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David Lockwood: So good morning, everyone, and welcome to the half year results for the period to 30th September 2025. My name is David Lockwood, CEO of Babcock. We've got a very exciting 29.5 minutes coming and then a super exciting minute after that because apparently, there is a fire alarm test, which may or may not be canceled because we -- obviously, health and safety comes first in our company. And if it does happen, it will go on for a minute. So you need to pay attention for 29.5 minutes, and then you can do your e-mails for a minute, okay? And if you're online and the fire alarm test happens, I hope they're going to mute it for you, but if they don't, I'm sorry. So what to say about this half? It's been a really good half. It's been a good half to be part of actually because all of the groundwork we've put in place over the last few years, we're really seeing come to bear. So good momentum across all of the business in the defense area, driving some really strong financial results with year-on-year increases across all of our metrics that David has decided he wants to explain to you, but they are really good. Constantly delivering to customers. When I come back up, I think it's this -- we always said that the market was there for us. What we needed to do was deliver well. That would expand margin. That would then expand the market and that would drive growth. And I've got a couple of examples later. But we're seeing that happen across the business. We have some very interesting market dynamics, commitments to budget growth, but also fiscal pressures sort of counteracting that and seeing interesting behaviors in governments, but net positive in all of our markets actually. And that's left us with a confident outlook for '26 and also an ability to recommit to our medium-term guidance. So before I come back into all of that color, David will put that into a financial context. David Mellors: Thank you very much. Good morning, everyone. Okay. My main 3 messages for today are: this is a really good set of interim results on all financial measures, number one; number two, the margin improvement of 7.9% is encouraging and gives us confidence in the 8% full year target; and number three, with a good level of full year revenue under contract at H1, we're confident in the full year expectations. Summary numbers first and there are some pretty positive numbers on this summary slide, and I'll move through them fairly quickly before we come back to detail. So organic revenue growth was 7%. Operating profit margin increased 90 basis points, to 7.9%. These first 2 delivered an underlying operating profit up 19%, to GBP 201 million. All the above led to earnings per share up 21%, enabling a 25% increase in the dividend. Cash conversion was 83%, delivering free cash flow of GBP 141 million, and we've executed GBP 49 million of the share buyback in H1, and we'll complete the rest over the course of H2. So let's break down the organic revenue growth first. This summarizes the 7% organic growth by sector. Three of the four sectors grew in the period, led by Nuclear, as you can see, but with good performances in Marine and Aviation. The Land sector revenues were lower in the period as a result of the nondefense businesses, and I'll come back to the sector detail in a moment. Next, the summary of profit. In absolute terms, Marine, Nuclear and Aviation drove the profit improvement, resulting in the group delivering GBP 201 million for the half, a 19% improvement on H1 last year, as I mentioned. The other bit of good news on here is that all four sectors contributed to margin progression in the period, helping the group to 7.9%. And whilst we're on margin, we set ourselves a target of 8% for this year, as you know, and 9% plus for the medium term. And hopefully, this slide will give you some confidence that we're on track. As you can see from the line graph on the left-hand side, we make progress every period, and we'll continue to do this. On the right-hand side are the activities that deliver the margin across the group. You've seen these before. There's nothing new here. They're all still relevant, and there's plenty more to do in these areas across the group. So that gives us confidence in the 8% for this year and the 9% plus in the medium term. And one other thing that we noticed when we put this slide together is that we delivered in absolute terms in H1, the same amount of profit that we did in full year '21. And I know full year '21 was a low base for all sorts of reasons, but we have had a few issues to deal with along the way. So doubling in those 5 years wasn't bad at all. So that's the summary. On to the sectors. These are the usual busy sector slides with lots of content for reference. So I'll just pick out the key points. It was a good performance in Marine, with revenue growing 6% organically, profit up 38% and margins moving upwards by 160 basis points. Compared to last year, the performance improvement was largely driven by the LGE business and by the Skynet contract. On LGE, you remember last year that it booked a record order intake of over GBP 400 million, and we knew that was a surge following the sort of new ship-build market dynamics, and we're delivering that over this period and the start of next. And also the Skynet contract, which successfully mobilized last year. In the period, we had additional services contracted and that also helped drive revenue and profit growth for Marine. And just for reference, the Type 31 revenues that go through here, we did about GBP 100 million in the first half, which is flat on the same period last year. And you know we booked the revenues at 0% margin on Type 31. So on Nuclear. Nuclear had another strong period with both Cavendish and submarine support activity growing very well and more than offsetting the expected reduction in infrastructure revenues. So I'll just expand on those a little. So Cavendish grew 25%, largely in clean energy with more work at Hinkley Point. The submarine support work grew 31%, with activity increases both at Clyde and Devonport, benefiting from some of the infrastructure upgrades at Devonport as well as productivity improvements at both locations. Infrastructure or MIP revenues reduced as expected following the opening of 9 dock last year and 15 dock nearing completion. And all of the above enabled the profit increase of 18% and the margins to reach 9.1%, so the first sector in the group to hit the 9% mark. Moving to Land. Revenue decreased 11% organically in the half. Defense revenues in the U.K. were largely flat due in part to the mobilization period of the DSG reframe contract, and we're expecting this to start to grow in the second half. The nondefense revenues that weighed on the sector were the rail business and the South African vehicle business, and we have a cautious view of the rail business revenue, in particular, in the second half. But pleasingly, despite the top line, margins still managed to progress 20 basis points, with the overall sector now at 7.9%. On to Aviation. We've been waiting for Aviation to take a step forward for some time. And for me, the winning of Mentor 2 in France at the end of last year was the start. So the 26% organic growth was due to 3 main factors: firstly, the mobilization of Mentor 2 as well as increasing aircraft support contracts in France as the defense business takes root; secondly, scope growth and additional services in the U.K. defense contracts; and third, the mobilization of the new Canadian BC HEMS contract. Moving to profit. Achieving some sort of scale on the top line has allowed profits and margins to approach a sensible level. This was assisted by some renegotiation of old contracts in the period, allowing margins to rise to 7.2%. Moving to the cash flow. Again, this is another detailed slide because you need the detail for reference, but I'll just pick out the key numbers. The most important is the free cash flow number at the bottom, GBP 141 million. This is substantially better than we've ever done in H1 before. This is, of course, partly due to the growth in the profit, but it's also due to the reduction in pension deficit payments following the long-term deals we did last year. Only 3 years ago, the pension cash outflow was GBP 90 million in the half. And now as you can see, it's GBP 7 million. So much more of the cash that we earn in the operations is now available for the group to invest. Moving back up to the middle of the table, we have operating cash flow of GBP 166 million with a conversion of 83%. Within that, we managed to keep working capital pretty flat. So there was an outflow of GBP 32 million. There's a little bit of inventory increase in there and then the usual pattern of payments, VAT and annual licenses and what have you. So basically, the rest of working capital was largely flat, which is good. CapEx was GBP 46 million for the half, very similar to the first half of last year. And again, CapEx will be H2 weighted. And lastly, I've put some full year guidance on the slide here. As usual, pensions, interest and tax are H2 weighted. I'll come on to capital allocation in a moment, but you know one of our top priorities is a strong balance sheet, and that's important for customers and other stakeholders given the critical things we do. Getting from a weak balance sheet to a strong one was always essential, but getting there by now was even more critical because all of our debt and bank facilities fall due over the next 18 to 24 months. So to get ahead of this, we've already gone out and refinanced the revolver in the last couple of months. We now have a new GBP 600 million 5-year facility with extension options, and we expect to refinance the first of the bonds in Q4. So on to capital allocation. This is the same capital allocation policy we've been -- published a few years ago, and we keep repeating. The priority order hasn't changed, but I'll just pick out a few status updates. Priority #1, organic investment. We're working on a number of relatively significant investment opportunities to enhance growth, so-called strategic growth CapEx. The kind of things that we're looking at are facility expansion and build and operate models to enable new work or greater capacity. An example of this would be in Rosyth, where we're looking at a new build hall and also to upgrade the missile tube facility to allow greater production. The status of priority 2 and 3, the balance sheet, the dividend, we've already mentioned. Then on the 3 capital allocation options on the bottom. On the left, we have a pipeline of potential bolt-on acquisitions that we're tracking, and we are working on a couple, and we'll keep you posted as they progress. Moving to the middle box, pensions, there's no news. That's tracking really well. So all going okay. And on the right-hand side, shareholder returns, you know we're executing the GBP 200 million share buyback. And the buyback also serves as an investment return floor for other options to beat before they get considered. So before I hand back to David, I'll just go back to the summary again. So point one, really strong half on every measure. Two, margin progression, very encouraging, and the 8% margin for the year is in sight. And three, given the revenue cover at the half, we're confident in the full year. And with that, I'll now hand back to David. David Lockwood: I'm not doing my e-mails. It's just checking for the alarm. Right. Actually, before I go to my slides, when David was going through that, it occurred to me I haven't got a Type 31 slide, which kind of shows that it's become business as usual. But I just thought because we're bound to get questions, I'd try and not get questions by talking about it quickly here. So I see the next 12 months for Type 31 is important, but then every 12 months is important. And the way we see Type 31 is in 2 chunks. So chunk 1 is ship 1. We need to finish ship 1, which is always going to be the prototype because it's first of class, first of yard. We all knew that. We also knew that a lot of the build was done during lockdown, and we talked before about how we had to adjust our processes. So that's a project. I don't think -- that's a project, to finish ship 1. And it's really important that gets done in the next 12 months because that's the flagship for all the export orders and the growth. Ships 2 to 5 are all about production, production norms and so on. And if we look at ship 3 because that's the one that's right down the production curve, that's the one that becomes the reference, and that's going really well. So there's 2 distinct things: driving a production facility; building a pipeline of ships and finishing the prototype. Those 2 things we'll report on the full year. They're both where we want them to be at the moment, but there's a lot to do on both of those. So that's kind of how we see it. And that's why there's sort of nothing to talk about. So I haven't got a slide because the project on finishing 1 is the project and then the production build is the production build. So no questions on Type 31, please. The over -- so David did a couple of history charts. We said 5 years ago, 2 things: one is that this is a people business; and secondly, that our growth and our margin expansion is delivered by those people working in the best possible way to improve our delivery to customers. There was no lack of sort of -- no lack of market. We just had to perform. And our performance, as you have seen, has improved and improved. And I've just got a couple of examples of how that's worked. So 5 years ago, the DSG contract was in a lot of trouble. We had external reports and Boatman and all this stuff. The first thing we did was fix the delivery. That led to growth through the order we booked for the 5-year extension, which is quite a different contract in terms of mindset from the original contract in that it's all about driving output, and it's more customer focused. That's gone really well. That improved performance means we've won the contracts for frontline support in places like Ukraine, where we have people deployed, but also that confidence people have in us as an engineering company. In the Land domain, means we've delivered the Jackal program. And what all of that has meant is we are now Toyota's sole partner in Europe, for taking the Land Cruiser into a military variant. We call it the GLV, the General Logistics Vehicle. The big program in the U.K. is the Land Rover replacement, but there are multiple programs outside the U.K. as well. Toyota are one of the world's great engineering companies. There would -- there is no way they would have agreed to work with us without us solving our engineering pedigree by fixing the past. The same is true with the Common Armoured Vehicle program in Europe led by Patria, the 6x6 variant, which the U.K. has just joined -- DSEI joined the program, the technical program, which is a step towards buying the vehicle, where we are the U.K. build partner and engineering partner. Again, couldn't have happened with our performance of 5 years ago. Now we're the natural choice. And then finally, for the 120-millimeter mortar program, that's Singapore Technologies, Singaporean engineering, world renowned. They don't work with companies that aren't -- don't match their engineering standards. So we've gone from fixing a legacy U.K. program which the outside world thought was a disaster case through to 3 really, really major companies, Patria, Toyota and Singapore Technologies deciding we are the exclusive partner for the European market because our engineering meets their standards. And that's how delivery doesn't just drive margin and growth in what you do, but it changes your reputation. And the same is true. David talked about expanding missile tubes. Missile tubes, we have 80% of the joint Columbia Dreadnought program. So this is a key component of -- in fact, it's central to -- literally central, it goes right in the middle of the submarine. It's central to the next-generation deterrent submarine for the U.K. and the U.S., and we have 80% of the delivery when the program is dominated by Columbia. Obviously, they buy a lot more Columbia's than the U.K. buy Dreadnought because our engineering is the best in the world at doing these things. And that's been -- that growth gets driven by our investment in automation, all the things David talked about. But those techniques are the ones that are driving the improvements in Type 31 so that ship 3 is this real high-value, low-cost production build ship, and you can take production norms across because you know you can do complex things well. But also because it's nuclear, it gets us into a whole pile of nuclear build opportunities for radioactive handling because people know we can do -- we can build nuclear stuff. And then if you look into the opportunities, Rosyth is probably the most capable facility in the U.K. for building -- supporting the build of AMRs and SMRs, obviously, Rosyth build reactors, but everything that goes around it, which is very significant, it's the most obvious place to build it. And because of our pedigree and because of the lack of build capacity in the world, moving into broader submarine build. So going from an okay high-integrity engineering program to being a recognized world-class high-integrity engineering facility in 5 years is quite a thing and drives a whole host of opportunities. And there are multiple other areas in the business where we could make the same track through. But it starts with, there is no lack of demand as the next few slides will show, the question is, have you got the pedigree to own that demand? So what is the demand? It's driven, as we said at the full year, by global insecurity and threats, and share prices move around, but is there a peace in Ukraine, isn't there a peace? Europe will continue to want to strengthen its defenses. It may be a few basis points up or down on the high-level statement, but the world is materially less secure now than it was 5 years ago. And for all the reasons I've just outlined in 2 areas, but we could go across a whole range of things. Babcock is, I think, as well-positioned as anyone and better positioned than most to take advantage of that because we're now combining -- as those who came to DSEI, we're now combining some innovative digital. And in fact, we launched our first AI product at DSEI. We're combining the ability to get the best out of legacy while delivering new at the same time. And I think that's a unique combination. And across into civil and -- civil nuclear, we are the U.K.'s only significant nationally owned nuclear business at a time when sovereignty and security and energy is at the forefront. So whether it's AMRs, SMRs, building out large reactors, as David said, clean energy has driven huge growth this half and will continue to drive it. In my mind, the civil nuclear business is -- we're only just beginning to tap the opportunities. So I think all of that is really good. And if you look at us in U.K. Defense, having a resilient industrial base is really important. That is physical -- that is facilities, it's the equipment and infrastructure we have on those facilities and it's people. We are a people-based business. So David said there's some strategic investment necessary to drive this growth, and it's true. But there's also our commitment to people and investing in skills. So a couple of things, which as -- I said to the press this morning I get quite frustrated about because I think this is one of our biggest achievements, people. And I think the people pipeline will drive our high-quality growth. So just a couple of facts. So we were Company of the Year for the Association of Black and Minority Ethnic Engineers. Is that a big thing or not? Well, it wasn't Google. It wasn't Oracle. It wasn't people -- it wasn't people with big bases here. It was an engineering company working in defense and nuclear that does some quite heavy stuff, that operates in some quite difficult to get to facilities, Plymouth is not the easiest place to go. It's not the M4 corridor. It's not that. And we won, okay? I think that's pretty cool from where we came from. We've got a 35% increase in minority representation in our early careers. I think that's pretty cool. And this year, we had our highest intake over early careers. That's apprentices and grads to you and me, highest intake. And we also had the highest subscription. So not only did we take more, but we have more candidates for every post than ever before. And for the first year ever, our intake was 50-50 gender balanced. So from where we were 5 years ago as an employer, we are in just an utterly different place. And that pipeline of people is necessary to drive the pipeline of growth. So I think that's really cool. And then you can see all the other things that, that leads to. We spend GBP 550 million with small and medium enterprises. So we drive the economy in the regions we work in. As I've just said in the growth thing, we partner with a whole bunch of really high-quality engineering companies who see us as the best of breed in the U.K. We contribute GBP 4.3 billion to the U.K. economy, which is pretty important in the current climate. And you can read the whole slide at your leisure. And we are working with the government. I spend a lot of time with the government, and I'm a core member of the Defense Industrial Joint Council, there are some permanent and rotating members, driving how the U.K. Defense does its business differently. So we are right across U.K. Defense, from the people, the supply chain and into the government. And then Nuclear, it's great that Nuclear is in our core. I think civil nuclear, there's the big stuff, Hinkley and Sizewell C. There's SMRs, MEH is mechanical, electrical, handling, which is, if you like, the mechanical and electrical plumbing of a major nuclear power station, which is quite a complex thing. So we are the lead in the alliance. That's growing dramatically. And we have seen actually real progress more than I would have guessed 6 months ago. So we know where the first 3 SMRs are going to go. We did funded work for Centrica and X-energy, X-energy is U.K. partner, for AMRs in Hartlepool, which is a massive