to Coveo's platform to power their AI and Gen AI experiences. Turning into the economics of the business. Gross margin and product gross margin remained strong at 78% and 81%, respectively. As we continue to see strong uptick and proliferation of Gen AI and adoption of some of our newer solutions, we've maintained enterprise best-in-class product gross margin which speaks to our ability to efficiently grow the business. Adjusted EBITDA for the quarter was negative $0.2 million compared to $0.6 million a year ago. Cash flows from operating activities were $0.5 million compared to negative $0.2 million last year. Please note that adjusted EBITDA and operating cash flow both include $1.4 million onetime severance expense associated with targeted workforce optimization actions as part of our continued focus on directing investment towards the highest return opportunities. Coveo ended the quarter in a strong financial position with approximately USD 100 million in cash and no debt. During the quarter, we deployed $4.7 million to retire approximately 1.1 million shares under our NCIB, reflecting our continued focus on disciplined capital allocation. All in all, and consistent with what you've heard from us in the past, our primary focus remains on growing our top line, while operating efficiency and with discipline, supported by a strong balance sheet and improving cash flow profile. I will now wrap up and discuss our guidance. Our revenue guidance reflects the now completed end of life of the Qubit platform. As a result, Q4 SaaS subscription revenue will now consist solely of Coveo's Core platform revenue. I would also like to remind everyone that we recognize revenue on a daily basis. Q4 includes 2 fewer calendar days than Q3, which impacts sequential revenue comparison by approximately $0.8 million. With that context, for Q4 fiscal 2026, we expect SaaS subscription revenue to be in the range of $35.6 million to $36.1 million. Total revenue to be in the range of $37.1 million to $37.6 million. For full fiscal year 2026 revenue, we now expect to exit the year at the high end of the previously announced range. SaaS subscription revenue to be in the range of $142.2 million to $142.7 million. Total revenue to be in the range of $148 million to $148.5 million. Consistent with our prior commitments for Q4 and the full fiscal year 2026, we continue to expect adjusted EBITDA to be approximately breakeven and to deliver positive operating cash flows for the fiscal year. In closing, I will end where I started. Q3 was a strong quarter with solid and efficient execution, record bookings and results that validate our growth strategy. While we remain focused on disciplined execution, we are encouraged by the momentum we are seeing across the business. With that, operator, you may now open the line for questions. Operator: [Operator Instructions] And your first question comes from the line of David Kwan from TD Cowen. David Kwan: Congratulations on a great quarter and Good Luck Brandon. I wanted to dig into kind of maybe look at the bigger picture, you mentioned seeing strength across your primary solution areas, which I assume kind of is commerce, service and CRGA. I was wondering though, are you also seeing strength across the customer base? Or is there maybe some pockets in terms of end markets where demand might be a bit softer? Laurent Simoneau: Yes, sure. David, this is Laurent here. So look, we're seeing a lot of strength with our large customers. And Karine mentioned during the prepared remarks, our NER on the top 20 customers of 150%. These customers are seeing us as a strategic platform, and they are expanding substantially with Coveo, but it doesn't stop at those 20 customers, obviously, and we are seeing market dynamics here where with the interoperability that we're building and the requirements and the interest of customers at connecting Coveo with their Agentic AI frameworks that they are deploying. Coveo is uniquely positioned to cover the ground these Agentic AI frameworks with the enterprise, the enterprise secured platform in a very relevant way. So we are -- Yes, we're becoming critical for these large customers, David. David Kwan: That's helpful. And when you look at the new customer wins that you've had, obviously, you highlighted that the large industrial customer, Fortune 500. In terms of the solutions that are driving those wins, is it really still primarily on the commerce side and CRGA or are you seeing also on the services side and the knowledge side? Laurent Simoneau: It's across the board. So B2B commerce, B2C commerce and Knowledge Solutions all fueled with CRGA and with GenAI Agentic capabilities. So -- what is super interesting this quarter, what we're seeing is we are not only fueling user experiences and making user experiences better. We're also making Agentic frameworks better, which is something that we were expecting in the past and now that we are seeing picking up this quarter. Operator: And your next question comes from the line of Thanos Moschopoulos from BMO Capital Markets. Thanos Moschopoulos: Can you comment on ARR growth in the quarter broadly, if that was similar to the prior quarter or any uptick in that regard? And then as you look at your pipeline, whether you would expect that to accelerate in the coming quarters, whether it kind of remains at a consistent level. And any color on that front would be helpful. Louis Tetu: Your question -- Thanos, good to talk to you. Your question specifically is with -- as it relates to the pipeline or the growth? Thanos Moschopoulos: Yes, specifically just ARR growth in the quarter and kind of the trajectory that you're seeing in that regard based on your commentary. Karine Hamel: Thanos, it's Karine here. As you've heard on the prepared remarks, I believe I mentioned that ARR growth for Q3 was roughly in line with SaaS subscription revenue growth of 18%. And remember, we have a 3% headwind from the last quarter, renegotiated contracts that you've heard from us. Now when you look at the guidance for Q4, I think you can drive similar patterns in terms of growth there. Does that answer your question? Thanos Moschopoulos: It does. I apologize. I missed that in your prepared remarks. Louis Tetu: We're not guiding '27 yet, as you know, right? Thanos Moschopoulos: No, I understand. And then regarding SAP, we've obviously I heard you talk about your relationship there on the commerce side. Your SAP Service Cloud relationship has been kind of more recent. How is the pipeline building on the Service Cloud side of SAP. Louis Tetu: Yes. What's really interesting, Thanos with the SAP endorsed relationship is that increasingly as the Coveo platform broadens we become more and more relevant to the broad sector that we described, which we call industrials, where SAP truly dominates. Increasingly, companies don't look at commerce and service in silos. They look at the holistic picture. Let's say you're an aircraft manufacturer. Your goal is to be extremely effective when there is an aircraft on ground to put that aircraft back in the year, for example. And so we're seeing really the convergence of commerce and knowledge, the ability to understand with AI parts availability substitutes, but also diagnosis, recommended solutions et cetera, to serve everything from engineers to self-service to end product, to field service and commerce and so this is increasingly what we're seeing and frankly, what we're quite excited about. And that drives higher value, bigger deals ultimately. We announced in the quarter that we had landed the biggest land ever, and that's one of those examples in industrial. And so this is where the synergy with SAP really lives. So a lot of words here, maybe, but the direct answer to your question is we continue to do extremely well in B2B commerce because -- and B2C commerce with large enterprises because this is where SAP dominates. SAP dominates really the enterprise commerce market, but really, really expanding with customer service and more broadly, knowledge solutions, AI-powered diagnostic and things of that nature. And as I said, this drives high value because we're in the economics of uptime here on those equipments. And that's -- those are significant dollars in ROI. So I hope that puts some perspective on your question. Operator: [Operator Instructions] And your next question comes from the line of Taylor McGinnis from UBS Company. Taylor McGinnis: Just to build on the last ARR question, could you give us a little bit more color on maybe what the normalized new -- net new bookings growth or net new ARR growth was this past quarter. So if we're going to adjust for Qubit and the renegotiated contract, and maybe how that compares to prior trends? And then it's just a second part to that question. When you strip out the 7-figure deal within that, I'm curious how bookings momentum was broadly across the base. Karine Hamel: Yes. Thanks, Taylor, for your questions. So maybe what I would like to add here to give you some color on Q3. We're really pleased with the breadth of the transactions we've seen. Yes, we have highlighted this large 7-digit deal for us, which was a good one, but it's not the only one that made a good quarter. So when we look at both from a land from an expand perspective, size of transactions, names that we have added to our expanding list of customers, we're really proud to all of that going into the right direction. So I don't think there is any normalization necessary with regards to Q3's results. It was a good quarter. Remember that compares to a strong quarter last year, same timing as well. What I want to add as well is when we think about Q4, a couple of things, as you said, Qubit, no more further revenue expecting from that. And when you think of the Core platform, we've got to remember that we're recognizing revenue on a daily basis. And that, of course, will impact sequential revenue for Q4. And then I want to mention as well that we have great opportunities ahead of us. We are very pleased to what we've seen in Q3. And when we look in terms of pipeline and et cetera, we're excited for what is in front of us. However, we can get ahead of ourselves and execution is key here. So I hope it addresses your question, Taylor. Taylor McGinnis: Yes. And then just last one for me. If I look at the implied guide for 4Q for subscription revenue, it looked like it came down a little bit. So it sounds like you're seeing a lot of really good momentum in the business. So could you just help us square that maybe with a slightly lower guide and what you guys are seeing at the start of 4Q, particularly on the back of some of these AI announcements? Karine Hamel: Yes, of course. I mean as I said, we're pleased with what we're seeing. We just don't want to get too much ahead of ourselves here, dynamic market. We're getting good signals. We're grounded on execution, and we have a lot of opportunities ahead of us. Operator: And your next question comes from the line of Paul Treiber from RBC Capital Markets. Paul Treiber: Just a question on the business momentum. I mean, if you put aside the large customer turning off. The new business bookings have been strong for a couple of quarters now. When you look at it fundamentally, like what's changed over the last couple of quarters? Is it more external factors like customer readiness? Or is it internal factors like sales execution that's allowing you to better capture or convert the deals in the pipeline? Louis Tetu: It's both, and I'll add a third one. It's also the evolution of our platform and positioning. So first of all, Paul, thanks for the question. So as we said in the prepared remarks, clearly, we're selling to a much more educated market. There's no question there's a huge difference from a year ago where people were still experimenting, lots of hype, frankly, some successes with lots of failures. So customers come to us with a much clearer understanding of the stack and hence, a much greater appreciation for what we do. So that makes much better sales conversations. Number 2 is really the expansion of the platform. The platform is becoming really, Laurent talked about RAG-as-a-Service, MCP servers, supporting Agentic and so on, the flexibility of the Coveo platform to adapt to any data, any LLM, any app and any agent is starting to be recognized and highly valuable to these customers. So that's really what's driving here, the difference. And yes, there is a difference in market dynamic overall, and we're seeing a positive trend here. Paul Treiber: And as a follow-up, just on -- can you speak to the pipeline for RAG-as-a-Service and then MCP? Like is that a separate pipeline? Is it part of the current pipeline? And do you see the nature of customers that you're -- that's in that pipeline different than maybe your core product? Louis Tetu: Well, the pipeline is made up of 2 main areas, right? I mean the -- what we call land and expand. So landing new customers and then expanding the existing one. That pipeline is -- would qualify as very healthy for the reasons I've explained before. The recognition of the -- I'll use the term necessity of the stack that we provide to inherently, as we said, AI models do not understand your data, do not understand corporate data and are not really good at relevance and governing that, and that's what we do. So that pipeline is expanding for that reason. And the conversion rates are also in healthy territory. And again, it goes back to the reasons before. The market is more mature, people understand what we do, the flexibility of the platform. So it's really across the board, back to the fundamentals of what we do. And that obviously creates some growth in -- across the board in both Knowledge Solutions and commerce as well. Laurent Simoneau: And if I may add, Paul, what it does also ultimately drive additional consumption of Coveo, these new capabilities around interoperability, what we do around MCP, servers and so on. It exposes Coveo to additional experiences and also additional Agentic experiences and it will drive consumption of Coveo. So we want this to be as present as possible in our future deals. Operator: And your next question comes from the line of Koji Ikeda from Bank of America Securities. George McGreehan: This is George McGreehan on for Koji Ikeda. So I wanted to ask just in light of everything good happening in terms of how Coveo is viewed more strategically by customers and the momentum you're seeing both in expand and land. How do you guys feel about S&M capacity? And maybe if you could share some color on how productivity in the sales force has kind of trended. I appreciate it. Louis Tetu: So productivity in terms of -- well, I think I'll qualify, George -- this is Louis, I'll just qualify by saying that very healthy performance from our sales team, evidenced by the bookings and the guidance and the performance. But we measure productivity in terms of quota achievement in terms of conversion rate and also in terms of long-term customer value. The types of customers that we land and how we expand them and what's the expand potential of these customers. And I would put all these metrics at green right now. So we're growing when we see -- or I should say, George, as we see a more mature market, as we see very healthy deal economics, convert both conversion and deal size moving in the right direction. Obviously, you'll see us continue to invest and expand our field force. You just don't throw -- you just don't throw a sales team when you don't have a defensible moat or healthy economics. We're very, very pleased with our CAC to ACV, our CAC to long-term customer value. We operate the company at 80-plus gross margin. And so from a product side. And so those are all -- and as you know, net expansion rate is also very healthy. So from a from a sales standpoint, this is where you'll see us invest. Operator: And your next question comes from the line of Suthan Sukumar from Stifel. Suthan Sukumar: First question for me is on the demand environment. In terms of recent wins, what would you say has changed? Or what is different about the companies buying Coveo. I was wondering are these companies later adopters? Or did they attempt to do AI without enterprise search and coming back? Or are they moving from competing solutions? And how do you describe the sense of urgency compared to, say, last quarter or 6 months ago? Laurent Simoneau: So that's a great question. This is Laurent here. So here's what we're experiencing is companies that see the value of AI, that want to invest in AI, but that understand that they need to ground AI in their own content. That's what Coveo does, right? It does really well. They -- sometimes these companies have also started some internal projects trying to build that on their own. And they discovered that it's hard. They discovered that it's expensive, and it's even harder to maintain and evolve. So Coveo is becoming really an important piece of the infrastructure for these large companies. I would say a year ago, we were convinced in companies that it was the case. Now they are adopting this. And not only they're adopting this, they are expanding with us, which is an amazing proof point. Suthan Sukumar: Great. And for my second question, I just wanted to touch on the Canadian government opportunity. From where you sit today, what are some of the core use cases that you guys are well positioned for to solve for the government. I was wondering if there's anything kind of from a low-hanging fruit perspective that you guys are going to be tackling in the near term? Louis Tetu: Right. As I said in the prepared remarks, we already do business with agencies such as, for instance, the Australian Taxation Office or the New Zealand Taxation Office, the state of Tennessee or the City of New York or so on. And mostly, it's about using generative AI for acute citizen services and really civil servants insights and so there's a lot of opportunity in Canada to deploy AI. And I guess not unrelated to the overall macroeconomic environment right now, Canada is really taking AI very seriously both from an industrialization standpoint, which we can participate in across the country, but also from a government efficiency perspective, which is top of the agenda for our Prime Minister, Mark Carney. And so as a result, Coveo being one of the Canadian -- sort of Canadian leaders in applied AI has been called by the government and we signed a memorandum of understanding, which is sort of a normal way that the government proceeds to essentially explore deployments across agencies essentially coast to coast. So we'll see how that unfolds. We're not announcing anything. There's nothing formal, an MOU is essentially the equivalent of a letter of intent and government jargon. But certainly, there's a significant opportunity for us to save and we've already said publicly that we can save billions to the government and create that equivalent amount, billions also in economic value with our technology. And we can do that. We have thousands of use cases of Coveo and we can do that in a highly industrialized way. which most people cannot do. And so we think that could be a significant opportunity. Now the MOU was signed by 2 ministers, the Minister of AI, Evan Solomon and Joel Lightbound, the Minister of Government Transformation and Service Canada, so we'll see. I can't speak on their behalf as far as what decisions they'll make regarding their transformation and how they'll deploy AI in the sovereign way in Canada, but it's certainly -- those are certainly discussions underway, as you might expect. Operator: [Operator Instructions] Your next question comes from the line of Richard Tse from National Bank Capital Markets. Richard Tse: Yes. It seems like you've sort of had some really accelerated momentum in sort of new verticals or I don't want to say new, but sort of verticals like industrial and financial services. I think you sort of called out industrials in particular. What would you attribute that to? Is that kind of because you made a sales push there? Or is it goes back to your comments that there's more sort of understanding in the market? Like it seems like that is becoming a much bigger opportunity than you have sort of talked about in the past? Laurent Simoneau: Absolutely. So our customers are bringing us there. We -- the fact that we cover both the commerce part, think about large catalogs and pricing entitlements, inventory and so on and the knowledge side that involves service that involves field service and so on, it becomes a logical next step to handle that altogether. Now what is also accelerating this is search and conversational experiences are allowing to stitch all of this information altogether. So customers are evolving in a way where these new experiences will serve customers, all silos of the customer lifetime into customer lifetime with them, which is highly strategic. So Coveo serves as an infrastructure layer supporting all of that. And because, again, we connect to commerce, we connect to service and knowledge, and we have the AI on top of it to deal with relevance. We become a strategic component for them in the future. Louis Tetu: Richard, I'll add the following to perhaps illustrate this and for everyone on the call, which is -- which really speaks volume to our thesis and what we're experiencing. One of the most -- and this -- I think for everyone, this is really, really important to understand Coveo. One of the most fundamental breakthroughs or paradigms that new paradigm that generative AI, in particular, enables is the ability to stitch content in real time and bring it in context. So think about how you can go on ChatGPT and essentially ask a very complex question, provide the context and how ChatGPT will literally stitch it for you and tailor it for you. And so if you think about that in the context of an enterprise, data doesn't need to be moved anymore. You do not -- if you think about something like Agentforce, for instance, at Salesforce, it was designed to work on Data Cloud. You need to move all your data into Data Cloud. Well, guess what? And for a lot of use cases, especially the ones we cover, you don't need to do that anymore. Why does that matter is that search and the ability, which we've mastered for now 15 years, the ability to reach content across multiple silos, highly securely govern that process, understand the semantic behind it, vectorize it and then the relevance to understand the context and stitch it together in real time is what we enable. And so fundamentally, as companies discover that, and they understand better than ever how to take advantage of that. And that is really, really, really critical to what the market is realizing to what AI is truly enabling and to what Coveo at the core is doing. We're in the stitch and tailor business. We stitch data and we tailor it. Think about it that way in those terms. And this is why we're becoming very relevant to these customers because of that ability, does that make sense? Richard Tse: Yes. Yes, that's very helpful. My next question -- your second question here is as workflows shift more away from search and directly in the agents, does that kind of change the revenue model going forward in any way? Or is it essentially the same? Laurent Simoneau: Well, for us, we have primarily a consumption model, right? So we don't really sell seats. So if the if the usage of Coveo goes through Agentic workflows, it's fully fine. We're going to serve these Agentic workflows just like we serve, user experiences, classic user experiences, and it brings more consumption for Coveo. So we are -- we are quite comfortable with serving this diversity of experiences basically. We're in the good side of Agentic as a summary. Operator: And there are no further questions at this time. I will now hand the call back to Laurent Simoneau for any closing remarks. Laurent Simoneau: All right. So thank you again, everyone, for joining us today and to our shareholders for your continued support. We look forward to updating you on our next earnings call after our Q4 and full year results. Thank you. Operator: This concludes today's call. Thank you for participating. You may all disconnect.
Operator: Welcome to Hemnet's Q4 and Full Year 2025 Conference Call. [Operator Instructions] Now I will hand the conference over to the speakers. Please go ahead. Jonas Gustafsson: Good morning, everyone, and a warm welcome to this 2025 Q4 release call and full year review for Hemnet Group. My name is Jonas Gustafsson and I'm the Group CEO of Hemnet. With me, near my side today at our headquarters in Stockholm, I have our Chief Financial Officer, Anders Ornulf; our Chief Operating Officer, Lisa Farrar; and our Head of Investor Relations, Ludwig Segelmark. Today, we've called for an extended session to cover an update on some important strategic and commercial topics and will, therefore, have a slightly longer presentation than usual. Firstly, we will start with a normal quarterly presentation where we go through the financials from Q4 and the full year of 2025. After that, we will follow up with a deep dive on Hemnet's market position as well as our strategic and commercial focus areas going into the first part of '26. Anders will also quickly break down what this means for our financial reporting going into this new year. As always, there will be opportunities to ask questions at the end of the presentation, and we will combine the Q4 Q&A and the deep dive Q&A into one session. Today's presentation will be moderated by our operator, so please follow the operator's instructions to ask questions through the provided dial-in details. So with that, let's get started, and let's move on to the next slide, please. Despite a very difficult market backdrop, Hemnet demonstrated strong performance and resilience in the fourth quarter. Net sales decreased by 4.4% in Q4 driven by a continued weak market with low published listing volumes. New listings were down with 26.4% in the quarter. Around 5 percentage points of the volume decline during the quarter was attributed to a new business rule introduced in February 2025, impacting the year-on-year comparison. This new business rule is allowing sellers to change agents without buying a new listing. ARPL, average revenue per listing grew by an impressive 29.2% in the fourth quarter driven by a continued increasing demand for Hemnet's value-added services fueled by a continued conversion towards Hemnet premium. EBITDA declined with minus 12.8% to SEK 154 million as the low listing volumes lead to lower net sales and lower fixed cost leverage. For the full year of 2025, the results demonstrated strong resilience with net sales increasing by 9% to SEK 1,526 million and EBITDA increasing by 7% to SEK 768 million, corresponding to an EBITDA margin of 50.3%. This was driven by yet again strong ARPL development of 28% for the full year, and this underscores our ability to maintain strong underlying value creation even in a challenging and unpredictable market. Going into this new year, we have several exciting product launches planned for the first half in 2026. This includes the rollout of Sell First, Pay Later”, which will start on Monday next week in Stockholm. We will talk more about why we're so excited about the new product launch later on in the presentation, but the pilot results have indicated a fantastic opportunity to drive both more and earlier listings to Hemnet. Now let's turn to Page 3 for a quick look at the financial performance. Net sales amounted to SEK 348 million, down by 4.4% compared to the same period last year, driven by the significant decline in listing volumes during the quarter. EBITDA decreased by 12.8% to SEK 154 million. The decrease was driven by the lower listing volumes, which drove lower net sales and reduced fixed cost leverage. The EBITDA margin amounted to 44.2%. As per usual, Anders will break down these profitability dynamics in more detail as we move further on into the presentation. Now let's turn to Page 4 for a look at the property market and the listing volumes. On the left-hand side of this slide, you'll see a combined chart showing published listings per quarter and yearly as well as the year-on-year change between quarters. Published listings decreased by 26% year-on-year in the fourth quarter and by 13% for the full year. The slow market continues by negatively impacted by longer selling times and the average listing duration on Hemnet has increased by 20% year-on-year to 55 days in Q4 compared to 46 days in the same period last year. In addition, a sell first mentality is continuing to impact the value chain and the industry dynamics. The volume decline was partly attributed to the changed business terms in February 2025 for changing agents, which explained approximately 5% of the new listings decline compared to last year. While the overall picture remains bleak, there have been some positive signs of renewed activity during 2025 with rising prices, record villa sales and a supply that started to decrease towards the latter part of this year. With that said, the inflow of new homes remains constrained going into the new year as the market positions itself for a stronger expected market from the second quarter and onwards. Let's move on to the next slide to look a bit closer on the strong ARPL development. ARPL, average revenue per listing grew by 29% in the fourth quarter. The ARPL growth was again mostly driven by a strong demand for value-added services. The conversion rate to higher-tier packages continued to increase during the quarter and is at all-time high levels. Hemnet Premium which was launched in late 2019 is the main driver of our ARPL growth in the fourth quarter. When looking back on its history, it's important to keep in mind, and it's important to remember the Hemnet Premium was initially met with some skepticism from both agents and buyers, and it took more than 2.5 years after the launch before Hemnet Premium was able to reach double-digit conversion. With that in mind, Hemnet Max is well positioned to capture the next level of demand for customers seeking to maximize their chances of a successful sale and become a key growth drivers for many years to come. The initial results and the product performance of Hemnet Max has been stellar. Before moving into the financial section, let's have a look at what has happened during 2025 from an overall Hemnet and from a product perspective. While 2025 was characterized by resilience, it was above all a year in which we geared up for the future. Through an increased pace where AI tools have notably helped us to become more efficient, we entered the new year with a significantly strengthened product portfolio and an organization ready to drive the market forward. In 2025, we made significant progress in developing our consumer-facing proposition and we've taken actions to strengthen our relationship with the industry, and we're well prepared for our large strategic product initiatives being brought to the market in early 2026. With these elements in place, we do look forward to 2026 with great pride and confidence, ready to deliver more value to our users, to our customers and to the real estate agents than ever before. And with that, I will hand over to Anders for the financial update, starting with Page 7. Anders, please take it away. Anders Ornulf: Thank you, Jonas. Let's turn to Page 8 and the financial summary. As Jonas alluded to, we ended the year in a property market that remains challenging, characterized by continued hesitation to list new properties. This resulted in a decline in published listing of 26% for the quarter. However, despite the significant headwind in volumes, our financial model demonstrated resilience. Net sales for the quarter amounted to SEK 348 million, a decrease of only 4.4%. Another noteworthy point is the average listing time, which on a rolling 12-month basis increased from 46 days in '24 to 52 days in Q2 2025 and now 55 days in Q4 2025. The year-on-year effect of the longer listing time is a positive SEK 12 million in revenue for the quarter, and the sequential effect of the 3 additional days from Q3 to Q4 is negative minus SEK 2 million. To smooth out system variation, we recommend tracking ARPL growth on a rolling 12-month basis, as shown on Page 4 of the presentation. The bridge between the volume drop and the revenue performance is once again the ARPL. You can see that it grew by 29% to SEK 10,900, historic high for a single quarter and was driven by continued strong demand for our value-added services, specifically Hemnet Premium. Looking at profitability on the top right, EBITDA for the quarter came in at SEK 154 million. The EBITDA margin was 44.2%, margin contraction compared to last year is primarily a function of lower listing volumes. Since a large portion of our cost base is fixed, lower volumes naturally lead to lower coverage of these fixed costs. I will walk you through the specific cost dynamics in more detail on the following slides. One important component in the margin development is, of course, the compensation to real estate agents. When expressed as a percentage of property seller revenue, this ratio increases year-on-year from 31.5 to 32.3 in Q4 '25 driven by a further improvement in both recommendation rates and actual conversion. Higher commission reflecting a substantially stronger underlying improvement of our Bas products. And as always, the effective commission is a variable component and tends to fluctuate somewhat between quarters, making what's suitable to measure over longer periods. Free cash flow. Free cash flow was SEK 745 million, a 7% increase year-over-year. This robust cash generation underscores both the scalability of our business model and our strong profitability even in a very soft housing market. Our operations continue to convert a high portion of revenues into cash, highlighting the quality of our earnings. We continue to uphold a strong financial position. Net debt leverage ended the quarter at 0.7x. The increase in leverage is primarily an effect of our active capital allocation strategy, combined with the low listing volumes during the period. Notably, during this year, we expanded our share buyback program from SEK 450 million to SEK 600 million following the mandate approved at the AGM 2025. We have continued to return capital to shareholders, while at the same time, maintaining a conservative balance sheet. Importantly, this demonstrates the strength of our position, we're able to execute the capital returns and still retain a very high degree of financial flexibility going forward. Headcount increase of 15 largely reflects the organization has been selectively strengthened, primarily within tech and product as well as new leadership within marketing. However, regarding the total number, it's important to take into account that we had an usually high number of vacant fills at the end of '24, which impacts the year-on-year comparison. With that overview, let's turn to Page 9, the revenues by segment to take a closer look at the Q4 figures. Starting with our largest segment, property sellers revenue amounted to SEK 298 million which again, very modest relative to the drop in listing volumes. Turning to the B2B segment, net sales decreased slightly by 0.8% to SEK 50 million -- SEK 51 million. Within this segment, revenue from real estate agents grew by 3% to SEK 24 million. This growth was driven by strong performance in our Sold by Us product and other value-added services for agents, which effectively offset the impact of fewer published listings. Revenue from property developers decreased by 14%, sector remains under pressure, fewer project starts and the general cautiousness regarding marketing spend from these customers. Finally, revenue from advertisers grew by 4% to SEK 16 million. This is a positive deviation from the trend we've seen in the recent quarters despite the challenging macro environment for display advertising, we managed to grow this line item due to strong sales to banks and other advertisers. Let's go deeper into the profitability dynamics on Slide 10, showing the EBITDA bridge for the fourth quarter. First bar shows the net sales impact, which then, of course, had a negative effect of SEK 16 million. Next, we have compensation to real estate agents, costs decreased by SEK 2.5 million since commission is largely linked to seller revenue, the decrease in seller revenue naturally leads to lower absolute commission payments. Moving to other external expenses. They are flat year-on-year. We have maintained cost discipline with slightly higher costs but licenses were balanced out by lower spend on consultants and marketing compared to the same period last year. Personnel costs increased by SEK 10 million, representing a 17.7% increase in the quarter and is driven mainly by increase in number of FTEs and annual salary inflation. We ended the year again in the headcount with 167 employees. Finally, other costs had a minimal positive impact brings us to Q4 EBITDA of SEK 154 million. Now let's zoom out and look at the full year '25 on Slide 11. While Q4 was impacted by specific volume headwinds, the full year picture demonstrates the robust growth profile of Hemnet over time. For the full year '25, net sales grew by 9.5% to SEK 1.5 billion. This was achieved despite a full year decline in published listing of 13%, driver again is ARPL. Full year ARPL increased by 28% to 8.1 -- SEK 8,200. This consistent ability to grow ARPL faster than volume is, of course, core. EBITDA for the full year increased by 7% to SEK 768 million, corresponding to a margin of 50.3%. The effective commission is a significant component of the P&L, again, and it's increased from 30.4% in full year '24 to 30.7%, driven by the strong conversion to our value-added services and the compensation model launched in July '24. Turning to Slide 12 for the full year revenue breakdown. Property sellers revenue grew by 11% to SEK 1.3 billion. This segment now accounts for 86% of the total revenue in the year. And again, it really underscores the strength of our business model. B2B revenue for the full year was essentially flat, declining 0.7% from lower display sales partly as a result of lower number of published listing in later part of the year. Real estate agents revenue grew by 3%. The highlight here is our Sold by Us product, which grew by more than 2x compared to 2024. This product, as an example, is becoming a big part of the agents marketing mix. But it's also a further proof that we are able to launch new products that create real value for the customers, even if it may take some time before it's fully gained traction. Property Developers revenue was flat year-on-year, which we consider a stable result given the severe headwinds in new construction markets. Advertisers revenue declined by 7% for the full year, reflecting the broader weakness in the digital advertising market and lower traffic resulting from fewer listings. All in all, very encouraging that we are able to maintain revenues in our B2B segment despite the low level of listings, which negatively impact impressions. We have carefully offset -- we have successfully offset this to growth in our Hemnet Premium products, which creates value for the priority customers, real estate agents, property developers and banks. On Slide 13, we see the EBITDA bridge for the full year '25. Starting from SEK 720 million in '24, the primary positive driver was, of course, the net sales growth, which contributed SEK 132 million to EBITDA. Compensation to real estate agents increased by SEK 44 million. The increase is the direct result of the higher revenue from property sellers and the successful launch of the new compensation model, which rewards agents for high recommendation rates of our premium products. Other external expenses labeled C increased by SEK 24 million, reflecting the