rollout. So real momentum -- more momentum, I would say, in civil nuclear than I was expecting in the last 6 months. I think that's really positive. And then we all know about defense nuclear. David has touched on the numbers. I will talk about the FMSP follow-on. So FMSP is Future Maritime Support Program. That's how we support the nuclear fleet. There's some surface ship stuff in there, but it's basically the submarine fleet. That contract comes to an end at the 31st of March next year. So we've been busy with funded work to work with the customer on the successor program. If you look at -- so 5 years ago, when we were doing the work, 2020-ish, just as I was coming in, that was pre forceful invasion, pre the current Chinese activity. It was -- FMSP is very much a cost-driven program. The metrics are very cost driven. The successor is going to be very output driven because 5 years later, what we really need is submarine availability, not cost out. And that's just the changing environment. And so it's not surprising that we and the government are taking a lot of time to make sure that, that program is going to work for us and for them to drive a new set of outcomes. So you should not, in any way -- in fact, I had a call with the government yesterday on this, and we are completely aligned that the job is to get the right contract for both of us and that -- the fact it might take us right -- we might end up using every minute through to midnight on the 31st of March when I should be relaxed and David probably having kittens. You shouldn't worry about that. It's because we are trying to -- this is genuine transformation. And then AUKUS, H&B Defense, our joint venture with HII has finally got its first orders. There's a lot of activity now in Australia. I think the Trump -- President Trump review definitely shone a light on some of the areas where we were moving forward, but not fast enough as the 3 nations. So I think we'll see a lot more progress on infrastructure, training and support in the next 12 to 18 months. So all together, Nuclear looking really positive. And where does that lead us then? For those of you who came to the Rosyth Capital Markets Day teach-in, whatever we call it, you will have seen the scale of our capability, but also the scale of opportunities in Denmark, Sweden, Indonesia, and New Zealand. And there's a lot to be decided in the next 12 to 18 months. I think since we stood up at the full year, all of them have progressed positively from our point of view. Nothing is done until it's done, and these are big governmental decisions. So you've got to win the officials over, and then you've got to win the political debate. So it's not done until it's done, but they're all pointing in the right direction, I think. Advanced manufacturing, you've seen the journey we've been on. We have a range of really significant opportunities there. AUKUS, I've just touched on. FMSP, I've just touched on. And the land vehicles, we went through as an example. So if you just look across that without even thinking about the fact we've won our first defense order in South Africa on submarines or -- yes, we've won all the stuff that -- the churning of the engine that generates smaller orders, which is still going really well. I think the growth opportunities are really significant. And the fact that we are now in discussions with Korean companies to do the kind of things we've done with Singaporean and European companies and Japanese companies, it just shows that we are now firmly established on the international stage as one of the credible partners. So summary. I'll summarize, David's summary. By the way, it's 9:32, so no alarm, that was cool, and that shows our influence. Strong financial results. Metrics, great. I hope you've got a flavor of how delivery is driving this business forward, not just 6 months to 6 months, but establishing multiyear relationships with governments and industrial partners that will underpin sustained consistent growth. And that helps us get the best out of the market dynamic, but also going back to that kind of fiscal versus defense pressures helps us manage those, which is why we kind of feel confident about this year and beyond. So with that, we'll go to the appendix. No, we won't. There should have been a question slide. We'll have questions instead of going to the appendix. If it's Type 31, I probably will get upset. I'm just warning you, I'm just putting it out there. Sash Tusa: Sash Tusa from Agency Partners. It's a Marine question, but not a Type 31 question. You specifically referenced this big slug of liquid gas equipment orders that you won last year and are now delivering out. Should we see that as being a bubble? Or is that now the ongoing run rate of the business? Are you replenishing those orders at broadly that rate so that you can keep up this sort of level of revenues? That's my first question. David Mellors: So it's definitely a record order intake. If you remember, for 2 or 3 years, we were waiting for them to come, and then it all came in a period. So the next 12 months, 18 months or so will be the delivery of those. We are obviously winning new orders, but not at that rate, and we never expected to because it matches the ship-build market. Sash Tusa: Okay. And then Aviation question. BA, Boeing, Saab announced teaming to offer T-7 for the U.K. How does that affect your involvement with MFTS? Because they are pitching this as a very, very broad military pilot training contract rather than just supply of aircraft. Where does the replacement of the Hawks fit in with MFTS? David Lockwood: So as you know, the Hawk is outside the scope of MFTS anyway. So we go up to the Textron -- we go up to the Textron and then we do some -- we do the maintenance of the legacy Hawk fleet, but BAE Systems supply it. So it's not a particularly big thing. And there's still a debate about how government will procure the next jet trainer. Sash Tusa: But there's always overlap, or rather there's a wavy line in terms of the capabilities of different aircraft types and therefore, how much of the syllabus you can do? So clearly want to grab more of the syllabus. David Lockwood: So that's true. If you look at most -- so the Germans are now coming out, for example, if you look at most pilot training, the cost per hour in the lead-in jet is multiple times the cost per hour in the turbo -- turboprop. So I would say, on a cost and actually also for those governments who report emissions, from a cost and emissions point of view, you want to maximize simulator, then you want to maximize turboprop, and you want to minimize jet for both cost and emissions. At the front, on your right. James Beard: It's James Beard from Deutsche Bank. Two questions, please. Can you talk through the building blocks from a margin perspective in H2? Obviously, you've done a 90 basis point margin uplift in H1, which given that you've retained your 8% margin guidance for the full year implies relatively modest or circa 10 basis point margin uplift in the second half. And then second question, you gave some interesting color around the people agenda during the presentation. Can you talk about the other side of the funnel in terms of churn rates? And I guess, in particular, in the U.K. Nuclear business, one would guess that demand for labor significantly outstrips supply at the moment and what you're doing. What initiatives you're taking to sort of combat any unwanted attrition in that side of the business? David Lockwood: I'll do the people one and David can do the number one. So you're right. So our churn rates are significantly down. It is a bit regional. So it's not so much the business is in. It's the business location. So if you're in civil nuclear in Warrington, we're probably the highest paying employer. My Warrington colleagues may not agree with that, but we probably are. In Bristol, it's quite different because there's a lot of high-paying jobs in the Bristol. So it's more a regional issue than an activity issue. But we've done a bunch of things from -- you will remember from the full year, we've had our first ever all employee free share scheme, to start anchoring people in. We've historically had very low take-up on a lot of the benefit schemes we've had. And so we've got a Babcock bus actually, the blue double-decker bus that is going around all our sites, doing open sessions. We've got 10,000, I think, more inquiries in the U.K. onto that -- onto all our employee platforms now as a result of that compared with a year ago. So we're taking all of those. And I could go on and on and on. There's a whole bunch of things we're doing to make people realize the full benefit of being part of Babcock. And if I look at our global people survey, which we do every year, which finished a couple of -- finished a month ago, a lot of those measures, which are kind of indicators of attrition, would I recommend the company as a place to work? Am I going to -- do I think I'm going to be here in 5? All of those continue in a positive direction. And interestingly, when we did the Board presentation 2 days ago, there were a number of those metrics were against the benchmark. So our partner who does all the independent survey, they give you these benchmarks. In the U.K., a number of these engagement scores are going backwards over the last 3 or 4 years. Ours are going forward. So we're kind of bucking the trend on engagement. So lots of stuff actually. David Mellors: And on the margins, so lots still to do. Obviously, very encouraging in the first half. The building blocks are largely the same, actually. If you look back, maybe just comparing against first half of last year isn't that helpful. If you look back, the margins really sort of inflected about a year ago. So if you look at second half of last year, first half of this year, you'll see a trajectory that 20, 30 basis points for the second half maybe -- it would be achievable in some of the sectors. There's no particular building block in the second half that wasn't there in the first. It's the same dynamics. LGE and Skynet and Marine, the businesses going forward in Nuclear, infrastructure coming off a bit, rail in Land, and everything going well in Aviation. So we're very confident in the 8%, but I think just comparing against the first half of last year misses the shape of the curve, if you see what I mean. David Richard Farrell: David Farrell from Jefferies. I think I've got 3 questions. Firstly, in the release, you talked about GBP 300 million tender related to the SMRs for owner engineering services. Could you explain a little bit more what that entails and then the potential for that to grow into other areas? David Lockwood: Yes. So that's the customer side work basically to support the delivery of the SMR program. One of the things you may have seen in Great British Nuclear's announcement is, the kind of conflict of interest, the thing that they're managing. So you can't sit both sides of the equation. You can't set the question and answer it. So I think that's just for the current rollout. So there's -- the opportunity is, if you look at the expectation of SMR volumes, you can kind of multiply that by the volume. So it's quite significant. David Richard Farrell: Okay. Some of your peers have obviously suffered in the wake of the SDR and the release of contracts from the U.K. MOD. Just wondering to what degree you've seen kind of any impact there, acknowledging you have slightly different kind of characteristics in your order book? David Lockwood: Yes. Well, I think you've answered the question almost. We have a very different characteristics. So like some others, we have a framework and then call off. But for us, the framework is the dominant bit, and the call-off is kind of the icing. Whereas in some other contracts, the framework is a smaller partner, for the call-off, is more important. So I think it's just the structure of the contracts really. We have more resilient contract structures. David Richard Farrell: Okay. And then probably for the other, David, a question around the bond refinancing. David Lockwood: No, I'd like to answer that -- I wouldn't. David Richard Farrell: It's quite simple. David Mellors: You're saying he can't do simple, is what you're saying. David Lockwood: He's saying you can't do simple. David Mellors: Probably right. David Richard Farrell: Do you need to refinance both of them at the same size? David Mellors: No. So I think size and duration are things that we will work on over the next few months. George Mcwhirter: George Mcwhirter from Berenberg. You mentioned about some bolt-on M&A that you have been looking at. Can you just go into a bit more detail about that, please? Firstly, that's the first question. David Lockwood: So sort of, but we can't -- obviously, any specifics, as David said, there are a couple in process. They're covered by NDAs and confidentialities. We can't be specific, except to say when we did the Capital Markets Day 18 months ago, we talked about areas that we wanted to move into. So we've already done -- we talked about the need to become more digital. We've talked about the need to have greater access to autonomy and so on. So you could imagine that anything we're looking at is consistent with the strategy we laid out 18 months ago. George Mcwhirter: The second one is on FMSP successor. In terms of the length of the contract and size and the contracting terms that you're looking at, can you just go into a bit of detail about that, please? David Lockwood: So what can I say that I haven't already said? So the terms will be, as I've said, output not -- will be more heavily weighted towards output rather than cost. Obviously, cost really matters. Government wants to do a lot with its money, wants to do it efficiently. So I'm not saying cost doesn't matter, but it will be weighted more heavily towards output. I think duration is still unclear about what is optimal. And it kind of depends who does what on investment profile and some of the things that David talked about what -- and there could also be scenarios where you would have things outside -- a bit like MIP is outside FMSP, and yet it exists, as David described, to drive it. There's kind of what's inside and outside the envelope. So that's all the stuff we want to get right so that we don't create -- we create a framework that can deal with anything that might happen in the period the contract covers and not suddenly wonder who does what on something. Christopher Bamberry: Chris Bamberry. Three questions, if I may. First, in terms of the pipeline, what are the major decisions you're expecting over the next 12 months? David Lockwood: So we said at the Marine Capital Markets Day that if a number of customers want to hit their in-service dates, they have to make their decisions in the next 12 to 18 months, and that was 3 months ago. We had that -- so that's probably still about true. So it's now 9 to 15 months. It is a fact of working with all governments that they like to hold the end date, but take longer than they thought to make the decision. So we're encouraging all of those decisions to get made early. And I think because of the situation in the world, whether you're in the South China Sea or whether you're in Europe, there are external pressures encouraging decision-making. So I'm optimistic those decisions will get made in that period and hopefully towards the front end of that period. Christopher Bamberry: Second, you won your first defense contract in South Africa. I was wondering if you could give us a bit more color on that market and the potential there. David Lockwood: Yes. So I mean, I think almost since the Rainbow Nation started, South Africa hasn't really had an identified need for a defense force. So it's kind of gone backwards for a period. And now whether it's pirates moving further and further down the Western Coast of Africa, whether it's incursions into their territorial waters by other people, there is a bigger and bigger need. So I think, actually, for different reasons from some other markets, there's now a recognition that they need to reactivate. So if we execute this program well, I'm very optimistic that it's kind of a good market for us because it's big enough to be meaningful, but it's not big enough to interest a Lockheed Martin or someone like that. So it's an ideal sort of market for us. Christopher Bamberry: And final question. Could you give us perhaps a bit more color on how DSG has performed under the new contract? David Lockwood: Yes. So far, so good, really. Nothing else to say. It's going well. I can't think of... David Mellors: It is going -- well, we're not going to give all the internal KPIs. But yes, mobilization is good. Christopher Bamberry: Hitting all the KPIs, et cetera? David Mellors: Sorry? Christopher Bamberry: Hitting all the KPIs, et cetera? David Lockwood: No one hits all the KPIs. Christopher Bamberry: A reasonable number? David Lockwood: Yes. If we hit all the KPIs, they would argue they set the wrong KPIs. So you can't hit all the KPIs, but hitting the volume, we'd expect to. Behind you. Benjamin Pfannes-Varrow: Ben Varrow from RBC. First one, just on -- you've made a point about the CapEx projects here. Can you shed any more light on those at this point? David Lockwood: And they're not all in the U.K. So if you take Mentor 2, for example, we buy the platforms and then there's a progressive sort of handover. So that's a good example. If you look at modernization in New Zealand, there's a big debate about who funds what. They probably can't fund everything. If you look at infrastructure for AUKUS in Australia, who funds what. So there's just a lot of -- and it's similar in the U.K., but there's a kind of the whole build -- I don't think anyone wants to do a PFI, which is kind of a build and forget, which is just kind of an off-balance sheet financing thing where the financing is more important than the thing. But I think what people are looking at now is a kind of build and operate so that you have operate skin in the game for doing the build properly. So that's the sort of direction of travel. Benjamin Pfannes-Varrow: Okay. And also with regard to your sort of 2 specific ones, obviously, with Rosyth. David Lockwood: David mentioned those, so you better talk about the Rosyth's expansions. David Mellors: Sorry, what was the question? Benjamin Pfannes-Varrow: So the actual -- the CapEx projects that you mentioned for Rosyth. Can you give any more sense? David Mellors: Yes. So obviously, we've got a pipeline of ship-build activities that we talked about in the Capital Markets Day. We'll need extra capacity. So we're looking at a new build hall for that. We want to ramp up the missile production volume. David Lockwood: Missile tubes. David Mellors: Sorry. David Lockwood: Not missiles. David Mellors: Missiles. That's what we want to ramp up. So we'll be looking to invest in that as well. So this is all stuff to enable greater scale, growth and productivity. Benjamin Pfannes-Varrow: I assume you can't say anything on sort of decision points or when you pull the trigger on missile tubes? David Mellors: Well, I mean, it's -- those two. Well, the first one is our decision, and we've got to make that decision based on what we see in the pipeline and how close it is and how certain we are. So we'll just have to keep you posted on that. The missile tubes, obviously, we will do in tandem with the customer. So -- but again, we'll talk in the next few months, certainly within the next 12. David Lockwood: Because we built the last build hall so recently, we have -- what can cause delay in a build hall? Things like the condition of the ground. You got to put foundations in, and you have to make them stronger because the ground is -- but because it will be right next to the existing one, we know everything about that. We know how we build it. We would use the same contractors. So it's a -- although it will be a big thing, it's relatively quick. So we can align it quite closely to the order intake maturing. Benjamin Pfannes-Varrow: And last one, just a bit on visibility. Obviously, in the first half, you've had Nuclear, I guess, in particular, come in a bit stronger. So can you chat through just about the visibility on that and how that perhaps comes in a bit quicker sort of in submarine support and also on the Cavendish side? And I guess the question sort of rolls in, can you maintain those growth rates? David Mellors: Yes. So we've got pretty good visibility. I mean, I always look at the revenue under contract for forecasting. So -- but we generally have very good visibility of stuff that isn't under contract yet. So you can't necessarily be absolutely sure of timing, but you've got a pretty good idea. So I start with what's under contract. In terms of visibility in Nuclear, it's good. We've got a pretty good idea on both naval and civil, what's coming down the track. Timing isn't always precise, but you've got a pretty good idea. They're obviously doing extremely well, but a 14% growth rate is pretty punchy to be -- to straight line out into the future. It's definitely all sustainable revenue. There's nothing one-off in there. But it can't keep going at 14%. But it is the high-performing business, and it will continue to be for the near term at least. Benjamin Pfannes-Varrow: Just a follow-up question to the last one on civil nuclear. You've given it a lot of prominence in the presentation. It's only about 5% of the group. I think at the teaching you did in May, you talked about sales at least doubling over the medium term. given how much is going on there and the prominence you've given it today, are you thinking more positively? I mean, can you update on the at least double? Is it now going to be a meaningfully bigger opportunity? David Lockwood: So that was a teach-in on Cavendish, which is the nuclear consulting business. So it excluded -- we made reference to, but the numbers excluded build opportunities for building elements of SMRs and AMRs. So can I give an update? I think the risk is on the upside, how about that? Is that enough? Do you want to? David Mellors: Yes. Look, I mean, I don't think we can -- we said we'd double the business by 2030, just to be precise. I don't think we're going to change that right now. Everything we've seen in the market is encouraging. And there are some potentially big things there, but I think we have to just wait a little bit longer to see how they -- how and when those things crystallize before we start changing numbers. Benjamin Pfannes-Varrow: Just to follow up. I actually didn't know that. I'm not an expert on nuclear engineering, say the least. So what is -- when you talked about the business doubling, I thought it was civil nuclear in its entirety. So just how big is the buildup? And maybe if we look beyond the medium term because it might take longer. I mean, just how big can the civil nuclear holistically get to for you? David Lockwood: If you include build -- so one of the interesting things is how we choose to report it because typically, everything that happens in Rosyth gets reported in Marine because Marine owns Rosyth. So it would depend how we reported it. But if you believe -- if you just look at the Hartlepool 6 gigawatts of AMRs, if we were a material build partner of that, and we are X-energy's partner in the U.K., then we're talking about civil nuclear production would probably become bigger than the consulting -- the engineering consulting business of Cavendish. That's a huge if, but just to give you a scale thing. Benjamin Pfannes-Varrow: Sorry. That's for one of the SMRs, is it? David Lockwood: No. This is AMRs. This is just Hartlepool AMR thing. Benjamin Pfannes-Varrow: This is just Hartlepool? So if Hartlepool, AMRs go ahead, SMRs go ahead in the numbers, it's multiples then of Cavendish, is what you're saying? David Lockwood: If we win the build because we don't build that either at the moment. So there's a huge if. Benjamin Pfannes-Varrow: And who else could do the build? David Lockwood: Well, it kind of partly depends whether the U.K. Government decide that U.K. SMRs and AMRs have to be built in the U.K. Because if they decided not, which -- if there's a change in government, it might be the case, and there could be -- there are places outside the U.K. you could build them. There aren't -- there's not that much U.K. competition. David Richard Farrell: David from Jefferies. A follow-up question, please. Just around kind of the share buyback. We've obviously talked about kind of CapEx potential. You talked about kind of M&A. Do you think that you could do both of those and still reload the buyback at the end of this year? David Lockwood: Yes. So the great thing about having cash is that you actually have a capital allocation problem, which is relatively new for this company for a long time. In my mind, the buyback creates the hurdle for all other investments. So we know what return the buyback gives shareholders. And therefore, our job as management is to find alternatives to recommend to the Board, which we believe provides superior returns to buyback. And if we don't find them, then buyback becomes a likely option. So I think it's hard to say, can you do both because it depends how many superior options we come up with. But I think that's -- I think I'm looking at Ruth, and she's nodding. It is our job as management to come up with superior options to buyback. That's our job. In 1 minute's time, this will be the longest half year presentation I've done in 14 years. I just thought I'd let you know that. Sash Tusa: I'll drag the question out then. David Lockwood: Go on then, record-breaking you. Sash Tusa: First of all, continuing on nuclear. I probably may have missed -- you said that MIP was basically flat. Did you actually give an absolute number for MIP revenues in the half year? David Mellors: For the half? Yes, it's on the slide. So it's GBP 215 million. Yes. It was down. It wasn't flat. It was down. Sash Tusa: Okay. And then the other side of David's question about Cavendish. You actually haven't talked very much about the Nuclear side of Cavendish in this set of numbers. What's happening at the moment with AWE and particularly with the 2 very big AWE capital projects as part of the Fissile Materials Campus? David Lockwood: Yes. So those are still evolving. I think all of our debates with AWE about what our role should be, a very positive. Yes, very, very positive. They've ultimately got to decide how to chunk up those 2 big programs. I think there's no doubt that AWE wants to be the overall contractor. So it's not going to go to a GOCO or anything like it. But the question is then, how do they chunk it up underneath? And I think so far, those are very intelligent and sensible conversations between us and them. I couldn't put a number or duration on it. But you're right, I didn't mention it, but it's going -- it's a very positive conversation. Sash Tusa: And I mean, just to extend that, if you had to estimate whether ultimately that scale of build work is bigger or smaller than the AMRs and SMRs? David Lockwood: Gosh. David Mellors: Go on. David Lockwood: That's an impossible question and a very unfair way to finish. And I'm never going to talk to you again. Great. Well, thank you for your questions. That's an hour up. If you've got any more questions, I'm sure Andrew will answer them. Thank you.
Masahiro Hamada: I am Hamada, Group CFO of Sompo Holdings. Thank you for joining our earnings call despite your busy schedule. I will go through the first half results and the full year earnings forecast for FY '25 as well as the shareholder return, all of which we disclosed today. Please turn to Page 3 of the presentation. This is the executive summary. First, the overview of the FY '25 first half results. Driven primarily by a decrease in nat cat in Japan and globally, profitability improvement in domestic P&C business and strong net investment income overseas, adjusted consolidated profit increased by JPY 78.1 billion year-on-year to JPY 247.4 billion. Next, the full year FY '25 earnings forecast. Based on the first half results, adjusted consolidated profit for the full year is revised up by JPY 77 billion from the initial forecast to JPY 440 billion. Although direct comparisons are not possible due to our transition to IFRS accounting this fiscal year, we expect to significantly surpass our previous record high profit. Last but not least, shareholder returns. The total shareholder return for the first half of FY '25 is JPY 145.5 billion, including JPY 77 billion of share buybacks. For the full year, in addition to the upward revision of adjusted consolidated profit, the plan for the sale of strategic shareholdings has also been revised up from JPY 200 billion to JPY 250 billion. Therefore, the total shareholder return comprised of the basic return and gains on strategic share divestitures is expected to be approximately JPY 250 billion, JPY 26 billion higher compared to the initial forecast. I will elaborate on these 3 key points on the following pages. Please turn to Page 4. The JPY 78.1 billion year-on-year profit growth was driven by profit increase of JPY 54.7 billion in the domestic P&C business. Compared to last fiscal year with significant hail damage, we had fewer major nat cat in the first half of this year. Improvement in the base profitability of fire insurance, thanks to the rate revision implemented in October 2024 as well as strengthened underwriting also contributed to the profit growth. The profit also grew for the overseas business by JPY 20.7 billion. Similar to the domestic environment, fewer natural disasters and increased investment income driven by growth in assets under management contributed to this profit growth. On Page 5, let me explain the upward revision of FY '25 full year forecast. Full year adjusted consolidated profit for FY '25 has been revised up by JPY 77 billion to JPY 440 billion from the initial forecast. On a year-on-year basis, it is to be a significant profit increase by JPY 116.3 billion, renewing record high both on a consolidated basis and for all business segments. Based on first half results, second half forecast has been revisited with a certain level of conservatism. On Page 6, I'll explain shareholders' return. As to interim shareholder return for FY '25, dividend per share is JPY 75 as initially forecasted, totaling JPY 68.5 billion. Share buyback with basic return and sales gains on strategically held shares combined amounts to JPY 77 billion. Full year shareholder return forecast for FY '25 is expected to be JPY 250 billion, up JPY 26 billion against the initial forecast, driven by increase in adjusted profit and increased reduction of strategic shareholdings. Lastly, some supplementary explanation on domestic P&C and overseas insurance. Please look at Page 7. First, let me explain domestic fire insurance. Fire insurance, even without favorable nat cat experience, it's showing strong improvement driven by rate increases and enhanced underwriting. Loss ratio of fire insurance for FY '25 full year without nat cat impact is expected to improve to 32% by 4.3 points year-on-year and by 2.4 points against initial forecast. Impact from last year's rate revision and underwriting enhancement is expected to continue and the positive profit is becoming well established. Meanwhile, motor insurance excluding nat cat impact remains in a different situation. Given the first half results, the assumption for the second half had been revisited and reflected in forecast. As traffic volume increased, rate of accident frequency in the first half FY '25 was up 0.6% year-on-year against the initial forecast of down 1%. Accordingly, full year forecast has been revised up to the level of the first half results. Unit repair cost in first half FY '25 was up 7% year-on-year, mainly driven by price hike of auto and its parts due to higher performance as well as inflation. Accordingly, full year forecast has been revised up to the level of first results. In January, auto insurance rates will be revised up by 7.5% on average. This revision has factored in higher-than-expected rate of accident frequency and unit cost, meaning midterm, our outlook for profitability improvement remains intact. Lastly, supplementary comment on overseas business. Currently, rate environment is becoming softer, but insurance revenue increased in all segments, namely commercial reinsurance and consumer, driven by geographic expansion and other growth strategies. Combined ratio is expected to be on a favorable level with certain level of prudence included. With that, I end my presentation. Long-term management strategies, including progress on MTMP will be explained at the IR meeting scheduled on November 25. Thank you for listening. Operator: So the first question is from Mr. Muraki of SMBC Nikko. Masao Muraki: This is Muraki from SMBC Nikko. My first question is on Page 5. So you show the breakdown of the upward revision that you made. And on the right-hand side, you see the factors. Of these, what are not one-off? And what will still prevail as you plan for next fiscal year? Unknown Executive: Thank you for the question, Mr. Muraki. So regarding your question around the factors driving the upward revision for this fiscal year, which will remain for next fiscal year? So first, with the domestic P&C business, compared to the initial plan, the upward revision was JPY 59 billion. As you can see on Page 5, lower natural catastrophe and larger loss experiences are going to be absent next fiscal year. So it will be adjusted to the normal year level. And for the higher investment gains at the outset of the year, we normally make conservative projections for the net investment income. So in that sense, most of this factor would also be taken out for next fiscal year. On the other hand, for the improved profitability for fire and casualty lines, as Mr. Hamada explained earlier, the improvement was driven by rate revisions and also stronger underwriting capabilities. So these positive factors would remain next fiscal year. And also, it is not indicated on the slide, but for the auto loss ratio, recently, it has been deteriorating. And compared to the initial plan, we expect the downward pressure to be JPY 3 billion on an after-tax basis. But as Mr. Hamada explained earlier, in January of 2026, we plan to execute rate revisions. And also with the following rate revisions, we aim to offset this negative impact. So the deteriorating loss on the auto policies will be absent next fiscal year. And moving on to the overseas insurance business. This fiscal year, we revised up the forecast by JPY 20 billion from the initial plan due to multiple factors. But most of this will not be remaining for next fiscal year. Specifically, this fiscal year, we are also benefiting from lower natural catastrophe overseas, and this will normalize for next fiscal year in our projection. On the other hand, the upside on the net investment income is stemming from the growth of the asset under management. So the positive impact on the investment side will remain. And for the insurance business, other than the nat cat risk, the change in the portfolio mix is impacting the profitability. And assuming that this portfolio mix will be similar to that of this year, this impact would also remain. So as a result, for the overseas business, the upside for this fiscal year will mostly be absent, and we expect to see growth without the one-off upside we saw this year. Masao Muraki: My second question is in a follow-up to my first one. So regarding achieving the ROE target for next fiscal year, can you update me on the necessity of adjusting the capital? Looking at Page 16, you have 10 points impact by the sales of the stocks sold by Sompo Holdings. And I assume that you have sold a lot of the Palantir shares. ESR is going up, but the base profitability is improving, and you would also get profit contribution from Aspen. So should you be able to still achieve that 13% ROE target without the capital adjustment? Or do you need to make that adjustment? Masahiro Hamada: Yes. Thank you for the question. So this is Hamada, and I will be responding to that question. On Page 19, we show the full year ROE target for FY '25, which is a first line on the table. Initially, we were expecting 10% ROE for the end of this fiscal year, but it has been revised up to 11.5%. But as we explained, there are many one-offs, primarily the nat cat impact. So when normalizing this, this 11.5% will be pushed down by a little over 1 percentage point. Also on a normalized level, the ROE for this fiscal year will be a little over 10%. And then we will have the Aspen impact and also improvement of the profitability. And with that, we can expect the ROE to be boosted by roughly 2%, but we will still be short of the 13% target. So beyond what I have explained, we are still considering this. So these are not fixed. But we have a few options. We can keep the current 13% target. And if it seems not doable, we may decide to adjust the denominator. Or as you said, this year, we have been actively selling our Palantir shares. And this is because the Palantir market cap increased significantly. And by selling our ownership, we saw some inflation of the denominator, which we were not expecting at the beginning of the year. So that has a negative impact of 1% on the ROE. So we can set the target for ROE, excluding this factor. So that will be a feasible option to consider. So leading up to the end of the fiscal year, we will discuss this matter in the management meeting. But having said all that, we cannot say that we do not need capital adjustment. We may need that or we may not need it. We cannot be too optimistic about the outlook. So we will continue to strive to build up both the denominator and the numerator. Operator: Next question is from Tsujino-san of Bank of America Securities. Natsumu Tsujino: So this time, you have revised the domestic business. As to fire insurance, profitability has been improved, while auto insurance is worsening. But fire has been performing well. So as Page 7 shows, well, this is the comparison with the previous year. On a full year basis, I don't expect that the comparison between first half basis, any case, the fire is getting better, auto is worsening. So I think that the similar trend that might be in the first half as well. My question is, to what extent auto has been worsened, maybe JPY 3.5 billion, as you mentioned earlier, and the improved profitability of fire insurance, that would have some impact in the next fiscal year. And in addition, auto insurance is going to be better -- should be better next year. Could you please give some color on that? Unknown Executive: Tsujino-san, thank you for the questions. First, about auto insurance, as you have pointed out correctly, increases in unit repair cost or in rate of accident frequency, some elements are behind the initial forecast. For the first half of the year compared to the previous year actuals, auto insurance losses have been aggravated by about JPY 2 billion after-tax basis. Given such situation on a full year basis, the worsening of about JPY 3 billion against initial forecast is expected. Meanwhile, as to auto insurance, in January next year, we are going to revise the rates and the rate increases will have full year impact for FY 2026. So while factoring in the shortfall against the initial forecast, we would like to make good catch-up so that we are going to achieve the earnings level expected for auto insurance in FY '26. With respect to fire insurance, its base profitability has been improving at every maturity. As a result of rate increases and other underwriting enhancement measures, we have been accumulating those efforts, and we are seeing good results this year. As you know, fire policy periods range from 1 year to 5 years. At every maturity, we will continue to improve our profitability. And we would like to make it sure that we are going to see good impact next year and beyond. Natsumu Tsujino: So my next question is, you have revised down the large losses. But without it, to what extent the business -- fire business has been improved. Large losses this time for this fiscal year, on a pretax basis, we assumed JPY 30 billion at the beginning of the year. Given the results of the first half, we changed it to JPY 26 billion. So after-tax basis, it's about JPY 3 billion add-on on the results. But as to this add-on, for example, as Page 5 shows, it will be included in the very first one, nat cat and large losses experience. And other than that, we have other elements such as the fire insurance, casualty, improved profitability and that impact will be felt next fiscal year. Operator: So next is Mr. Watanabe from Daiwa Securities. Kazuki Watanabe: Yes. This is Watanabe from Daiwa Securities. I have 2 questions. My first question is your thoughts about the sales of the Palantir stocks. Hamada-san, you have always said that you would like to use the proceeds of the Palantir share sales for M&A. So have you sold the Palantir shares this time to fund for the Aspen M&A? Or is it because the share price has gone up and the risk has also gone up? So that's why you decided to sell your stake in Palantir? Masahiro Hamada: Yes. Thank you for that question. My answer will be both. The share price has been rising significantly. And we are managing the exposure by setting an upper limit vis-a-vis our net asset value, and we have the opportunity. So we thought this was a golden opportunity. And we sold roughly 50% of what we owned. Kazuki Watanabe: I see. My second question is regarding dividend policy. In the Aspen M&A conference, you mentioned that the level of DPS may go up. But this time, you have not changed the dividend outlook. So if we were to raise the DPS, is it going to be happening from next fiscal year? Masahiro Hamada: Yes, like you said, we have not yet closed the Aspen deal, and we don't know the timing for that exactly. And we expect the profit contribution to be happening mainly from FY '26. So that's when we would like to raise the EPS. But other than that, we did revise up our outlook. So we discussed about the dividend. And basically, as we have been explaining, we basically do not want to lower the dividend and would like to raise it, reflecting our fundamental earnings capability. But this time, the upside mainly came from more moderate nat cat. So we decided not to change the dividend, and we would like to consider hiking the dividend next fiscal year. Operator: Next question is from Sato-san of JPMorgan Securities. Kazuki Watanabe: My first question is about Palantir and its size. So according to earnings report and looking at consolidated statement of changes in equity, I understand that you have transferred JPY 250 billion from investment in equity instruments to retained earnings. And you have about after-tax sales gains of JPY 90 billion from the selling of strategically held shares. That means about JPY 150 billion, the post-tax capital gains by selling Palantir shares. And earlier, you talked about the possibility of reusing those gains for Aspen. And as you explained at the time of the Aspen acquisition, there was some -- the investment profit loss in the funding, and you assumed about JPY 15 billion. Is there any expectation that this -- the loss can be alleviated or be less? Unknown Executive: Thank you for the question. And I cannot talk about details about any individual shares, but it seems that you have read correctly. And you're right about the first -- second half of your comments. When we were considering to acquire Aspen, of course, we did not think about how much we should use the capital gains from Palantir shares for the acquisition and so on. So we just set the rough percentage of the acquisition amount. And so based on that, I would say that the investment profit loss actually will be less than expected. Kazuki Watanabe: My second question is about domestic fire insurance and its improved profitability, especially when you look at expense ratio, in your plan, you originally assumed about 30% for fire insurance, if I remember correctly. But now I think it has been reduced, looking at Page 28. So original 30% expense ratio is now at 28.3%. And on an absolute amount basis, it has come down to some extent. So what kind of initiatives are involved there? Unknown Executive: Sato-san, thank you for the question. The expense ratio of fire insurance, well, initially, at the beginning of the year, we assumed about agent commission, and we were rather on