decision to normalized investment levels in marketing and product development after a more cautious '23, '24. Personnel costs increased by SEK 20 million, driven by mainly the salary inflation in headcount investments I mentioned earlier. All in all, this resulted in an EBITDA growth of SEK 48 million for the year, landing at SEK768 million. Finally, let's turn to Slide 14 to review the cash flow and financial position. On the left, you see our free cash flow on a rolling 12-month basis, generating SEK 745 million of free cash flow over the last year with increase of 7%. I would like to briefly comment on the operating cash flow for the isolated fourth quarter. In addition to the impact on weaker listing volumes, we also saw a more technical effect of negative change in working capital driven by the timing of settlements for our payment service providers. This is a temporary timing effect and does not affect any underlying change in the cash generation. Our strong cash flow allows us to continue returning capital to shareholders. And as you can see in the middle of the chart, we have been very active with the share buybacks. In Q4, we repurchased share for SEK 160 million. Looking at the right-hand chart, our leverage is increasing, but put in perspective very low. Net debt-to-EBITDA ended the year at 0.7 slightly up as I commented earlier, but also remaining well below our financial target of 2. Reflecting our strong financial position and confidence in the future, the Board of Directors has proposed a dividend of SEK 1.90 per share. This represents an increase of 12% compared to last year and corresponds to approximately 1/3 of our earnings per share, in line with our policy. With that, I will hand the call back to Jonas to wrap up the first section. Jonas Gustafsson: Thank you, Anders. And let's move on to the summary slide on Page #16. To summarize the fourth quarter, the full year of 2025 and the news we announced today. First of all, we saw a continued pressure on new listings published in Q4, negatively impacting both net sales and EBITDA in the quarter. A strong ARPL growth of 28% for the full year offset the negative impact from lower listing volumes, leading to a total net sales growth of 9.5% in 2025. Going forward, we have a clear focus on addressing market friction and being a partner throughout the entire property journey. We have everything in place to start rollout Sell First, Pay Later on Monday next week on the 2nd of February. We look forward to 2026 with our focus set on delivering more value to our customers and the Swedish property market than ever before. With that, let's move on to the second part of today's presentation, a deep dive into Hemnet's business update on Slide 17. In this second part of the presentation, we wanted to take the opportunity to do a deep dive on Hemnet's strategic initiatives going into 2026. Some updated related to our financial reporting as well as some additional color to the market dynamics. So let's move on to the agenda on Slide 18. So for today's agenda on the Hemnet business update, firstly, I will go through and discuss Hemnet's current market position and what the Swedish property market looks like today and how it has changed over the last years. Secondly, our Chief Operating Officer, Lisa Farrar, will provide an update on our key product initiatives and commercial road map. Thirdly, Anders, our Chief Financial Officer, will cover how we structure our financial reporting in 2026. Lastly, I will provide a summary and a wrap up before we move into the Q&A session. With that, let's start by looking at Hemnet's market position on Slide 19. To start it off, Hemnet is the #1 property portal in Sweden. Hemnet continues to have a fantastic market position. Over 95% of property sellers in Sweden know our brand and close to 90% consider Hemnet that the first choice when selling a property. If you look at our weekly active users, we've had an average of 2.7 million weekly users in 2025. Despite the soft Swedish property market during especially the second half of the year when market activity and interest went down, we see that our users to a very large extent, continue to come back to our platform on a weekly basis. This is also shown in the reach that we have. When comparing Hemnet with other websites in Sweden, regardless of industry, Hemnet is the third largest commercial website after the 2 largest Swedish tabloids and newspapers being Aftonbladet and Expressen. Hemnet is a strong brand and engagement are also evident from the share of direct traffic that comes to our website. Between 70% and 75% from our traffic comes directly to us, either by typing Hemnet straight into the browser or going straight to our app. The high share of direct traffic shows that Hemnet is top of mind for users, and we have limited dependency on external traffic sources. Lastly, Hemnet has more than 25 years as the #1 property platform in Sweden. Our platform is deeply integrated into the working ways of the entire real estate industry. With that, let's move on to our role in the ecosystem on the next slide, please. The Swedish property market has a long history of being efficient and attractive and Hemnet has played an instrumental role in creating that ecosystem over the past 25 years. The market has been characterized by short sales cycles, a buy before sell mentality, ease of transacting and strong underlying price development. The attractiveness of the market has further been aided by highly professional of well-respected real estate agents coming from a professional educational background. In addition to these dynamics, the market demand is spurred by high-income ownership, limited buy-to-let segment and the dysfunctional rental market. This has led to a highly attractive market over time. Hemnet platform is at the center and the heart of this market and serves as the natural meeting point where agents, where sellers and where buyers meet. As you can see here on the next slide, Hemnet has been able to build an impressive business based on the strong market position. Hemnet has shown strong revenue and EBITDA growth in the past couple of years. The lion's share of the growth development has come through growing ARPL, average revenue per listing over time. This has been achieved through adding and growing new packages and products to our proposition. In late 2019, when Hemnet launched Hemnet Plus and Hemnet Premium, and these packages have grown in popularity steadily every single year and single quarter since then. In late '25, Hemnet Plus, Hemnet Premium and newly launched Hemnet Max together announced accounted for more than 75% of all listings, more than 3x compared to the end of 2020. The product-driven growth paired with price increases and payment alternatives, have been a key driver of financial success and has fueled investments into the platform, which has helped Hemnet maintain its strong position as the largest property platform in Sweden. If we then move on to the next slide, please. Hemnet is the undisputed #1 property platform in Sweden in terms of traffic and reach. Our traffic has been stable over time with the exception of the outlying years during the pandemic. When most digital platforms saw a significant surge in peak in traffic and activity as people spend more time at home and spend more time on digital platforms. When looking at Hemnet's traffic over time, it is important to understand the relationship between market activity and traffic. When market activity goes up, and more properties are listed for sale, so does activity and engagement on the platform. As seen on the graph on the right-hand side, there is a clear correlation between the number of newly published properties on the platform and the user behavior. In 2025, we saw a slight decrease in the average vehicle users, especially during the second half of the year as the number of new listings on the market decreased. Today, between 40% and 50% of Hemnet session come from the Hemnet app on iOS or Android. Hemnet's platform is mobile first, and the user on the app are typically much more sticky and much more engaged than the average browser user. With that, let's move on to the next slide, please, to elaborate a bit on our overarching ambition going forward. Our ambition is simple. We want to create value across the entire property journey. But what does that mean for us in practice. First of all, we want to have all relevant listings. If a property is for sale in Sweden, you should find that property listing on Hemnet. We know our users and provide them with a superior experience. Searching for a property on Hemnet should be a great user experience that is personalized to your needs and to your preferences. We are the #1 partner for agents, property developers and banks. And as a partner, it is clear that Hemnet generates superior value. We have the most comprehensive and valuable data. We can leverage more than 25 years of data on search behavior to further enhance the consumer experience and customer proposition. We are top of mind and have the largest property audience in Sweden, and we can never take our possession for granted. This is all enabled by the strong relationship that we've built with the real estate agent industry over the past 25 years. So let's move on to the next slide to take a closer look at what happened with the market in the past few years. Looking at the data, it's clear that the Swedish property market has gone through a few difficult years since 2022. The post pandemic era has brought changes to the Swedish property market dynamic. As you can see in these 3 graphs below, multiple trends have changed the industry dynamic. First of all, we've seen selling times increasing by almost 3x since 2022, driving a less efficient and less transparent market. Secondly, we have also seen a shift in buy behavior where 2/3 now sell before they buy a new property compared to the inverse ratio in early '22 and the years before. This has impacted the way of working for agent and has been driving a less efficient market. Thirdly, price development has been very weak since the pandemic years compared to historical levels, both real price development and nominal price development. The price development has led to lock-in effects impacting the overall market, especially in the apartment segment, which is a high-volume segment. This new dynamic has led to a more prominent pre-market that is characterized by lower seller intent, longer sales processes and a changed way of working among real estate agents. Let's continue on this topic on Slide 25. The role of the pre-market has become increasingly important over the last years. Lower seller intent, lower sales -- longer sales cycles and a changed way of working from agent has fueled a larger so-called pre-market. The pre-market is commonly defined as the stage of the market where a property is not outright listed for sale, and this part of the sales cycle has become longer and more pronounced. This has become problematic for buyers, for agents and for sellers as the pre-market is characterized by lower efficiency and a high variation when it comes to actual seller intent. Today, large proportion of the so-called Swedish premarket is actually old content with low seller intent. Approximately 50% of pre-market listings in Sweden today are older than 6 months. From a Hemnet perspective, that means that not all of the pre-market is relevant. But there is an active part of the market that Hemnet historically has not addressed in a satisfactory manner. This is now something that we are clearly and actively looking to change and will address with our strategic initiatives that we will elaborate further on in the presentation today. Next slide, please. Hemnet's value proposition has predominantly in the past, focus on the own sales segment. The core strength of Hemnet's model align very well with traditional for-sale segment. When the goal is to sell the property as quickly as possible at the highest price as possible, Hemnet has a very strong and undisputed customer proposition. With Hemnet, you maximize the number of eyes on the listing, increasing the chances of attracting more potential buyers to open house and maximizing the bidding process, which hopefully will lead to a successful sale at the highest possible price. The core model of Hemnet remains strong, which is important as it addresses the needs of the absolute majority of the market but we also need to ensure that we adapt our value proposition to cater for the current market environment that has changed over the last years. With a larger share of sales cycles taking place on the pre-market, we see that some more properties are being sold before reaching Hemnet. Looking at 2025, transactions on Hemnet decreased by approximately 5% compared to the overall market that was stable year-on-year. We're now addressing this. We're now executing on several strategic actions, including strategic partnership and the launch of Sell First, Pay Later, to ensure that we better serve the full market spectrum and have the strongest possible customer proposition in all different types of markets. Let's quickly look at this on Slide 27. We're now moving into execution on significant strategic actions to address the full market. Our key strategic actions in the first half of 2026 are Sell First, Pay Later, which will be rolled out in Stockholm from Monday and onwards. Thereafter, it will follow with a Western Sweden launch, a rest of Sweden launched in March and April. We will speak more about the findings that we've seen from the pilot and why we're so excited about the launch. Secondly, we are going into a number of different strategic partnerships, and this will also start to be rolled out in February. Already today and what we have announced today with more than 60 strategic partnerships in the early days. Leveraging AI and product innovation will ensure that we consistently update and improve our customer experience. And lastly, an increased sales and marketing focus continuing to build on the increased focus that we implemented during 2025, where we need more agents than we've ever done in the past. We work closely with the industry, and we invest in marketing with relevant returns. With that, I wanted to wrap up this initial session and hand over to Lisa to do a deep dive in all these exciting product initiatives and product launches that we have ahead of us. So with that, over to you, Lisa. Lisa Farrar: Thank you, Jonas. Let's move over to Slide 29, please. As Jonas has pointed out in his section, we are now launching 2 key strategic initiatives under the umbrella Hemnet hela vägen” or Hemnet all the way. The first initiative is Sell First, Pay Later. This is a new model where sellers pay only if they successfully sell their property. We're also rolling out strategic partnerships our next step in our 25-year collaboration with the Swedish real estate agent industry. As the pre-market place has become increasingly important, Hemnet is now accelerating our role earlier in the housing journey. By lowering the threshold for early publication and strengthening our collaboration with agent industry, we are reducing fragmentation, improving transparency and creating better conditions for sellers, buyers and agents to fully leverage the value of our platform. Today, we will also elaborate on how we work with AI at Hemnet. As the leading and most trusted property platform in Sweden, Hemnet has a fantastic position to leverage AI to further strengthen our position and significantly elevate our user experience. I will spend some time today describing our general approach to AI, but also disclosed a number of exciting customer-facing AI product features that we are rolling out on the platform as we speak. These 3 areas will be accelerated through our existing marketing and sales engine built over the past 2 years. By continuing to target brand investments and fully leveraging our strength in CRM and digital marketing capabilities, we can drive traffic and engagement efficiently ensuring strong execution of our strategic initiatives without adding material cost. Our sales team remains a strategic pillar of our go-to-market execution and a key competitive advantage through our close collaboration with the real estate agent community. In '26, we will continue to strengthen this proximity by meeting more customers and engaging on the full Hemnet value proposition, including the supply side of the Hemnet platform. Now let's dive into some of the different initiatives on the next slide. With Sell First, Pay Later, we are expanding Hemnet's present throughout the sales journey and driving more volume to the platform by significantly lowering the threshold to list your property on Hemnet. As we announced in the Q4 report, we ran a pilot between the first of October and 31st of December last year across 10 real estate agent offices in Sweden. The data and feedback from the pilot has been very supportive and exceeded our expectations. Volumes in the pilot were significantly stronger compared to the nonpilot population with the pilot offices having almost 40% higher year-on-year listing volume change compared to the nonpilot offices. That means that in a soft market, where listings on Hemnet were down by 26%, the pilot offices increased their number of listings on Hemnet year-on-year with 4%. In addition to the very strong volume effects, we also saw a larger willingness from both agents to recommend and from sellers to choose our value-added services and to use the Hemnet pre-market product. Moreover, when asking the participants in the pilots, more than half of the sellers stated that Sell First, Pay Later played a role in their decision to list on Hemnet, showcasing the strong value proposition of the new model for sellers. I want to point out that the business rules of the pilot differed from those that will apply when the actual rollout and therefore, these results should be treated with some caution. But with that said, we're extremely encouraged by the pilot results, and we look forward to rolling it out in Stockholm County next week. Let's move on to some of the feedback that we have received. The feedback that we have received from both sellers and partners have been very positive throughout the pilot. For sellers, the Sell First, Pay Later model helped lower the barrier to list what has been an uncertain market with longer sales cycles and weaker price development. As seen in one of the seller quotes from the surveys sellers said, no reason not to list on Hemnet when the payment becomes success-based. For agents, removing the upfront risk made it easier for them to pitch Hemnet already in the intake meeting ensuring that the listing received maximum reach during the full sales process. And for buyers, more high-quality listings were made available from committed sellers. And with that, let's move on to some of the technicalities of the new model on the next slide. Sell First, Pay Later will be available to all agents who choose to go with Hemnet all the way and publish a listing on Hemnet within 2 days from the time the listing is published on the agency website. That means that all real estate agents in Sweden will get access to the model, and it will be available regardless of what package you recommend. Sell First, Pay Later will be added as an additional alternative to pay now and pay when listing is removed. It will also be priced at a premium to pay when listing is removed. The way the payment to Hemnet works is that once the listing is sold, the agent is liable to mark the listing as sold and the invoice will be sent to the seller. The seller is liable to pay for the Hemnet listing as long as the property is sold during the time the listing is live on Hemnet or within 6 months of deactivating the listing on Hemnet. And the agent commission is paid once the property has been marked as sold. This model will be rolled out in Stockholm County from the second of February, which is Monday next week, followed by Västra Götaland on the second of March and the rest of Sweden on the 30th of March. In connection with the launch, there will be a grace period when agents will be allowed to publish all the listings on Hemnet, similar to what was done in the pilot. Let's move on to the next slide, please. Let's talk about the strategic partnerships that we announced in the Q4 call and that we are rolling out from February. We're incredibly excited to be able to roll out what is the next step in our 25-year win-win partnership with the Swedish real estate agent industry. With this partnership model, we are taking a more holistic approach to how we interact with the entire industry. Historically, Hemnet has focused a lot on engaging with franchise owners as this is where we have the existing commission model that incentivizes agents to make a tailored recommendation of the best product fit for each property seller. Now we are addressing both the HQs and brand owners as well as the actual agents to a much larger degree. The strategic partnerships at HQ and brand owner level are built around our brand concept Hemnet hela vägen or Hemnet all the way. The changed market dynamics of recent years where behavior has shifted towards selling first and buying later has led to more homes being published late on Hemnet. This means that sellers risk missing out on important product values, including upcoming, which is included in all listing packages and which has recently been enhanced to strengthen the value of early exposure on Hemnet. We are continuing to develop Hemnet to maximize the value for sellers, buyers and agents across the full sales journey. Our data shows that earlier listings on Hemnet drives higher interest and create stronger conditions for a successful sale. These strategic partnerships create a clear win-win for both real estate agent brands and Hemnet. Partners integrate Hemnet across the full sales journey, including the premarket phase, driving earlier and increased supply on the platform. In return, partners gain enhanced brand visibility, increased lead generation, access to under the radar listings and monetary compensation linked to successful use of Hemnet's pre-market offering. The desired outcome is this collaboration around the pre-market with shared incentives to use Hemnet as a marketing channel throughout the entire sales journey. Initial market reception, as Jonas mentioned, has been very strong with agreements signed with more than 60 real estate agent brands across Sweden, including major agencies such as Svensk Fastighetsförmedling, Notar, Erik Olsson and Croisette. This represents 1/4 of the market and 5 of the top 15 brands in Sweden. Additional discussions are ongoing, and we expect to onboard further partners in the coming months. Let's move to the next slide, please. As part of the strategic partnerships, we are introducing performance-based compensation to further incentivize agents to use Hemnet across the full sales journey and fully leverage the value of the platform. Compensation is linked to the share of premarket listings published on Hemnet relative to the total number of premarket listings available on the agent's own website. To qualify, an agency must increase its share of premarket listings on Hemnet compared to its baseline level at the time of entering the partnership. Partners have successfully increased their premarket listing share and exceed defined thresholds are eligible for compensation ranging from 1% to 5% of revenues, net of agent commission. The different tiers and thresholds are illustrated on the right-hand side of the slide. This performance-based model is similarly structured to our existing compensation model, creating a clear win-win for agents, sellers and Hemnet, while supporting growth in both top line and EBITDA. Let's move on to Slide 35 to see some examples of what the strategic partnerships look like in practice. As I outlined, the strategic partnerships include a set of new features and added values for agents. These include enhanced branding on listing pages, increased agent exposure in the My Home tab and the ability to surface under the radar listings on Hemnet. Several of these branding features are already live on the platform with additional functionality and partner onboarding planning for the coming months. With that, let's move to the next slide. As the leading and most trusted property platform in Sweden, Hemnet is uniquely positioned to leverage AI to further strengthen our market leadership and materially enhance the user experience. We operate in one country, one vertical and one market-leading platform with fully rights cleared data, resulting in a level of data quality and depth that is unmatched in Sweden. This allows us to move faster, go deeper and deploy AI in ways that is compliant, scalable and sustainable over time. The combination of historical, behavioral, geographic and transactional data is difficult to replicate and provides Hemnet with a durable competitive advantage. We are currently executing along 3 parallel AI tracks. Each designed to embed AI deeply into the core of our product and operations while leveraging our key strengths. Our first focus is to build a strong and reusable AI foundation. We have completed large-scale semantic tagging of more than 1.4 million listings and historical content. This capability underpins multiple AI-driven features across the platform and provides high operational leverage through a shared foundation. We continue to develop AI-enhanced models across the business, including the property valuations, where AI-driven image recognition feeds directly into our automated valuation models. Internally, we're also increasing efficiency through an AI-enabled operating model. This includes AI-assisted product and technology development as well as conversational analytics directly connected to our data warehouse. The result is shorter lead times, higher output and tangible efficiency gains, allowing us to execute our AI strategy at pace while maintaining disciplined cost control. Our second track focuses on delivering a materially improved user experience. We are using AI to personalize discovery, recommendations and insights enabled by our unique behavioral data and deep understanding of listing contents. We are rolling out conversational search on our platform to complement, not replace our existing search experience. This improves intense understanding and makes discovery more relevant and intuitive. We're also deploying AI-generated summaries that help users quickly understand complex information and make more confident decisions. These summaries are tailored to user intent and behavior while also preserving the full access to the underlying data. Our third track focuses on exploring new AI-driven frontiers and products. We are present with selected AI ecosystems and we'll expand our presence where it is strategically beneficial for Hemnet. From a risk perspective, we view AI-driven discovery as a potential shift in distribution rather than a disintermediation. While traffic from large language models currently accounts for less than 0.1% of our total traffic, we want to ensure that Hemnet is present where users are and where they will be in the future. Our approach is to treat large language models as distribution channels, not platforms. We integrate selectively and under strict data governance and control principles. This ensures that traffic, trust and user relationships remain anchored with Hemnet while still allowing us to benefit from innovation across multiple AI ecosystems. Finally, we continue to roll out consumer-facing products built on increased personalization, using our data to meet user needs with high accuracy, create partner value and unlock new revenue streams for Hemnet. Let's move to the next slide to see some product examples. We're shipping several AI-enabled products to meet emerging user needs and to accelerate how people discover and engage with homes on Hemnet. This week, we launched a conversational search beta that bridges human language and housing data. It improves discovery today while shaping how users will search and interact with Hemnet over time. We have also submitted a Hemnet in ChatGPT app for an integrated experience within ChatGPT. As outlined earlier, we view large language models as distribution channels rather than competitors. By integrating early, we ensure Hemnet is present, where users are beginning to experiment with new ways of discovering properties rather than reacting to distribution shifts after they occur. Go-Live is subject to OpenAI's approval. And as with all LLM integrations, this will be done selectively and on the strict data governance and control, ensuring that traffic, trust and user relationships remain anchored with Hemnet. On Monday, we are rolling out a personalized starting page built on AI. It introduces a personalized searches and recommendations, creating clearer and higher relevancy entry points into property discovery. And next week also marks the Go-Live of All Properties. This feature allows users to explore approximately 1.6 million homes directly in the map view, follow multiple properties and engage more broadly with the housing market beyond listings that are currently for sale. So to summarize the product and commercial update today. We are being more ambitious than ever in our product development. We're moving faster, being bolder, catering for a more dynamic market and deploying products that solve real user pain points. By deepening our connection with customers and leveraging AI at scale, we are strengthening the Hemnet experience today while building the foundation for long-term growth. And with that, I'll hand you over to Anders on Slide 38. Anders Ornulf: Thank you, Lisa. Let's move on to the next slide. So as you know by now, we are rolling out a number of changes to our business this year with the start on Monday next week with the launch of Sell First, Pay Later in Stockholm. These changes come with a few implications for how we structure our financial report in 2026. Revenues from sales with a Sell First, Pay Later option are recognized at a point in time when the invoice is issued i.e., when listed object market sold on Hemnet. The reason for the difference in revenue recognition compared to our existing payment models has to do with factors that need to be met in order for revenue to be recognized under IFRS 15. This means that the launch of SFPL will have a timing impact on reported revenues when launched. How big that timing effect will be is highly dependent on the uptake on SFPL and how that changes over time. In addition to the revenue recognition effect, the rollout of SFPL will also have a short-term cash flow impact, which will impact our working capital. This will be financed through a temporary increase in our existing revolving credit facility. Let's move to the next slide to see an example of what the revenue recognition effect could look like in practice. On this slide, you see an example on how different level of SFPL adoption will impact reported revenues in a highly hypothetical scenario. Please note that this example is based on certain assumptions and should, under no circumstances be seen as guidance from the company. For the sake of simplicity and to be able to understand the timing effect, we have assumed a scenario where 100% of properties on Hemnet is sold within 15 months. In this case, we assume no volume or price upside, which is obviously different from what we will see when we roll this out next week as the price for SFPL will be higher than the current payment options. We believe that it's easy to understand the timing effect in all else being equal scenario, not lending in too many assumptions. In this scenario, a 30% SFPL adoption will negatively impact the amount of recognized revenue in Q1 after launch by minus 11%. Similarly, a 50% SFPL adoption will negatively impact the amount of recognized revenue by 18%. As time goes and more properties are sold, the revenue recognition effect goes away. On average, approximately 50% of Hemnet listings are sold within the first 2 months and 70% are sold within the first 6 months. Very few listings are sold after the first 15 months. Moving on to the next slide, we will look a bit more on how long it takes for properties to be sold on Hemnet. As Jonas pointed out in his section, the steep market downturn in the spring of 2022 had a negative impact on the market as a whole and on how long it takes to sell a property. However, even though sales duration times have increased significantly, there has not been a large movement in how many properties that are eventually getting sold. Historically, between 82% and 92% of listed properties on Hemnet have been sold depending on the state of the market. In a strong market, like we had in '16, '17 or 2021, properties tend to transact very quickly, as you can see in the graph on this page. As stated on the previous slide, in the current market, approximately 50% of the properties are sold in the first 2 months and approximately 70% are sold within the first 6 months. After the first 12 months, roughly 81% are sold and roughly 85% are sold within the first 24 months. After 24 months, 2 years, very few transact. Let's move on to Slide 42. To be able to monitor the performance better going forward, we will update the definition of our ARPL, alternative performance measure, APM. The reason behind this change is to increase transparency and provide a better snapshot of the actual ARPL generated in the quarter. As the sales duration times have increased in the past 3 years, the ARPL metric has become more and more volatile on a quarterly basis. Therefore, we will start in 2026, we will change the ARPL definition from average revenue per published listing to average revenue per paid listing. As you can see in the graphs on the left, this will decrease quarterly volatility in the performance measure, but will have more or less no impact on the LTM numbers. We are confident that this definition change will make it easier for the capital markets to understand our business performance. The 9-quarter historical disclosure as seen in this graph has also been made available over the Q4 release this morning. Let's move to my last slide. We do recognize that the new launches we are doing this year makes it slightly more difficult to track and predict the short-term performance of our business in 2026. Therefore, we want to ensure that we are as transparent as we can when it comes to disclosure. And as a result, we will report preliminary sales figures on a monthly basis in 2026. Please note that our ambition is to only do this during 2026, and then go back to our normal reporting calendar in 2027. This means that starting in early March, Hemnet will report preliminary sales figures for February. The reporting will be issued in the press release 2 times per quarter, but only one time in Q1 as SFPL was not launched in January. Moreover, monthly volumes will continue to be published on the first working day of each month. The monthly volumes will include the breakdown of both paid and published listings from February and onwards. That sums up the changes to our financial reporting. And with that, I will leave it -- over to Jonas to summarize today's session. Jonas Gustafsson: Thanks, Anders, and thanks, Lisa. So we have now covered an update on our very exciting market position, the very exciting opportunities that lie ahead of us and how excited we are to bring our new initiatives and products to our consumers over the coming months. Looking more long term, we do see multiple growth levers for Hemnet. To elaborate a bit further on this, let's move on to Slide 45. We're very confident and eager to deliver strategic actions, but we're equally excited about the growth prospects that lay ahead. Hemnet has a unique market position and a great step of growth levers to pull to continue our success growth journey. We will start looking at value-added services. Value-added services have been the main driver of our ARPL expansion over the last years, and we see room for additional growth in this area. Please keep in mind that Hemnet Plus and Hemnet Premium were introduced back in 2019, and continued expansion of these packages has been the main driver of the 28% year-on-year ARPL expansion that we saw in 2025. 6 years after the launch. We need to enhance our customer proposition and the features that are included in our existing packages to optimize the packages and the overall package composition. During 2025, we launched Hemnet Max that will allow us to continue to grow ARPL over the years to come. Max penetration is still at low levels, but the product performance has been stellar. We see that Hemnet Max gets more engagement, more visitors and has a positive effect on the bidding price to justify a premium price level. Pricing. Pricing represents an important component for our value creation toolbox. We will continue to invest into our proposition to increase exposure on the platform and the value we deliver to sellers, to our agents and to our buyers. Our data shows that the estimated value of 1 additional bid in an auction process is worth around SEK 80,000. And even in a small increase in the number of interested buyers can have a significant impact on the financial outcome for a seller. That is a healthy investment if you compare the SEK 80,000 upside compared to our ARPL. In addition, with our dynamic pricing model, we see significant opportunities to add more granularity and work with data-driven pricing to better reflect market demand. Payments. Payments is the third lever to continue to drive ARPL expansion. With the launch of Sell First, Pay Later, we're taking the next natural step in our customer journey to improve the value proposition for sellers, buyers and agents. By lowering the threshold to list on Hemnet and tying the payment to a successful transaction, we make it easier for sellers to list on Hemnet and increase their chances for a successful sale. Going forward, we will continue to work closely with our real estate agent partners to further enhance our different payment options to ensure that we have a smooth and flexible payment options that are well aligned with traditional payment flows of a property transaction. And there is more to come in this area. Our B2B offering today has been strengthened over the last years despite being highly exposed towards cyclical underlying markets like new property development and more traditional display ads. We've taken significant steps ahead and are now launching a new package tracker towards property developers as well as our bank customers. Going forward, this area offers significant opportunities ahead. Hemnet is a powerhouse in terms of traffic and engagement. At the same time, we are very close to the actual property transaction, meaning while we have high-quality data. If we combine high-quality data with a high quantity of traffic that we do have, you have a currency. That data and that currency is currently undermonetized, and we will capitalize more on this going forward. 2025 was a tough year for the overall market, but we do see positive underlying fundamentals moving into 2026. If we please move to the next slide, please. There are several metrics that point towards an improved 2026 underlying market trajectory with increased levels of supply. Projecting the market development depends on numerous factor and easily turns into active crystal ball gazing. However, there are a number of key indicators that are pointing in the right direction. First of all, ease of credit restrictions will be implemented by 1st of April. Historically, we've seen that these rules and regulations have had a large impact on market activity and Hemnet's listings volumes. We expect that the easing proposed for 1st of April will stimulate mobility and have a positive effect on both prices and activity. Secondly, improved market conditions. Looking at the overall market situation, there are also positive signs in terms of macroeconomics. We see healthy interest rate levels in Sweden paired with an expected uptick in GDP growth. We also expect to see higher disposable incomes on the back of proposed tax release and an expansive budget. Rising price expectations. Signs of optimists are already returning among prospective buyers. 