the conservative side in assuming the commission level. But given the actuals, given the current status, what things are in a very favorable status and we have made revision. Kazuki Watanabe: I think it was part of your strategy to revisit the relationship with your agents. It's not that it is behind this revision. It's not emerging yet in this fiscal year. Am I right? Well, in that sense, I would say that the agent commission included, we are now working on the overall relationship with agents. And part of it is included in here as well. Operator: Next, Mr. Takemura from Morgan Stanley MUFG. Atsuro Takemura: Yes. This is Takemura from Morgan Stanley MUFG. I have one question, which is about how you think about ESR. So I am looking at Page 16 on the presentation. And you have indicated the impact of the Aspen deal, which is pushing down the ESR by roughly 30 percentage points, and you stand at 250.6%. So without the Aspen deal, it would have stood at 280% approximately. And moving on to the next slide on Page 17, you show that you have JPY 5 trillion of adjusted capital and risk amount of JPY 1.7 trillion. So the simple math keeps me 294%. And there's a difference of roughly 14 percentage points. So other than the Aspen deal, are there any factors that will be impacting the ESR? Unknown Executive: Yes. Thank you, Mr. Takemura. So regarding how we think about ESR, as we indicate on Page 17, and as you pointed out, we showed the adjusted capital and the risk amount. But this is a rough calculation, and we round down the numbers. So there is some gap between the simple calculation and the actual ESR, and that is the primary reason for that deviation. Atsuro Takemura: Also, you have sold some of the shares in Palantir. And even with that, the ESR will be in excess of 250%. In managing ESR, I'm sure that you are looking inorganic opportunities, including the one for the domestic well-being business. So a certain level of excess over 250% is going to be something that you will tolerate. So should we expect the ESR to be in excess of 250% to a certain extent? Masahiro Hamada: Yes, this is Hamada speaking. As we set the upper limit, we recognize that our ESR is in excess of that upper limit. And the reason we set the upper limit is because we want to achieve and manage the ROE. So we look at how is the ROE level and also how we strike balance between investment and shareholder return. So with that in mind, we deal with the capital that is in excess of the upper limit. Operator: Next question is from Sakamaki-san of Mizuho Securities. Naruhiko Sakamaki: Here is Sakamaki, Mizuho Securities. I have 2 questions, one for domestic business, another for overseas business. Starting with domestic business. I'd like to ask about combined ratio of auto insurance. Like fire insurance, expenses are lower than your initial forecast. Initially, you also assumed increase in systems investment expenses. So rate revision, agent commission and systems investment, all included. Could you please talk about profitability of auto insurance business? And if there's any time lag of booking for systems investment, could you please talk about that, too? That's my first question. Unknown Executive: Sakamaki-san, thank you for the question. As to expense ratio of auto insurance, here, the factors involved are more or less the same as factors for fire, namely the agent commission ratio, the contribution is significant there. And as to systems investment and other nonpersonnel costs and any potential time lag, well, things are moving on in line with the plan and the size or the amount involved remains unchanged from the initial forecast. Naruhiko Sakamaki: My second question is about overseas business. I would like to know more about the actual real performance. As to combined ratio assumption without discount, initially, it stood at 95%. It is now 94.9%. So the difference is only 0.1%. But the nat cat, the impact was revised down by $200 million. So maybe there are other factors which were actually worse than initial factors? Unknown Executive: So combined ratio without the discount, as we touched upon earlier, this fiscal year, the rate level and the contract terms, we are looking at those elements, and we are making a shift in our portfolio mix to casualty line. As to casualty line, for example, compared to property line, volatility is very low, while the expected loss ratio is a bit high. As a result, when combined ratio without the discount impact is in line with the initial forecast. The major reason there is the changes in the portfolio mix. So going forward, base loss ratio might go up, but the volatility will be less going forward. So compared to initial forecast, more changes in the portfolio mix. Operator: Sakamaki. So next, Mr. Sasaki from Nomura Securities. Futoshi Sasaki: Yes. This is Sasaki from Nomura Securities. I would like to ask 2 questions. First, on the improvement of the profitability for the domestic fire business. Is the magnitude of the profitability improvement going to get larger next year? My second question is regarding Page 56 of the presentation deck. You mentioned that for the overseas insurance business, the combined ratio compared to what you presented from the FY '24 results, the combined ratio projection seems to have been raised. Is it because the business is deteriorating from the original plan? Or is it because of the change of the portfolio mix that you explained earlier? Or is it both? And also, generally speaking, listening to the global insurance companies, they talk about the impact of the softening market. So looking at the Q3 and beyond and also for next fiscal year, what is your outlook for the overseas underwriting profit? Unknown Executive: Yes. Mr. Sasaki, thank you for those questions. First, regarding the improvement on the profitability of the domestic fire business, and is it going to be sustainable? As we explained earlier, as the policies are rolled over, we will see improvement in the profitability. So basically, this benefit will continue to be observed next fiscal year. But of course, the policies needing such improvement within our total portfolio will get smaller in terms of the proportion. So in that sense, if we look at the improvement year-over-year, the magnitude would be more moderate. And regarding your second question on the overseas combined ratio, like you mentioned, this is mainly because of -- due to the change in the portfolio mix and the impact is bigger than initially expected. Futoshi Sasaki: I have a follow-up question. So now looking at the same risk base or risk amount, do you see any lines of business where you see a big downward pressure on the rate? Or do you not have much visibility? Unknown Executive: Your question is around the overseas premium rate. Is that correct? Futoshi Sasaki: Yes, that is correct. Unknown Executive: Yes, I will take that question. It varies quite significantly depending on the line of businesses. As you know, for the property policies, we see softening of the market. On the other hand, for the casualty products, especially for the excess layer products, we continue to see relatively high rate. Also, we still see some hardening of the market. Also, we will underwrite in a selective manner to build a profitable portfolio. So that is what we have been explaining as a change in the product mix. Operator: Next question is from Majima-san, Tokai Tokyo Intelligence Lab. Tatsuo Majima: I also want to ask about fire insurance. So-called 2025 problem has arrived. It used to be like 30-year maturity, now more and more policies renew every 10 years or so. So from September '25 through September '26, during that 1 year, I think there will be more renewals than normal level. But that impact has not been factored in yet? That's my first question. The second question is about fire insurance premium. It seems that the premium is increasing faster from the first quarter to the second quarter this year. Is it because of some large policies? Or is it the phenomenon observed every year from first quarter to second quarter pace up in increase in premium? Unknown Executive: Majima-san, thank you for the question. As to your first question, fire insurance loss ratio and the impact of massive renewals coming up, if it is factored in or not. As to fire insurance loss ratio, as you know, denominator is insurance revenue or earned premium. And so -- as to massive renewals, basically, on a written basis, the renewals are expected to increase during this 1 year that you mentioned, but it would not give big impact on base loss ratio. As to your second question, fire insurance and its premium, you said that maybe there's some acceleration of the pace in the second quarter. Well, that is actually a phenomenon, which is unique for IFRS. In the first quarter, the insurance, the revenue was booked on the smaller side than the larger side. And in July to September period, usually partly because of nat cat, the fire insurance losses tend to be larger. So in the second quarter at IFRS because of this seasonality, insurance revenue tends to be booked larger. So it's not that there's some special factor or some unexpected against the plan happened. [Statements in English on this transcript were spoken by an interpreter present on the live call.]
Gary Arnold: Good morning to you all. Welcome to all our investors, colleagues and then our Chairman, Theunis, and we have Willem and Bridgitte from our Board here today. And then as I walked in, Anthony Clark said to me, he thinks he must be in the wrong place because he saw the old bugger here. So welcome, Chris. Hello to you. Chris has joined us today. Anthony called you the old bugger, not me. But let's dive into the presentation. We'll try and stick to the time. As you know, we are always quite diligent on that, and we'll get into the business overview. Fortunately, all green arrows, and Chris used to have a comment for this, which I'll steer away from. But absolutely a good scoreboard, revenue up 10%. One always likes to see that growth in revenue. That ultimately is what drives the bottom line growth, especially in an inflationary cost environment, and we'll dig a little deeper into where we generated that additional revenue from a little later. Profits up 11% to just under ZAR 1.3 billion and then headline earnings up 14% to ZAR 21.93. We closed the year with a very healthy cash balance, just over ZAR 1 billion. And on that, we're able to declare a final dividend of ZAR 8.80 a share, taking the total dividend for the year to ZAR 11. So good cash generated from operations at ZAR 1.7 billion, up 20%, and we will spend a lot more time on those numbers later in the presentation. It's very pertinent to point out that this was a tale of two halves as we've phrased it. And I thought we should give just a bit of perspective on what changed or happened between the first and the second half. And at our interim results in May, you will recognize some of these outlook prospects that we put up on the slides at that time. And it did point to some of the key drivers in the business coming through, which at the time were supporting a better outlook for that half. And we said then that we expected good prospects for the current local maize crop. I think we were the only ones, if you look at that, the first crop estimate committee number was 13.9 million tonnes, and we ended up on 16.3 million. So Anthony, I think perhaps we were the only ones in the trade that saw this crop coming. And -- but anyway, be that as it may, we had some good procurement there, and that helped with softer feed prices that we spoke about at the time. We certainly had lower finished stock levels in poultry. And as you know, we increased volumes from the 9th of March, adding an additional 400,000 birds a week to our production. And then we spoke a lot during 2024 after the tumultuous years of '23 with load shedding and bird flu, where we set sail on this transition journey or this journey to turn around the results and Project 3R was launched, Re-set, Re-start and Re-focus. And this past year was a lot about Re-focus. It's just to focus on the basics in the business and those key drivers, particularly in the cost of producing chicken, which is critically important to achieving the results that we see today. So this is the -- you'll see the waterfall later as we've called it before for the year-on-year comparison, but that almost clouds out some of the tailwinds that we had in the second half. So I wanted to just point to the movement year-on-year, and we reported a ZAR 271 million profit for the first half. That was down significantly on the first half in 2024, about 60%, I think at the time it was down. But then you can see the impact of the selling price recoveries coming through. We had significant selling price deflation through 2024 and into the first quarter of 2025. We had to go out there and look for some support in selling prices. Broiler margins were reported at that time of minus 1.1% negative margins, certainly not sustainable in any business, never mind a poultry business. We increased sales volumes. One would expect in the slide that this bar would have had more of an effect, but we should remember that in the first half, we sold a lot of product out of stock. So if you look at the 2 halves together, more or less equal sales volumes, but the year saw an increase -- quite a good increase in sales volumes over 2024, supported by feed price. So feed prices in that half coming down nearly 8% in fact. But if you look at the year, feed prices went up marginally. So again, very distinct results in the second half to the full year picture. Full year picture, feed prices went up ZAR 19 a tonne. Here, they came down in that half quite significantly by 8%. That resulted in the full year profit for the year at ZAR 1,247. So the salient points, now looking at the year-end perspective, poultry feed costs increased marginally. I've just spoken about that. And there was a lot of volatility through 2025 in the local SAFEX market. We managed to procure well, and we'll look at a chart of where the prices were later on, but we managed to procure well through the cycle that when we priced our feed in the second half, the market had traded at very high levels through 2025. Anthony will tell you that maize touched ZAR 5,700 a tonne at a point. So when you have good positions and we are pricing the feed into the market at replacement cost because every day you use the feed, you've got to -- or the maize, you've got to buy more to replenish it. You have to manage that very well into the market so that you're not replacing your maize with much higher -- or you're replacing with higher price positions, but we try and just hold on to any procurement benefits that we might have. On-farm broiler performance has improved. So notwithstanding the slightly higher feed price, feed conversion efficiencies decreased. And that, as you will remember, is the amount of feed used for every kilo live weight gain. So we used less feed again this year for every kilo of live weight gain. And that basically nullified the impact -- sorry, of the higher feed price through the year. So on-farm broiler performance is looking good. We will look at those metrics later. As I've said, we increased our broiler placements, and we sold what we produced. So we didn't produce it and put it in a freezer. Even through winter in the second half, we were able to sell what we produced with very manageable stock levels at year-end. Poultry selling prices improved marginally. Year-on-year, the selling price movement was 2.4%. Again, stands in quite stark contrast to what happened in the second half where we managed to recover selling prices to move those broiler margins back into positive territory. And we also benefited, and I think you'll see that in the slide later from an improved product mix. Now that helped support the basket and better poultry selling prices through the year. Our Feed Division, as you'll see, reported very strong earnings. They, in this integration and something we will have to demonstrate to the Competition Commission when we talk about the poultry market inquiry is that an integration works for you. It works in that you are able to support that poultry value chain through the year. Now our Feed Division obviously benefited from higher broiler placement numbers. They had higher internal feed production. So feed internally went up nearly 8%. But they also managed to sell more feed in the external market, which you always want to try and do. You want to grow your external market and fill up that spare capacity that you have in your feed mills. Notwithstanding the impact of ongoing diesel and water supply costs, we still have an average ZAR 10 million a month bill for diesel and trucking water up and down. ZAR 120 million for this year on the dot. It's a significant cost, and that's all about municipal interruptions, supply disruptions. So when you hear about national load shedding, that's gone, that's great. You see that. You don't see your lights going off any longer, but the infrastructure and the municipalities needs a lot of work. We did benefit though from the higher volumes, and we can demonstrate that a bit later where the economies of scale have supported lower costs in the business, lower operational cost per unit. Stringent focus on working capital. I mean, we've kept our focus on that line throughout the year as we were in this rebuild phase of the balance sheet. Last year, we clawed all the debt back. This year, we set ourselves the task of building cash, healthy cash balance on the balance sheet that will stand us in good stead for any future headwinds that may come our way. And in the poultry industry, they do. Those of you that are very familiar with the volatility in earnings, you will see that -- we will see that somewhere, but at least we are well positioned to deal with it. And then you all know about the cybersecurity incident in March. The only thing I want to say here is that there was no impact on the integrity of the financial information. There was a very thorough investigation -- forensic investigation that went into this by 2 companies and then the auditors, Deloitte went through this thoroughly, and there was absolutely no impact, fortunately, on the integrity of the financial information or data in the business. So we can stand here and say that the results we present to you today are 100% untouched by some guy hiding in the shadows in Eastern Europe. Okay. For the year, this is the movement, and that's why I showed you the half-on-half earlier on because you don't see the impact of some of those key drivers in the second half if you look at just the year-on-year perspective. What you will see through this year, though, is the quality of earnings in 2025 improved. We had a ZAR 250 million insurance recovery in 2024, and that was on the back of a number of natural disasters in 2023, bird flu, floods in Meadow Feeds Paarl in the Western Cape at our feed mill and a hatchery in the Western Cape that burned down. So recoveries in insurance there, which did boost the results in 2024. So you can see through the year, we got that assistance from selling price over the year with that recovery primarily coming in the second half. Volumes increased year-on-year as we placed more broilers, sold out of stock and increased our sales. We got the assistance from feed in the selling price and the benefit from feed conversion efficiency with our on-farm performances and the cyber incident we've spoken about. So all in all, an 11% increase in PBIT year-on-year. This is a slide that really tells a good picture together with the next one. You can see that in our first half of 2025, those margins under severe pressure. When we stood here in May, we reported margins of minus 1.1%, certainly not sustainable, increasing to 3.9% for the second half. And I think if you reflect -- if we go back to 2022, that was a 3.5% margin and a 5% margin and returning profitability at that time of ZAR 1.5 billion. So certainly, if you have the margins and you have the selling price and you have your cost base intact, there are drivers in this business that can support future earnings. We just -- as you can see, and I've spoken of the volatility, I mean, you try -- we often get asked what's an average margin? What should we be penciling in? Well, if you -- my guess would sometimes be as good as yours, I think there's a lot of volatility in this, and we're obviously going to try and keep it as best as we can above this line, the black line, but it depends on numerous factors, some of which are under our control, some of which are outside of our control like this horrible year here. Broiler selling prices against food price inflation. So the poultry selling prices are in this basket, the food basket. You can see the price deflation that we recorded or reported on through from December 2023 all the way through until around April this year, where we were able to get a selling price adjustment into the market. And I just would like to point out that our selling prices now are on average the same -- at the same level as they were in December 2023. So with inflation and costs and everything in between, our selling prices now are not higher than they've been historically. So it's certainly not record highs for the selling price of chicken. And this, as you know, gets harder and harder to get into the market, always a tough discussion with the retailers. And then, of course, we're always very wary and mindful of the pressure on consumers. This graph, we've always said, tells the whole story. If you had one graph you wanted to put up to tell you all what happened to Astral through the year, this is it. Definitely a tale of two halves. So you can see that I've put a red block around that one, a disappointing result in the first half, but certainly a positive result in the second half, which returned the business to a good level of earnings and financial performance. Just to remind everyone, this is the month-on-month, year-on-year movement in the broiler selling price and then the feed price. So you can see the price deflation coming through quite strongly here in the first half. At the same time, off the back of a smaller maize crop in 2024, we had this -- we had higher feed prices. We had spike -- the spike on SAFEX yellow maize at this time, and we'll look at that graph a little later. But we were able to procure well enough that our feed prices were softer through the second half, but we certainly looked to get some improvement in selling prices to cover input costs. Otherwise, those negative margins would just reflect again on the scoreboard, which is not the business we're in. So on the raw materials, I'm not going to go through this whole balance sheet, except to say that, that's the small crop in 2024, relatively small crop, which led to higher prices for maize on SAFEX and higher feed prices that we had through the first half of 2025. We then had the market -- quite a lot of volatility in the market. The first crop estimate committee report came out with a 13.9 million tonne crop. The last report being the ninth report at 16.3 million tonnes. So through all of that uncertainty about delayed planting, the late rains, the grade issues, everything that followed, there was a lot of volatility in maize prices. And we eventually reported or harvested a crop of 16.3 million tonnes. Now the progress -- planting progress for the current crop is well above the 5-year average. Today, we're sitting at about 44% planted. So good progress has been made on the planting of the current crop, and we've had some good rains. So I expect and what we can see, we've moved into a La Niña weather pattern, which means -- usually means good rains for Southern Africa. And if these rains continue and it rains at the right time through the growing season, there's no reason why the prospects for the maize crop that will be harvested in 2026 will not be any worse than this year. That will support favorable maize prices into poultry feed. In fact, we believe that if we produce this crop, you'll see the carryout increase, we should move closer to export parity pricing. And there's probably about ZAR 200 a tonne downside in that on July 26 contracts, which are trading at the moment about ZAR 3,500 a tonne. So good levels for poultry feed. You can see the volatility through 2025 in the maize price. I mean you had to choose your moments here where you wanted to buy. But certainly, Astral positioned ourselves well through this volatility. We did not participate in this which is why you see those softer feed prices coming through in the second half. And then more recently, through the latter half of this financial year or calendar year, SAFEX has dropped quite dramatically on the back of the news of the big crop of 2025 and the prospects for '26. So all you can do in this market is just keep buying, hold a good position. As you know, we always have to have 3 months of maize in the pipeline. Here, you keep buying and every day you buy, you can reduce your average price. In a falling market, don't always look as good as you could be. But if you don't buy, you're going to be waiting for some bottom that someone must tell you where it's going to be and then you're really a speculator. You can see a little bit of an increase in SAFEX pricing just lately, and that was of some volatility in the Chicago Board of Trade with funds taking up longer positions on corn. Soy meal, this is a story to tell. I mean we really -- protein input prices are very good. We're well positioned here. If you look where the market came off about 2 years ago at record highs, ZAR 13,500 a tonne. You could flat price meal during the year now at ZAR 6,500 a tonne, good levels to feed chicken. And then, of course, the rand-dollar exchange rate, very stable, which takes those shocks out of any movement that you will see something coming through with shocks on Chicago Board of Trade. But with very good global coarse grain balance sheet, the world is not short of maize and soybeans right now. The U.S. has had a good crop, harvested a good crop now. South America has had a good crop come off. South Africa has had a good crop come off, and you can see that Chicago is trading those fundamentals. So good global outlook, good local outlook for maize and soybeans, and then you have some stability in the rand-dollar exchange rate, which brings that price relief or favorable pricing levels to SAFEX. Very quickly on the Feed Division, revenue up here 9%. That was driven by an increase in sales volumes of 6.5% and selling prices up 0.6%. So that selling price movement reflecting that increase in raw material costs across both years, not reflecting the softer feed prices in the second half. Operating profit up 31%. So you can see the momentum that comes through. You place more broilers on the end, they eat more feed, you get this big pull into the feed mills in Astral, and you have these volumes coming through. Then you add external volume growth to that, and this is -- you cover your fixed costs even better. You have better efficiencies in your feed mills coming through, longer runs of all the broiler feed we make, and then this is the result. So to the Feed Division and the Meadow Feeds, a really good result for the year. And I think this -- we only saw something like this in 2023 when we had all of those feed volumes going to the Feed Division on the back of load shedding and the big bird era, but the Poultry Division was suffering because of the cost. So this is really a true reflection of what the integration of the business can do. Margins up to 6.6%. And expenses on a rand per tonne basis very well controlled. You can imagine what these volumes do. We've seen the graphs for these 2, so I'm not going to cover that again. But the internal volumes up 8%, external volumes up 5.6%. And that growth was largely in the external poultry and pig feed sectors. So saw some nice growth there with some of that coming through in the Western Cape. Expenses well controlled. And again, we saw a net margin per tonne increase in the division. So a good return from them for the group. Sales mix here remained largely unchanged, still about 60%, more or less internal feed and the balance going into the external market with a very important component in the other being dairy, making up about 25% of the sales. The Poultry Division, we'll cover this in some detail. Revenue up 10%, driven by volumes and a little bit of selling price recovery at 2.4%. But if you look at the volume growth, nearly 8% in this division year-on-year, which has really supported a good performance and turnaround in this division. Breeder revenue up 4.6%. We'll unpack that a little later. Now when you look at this graph, you'd say, well, you've had -- it's been a good year, but operating profit in poultry was down. That's where we come back again to that quality of earnings number. If you take out the hatchery fire and the bird flu insurance claim, which amounts to ZAR 231 million in this division, the underlying improvement in their results is just under 53% year-on-year without that one-off item in the insurance recovery. So a good result in the Poultry Division and certainly one that we're pleased with through the year with all of that recovery coming through in the second half. You'll remember, in the first half, we had a negative PBIT here. We've already spoken about the margins. So the average broiler net margin over the year, 1.5%. It still remains thin and vulnerable to any headwinds, 1.5% margin, if you look at that graph that we showed you earlier on, is thin in the business. And if you just have any shocks, that comes under pressure again. So a lot of focus then on rebuilding cash reserves, which you'll see later. Dries will go through the balance sheet in detail, which sets us up in a stronger financial position than we were 2 years ago or that we were even in a year ago. Of course, with higher volumes, your variable expenses increased, but those volumes assisted your overhead production costs, your fixed costs and our per unit -- per kilogram production cost for every chicken produced came down slightly for the year. So that's the benefit of scale, the benefit of volumes in the business. And then our finished goods stock levels, we've used the word substantially lower than at the end of 2024 because they are -- in fact, they were substantially lower than they were then, with the higher production we have now filtering into the system. It's not sitting in a freezer, and we are selling current production. And by the end of this month, we will surpass 6 million birds a week. This is the sales mix. So we spoke earlier on about a bit of support from the product mix. I'd like to just point out the IQF singles on higher volumes increasing in the year. We still sold 6% into the QSR sector, but on higher volumes. We sold 13% of the mix in fresh, but on higher volumes. So we had growth in IQF. We had growth in fresh. We had growth in QSR. We had growth in value-added. And within the IQF component, we had growth in IQF single portions, which attracts a better NSV. So all in all, support from the product mix with that improvement in selling price. On the Farming Division, Farming Division again had a good year. If you look at Ross Poultry Breeders, our sales of parent stock decreased slightly year-on-year. That is because in 2024, we saw a recovery of parent breeding flocks around the country. So after bird flu in 2023, a number of our customers were restocking. There was quite a big pull on volumes from Ross Poultry Breeders in that year. And certainly, once those flocks have been settled again and stabilized, the volumes in the market this year saw a more normalized level of parent stock sales into the market for -- from Ross Poultry Breeders. Certainly, better demand for day-old chicks this year, and we were able to increase the sale of day-old chicks into the broiler market. Feed input costs increased marginally. We've spoken about how the feed conversion rate offset that increase. Broiler production efficiencies improved, once again demonstrating the good genetic potential in the Ross 308 bird. If you couple that to good feeding practices, feeding programs and good on-farm management, you can generate again what we see as an all-time high reflecting in these broiler performances. And bird flu, we'll speak a little bit about in the outlook. I won't cover it here. These are the broiler performances, all indexed of 2015. So weight and age, average daily gains were slightly up by 1 gram per bird per day over the life cycle of the broiler, but weight for age more or less the same as it was last year. You can see the live weight there, pretty flat and the age pretty flat. Where the benefit came through, though, and unfortunately, given the scale of the graph, it doesn't quite show as much as we'd like to, but feed conversion rates did improve in the year, and that's where we got the benefit in live cost from feeding these birds efficiently and producing every -- or more kilos of meat for every kilo of feed produced. PEF improving at an all-time high. Just very quickly, some industry matters, a couple of topical points. Imports fell off quite a lot during the year, and that just had to do with bird flu around the world and the Brazil closing its borders to exports or rather South African closing its borders to imports from Brazil with the bird flu risk that presented itself there during the year. As soon as they open though, the borders, we've seen an increase again in imports. And we do understand there's quite a bit of chicken on the water. I mean, one needs to -- tend to look into the numbers. I mean about 80% of that though is MDM and bone-in portions. And if you break that down further, about 65% of that will be MDM and 15% bone-in portions and the rest will be tertiary. So Year-on-year, actually a decrease in the import volumes, but really just as a result of Brazil's bird flu. The industry is still producing around 21.1 million birds a week. And if you add imports to that, they make up about 19% of local consumption. Bird flu, we'll talk about in the outlook. It's still a risk. There's still outbreaks in the industry, unfortunately. And as early as last week, a further outbreak was reported. One point that is concerning for SAPA is the AGOA poultry import quota. That's about 72,000 tonnes per annum that's free of the antidumping duty from the U.S. with the 30% tariff imposed by the U.S. and then the expiry of AGOA or notwithstanding the expiry of AGOA, this quota should have already been removed, but it hasn't been. So we are taking this on a legal review with the Department of Trade, Industry and Competition. We believe they're still holding on to it to try and get a deal over the table with the U.S. We seem very far away from that if you read what's going on in the newspapers lately. And we trust they're not using chicken as, no pun intended, a trump card. But all we've asked for is a seat at the table. We want to be part of that conversation if they give up anything on behalf of chicken in this country. And then you all know about the poultry market inquiry and the final terms of reference that were published around that. I'm going to hand over to Dries Ferreira now. He'll take you through the financials in a lot more detail. Thank you. Thank you, Dries. Johan Andries Ferreira: Something that I just need to quickly highlight here is the efficiency with which we record or convert that revenue line into an operating profit environment. It's really a very healthy operating environment with the trim in the business coming through in the quality of earnings. Operating profit margin, although it stayed flat at 5.5%, really had a much better quality of operating profit. As a result of the quality of the balance sheet improving, you will notice that the finance charges line has improved tremendously year-on-year from the ZAR 138 million cost to ZAR 55 million cost, which includes the right-of-use liabilities, the right-of-use assets with the liabilities attached to it. Overall, net finance cost has come down significantly year-on-year. We, therefore, recorded a profit before tax of ZAR 1.2 billion, up 18% year-on-year and a profit from continuing operations, up 16.4% at ZAR 876 million. Our headline earnings per share on a rand value, ZAR 844 million, and the main difference between the profit of ZAR 876 million and the headline earnings of ZAR 844 million being the disposal of some properties and PPE that generated a profit, which we add back for headline earnings. That leaves us with earnings per share of ZAR 22.76, up 16% and headline earnings per share of ZAR 21.93, 14%. The group annual revenue all the way from where Astral listed in 2001 really tells us the story of an ever-increasing revenue line. And we've got them split into the different divisions, the gold bars showing the Feed Division revenue growth over the history of Astral. The blue bar is the Poultry Division and then the red line showing the group consolidated revenue. And again, just outlining there that hardly ever does the revenue in the group backtrack. We've got an increasing profile in the revenue, which means we're always growing volumes and trying to recover price from the market as we've got the input costs coming into the business. It's a very important aspect to the business to recover the input costs, obviously, to protect our net margin. But over time, there's a significant evidence of that ability to recover input costs. If you look at the different divisions, we've got ZAR 10.8 billion revenue in the Feed Division for this year and ZAR 18.8 billion revenue for the Poultry Division. The group, therefore, coming in with a consolidated ZAR 22.6 billion. Here we go. Annual operating profit recorded per segment or per division, all the way again back to 2001 demonstrates the volatility of the group's profitability. But if you look closer, you'll see that the Feed Division really is the -- as we always referred to it, the banker in our operating performance. And those are demonstrated with the gold bars. You can see this year's operating profit from the Feed Division at ZAR 714 million. Going back in the history, you'll see that, that's a very good performance. Poultry Division demonstrated on the blue bars, you can see the volatility really coming to a fall in the Poultry Division. And that really comes as a result of the fact that we've got feed cost pushes up, and it always takes time to recover that from the market. And therefore, the Poultry Division becomes the ham in the sandwich, so to speak. Operating profit for the group demonstrated on the red line, and we've demonstrated here as an operating profit margin, coming in at 5.5%, again, just referring back to the quality of the 5.5% versus the prior year's 5.5%. And if you look back at the history of the group, again, as Gary also outlined earlier, the volatility trying to peg a number of average margin is not that easy. But as he says, your guess, it could be as good as mine. But definitely a healthy margin at 5.5%, and we have done better in the past, but also worse. I think the reality is that if you look at the quality improving year-on-year, it really bodes well for the foreseeable future. If we unpack it into half year performances, it really starts to outline the quality of the second half earnings for the group. And I'd like to point out that ZAR 976 million operating profit for the 6 months, the second 6 months of this financial year is the second best half year reported profit in 50 cycles since the listing of Astral in 2001. So it really was a significantly strong performance for the 6 months and evenly weighted or well balanced, I should say, between Feed Division performance and Poultry Division performance. If you look at the green line and the red line, we really want to point out there that the green line reflecting the feed price change year-on-year and the red line, the poultry selling price, the broiler selling prices into the market. As you can see, in the 6 months, we've had a reduction on the feed cost input and a recovery in the selling prices. And you can see how sensitive the Poultry Division is coming off a loss of ZAR 26 million in the first half to a profit of ZAR 559 million in the second half. I think one of the highlights of this year's results is the quality of our balance sheet. As Gary also outlined earlier, we were on a rebuild phase, a Re-set, Re-focus, Re-start for the last 2 years being birth out of 2023, the dire environment that we operated in with the load shedding and the bird flu, which wiped out ZAR 2.2 billion off our balance sheet. We concluded the rebuild this year. And if I can just quickly run through that, the equity line at the bottom of this table shows a 13% improvement in our NAV in the group from ZAR 4.752 billion to ZAR 5.375 billion. The main drivers behind that, if I can jump to the top of this table, I'll run it through line by line. Our noncurrent assets, our PPE improved by 3%, showing that we are starting to spend on capital investment in the group, which drives efficiencies and ultimately improves the returns in the group. Our noncurrent assets, our right-of-use assets, at least, has increased from ZAR 178 million to ZAR 286 million, and that is coupled with slightly down on this table, the lease liabilities, which increased from ZAR 184 million to ZAR 294 million. And that mainly relates to long-term leases, mainly relating also to the transport contracts that we run in the group. And there, we've renewed a contract a year ago. You'll recall that a year ago, we had a capital commitment of ZAR 125 million that we brought in from for County Fair, and that one has obviously been started in November last year. And that is the increase in the right-of-use assets. Net working capital decreased by 11%. And that really demonstrates the quality of the working capital management in the group, coupled with the strong pull in the Poultry Division, feed -- for the Poultry Division finished inventory positions, which I'll unpack in a slide later. You'll notice the current assets is the big driver for that improvement coming down from ZAR 4.872 billion to ZAR 4.61 billion with current liabilities flat year-on-year. Noncurrent liabilities, mainly our deferred tax balance and borrowings that's in there, up 27%, and that really demonstrates the deferred tax position that we have in the group where we have a lot of benefit from the tax regulations because we are classified as a farming environment. Therefore, the net assets down 8%. Those are the productive assets that we engage in the business of which we generate our operating profit. And you can see that it's really a good story if you take the balance, the reduction of net assets and the improvement in quality of earnings. It really positions the quality of the financial statements all the way around. And therefore, the big story for the balance sheet is the fact that we restored our net cash balance. We managed to generate a net position of ZAR 1 billion in the year after everything considered, and we moved from ZAR 13 million cash a year ago to ZAR 1.013 billion at the end of September 2025. Capital expenditure, depreciation and amortization for the group ZAR 331 million, a slight increase year-on-year. Two buckets driving that one, PPE, property, plant and equipment at ZAR 241 million and the right-of-use assets, which we touched on earlier at ZAR 90 million. The total CapEx, however, is up strongly year-on-year, and that number is expected to be even stronger for the period lying ahead as we start to reactivate our investment programs after the Re-set, Re-focus and Re-start cycle that we've been through. But also linking that ZAR 336 million total CapEx number to the total depreciation, you'll see that we are very much in line with our depreciation for the year. If you look at the breakdown of that into replacement and expansion, you can see that the replacement CapEx or the maintenance CapEx in the group has received a lot of attention, and that will improve over the period going -- lying ahead in the foreseeable future, and we expect a strong total capital expenditure number there that will drive efficiencies and productivity. Outstanding commitments at reporting date, ZAR 159 million. The main items in there, there's quite a lot of items in there that makes it up. We've got a lot of capital projects undergo at the moment. But the two ones