43% of those planning to buy a home believe in rising prices over the coming 6 months according to our Hemnet buyers barometer for January. That represents an increase by 10 percentage points compared to the December levels. We also see that several banks and financial institutes are predicting a stronger property market on the back of the strong price development. After a tough 2025, we look forward to 2026 with confidence and look forward to a year that has [ in store ] for sellers, buyers and agents on the Swedish property market. So let's now move on to the next slide for a brief summary of today's session. To summarize today's session. First of all, Hemnet is the #1 property portal in Sweden with a large and stable audience, reaching almost 3 million active users on a weekly basis. We're highly integrated to the ecosystem with plus 25 years of experience and have a unique set of data. Secondly, Sweden's property market dynamics have changed post-pandemic, which has favored the pre-market. This has been visible through longer sales cycles, Sell Before You Buy dynamics, and a very weak price development. Thirdly, building on our strong core business, we are now implementing significant strategic initiatives to cater for the changed market conditions. Sell First, Pay Later, the pilot has shown very strong results, both in terms of getting earlier listings to Hemnet and more listings on Hemnet, as Lisa elaborated on, given the 40% difference. I'm now very excited to start launching this in Stockholm next week. We've launched strategic partnerships, and we are in the early days but we've seen a strong initial response with more than 60 brands joining in the initial phase, including some of the biggest agent brands in the country. Last but not least, Hemnet has an unmatched position to leverage AI and significantly elevate our user experience. AI has changed the way we operate our business internally and created significant efficiency gains across our organization. We're now moving faster. We are acting more broadly, and we're happy to be able to announce a number of product news, including conversational search, an AI-enabled personalized starting page all properties and the Hemnet ChatGPT app for approval. Finally, before we open up for the Q&A, we wanted to take today's opportunity to invite you all to the Capital Market Day ahead of the summer. If we kindly could move over to Slide 48, please. We're happy to announce that we will arrange a Capital Markets Day in June this year. The exact date is yet to be confirmed and we will be able to share more details within a short period of time. The event will feature a presentation from Hemnet's management team on a number of various topics, including Hemnet's business strategy, our financials, our product and commercial road map but also our AI strategy. So with that, we very much look forward to seeing you all in Stockholm in June. So that was it. Let's now open up for the Q&A. Operator: [Operator Instructions] The next question comes from Thomas Nilsson from Nordea. Thomas Nilsson: I'd like to ask how you intend to price the pay only upon sale offer for Sell First, Pay Later? And exactly how was it priced in the trials you ran with 10 real estate agent firms? And second, what are your expectations in terms of volume in 2 years' time. How large a share of your total volume do you think will be connected with the Sell First, Pay Later payment option? Jonas Gustafsson: So 3 different topics. So on the first one, as we mentioned as part of the presentation, what we communicate now is that the Sell First, Pay Later will be priced at the premium compared to the payment alternative of Pay Later if removed. We are rolling this out on Monday, and we will have various price points. And please keep in mind that if you look at the overall price dynamic of Hemnet, we have more than 70,000 price points per day, but you'll see it on Monday. When it comes to the actual pilot, we elaborated on different price points. And obviously, the outcome of that trial and elaboration both from a qualitative perspective, but also from a quantitative perspective led to the price point that we're now launching. The last question in terms of volume, it's too early to tell. We are excited about the results that we've seen from the pilot, but we don't know exactly in 6 months' time, 12 months' time or in 24 months' time. Operator: The next question comes from Georg Attling from Pareto Securities. Georg Attling: So just the first one on the transactions. You said down 5% on Hemnet versus, say, a flat market. So just wondering if you have any more color on this where you're missing out? Is it ads that only reached the premarket? Is it under the radar listings or even those that actually come all the way to for sale? Jonas Gustafsson: The simple answer is that the exact details we don't know. What we've seen is that number of transactions or number of properties that have been marked as sold and taken down from Hemnet was down with 5% compared to the year before. As you know, Georg, we have -- we've had a strategy in the past where we use 1 source of data to provide our market share, and that comes from the SCB, the Swedish Statistical Bureau. And also for 2025, this will be published in mid-2026. Please keep in mind and also, I mean, if you look at our historical market share development, it's been fluctuating between 90% and 86%, depending on what market we're in. Georg Attling: Yes. That's clear. Second question, you say that 25% of the markets have signed up for these commercial partnerships, 60 agent brands. I mean, to me, that sounds like quite a low number. I understand this is a ramp up, but are there any agent brands that have said no? And what's the pushback in those cases? Jonas Gustafsson: I think -- and I would disagree with you. I'm quite happy with the results that we are already now at a sort of adoption rate of a 1/4 of the total market. And I think, please keep in mind that this is a completely new way of working for Hemnet, but it's also a completely new way of working for the agents. And it takes time to change a way of working. And there is many positive ongoing dialogues, and we haven't received a single no but there's ongoing discussions. And I think many people are waiting to see sort of what this means and how many other that go. But I would disagree with you, Georg, to say that it's quite low, given the fact that we're now sort of in end of January, and we announced this just a few months back, it takes time. And as you could imagine, signing 60 deals takes also quite some time. So it's a quite sort of operational work included into this as well. Georg Attling: Understood. And I'm just thinking of how you view the net effect of this fee sold. I mean you say that 8% to 18% of listings are sold within 2 years. And this is -- I mean, you mentioned the other day that this will be priced at a 7% premium to pay later. So it sounds like this will have a net negative effect on sales. Is that correctly understood? Jonas Gustafsson: I think when it comes to -- I can start and then Anders can jump in. When it comes to the Sell First, Pay Later business case, it's pretty simple and straightforward, I would argue. It's 3 components. I mean the first one is, will we get more volumes? Will we get more listings and implicitly more revenue? Our hypothesis is that we will get that. Secondly, per your point, and as you referred to, there are a share of the listings that will not get sold. So that's a downside compared to where we are today. Thirdly, we have a price component, per your point, and that will have an upside to this. We do like positive business cases at Hemnet. And I think -- I mean, if the first 2 parameters, how large share of volumes we will get an increase of and how large share is on. So those are unclear, but price is something that we can steer on a direct basis. And we always have that tool to play with to ensure this is an attractive and positive business case. Anders Ornulf: I can just add that the price point you referred to is versus the Pay Later option. And we are quite certain we know that we will have customers, property sellers coming from the Pay Now option as well. So you can -- you cannot use that 7% and take that into a model. Also commenting on price, we're launching on Monday. And as Jonas said, it's not a fixed price forever. We will launch in Monday, we will monitor in Stockholm, and we will learn from that. And we will follow conversion uptake and outcomes in real time. So if adjustments are needed, we will make them. And you had a comment on the volumes Jonas, but also there was an upgrade in the conversion. We will see what happens with that as well. It was a positive sign from the pilot, as Lisa stated. So yes, we're in a good shape. Georg Attling: Yes. That's clear. Just final question for me. I mean, when you think of the phasing of this year's price increases, will that look sort of similar to the last few years? We see what you did here in January, of course. But how should we think of price adjustments for the remainder of the year? Anders Ornulf: It's hard to say. Look, over the last year, because it has been very different '22, '23, '24, '25. So you should not take anything into account. We didn't -- we did look at the prices 1st of January and did some adjustment there. We look at it all the time. Now our focus is very much on SFPL but like-for-like pricing is always up for debate and discussion. But yes, that's what the focus is at the time being at least. And then we'll see how the year evolves. Jonas Gustafsson: And I think just to add one final thing there, Georg. I think also what we spoke about when we look at future ARPL growth from a more long-term perspective at Hemnet, payments was one of the options or levers that we mentioned as part of that toolbox. And I mean the most concrete example that we're launching today is obviously Sell First, Pay Later. We do see this as a long-term ARPL growth driver as well. Operator: The next question comes from Eirik Rafdal from DNB Carnegie. The next question comes from Will Packer from BNPP. William Packer: Three, if I may. So firstly, thanks for sharing the update on the progress of the testing. And it sounds pretty encouraging with a kind of healthy rebound in listings. Could you just help me think through where that rebound comes from? I suppose you framed that you haven't really been losing market share to the likes of Booli. So is the right way to think that, that is a phasing of listings that would have come to you eventually, or is there kind of more substantive underlying market share gain, which you're getting back from your peers from the pre inventory? Secondly, could you help us think through the cost outlook for 2026? In the context of the presentation, I think it's very fair to say the revenue visibility is low and perhaps the commission visibility is low in terms of personnel costs, in terms of marketing spend? Is there anything you could share for the year ahead and help us think through the scenarios in which margin expands or contracts, depending on the revenue growth? And then finally, there's been some noise around regulator. So my understanding from the trade press is that you complained regarding the SBAB's involvement with Booli, and how that was distorting the market? What's been the response there? On the other hand, there's been some press speculation that you've had to separate out your partnership from your prelisting product. Is that fair? Or is that accurate? Any visibility on the sort of the regulatory response to those items would be helpful. Jonas Gustafsson: So I think we'll be a bit back and forth between me and Anders on the various topics. So firstly, if we go to the uptake on the pilot, and I think, I mean, it's a mix. What we allowed as part of the pilot and what we also will allow when go live now next week in Stockholm is that we allowed the agents to also take old listings that they have in their premarket inventory. And so that is obviously a sort of a catch-up effect. And I mean eventually, they would most likely have ended up at Hemnet, but it's a phasing effect because we get the listings earlier at Hemnet, which is also -- I mean at the end of the day, that's the strategic ambition that we do have with this product launch, get more listings and get earlier listings on Hemnet. So there is definitely a catch-up effect. Whether that's sort of -- it's difficult to say whether there are listings that would not have ended up at Hemnet. But part of the -- sort of the qualitative assessment, the analysis of the pilot indicates that the threshold is definitely lower to use Hemnet, and that's really what we wanted to achieve. Secondly, there was a question around the cost outlook. So if you could take that, Anders. Anders Ornulf: I can. Regarding the cost development in Q4, yes, thanks for your questions, Will. Fixed OpEx, excluding admin and commission were up 11%, driven by the cost increases I went through in the call earlier. Very much related to personnel, but also marketing and sales. We don't do guidance. You know that, and you comment on that yourself. And looking ahead to 2026, that strategy remains. And we will continue to invest. We believe it makes a significant difference for the long-term position, particularly coming back to sales and marketing efforts and the examples supporting the rollout of SFPL and the new strategic partnerships. I also want to say that one of the reasons we don't guide on cost is we believe that agility is core, but we have to make sure that we have to be prepared and whatever happens with the market or whatnot. So without giving a guidance full year, in '25, we grew by 14%. The year before, we grew by 30%. So as a CFO, I like 2025 more. But as always, with OpEx, we monitor, and we'll see what happens. When it comes to effective commissions, I think you've heard me say this many times before, I hope it increases because then again, we hope to see more recommendation and conversion to especially Max, but it would also be offset 1st of January because of the -- that the admin fee is fixed, right? So we saw that in '25, and we will see that in 2026 as well. That was a bit of color on the OpEx and outlook. Jonas Gustafsson: And if we go to the third question, Will, so we can confirm that we, as Hemnet has turned to the Swedish Competition Authority regarding SBAB and its subsidiary Booli. This concerns a fundamentally important issue of assuring that the state-owned companies comply with their specific competition rules designed to protect the market from competition being restricted by public actors. We note that Booli is a loss-making business that has built its position through extensive state support via SBAB and it's our assessment that these operations are conducted in violation of the specific rules governing anticompetitive activities by state actors. And we've now referred this matter to the Swedish Competition Authority for investigation, and it's up to them to investigate this further, and we will not sort of comment that more in detail. Then there was another topic on your question, William, that I'm -- maybe I misunderstood it, but was that the question? If not, please elaborate a bit further. William Packer: Just maybe just sort of moving on to one other topic I wanted to cover, I think you've covered the rest of the stuff. On Slide 34, you talked about monetary incentives of successful partnerships. Is the right way to think about that if the partnerships really scale that becomes kind of a new cost outflow associated with incentivizing agents to help Hemnet product, which is an additional to the commission, or I misunderstood? Anders Ornulf: No, you haven't misunderstood. It refers to the partnership program. It's a performance-based model where -- when a partner, signed up partner, agrees to commit to Hemnet, if they increase the share of premarket listing on Hemnet above an agreed baseline, we reward them with the share of net revenue. The revenue is, of course, based on the revenue after the ordinary compensation, admin and commission to agent offices. It only pays out for meaningful growth, and it's -- even then the payout is capped at 5%, as you can see on the slide you referred to. It will be included as a separate cost item in interim reports going on, and it will be rolled out gradually as part of the launch, so we will see how it evolves. Jonas Gustafsson: I think just to add there, Anders, I think it's definitely something that will drive revenue and it will drive EBITDA, right? So it is a self-financing approach. Anders Ornulf: Absolutely very similar. The structure, at least, is similar to the one we have already with the real estate agent offices. Operator: The next question comes from Eirik Rafdal from DNB Carnegie. Eirik Rafdal: Yes. I got a couple. We can do them one by one. On the trial, you say 9 out of 10 SFPL sellers choose Bas. Could you share some light on the relative share of Plus, Premium and Max within those 90%, and also how that compares to the Bas in kind of similar regions? I know you said 75% of total, Jonas, but just good to know if that 90% and 75% number is comparable. Jonas Gustafsson: Eirik, good to talk to you. So when it comes to the trial and when it comes to the Bas penetration, you're right, we've seen roughly 9 out of 10 of the packages having a Bas component. And I think -- I mean if you look at, just a step back, I think this has been done in 10 different offices across Sweden. So I think there's not a specific geography that is overrepresented. So that's part of it. What we've seen is that no major differences in terms of sort of variation of the various packages compared to that sort of the underlying or the nonpilot offices. So it is no material differences in that area. Eirik Rafdal: That's very clear. And also kind of on the same slide, you say 6 percentage points higher upcoming listing market share on Hemnet versus the pilot start. Would you be able to share the market share at the start and finish? Jonas Gustafsson: No, we wouldn't be able to do that. But sort of -- we saw a material movement of 6 percentage point market share increase during 3 months and something that we're very happy with. Eirik Rafdal: Perfect. That's very clear. I just wanted to follow up on some of the questions around the relative pricing of SFPL and our understanding based on channel checks, is that around 7% to 8% higher price than Pay Later? And I think you mentioned that as well, Anders, which in turn is 7% to 8% higher than Pay Now, which means that the ultimate difference between Pay Now and Sell First, Pay Later is 15%. Can you confirm this number? And also just on your being on relative pricing, in my opinion, at least, it seems like it's fairly small price to pay to significantly reduce your risk as a seller. Just your thoughts there would be good. Jonas Gustafsson: I think when it comes to -- I mean, it was pretty clear before that we didn't mention the exact price point. But I think what you're sort of getting to the 15% is ballpark right, and then we will have variations, given the fact that we have a quite complex and dynamic pricing model given the fact that we already today have more than 70,000 different price points. So that's one thing. I think please keep in mind that when we're now rolling this out, there's -- we don't know what penetration and uptake it will have. From a strategic perspective, it is important that this should drive more listings and earlier listings to Hemnet. So we want to ensure that we get more volumes on this. But in terms of price, we can steer price. Price is something that we can move every single day, I was about to say, but sort of in real time. And we can change it, and we will make sure this becomes attractive. But we're very eager to also get a broad uptake on this, given the fact that I think this will also have a very positive effect in terms of how satisfied the agents are and also very positive for the seller NPS of Hemnet. Anders Ornulf: And I can also, as a reminder, the price effect will also be very much dependent on the uptake from Pay Now and Pay Later listing is removed, right? So it's not really that easy to just say, 15% or 8%. Definitely correct, so.... Eirik Rafdal: Very fair point. And just one final one, if I may. I know it's been a bit of an investor concern around how you handle content quality for maybe particularly the coming for sale ads, like how would you deal with ads, for instance, like photos or asking price? How will you kind of structure the UX for the buyers? Just any thoughts there would be good. Jonas Gustafsson: I mean I think at the end of the day, we want to have more listings, and we want to have more listings earlier. I think, I mean, Hemnet is today a quality property portal, and we will make sure it remains a quality property portal. Please keep in mind that, I mean, Sweden compared to many of our international -- sort of other geographies outside Sweden, Sweden has a highly functional property market. We have a highly professional, highly educated agents. It is -- if a listing is going to go on Hemnet, it always needs to go through an agent. And I have full trust in the agents' community that they will ensure that we sort of remain the high quality at Hemnet. Sweden is very different compared to other markets. And at the end of the day, I mean, what matters for an agent is to sell the property. That's where they make their money. The quicker they could sell a property, the more property they could sell, the more happy they would be. And using Hemnet and using the Sell First, Pay Later will be a perfect way to get there. Operator: The next question comes from Ed Young from MS. Edward Young: Two questions from me, please. First of all, on Max. Could you talk a little bit about what the plans are there? You said that it's sort of the next leg of driving package improvement, but you've not really touched on what that might include today. And as part of that, could you perhaps comment on whether you expect Sell First, Pay Later initiative to influence the adoption of Max relative to other listing tiers significantly? And then second one, on the pre-listings, you spoke about areas you're actively looking to address. Is that just essentially fresh pre-listings or are there certain segments like the higher volume apartment area that you were talking about sort of segments you're trying to attack. So any color on what it is you're looking for from pre-listings or alternatively what you're not? Maybe, as you said, you've got a big jump on these targets, 30%, 40%, 50%. So I'd be interested to know what you're really trying to focus agents attention on? Jonas Gustafsson: Yes. So in terms of Max, I think digging one step back, Max was launched back in April 2025. So it's been around now for more than -- slightly more than half a year. We've seen quite slow adoption. I think a large part of that has been driven by a very slow and challenging market. I think -- I mean, if we would have launched Hemnet Max during like a peak market like 2020 or 2021, you would have seen a different development. But also keep in mind what we refer to as part of the presentation that Hemnet Plus and Hemnet Premium also had a very slow uptick in the initial phase. In terms of Max, and we're continuously working on -- I would say it's two-folded. I mean, first of all, the product performance that we do see with Hemnet Max, the engagement, the number of listings or number of views per listing and also the speed that we can sell a property when you use Hemnet Max, those results are great. So it's a lot about spreading that goals also in the agent community and ensuring that seller understands that this is, if you pay for a Hemnet Max, it's a product that you get benefits from. We need to be better and we need to communicate that in a clear way. Second to that, I would say that Hemnet Max is still, if it's -- even though it's been around the block for 6 months, it's still a baby. We are continuing to develop the various product features and kicking in an open door, we're running a marketplace here with a tiered product structure. It's all about relative differences both in terms of relative price differences but also in terms of relative feature differences. So the team are testing various things now to see sort of what could catalyst further penetration when it comes to Max. Then in terms of the pilot. It's clear that what we saw is that we said that in Q3, we had roughly 75% of all our packages having a Bas component. And then we said that the pilot had a -- sorry, the Sell First, Pay Later pilot had a Bas conversion of 90%. So there's obviously an impact across the broad regardless if you talk about Hemnet Plus, Hemnet Premium and Hemnet Max. But it's a bit too early to tell. I mean the Sell First, Pay Later pilot was a sample, and we're looking forward to continue to follow this. In terms of the premarket, it's -- I mean, at the end of the day, the ultimate goal, which is embedded into our strategic ambition, is to get the properties that sell in Sweden that they should be on Hemnet. That obviously means that the sort of the higher the seller intent is the more attractive it is from our perspective. So we want to focus on ensuring that we get the premarket listings where there's an intent to sell. That's our primary goal with this. But we also want to have the broad volume. Operator: The next question comes from Marcus Diebel from JPM. Marcus Diebel: Just 1 more question on the pricing of Sell First, Pay Later, again. Obviously, you talked about it in detail, you said clearly you can't give any more sort of data on pricing, we're going to see this very soon. But more conceptually, what has driven the decision to really price this as a premium? Is it not now the time to really get the listing sped relatively quickly, have a very strong sort of like current developments, why do you feel that this should, at this point, still deserve a premium? Second question will be on your comment on rolling out an app within ChatGPT. If you can just comment a bit more what has driven this? Why do you feel this is the right move to do. And also if you could talk about the terms here? Is it just a partnership? Or how free, or so free or how should we think about it? Jonas Gustafsson: Marcus. So in terms of the price point for Sell First, Pay Later, I think that we've elaborated on the more sort of financial aspects of it more from a strategic level. I think that -- I mean, it's so clear to us that this comes with a fantastic customer value. The results from the pilot, both from a quality but also from a quantity perspective comes out very, very clear. This is something that the consumers are willing to pay for. This is a threshold reduction parameter, and it is a component that sort of reduces the barriers to use Hemnet to a large extent. And we've done a comprehensive pricing work looking at all those various parameters. And I think it's very clear to me that given the pilot test that we ran, that this is a fantastic customer value and a fantastic proposition towards the consumer. Then if I sort of -- if we move over to the ChatGPT question, we have Lisa here who's the expert. So I'll hand over to Lisa to elaborate a bit on that. Lisa Farrar: Thanks, Jonas. Marcus, I would describe our app within the ChatGPT app as a move to learn, both for us but also for our users. We want to be where our buyers and sellers are going to be both now but also in the future. So this is an early stage way for us to integrate with new technology, a new ecosystem, and learn from that. In this app, you will still be circled back to Hemnet, so we're not losing our users. We're just seeing it as a distribution channel. And I would say this is the first move to learn and go from there. Marcus Diebel: Yes. Anything if you can just comment a bit more about the sort of like terms. I mean -- do you feel that this will be exclusive? Do you see others will follow and also sort of like how the dialogue with OpenAI has been, if you can share anything more would be very helpful. Jonas Gustafsson: I mean, I think it's difficult for us to comment any on our competitors if they would follow. I think we stand very strong in our foundation with more than 25 years of experience and more than 1.4 million homes of user tagging, which makes us feel that we have a benefit in also the AI world. In terms of the exact sort of details in the discussions with OpenAI, there's -- I mean, we don't want to comment on discussions in terms of details with our partners at this stage. Operator: The next question comes from Nikola Kalanoski from ABG Sundal Collier. Nikola Kalanoski: So firstly, on the SFPL model. When these pilot offices tested the new model, they were, in essence, I guess, you could say, given a super power compared to some of the other offices in terms of being better able to win listings, if you will. As an agency, you're a little bit more attractive, of course, if you can offer this. Has this discrepancy, do you recon, helped drive new strategic partnership signings with more agencies and offices being eager to take part? And do you expect that this will drive additional signings going forward? Jonas Gustafsson: Nikola, I mean, so just to clarify the background and the circumstances. I mean, this SFPL product will be available to all agents regardless if you have a strategic partnership or not. So this goes out to the full market, right? This is not part of the strategic partnership just to make that clear. However, if you look at -- you referred to it as a super power and just looking at the results, I think that, that's a fair analogy. I think -- I mean, obviously, they had a benefit being part of the pilot during this 3-month period of time. And we know for a fact that day 1 number of sort of competitive discussions with their competitors just because of the fact that they have this tool or the super power, as you referred to it, I think that given the fact that we will open up for the full market, you will still have a super power towards the consumers if you're actively using Sell First, Pay Later. So I think this is something that will drive and accelerate the development of Sell First, Pay Later. Nikola Kalanoski: Yes. That's very good. And I guess this is just technicality then, but I think in your slides you referred to a disclaimer that says that the business rules of SFPL differed for -- from that of the pilot versus the actual role. Are there any big differences here that we should take into consideration qualitatively? Jonas Gustafsson: I think when it comes to -- I mean, we elaborated -- I mean there was a question before, I think -- we had a question before around how we price the SFPL. I mean, one thing that was an important part of the pilot was obviously to test different price points. And the price point that we now landed on and that we will go broad with starting off on Monday, it was not the same across all offices. Obviously, it was for 1 or 2 offices in that range, but we test the different price points. So that's one difference. Also, I mean, what we allowed was that as part of the -- as part of the pilot, we also allow them to take old listings. Now when we go live, we will have a grace period of 30 days. And so that's the initial hypothesis when we rolled this out. So there are some differences. And that's why we don't want you to just take the number of 1 by 1, but this should give you a good indication. We're very happy with the results. Nikola Kalanoski: Yes. That's very good. And just a final one for me. And I believe there was a question before on the cost base, but this is more specifically with respect to the ChatGPT integration. Does this change in any way your cost structure? Or is there any meaningful costs associated with doing this integration? Lisa Farrar: No, nothing there to add to our cost base today. Nikola Kalanoski: Yes. Perfect. That's all for me. Operator: The next question comes from Annabel Hames from Deutsche Bank. Annabel Hames: Just 1 for me. And is there a cost with monitoring the Sell First, Pay Later to ensure that it's not being abused? Anders Ornulf: No, no, it's not. We have many things in place, all from technical to agreements with the customers. So we sit very well on that front. Operator: [Operator Instructions] There are no more questions at this time. So I hand the conference back to the speakers for any closing comments. Jonas Gustafsson: So first of all, many thanks, everyone, for tuning in today for a bit of an extended session. And thanks, everyone, for joining the call. A lot of great questions that are, as always, truly appreciated from our side. So with that, that is all from us. Make sure to have a good day, and thank you.
Suguru Miyake: Good afternoon, ladies and gentlemen. Thank you very much for coming to our third quarter results briefing for the fiscal year ending March 2026. And today, we also have a simultaneous translation. So we are communicating all around the world. For those in Europe, it must be in early morning. For those from the U.S., but I bet you are in very late at night. Thank you very much for joining this call for those hours. So I am the President of the company. And also, we also have Naraki-san and Takeuchi-san with me. Takamaro Naraki: I am the Vice President for the company. My name is Naraki. Naoki Takeuchi: And I am a Senior Managing Director. I am Takeuchi. Suguru Miyake: Okay. So let's get started. In 2026, we are having the 35th anniversary of the company. So we made the anniversary logo, which we put on the front page. The bird in the middle is a Mascot character. She is called MAppy, M and A and happy. And those 2 words were combined together to be named as MAppy. And let me first start with the summary. In this Q3, showing the 9 months total and Q3 alone, basically, we recorded the highest sales and recurring profit ever, and we were able to surpass 40% for our recurring profit margin. For 9-month total, we accomplished JPY 37.7 million, which is increasing by 26.5% year-on-year. And the recurring profit went up by 46.8% to be JPY 15.7 billion. The OP margin was 41.7%, which is up by 5.8 percentage points. The number of transactions closed increased by 9.8% to be 810 deals and also M&A sales per transaction increased by 15.3% to accomplish JPY 45 million. On a Q3 alone results was JPY 15.1 billion revenue, and that was a record high number, up by 34.6% year-on-year. And ordinary profit was JPY 7.1 billion, which increased by 51.5% and OP margin was 47.2%. And number of transactions closed was 322 deals, which are progressing pretty good. And M&A sales per transaction was JPY 45 million, maintained at a very high level. So where are we at for the overall against the guidance numbers? I think that is important to note it. And for the sales, our target was JPY 46.3 billion. We are at JPY 37.7 billion, which is 81.5% progress. And ordinary profit against the forecast of JPY 17 billion, we are at 15.7% with 92.5% progress. And even more, we are quite pleased to see a very steady progress in returning back to our growth cycle. So M&A jobs, we do see many different conditions and situations, and we do see a lot of extension of the deals. So in Q4, March, if we were to trying to target at Q3 to accomplish the target, then we tend to see some delays into the next year. So we need to accomplish the certain business performance while satisfying customers. We will need to bring up the high performance as much as possible in Q3. So we can work on more preparation work in Q4, so we can have a rocket start for the next fiscal year and matching and also receiving a lot of commission work. And so that way, we can accomplish the stable growth. And finally, I believe we were able to come back to such a business cycle, and that is the most pleasing information that I have for this time briefing results. And let me go one by one, a little bit more in detail on the sales of 37.7% -- sorry, JPY 37.7 billion. And of course, we saw increases both in the number of transactions closed and also the unit sales, and that helped to see a substantial increase in the sales. The best part was the number of consultants who accomplished budget. We saw a substantial increase in such a number, such members and also department who accomplished the budget increased drastically. At the same time, Takeuchi-san, who is the President of M&A Center, always talks about each individual will need to accomplish the target to be happy and also each department to accomplish the target to be happy. And as a result, the company to accomplish the budget to be happy. So he is always pursuing to accomplish both the individual and the whole group. And such a policy and thinking is now being understood and spreading among the employment -- employees, and that was accomplished this time. And I think now we were able to build a very solid foundation to accomplish that. And the number of transactions closed. I think we were quite successful in implementing a very scientific approaches. It wasn't the result of a coincidence to increase the number of success rate and also on time closure of the deals, and we implemented 2 measures to accomplish them. One, when we start the deal negotiation, we had -- we are now having kickoff meetings, both sellers and from the buyers, the person in charge and their managers and accountants, lawyers and tax accountants and all these professionals, they all got together to confirm the schedule. We also confirm the stakeholders, and we also confirm the challenges, which is more important. So we identified those challenges ahead of the project kickoff, and that is very important. And we are making a smooth flow in the deal procedure. We conducted an M&A audit. And if we were to find the challenges at the time, then that could actually cause a situation that people might wonder, maybe they were hiding this information or they were deceiving us. And such a concern will be rising. So at the beginning of the whole deal, we need to assume what the challenges are so that way, both sellers and buyers can prepare themselves to be able to take action towards them. And that will actually increase the trust in us and also trust in between sellers and buyers, and that helps to have a smooth process going forward. The other thing is, and since this scandal we had, we actually increased the number of managers drastically. Of course, some of the -- a lot of managers are still not fully experienced, but we created a role for the deal management in place. So every Monday, we instructed them to give right instruction of the deals to their subordinates. So those are the 2 actions we implemented, which supported us to have such successful results, which were led by the President Takeuchi as well as the sales General Manager and their leadership actually worked quite well to permit this type of thinking among all the staff members to increase the number of transactions closed as well. And we are also able to maintain a very high M&A sales per transaction. And as I've been talking in the past, we're not trying to grow the sales per transaction. That's not our main purpose. Our target is to maintain around JPY 40 million per deal. But as we grow the number of deals, the unit sales goes down. So to stop that, we basically trying to capture the mid-cap business deals as much as possible, and