that stand out is really the refrigeration upgrade at Goldi, which increases our capacity. As Gary said, we will, by the end of this month, be just north of 6 million broilers per week being slaughtered, and that is the one activating that profile. And then also we're increasing our hatchery capacity. On the working capital, really a good story to witness here is the current assets coming down by ZAR 262 million in total. The main drivers of that being the poultry inventory. You can see they're coming down from ZAR 1.169 billion to ZAR 682 million, an improvement of ZAR 487 million in cash coming into the balance sheet. The Feed Division inventory position has improved by ZAR 42 million. And the trade debtors, although an increase of ZAR 294 million, it's a healthy increase. We really run an exceptionally clean debtors book in the group, running at a very good profile. All the debtors there is collected. We're really sitting with just about no debtors outstanding beyond due dates. So really an exceptional performance by the credit control team. Current liabilities, as I said earlier, flat year-on-year and net working capital, therefore, improving by ZAR 262 million. On the cash flow, really clearly demonstrated with this waterfall graph. Coming into this financial year with ZAR 13 million cash on the balance sheet net generating ZAR 1.5 billion cash operating profit. Working capital changes of ZAR 276 million. You'll notice the difference from the previous slide. It's really the IFRS application in terms of what working capital changes needs to be rolled back into that cash operating profit profile. And then we've got proceeds from the sale of assets, which I touched on the income statement being the difference in the headline earnings per share versus EPS, earnings per share. So there's a cash proceeds of ZAR 69 million that generated a profit profile that needs to be added back. And then we've got tax paid, ZAR 127 million. Again, the difference between that and the tax charge really driving that deferred tax liability on the balance sheet. And then we've got capital expenditure paid in cash, ZAR 328 million. And then the resumption of dividends at the end of last year with our final dividend being declared of ZAR 5.20 and interim dividend in the first half of the year of ZAR 2.20, translating into a cash payment of ZAR 285 million to shareholders. Closing off with ZAR 1.013 billion on the balance sheet in cash. Headline earnings per share history. Again, you can see the full history here, some volatility in the number. We all know where that comes from. But I think the story to be identified here is the fact we're paying a ZAR 11 dividend this year, which is a 2x cover of our ZAR 21.93 headline earnings per share number that we generated for the year. In summary, we've managed to convert our revenue into profitability on a very clean basis and that generated a significant cash inflow of ZAR 1 billion net for the year, which we could use to redeploy into reinvestment in the business, our capital expenditure profile at ZAR 336 million and returning ZAR 8.80 in the final dividend to shareholders. Thank you. Gary Arnold: Good. Well, thank you, Dries, for unpacking the numbers a bit further for us. As usual, we'll give the investors a view of how we see the near-term future and balance that with some slightly negative aspects that we see out there. I don't think we can stand here and be completely negative about the future. Otherwise, Anthony is going to look at me and say, you're playing your poker face. But certainly, there are some aspects out there that still concern us. And the #1 risk in the group remains bird flu. I think we must be ever mindful of that. There was an outbreak in KwaZulu-Natal just a week ago. And we are starting to see more and more, and this is across the globe that this isn't just a winter disease. You're seeing it in summer, now on the weekend in the press, they were reporting an outbreak in African penguins. So just off the coast here, which is concerning. So certainly not a winter disease any longer. And there has been slow progress on vaccination. You remember, we reported that we had approval to vaccinate one farm. We received that earlier in the year, which is about 5% of our breeding stock. There was a word in here on Friday that said with very slow progress. And then at about 4:00 on Friday afternoon, Dr. Obed Lukhele, our Head Veterinarian, gave -- dropped us a call and said, guess what, we've just received another 2 permits for vaccination. So we took very out -- just to change it to slow progress because it has been rather slow, even though we now have approval, and we'll look at the timing of that, but we have the ability now with those approvals received to vaccinate up to 30% of our breeding stock. And in the absence of compensation, still an ongoing battle with the Department of Agriculture and in the absence of insurance, good biosecurity and vaccination as a tool in the toolkit is what we have to manage the disease. So under very controlled conditions, we've been allowed to vaccinate, certainly not supporting blanket wholesale vaccination across the industry because that comes with other risks. But under controlled conditions, we are applying a vaccination strategy to deal with bird flu. The economic growth outlook does remain subdued. I mean, notwithstanding some positive signs we've seen in the week, they're talking about a possible interest rate cut and the Monetary Policy Committee getting together soon to look at that. That will have -- does bring some relief to consumers. But I think on the larger front, we need to see growth and development in the country that will create jobs. Without jobs, unemployment remains persistently high, and that just places additional pressure on household disposable income. So we -- that hasn't gone away, and it might seem a bit laborious as reporting it here, but it is a fact, and we need jobs in the country so that people can buy a better food basket and which ultimately put protein in there in the form of chicken. The AGOA preferential trade access, we spoke about that earlier on. This quota is still in play. And we are not sure what will happen with that. Time will tell, although we keep on letting the minister know that we hear and we're available to chat to him. But certainly, the tariffs at 30% and AGOA falling away, will have negative consequences for the country. A small reprieve for the citrus sector on Friday was that President Trump signed an executive order exempting South African citrus from the tariffs. They're a bit short on oranges and apples all of a sudden. So he's now signed that so that our fruits at least can flow into the U.S., free of those tariffs that he's imposed. So that's a small positive sign for that sector in South Africa. And then the poultry market inquiry was launched. It's very wide in scope. It's stealing from every point in the poultry integrated value chain from genetics all the way through to the retail sector. It's very wide in scope, and it will take time to conclude, and we're not sure what the outcomes will be. I mean there's a number of these market inquiries that have been conducted over the years. There are recommendations that are made. Time will tell what that means for our industry. What they're looking at is barriers to entry. They want to try and establish why we have large integrated poultry producers, how does economies of scale benefit poultry production in the country. But we're not unlike any other poultry market across the world in terms of how we produce chicken. So anyway, we'll engage this process positively, and we will wait for those outcomes. We put it on the slide as a little bit of a negative because it is going to take up time and it remains something a little uncertain. I think this -- can we just move to the next slide manually, please. Thank you. On the positive side, as we've already covered, maize prices are favorable, and we expect them to remain favorable unless it just doesn't rain in January and February next year and completely dries up, which we don't expect with the outlook that we have on the weather patterns. We are in the La Niña phase right now. We've moved into that, and we expect that to continue through the South African grain season. So we've had a large harvest in 2025 and a large harvest is expected in 2026, but we've still got a long way to go. A lot of water under the bridge to go, as I say, and we'll keep a close eye on the weather and other metrics there in our procurement strategy. We have increased and are able, by the end of this month, to increase Astral's production volumes again. This does positively benefit economies of scale as long as we can sell it. And the market seems to be very well balanced in terms of supply and demand at the moment, and we are moving into a festive period. And we have this ability or we had this ability to bring these additional volumes to market through the large capital expenditure program we embarked on a few years ago to increase our capacity by 16%. So we were always well positioned with that, and that has supported growth in the retail and quick service restaurant sectors. You see quite aggressive growth there with store rollouts on a monthly basis. And fortunately, they're all looking for chicken. Investment in process and product innovation, some of this is happening as we speak. And there's a couple of nice projects in here or good projects in here, which will enhance our manufacturing capabilities, support efficiencies in the business and will also lead to a product mix -- well-balanced product mix and certainly not indicating there that we're moving away from any one part of that product mix, just balancing that market well. And there are products outside of that, that we use in the integrated value chain that are not necessarily just chicken in the bag at the end of the day, but also ingredients that we produce that support a better feeding cost. Astral stated strategy hasn't changed. Our Board reconfirmed this in February at our strategic planning workshop. We are the best cost producer or we will endeavor to remain the best cost producer. And we're just keeping that steadfast focus on efficiencies. And all my colleagues will know that we keep on having this conversation. And we do have a group-wide awareness campaign around this, which we will keep on talking about because it's critically important that we streamline all our objectives to support this without the best cost producer strategy, we cannot be a supplier of affordable protein to the country. And then we have a healthy balance sheet, which Dries has spoken a lot about. This does obviously then support to key strategic capital investments, which will bring cost benefits, improve efficiencies. And then we must always look at how we will drive volume growth into the future. So this some positives on the outlook and certainly lend themselves to supporting the earnings in the business. If we can just call, I think this is a start. Thank you. I'd like to thank you for your attention today. From my side, thank you to all my colleagues in Astral, and these are your results, and without all the hard work that all of you put in every day, certainly wouldn't be possible. So enjoy the moment. This is your report card and scorecard, and it looks good. And then as you know, Dries is moving on to the industrial sector. I think after 3 years, he didn't -- he thought he had enough of poultry. But Dries, best wishes, and thank you for your support. We've told you, sorry to see you go, but good luck, best wishes. Thank you. Marlize, any questions? Marlize Keyter: So we'll take questions from the floor first. Gary Arnold: Any? Unknown Analyst: In terms of your second half sales increase, is there a correlation as a result of one of the competitors closing down or going into business rescue? Or is it a function more that the consumer with interest rate environment started consuming more chicken? Gary Arnold: No, there's a correlation with the industry consolidation that we see. I think everyone picked up some volumes there. We were in the fortunate position that we had capacity to do it. And it's got more to do with the fact that the country still needs to produce the 21.1 million, 21.3 million birds a week. So we have participated in that. But there's also been growth in the retail, wholesale and quick service restaurant sectors. One thing I can say, and we believe it does support volume growth through that period as well is that foot and mouth disease took hold in this country quite severely through the year. And you'll see the rally in beef prices. If you go later into the slides, we've got all the additional information. Beef prices rocketed in the year on the back of foot and mouth disease and the quarantine of livestock there in the feedlots. So certainly, that may have played a role as well in supporting the volumes in chicken and poultry. People still buying protein, meat to eat. And those that couldn't afford to buy beef, the next best thing is in chicken. So we do believe that played a role as well in the pull that we've seen for chicken through winter, which was traditionally your slower season. We certainly didn't see that drop off on fresher bird, yes, but not on frozen. Unknown Analyst: Then my second question is then as a result of that volume increase because of that event, is the price increase the same? As we know that, that entity was selling chicken at a loss previously, which was bringing the whole market down. Gary Arnold: So -- I mean, I think that points to some of the recovery in selling price through the second half. I mean, as you rightly said, there was the market pricing, and the market was suppressed, particularly through the latter half of 2024, a very competitive environment for frozen chicken. And there were prices out there that just were not recovering input costs. And our responsibility is to recover input costs. And I think we've managed to achieve that through the second half, which reflects in the margins. Anything else online, Marlize? Marlize Keyter: No, there are no questions, Gary. Gary Arnold: Okay. Then we've done pretty good job of covering it all. I'd like to thank you all again for attending, especially all of those -- there's a last question, a last entry. Marlize Keyter: Charl Gous from Bateleur Capital. When we review the FNB agri data report, it seems Astral's broiler price realization lags the data published in the report. Can you comment on poultry pricing achieved and how we should review the data released by FNB? Similarly, CPI data point to more muted price increase in poultry selling. Is this the more correct number to monitor? Gary Arnold: With all honesty, I don't know a lot about the FNB data that you're referring to. I mean we use some of it in a later slide, but in other proteins. If I could just give you some advice, refer to the SAPA average selling prices that are published in their production reports. They take information from the whole sector, go through a third-party Chinese walls, that's assembled, put together, probably a very reliable source of information when it comes to selling price trends. I'm not saying the FNB data is not. I just don't know the source. It could be on-shelf pricing or not, but the producer pricing that we provide, I think, is a reliable source. And you'll see that, that is included in a slide later on in the show. Marlize Keyter: The second question, the balance sheet is strong with improved cash generation expected. How do we view the potential for special dividends in the short term? Gary Arnold: The Board has, as you know, taken a decision for -- to declare dividend, final dividend at 2x cover, and that was with cognizance of our CapEx program going forward. I think the first task for us as a team was to rebuild the balance sheet. We've just done that. So certainly not walking out of that immediately thinking about special dividends. But looking at a project pipeline where we have as you'll see the CapEx for 2024. And we had to pull the reins back a bit with the cash that we bled from the business in '23. And '24 was a rebuild phase. So certainly, we have good places to spend the money. We will apply those funds wisely. And again, there's a lot of projects in there that will benefit the business going forward and improve earnings over the longer term. So we should look at that first. And yes, then it depends on the cash. We'll make those decisions as and when necessary with the Board. But certainly, no shortage of projects right now that we don't need the cash. So not looking to dish it out too soon. Marlize Keyter: Thank you. His third question, can you provide a poultry volume target for full year 2026? And what percentage increase do you target? Gary Arnold: Look, I can't. I think -- I don't think we can say, Marlize will kill me if I give you a forecast like that. We're going to produce, as we've said, 6 million broilers a week. We must sell that. It's not good we produce it and put it in a freezer. So it's going to depend largely on market conditions through the year. We are only in the second month of our new financial year. We're in the -- we're going into festive period, so good demand at that time. But normally in January and February with all the obligations that families have towards school fees and everything else and spent all their money through Christmas, you do see a softening in the market. So we've always said we must balance our supply with demand. And we're not going to be reckless about that. And there's always a lead time to that. It's at least 8 weeks, 8-week window we have to look into to balance it. But certainly, we'll need to -- I can't just say we're going to keep on producing and keep on selling. There needs to be that pull from the market. Marlize Keyter: Rajay Ambekar from Excelsia Capital. Do you expect imports to drive pricing pressure going forward with cost dropping and the rand being strong? Gary Arnold: It depends on what's in those imports. MDM makes up a large portion of that clearly because the country doesn't produce mechanically deboned meat. We sell the whole carcass, stripped carcass. So we don't produce MDM here. And that continues to be the largest portion of those imports with bone-in portions making up some of it and then offal or tertiaries making up the rest. It depends what happens to the volumes around imports. I think we should remember that we now, as a country, have an antidumping duty in place against Brazil and 4 European countries. The AGOA quota should be removed. The U.S. are having a bad time of bird flu, so hardly any chicken coming out of the U.S. to South Africa. Europe countries are opening and closing as bird flu hits their borders. So it's quite a disrupted -- quite disrupted trade flows at the moment. And most of the imports are coming out of Brazil. And again, a lot of that is MDM. So difficult to say that there will be this flood of imports, and it's going to impact pricing in the country. We have an MFN duty, most favored nation duty plus antidumping duty against Brazil, which was implemented a couple of years ago already. And that's a better position to be in than we were a few years ago. Marlize Keyter: Charl Gous, would you like to extend your feed procurement beyond 3 months given favorable feed input costs? Gary Arnold: We've got a procurement committee that looks at all the inputs, the technical data, the weather, recommendations from the trade and our suppliers, and we take a view. So certainly, if we need to take a longer position, we do that. We will determine what that strategy will be. And then we've got a daily procurement execution team that will go and fill that book. Our minimum coverage there is 3 months in the pipeline. That's really just to get physical deliveries to the mills. But certainly, we do from time to time, hold a longer position than that. And in the maize market like we're currently pricing, I don't think it's unreasonable to expect to hold a longer position. Marlize Keyter: We've got an audio question from [ Tabang Kapindayi ]. Unknown Analyst: It's Tabang Kapindayi from the University of Johannesburg, doing my PhD research, specifically on feed efficiency and antimicrobial resistance, which focuses on multi-omics in poultry systems. My question is for the leadership. And also congratulations. I've also send my congratulations also to the team as well on the impressive turnaround and a strong cash position. My question is on research and development because I have noticed that it was also mentioned like throughout your impressive like presentation. Given that the feed cost represent like 66% of your production cost, your single largest, obviously, expense at the moment. Could you outline the specific research and development initiatives prioritizing to systematically reducing this cost burden and to protect your margins? I'm particularly interested in the role in advanced nutritional science. So if I can just understand the priorities in terms of research development in that regard. Gary Arnold: Thank you for the question and the well wishes. Certainly, I mean, we have an ongoing research and development program. We've got a broad team of nutritionists in the group. We've got veterinarians in the group that are constantly working on feeding programs and feeding specifications to exploit or maybe a better word is -- what's the word I'm looking for, Dries? Yes, is to get the best genetic potential that exists in the bird in performance out of that animal. So we do have in-house R&D. We do have in-house testing facilities, and we are constantly testing feeding programs and developments in nutritional science with new ingredients, feed ingredients out there and as such to improve our performance -- broiler performances and thereby support a better feed conversion efficiency. But certainly something that you welcome, we can always set up some engagement with our nutritionists to explore this a bit further. Unknown Analyst: This is a follow-up question. Yes. I was saying that like have you also looked into maybe collaborating with -- considering maybe like this, what you have already presented, as Astral maybe considered collaborating innovation models with like universities and institutions, particularly like with the feed industry, with the feed sector, AMR reduction as well as precision maybe nutrition trials, even though you have your in-house and also maybe collaborating with academia. Gary Arnold: Yes. We do collaborate with academic institutions, both locally and abroad. So we draw on technical know-how abroad and research just performed overseas as well as locally, and we do have relationships with a number of local tertiary institutions. Marlize Keyter: [ Harold Sigola ], given the financial results, what is your view on reinvesting profits versus cost containment for the coming financial year? Gary Arnold: Well, we always -- cost containment is a continuous focus point, and that starts with managing the business right. So we will always look at opportunities to reinvest profits. Obviously, we want to as long as possible. We'll keep on rewarding shareholders as long as there's profits there to do that. And then if there's profits there, we need to reinvest them back in the business. It's a large business, requires a lot of repairs and maintenance and capital expenditure in maintaining or upkeep of the assets. We are a custodian of these assets, so we need to look after them and then certainly exploiting opportunities to improve costs and efficiencies. Marlize Keyter: There are no further questions. Gary Arnold: Thank you, Marlize. Thank you, everyone. Appreciate your time today and your attendance, and go well. Best wishes. Thank you.
Operator: Good afternoon, and welcome to the Tracsis Plc Final Results Investor Presentation. Today, we are joined by David Frost, CEO; and Andy Kelly, CFO. [Operator Instructions] I'll now hand over to David to begin the presentation. Thank you. David Frost: Yes. Thank you, Harry, and welcome, everybody. We appreciate you joining us today. It's a real pleasure to be here and presenting to most of you for the first time. Next slide. So on to the agenda. Andy and I will start by walking you through a review of performance in FY '25, and we'll then talk about the strategic direction, the growth opportunities and the outlook for Tracsis in FY '26 and beyond before we move on to take questions from you. Next slide. So just to set the scene from myself, a few key messages for FY '25. Firstly, performance improved in the second half, which meant we were able to deliver full year results that were in line with the revised guidance that we gave back in April. As part of that, we resolved the profitability issues in Traffic Data & Events, and we entered the new financial year in a much stronger position as a result of that. Secondly, we made good progress in the areas that matter most for the long-term success of the business. Recurring revenues are an important focus area for us, and they continue to grow at a healthy rate. We won new strategic multiyear contracts, both in pay-as-you-go and also in GeoIntelligence, which will support future revenue growth. And we also completed the transformation of our operating model, bringing the Rail Technology & Services division under a single global leadership while investing into next-generation product platforms, which we'll come on to later in the presentation. Market-wise, we continue to see uncertainty in U.K. rail, which looks very likely to persist through FY '26. Control Period 7 funding remains constrained, and the proposed renationalization of the train operating companies alongside the creation of Great British Railways is having a negative impact on procurement timelines. While the recently announced railways bill is a step forward, there is still a long way to go before GBR is fully up and running. So we cannot control the timetable, but Tracsis continues to be well positioned to help deliver the government's long-term strategic vision for the future of the U.K. railway. In our planning for FY '26, we had anticipated that these headwinds in the U.K. would continue. And so our expectations for the full year are unchanged and consistent with market expectations. In the immediate future, we are focused on building on our H2 performance with a major emphasis on execution. In parallel, we have a clear and focused strategy for driving longer-term growth and margin accretion. We will share more later in the presentation, there's no real change in direction, it's more about building on foundations and tightening up on how we put the strategy into action. Next slide. Before we go into the detail of the presentation, I thought it was appropriate to share and reflect on my first 100 days with the business. My first observation is that the fundamentals of the group remain really strong. Tracsis has a combination of market-leading technologies and deep domain expertise that differentiate us in the attractive transport end markets that we serve. We're continuing to win new strategic contracts and embed long-term customer relationships, which in turn support growing levels of annual recurring revenue. And the progress we've made in organizational transformation means we're now ideally placed to deliver our near-term priorities while positioning the business for future growth. Those near-term priorities are really clear for us. The leadership transition has been completed smoothly with a structured handover from my predecessor, Chris Barnes. There have been no other changes to the senior leadership team, and we are now focused on continuing to build organizational capability to support both FY '26 operational delivery and our longer-term growth ambitions. It's all about progressing the drivers of organic growth transformation, building the pipeline of future opportunity, investing in SaaS-native products and increasing penetration in international markets in a very disciplined way. We continue to believe that North America offers a significant long-term opportunity for the group. I have actually been there twice during my first few months and have met with customers, industry leaders and railroad CEOs while spending time with the Tracsis team in the region. It's pretty clear to me that we have a high-quality, well-differentiated profit -- product offering in North America with our PTC-enabled train dispatch software. The deployment with Northern Indiana that was completed in September of 2024 is operating well. And from my recent conversation with other railroad leaders, it's clear there's a healthy pipeline of opportunities across passenger, freight and industrial operators with the industry actively looking for credible new technology providers. It's no secret that our progress in winning new opportunities has been slower than we anticipated, but procurement timelines can be lengthy. Behind the scenes, the team have been working hard to build and progress our pipeline. We do need to remain patient, but I firmly believe North America is a key growth opportunity for us. And finally, we're continuing to review our portfolio alignment, something I know many investors are interested in. And to be clear, M&A remains very much a key component of our growth strategy and something that we're focused on. So with that, let me hand off to Andy, and he will talk you through the financial highlights for the year. Andrew Kelly: Thank you, David, and good afternoon, everyone. So as David mentioned, our performance for the year was in line with the guidance we gave back with the interims in April. And that includes a much improved second half trading performance following a softer first half of the year. The second half improvement included the recovery in our Traffic Data & Events businesses, where actions that we took early in the year helped to improve profitability as well as the benefit from delivering the first phase of development work on a Tap Converter contract that we announced in February 2025. The group is typically more profitable in the second half of the year. That reflects the seasonality of our revenue streams. And in H2 of FY '25, we achieved an adjusted EBITDA margin of 19.2%, which was 331 basis points higher than in H2 of the prior year. And overall, we delivered modest revenue growth year-on-year despite the market headwinds that we referenced earlier. Importantly, within this, we've continued to deliver stronger growth in recurring and transactional revenues, which are key long-term value drivers. And in combination, these increased by 8% over the prior year. The group's balance sheet remains strong. We saw a healthy improvement in free cash flow generation. And we ended the year with GBP 23.4 million of cash on the balance sheet, having fully completed the GBP 3 million share buyback that we announced in April. We put in place a new GBP 35 million RCM in the second half of the year, and this remains undrawn. And on the dividend, we've maintained our progressive policy. We're recommending a final dividend of 1.4p per share, which would result in an 8% increase in the total dividend to 26p. So looking at the financial performance in more detail. As usual, I'll start with the group consolidated performance and then break out the divisional results in more detail. So total group revenue of GBP 81.9 million was 1% higher than prior year on a reported basis. It was 3% higher on a like-for-like basis after adjusting to revenue from the lower margin, non-software-related consultancy activities that we exited at the end of FY '24. Adjusted EBITDA of GBP 12.6 million was slightly lower than last year. And this really reflects 3 main drivers. Firstly, the Control Period 7 funding headwinds impacted volumes of our Remote Condition Monitoring hardware in the U.K. Revenues here were 42% lower than in the prior year, and this had an adverse effect to profit of approximately GBP 1.5 million. As you'll probably recall from the interim results, we have seen a significantly lower level of profitability in our Traffic Data & Events businesses in the first half. Second half performance here was much improved, I'll talk more about that when we get to the divisional review. However, the total profit contribution from this part of the business was lower than we achieved in FY '24. And offsetting these headwinds, the rest of the group delivered an EBITDA performance that was approximately GBP 2 million higher than last year. That includes the benefit from exiting those lower-margin consultancy activities as well as healthy underlying growth across the rest of the U.K. rail portfolio, excluding Remote Condition Monitoring. Over the last 2 years, we have completed a program of actions to transform the group's operating model. That's focused, in particular, on integrating and enhancing our technology, development and delivery capabilities. And alongside this, we've been working hard to upgrade operational systems, streamline our operating footprint, exit from lower-margin activities and, in some cases, contracts and address other legacy issues that have restricted our ability to deliver revenue and margin growth. Our FY '25 results include the final tranche of costs associated with these actions, with GBP 2.4 million of exceptional costs charged to the income statement, of which GBP 2 million were cash costs. Our statutory profit metrics were improved versus prior year. In addition to a lower level of exceptional costs, this also includes over GBP 0.5 million of additional interest income on our cash balances, and that includes the benefit from having centralized our cash management actions, which is one of the work streams that we completed as part of those transformation activities. So turning now to divisional performance, and I'll start with the Rail Technology & Services division. Total revenue in this division was 1% higher than the prior year. As I previously referenced, that did include a lower level of Remote Condition Monitoring hardware revenue in the U.K. from CP7 headwinds. And excluding this, the rest of the portfolio delivered revenue growth of approximately 7%. And as you can see from the charts on the right-hand side of this slide, the quality of revenue in this division is improving. And in FY '25, we delivered further growth in recurring and transactional revenues, which are the drivers of long-term value. Recurring software license revenue increased by 6% to GBP 23.2 million. And transactional revenues from our smart ticketing and delay repay products grew by 17% to GBP 4.1 million. The balance of the revenue in this division includes that Remote Condition Monitoring hardware revenue as well as milestone-driven project and bespoke development work. This was overall 14% lower than in FY '24, principally driven by the lower level of Remote Condition Monitoring hardware in the U.K. There was a lower level of project revenue in North America that followed the go-live of our Train Dispatch product with Northern Indiana in September 2024. And from a divisional perspective, that was offset by the first phase of development work on the Tap Converter that started in the second half of FY '25 and will continue throughout FY '26. EBITDA of GBP 9.6 million was 2% lower than the prior year that includes the approximately GBP 1.5 million adverse impact from Remote Condition Monitoring, offset by growth across the rest of the U.K. portfolio. Turning next to our Data, Analytics, Consultancy & Events division. Revenue here was 5% higher than the prior year on a like-for-like basis after excluding the exited consultancy activities. This was principally driven by high activity levels in events, where we achieved a record year with revenue in excess of GBP 20 million. That more than offset an overall lower level of revenue from Traffic Data. You may recall from the interims, we had approximately GBP 0.5 million revenue headwinds as one of our largest customers suffered a cyber attack in our first half of our financial year. That has been fully resolved. Activity levels in Traffic Data and with that customer return to normal in the second half of the year. However, we weren't fully able to recover that lost revenue from H1. We also saw a slightly lower revenue contribution from our GeoIntelligence business based in Ireland. And after a very soft first half, full year profitability in this division was overall consistent with FY '24. That includes a much improved performance in Traffic Data & Events. And whilst the absolute EBITDA contribution from those businesses was still lower than the prior year, together, they achieved an H2 EBITDA margin performance that was approximately 400 basis points higher than in H2 of FY '24, and we expect to see a full year benefit from that in FY '26. The lower EBITDA contribution on the Traffic Data & Events side was offset by professional services. Our GeoIntelligence business post year-end has won a multiyear contract with the U.K. government, and that underpins our growth expectations for FY '26. And then turning lastly to cash. The group continues to deliver a healthy level of cash generation. Despite the slightly lower level of EBITDA, free cash flow generation in the year of GBP 7.7 million was GBP 2.3 million higher than in the prior year. That was driven largely by favorable working capital movements including an unwind of the large trade receivables position that we had at the end of FY '24. There was a lower level of cash outflows relating to transformational activities and higher net cash interest received. Of the GBP 1.4 million cash outflows for exceptional items in FY '25, GBP 0.4 million of that relates to costs booked in FY '24. And there's approximately GBP 1 million of cash outflows that we anticipate in FY '26 in relation to costs that have been booked in FY '25. We've continued to invest in product development through the year, including future enhancements for our train dispatch product in North America. We also invested to acquire and develop the AI platform that's used by our Traffic Data business. Overall, our total cash balance increased by GBP 3.6 million to GBP 23.4 million. That includes completing the full GBP 3 million share buyback in the second half of the year. So this leaves us well positioned to continue to invest in a disciplined way, consistent with our capital allocation framework. And the new RCF provides us with additional headroom, flexibility and strategic optionality to invest for growth while continuing to maintain a robust balance sheet. So with that, I'll now hand you back to David to update you on the group's strategy and growth transformation opportunity. David Frost: Yes. Thanks, Andy. As mentioned previously, we've refreshed our strategic thinking as we move into the next phase of growth. And look, our purpose is simple. We make transport work, but we do so while driving safety, efficiency and sustainability in our customers' operations. We want to lead the future of sustainable, intelligent transport, and this is a really dynamic and fast-moving space. Our world is becoming ever more digitized and more connected, and the importance of transport networks to support the way we live and work in safe, efficient communities is only going to increase. Our ambition is to be at the center of that, creating technology and solutions that revolutionize how the world moves and make a lasting difference. Next slide, please. At the highest level, we have a very substantial global transport market, which is growing at an attractive rate, fueled by the demand for safer, more sustainable and seamless journeys. There are endless opportunities for Tracsis within this, but we are choosing to play in rail and road segments of the transport market, where we have a presence today, deep domain expertise and cost leading technology. The tailwinds in these sectors increasingly align with the solutions that we provide from urbanization, population growth and aging infrastructure through to multimodal frictionless travel and the growing demand for digital transformation, automation and the deployment of AI, this is what we do. We are talking about long-term structural trends that play directly into our strengths, and we are well positioned to benefit from them. Next slide. So moving forward, we think of growth in the form of 4 transformation factors. Firstly, and importantly, our priority is to focus on our core markets continuing to expand into white space through cross-sell and upsell opportunities. Secondly, we will invest in our roadmaps, producing a pipeline of SaaS-native products that we can sell in our core and international markets. Thirdly, we will target international growth through the deployment of our go-to-market model, augmented by the new products and the services that we will develop. And then lastly, M&A will continue to play an important strategic role in supplementing and supporting our organic growth. We have a disciplined approach to investing in target opportunities, and all acquisitions will be fully integrated into the one Tracsis business structure. These 4 vectors give us a very clear, practical and deliverable pathway for long-term growth. Next slide. So our journey continues. We have a great business at Tracsis, one built on technology and deep domain expertise. We have completed the operational transformation phase, opening the door for the next logical chapter in our story, the growth transformation phase. There is an opportunity here for us to scale our business internationally, expand into attractive transport adjacencies and invest in SaaS-native products that address global market requirements while accelerating recurring revenue and margin accretion. Look, it's not going to happen overnight, but we feel we have the strategy, the capability and the ambition to deliver steadily and sustainably. We know what the building blocks are for us to make this long-term vision a reality, and we really look forward to sharing our progress with you all as we move forward. Next slide, please. Finally, we'd just like to recap on the key takeaways from today. We have delivered a much improved financial performance in the second half of FY '25, and our expectations for FY '26 remain unchanged, with ongoing U.K. rail uncertainty already factored in. Our short-term priorities are clear. Our underlying fundamentals remain strong, and we continue to win new multiyear contracts that grow our recurring revenue. In summary, we are prioritizing near-term delivery while we build for an exciting future, one defined by greater scale, improved margins and enhanced long-term value for our shareholders and other stakeholders alike. Next slide. So at this point, we're happy to take any questions. Operator: [Operator Instructions] We've had some pre-submitted questions and questions submitted live. The first one being, Tracsis is trading at its cheapest multiple since it was listed in 2007. You have over 20% of your market cap in net cash. Stock buybacks would create a lot of value for long-term shareholders at these depressed levels. How high are these on your capital allocation priorities and why? Andrew Kelly: Yes. Thanks for that, Harry. So in our announcement, we have laid out our capital allocation framework. So we've got clear priorities in 3 areas. So firstly, that's around organic growth, and that includes investment in new product development. Secondly, as David said, we see M&A as a core component of our growth strategy, applying very disciplined criteria to that with an intention to integrate acquisitions into our operating model. And then thirdly, from returns to shareholders perspective, we're committed to the progressive dividend. Right now, we haven't got any firm plans to do a further buyback, but as you can imagine. And as the question hints at the current levels, that will be something that we continue to review as we go forward. Operator: The next question is, what is the acquisition pipeline of good businesses like? David Frost: Yes. So look, coming into the business, I was really pleased to see that there is an active M&A pipeline. I think Andy and I would like to see more strength in that with higher-quality assets available to us, but having said that, we are actively pursuing opportunities today through this disciplined lens of making sure that it aligns fully with the strategic direction we're looking to take the business. So it must enhance the technology capability, it must help us to address the attractive adjacencies within the transport market and hopefully help