that was quite successful, and that's also sustaining good unit prices. And the number of large deal was 85 cases. We did see a huge increase, increased by 66%. So our volumes on the midsized deals are properly secured. And but also for small deals, actually, we passed those deals over to our affiliate companies, the companies by the equity method, the patents. We have patents to handle those smaller deals. And I think that was also effective at the same time. And because of that, the percentage of smaller deals are now declining with us, and that is actually helping to see a stronger performance. That's how we understand right now. And talking about the cost and expenses, I pass the floor over to Naraki-san. Takamaro Naraki: On this page, so we are showing the cost of sales and SGA expenses. So those costs and SGAs for this year, starting from March 2026, we have changed the classification of human resources that actually changed some of the number changes. And so we are talking about comparison after the reclassification change. Then cost of sales was increased by 19.1% to be JPY 13.7 billion. SGA expenses was JPY 8.37 billion, increased by 7.7%. Referral fees ratio was 13.1%, increased by 0.9 percentage point. For the SGA expenses, the IT cost was JPY 848 million, and it increased by 46.7%. And let me also touch on the overview of the expenses and numbers. This is the total income statement. And towards the top on the cost level in total as Line 3, JPY 13.725 billion, and it was 36.4% of the sales. Last year, it was 38.6% and this ratio went down year-on-year. And 2 lines down from here. the SGA and operational cost, so it was 22.5% with JPY 8.49 billion. It was 25.6% last year. So percentage reduced this year because of the sales increase. So as I mentioned, ordinary profit came out to be 41.7%. So now it's back in the 40s. Suguru Miyake: And next is talking about the commission status. So it's very important to understand how many that we are receiving as mandates. In total, we received 328 mandates, which is down by 3% year-on-year. Of that mid-cap mandates were the 58 deals, which is down by 10.8%. For the buy-side mandate was 383 mandates, which is down by 6.6%. And number of new transaction negotiations was 295 deals, which is down by 13.2% compared to last year. I will have more details to come later on. This is nothing really negative. Actually, in the first half last year, we did have a huge amount of mandates that we received. And based on that, we decided to focus on the business performance. We wanted to revive our business performance. That was the main purpose of this fiscal year. So the number of transactions closed, and we try to focus also on the track record of the closed contracts. So we did not focus too much on receiving mandates in the first half. But second half, we will focus more on the quality of the mandates. And that was the policy we had in the second half. For those with no possibility of getting concluded, we try not to pursue to conclude them and close them. And so that is why the number is declining, but this is not because of a negative situation. So I hope you can understand this is still a result of positive effort, and this is the overall flow. Mandates in the central area are in green. These are the mandates in the city areas. We've been acquiring city area mandates quite well and local area mandates are about 45% of the total. So revitalizing the local economy and also contributing to the central area I believe that we have a really good balance of achieving mission and achieving good results at the same time. And about the fourth quarter, when it comes to receiving mandates or matching, we will put in bigger efforts. So I believe that we will be able to have overall good performance in the whole year. And the summary of the status of acquiring mandates is this. These are detailed figures. So please take a look at this later. And about the number of new mandates we have acquired, we believe that we're not experiencing a deterioration. We think that we are in a transitional period. About last year, we, as a company, were finally trying to be revitalized. So our focus back then was on acquiring more mandates. We were going after volume. However, since the start of this fiscal year, our focus is more on closing mandates and eliminating troubles. Therefore, when it comes to acquiring mandates, we've been refraining from the mandates with limited possibility of closing them after -- later on. And also, there can be inappropriate buyers. So really delegate projects that are close to renewal type of mandates, we've been cautious in receiving those mandates to improve customer satisfaction rate and also to improve our productivity. So we've been raising our productivity, and we've also been trying to improve customer satisfaction. And also, we plan to further improve the quality of the mandates we receive. And at the same time, we plan to improve the quality of our business and our service and the customer satisfaction level. This is going to be our direction. And I would like to hand over to Naraki-san for summary. Takamaro Naraki: Okay. About our balance sheet assets. JPY 60.011 billion. And below that, total net assets, JPY 48.257 billion. So ratio of this was 80.4%. And we have the same for the previous fiscal year on the right-hand side, JPY 47.5 billion in net assets. The ratio of net asset was 77%. So there is an increase by 3.4%. And about headcount, as I said, we had a reclassification of employees. So at the top of this table, we have the role for M&A consultants. These are the sales representatives belonging to the sales headquarter of Nihon M&A Center and the sales staff at local -- foreign local entities. And as I said, we've been doing effective hiring in M&A consultants. However, we have the increase in turnover of our employees with tenure of less than 3 years. So we've been implementing measures to improve retention of our employees. And we plan to provide more information about that later. Next page, Page 14. This one is about our current fiscal year. This fiscal year, we've been showing numbers both as reported and both -- and also on a reclassified basis as well. Thank you. About our headcount. We've been doing a lot of things. And headcount is the area -- the only area where we feel there's an issue, especially turnover ratio of the employees with tenure of no more than 3 years is declining or rather it's worsening this fiscal year. So we have already started taking measures to address this. However, we have a lead time, about half year's lead time until we start to benefit from these initiatives. So until then, we are going to continue root cause analysis, and we've been taking measures. And we have multiple issues, but the issue of the increase in the turnover of the people with tenure of less than 3 years, this is the largest issue we think we have in our company. So we want to address this immediately. We want to reduce turnover. We want to have a net increase in sales representatives. Just having a net increase itself is not good because when there are a lot of turnover, that means that we have relatively beginners -- more beginners in the company that leads to lower productivity. So we have to reduce turnover while securing enough personnel. And we've been taking measures. So we think that we'll be able to have major improvement next fiscal year. Next, let me touch on the shareholder returns. So for this fiscal year, we try to face the change in the external environment and trying to go back to the accomplishing cycle that we used to do in the past. So we intend to continue sustaining the dividend JPY 29 same year. So we had JPY 29 for March 2025. Therefore, for March '26, we intend to go with JPY 29 with no change from the beginning. In during the midterm plan period, the dividend payout ratio is to be 60% or higher. So we maintain this basic policy as well. And next, the ROE trend. In 2024 March, we conducted share buybacks. And with that, we were able to get back on 20% -- and also March 2026, we expect to be at 22.9%. And next, shareholder situation and also the market cap trend. And shareholder mix is shown here. Individuals are decreasing. And now we see increases from institutional investors in this pie chart. Individuals showed 30.7%. And last year, a year ago, it was 33%, but it came down to 30.7%, down by 3.2 percentage points. For financial institutions, sales 30.2%. Last year, it was 25.1%. So it increased by 5.1 percentage points. The foreign investors -- foreign institutional investors was 28.9%. The last year, it was 30.4%. So it went down by 1.5%. And next, talking about the forecast number, there is no change to our forecast numbers. We maintain the same number. And so we can move forward according to the guidance numbers. In a midterm target, there is no change in our midterm target. And of course, we will make sure to have an upside to the midterm target to be accomplished. So we ensure to accomplish them, and we will try to have as much upside as possible so we can lead to the next phase from there on. And related activities. Currently, the other sales is about JPY 1.2 billion. This is only about 3.3% within total sales that's coming from fund business and PMI business. And so this is still a small business, and our intention is to grow this with other business. And also TOKYO PRO Market, we are making good progress. And this year, the number of IPOs were not that many. The listing to the market, it takes about 2 to 3 years for preparation. So those deals that came 3 years ago and 4 years ago are going to be IPO this year. With the scandal, right after the scandal, TPA commissioned project have decreased. So therefore, we see less IPOs this year, but we intend to accelerate the number of IPOs, and we do have enough backlog of the potential IPOs to come in, in the coming years. The most important thing is the PMI. Both FSA and SME agencies, they say not just closing M&A. What they need is having a successful PMI activities as well. That's their direction. And we think that we are the only company in Japan who is doing M&A consulting, but is also doing PMI support activities. And the plan for this fiscal year is to receive 120 mandates, and we have already acquired 95 mandates. 120. We think that we're going to -- we'll exceed 120 this fiscal year. And we think that this is going to be a major differentiating factor going forward for our company. So we're going to do more aggressive sales activities. And at the same time, we would like to enrich our activities or enrich our support to customers, but we cannot do this on our own. Therefore, we would like to do more collaborations of private, public and academia collaboration. And we have ASEAN-based local entities. And they have been working really well. they closed their financial years in December. And this fiscal year, they achieved their budget sufficiently. So from the next fiscal year, they are going to enter into the next stage of growth. So I have been really counting on this overseas business, and I am excited to see the development of this business going forward. And about our fund business, its contribution in terms of profit may be limited. However, A2G Capital, J-Search and Japan Investment Fund, they are all going quite successfully, respectively. And about J-Search, they have already established companies in 4 locations, and they've been working together with local banks. And Japan Investment Fund, they have launched their second fund that's been working effectively. And roll-up activities are done, which are the add-ons of generating synergies with companies with good affinity after acquiring a company. And we have done 2 of such roll-ups this fiscal year at the Japan Investment Fund. Topics. DX and AI usage, especially AI-based activities have expanded quite significantly. And Takeuchi-san has been talking about data-driven management. Bring out is a name of our analysis soft of conversations and discussions. With this AI-based software, we've been collecting a huge volume of various information that's used for our sales approach improvement. And we've been also accumulating customers' qualitative information. When it comes to quantitative information, we can accumulate the data by receiving financial documents. But when it comes to qualitative information, we have to do interviews to customers. And just like in human marriage, qualitative information can be more important than quantitative information. This is the same in M&A. So when we get more qualitative information, eventually, we believe that we will be able to have more accurate AI-based auto matching. So activities that we've been doing based on DX and AI are -- have huge potentials, and we've been doing all of what we can do. And about seminars, we've been holding physical marketing, and we've been getting a lot of applications. We had 80% more applications compared to the same time last year for these kind of events and 2 major reasons. One is that our planning has been quite getting better. And the second is that customers' interest in M&A are growing. And in the next fiscal year, we would like to do such real marketing more actively. And we've been having successful area marketing activities as well. For example, signage advertising that you often see at stations, railway stations, like you can find in the photo on this page, we've been doing advertising there. For example, in Tokyo, Osaka, Nagoya, Fukuoka, Hiroshima, Hokkaido, Okinawa as well. And it seems that we have one at Haneda Airport. I saw the video of our ad there. And also, we've been doing things that are based on the local communities. For example, local representative office with discussion desk. We now have one Yamaguchi, Niigata, Miyagi, Ibaraki, Shizoka and Yamaguchi finally. This is the fifth one that we have established. Thanks to customers' support and thanks to our efforts. We are recognized by Guinness World Records for 5 consecutive years. The number of closures last year was 1,088. This was the highest in the world. We would like to use such track records and awards for our branding activities. And the next one is about integrated report that I hope everybody will read. We publish them or we have published them at the same time in Japanese version and English version. And we plan to do the same in the same manner this year as well. And this is not just about senior management thinking. We have been including the dialogues and stories and thinking of the various people, including external directors, executive offices, et cetera. I hope that you will feel our culture and momentum. And about our industry trends, we are experiencing increasing the number of intermediary agencies and SME agency had the second revision of their guidelines and also introduction of qualification systems. So in such initiatives, they announced their skill map and qualification system committee was established and inappropriate buyers. We've been enhancing our activities to avoid getting involved by them at the M&A association. And also, we would like to be an exemplified or we would like to be a model in this industry. And our 3-party collaboration, tri-party collaboration, we've been doing that quite widely with University of Kobe, Kyoto, Waseda, Hitotsubashi, et cetera. We've been doing joint research with them. And also with Kwansei Gakuin University, we're going to do the same going forward. So we've been inviting many universities to do this. So the company is not an object. It is a place where we create and look at the lives of many different people. It's not just completing all the contract to be closed, but we hope to be able to be successful in accomplishing the best M&A to make everyone involved to be happy. So in order to accomplish such a success and the best closure, we intend to implement various measures, as I mentioned. So this is all for the results briefing. And now we want to move on to a Q&A session. Suguru Miyake: Thank you very much. So let's move on to the Q&A session. [Operator Instructions]. While we are waiting for your questions, first, we want to pick up some of the major questions that we received in our shareholder interviews in the Q&A session. This is a question first. So regarding your initiatives to maintain high retention, is there any issue in your hiring policy and hiring environment? Okay. Thank you for the question. This is the only challenge I am feeling the most and also the largest challenge that we are facing. And we are making a very detailed analysis and taking various actions. So we want to have Takeuchi-san to explain more details on this. Naoki Takeuchi: Thank you very much. Regarding the hiring environment, in the last time results briefing, so we are getting a good response in terms of receiving applications. But of course, we need to look at the conditions in market. So we have a close watch on the market situation. But currently, we are receiving good application, and we are selecting the right candidate. When it comes to hiring policy, so the turnover rate is on the rise. So -- what we did to address that for the past 6 months or 3 months, we try to understand the reason why they left the company and where they went. And what was the reason they decided to leave the company. So I myself went into more details to understand one by one. And the major reason for leaving the company was that they had an expectation for M&A Center before joining the company. But after joining the company, they saw a huge gap against the ideal they had. That's what we found, let's say, they thought, okay, they could do more, they could work a lot and hard. But due to the compliance and the governance, it wasn't really giving enough flexibility to do a lot of work. And some people thought this was a large company, but why do we have to be bound by certain behavioral rules. So those gaps, we thought that they were in the different directions. So basically, the major challenge was that in a final interview with those candidates, we needed to communicate our company core value to the full extent to them. So therefore, since February, every Friday, and I spent half day every week, I decided to be part of the final interview with a potential candidate, every interview. And we also had the channel General Manager as well. So in the final interview session, first, I'm trying to eliminate those gaps that they may have in the future. So that's why I'm now involved in a hiring process that we are able to improve the hiring situation. That is where we focus the most. May I add one more? Yes, there is one more thing. This is the biggest challenge I'm facing right now. So the other thing is once they join the company, once they start working, and then those who decide to leave the company. Of course, if they are not able to perform fully during the first year, they tend to leave. And what is the definition of being successful? So I think the important thing is to have closing the deal within a year. So last year, also the year before and even this year, for those who joined the company for the past year and only 60% of those members have accomplished closing deals. So we first want to raise this percentage to 80%. For those members who accomplished the first closure, those 60 members are not leaving. But the remaining 40 are the ones who are leaving. So that's why we are focused on increasing the number of success rate up to 80% during the first year. So as you can read on the slide, of course, I look at all the members, I see all the members through the hiring process interview. And then I myself will have an interactive communication with all the people so I can give them more confidence. And a year later, even with the channel General Manager, if they are having hard time getting closer, then we think about reassigning them to a different channel. So we want to show the value to those employees for the first year as a part of the flow. So we need to pay extra attention and proper care of those who joined -- who just recently joined the company and so we can develop their capability, and this will be led and adopt top-down manner. Suguru Miyake: Next question. M&A sales per deal has been trending at a high level. Is this a onetime trend? And how reproducible are mid-cap mandate-related initiatives? How do you see your current M&A sales per deal and the level you'd like to be in the future? Thank you. I have always been talking about JPY 40 million as our target M&A sales per deal. Our social mission is to grow in volume so we can save as many companies as possible. When we have more volume, it's natural that, that sacrifices our M&A sales per deal. That means lower productivity. So we want to acquire mid-cap mandates, both them so we can maintain M&A sales per deal. This is what we've been trying to do as mid-cap measure. And this measure has been actually been more successful than we had anticipated. Fortunately or unfortunately, it's not really coming from the mid-cap mandates per se. It's rather coming from the fact that we have established a team of mid-cap dedicated consultants and targeting all sales representatives, these mid-cap -- we have established a system where they can educate and instruct about acquiring mid-cap mandates. Actually, companies have only 2 ways of closing their business or getting acquired. These are the 2 only scenarios they have. However, with us, they have new options, for example, fund option and others or maybe handing over the business to their sons, owner, sons and so on, IPO possibly. So in order to convince customers, we need to create proposal documents and however, beginners are shy about those options. And we have established a consultant team that can make such proposal documents when they receive referrals about those mid-cap potential mandates. So this has been working effectively and leading to the improvement of our closure rate. Things have been more smoother -- more smooth than we had anticipated. And of course, increase in M&A sales per deal is something that we welcome. But we want to maintain this. And the level that we would like to be is JPY 40 million, in my opinion, basically JPY 40 million. So maybe JPY 42 million, JPY 43 million should be enough as our M&A sales per deal. So when it comes to JPY 45 million or JPY 46 million, I think that's too good for us. Next question. Could you tell us the number of the deals under negotiation, which are left open at the end of December? Thank you for the question. So the number of deals under negotiation, currently, there are about 944 -- right now, 449 deals, 449 deals are under negotiation. and 295 are newly opened deals. I believe this is a pretty good condition. We are coming to the end of the fiscal year in March. We are able to have enough negotiation. We have secured enough pipelines, which are those deals under negotiation. And for the next year, to have a rocket start in Q1, we want to actually increase more of such a pipeline. So in Q4, in February and March, we will be working more on matching activities that is going to be quite important. Next question, leading indicators that determine your business results from the next fiscal year. So the number of new negotiation starts and the number of consultants, these indicators are deteriorating for 2 consecutive quarters. Is there going to be any negative impact from this on the likelihood of exceeding your budget in the midterm plan? I don't have a concern about this because our productivity is increasing and our closure rate has been growing solidly, meaning that we are more capable of doing effective management than before. And also, the quality of our pipeline mandates or pipeline projects are improving as well. So I do not have a concern or anxiety about not being able to exceed our budget under the midterm plan. And about the number of new negotiation starts, I think there is limited possibility of not being able to achieve this indicator target. And even so, the shortfall -- potential shortfall can be covered enough by good closure rate. And also the number of consultants, I have a major concern about that. So we're going to reduce turnover rate enough, and we will establish a system where new people can grow sufficiently. And at the same time, we want to do more recruitment so we can have net increase. This cycle is something that we have been establishing in the recent 3 months. And we think that the level of success in this measure will impact the level of how much we can achieve our midterm guidance -- midterm plan targets. So we will do more about this. Next question. Regarding the decrease in number of sell-side mandates, do you think SME agency policy is affecting because they encourage the regional banks to be the intermediary for M&As. So can you tell us the current status of the direct network ratio in the sell-side mandates? And what do you think is the forecast? Regarding the first part, that is nothing to do with the situation. Actually, their policy is working on a positive way. The SME agency and FSA and they are talking regional banks to work on revitalizing regional economy and trying to accelerate M&As and also asking them to develop the businesses, which is making more than JPY 10 billion. And so regional banks are actually collaborating and working in tandem with us. So that's why the regional bank team in our company are going quite well so far. They're receiving a lot of mandates and having a lot of closures as well. So the decrease in number of sell-side mandate is because in the first half, as I mentioned earlier, so this year, we had -- this year will be almost a conclusion year coming out of the scandal. So it's going to be the year for recover from -- fully from the scandal 4 years ago. So first, we wanted to focus on the number of closures and also the amount, the yen amount as well. And so that's where we focused on first half. And that was affecting the result in the first half. But second half, now we are focusing on improving quality of the mandates, and that's what's also putting some pressure on the number of mandates. And so that's also causing a slight decline. But there is no major impact by them. And rather, we see a much positive impact on our business with those policies by the governments. And so the ratio between direct and network, the network is increasing for the mandates. And right now, in Q3 of fiscal '25, regarding sell-side mandates, in ratio-wise, 37% versus -- no, correction. 74% versus 26%. Network, 74% and 26% for direct. So ratio for network is increasing. And the network is increasing more. Of course, we need to increase the ratio -- direct ratio. But recently, pretty recently, direct market is exposed to very fierce competition. So, so many, too many boutiques out there in the market. And it's very difficult to obtain mandates. So that's why for network channels, we pretty much have an exclusive relationship, and we receive also the retainer fee as well from them. So we are receiving good revenue through the network. So that's where we can leverage on our strength. Next question. About dividend, do you have a plan to change your dividend of paying JPY 29, including special dividend of JPY 6? Thank you for the question. Of course, we have to make a decision to announce. So we cannot say anything definite on this occasion. But to share with you my thinking, we're not planning to cut dividends. At least when we are steadily growing and when our share price and our market cap are growing steadily, we would like to make sure that shareholders can enjoy capital gains. And until we go into that phase, we're not going to cut our dividends at least. So I would like our shareholders to be believed about the possibility of dividend cut. Next question. And so regarding returning to your normal performance achievement cycle, how do you think its repeatability or continuity for next year onward? Takeuchi-san, can you answer this question? Naoki Takeuchi: We next year beyond, repeatability and continuity have such a cycle. So this year, we are looking at this progress. And the answer could be a little abstract, but I think the people in the field did great work. You don't misunderstand this -- my comment, but I think it was actually too good to be true, but still, we are making such a great progress so far. And we have taken every strategy measures that we are able to take in details. The important thing is not to rush too much. If you rush too much, if you just try to accelerate the performance, that can actually cause too much pressure or the burden on the field members. So we need to avoid that. We need to focus on completing good quality M&A. And so the whole industry is focused more on safety and security and the responsibility accountability for the result. So we need to be seriously addressing that trend and what's been required by the society, and that will lead us over to a strong performance. So repeatability and continuity will be accomplished by pursuing this policy. Suguru Miyake: Next question. Your interim fee grew by 28% year-on-year. When does that lead to you receiving contingency fee or a success fee? If you go along with the flow that you were in, in the recent few years, I can assume that this level -- this increase in interim fee will lead to an increase in success fee in the next quarter. However, since your company seems to be able to get back to the customary cycle of achieving results earlier than planned, do you think that -- do you plan to carry this over to Q1 next fiscal year? This is not something that we're going to make a decision about because for M&A, we need a buyer and a seller. These are our customers and they have their schedule. They have their conveniences and they have emotions as well. So timing is not something we adjust. They determine the timing of M&A closure. So in accordance with the normal cycle, we tend to close deals in the following quarter. However, unlike major M&A, like an M&A between listed companies, they actually make decisions at respective Board meetings. So there is no change basically. But when it comes to M&A among SMEs, there can be pretty natural doubts. There can be a half month or 1 month deferral of closure and also buyer can be involved in a sudden major trouble and President of the buyer may have to go on a business trip to foreign country. So there are many cases where there is about a 1-month lag in closing deals. This can happen to us as well. There can be deals that can be closed smoothly by the end of this fiscal year. Takeuchi-san, what do you think? Naoki Takeuchi: I completely agree with what he has said. It's our customers who form and decide on market results. So of course, we pay attention to the expected results on a quarterly basis, but we pay attention to our customers. Our senior management will, at the same time, closely monitor our results. So I completely agree with what Miyake-san has said. Thank you. Suguru Miyake: Today, thank you very much for staying with us for a long time. We have explained our results for the third quarter, and we had a Q&A session as well. Thank you for staying with us till the end. And finally, from the appropriate incident, we experienced many things. And in FY '22, we had a shift to a compliance-based management, and we implemented many prevention measures. And in FY '23, we tried to be a more united company and a more cheerful company. And in FY '24, we received a huge volume of mandates in this fiscal year '25 is about recovering in our financial results and getting back to the primary customary cycle of achieving results. This has been the direction of our company's management. And thanks to these efforts, we had a rocket start, really good start in Q1 this fiscal year. And we had an upward revision in the second quarter. And in the third quarter, I think that we had good enough results that matches with what we have been doing, and we are now almost back to the customary cycle and the level of enthusiasm among our employees is quite high. It's been rising. And of course, we have some issues, including an issue of higher turnover rate. There can be some potential issues. However, we are trying to be transparent to shareholders and investors and we've been discussing with them about our issues. And we will continue to do the same as our manager company going forward. And our Q4, the next briefing session will be the full year briefing session -- full year results briefing session. So our company will be united and make efforts and also acquiring mandates, so we will be able to have a rocket start next fiscal year. We will not ease up on our efforts for that. Please continue to support us. Thank you. [Statements in English on this transcript were spoken by an interpreter present on the live call.]
Operator: Welcome to the Enea Q4 presentation for 2025. [Operator Instructions] Now I will hand the conference over to the CEO, Teemu Salmi; and CFO, Ulf Stigberg. Please go ahead. Teemu Salmi: Thank you, and good morning to everyone. This is Teemu Salmi, CEO of Enea speaking here today to take us through the Q4 results in the next coming 30 to 45 minutes. Our agenda will be very much similar to the previous reports that we have made. We will have a short introduction of some highlights in quarter 4, and then we will deep dive deeper into our financial results, and we will also end up with a way forward and outlook for the year and the years to come. So let's get going with a bit of market and business development highlights from the quarter. Of course, I think we all see what's happening on the geopolitical scene and that the tensions and the development there are driving the demand for secure and controlled national communication solutions. And we see also a more nationalistic approach in sovereignty and when it comes to handling data, which is actually playing us well into our hands in Enea. Our solutions is definitely supporting nations, states and other governmental institutes as well as telco operators to up their security posture. We have had a tough year in 2025 with the FX. Swedish krona has strengthened almost 20% towards the U.S. dollar in the last 12 months. And it's 15 years since that happened last time in 2010. So it's nothing that happens every day. Obviously, having a majority of our net sales in U.S. dollars, it impacts our reported results. We will come back to later on in the presentation today. However, our underlying market development remains positive, and we actually have also a good pipe for the future in building. If we look at the business side, like I said, our underlying business development remains positive across both our focus areas, security and networks and in constant currency, both of them are actually growing in the quarter. And our core offerings continue to develop very well, in particular, Traffic Management and our Deep Packet Inspection, where we've had almost 20% growth in the Deep Packet Inspection and over 30% growth in Traffic Management, which is positioning us super well for the future and to the continued growth that we anticipate accelerating now moving ahead. Another thing that we really see taking off now is that our government customer base is increasing. We have announced 3 deals only in the end of the previous year in 2025. And we also have a good momentum there. We have other opportunities in the pipe as well in that segment, which is very good for us because it's going to diversify our customer base for Enea that today is quite heavily depending on CSP environment. So this is really good for us. Last but not least, I also want to mention a couple of words about cyber. We mentioned that cyber is something that is growing in the world. And unfortunately, we were also a victim in quarter 4 for this criminal activity. However, we were able to contain and execute and handle that cyber incident in a very good way, I should say. And today, it's handed over to authorities for -- and there's an ongoing criminal investigation. So I will not comment on that any further. We have had no financial impact, and there's been no impact to our customers either from this incident. In the quarter, we have reported or signed 10 new customers, 5 in EMEA, 3 in North America and 2 in Asia Pacific. And you can also see here in the textbooks, which solutions it's all about. It's about our growth products, Traffic Management, our ixEngine, our DPI solution and our firewalls. So that's good, great development for us, and that momentum will accelerate in 2026. Moving on to key numbers for quarter 4. We report a net sales of SEK 239 million, which is a reported decrease of 5% from Q4 last year, but it's a growth of 1% in constant currency. So the FX is still hitting us bad. And quarter 1 will still be comparability-wise, a very tough quarter for us because quarter 1 in 2025 was still a quite strong quarter for the U.S. dollar. And we see that the U.S. dollar is continuing to weaken against the Swedish krona now in the beginning of this year. Something that we are very proud of, and I am proud of is how we are working with our profitability. We are reporting the highest quarter 4 profitability in 4 years with an adjusted EBITDA margin of 40%. Obviously, that is good and playing us in favor when it comes to future investments now when we're going to accelerate and put our new strategy into motion. And I will come back to that already in the next slide and talk about what we have done and what we anticipate to do in order to accelerate our growth in 2026. Earnings per share, SEK 2.21 in the quarter and operating cash flow of SEK 45 million. And of course, we continue to invest in R&D and R&D for us is the key and critical engine to make sure that we continue to stay as relevant as we are today for our customers and for our future customers as well. On the full year, we report a net sales of SEK 889 million, which represents a 2% drop in reported numbers, but a 2% growth in constant currency. Our margin is on the same level as last year. Our adjusted margin ends up at 33% and operating cash flow of SEK 107 million. And we're going to dive deeper into these numbers in the section with Ulf a little bit later on as well. And also a couple of comments on the margin maybe there. In the quarter, we had a good business mix. We have proportionally sold more licenses in quarter 4 and also a bit of tailwind from the FX as well because we have a lot of our costs in euros, so helping us to achieve that good profitability. And of course, that higher license sale that we had in Q4 will eventually also turn into support and maintenance and professional services revenues in the coming years as well. Right. Let's take a couple of words about our strategy. We launched our strategy in Q4 as well, which is basically built on 3 pillars: market acceleration, vertical expansion and offering evolution. And in short, we can say that market acceleration is about investing in our sales and ensuring that we penetrate the markets where we think that we have a good potential to win and to -- or to accelerate our growth. So we have decided to invest in Latin America in selling our telco portfolio there. We have already a good presence in Latin America with parts of our portfolio with our firewall portfolio, and we need to leverage that also to sell the rest of our portfolio to do some cross-selling in Latin America. North America is one of our strongest regions, and there's still more to do in North America. So we're going to double down on North America and invest there as well. And then in Asia Pacific, we have good momentum, both with our telco portfolio and our embedded security portfolio. And also the government sector is developing nicely there. So we want to invest in order to grow faster in Asia Pacific as well. In the vertical expansion, it's more like broadening our customer base, how can we take our existing offerings and solutions and sell that more wider. So obviously, we mentioned already several times, but one vertical that is super relevant given also this time of the world with all the geopolitical development intentions. The government sector is investing heavily. National security is pouring money into building up and maintaining sovereignty around the world. And we will, of course, want to be part of that journey with the good solutions and offerings we have in that sector. So we are investing in both our -- selling our Traffic Management and our embedded security solutions into the government sector. And I'm going to come back just shortly to talk a little bit about some of the recent wins we've had in Q4, showing that we are already doing this and that we are already building on this relevance for the future. Last but not least, there is also a Tier 2 or mobile virtual network operator segment that is very important for us. So we will also make sure that we target that customer segment with our solutions, and we are developing our offerings for a more SaaS-ready business model addressing that customer base as well. And then in the offering evolution, finally, it's all about securing that we stay ahead of the curve and that we stay leading in the world like we are today. So that's more about building and developing our current offering and also looking at what potentially could be complementing our current portfolio looking outside of Enea as well. So what have we done so far? In the market acceleration, we are building now a sales organization that is much more customer-centric than a product-centric organization. I have recruited already a Chief Commercial Officer that will start now in quarter 1. Unfortunately, I can't name that individual yet because of confidentiality, but that will be communicated shortly, I hope. This will accelerate our investments in sales and making sure that we push the needle in bringing our offerings to the market. And then also strengthening the sales organization by simply employing more salespeople in those dimensions that I showed on the previous slide as well. We will do this in a controlled manner, of course. We will now start investing where we already see traction in order to make sure that we also secure that growing business that lies ahead of us. In the vertical expansion, like I said, already in quarter 4, we have communicated some wins. We have communicated 2 government wins, one in Asia Pacific and one in Africa during fourth quarter, where we have sold our DPI solution to one government and our telecom and security offering, including also DPI to an African government. Basically, this helps and ensures these governments and nations and countries to stay on top of the security posture by getting full transparency of the network communication going in and out of the country. And there, we can help. We have world-leading solutions for doing that, and this is a proof point of that journey that we have started into growing into the government sector is real. It's happening, and I see in front of me that, that will accelerate as we move ahead. Good. On the offering evolution, we are -- there's nothing new there yet. I mean we launched a strategy in the fourth quarter. There's many things that we are planning to do. We are investing quite a lot in AI, and I'm going to come back to that a bit later on to tell you a little bit what we have done in AI. We are also repackaging some of our offerings like our traffic management and our firewalls to become an as-a-service solution. So we can target Tier 2 operators that necessarily don't need as much of configuration when deploying our solutions as the Tier 1 CSPs needs. So we are also repackaging our offerings to fit another tier and another customer base, which I think is good for also accelerating the growth of our -- predominantly our firewall business and our traffic management business. More to come here later on in the year. Some of the highlights. I've already mentioned some of these, so I will not repeat them. Maybe a couple of additions. We have in North America during the quarter also secured a customer TextNow, which is an operator, a CSP in North America that predominantly competes with free texting and is now also going into the space of free calling. They have chosen our firewall solution to actually deploy that in their operations, and we are very proud to make sure that we continue to show in North America as well as globally that our firewall products are super relevant for the future. And also in -- we communicated late in December a prolonged partnership with an European Tier 1 operator for a cloud-native access control solution. This partnership is securing our cooperation for the next coming 7 years, and we come from a long partnership already shows just the relevance of what we're doing together and prolonging this for the next 7 years to come. Coming back to what I spoke about AI a couple of minutes ago. What we actually are doing, we are not talking about AI as a hype. We actually have AI as part of our solutions today, and we are continuing to deploy AI-based software in our offerings. Here are a couple of examples that I would like to highlight for you, starting from the left with our messaging firewall. For our CPaaS customers, when they are sending messages, of course, messages have different priority. One example being, of course, multifactor authentication passwords needs to be delivered immediately in order for end users and consumers to be able to sign in whatever they are signing into, while maybe commercials can be sent throughout a certain time span. And of course, the price for sending these kind of messages is different. And we can help our customers optimize their revenue base and their cost base by with our AI solution, defining when and how these messages should be sent based on the price pattern that is available. For the Traffic Management Solution, we are working with the mobile operator in Europe, where we are looking at with the help of AI, how we can predict traffic congestion in the network and also, well, of course, secure that our customers get the best -- delivers the best quality of service to the end users. And part of this solution, we also have an AI solution that optimize video content. So you always have the best end user quality of service when viewing -- when streaming video through the mobile networks. Last but not least, our Qosmos ixEngine DPI solution together with a mobile operator in South Africa, we are classifying the traffic. We are also able with AI now to classify encrypted traffic, which makes our solution future-proof to a certain extent. We are not yet able to classify 100% of encrypted traffic, but a high -- relative high percentage point of traffic can already now be classified even though it's encrypted. So this -- we are testing a mobile operator in South Africa right now, and we are hoping to be able to scale this very shortly as well. Let's see here now what happened here. Okay. Then we continue to my last and final slide before I will hand over to Ulf. Of course, we continue to drive the thought leadership across our ecosystems. We are very visible. We are invited to speak in different conferences, and we go and we are. And -- but this quarter, I wanted to highlight some of the recognition our products has been getting out in the world. And if we start from the left, we have the Kaleido Intelligence award that we won. Kaleido Intelligence is a respected independent research and advisory firm specializing in telecoms, roaming and digital infrastructure. Enea, we were recognized as Champion vendor, which is the highest vendor category in this award for our signaling and security firewall capabilities, and we are super proud of that. And we were acknowledged for our leadership in delivering intelligence-driven signaling security in all spectrums of mobile networks. Super good, very nice and just showing how relevant our firewalls actually are. The second prize in the middle is from Juniper Research, where we have been -- we've been winning the platinum category, which is the highest category. And this category highlights solutions that use advanced analytics and AI for image detection and our messaging firewall solution was recognized for our restricted image detection, which uses AI to detect images that violate industry guidelines and best practices. So basically, we are able to review and understand what kind of image is a part of a message before it's sent and then block it if it contains content that is abusive or violating whatever rules that have been set up. Last but not least, we have the Fast Mode award where we -- in the category of video experience, we have been winning with our solution traffic management. Fast Mode is a leading industry platform that analyzes and recognizes innovation and performance across telco, cloud and digital infrastructure. And we were recognized as the video experience leader for traffic management, as I said. And it focuses on that our solution, how we enhance our video quality by intelligently managing network traffic to ensure consistent, high-quality user experience. We are very proud and happy for these wins, and it just shows once again that our solutions are very relevant, good and future-proof, building the way for future growth for Enea. With that, I would like to hand over to Ulf to take us through some of the financials. Ulf? Ulf Stigberg: Thank you, Teemu. Let's see here. So we are reporting a 5% decline in the quarter, but in fixed currency, we report 1% growth. And you can see the seasonal variations between the quarters during the year. This is typical that we have a strong quarter 4, but this year, we didn't reach the quarter 4 for previous year in reported figures. For the full year, a decline of 2%, but in fixed currency, 2% growth. In the quarter, we are proud to present a report the 40% adjusted EBITDA margin, which is highest in many years. And we can see also that compared to the previous quarter last year or quarter 4 last year, we report SEK 7 million increase in absolute figures. And reaching this EBITDA level is, of course, a combination of sales and cost. But on the cost side, we have a stable cost development and also we have had some impact from FX development on the positive side for the result. We also proudly report a 21% EBIT margin for the quarter and reaching SEK 48.9 million in Q4 compared to SEK 45 million in quarter 4 last year. And this translates down to earnings per share in SEK 2.21 for the quarter compared to SEK 4.7 quarter 4 for 2024. Looking into the revenue split within the different product areas. In Security Solutions, we can see a strong sales of license for the quarter. Professional services and support and maintenance are quite stable, but the main increase has been related to more license deals in the end of the year. Similar pattern actually within Network Solutions. Q4 this 2025 was higher than Q4 2024 in license sales and professional services and support and maintenance are quite stable, although we had a step down in support and maintenance with some contract terminations in 2024, which leaves us on a little bit lower level in '25 going forward. However, based on that, we are now also signing new license deals, we will expect a good development of support and maintenance contracts going forward. Looking at the product areas development between the years, we can see a decline in security and also in networks. But in fixed currency, we report a plus 2% growth for security area and plus 1% within networks areas. Operating systems are declining 3%, but this was actually a lower decline than expected. So we're happy to report that. And overall, a plus 1% growth in fixed currency. The same analysis over the year, we'll see a 4% decline in security areas, but a flat development in fixed currency. And within networks, we see a flat development in reported net sales, but an increase or a growth of 5% for the networks area in fixed currency. One item that has been on the board this year is the development of the financial net. And for this quarter, we can report less exposure in financial net and the figure for quarter 4 2025 is a currency net of minus SEK 2.6 million. And in the graph to the right, you can see the development of the U.S. dollar compared to the Swedish krona. And in quarter 4 last year, we had quite a big increase of the dollar rate, which left us with a quite positive currency net for that quarter. Now we have worked with our balance sheet and reduced our exposure. So these swings will be less or limited in the future. In the cash flow analysis, we can also see the effects here on the financial net in quarter 4 this year, we have minus SEK 6 million and quarter 4 last year, we had plus SEK 41 million, and that gives quite a big impact on the cash flow. However, we want to reduce these swings, and that's what we have done now. Compared to quarter 4 last year, we had amortization of our term loan of EUR 15 million. So that figure is higher than normal. But for quarter 4 2025, we reported total net cash flow of plus SEK 10 million. Our net debt is SEK 208 million, and our balance sheet is strong in terms of capitalization, and we are -- we have a headroom for leverage going forward based on a stable capital situation. And finally, in the quarter, we bought back 166,000 shares to a value of SEK 11.8 million. And this program continues until the Annual General Meeting in May 2026. Teemu Salmi: Good. Thank you, Ulf. And before questions, we will round up a little bit with the key takeaways and guidelines. Some key takeaways from the fourth quarter. Like I said, we have a very strong profitability, building for the future, best quarter 4 in 4 years and EBITA margin of 40%. In constant currency, growth continues in networks and security, one respective 2% in constant currency, and we intend to accelerate this growth in the year. We have good momentum in our government business, like I said, 2 strategic customers signed in quarter 4, and I hope more to come in the coming periods. And of course, on the negative side, our headwind in FX continues, which has been putting pressure on our reported numbers in 2025. And like I said in the beginning of the call as well, I think first quarter of 2026 will still be comparability-wise, quite a tough quarter given where the dollar was standing in the first quarter in 2025. Then we should see -- starting quarter 2, we should see improved comparability numbers year-over-year, unless, of course, the dollar continues to drop compared to the Swedish krona now in the beginning of 2026. On the short-term outlook, market remains stable to positive. I think our pipeline is fairly good. We have a relevant -- highly relevant portfolio for the markets and segments we're serving. And the diversification that is now starting for our customer base is great and building for the long-term development of Enea and of course, gives us also access to new and bigger revenue pools as well. So this is good for continued business development for us. And one of those pools is the government sector, which is growing well, and we will continue to focus on that heavily in 2026 and the years to come. And then, of course, like I said, the FX headwind in quarter 1 will put pressure on us comparability-wise still. So that's just a fact that we know given where the dollar stands now and where the dollar was in quarter 1 in 2025. So our guidance of 2026 is a single-digit growth and an adjusted EBITDA over 30%. We will make some investments in 2026 that is then, of course, the starting of the acceleration of our growth to be able to then meet our long-term financial ambition, which we presented during fourth quarter last year. And that is to have an average growth over 10% on an annual base throughout the full period of 2026 to 2028. And you can already now see that it's not going to be a linear growth because we are saying that our short-term outlook is single-digit growth for this year, but we stay firm and we believe strongly that this is something we can make in the next 3 years to come. And we're also saying that our profitability at the end of the period when we exit 2028 we will have an EBITDA over and above 35%. So this is our long-term guidance that we keep from our strategy that we communicated in quarter 4. And with that, 30 minutes as promised or 31 minutes, I will then actually open up for questions and answers. Operator? Operator: [Operator Instructions] Teemu Salmi: All right. We have some written questions here. Let's take them in order. We have a question from Matias. Why did the order bonanza in quarter 4 not translate into higher growth? Well, I mean, the business mix that we are having, I think that we have our normal business, and we had some good wins at the end of the quarter, right? I think that it's paving the way for the future. But I mean, it is the total business mix that gives us the result where we're standing today. We have another question, how come there is no growth in Q4 despite the large announced contracts? That's the same question as we had before. Can you comment on the decline in operating cash flow before changes in working capital? Ulf? Ulf Stigberg: Yes. Partly that was explained by the financial -- big swings in financial net. We reported a positive SEK 41 million in financial net in quarter 4 2024. And now in '25, we have minus SEK 6 million, and that relates both to the -- our balance sheet composition, but also to the development of the dollar. But during the year, we have reduced the exposure. So these swings will be less. But just quarter-by-quarter, we see a big swing here. Teemu Salmi: Thank you, Ulf. And then we have a couple of questions here from Rasmus, growth constraints. What is the #1 restraining factor in your growth today? Is it driven by market dynamics or the current market cycle? Well, I think that there's a couple of things that -- we are now restructuring and reorganizing a little bit how we do our sales, like I said in the beginning, we will be much more customer-centric, and we will also be selling a broader portfolio to our customers, which we haven't maybe done in the past. And we are also now getting a more focused setup on our sales. I think that there's a lot we can do in our sales. We have a great sales force, but we just need to focus it in a bit of a different way. The market dynamics actually are positive. So I think that -- and the development, even though it comes late in the year and in 2025, I think the momentum we have to diversify our business is good, right? So that's also answering the second question and how confident are we that we can grow in 2026? Well, we are fairly confident given where we stand and what we see in the dialogue with our existing customers and with our new customers, and we look at our pipe. So -- and the investments we are doing, they are not going to pay off immediately. We have quite long sales cycles, but we will eventually also see good results from the investments that we are making, both in sales and product development. Ulf, the last question is for you. Net working capital relative to sales seems to have been growing for several years. Is there any specific within this that is causing the increase? Ulf Stigberg: Our business mix and the deal mix, customer base mix is we have increased development in areas in the world with a little bit lower or longer payment patterns. And I think that's one explanation why we now see a slight increase in the working capital. But that's something we are working on and take the challenge and solve the problems with the customers, of course. Teemu Salmi: And I think one comment to that, if we look at Q4 isolated, actually our working capital is declining year-over-year, quarter 4, right? So we are on top of it. We are not happy with it. And we, of course, are actively working with getting it down. You mentioned good pipeline and better billing going forward. Can you elaborate on the better billing? What do you mean? Better billing? Sorry, I cannot recall I said better billing. But the good pipeline, I can comment. I mean, we have a solid pipeline in both customer segment or both -- in all customer segments, I should say, where we are working. We've had some pushouts of some deals that we've been working on, not necessarily saying that we are losing them or we have lost them, but our customers are taking a bit longer time to decide. And we are positively looking at materializing these deals in the coming quarter. And adding to that a fairly stable and good pipe gives me confidence that we will be able to turn this around into growth numbers. Also, hopefully, in reported numbers, obviously, FX is nothing we can do anything about, but that is definitely our ambition, yes. Then a question in Swedish. I will translate it into English. What can one expect when it comes to growth within security and 2026 and up till 2029? We are not guiding on the segments or focus areas, security and networks in our guidance. It's the business mix in totality that will deliver the growth that we are seeing. But of course, personally, I see good momentum both in networks and security. And we've also seen that in the recent quarters that even though we've had a different business mix in quarter 4 that they have been growing steadily previously. And that's what I perceive going forward as well. Your SG&A is down quite a lot. Is that really sustainable? Given dollar weakness, will you be able to increase prices over time? Ulf, do you want to comment on SG&A? Ulf Stigberg: This -- I mean, increased prices over time, I think it's a development and our product mix and product capabilities and features going forward, we see a possibility to price -- have a good price development with the customer. Teemu Salmi: Yes. And it's a competitive market, right? I mean we also have market pricing. We are unfortunately not alone. So of course, competitive pricing. But we, of course, try to stay ahead of that when it comes to feature development, our investments in AI and all of that is going to make our products stand out and be better than competition where we also are able to price that. So of course, we're investing quite a lot in R&D, as you can see, and that in itself is going to make sure that we have a headroom and headwind when it comes to -- sorry, tailwind when it comes to how to price our products compared to competition. Where are we there? Does your growth guidance for 2026 include FX or? No, it includes FX. It includes FX. So we are -- our guidance is in reported numbers, if I put it like that. So it includes FX. Are you hearing that customers are shying away from U.S. and Israeli competitors, i.e., are you benefiting as a Swedish company from -- very good question. And even though it's a bit early days to say that, but at least the dialogues I have with our customers, I definitely see this. Yes, we are well positioned to be a Swedish company in this geopolitical turmoil that is seen. Sweden as a nation, as a country is still seen, I wouldn't say as neutral, but at least as a trusted partner, someone you can trust in and have a long-term engagement with. So yes, I hear this discussion more and more. And another topic I hear, especially in Europe is about data sovereignty and how can we -- I mean, a lot of European companies, of course, are relying on U.S.-based cloud providers for ensuring their operation works. And of course, that question is parking also now a lot of dialogue about how to -- how can we trust our current allies or our previous allies for the future in order to secure that there are no problems or issues with services that are being delivered today. So I don't know if it's good or bad, but the nationalistic view and the world getting smaller again is a fact. And we, of course, have to navigate that and play our cards well there. And I think that we are super well positioned in that dialogue as a company. Those were the questions written. Do we have any more? If not, then I'd like to thank you all for listening. And I will hand over the call back to the operator. Thank you for now, and have a good day ahead. Ulf Stigberg: Thank you.
Terje Pilskog: Good morning, everyone, and welcome to our fourth quarter presentation. Our growth continues, and we deliver on our strategy with a high level of activity across all of our segments and all of our portfolio. We are growing our pipeline. At the same time, we continue to also strengthen our financial position. And we are operating in markets with strong underlying demand, and we're focusing on markets with strong underlying demand for clean, affordable and flexible power. Renewable energy is the most competitive source of power generation in our markets, and we continue to see strong and attractive long-term demand for renewable energy in our markets. And this is reflected in the additional projects that we are able to secure in our markets, and it's also reflected in the growing pipeline that we are presenting today. And today, I will start with a summary of our 2025 achievements, and then I will take you through the highlights of the quarter. Hans Jakob will go through the financials. And then at the end, we will also provide comments on our outlook for 2026. And then to summarize our full year 2025, we are scaling the platform while maintaining -- continuing to maintain financial discipline, and we have also strengthened our balance sheet. We see strong near-term growth, and we have 11 gigawatts of generation capacity across our projects in operation, in construction and in our backlog. And this is our largest near-term growth that we have ever had. We have also significantly strengthened our position in storage and hybrid solutions, reflecting the increasing demand for flexible and hybrid systems. Our growth portfolio now includes more than 6.5 gigawatts of battery storage systems. And this development is supported by battery prices falling over the past 2 years, and we aim to continue to increase our pipeline in this space. During the year, we have also reduced our gross debt -- corporate debt by 25% and our corporate debt now stands at NOK 6.7 billion. And this is something that we have done while we continue to invest in new projects and new capacity. So overall, I'm very happy with the performance that we have achieved last year, and we are proving that we can execute on growth while we continue to deleverage, building a resilient and a very scalable platform. So let me then take you through the highlights of the last quarter. We delivered strong group revenues of NOK 3.4 billion. This is an increase of 25% relative to the same quarter last year, and this is mainly driven by high activity in our Development & Construction segment. We have very good progress on our projects under construction. And in the quarter, we recognized NOK 2.3 billion in revenues and also a gross margin of 14%. And the key drivers here were Obelisk in Egypt and also the Mogobe BESS project in South Africa. And it's important to emphasize that the attractive gross margin that we are recognizing, it is based on a very strong underlying economics of the projects that we currently have in our construction portfolio. We also continue to mature our pipeline and secure new projects for future growth, with the backlog now reaching an all-time high of 5.3 gigawatts of generation capacity and 4.7 gigawatt hours of battery storage capacity. This is driven by new PPAs that we've been signing over the quarter in Egypt, in Tunisia and also in the Philippines. And one of these projects, which is Energy Valley, is really a landmark project in Egypt, and we will come back and talk a bit more about that later. In parallel, we have also improved our corporate debt maturity profile. We have issued a new bond in November during the quarter. We also paid down the term loan. And at the end of the quarter -- at the end of the year, we have a very strong liquidity position of NOK 5.6 billion. So with that, let me also then take you through the key elements of the Power Production segment. Last quarter, we generated 1 terawatt hours, and this is in line with last year when we adjust for the divested assets. New projects contributed with 73 gigawatt hours. This is from Grootfontein in South Africa and it's also from the Mmadinare project in Botswana. While when it comes to the Philippines, we generated slightly lower megawatt hours, and this is due to hydrology. Revenues from power production amounted to around NOK 1.1 billion, and this is broadly also in line with last year when we are adjusting for the divestments that we've done. And overall, this demonstrates the resilience and the predictability of our contracted generation portfolio even as we continue to actively optimize our portfolio. Now a few words on Ukraine. And here, the ongoing war obviously represents challenging environment, a challenging environment for operations. We own and operate 5 projects in Ukraine in the central and the southern parts of Ukraine, with a total capacity of about 336 megawatts. And during the fourth quarter, the substations and transformers related to one of our projects were targeted and damaged by Russian drone attack. Our first priority in this situation is our employees in the country, and it's very good to know that those are unharmed at least physically after this drone attack. But the power plant is disconnected due to the damage and is currently not delivering energy onto the grid. Ukrenergo, the state-owned utility and our team is working very hard to repair the damages, and we are currently targeting to get the plant reconnected to the grid and start delivering energy again in the beginning of the second half of this year. This is obviously impacting the power generation from Ukraine during the year, and Hans Jakob will come back and comment on this also in the outlook for the year. So let me now talk about the Philippines. Here, we delivered yet another solid quarter, and the Philippines continues to be a major financial contributor to the company. We generated 249 gigawatt hours in the quarter. And despite the slightly lower generation compared to last year, the financials from Philippines were better than last year. Overall, we reached net revenues of NOK 403 million. This is up from NOK 390 million same quarter last year. And here, we are now seeing the benefits of having a flexible asset portfolio and active trading operations in the country. This is now demonstrated based on the several -- as we have several revenue streams and that we're able to capture attractive trading opportunities. And through this, we are able to deliver good and strong financial results despite the fact that the hydrology is slightly lower in the quarter. And we also continue to allocate a significant part of our capacity to the ancillary services market in the country, again, based on the fact that we are seeing attractive revenue opportunities, earnings opportunities in that segment and based on our ability with the flexible asset portfolio that we have. Prices in the quarter were also up. And additionally, we've been able to capture higher-than-average prices on our contracts, and this is also contributing to the financials. So in terms of EBITDA, that increased by NOK 31 million in the quarter to NOK 363 million. Then in terms of construction, we currently have 1.5 gigawatts of solar and 700 megawatt hours of battery storage projects under construction in 5 different countries. Andreas is fixing that. In addition to this, we are also progressing well in our release platform, and we are also having a few projects in that platform being installed as we speak. Since last reporting, we've had a very good construction progress across the portfolio, and we have recorded NOK 2.3 billion in revenues and a gross margin of 14%, as I've already said. And the EBITDA for the D&C segment was NOK 251 million, which is a very high level. Grootfontein in South Africa and also the second phase of Mmadinare project in Botswana reached COD during the quarter and is now in operation. In Tunisia, we target COD for the Tozeur project and the Sidi Bouzid project by the end of the quarter. And for the solar project in Brazil and also for our battery projects in the Philippines, we are expected to reach COD by the end of the first half of the year. When it comes to Mogobe in South Africa, our first battery project in South Africa -- so when it comes to the solar project in Brazil and also the battery projects in the Philippines, we are expecting to have COD by the end of the first half. And then when it comes to Mogobe, our first stand-alone project -- stand-alone BESS project in South Africa, we are for this project expecting to reach financial close in the second half of this year. In general, I'm very pleased with the progress that we're seeing on the construction activities across our portfolio, and I'm very proud of the teams that are doing a very good job on this. At the end of the quarter, we have NOK 1.8 billion in remaining contract revenues related to the projects that we currently have in construction, and we continue to expect to have a gross margin of 10% to 12% related to these projects. Beyond this, obviously, we continue to mature the projects that we have in backlog, and we foresee that we're going to continue to have a high activity level in the Construction segment going forward. Now let me also take some time to appreciate our largest project to date, the Obelisk project. Total CapEx of this project is close to NOK 6 billion. And then it's finished, it will generate in the range of 3 terawatt hours on an annual basis, and it will provide 1.3 million tonnes of CO2 emission reductions. It's a massive project, and it's being constructed at record pace. We have already completed phase 1, which is including 50% of the solar capacity, 100% of the battery capacity and obviously also a very large substation. And this is only about 15 months since we signed the PPA. We are having about 5,000 people on site, and this team is installing in the range of 200,000 modules on a monthly basis. So we're working very hard to secure commercial operation for phase 1 ahead of schedule by the end of this quarter and also accelerating the completion of phase 2, and we're targeting to reach COD for phase 2 already this summer. And obviously, building this project, constructing this project gives us a lot of very valuable experiences and learnings. And we will use these learnings when we're now moving forward also and preparing to start construction for the other projects in Egypt, like, for instance, Egypt Aluminium and also the Energy Valley project. I will now zoom out a bit and talk about our growth portfolio. We have an all-time high backlog of 5.3 gigawatts of generation capacity, and this is including projects in Egypt, in South Africa, in Tunisia, in Romania and in Colombia. And then the construction of these projects, including the ones in backlog, have been completed over the next few years, we will reach a total generating capacity of 11 gigawatts. This is up 2.5x relative to where we are today. In addition, behind this, we have a pipeline of 7.4 gigawatts that obviously we will continue to mature and convert into backlog also over time. Our growth portfolio also includes battery storage, either in hybrid systems or as stand-alone storage systems. Here, we have a backlog of 4.7 gigawatt hours in South Africa, Egypt and the Philippines. And we have now chosen to show this portfolio separately so that you can see also how this is growing over time, and we believe that there's going to also be significant growth opportunities in this space going forward. And let me now also turn at the end to a landmark agreement signed in Egypt, which is a 25-year PPA for 1.95 gigawatts of solar and 3.9 gigawatt hours of battery capacity. So the Energy Valley project, as you will see on this page, includes 2 stand-alone BESS installations and 1 solar and battery hybrid facility. And part of the production from this hybrid facility will be used to provide 24/7 green baseload power. And this is a first of its kind. The project will generate about 6 terawatt hours when it is in operation, it will provide about 2.4 million tonnes of CO2 reductions, and it will save Egypt $150 million on an annual basis in saved fuel costs related to the alternative, which is running their thermal power plants, $150 million on an annual basis. And with the signing of this agreement, we are cementing our position in Egypt as one of the leading players in renewable energy in the country, and we have a very strong team on the ground, which is driving this. And in total, we now have 5 large growth projects in Egypt across different technologies, solar, wind, batteries and green hydrogen. These projects, they will generate substantial D&C revenues over the next few years as we move them through construction. And on a longer-term basis, obviously, they will also generate predictable revenues in the Power Production segment related to the 25-year PPAs that we have for these projects. And finally, also this portfolio will contribute to reduction of 5 million tonnes of CO2 emissions. And just for reference, this is more than 10% of Norway's CO2 emissions on an annual basis, more than 10%. So we now focus on finalizing construction of Obelisk and securing partners and financing for this portfolio with the aim to move this portfolio into construction by the end of this year. So with that, Hans Jakob, I will hand it over to you to take us through the financials. Hans Jakob Hegge: Thank you, Terje. Is the Microphone okay? Yes. So it's been said before, but we are pleased to present strong results across the group, high D&C activity and a good quarter in the Philippines. I'll walk you through the group financials and the performance of our operating segments. And I will also comment on capital structure and further improvements. Starting at group level performance. The last 3 years has been a transition period with increased capital recycling and accelerated growth. The full year consolidated revenues was NOK 5.2 billion and EBITDA NOK 4 billion. Our proportionate revenues was NOK 11 billion and EBITDA NOK 4.6 billion, both positively impacted by the D&C segment. Looking at the quarter on group level, the all-time high D&C activities driving proportionate revenue growth, positively impacting our group financials. Consolidated revenues was NOK 1 billion compared to NOK 1.1 billion in the same quarter last year. EBITDA reached NOK 697 million compared to NOK 816 million year-on-year. The reduction is mainly driven by divestments, which has been instrumental to our long-term strategy of funding growth and reducing debt. This will result in additional revenues from new projects and lower interest expenses and reduced debt. Our proportionate revenues was NOK 3.4 billion compared to NOK 2.7 billion in the same quarter last year. And the proportionate EBITDA was NOK 1 billion compared to NOK 1.4 billion year-on-year. Now let me take you through the segments. Starting with Power Production, which delivered revenues close to NOK 1.1 billion compared to NOK 1.6 billion in the same quarter last year. The reduction is mainly explained by the divestment gains of NOK 380 million booked in the fourth quarter last year. EBITDA was NOK 842 million. And on a 12-month rolling basis, you can see stable development adjusting for sales gains as we are managing to offset the EBITDA from divested assets with new projects. The last 12 months, we have delivered NOK 5.2 billion in revenues and NOK 4.3 billion in EBITDA. Overall, we are very pleased with the value generated from our operating assets. In our Development & Construction segment, activity levels continue to increase. Proportionate revenues more than doubled to NOK 2.3 billion and EBITDA was NOK 251 million, significantly up from the NOK 51 million in the same quarter last year. The trend from the last 12 months confirms the long-term strength and scalability of our D&C business, underlying strong growth. D&C revenues in the last 12 months have reached NOK 5.8 billion with a steady increase over the last quarter, 5 quarters in a row. The rolling EBITDA ended at NOK 462 million, with contribution from high-margin projects and disciplined cost control. The increasing trend reflects higher activity levels across several geographies with Obelisk in Egypt and Mogobe in South Africa being in the forefront in this quarter. With a strong backlog, including 8 projects in 5 countries expected to start construction in the first half of this year, we expect D&C to remain a key engine on our continued profitable growth. At the end of the quarter, we had available liquidity of NOK 5.6 billion. Let me explain some of the main movements. We received NOK 631 million in distributions from power plants, had positive working capital movements of NOK 596 million, mainly related to milestone payments for Obelisk. We invested net NOK 220 million in growth projects and paid NOK 130 million of interest and reduced our corporate debt by NOK 73 million. The EBITDA from the D&C covered investments in the quarter, which is a confirmation of our robust business model and the RCF is currently undrawn. We continue to strengthen our capital structure. Net corporate debt was reduced to NOK 3.4 billion, down from NOK 5.6 billion in the second and NOK 4.3 billion in the third quarter. The reduction was mainly driven by the change in cash of NOK 900 million. We also repaid the outstanding term loan with the proceeds from the NOK 1 billion bond. On project level, net debt increased by NOK 800 million to NOK 16.7 billion, and the project debt in operation increased by NOK 2.3 billion as Grootfontein in South Africa and Mmadinare project in Botswana, debt moved to operation after COD and the net debt for projects under construction was reduced by NOK 1.4 billion. And now the outlook for the year. So commenting on the 2026 outlook, I will start with the full year estimate of Power Production between 5.2 and 5.6 terawatt hours. Our estimated full year EBITDA is in the range of NOK 3.8 billion to NOK 4.1 billion. And let me explain some of the main items affecting the guidance compared to the NOK 4.3 billion we delivered in the full year last year. Last year, we reported NOK 500 million in divestment gains and operational EBITDA related to Uganda, Vietnam, which we sold during the year, we had NOK 200 million of retroactive payments for tariff adjustments in the Philippines and Pakistan. In this year, we expect reduced EBITDA from Ukraine due to the repair of one of our plants and lower payment levels for the remainder of the portfolio in the country. Lower EBITDA from the Philippines and Laos due to the normal hydrology expected compared to the high levels we saw in 2025. These effects will be partly offset by contributions from new projects that are starting operations during the year and other operational improvements. For the first quarter, we expect that total Power Production between 950 and 1,050 gigawatt hours. EBITDA in the Philippines of NOK 180 million to NOK 240 million based on the normal hydrology and strong contributions from ancillary services. In our D&C segment, we have NOK 1.8 billion remaining contract value and a gross margin estimate of 10% to 12% on average across the portfolio of projects under construction. For corporate, we expect a full year EBITDA of NOK 125 million to NOK 135 million negative. And these estimates reflects a strong base of operating assets, high construction activity and healthy cost control. And by that, I invite you back, Terje, to take us through the summary. Terje Pilskog: Thank you, Hans Jakob. So to sum up, 2025 was a very good year for Scatec. We've had good financial performance, high construction activity during the year. We have significantly increased our pipeline and backlog during the year, and we have also strengthened the balance sheet. I'd like to think that 2025 was a transformative year for Scatec. We also launched our new targets and our strategic priorities during our Q3 presentation. And in 2026, in line with this, we will focus on strong operational performance, execution of our significant growth portfolio, divestment of noncore assets and also take further steps in terms of deleveraging our corporate balance sheet. I think it's going to be a very exciting and a very active and hectic year. Thank you very much. And now we will move to questions. Andreas Austrell: Thank you, Terje and Hans Jakob. Over to the Q&A. We will as usual, start with the audience in the room, and then we will take some online questions. So if you want to ask a question, just raise your hand. Unknown Analyst: [ Andreas Obst ], SEB. In your guidance for 2026 on Power Production, you provided some soft comments about the changes in Ukraine, but could you be more explicit on how much the contribution in Ukraine is expected to be compared with 2025 levels, some rough indication? Hans Jakob Hegge: Yes. I think in one of Terje's graphs, he showed the impact in the fourth quarter last year of NOK 67 million. I think it's also in the fact sheet. Looking at the outlook as Terje said, the team is working incredibly hard to reinstall the capacity and is anticipated to take until summer. And we haven't provided a figure, but ballpark around NOK 100 million. Unknown Analyst: Okay. So -- but you also made a comment about which I've interpreted as somewhat lower payments from you... Hans Jakob Hegge: Lower payment levels, that Terje is very much aware of. And as the rest of us, we have basically had very higher-than-expected payment levels last year. So starting the year with a more cautious approach to more normal as expected payment levels is a fair assumption. Unknown Analyst: So if I just to summarize, the base line should be somewhat lower and roughly NOK 100 million below the baseline for the first half. Hans Jakob Hegge: Yes. Unknown Analyst: Okay. I have another question as well, if I may. In the Development & Construction segment, I appreciate that you're progressing projects and are trying to sustain activity also in the first half, but there are some financial closures, which needs to be in place for that to happen. How should we think about the first half in D&C upon completion of the projects currently under construction, the NOK 1.8 billion? Terje Pilskog: Your question is what is going to come potentially in addition to... Unknown Analyst: Yes, or how quickly, is that a second half event? Or are you still comfortable with the commencement of construction, as you indicated in the past, during the first half of... Terje Pilskog: Yes. I mean we're typically not commenting on specific dates or exactly sort of when the projects in our backlog are going to come into financial close and start of construction. But we see that sort of across the backlog that we currently have. There are also some projects that we anticipate will come into construction -- reach financial close and coming into construction in the first half of the year. Andreas Nygard: Andreas Nygard, Nordea. You have huge projects now going on in Egypt. Should we assume that you can continue to originate to 2 to 3 gigawatts of projects annually in Egypt? Terje Pilskog: I think now -- I mean, as we went through here, we now have 5 significant projects in Egypt that we're going to focus on securing financing, bringing in investors, bringing to financial close and start construction during this year. And I think that's going to be a main priority for the year. There's still significant more opportunities in Egypt related to renewable energy. Renewable energy makes sense in Egypt. It's basically saving costs related to the alternative sources of power generation. So -- and Egypt is trying to accelerate their program for reaching their targets when it comes to renewable energy in the power mix. They had certain targets. I think it's 42% by 2035. They took it back to 2030, and now they're trying to reach it even earlier. So in that context and based on our position in Egypt, we see more opportunities in Egypt. Andreas Nygard: Okay. That's very clear and very nice to hear. But this scale of projects, could you find it outside of Egypt? Or is Egypt quite special right now in terms of the scale of the projects? Could you see 2 gigawatt projects in South Africa, for instance? Terje Pilskog: Yes. I do think you could also see projects at that scale also in South Africa. But obviously, it also depends a bit on how the regulations are developing. But I think as the power sector also in South Africa will continue to be deregulated, we will also see more opportunities to do corporate PPAs and to build out large portfolio of projects that can basically sell energy to more corporate offtakers. So I think that's a development that we will see. And then we will obviously look for developing large clusters of projects also in South Africa. So there is also potential for larger projects in South Africa. Andreas Nygard: So in summary, the activity level you're expecting in '26 and '27, that run rate could likely just continue in '28, '29 and for eternity? Terje Pilskog: Let me answer your question like this. I continue -- or we continue to see that renewable energy becomes more and more competitive in the markets where we operate. With batteries, it becomes more flexible. It can provide baseload green power. And in many of the markets where we operate, we are -- the countries are, in principle, saving money, reducing alternative cost of power generation from implementing renewables. So I don't see a reason why the current pace in the industry is not going to continue. And I think based on everything that we are currently doing and the track record, capabilities of the organization that we have, I think that we are in a good position to capture part of that growth. Andreas Austrell: We have a couple of questions from our online listeners as well. We can start with Jørgen Lande from Danske Bank. In terms of recent movements in input costs like silver and copper, can you comment on how this potentially has impacted the progress of reaching FID? Terje Pilskog: I think there's a couple of things happening in the industry. Some component prices are going up. The VAT rebate in China has been removed or is being removed over time related to panels and batteries. On the other side, we also see that other components that we are using, we are able to achieve savings. And the things that are happening in this industry is obviously not -- it doesn't come as a surprise to us. So we don't see that any of these things that are happening in the industry will have any significant impact on where we will be able to reach FID and take financial close and start construction of the projects that we currently have in the backlog. We will obviously continue to be very disciplined in terms of our hurdle rates, in terms of making sure that all the projects that we are doing are value creating for us and our shareholders. But based on what we are currently seeing, we see that sort of the changes in the industry is manageable and not also surprising. Andreas Austrell: Thank you. One question from Helene Brondbo from DNB Carnegie. Can you shed some more light on the status of your ongoing asset rotation program? Hans Jakob Hegge: Yes. That's the one we are not sharing a lot of detail on announcing transactions. What we have said is, of course, that we have clear ambitious targets, another NOK 3.4 billion proceeds to 2030. This is within a time frame, which should be manageable and its main focus on the noncore. It's also reaching certain ownership stakes deliberately on project carefully timed. So we have discussions ongoing and we are in terms of our long-term plan according to plan. Andreas Austrell: Thank you. Helene also asked about the input costs. I think we have covered that. Another one from Helene, to what extent can we expect the solid D&C gross margin in Q4 to be repeated? Terje Pilskog: Yes. Here, I mean, we have commented on that in our outlook, and we're saying that with regards to the NOK 1.8 billion that we have remaining in construction revenues or contracts, we are expecting and we are indicating that we will continue to reach in the range of 10% to 12% gross margin of those contracts. Andreas Austrell: Thank you. Another one from Jørgen Lande, Danske Bank. You guide 2026 Power Production to a midpoint of 5.4 terawatt hours, which is higher than the midpoint of consensus while EBITDA implies a very softer margin. Can you comment on how you think about our Power Production EBITDA in 2026? Hans Jakob Hegge: Yes. So I understand -- I think I understand at least where Jørgen is coming from. So is there a misalignment on the EBITDA side, and it has to do with the composition of the contribution. So I think we have to stick to the guiding that we have provided today and NOK 3.8 billion to NOK 4.1 billion is explained also in contrast to last year, the one-offs, any divestments is, of course, a potential deviation but also the impact on the pace of the new projects coming in. And I think it feels at least a bit special for us taking the development into account Kenhardt and then doubling to Obelisk and then we have Energy Valley. But we're not pre-announcing anything. We just signed a PPA, but we are working very hard to mature this project, and that is, of course, a significant potential contribution. How this is forecasted? I think we have to stick to professional secrets. Andreas Austrell: Thank you. We have some questions from Anis Zgaya from ODDO BHF, one on Ukraine. I think we covered that one. Another one on the Philippines, you show a sustained contribution from ancillary services and a favorable water fee settlement in 2025. How should we think about AS, ancillary services pricing and volumes in 2026 versus 2025? And what's your assumption for hydrology normalization embedded in the guidance? Terje Pilskog: I think when it comes to the ancillary services market, there are 2 elements of the ancillary services revenues that we are currently generating. It's partly related to a contract that was secured a couple of years ago, where we have very predictable revenues. And that contract is representing maybe around 50% of the volumes that we are typically seeing in that segment. And in general, when it comes to the pricing, on a short medium-term basis, I mean, it's very difficult to provide input and outlook in terms of prices, but we don't see a reason on a short medium-term basis that the prices in the ancillary services market is going to change. Hans Jakob Hegge: Yes. And on normal hydrology, it's just that when you use these data for up to 10-year period, you see variations. And last year, I think we agreed that it was above normal hydrology. And it's a bit hard to start the year without normal hydrology as an assumption. So that's where we start off, just being transparent about the relative change. Terje Pilskog: And obviously, the interesting thing when it comes to the Philippines now is that we have 2 new projects, 2 new battery storage projects that are in construction and that we are anticipating to reach financial COD in the first half of this year, and that is increasing our capacity related to battery storage from 24 megawatts to 80 megawatts in the country, so a tripling of capacity that comes into operation first half this year that enables us to increase our participation in the ancillary services market. And then on top of that, we are also intending to move more projects. We have more projects in backlog also related to battery storage, but we will also aim to move into financial close and start of construction also relatively soon, and that will further then increase our capacity on the ancillary services market and increasing our flexibility in the Philippines and increasing our ability to tap into several revenue streams, as I talked about in the commentary. Hans Jakob Hegge: I just flip to the slide that you showed how significant ancillary services has been sustained over several quarters. So with the ramp-up of battery capacity, it's even more robustified. Andreas Austrell: One follow-up on your Ukraine. Any insurance recoveries or compensation mechanisms you can detail? Terje Pilskog: No, currently in the current situation in Ukraine, and we have to remember that the war is soon entering its fifth year. It's not really possible to get insurance, which is going to cover these kinds of events in Ukraine. Andreas Austrell: Okay. Quite a lot of questions today. Just I think, 2 more. Lars Christensen, Fearnley Securities. Congratulations on the strong results. For the Energy Valley project in Egypt, should we expect any asset rotation to help fund the investment? Terje Pilskog: As we said, we are continuing to work on our divestment program, and we will continue to work on optimizing our portfolio over time and have a very active perspective on our portfolio. And then we also, in previous presentations, discussed the fact that we will, in certain projects, also go down in ownership stakes through a layered structure, where we are still able to maintain control over the project, but to take down our direct equity investment into the project and through that, manage also the capital investments over time. Andreas Austrell: Okay. I think we'll take just one last question. Do you see any problems of the power grid in any of your countries you have -- where you have large projects? And how do you solve these problems? Terje Pilskog: It is clear that sort of with the increased penetration of renewables, especially intermittent renewables, there are situations, I think in all grids, in all countries, where, you will have temporary challenges with the grid that will either have to be managed through strengthening the grid over time or also with the addition of storage capacity and batteries. And there, I would like to draw the attention to Energy Valley projects. It's 3 installations, 2 pure battery installations at 2 different locations and 1 hybrid facility. And obviously, those stand-alone battery installations, they are put where they are in order to help balance the grid and mitigate those types of concerns in those situations. Similarly, same thing is happening in South Africa, where we are now building one stand-alone battery project and where we have another one in our backlog. And these batteries are obviously also put into places where they help balance the grid and mitigate the challenges that will, in certain places, come into the grid. So this is an important part of our business going forward. We have to be very -- we have to be on top of the grid situation in the markets where we operate and make sure that we focus on the areas where there is grid capacity and where we will be able to implement new renewable energy projects and deliver the energy onto the grid. Andreas Austrell: Thank you, Terje and Hans Jakob. One more from Andreas, SEB? Unknown Analyst: Just a final question on asset rotation, the NOK 3.4 billion when you refer to asset rotation, that relates to projects already in operation as of today, right? Terje Pilskog: That's correct. Andreas Austrell: One more from Andreas, Nordea. Andreas Nygard: So just the last one on your investment target, NOK 1 billion of equity annually. The Energy Valley project, I guess, you will structure it perhaps the same way you're doing Obelisk, aiming for an equity bridge perhaps. The way you're seeing your backlog now, are you actually using the full of your NOK 1 billion equity injection capacity the way you're looking to structure that backlog? Terje Pilskog: I think Terje will fight to answer that question, do you want to go? Okay. Under construction and in backlog, there is equity around NOK 3 billion, and that is excluding Energy Valley. So Energy Valley is sizable as you could imagine. And we will come back to more granularity on the project as it is progressing, but we are well underway to reach our target and the guiding from the strategy update. That's basically directionally what I would like to say. But under construction and backlog is around NOK 3 billion equity. Andreas Nygard: And will that be cash? Hans Jakob Hegge: We haven't provided super detailed analysis of this today, and I think we will come back to it. But I read your question, Andreas, is this in line with what you said you would inject of equity. And I think we are fairly aligned what we have on the plate as is. Andreas Austrell: Okay. With that, I think we say thank you to everyone and end today's presentation. Thank you. Terje Pilskog: Thank you very much.
Operator: Hello. Welcome to the Signify Fourth Quarter and Full Year 2025 Results Conference Call, hosted by As Tempelman, CEO; Zeljko Kosanovic, CFO; and Thelke Gerdes, Head of Investor Relations. [Operator Instructions] I would now like to give the floor to Thelke Gerdes. Ms. Gerdes, please go ahead. Thelke Gerdes: Good morning, everyone, and welcome to Signify's Fourth Quarter and Full Year 2025 Earnings Call. With me today are our CEO, As Tempelman, and our CFO, Zeljko Kosanovic. During this call, As will discuss our full year 2025 results and business highlights. Zeljko will then walk you through the financial performance in more detail. As will then come back to discuss our fiscal year 2026 outlook and closing remarks. After the prepared remarks, we will be happy to take your questions. Our press release and presentation were published at 7:00 this morning on the Investor Relations website. A transcript of this call will be made available shortly after. And with that, I would like to hand over to As. A.C. Tempelman: Thank you, Thelke, and good morning, everyone, and thanks for joining us today. It's actually great to connect with all of you again in second earnings call, my second earnings call at Signify. Now 5 months in the role, I've learned a lot, and I feel that I've got a solid handle on the business, of course, really supported by great collaboration with the management team here at Signify. And I gained much more clarity about the business, the market dynamics we face and also the actions we need to take. And I want to express that I'm confident about the future and the strategy we're putting in place, and I'll come back to that a bit later in the call. But let me first comment on the full year results and the full year performance 2025. We delivered what I qualify as a mixed performance, as we are navigating a very challenging market environment. It's marked by reduced demand, price pressures in select markets, weakness in trade channels, and of course, the ripple effect of trade tariffs. And despite all these headwinds, I mean, if you look through it, our business has shown good resilience. In Professional, we delivered growth in the U.S. in the fourth quarter, while Europe remained under pressure, and that's particularly true in the trade channel. And we see in countries where we have large positions, like Germany, France and the Netherlands, that demand is sluggish. Our Consumer business grew in 2025 with momentum remaining strong across all the regions with the exception of China. We saw continuous growth -- strong growth in connected and specialty lightings, and that now -- that part now represents about 36% of our sales. And this strength of that connected and specialty lighting was really visible across both the Consumer and the Professional businesses. The OEM manufacturing business, on the other hand, has continued to experience reduced demand and persistent price pressures. And I'm pleased that we hold a solid gross margin, above 40%, and that was really supported by discipline on the cost side as well as price management across both the professional and the consumer business. For the full year, we delivered adjusted EBITA margin of 8.9% and strong free cash flow of 7.6% of sales. And this strong free cash flow is really driven by working capital discipline, and that really underscores our resilience when it comes to cash generation. Now, diving a bit into the respective businesses. Let me start with the Professional business. Comparable sales decreased by 1.4% as growth in the U.S. was offset by the weakness in Europe. And then, like I mentioned, particularly in the trade channel. The adjusted EBITA margin was decreased by 40 bps to 8.9%, mainly reflecting price and volume pressure in the European business. Our teams did a great job at mitigating the direct effects of tariffs, which resulted into a kind of neutral impact on sales and profitability. And that's something we should be really proud of. That was achieved through effective supply chain and price management. And the -- while the direct effect of tariffs was contained, of course, we clearly felt the ripple effect in other parts of the world, particularly through production overcapacities in China and the resulting price pressure in parts of our business. Now moving on to Consumer. Comparable sales increased by 1.4%, and this was driven by strong connected sales throughout the year. The adjusted margin decreased by 50 bps to 10.6%, mainly due to higher commercial investments, which we will discuss in more detail later on. Moving to the OEM business. Comparable sales were down 16.5%, and we mentioned that before as a result of weak demand and intense price pressure and that we also there felt the structural overcapacity in the market. Throughout the year, the business was also impacted by lower orders, and we mentioned that before of 2 specific major customers of the OEM business. Adjusted EBITA decreased to 4.8%, reflecting the impact of lower volumes and continued gross margin pressure. And then finally, wrapping up with the Conventional business. Comparable sales decreased by 23.1%, reflecting the structural decline of this business, and the adjusted EBITA margin decreased with 180 bps to 16.1%. So all in all, a mixed results, difficult quarter, but where we showed strong cash generation and good resilience. Now, let me move to showing you a few of the examples of what is -- how actually our business then works out in real life. With the professional business in Europe, while that business remained under pressure, our Connected business in the region continued to grow. And we had a recent project we completed in Madrid. And that this is a great example of this momentum, showcasing how connected outdoor lighting can completely transform what is a truly iconic landmark. And we carried out a full architectural lighting renewal of Teatro Real, some of you might know it, reworking both the exterior as well as the ornamental lighting. And the goal was to enhance the theater's presence in the city at night while fully respecting and preserving, of course, its nice historic character. And beyond aesthetics, the impact on energy efficiency is significant. We achieved over 40% savings, and that is kind of equaling 2 tons of CO2 avoided every year. And this installation is fully connected through our Interact platform, and this allowed cloud-based control, monitoring, and enables dynamic lighting scenes that can be adapted to different cultural events. So really great project that supports Teatro Real's net zero ambitions while combining sustainability, digital innovation and a richer visitor experience. So really cool example. And then on the Consumer side, I wanted to highlight a -- the Hue business. We'll focus on Philips Hue on this slide. Following a very successful new product launches in September, we delivered a very strong commercial execution in the fourth quarter, building on the momentum we have seen throughout the year, great momentum on Hue. During Black Friday and Cyber Monday, we exceeded expectations in both North America and Europe. And that also underscores the strength of the brand and our execution during these key commercial moments. And given our focused investments in Hue's social media presence, we saw a significant brand -- increase in the brand engagement in the fourth quarter as well with the social views -- media views rising more than 100-fold on a year-on-year basis. So we're really stepping up online. And we further invested in the Hue app. As a result, in-app sales also grew by more than 50%, reinforcing the strength of that connected system, and it also is a clear signal of its long-term value potential. And then finally, on Hue, we launched the Hue Essential range. That was a key step in making Hue more accessible to new customers by offering them a lower price entry point into the ecosystem. And this also successfully drove new customer acquisition. So once customers enter the Hue ecosystem, they typically continue to add products. So it's a real strong platform play. Moving on to our Brighter Lives and Better World program. That is now completed. The program ran until the end of '25, and we will be introducing an updated sustainability program later in this quarter. And that is really designed to further align our sustainability ambitions with our strategic business objectives and long-term value creation. So actually good for sustainability and good for business. In the final quarter of the 2025 program, we delivered following results. First, on the climate actions. We surpassed our targets, reducing greenhouse gas emissions across the entire value chain with 40% versus the 2019 baseline. And this is all SBTi-driven targets. Minus 40% was actually a target that was set by the Paris Agreement by 2031. So we got there much, much faster, and it's something we are very proud of. Secondly, on circularity, circular revenues reached 37% of sales, well ahead of the target of 32%. And then thirdly, we have our Brighter Lives revenue, so that relates to portfolio -- our product portfolio that benefits beyond lighting society. And you have to think about food availability, safety, security, health and well-being. And the Brighter Lives revenues reached 34% of sales, again, exceeding our targets. We have one red on the slide that is on diversity and inclusion. The percentage of women in leadership stood at 27%, which means we did not meet the target of 34%. And this is an area where we have -- progress has been slower. I want to highlight that we remain fully committed to improving the representation through focused diversity hiring, retention, but also attrition. We try to reduce attrition on the diversity side. With that, let me hand it to Zeljko. Zeljko Kosanovic: Thank you, As, and good morning, everyone. Let me begin with an overview of our fourth quarter performance on Slide 10. Starting with our Connected installed base. This continues to grow strongly, reaching 167 million connected light points at year-end. Turning to sales. Nominal sales declined by 9.9% to EUR 1.49 billion, mainly due to a negative currency impact of 4.7%, largely driven by the weaker U.S. dollar. On a comparable basis, sales declined by 5.2%, reflecting continued weakness in OEM, Professional Europe and the China Consumer business, and this was partially offset by ongoing growth in the other markets such as the U.S. and India. Excluding the Conventional business, the comparable sales decline was 4.2%. The gross margin was impacted by temporarily higher manufacturing costs in Conventional and OEM, while indirect costs increased as a percentage of sales due to lower volumes. On profitability, the adjusted EBITA margin declined to 10%. This was mainly driven by a lower contribution from the Consumer business as well as OEM and Conventional businesses as well as lower results in other. Overall, the dynamics and the drivers of our EBITA margin are well understood. Beyond the structural pressures we are targeting through our cost reduction program, the margin also reflects targeted commercial investments and other short-term factors. Finally, we delivered a strong cash flow generation of EUR 291 million, underscoring the resilience of our cash conversion and the effectiveness of our working capital management actions. Moving now on to the fourth quarter performance of the Professional business on Slide 11. Comparable sales in Q4 declined by 1.9%. This reflects a mixed regional performance as growth in the U.S. was more than offset by weakness in Europe and emerging markets, particularly in the trade channels, where demand remained under pressure. From a margin perspective, we maintained a solid gross margin, as we successfully compensated the effect of price erosion and tariffs with price increases and a bill of material savings. The adjusted EBITA margin declined by 40 basis points to 10.4%, mainly due to lower fixed cost absorption. Moving on to the Consumer business on Slide 12. Comparable sales declined by 2.7%, driven primarily by a significant weaker performance in China, where the consumer environment remains subdued and also Klite, our export business. At the same time, our connected home portfolio delivered a strong finish to the year. The adjusted EBITA margin declined by 330 basis points to 14.1% against a high base of 17.4% last year. This development reflects the higher investments and commercial activation behind our connected home products during the peak events. While these targeted actions temporarily weigh on the margin, they helped us drive momentum in a strategic growth category and are expected to support long-term customer acquisition. Importantly, the connected portfolio remained margin accretive to both the Consumer business and Signify overall in Q4 and also for the full year. Moving on now to the OEM performance on Slide 13. Comparable sales declined by 19.2%, reflecting very challenging market conditions in the Component business. Demand remained weak, and the business continued to face intense price competition. As a result, the decline in the adjusted EBITA margin to 1.5% primarily reflects a gross margin reduction caused by lower volumes and ongoing price pressure. The impact of lower orders from 2 customers was no longer material in Q4 compared to prior quarters and will roll off going forward. However, the market remains very challenging due to low demand and oversupplies, leading to price pressure in the market. And finally, the Conventional business on Slide 15 (sic) [ Slide 14 ]. Comparable sales declined by 19.6%, reflecting the continued structural decline of the Conventional business. Profitability was impacted by 2 transitory effects rather than a change in the underlying economics of the business. The first is the impact of the site rationalization and site transition, which temporarily increased costs and disrupted production efficiency. This effect is expected to normalize in the second half of 2026. The second effect is a short-term lag in the price realization following the implementation of tariffs, meaning cost increase were not yet fully passed through to customers. Moving on now to our adjusted EBITA bridge for the fourth quarter on Slide 15. Our adjusted EBITA margin decreased by 240 basis points from 12.4% to 10% in quarter 4. The volume decline impacted the adjusted EBITA margin by a negative 100 basis points. Price and mix had a combined effect of minus 200 basis points. Within this, the effect of price erosion has remained stable or slightly improving. As mentioned, we see higher effects of price erosion in some parts of the business, such as OEM and Professional Europe, but on the other hand, positive pricing in the U.S. Mix was a positive contributor, mainly to higher -- mainly due to higher connected sales. Cost of goods sold had an overall negative contribution of 50 basis points this quarter, driven by 3 main factors. First, we continue to deliver bill of material savings across all businesses. Second, the manufacturing productivity was impacted in OEM by the significant volume decline and in Conventional by temporarily higher manufacturing costs related to the site rationalization. And finally, COGS will also include the effect of incremental tariffs, which were mitigated through pricing action, and therefore, neutral at the gross margin level. Indirect costs improved by 40 basis points on adjusted EBITA margin level. Currency had a positive effect of 40 basis points. And finally, other had a small negative effect of 10 basis points. Turning to the working capital bridge on Slide 16. Compared to the end of 2024, our working capital decreased by EUR 93 million or by 120 basis points from 6.9% to 5.7% of sales. Within working capital, we saw the following developments: inventory decreased by EUR 106 million, receivable reduced by EUR 170 million, payables were EUR 225 million lower. Finally, other working capital items reduced by EUR 42 million. Thanks to disciplined execution, we brought working capital back into the mid-single-digit range by year-end, a solid improvement that contributed to our strong cash flow generation. I would like to share now an update on our capital allocation plans. First of all, the priorities within our capital allocation policy remain unchanged. We aim to maintain a robust capital structure and maintain an investment-grade credit rating to pay an increasing annual cash dividend per share year-on-year to continue to invest in organic and inorganic growth opportunities in line with our strategic priorities, and finally, to provide additional capital return to shareholders with residual available cash. In 2025, we paid a dividend of EUR 1.56 per share, representing a total cash dividend of EUR 195 million and a payout of 52% of continuing net income. We also repurchased shares for a total consideration of EUR 150 million and canceled 5.8 million shares. In 2026, we are proposing a dividend of EUR 1.57 per share, representing a total cash dividend of EUR 188 million and a payout of 61% of continuing net income. While our policy continues to include returning excess capital to shareholders, we will pause share buybacks for capital reduction purposes. This allows us to prioritize a robust capital structure while our portfolio and strategy review is underway. Once the review is complete, we will reassess the pace and scope of further capital returns under our existing framework. We aim to provide an update at the Capital Markets Day in June 2026. And with that, I will now hand back to As. A.C. Tempelman: Thank you, Zeljko. You covered a lot. You mentioned the strategy review. So let me update you a bit about the priorities as I see and what we have been doing in that space. There's 2 things really important -- I mean, on the strategy. Firstly is to outperform in what is a very tough market. That's kind of the near-term part of the strategy. And then, the second priority is to define a clear path to durable growth, and that includes a portfolio review. So let me comment on both. Starting with the first priority, outperforming in a tough market. We are now taking very concrete actions. We are stepping up operational excellence across sales, marketing, supply chain and IT with a clear focus on managing price pressure, improving efficiency and also strengthening the company consistently in its performance. So it's really a performance step-up. On the supply chain side, we already brought the inventory down, but there's more to go after. We want to lower transportation costs and also deliver our performance to customers with reliability. But in addition to these 3 items around focused marketing and sales investment, supply chain and IT, also, it is absolutely crucial that we keep our cost discipline and our cost base competitive. And therefore, we announced this morning a EUR 180 million cost reduction program. And the majority of the savings will be delivered throughout 2026 with the full benefit realized in '27. So we have to make sure we get to the right cost run rate in the fourth quarter. Now, let me briefly explain the aim of this program. First, of course, like I said, we need to ensure we maintain a competitive cost base and achieve that cost leadership while we rescale our cost structure to match today's sales levels. And we will fully leverage the operating model that we introduced 2 years ago by driving productivity and simplification across our business. So we stay with that operating model. It was the right thing to do, my predecessors put it in place. It was the right thing to do, much more customer-oriented, and we can now deliver the efficiencies and the productivity improvements within that operating model. So we are building on the strong cost discipline already present in the company, while we deliver the cost saving and increase our competitiveness. The program will unfortunately impact 900 roles worldwide. And of course, this is very painful when it affects people, and we need to manage that very carefully and with full respect for our colleagues. The second priority, I mentioned, is defining a clear path to durable growth. We are making good progress on the strategy and the portfolio review. And I would like to emphasize that I'm confident about the choices we will be making to focus the company and to grow value in the future. We are really -- we'll provide clarity at the Capital Markets Day in June about where do we want to invest and grow and what are the parts of the business that we see more for harvesting or divestment. This will be completed in the coming month. And like I said, 23rd of June Capital Markets Day is planned. On that day, we also intend to provide a clear update on our capital allocation strategy, linking our portfolios directly to value creation. So that's on the strategy. Now finally, I would like to discuss the elements of our guidance for 2026, and that is here on the slide now. You might have read that we are not providing guidance on comparable sales growth, and let me explain why we don't do that. We had a really good look, and we continue to see a huge divergence in dynamics across our markets globally and actually across the different parts of our portfolio. And combined with this is, of course, the ongoing uncertainty in the macro environment. And in this context, providing a very wide guidance range would, in our view, not be meaningful. So we thought we better than -- not provide guidance. That said, of course, I can comment on what our expectations are. We expect continued resilience in the U.S. We expect our OEM and professional business to remain challenging, so more of the same. At the same time, our Consumer business is expected to maintain its momentum, supported by the strength of our connected portfolio. Regarding the profitability, we expect an adjusted EBITA margin in the range of 7.5% to 8.5%. We are anticipating a soft start of the year and near-term view with headwinds that we experienced in Q4 to persist in the first half of this year. And of course, this will continue to weigh on the margins in the first half and the challenges we have then on the cost under absorption. For the second half of the year and onwards, the actions we are taking on costs are expected to start providing upsides. And finally, the free cash flow generation is expected in the range of 6.5% to 7.5%, so supported by that strong cash conversion that we have and the continued capital discipline. So with this, I would like to hand it back to the operator and start the Q&A session. Operator: [Operator Instructions] The first question comes from Goldman Sachs. Daniela Costa: Daniela from Goldman Sachs. I just wanted to ask how have the market shares by division trended recently? Yes. A.C. Tempelman: Thank you for the question. Market share is always a bit lagging because you asked about it recently. So typically, we have actuals for the quarter. The market data follows the quarter. So there's a bit of a lag effect. What we mentioned on the -- before on the results in Europe, the market has been a bit sluggish. But a lot of the revenue decline also is driven by lower prices. So when it comes to volumes, we feel that we are keeping or maybe even growing market share in many of the segments when it comes to projects. And then probably where there is the trade channel is where we see the steeper decline, and we probably lose some market share there. In the U.S., it's pretty stable. Yes, I think it will be the short answer what we know now. That said, I mean, maybe just to highlight on the Consumer and the Connected side, I think that's where we are actually -- we spoke about the momentum, and the comments I just shared were more on the Professional business. On the Consumer, we are building momentum. And in the Connected space, we're clearly gaining market share. So that's positive. Operator: The next question comes from Max Yates from Morgan Stanley. Max Yates: I maybe had just sort of 3 quick questions. Just firstly, on the Chinese competition, could you maybe give us a feel for kind of what kind of pricing you're seeing from those Chinese competitors? And I don't know whether you have any kind of good feel on the level of imports that are coming into Europe now as a result of obviously tariffs in the U.S. So maybe any feel of, yes, how the level of pricing is versus those competitors and the level of imports, if you have any kind of knowledge of that? A.C. Tempelman: Yes. Let me say a few things, and maybe, Zeljko, you can add to it. I mean, there's China in China and then there's China for the world. So within China, I think we saw growth in our professional business, where I think we have really outperformed market. So that's positive. On the consumer market in China, we saw quite a steep decline in the fourth quarter. And you see that the consumer demand in China is very dependent also on the subsidies provided. So absent subsidy, we saw quite a bit of decline. That weakness is not just in lighting, that is beyond in the broader consumer space. When it comes to exports, basically, the dynamic in China is such that there's overcapacity in the market. And of course, a lot of the LED is produced in China. Also to deal with some of the challenges around tariffs, we see Chinese suppliers building additional capacity in the East, but outside of China. So, therefore, the overcapacity is only increasing. And that, of course, results into price pressure. We see that in ASEAN. We also see that in Europe, particularly in the trade channels, the more commoditized part of the portfolio. On the positive side, on the Prof side and the project side and the connected lighting, that is a lot less impactful. And there, of course, we also retain our strong margins. Quarter-to-quarter, we don't see it worsening a lot. So it's pretty stable now. Has it bottomed out? Well, too early to tell, I guess, but we don't see a rapid further decline in that sense. Zeljko, is that -- do you want to add anything to that? Zeljko Kosanovic: No. I was going to confirm, indeed, if you look at the sequential, the drivers of price pressure that were there, especially in the non-connected and in the over-the-counter parts of our business, have been amplified indeed by the ripple effect of the tariffs. Having said that, the price pressure remains very, very strong in OEM, in Professional Europe. But at the same time, we've seen a positive dynamic in price in U.S. and also in the Conventional businesses. So I think overall, from a gross margin management perspective, that's very important because we do manage as a whole, and we've been able to extract and continue to extract strong bit of material savings to match the reality of those price pressures. Max Yates: Okay. And maybe just the second question, as maybe just on sort of the strategy, I know you're going through the strategy update. But obviously, the results show kind of quite a sort of difficult environment. So I guess some of the shareholders will be very keen to understand any initial takes. I hear you talk kind of quite a lot about getting growth back in the business. Any initial views on kind of how you do that? Will that require investment? Is that new product momentum? I realize we'll get a kind of full picture later this year, but maybe just any initial takes on sort of what direction you may take? And how you plan to sort of tackle the growth challenges, which the business is having? A.C. Tempelman: Yes. No -- I mean, like I said, I feel increasingly confident that we'll make the right choices and focus the company. And of course, focusing on where the growth is. So that is with -- we are really going quite granular on how do we expose our portfolio to growth and how do we then challenge our marketing and sales investments to those areas where we do see the growth. And so we look at where we can win in terms of geographies, in terms of value chain, but within the Prof and Consumer business also very much at the segment level and product market's combinations where we see the growth. So that's what we're currently working towards. And that will then ultimately result into, hey, these are the areas where we want to focus less. This is where we want to focus more. This is where we want to invest and grow, and this is what we want to harvest or consider for divestments. And I'm confident that in June, we can give you that full picture of what that results into. And I'm quite excited about the plan that we are piecing together. Max Yates: Okay. And maybe just the final one, and it kind of comes back to that growth. Obviously, you didn't do another share repurchase while you're doing the strategy review, but you did keep the dividend at last year's level. And obviously, that's quite a high level relative to your cash conversion. Do you think that's appropriate? And is that sort of consistent with what you need to do in terms of getting kind of growth back into the business and the investments that you'll have to make? Zeljko Kosanovic: Maybe just -- thank you for your question. I think first, what's important to -- that our capital allocation policy remains unchanged, and it's all about balancing growth, shareholder returns and financial strength. So maintaining a robust capital structure, of course, is very important. Now, while the returning excess capital remains part, and that's still a part of our capital allocation framework, we will pause beyond the first tranche that we have successfully implemented in 2025. And this is really to allow to sustain and maintain financial strength, balance sheet strength while keeping the flexibility. So it's really keeping the strategic flexibility as we are going through the strategic review and portfolio review that As was commenting upon. So we will reassess the timing, and that's one of the key elements, of course, that we will give full clarity upon during our Capital Markets Day in June. Operator: The next question comes from Sven Weier from UBS. Sven Weier: The first one is on the cost saving program. A few follow-ups there. I was just wondering because you said you have to unfortunately lay off 900 employees. But in total, you're seeing EUR 180 million of cost savings. So that sounds quite high relative to the number of headcount. So I was just wondering what else is in the cost savings here? And you just had a EUR 200 million program 2 years ago. So I was also wondering, you're now cutting quite a lot here again. Does that not automatically enforce also getting out of certain businesses because your basis becomes quite a bit lower? That's the first one. Zeljko Kosanovic: Yes. Thank you, Sven. Thanks for your question. So just as a clarification, I think, as you rightly pointed, we did go through a substantial cost resizing program a few years ago, but this is different. And the main important difference is that we are implementing that, as mentioned earlier, leveraging and fully leveraging our operating model. So the cost reduction program has different elements, and this is really going into all the layers of -- in particular, of our SG&A, R&D and on a business per business level. So there's a lot of granularity in the way we drive that. Of course, a big portion of that is relating to headcount, but not only. So there are different levels of optimization that we are also implementing, which are behind, and that is being, of course, underpinned at a very, very detailed level. So I can't give you the -- all the detailed breakdown of that. But to your point, I think there are different elements, including headcount resources redeployment, but also many other efficiency measures that we are implementing. A.C. Tempelman: Yes. And Sven, to add to what Zeljko is saying is that I see cost discipline and cost management in our industry as absolute critical to stay competitive. And therefore, it should be a continuous effort, right? And it's business as usual to drive productivity up, right? And of course, also with automation and applications of AI, I think in the future, we can continue doing that. This is, however, a reset that is now required with the new operating model in place. We can make this step change without harming the business. And then, from there on, it should be much more of a continuous effort. Sven Weier: And does that already preclude kind of what you do in June? Or could there be another round of major cost savings announced then after June? A.C. Tempelman: Sven, the current program is -- as a basis of the current program is the current portfolio. So of course, if we take decisive action on the portfolio, we will then again assess what is the appropriate cost base. Sven Weier: And then maybe finally, I just wonder, because if I take the guidance and you don't give a top line guidance, obviously, but let's, for the sake of the calculation, assume flat revenues and you take the midpoint of the margin target, that kind of implies already mid-double-digit EBIT decline. But on the other hand, you say the majority of the cost savings are going to be in 2026 already. So -- I mean, what's really happening on underlying business then because that sounds quite extreme in terms of what you're losing in terms of earnings? Are you assuming such steep revenue declines, price pressure or -- because as you can see that when you do the bridge, it sounds pretty drastical? Zeljko Kosanovic: So maybe, Sven, to give a bit of perspective on what's behind the guidance more as a dynamic of the main building bricks in our profitability, I think first, and that's important, as we've been able to sustain in 2025, gross margin resilience and robustness. So this is still something that we are driving and aiming to continue to drive, which is built in. Now, what we see in terms of the dynamic is we do anticipate a soft start of the year from a top line perspective with the headwinds that we've commented upon and that we experienced in Q4 that are expected to persist into the first half, and that will continue to weigh on margins in H1 just due to the fixed cost under absorption. Now, at the same time, as we are implementing and putting in place and putting in motion, now in execution, the cost resizing actions that will take -- which benefits will be more captured in the second half of the year. That will help to, of course, rebuild the strength of the bottom part of the P&L, and that's what is behind, let's say, included in the guidance or in the expectation on the EBITA margin. And as mentioned earlier, this is in the context of very diverse dynamics in the different businesses from the top line perspective. So these are the elements that we are -- that are to be understood in the evolution of our operating margin throughout 2026. Sven Weier: Are you assuming, again, 2/3 of the savings this year like in the last program? Zeljko Kosanovic: It's more back-end loaded. I think here, the aim is -- and of course, different impacts in different geographies and different businesses depending on the phasing. So it's mostly going to be as back-end loaded, a little bit different, as I said, from the previous program because the previous program was doing an organizational change at the same time as implementing cost resizing. Here, it's really the implementation within and leveraging the same operating model. So there's a different pace of capture in the different businesses. Obviously, in businesses like OEM, where we are facing, I think, action, have already been put in motion. So there, we expect to have much faster implication and much faster capture. So it's going to be a diverse pace of realization of the savings across the different businesses. But mostly in general and overall for Signify, mostly back-end loaded towards the fourth quarter of the year. The key thing, that's what As mentioned, we want to reset and resize to the reality of our revenue to make sure that we enter -- end '26 and entering into 2027 back to the right level of competitiveness of our cost base. A.C. Tempelman: Yes. Thank you, Zeljko. And we know -- yes, I was very impressed actually with the ability of Signify to pull off such a program at the -- in a very short window. So I think very impressive. We know how to do this. That said, I mean, about 25% of the savings will be in countries where there is a consultation process. So of course, with all the respect for the people and the colleagues, we will carefully also work this in consultation with our staff councils, and that takes a bit of time. Operator: The next question comes from Akash Gupta from JPMorgan. Jeremy Caspar: It's Jeremy asking on Akash's behalf. I just have one quick follow-up on the Asian competition topic. Maybe could you elaborate a bit? I'm wondering, are we talking about 1 or 2 competitors here that are showing aggressive pricing? Or are there more than a couple? And also just wondering how do those players compare to Signify in terms of size in their comparable businesses? Zeljko Kosanovic: Maybe -- yes, thank you for your question. I think what's important to remind is that if you look at the -- let's say, the non-connected landscape of our business, if you only look at the number, and this is public information, but always important element to have in mind, is we have over 15,000 registered LED companies in China. So it's very, very scattered. So you have a lot of intensity, which is very fragmented. And the level of fragmentation is particularly high in Europe, in particular in the Professional business. So in short, the price intensity that we see is, of course, across a very, very wide and fragmented landscape. Now, having said that, as soon as we move more into the Connected space, which is much more concentrated, then we have a totally different landscape of price competition dynamics. So this is -- but this is a reality that has been there, by the way, for several years that continues to be the case and which has been amplified, as mentioned earlier, with the ripple effect of the tariffs. A.C. Tempelman: Yes. And to your question, Jeremy, is it 1 or 2? It's multiple. I mean, you see a lot of these Chinese manufacturers that sit on an overcapacity of 30% to 50% of underutilization of their plants. So of course, that translates itself into lower prices. We benefit from that on our sourcing side. So that's the upside of it. But of course, on the lower end in the trade channels, you see these Chinese products under different brands coming to the market. Operator: The next question comes from Martin Wilkie from Citi. Martin Wilkie: It's Martin from Citi. Just a question in terms of what we can expect at the Capital Markets Day in terms of timing of any actions you might take? I mean, I guess you've obviously included disposals as one potential action at the CMD. But we know in the past, some of these assets are not necessarily having huge numbers of potential buyers. I don't want to obviously preempt what you might say, but if we think of the Conventional business, it's probably not obvious that there are lots and lots of buyers for that. Will your review include sort of how quickly you could take these actions? And so can we see that sort of level of detail at CMD? Or just to understand how quickly whatever you might announce in June then be implemented, just to understand sort of how quickly the portfolio might change? A.C. Tempelman: Yes. Good question. Well, we won't be sitting still until Capital Markets Day, so where we believe we have good actions to take, we will, of course, already start that. And the doability of our choices is an integrated part of the choice itself, right? So it's not that we are dreaming on all sorts of desired states not executable. So it's really -- that plan should be really anchored into realism. And we are actively engaging also, hey, if there's value and if it comes to harvesting or divestment, is that value best delivered within Signify or by others or with others. So that's all in scope of what we look at. So the short answer is, no, that is already kind of in motion, and we will update you in June about where we stand. I don't see June necessarily as a starting point. And so we are taking a decisive action and try to move quite swiftly. Martin Wilkie: That's great. And if I could just have an unrelated question just on how we think about the profit for next year. Am I right in thinking that the EUR 180 million all falls within the OpEx line? And so any savings that you have in COGS to offset price and these kind of things to protect gross margin is distinct from that, and therefore, this EUR 180 million is all inside OpEx? Zeljko Kosanovic: Yes, you're right, Martin. I think the cost is mostly our nonmanufacturing cost base optimization for all the other cost of goods sold, as we've mentioned, and we'll continue to do that. I think there, we are driving and exercising cost leadership and leveraging scale, of course, to the largest extent we can, but the cost reduction program that has been mentioned of EUR 180 million is non-manufacturing cost related. Operator: The next question comes from Chase Coughlan from Van Lanschot Kempen. Chase Coughlan: I just have 2. Maybe starting off with the U.S. market. I think you flagged that it's, of course, still growing in the fourth quarter. You said that 2026 expectations are for a resilient market in the U.S. I think it's a little bit, let's say, against the grain as to what I've heard elsewhere in the market from building materials or construction players. And I'm just curious on what's giving you that confidence in a resilient U.S. market for '26. A.C. Tempelman: Okay. While we see the U.S., we expect flat to moderate growth, Chase, and the expected increase in the bit of public spending also is supported by the recent bills. The residential market, I expect will remain soft. So I think when you say, I see more bearish fuse, then it's probably more related to the resi construction. Yes. We -- yes, so kind of flattish markets, low-digit growth potentially. On the consumer side, however, there, we are more optimistic, and we think we can keep the momentum and keep growing the business, particularly on the Connected side. Chase Coughlan: Okay. Great. That's very helpful. And then, my second question on China, so you've flagged that, of course, you're seeing some inflows there for several macroeconomic reasons and particularly in the commoditized sort of range that you offer. I'm just curious on, especially given the 5-year plan in China now, it seems that they're focusing a bit more on connected lighting systems as well being manufactured domestically. Do you see, let's say, a midterm risk that over time, yes, maybe the Chinese products in flowing into Europe are not just limited to this commoditized range? Or how might you protect against that? A.C. Tempelman: Well, what I can say is what we've seen so far. And there, I think we feel quite confident that we have a very strong competitive edge in that connected market, and we see no signals of that changing. I mean, we'll see how the market responds to offerings by others. But so far, I have no reason to believe that, that is where the Chinese commoditization will go. It's very much focused on manufacturing excellence on the hardware side. Yes. Operator: The following question comes from Marc Hesselink from ING. Marc Hesselink: Yes. First question is on your free cash flow guidance. If you look at the -- let's call it, the drop in the adjusted EBITA margin and then compare it to the free cash flow drop as a percentage of revenue, it is a bit better. I think you also started -- ended the year with very good working capital, good free flow of that. Do you expect more of those working capital improvements to support the free cash flow a bit? Zeljko Kosanovic: Marc, yes, the short answer is yes, definitely. As we've indicated in previous communication, I think working capital improvement in particular through inventory optimization, and that goes hand-in-hand with the supply chain excellence focus that As was commenting upon, is an important driver to our structural cash generation improvement. So that's an element that indeed is taken into account on driving the continued dynamic of strong cash generation in '26. Marc Hesselink: Okay. Second question is on your Conventional business. I think historically, you had -- did a very good job managing down that Conventional business and also protecting the margin in that process with the footprint rationalization. And now, you see actually quite a big hit on your margin. Did those dynamics that you can run down that business, did that materially change that it now is different? Zeljko Kosanovic: So actually, there are 2 elements. And so the answer is no. I think we do have -- and that's what we expect to normalize back to the entitlement of the teens' level of operating margin for that business in the context of continued decline. Two transitory elements that indeed weigh in the EBITA margin over the last 2 quarters, one, which is related to manufacturing process transition because as we are scaling down and adapting proactively that business, where we do a lot of site transition and manufacturing process in that context, can be impacted. So this is what we've seen a temporary increase of our manufacturing costs in the transition, and this is something we do expect to normalize by end of Q2, so into H2 back to normal. And then the second one, which was a little bit more specific to Q4, where we had the delayed effect of tariff cost increase, which are being mitigated through price. So the price-through had a bit of a lag effect compared to the cost impact in Q4, which will be normalized already in the first quarter. So 2 transitory elements that are impacting in what you see, but no change vis-a-vis our ability to bring the profitability again to the levels of entitlement of teens profitability that we had indicated earlier. So it's a transitory impact of a few quarters. Marc Hesselink: Okay. That's clear. And another bit smaller question is on the other division. You mentioned that you had less revenue from your ventures business. But then, it's quite a big hit on your profitability, almost EUR 10 million difference. I mean, that seems a bit big for a ventures business. But can you explain the dynamic? And if that's true, what does that mean for the coming quarters? Is this something where you will have quite significant higher cost than what you had in the previous quarters of '25? Zeljko Kosanovic: Yes. So look, first of all, and as the scope of what is reported in the other, so you have indeed the profitability of our central ventures. So you do have also other global costs, right, which are reported there. So I think the main impact, indeed, as you highlighted, is the effect of indeed a much lower sales volume in the ventures, and that impacted directly to the bottom line, which is -- one of them is also exposed to the dynamics of the consumer market in China, in particular, so this one. And it's good to remind that we had actually a comparison base that was very high in Q4 last year because this was a business that really had a very strong growth and strong dynamics. So we have a bit of a double whammy kind of comparison base effect. So it's transitory by nature, and this is the nature of those venture businesses, which are reported under other. But the other segment is not only venture P&L, just as a reminder. It includes also other global costs. Marc Hesselink: Okay. So what would then be like a normal level that you would have without these temporary effects? Zeljko Kosanovic: Yes. Look, I cannot disclose a specific guidance on the other. But I think what we've seen in Q4, I think we expect in the coming quarter to go back to kind of normalized level that we saw in the previous quarter. So there's a bit of volatility in the venture business. So I can't give you a precise guidance on that, but we do not expect coming quarters to be as low as what we saw in Q4 in terms of revenue for the ventures. Operator: The next question comes from Adam Parr from Rothschild & Co Redburn. Adam Parr: Just a question on CapEx, please. Could you just share a little bit more detail? It appears to have jumped to 2.7% in the fourth quarter versus the 2022 to 2024 range of about 1.7% of sales. Just wanted to ask what's been driving this increase? And what do you see as a sort of more normal level in 2026 and 2027? Zeljko Kosanovic: Yes. Look, in the CapEx line, so you have different elements. So the -- if you compare on the quarter-to-quarter or year-on-year, quarter-on-quarter basis, I think you may have a different dynamic. So typically you have 3 things. You have the tangible CapEx, which is, in general, quite stable. So no real volatility there. Then, we also had the effect of real estate transactions, so that impacted differently this year compared to the previous year. And then, we have also intangible CapEx, which are more related to product development to IT project capitalization. So different dynamics. But overall, I would say, as a percentage of sales, I think we should not expect any significant change of the level. I think our business has a very low CapEx intensity in general, and that will remain so. So a bit more volatility when you compare it on the quarter versus quarter because of those 3 buckets or 3 building bricks that have different dynamics. Adam Parr: Okay. Maybe I could just follow up. And when you say capitalizing sort of cost of product development, can we assume that's mostly connected there? Zeljko Kosanovic: It is indeed. Operator: The last question comes from Wim Gille from ABN AMRO-ODDO BHF. Wim Gille: I hope you can hear me. First question is on the, let's say, comments that you made around the consumer business. When you were looking into 2026, you mentioned you expect to keep momentum in Consumer. However, if I look at the comparable sales growth for the fourth quarter, it was actually quite weak. So what did you actually mean with that comment? So should we look at the comparable sales growth in Consumer for the full year? Or what exactly did you imply with keeping the momentum in the consumer space? And in relation to that, you mentioned specifically that the consumers in China have been weak. But if I read any other consumer company, the consumers in China have been absent since COVID. So they haven't done anything in the last couple of years. So do you actually see a material change here? And is that market-driven? Or is it more market share related, where you basically lose out against very desperate local producers there? And my follow-up question would be a much more optimistic one, and it's around the growth verticals. If I hear you correct, connected lighting in growth vertical actually stands at around 36% of group sales for the year. That's up materially from 33% last year. So is my math correct that the growth verticals, including connected lighting actually grew in 2025 in the low to mid-single-digit range? A.C. Tempelman: Thanks, Wim. And let me give it a go and maybe Zeljko wants to add. But indeed, for the consumer, I think if you have a reference point, the full year would be much more indicative of how we see the consumer business moving forward than the fourth quarter. We have great momentum. I think it's fair to say that we are confident about market, but we're also confident about gaining market share. And that is both on the Connected Hue range, but also on the luminaire side. We expect -- we see some real good growth opportunities, and that offsets a decline on the more commoditized and declining lamps business. So if you add the whole mix of consumer, we feel we can keep that growth momentum as we've seen for the full year last year, maybe more. On China, that, like I said before, it's -- the demand in China, it has been sluggish, but it's also heavily imported by the support schemes put in place by the government. And you see that once these subsidies do come in that you see demand popping up quite quickly as well. So it's a bit volatile and unpredictable. So we'll need to see how that plays out. But indeed, a decline -- sharp decline we've seen in China consumer markets in Q4. We think that, that will continue to be challenging at least in the first quarter of this year. On the growth of the verticals, you're quite right. I mean, we are very excited about the growth opportunities there. And we do see that growth that you spotted is indeed happening in '25. So that is -- I don't know what you said, low single digit. I think it's more higher single-digit growth that we see around Professional and Consumer. So we -- like Zeljko indicated, we will continue to invest in it. We also see that clearly as an area for future growth going forward. Wim Gille: And can you split the, let's say, penetration? So it's 36% on group level. Can you give us a broad indication where you are in Prof and where you are in Consumer? A.C. Tempelman: Well, that is the level of granularity that we typically don't provide. What I can say, Wim, is that it is -- in both businesses, it's growing at a similar high rate. Yes. So high single digit, if not double digit in some areas. Operator: Thank you. And with that, I will now hand the call back over to Thelke Gerdes for any closing remarks. Thelke Gerdes: Ladies and gentlemen, thank you very much for joining our earnings call today. If you have any additional questions, please do not hesitate and reach out to us. Thank you very much, and enjoy the rest of your day.
Kentaro Asakura: Ladies and gentlemen, thank you very much for your patience. Now we would like to start FY 2025 Third Quarter Financial Results Presentation. I am from Corporate Communications. My name is Asakura. I will be facilitating today's session. In this presentation, we are going to use Japanese and English. We have simultaneous interpretation service available. [Operator Instructions] We have uploaded Japanese and English presentation material in IR library on our corporate website. Whenever necessary, please feel free to download the material. Today's presenters are Mr. Ogawa, Senior Executive Officer, CFO; Mr. Abe, Head of R&D Division; and Mr. Ken Keller, Head of Global Oncology Business. Now Ogawa and Abe are going to take you through the financial results for the third quarter FY 2025, and then we are going to open the floor for the Q&A. Today's session will be recorded. I would like to ask for your cooperation. Now Ogawa-san, please. Koji Ogawa: This is Ogawa. Thank you for participating in Daiichi Sankyo's earnings briefing today despite your busy schedule. Now I will explain the consolidated financial results for the third quarter of fiscal year 2025 announced at 15:00 today based on the materials. Please look at Slide 3. The content I will discuss today is as follows. Fiscal year 2025 third quarter consolidated financial results, business update, research and development update. The research and development update will be explained by Abe, Head of R&D Unit. We will take your questions at the end. Please look at Slide 4. These are the highlights of the current earnings. Our flagship products, the anticancer agents, ENHERTU and DATROWAY continued to grow steadily and revenue increased significantly. The cost of sales ratio improved compared to the second quarter and core operating profit increased by 8.8% year-on-year. No additional major temporary expenses were incurred in the third quarter. There are no changes to the fiscal year 2025 consolidated earnings forecast from the October announcement. Please note that as reference information, the latest sales forecast for each product are listed in the supplementary earnings materials. Although there are some movements in individual products, there is no change in total revenue from the October announcement. Please look at Slide 5. This slide shows an overview of the fiscal year 2025 third quarter consolidated financial results. The revenue was JPY 1,533.5 billion, an increase of JPY 165.9 billion or 12.1% year-on-year. Cost of sales increased by JPY 13.8 billion year-on-year. SG&A expenses increased by JPY 93.7 billion, and R&D expenses increased by JPY 38.1 billion. As a result, core operating profit was JPY 249.2 billion, an increase of JPY 20.2 billion or 8.8% year-on-year. Operating profit, including temporary income and expenses, was JPY 233.8 billion, a decrease of JPY 14.5 billion or 5.9% year-on-year and profit attributable to owners of the company was JPY 217.4 billion, an increase of JPY 8.8 billion or 4.2% year-on-year. Regarding actual exchange rates, the dollar was JPY 148.75, yen appreciation of JPY 3.81 compared to the same period last year and the euro was JPY 171.84, yen depreciation of JPY 7.02 compared to the same period last year. Please look at Slide 6. From here, I will explain the factors for increases and decreases compared to the same period last year. Revenue increased by JPY 165.9 billion year-on-year, and I will explain the breakdown by business unit. First, for the Japan business unit and others. Sales of DATROWAY, Belsomra for the treatment of insomnia and Lixiana, direct oral anticoagulant and Tarlige, the pain treatment drug increased. On the other hand, sales of Inavir, influenza treatment drug decreased. And unrealized profit on inventory of Daiichi Sankyo Espha was recorded as realized profit in the previous period, resulting in a revenue increase of JPY 10.7 billion. The actual increase or decrease in the vaccine business, which is affected by seasonal demand after provision for returns was an increase of JPY 300 million. Next, I will explain the overseas business units. Here, the foreign exchange impact is excluded. Oncology business increased by JPY 113.3 billion due to growth in sales of ENHERTU and contribution of at DATROWAY sales. American region decreased by JPY 24.3 billion due to the impact of generic entry for the iron deficiency anemia treatment, Venofer, and the impact of price competition for Injectafer. EU Specialty business increased by JPY 13.6 billion due to growth in sales of Nilemdo/Nustendi for the treatment of hypercholesterolemia. ASCA business, responsible for Asia and Latin America increased by JPY 35 billion as ENHERTU grew mainly in China and Brazil. Contract upfront payments and development sales milestones related to partnerships with AstraZeneca and U.S. Merck in the third quarter resulted in an increase of JPY 20.9 billion. We received development milestone income from AstraZeneca associated with approval for first-line treatment of HER2-positive breast cancer in the U.S. for DESTINY-Breast09 and received a second upfront payment from U.S. Merck for R-DXd, which were recorded as sales revenue. The foreign exchange impact on revenue decrease was JPY 3.3 billion overall. Slide 7 shows the factors for increase and decrease in core operating profit. I will explain the JPY 20.2 billion increase by item. As explained earlier, revenue increased by JPY 165.9 billion, including a foreign exchange impact decrease of JPY 3.3 billion. Next, regarding the cost of sales and expenses. Excluding the foreign exchange impact, Cost of sales increased by JPY 12.4 billion due to increased revenue and the recording of inventory valuation losses for ENHERTU and others in the second quarter. SG&A expenses increased by JPY 100.3 billion, mainly due to an increase in profit sharing with AstraZeneca. R&D expenses increased by JPY 42.6 billion due to increased R&D investment associated with development progress of 5DXd ADCs. The expense decrease due to foreign exchange impact was JPY 9.7 billion in total and the actual increase in core operating profit, excluding the ForEx impact was JPY 13.8 billion. Next, on Slide 8, I will explain the profit attributable to owners of the company. As explained earlier, core operating profit increased by JPY 20.2 billion, including the impact of ForEx. Regarding the temporary revenue and expenses, again, as explained at the second quarter briefing in late October, same period last year included temporary income from the sale of shares in Daiichi Sankyo Espha. However, this year, we don't have such impact. Although there were incomes related to litigation with former shareholders of Ranbaxy, overall income decreased. Furthermore, there was a JPY 34.7 billion negative impact due to CMO compensation fee associated with the change in the launch timing of HER3-DXd as well as write-down of inventories of DATROWAY and HER3-DXd. Financial income and expenses contributed positively to earnings by JPY 9.5 billion, mainly due to improved FX gains and losses. Income taxes and so on decreased by JPY 13.9 billion, reflecting lower pretax income and the lower effective tax rate compared to the same period last year. As a result, profit attributable to owners of the company increased by JPY 8.8 billion year-on-year to JPY 217.4 billion. Next is business update. Please turn to Slide 10. This slide shows the sales performance of ENHERTU. Global product sales for the third quarter of FY 2025 increased by JPY 102.4 billion year-on-year to JPY 506.8 billion. New patient share remains #1 in all major countries and regions for existing indications such as breast cancer, gastric cancer and lung cancer. Regarding the new indications, we've started promotion for first-line treatment of HER2-positive breast cancer in the U.S. last December, driving growth in new patient share. In China, we've initiated promotion for hormone-positive HER2 low or ultra-low chemo-naive breast cancer patients in December, followed by promotion for second-line treatment of HER2-positive gastric cancer in January. The NCCN guideline has seen new additions and updates for multiple cancer types. First, ENHERTU has been newly added as a Category 1 recommendation for adjuvant therapy in HER2-positive breast cancer with high recurrence risk. For HER2-positive metastatic breast cancer, HER2 monotherapy was already recommended as first-line therapy based on data from the DESTINY-Breast03 trial, a second-line trial, which demonstrated extremely high efficacy. Additionally, based on data from the DESTINY-Breast09 trial, combination therapy with pertuzumab has been newly added with a category 2A recommendation. For HER2-positive uterine cancer, in addition to existing recommendations for endometrial cancer, ENHERTU has been newly listed with a Category 2A recommendation for endometrial carcinosarcoma. For HER2-positive esophageal and gastric cancers, the recommendation level has been elevated from Category 2A to category 1. ENHERTU is already listed in the NCCN guidelines for numerous cancer types and is recommended for use. We'll continue to generate data to pursue further new listings and category updates. Next, I will explain the sales status of DATROWAY. Please refer to Slide 11. Global product sales for the third quarter fiscal 2025 reached JPY 31.6 billion, representing 83.8% of the October forecast. In addition to steady market penetration for the breast cancer indication in Japan and in the U.S., the lung cancer indication rapidly gained market traction in the U.S., significantly increasing the number of new patients. Globally, prescriptions were issued to over 3,000 cumulative patients, approximately 1.5x more than the end of the previous quarter. Sales growth significantly exceeded expectations in both the U.S. and Japan with lung cancer indication, particularly driving sales in the U.S. Given these circumstances, we've updated our full year forecast to JPY 47 billion, up by JPY 9.2 billion from the October forecast. For both breast cancer and lung cancer, prescriptions have expanded beyond the projections. This is primarily due to much higher-than-expected unmet needs, especially in the third line and later, leading to prescriptions for more patients than expected. Additionally, awareness among health care professionals regarding AE management such as stomatitis and dry eye, an area where we have focused on since the launch has increased and experience is being accumulated. Furthermore, DATROWAY has seen new additions and updates in the NCCN guidelines. For triple-negative breast cancer, it's been newly added as a Category 2A recommendation for first-line treatment. For EGFR mutated NSCLC, recommended EGFR mutation coverage has been expanded from the existing category to existing, widening the opportunity for DATROWAY to make further contribution. We'll continue to pursue further market penetration in existing sales regions and expand into new countries and regions while advancing efforts to obtain new indications. We are committed to delivering ENHERTU and DATROWAY to as many patients as possible who need these medications. Slide 12 shows an update on Seagen U.S. patent dispute related to our ADC. Last December, the U.S. Court of Appeals for the Federal Circuit issued a ruling reversing the District Court's decision that ordered us to pay damages and royalties to Seagen, finding that Seagen's U.S. patent was invalid. The court issued a ruling affirming the U.S. Patent and Trademark Office decision that Seagen's U.S. patent is invalid, dismissing Seagen's appeal. We highly value this ruling by the court. Slide 13 is information about the briefing session. On April 8, Japan time, we will hold the sixth 5-year business plan briefing. Once details are finalized, we will inform you. From here, this is the R&D update. I will hand it over to Abe, Head of R&D. Yuki Abe: Thank you. This is Abe. I will talk about the R&D update. First, I will explain about 5DXd ADCs. Next slide, please. In December last year, ENHERTU in combination therapy with pertuzumab obtained approval for the first-line treatment of the patients with HER2-positive unresectable or metastatic breast cancer in the U.S. As you know, this indication based on the DB09 study was approved under breakthrough therapy designation, priority review and real-time oncology review program. Regulatory filings have also been accepted in Japan, China and Europe. And through Project Orbis, multiple regulatory authorities are proceeding with reviews. Next, please. I will talk about the final analysis results of the DESTINY-Breast03 study presented at the San Antonio Breast Cancer Symposium in December last year. This is a Phase III study that compared and verified the efficacy and safety of ENHERTU and T-DM1 for second-line treatment of HER2-positive breast cancer. As you can see in ENHERTU group, the median OS was 56.4 months and estimated 5-year survival rate was 48.1%, showing long-term significant efficacy compared to the T-DM1 group's median OS of 42.7 months and estimated 5-year survival rate of 36.9%. In addition, no new safety findings were observed through long-term follow-up. And the incidence rate of ILD adjudicated to be drug related in the ENHERTU group was 17.5% with no Grade 4 or 5 ILD observed. This indication has already been approved and launched in many countries and regions, including Japan, the U.S. and Europe. But these results reconfirmed ENHERTU's consistent sustained efficacy and long-term safety and substantiated its contribution to improving survival. Next, please. This slide summarizes updates toward expanding indications for ENHERTU. ENHERTU is making steady progress in expanding indications in various countries and regions centered around breast cancer. And in December last year, based on the results of DB05 for post neoadjuvant therapy for HER2-positive breast cancer with high recurrence risk, it received breakthrough therapy designation in the U.S. Also in December, based on the results of DB06, approval was obtained in China for the indication of chemotherapy naive hormone receptor positive and HER2 low or HER2 ultra low breast cancer. And this month, based on the results of DG04, approval was obtained in China for the indication of second and later line treatments for HER2-positive gastric cancer. Previously, in China, third-line treatment for HER2-positive gastric cancer had conditional approval. But with this approval, full approval has been obtained for second and later-line treatment. Next, please. This slide shows the progress of each ENHERTU study. Aiming to contribute to more HER2-expressing cancers, we started DESTINY-Lung06 in October last year, targeting first-line treatment of HER2 overexpressing non-squamous NSCLC. And in December last year, we started the randomized phase of DESTINY-Ovarian01 targeting first-line maintenance therapy for HER2-expressing ovarian cancer and DESTINY-Endometrial-02 evaluating adjuvant therapy for HER2-expressing endometrial cancer. Next slide, please. From here, this is the progress of DATROWAY. Data from the TROPION-Breast02 trial targeting TNBC not eligible for PD-1, PD-L1 inhibitor treatment was presented at ESMO in October last year. Based on this data, filings for approval were submitted in Europe and China and were accepted in December last year. Procedures toward filing are also progressing in other countries and regions. For TNBC, as shown in the table on the left, in addition to the TB02, 3 Phase III studies are ongoing in early stage and recurrent metastatic stage. Next, please. This slide introduces new Phase III trial. The TROPION-Lung17 trial compares DATROWAY monotherapy with docetaxel in patients with non-squamous NSCLC in second line or later setting. Building on insights from prior studies such as TROPION-Lung01, we target at patients with TROP-2 NMR biomarker positive. This trial aims to expand the treatment opportunity for DATROWAY monotherapy in NSCLC. Next slide. This slide introduces the latest status of the ongoing DATROWAY trials. The first is the TROPION-Lung07 trial, which targets first-line treatment for non-squamous NSCLC with PD-L1 expression below 50%. This trial had not previously applied the TROP-2 NMR biomarker, but following a protocol amendment, PFS and OS in the TROP-2 NMR-positive population were newly added as primary endpoint. The second is the TROPION-Lung12 study. This is an adjuvant therapy trial for Stage 1 NSCLC with ctDNA positive or high-risk pathological features evaluating combination therapy with rilvegostomig. Regarding this trial, due to complexity of study operation, we've decided to discontinue patient recruitment. No new safety concerns were identified, and there is no impact on other DATROWAY trials. Next slide, please. From here onward, I would like to talk about the progress of next wave. For EZHARMIA, we are preparing a Phase I trial combining darolutamide with EZHARMIA for metastasic CRPC. Regarding DS-9606, a modified PBD ADC targeting Claudin 6, we've decided to discontinue its in-house development following a strategic portfolio review. Meanwhile, DS-3610, a STING agonist ADC introduced at last year's Science and Technology Day commenced its first in-human trial in November last year. This slide shows that EZHARMIA received Prime Minister's award. EZHARMIA was approved in Japan 2022 for the treatment of relapsed/refractory adult T-cell leukemia lymphoma and in 2024 for relapsed or refractory peripheral T-cell lymphoma. Japan was the first in the world to obtain approval. This time, in combination of health care -- in recognition of health care contribution through establishing a new cancer therapy targeting EZH1/2 epigenetic regulation, we've received the Prime Minister's award at the 8th Japan Medical Research and Development Awards following Enhertu's award at the 6th ceremony. We are extremely pleased that the drug independently developed by Daiichi Sankyo is contributing to patients' treatment and that its achievement has been recognized by the society. Finally, news flow from now onward. Regarding upcoming regulatory decisions, we anticipate review results for DESTINY-Breast11 trial from the U.S. FDA in the first half of next fiscal year. As for the upcoming key data readouts, for the DESTINY-Lung04 trial of ENHERTU for the first-line therapy of HER2-mutated NSCLC, data is expected in the first half of next fiscal year. For the TROPION-Lung07 and Lung08 trials of DATROWAY for first line of NSCLC, data is expected in the second half of next fiscal year. Furthermore, AVANZAR trial data is now expected in the second half of calendar year 2026. Additionally, data from TROPION-Lung 15 trial, which targets EGFR mutated NSCLC after osimertinib is still expected in the next fiscal year as previously planned. Slide 29 and onwards are appendix. Please take a look at those slides later. That's all from myself. Operator: [Operator Instructions] The first question is from Yamaguchi-san, Citigroup. The sound is back now to the translation line. Sorry, we missed the question from Yamaguchi-san. Unknown Executive: Well, regarding 9606, we stated that our in-house development will be discontinued. As we proceeded in our development, we had the result. And regarding mPBD itself, its utility was confirmed. Hidemaru Yamaguchi: And then how should we do moving forward? Unknown Executive: We may have an option taking partnership with other companies who may be interested in out-licensing of this asset, but in-house development will be discontinued. Therefore, regarding mPBD technology, its usefulness has been confirmed. Therefore, the subsequent researches are ongoing. Therefore, changing the targets, the clinical programs will continue. That is our policy. Hidemaru Yamaguchi: So I'm sorry. But including the competition, for clothing -- regarding 9606, given the strategic value, you decided not to do it on your own. Is that right? Unknown Executive: In giant cell tumor, we had a positive result. So there is a room of making more development in that area. But given the portfolio perspective, we decided not to continue the in-house development in this field. I see. Hidemaru Yamaguchi: Another question is ENHERTU marketing. First, starting from December, promotion started. And I'm sure if it's already appearing quantitatively in the numbers, but what is your feeling in the market, DB09 marketing promotional activities, how effective the activities are producing the results? Unknown Executive: Thank you for your question. Regarding DB09 current status, Ken Keller is going to give you a comment, please. Joseph Kenneth Keller: Yes. Thank you very much for the question. So DESTINY-Breast09, which is the first-line HER2-positive metastatic breast cancer indication, it's been launched in the U.S. The team is now educating our oncology customers in the U.S. The data, as you know, is really outstanding. It's being received very, very well. I would expect the adoption to be very, very quick. At this point, the oncology community knows ENHERTU very well. They're comfortable with it. And with this data, I think they will embrace it very quickly. Hidemaru Yamaguchi: Do you have some sense of penetration rate as of today or it's too early to say? Joseph Kenneth Keller: It is too early to say what it is. We just launched it really just a little while ago. And so we'll be able to provide you with more information in about a quarter from now. Operator: Next question is from Daiwa Securities, Hashiguchi-san. Kazuaki Hashiguchi: This is Hashiguchi speaking. My first question is related to ENHERTU Japan, your sales situation. So this time, you have made a downward revision of your forecast slightly compared to the original forecast, what's going -- what is going differently? What is the background for you to take your forecast downward? Can you explain about the reason and the background for that? Unknown Executive: Yes, I would like to make one comment first, and then I would like to ask Ken Keller to make some additional comments. In Europe, we are seeing some adjustment. When we look at the quarter-on-quarter situation in Europe, there has been a change to the ERP system. As a result, we had to do some shipment in the second quarter, and that was affecting the quarterly sales. But I would like to ask Ken Keller to comment on the situation in Europe and sales from a full year sales perspective. Joseph Kenneth Keller: Thank you very much. When we look at ENHERTU in Europe, we're in a situation where all of the countries have launched the HER2-positive second-line metastatic breast cancer indication. And the market share, the penetration has already achieved a very, very high level. And so we see continued growth in that setting. But now as we look forward, we're going to see substantial growth in Europe as the different countries obtain access for the HER2-low indication. We've got the HER2-low indication in most countries in Europe, but now we're working through the typical reimbursement approval. As these occur, you'll see an acceleration of growth in Europe. Kazuaki Hashiguchi: For Japan, what's the situation in Japan? Unknown Executive: Yes. Let me respond to that question regarding Japan. Last year, in April, we had seen some impact. NHI drug price revision just before -- just before the start timing in April, we had seen some last minute on demand and that impact still lingered. Overall, ENHERTU future growth trajectory in Japan remains unchanged. Kazuaki Hashiguchi: Next, DATROWAY NSCLC Phase III trial progress, that's what I would like to understand. Avanzar study was changed from the first half to the second half in terms of the timing. And for TL07, your disclosure was always saying that FY 2026, but AstraZeneca is saying first half of the calendar year. And in your fiscal year, latter half, you've made a timing change to the latter half of your fiscal year. And what is the reason behind this timing change? Unknown Executive: Thank you very much, Mr. Hashiguchi. First, regarding AVANZAR, enrollment has been complete. And with the event -- with the incidence of event, we understand that there has been change made, and that's all we know. And for TL07, 08, we've disclosed second half of this fiscal year. So it's still being in line with our initial plan. Kazuaki Hashiguchi: Regarding 07, primary endpoint was added this time. And so when you get the overall primary endpoint data, I guess you are going to make a disclosure. Is that the case? Or if you collect -- can collect the data on already set endpoint, are you going to disclose those endpoints first or like all of them altogether? Unknown Executive: Thank you very much for your question. Regarding 07, NMR biomarker has been added to primary endpoint, as we have explained. And next year, second half, the PFS data is expected to be disclosed. So whenever we have event, we are going to make a disclosure. And as we have experienced at AVANZAR, when event becomes long or takes longer, then the timing of the disclosure may come later. But when that happens, we are going to communicate to you. This time it's protocol amendment, with regard to that, we've had a lot of sufficient discussion. And what's more important here is that is that we are going to get the positive study results. So we do our best, and we continue this study. Operator: Next question is Sakai-san from UBS. Fumiyoshi Sakai: This is Sakai, UBS. My first question is about the follow-up question of TL-07. There are 4 primary endpoints now. Is that right? And then what is the hierarchy of the statistical analysis? And how should we consider the alpha? And TL-08 and 10, don't you have to change their primary endpoints? Unknown Executive: Thank you for your questions. Whether or not in total, there are 4 endpoints in ITT and NMR positive population, PFS and OS will be evaluated as primary endpoints. And as a result, how we will be leading to the filing, we will consider risks and benefits, taking a look at the study results and make a strategy for filing. Therefore, at this point in time, which is going to be included or not, I may have to expect that anything is not yet definite. Therefore, I'd like to reserve my comment this time. But based upon data, we will proceed our filing. Fumiyoshi Sakai: What about 08 and 07. Unknown Executive: regarding TL-08, we are also having discussion. And we are currently considering to include NMR as of today. And if we decide and add to this change, then we will also let you know. Concerning TL10, we don't have any idea at the moment to make such an aggressive change. Fumiyoshi Sakai: Second question is the inventory write-down on the balance sheet. I think it was towards the end of the year, and it increased remarkably. What are the items contributed to that increase? And like the past case, don't we have to worry about any potential write-off of inventories? Unknown Executive: Thank you for your question. At this point in time, there is no potential impairment we anticipate. So that's one point. And for ENHERTU and DATROWAY, overall, they are accelerating the growth globally. And especially the stock takings are accumulating in the U.S. for the purpose of growth, and that is affecting most. Operator: Next question is from BofA Securities, Mamegano-san. Koichi Mamegano: I am Mamegano from BofA Securities. I would like to make one clarification on IDX. Phase III trial received a clinical hold, but I heard that this clinical study was reconvened -- recommenced. Is that the case? And for this, I think it was a trial to support the filing. And can you tell me like whether you've made -- you've submitted the filing already or not? Unknown Executive: Yes. Thank you very much for your question. And sorry that we've concerned you I-DXd, we've received a partial clinical hold, and it's been lifted already. However, I would like to explain the current situation. ED8-Lung-02 study shows ILD series serious, may have ILD serious cases and our R&D team came to realize that and we stopped the patient recruitment, and we made a report to the FDA. And then FDA has issued partial clinical hold and that's been already disclosed -- sorry, that's been already lifted. But in a meantime, ourselves and Merck decided to have a more strict risk management for ILD. So ILD high-risk patients are now excluded from the trial, and we have more strict inclusion criteria. Independent data monitoring data is looking at the safety and efficacy data more frequently. And on top of that, participating investigators and clinical site staff are receiving additional education and updated training amendment of protocol, ILD symptoms and ILD management are now more thoroughly implemented with those partial clinical hold has been lifted. Koichi Mamegano: And for ED801 study submission. What is the impact on the filing? Unknown Executive: There is no impact on such filing. So we are having a discussion with the regulatory authorities in different countries and regions. And we stick to the original time line. That's all. Koichi Mamegano: One more question. You're going to announce MTP, midterm business plan in April. And that's -- with regard to DATROWAY, I'm sure this is a growth driver for you. But now you have a AVANZA trial. And in the second half, you're going to have top line result. And in midterm business plan, DATROWAY's assumption. How should we expect DATROWAY's assumption to be laid out in the MTP? Unknown Executive: Thank you very much for your question. Well, we would like to make a detailed presentation on MTP when we make announcement. So I can't make a detailed comment at this point of time. But DATROWAY study result such as AVANZA study result and the others will make a big difference in coming 5 years business. So when we make announcement of MTP, we will explain about the assumptions and the scenario on which MTPs being formulated. We would like to offer you as much explanation as possible. Operator: Next question is from Ueda-San, Goldman Sachs Securities. Akinori Ueda: This is Ueda, Goldman Sachs. I have a question about clinical trials of DATROWAY. This time, TROPION-Lung07, which biomarkers were used. As a result, enrollment increased in terms of number of patients and the data affect to the data announcement timing? Or do you think that you still need to review all those? And also for 08 study, biomarker usage is now under review. And if you decide to use it, then should we anticipate that the timing of announcement will be changing. Unknown Executive: Thank you for your question. Regarding the timing, this time, the enrolled patients numbers have been increased and already we completed enrollment. Therefore, there is no delay anticipated. It's already complete. But as we experienced with AVANZAR, if any events happen and causing any delay, we will let you know. So for the enrollment of the patients compared to the original plan, we added on NMR, and we have already completed the enrollment. Did I answer to your question? Akinori Ueda: Yes. And it's the same situation for 08? Unknown Executive: Regarding 08, as of today, I'm sorry, I cannot comment in details, but a similar strategy is taken to move forward. Akinori Ueda: I understood. My second question is about ENHERTU indication expansion impact. First, in the first-line treatment, as you expand the indication more, I think the sales will be accelerated. And already in the U.S. DB09 positive results has been disclosed. And as a result, do you see already some positive impact in the clinical practice? Or can we expect more acceleration of the sales expansion? And DB05 and 11, those approvals are also expected. And number of patients seems to be big. But given the number of cycles of treatment, I may consider 09 contribution may be big or if actual the target population expands and if the clinical practices are conducted more efficiently, then there will be also a major contribution expected from 11's result. Which way do you consider? Unknown Executive: For this question, Ken Keller will answer to your question. Joseph Kenneth Keller: So if I heard the question correctly -- we're already seeing some spontaneous use in DESTINY-Breast09, from almost the moment when that data became public. So we are seeing people adopting it and using it already, even though commercially, we've launched this just a little while ago. As we project out to the early-stage breast cancer settings of DESTINY-Breast11 and 05, in these early settings, the goal is cure. And both of these studies provide standard of care changing new data. And I expect them and everything we're hearing from the community is that they will -- it will be embraced very, very quickly. Did that answer your question? Operator: Next question is from JPMorgan Securities, Mr. Wakao, please. Seiji Wakao: This is Wakao from JPMorgan. My first question is as follows. This time, you didn't have a temporary expense. But wasn't there any special factor? And then for the CMO compensation fee, I thought that there is something which is still under negotiation. What's the status right now? Unknown Executive: Temporary expense that we disclosed. And on top of that, is there anything else? The answer is no. And going forward, with regard to the CMO compensation fee, we did -- if we scrutinize the situation and when something comes up, we are going to disclose. But at this point of time, we don't -- we haven't identified any outstanding remaining compensation fee that we need to pay to CMO. Seiji Wakao: When are we going to see the conclusion of this? Unknown Executive: We are having an ongoing discussion with CMO and we cannot determine when is the expected timing of the conclusion of this negotiation. Seiji Wakao: TL-07 and 08, you are now adding NMR marker -- biomarker. And can you explain about the background why you've decided to do so? I understand that you are trying to improve the probability of success. But if you are confident in the result of Dato, I don't think it was necessary, but what's the reason behind? Unknown Executive: Thank you very much for your question. We've had a lot of internal discussion on that. And at one point of time, we thought that this biomarker is not necessary. But pembrolizumab and Dato-DXd, as we have experienced in breast cancer, these 2 are good match. And for lung cancer -- in lung cancer, patients are hetero as based on our experience. So NMR biomarker in lung cancer is very critical. That's one of the reasons. And although you haven't asked this, but TL-17 NMR biomarker study is going to take place. So in the area of lung cancer, with the existence of biomarker, we can offer better benefit to the patients. And in 07, 08, by using biomarker, we can enhance the probability of success. That's why we've decided to add biomarker in the protocol. Seiji Wakao: So I understand that you've discussed with FDA on this. And for NMR-positive population, if you meet endpoint, I would understand that you can successfully make submission and of course, depending on the data, but I think you can get the approval from FDA. Unknown Executive: Yes, we've consulted with FDA before we amended protocol. And it all depends on how good our clinical trial result is. MTP is to be announced in April. The other day, in the JPMorgan Healthcare Conference, CEO mentioned regarding the profit outlook into 5 years. So in 5 years from now, you have a sales milestone for ENHERTU, and you have cliff with Lixiana. So the profit somewhat may decline. However, if things go well, you can make some growth. Seiji Wakao: And I think that's the outline of the message of you. But can you explain about that once again? Unknown Executive: Well, with regard to the next MTP to be announced in April, I am very sorry, but we cannot offer you any detailed comment because we are having an ongoing discussion to formulate MTP. Lixiana, LOE, Injectafers being impacted by generic, you understand those things quite well. Those would be the downside factor, negative factors. So with 5 ADC growth, we are hoping to catch up or compensate those decline as much as possible. And that's all I can tell you for now, but we are still committed to improve profitability and that's the baseline for the next MTP. Operator: Next question is Muraoka-san, Morgan Stanley MUFG Securities. Shinichiro Muraoka: I'm Muraoka from Morgan Stanley. I have a follow-up question about Wakao-san's conference-related item. I'd like to understand the wording exactly. Did you say decline or a slight decline? And I think it depends on how much inclusion you assumed. And if you included Dato conservatively, is it a decline or slight decline? Could you share that part once again with us? Unknown Executive: In terms of wording, the word we used is slight decline. And overcoming the factors against the profit, we will be putting ourselves back on track for growth. And in that context, this wording was used. But how much -- I'm sorry, we cannot talk about it specifically. But at any rate, there would be some directions, negative direction putting us downside, but we would like to recover from that as much as possible and all those measures will be incorporated in our 5-year business plan. So if it is a slight decline, then I think naturally thinking you should be able to achieve a V-shaped recovery after that. Shinichiro Muraoka: Another question is smuggling point, are you going to make acquisition by the time of next 5-year business plan? And how many deals at what the scale? Unknown Executive: Well, excuse me, what you're asking about is to acquire external assets? Shinichiro Muraoka: Yes, yes. Unknown Executive: At this point in time, we don't have anything that we can talk about. But again, in our 5-year business plan, we look at our pipeline, especially in early-stage pipelines, if there are anything which we can expect working as a complementary, we would like to pursue toward the growth during the 5-year business plan and beyond, we'd like to explore externally any good candidates of assets. So that strategy is unchanged. And before the announcement of April, the announcement of the 5-year business plan, nothing is now moving at the moment in this regard. Shinichiro Muraoka: And just one more point. Well, actually, your stock price went down much, but it came back quite quickly. Did you conduct a buyback, share buyback? It is a sharp decline and recovery. So I think probably in the next week, you will disclose whether you conducted the share buyback or not. But could you comment regarding share buyback, as we have been talking about it. Unknown Executive: We will take into the stock price and others, and we make a comprehensive review and make a decision. And so far, on a monthly basis, we have the timely disclosure in the first operating day. And on that timing, we will continue disclosing the information. Operator: Next question is from Bernstein, Sogi-san. Miki Sogi: Regarding TL-07 and TL-08, I have question. NMR biomarker is now added in the primary endpoint. And I think this is a good news. Regarding this, I have 2 questions. Regarding 07, 08, it was a combination with KEYTRUDA and you use NMR and then this will increase the probability of success. And I think it will have a big commercial impact because you can combine with standard of care KEYTRUDA. 07, 08, for those 2 studies, I think you are done with the patient recruitment. And within 12 months, the result will be presented. So you have come to this end. Now you're making amendment. But you've got the kind of like consensus from the FDA. Does that mean that FDA understands the significance of NMR as a biomarker? Unknown Executive: Thank you very much. In terms of the marketability, I would like to ask Ken Keller to make some comment. And I would like to respond to your second part of your question, whether -- how FDA sees the significance of NMR. Well, this relates to the discussion of contents of FDA, so I can't make any comment. But by including biomarker, our intention is to improve the probability of success of this trial. That was the main intention, and please allow me to repeat that point once again. And depending on the result, study result, we will consult with FDA and figure out how we want to do with the filing. Joseph Kenneth Keller: And the question in terms of adding in and working with the standard of care, you are absolutely correct. KEYTRUDA is clearly the market leader, and we've got a number of first-line non-small cell lung cancer studies with KEYTRUDA. And also, to remind you, we've got the AVANZAR study with Imfinzi which is AstraZeneca's I/O drug. So we feel that whatever the preference is of that specific oncologist, we're adding DATROWAY in a way that is very convenient, and it should lead to very quick confidence in our drug adding to whatever they prefer. Miki Sogi: Next, regarding MTP, regarding health care conference hosted by JPMorgan. I know you're announcing MTP in April, so you can't talk much about it now, but slight decline, as you say, with regard to profit, It's not margin. Are you talking about absolute amount? Is that correct, not margin? And also when the profit declines, the driver behind is, I guess, the aggressive R&D cost assumption. So in your case, 5 ADC has many trials and you have partners. So with regard to the R&D cost, I would assume that with AstraZeneca, Merck, you've already, I guess, made alignment on the cost. And I don't think you alone cannot make adjustment or changes by yourself, correct? Unknown Executive: With regard to the future R&D spending, splitting R&D cost between us and the partner has been determined. So we stick to that. Which study is to be dealt by who. This is different in different trial. And when we've made agreement and then we just stick to the cost split structure we've predetermined with the partner. During the MTP period, how are we going to control R&D cost? I think that's what you wanted to understand. So to that end, we have trials where we work with partners, and we have development that we take care of all by ourselves. So in coming 5 years, what are going to be -- which projects are we going to prioritize. That project prioritization and the resource allocation needs to be well managed. Miki Sogi: Okay. I have a follow-up question. In next 3 years -- well, in next 3 years, not 5 years, am I correct to understand that you've already had a lot of discussion with your partners as to what kind of trials are going to take place for what product. Unknown Executive: Yes, depending on the product, we are in a different stage. And for each product, we have formulated joint team. So rest assured, we have sufficient discussion going on between us and our partner through the joint team. And we stick to the priority that we decide on. Operator: The last question is from Tony Ren from Macquarie. Tony Ren: So I want to go back to your Claudin 6 ADC, the decision to discontinue DS-9606. My question is about the construct of the modified PBD construct. You mentioned its clinical utility has by now been established. Can I confirm that the decision -- because I also noticed your peer company, Chugai also discontinued a Claudin 6 T cell engager in October. Can I confirm that it might be an issue with the target of Claudin 6. Can you also give us any sense about the toxicity of the modified PBD construct? So that's my first question. Unknown Executive: Thank you for your question. Regarding mPBD. In terms of technology, yes, we confirmed that technology utility, as I mentioned earlier. And the reason we selected Claudin 6, there are several reasons. Therefore, we expected in this asset, but there are things that turned out as it's expected or unexpected. And in terms of science contents, we'll be discussing it in some medical conferences. So allow me not to touch upon those. But in terms of utility in the giant cell tumors, if we can confirm the efficacy, then technology-wise, it should be very good. And for that point, we could confirm. And also side effect was manageable as well. Therefore, amongst the difficult challenging technology with PBD, we believe that our technology utility level is high. And talking about the Claudin 6 in, giant cell tumors, can't it be developed for this particular type of tumor. Well, I think it is possible. Therefore, any companies interested in this may consider development, including in-licensing. But what about the business viabilities or in terms of portfolio. Well, given our business portfolio overall, we decided to discontinue. That is the background reason. Did I answer to your question? Tony Ren: Yes. Yes, answered very well. I was mostly concerned about the toxicity. My second and the last question is about your CapEx plan. So Nikkei Asia reported that you guys were considering spending JPY 300, that is close to USD 2 billion on CapEx, right, in 4 different countries, Germany, Japan, U.S. and China. This obviously feels pretty big in relation to the JPY 800 billion in CapEx you guys already disclosed in the last 5-year plan. Can I confirm that this JPY 300 billion is in addition to above and beyond the JPY 800 billion already committed? Unknown Executive: Thank you for your question about our CapEx. Well, it is not a new additional investment. So what we announced is as we have been explaining so far within the range that we have been already talking about, this spending will be incurred. Therefore, there is nothing new, nothing additional to the CapEx that we have already announced. Tony Ren: Okay. So it is part of the JPY 800 billion already announced? Unknown Executive: Yes. Sorry. I'm not familiar with the articles detailed content. But yes, your understanding is correct. Operator: Thank you very much. So with that, we would like to conclude today's earnings call. Thank you for your participation today.