us to progress on our internationalization plans that we have shared with you. So we expect M&A to be more of a bolt-on type approach, certainly for the near and midterm as we -- it's been 3.5 years since we've done an acquisition in this business. We believe we've got good foundation to get back onto the M&A trail, but do that in a very disciplined way. We're not considering anything transformational at this time because we do genuinely believe that there are good quality assets out there that fit the criteria that we are outlining here. And importantly, we now have the financial capital and financial firepower to be able to go and execute in this area of our strategy. Operator: The next question is, there is cash in the bank, and you recently agreed a new RCM. Does this mean you're weighing up something more transformational from an M&A perspective? David Frost: Well, I mean, I guess I've just covered that off in my previous answer to how we're thinking about disciplined approach on M&A. So nothing transformational on the agenda at this point in time, but certainly looking at bolt-on opportunity. Operator: This comes from an investor. If I hold for the long term, i.e., 3 to 5 years, what's the main reason Tracsis' share price should go up? Andrew Kelly: Well, we believe that there's an awful lot of growth opportunity available to the business. We have -- our top line has been flat for the last 3 years in this business while we've been delivering that transformation, while we've been putting those foundations in for future growth. So as David summarized at the start of the presentation, we've got extremely strong fundamentals here. We've got a rich IP in the business. We've got deep domain expertise. We've got a strong balance sheet, healthy cash generation, and a healthy capital position today. And we're embedded in a transport ecosystem and transport markets where we believe the digital journey has only just begun. So we see an awful lot of upside and future opportunity for the business. And that's really our focus as a management team is to deliver and execute on that and hopefully create a lot of sustainable value for all of our stakeholders going forward. Operator: Another question on cash. H1 revenue was flat, but cash increased. How did you manage to generate so much cash despite lower EBITDA? Andrew Kelly: So we have a fairly seasonal revenue pattern in this business, driven largely by the activity levels, particularly on our base side of the business in H2, but also in our Rail Technology business. So we typically end the year with a high trade receivables balance that unwound in the first few months of FY '25 as it typically does. So that helps to support the healthy cash generation in the first half of the year despite the lower EBITDA performance. Operator: You say Tracsis is the go-to U.K. Rail Technology provider. If this is the case, how much white space can there be in your core markets? David Frost: Yes. We think about core markets as geographically, U.K. and Ireland. And then from a transport market point of view, obviously, rail and road, but also some, what we call, land application areas for things like agricultural technology. So they are our core markets. And within that, there is a well-defined customer group that we serve today and have done since the birth of the business back in 2004. Having said that, we are well positioned across that customer group, but there is always opportunity for us to cross-sell and upsell the broader Tracsis portfolio. And I'll give you a good example of this because we think of this as land and expand. So when we sell to any customer, we do not sell the entire Tracsis portfolio on day 1, in fact, quite the opposite. We penetrate a customer by selling 1 part of our capability, and then we're really good at then landing and expanding. So once you are in, it gives you an opportunity to present the broader capability. Probably a good example case study to share with you is Transport for Wales, where we are now delivering both Rail and Road Technologies into that single customer, but that took time, took sort of patience and time for us to develop, but good example of our ability to do that. And that's what we mean by white space within our core markets. We are not selling the entire portfolio to every customer that we have today, and therefore, that continues to present opportunity for us as we go forward. Operator: Why would international growth create value for shareholders? Isn't the market saturated with solutions already? David Frost: I think the short answer is no to that. And hopefully, we've shared some of the color behind how we think about international markets today. We are -- Andy and I are very focused on firing up an organic growth engine in this business, something that we've not particularly had in the past. Tracsis has been borne out of a buy and build through acquisition principally. And we're now sort of turning attention to how do we really get organic growth to a level that we would like to see. And the investment in the product developments that we've talked to and then the disciplined internationalization of our business will be 2 growth factors that support the organic growth side of our strategy. Operator: The U.K. Rail Funding headwinds, especially the CP7 hardware revenue decline of 42% in 1 category, what contingency plans does management have if those headwinds persist? Andrew Kelly: Yes. Look, we see the headwinds in the U.K. Rail market at the moment persisting through FY '26 -- for our financial year FY '26, but we do see them as temporary in nature. The government has published the railways bill in the last few weeks, which is a key step on the path to creating Great British Railways. And we think when you look at the strategic objectives that are outlined in that bill around efficiency, around asset availability and network reliability and around rolling out pay-as-you-go ticketing, we think Tracsis is really well placed to support with that and to continue to be a key technology provider that enables that future. So I think it's less about having contingency plans. We have fully factored the current market conditions into our forward guidance and into our market forecasts. So we are not reliant on the market improving in order to achieve our FY '26 ambitions. And as David outlined when talking about those growth factors, we're laser-focused on being well positioned, maintaining that position in our core markets, ready to respond where those opportunities come, whilst also increasingly diversifying the business so that we're not fully reliant on factors that are fully within our control. Operator: Do the internationalization efforts imply incremental technology investment? How much incremental investment should we expect over the next couple of years? David Frost: Yes. We're going to start with rail in the international markets because that's where we think we are; a, the most mature and importantly, have the right products to position and sell into the international geographies. So that's kind of our start point how we're thinking about it. Undoubtedly, we will continue to invest in SaaS-native application software products. That is a commitment that we are making. And as we understand the requirements of international markets, we believe that will present further opportunity for us to consider the investment. But the important part of moving to SaaS-native products is that you are developing an offering that meets market requirements, not just the requirements of one specific customer. So that's one aspect of it. But we do genuinely believe that today, with some of the technology we have around digital ticketing, our capability around Remote Condition Monitoring and also some of the software around safe working practices are products that are right and ready to go into international markets today, and that's how we will be starting to move down that pathway. Operator: Due to time, this will be the final question today. What should we expect in terms of PAYG revenue contribution over the next 3 years? With the National PAYG rollout, should we expect revenues to grow substantially from this year's levels? Andrew Kelly: So if -- just as a reminder for everybody, it's all on the same page. So Tracsis secured the Tap converter contract in February 2025, which is to provide the back office technology solution that will underpin rolling out pay-as-you-go ticketing across the rest of the U.K. Rail Network. So we've got a contract to do the development work for that, which is giving us a full order book in that part of the business for FY '26. The rollout in terms of making that technology available to the customer will be delivered through the Rail Delivery Group and the transport operators. So we're not in full control of that. And therefore, we don't have full visibility right now in terms of exactly when that's going to happen and how that's going to happen. So when you step back from that, absolutely, we expect that as that technology gets rolled out and customer usage increases, our revenues there will increase, but we're not able at this point in time to be precise about the timing or even the quantum of that because it depends on a number of factors, including pace of rollout, speed of customer adoption, customer usage patterns, et cetera, et cetera. So in our forward guidance, we don't have any incremental pay-as-you-go transactional revenue in those numbers. As that comes into more focus, we will guide the market and guide investors. So we certainly see it as a significant opportunity for the business. We're just not able to fully size that ourselves at the moment. Operator: I'll now hand back to the management team for any closing remarks. David Frost: Yes. Thanks, Harry. So look, just in closing, again, much improved financial performance in second half '25. We feel good about our expectations in FY '26. They're unchanged despite some of the challenges ongoing in U.K. Rail. Short-term priorities for us are really clear, fundamentals underlying really strong. We're prioritizing near-term delivery, but we're also building for an exciting future. And hopefully, you've been able to see through sharing how we think about the growth factors going forward, there's an exciting future ahead for our business. And we really look forward to continuing to share progress with you as we go forward on this journey. So thanks for listening today. Thanks for your questions. Look forward to speaking with you all again in the future. Operator: Thank you to David and Andy for joining us today. That concludes the Tracsis final results investor presentation. Please take a moment to complete a short survey following this event. The recording of this presentation will be made available on Engage Investor, and I hope you enjoyed today's webinar. Thank you.
Operator: Good day, and thank you for standing by. Welcome to the Third Quarter 2025 Frontline Earnings Conference Call and Webcast. [Operator Instructions] Please be advised that this conference is being recorded. I would now like to hand the conference over to your first speaker today, Lars Barstad, CEO. Please go ahead, sir. Lars Barstad: Thank you very much. Dear all, thank you for dialing into Frontline's quarterly earnings call. It's noticeable how everyone at Frontline and in the general tanker industry for that sake, walks with an energetic spring in their steps these days. We have previously argued that this market owes us money, and we have finally started to collect some of it. I'll try not to jinx it by using caps lock on absolutely everything, but it is a mild understatement that we are positively excited by the developments in this market that started to materialize during the third quarter of the year. Before I give the word to Inger, I'll run through our TCE numbers on Slide 3 in the deck. In the third quarter of 2025, Frontline achieved $34,300 per day on our VLCC fleet, $35,100 per day on our Suezmax fleet and $31,400 per day on our LR2/Aframax fleet. So far in the third quarter of '25, we have booked 75% of our VLCC days at $83,300 per day, 75% of our Suezmax days at $60,600 per day and 51% of our LR2/Aframax days at $42,200 per day. Again, all numbers in this table are on a load-to-discharge basis with the implication of ballast days at the end of the quarter this incurs. This means that although we continue to fix extraordinary freight rates every day, we are dependent on the cargo being loaded before New Year's Eve to account for that income in Q4. I'll now let Inger take you through the financial highlights. Inger Klemp: Thanks, Lars, and good morning and good afternoon, ladies and gentlemen. Let's then turn to Slide 4, profit statement, and we can look at some highlights. We report profit of $40.3 million or $0.18 per share and adjusted profit of $42.5 million or $0.19 per share in the third quarter. The adjusted profit in the third quarter decreased by $37.8 million compared with the previous quarter, and that was primarily due to a decrease in our time charter earnings from $283 million in the previous quarter to $248 million in the third quarter. That was a result of lower TCE rates in addition to fluctuations in other income and expenses. With respect to ship operating expenses, they increased $3.1 million from previous quarter, and that was due to a decrease in supplier rebates of $2.5 million and cost of $1.1 million due to change of ship management for 7 LR2 tankers. This was partially offset by a decrease in general running costs of $0.5 million. The administrative expenses, excluding synthetic option revaluation loss of $5.7 million this quarter and $1.7 million in the previous quarter decreased by $0.2 million from previous quarter. Let's then look at the balance sheet on Slide 5. The balance sheet movements this quarter are mainly related to ordinary items, the sale of one Suezmax tanker and also the prepayment of debt under revolving reducing credit facilities. Frontline has a solid balance sheet and strong liquidity of $819 million in cash and cash equivalents, including undrawn amounts of revolver capacity, marketable securities and minimum cash requirements bank as of September 30, 2025. We have no meaningful debt maturities until 2030 and no newbuilding commitments. Let's then look at Slide 6, that is the fleet composition, cash breakeven rates and OpEx. Our fleet consists of 41 VLCCs, 21 Suezmax tankers and 18 LR2 tankers. It has an average age of 7 years and consists of 100% eco vessels whereof 56% are scrubber fitted. We converted 7 existing credit facilities with aggregate outstanding term loan balances of $405.5 million and undrawn revolving credit capacity of $87.8 million into revolving reducing credit facilities of up to $493.4 million in September 2025. We subsequently prepaid a total of $374.2 million in September, October and November '25, leading to a reduction in fleet average cash breakeven rate of approximately $1,300 per day for the next 12 months. We estimate average cash breakeven rates for the next 12 months of approximately $26,000 per day for VLCCs, $23,300 per day for Suezmax tankers and $23,600 per day for LR2 tankers, with a fleet average estimate of about $24,700 per day. This includes dry dock costs for 14 VLCCs, 2 Suezmax tankers and 10 LR2 tankers. The fleet average estimate excluding dry dock cost is about $23,100 or $1,600 per day less. We recorded OpEx, including dry dock in the third quarter of $9,000 per day for VLCCs, $8,100 per day for Suezmax tankers and $9,100 per day for LR2 tankers. This includes dry dock of one VLCC and finalization of dry dock for Suezmax tanker, which entered dry dock in the second quarter. The Q3 '25 average OpEx, excluding dry dock was $8,500 per day. Then lastly, let's look at Slide 7 and cash generation. Frontline has a substantial cash generation potential with 30,000 earnings days annually. As you can see from the slide, the cash generation potential basis current fleet and TCE rates for TD3C for VLCC, TD20 for Suezmax tankers and average of TD25 and TC1 for Aframax LR2 tankers from the Baltic Exchange as of November 18, 2025, is $1.8 billion or $8.15 per share, providing a cash flow yield of 33% basis current share price. A 30% increase from current spot market will increase the cash generation potential to $2.6 billion or $11.53 per share. With this, I leave the word to Lars. Lars Barstad: Thank you, Inger. So let's move to Slide 8 and have a look at what's going on in our markets. As many of you have noticed, oil in transit has become kind of a more mainstream measure for investors that focus on shipping. It's now at record highs. This happens as export volumes grow from especially the Americas or around the Atlantic Basin, and we see a positive development in how oil trades. Policy does affect behavior, and it has opened the arbitrage between Atlantic Basin and Asia. The OPEC voluntary production cuts reversals are starting to express themselves in real export volume gains. Year-on-year for October, we're up 1.2 million to 1.3 million barrels per day, looking at the Middle Eastern producers, excluding Iran. There are increasingly logistical challenges around the trade of sanctioned exposed oil, and this was further amplified as LUKOIL and Rosneft were put under sanctions. We have a picture where we see very firm refinery margin environment supporting refinery crude runs. So it begs the question, when are we going to see -- perform. Resale asset values are starting to reflect the hike in freight rates as order books for tankers are near full through 2028. Let's move to Slide 9. The heading is the arb is back. The behavior of especially India, but also China is yielding an increased demand for compliant crudes, especially in the Middle East. This raises the crude price level for local crudes in the Middle East, causing Atlantic Basin grades to price their way into Asia. Since 2022 and Russia's invasion of Ukraine, the long-haul trade has suffered. We have seen Russian oil taking Asian market share and Europe relying more on Atlantic Basin barrels. This looks to reverse to some degree and could be a sustainable development going forward and means that we are back to the old school tanker market where the VLCC with its economies of scale leads the pack. This VLCC-centric trade pattern change has also been driven by very positive export numbers from Brazil, our new producer Guyana, Canada through the TMX pipeline and more recently, also U.S. The incremental barrel to the market now is compliant oil and compliant oil means compliant vessels. That means unsanctioned vessels and predominantly below 20 years of age. If this supply trend continues on the oil side, we are likely to see a sustained contango structure in the oil market developing. This will imply inventory builds. We are low on inventories in most regions of the world. It's unlikely to imply floating storage due to the financing cost, which is much higher now than it was in the last cycle, we had this effect to the market. But there is an equally interesting trading pattern that may develop and it's called time. When you can load the barrel in U.S. and sell it 2 months after in Asia, you're actually having a tailwind on that trade as the price of crude is increasing over time. Let's move to Slide 10. So the net fleet development, and this is kind of a recurring discussion I have with investors when we are out presenting our company. We have virtually 0 recycling or scrapping, but -- and we have actually a substantial order book, not a scarily big one, but there is still vessels to come, and that order book has been increasing. So what we've tried to do here is to put forward a couple of scenarios just to explain why we are so constructive on this market. So as -- so the order book continues to grow, and this is mainly due to limited offering of available modern tonnage on the water. This basically means that if you are a ship owner or an investor that wants to buy a ship, it's -- the best way to get access to tonnage is actually to go to the yard and you're not penalized by missing out on freight even though the ship is being delivered in 18 to 24 months. But this looks to change now. Now that you have spot rates that can give you $5 million to $6 million on the bottom line for a 50-day voyage, you start to think, should I go and access the retail market and get a ship that I can fix in the next cycle? Or do I go to the yard and order a ship that will be delivered in more than 24 months. This means that the owners can actually now start to pay up for a resale, and it makes economical sense to do so, assuming these rates stays around for a while. We continue to see the trend that other asset classes are populating the yards order books. There is now limited capacity left in 2028. If you look at the overall age profile of the global tanker market, and this is basically the key fundamental part of at least how we see this tanker market develop going forward or as I've said previously, the revenge of the old economy due to lack of investment in particularly tanker tonnage over a long period of time, we are in a situation where we will, every year, have a new batch of ships that are crossing this magical age cap, which we put at 20 years. If you look at the VLCC chart here on the top right-hand side, just to explain how we're thinking, if you assume absolutely no scrapping, no ships disappearing into the dark and basically every new ship being delivered on top of the existing fleet, we will have around 15% fleet growth towards 2019 -- 2029, sorry. But if you assume that VLCCs at least stop effectively trading when they turn [ 2022, ] that growth will only be 3.4% through 2029. But what is actually the more realistic case is that VLCC are either scrapped start to trade sanctioned oil or for other reasons, no longer part of the effective fleet at 20 years, will have a negative fleet growth with the existing order book, a negative fleet growth of 2% towards 2029. The other charts are basically showing more or less the same. I think this is kind of the key reason why we believe that there is some longevity in the market we have in front of us. Move to Slide 11, order books. And I've been quite repetitive on this. The order book on the asset classes that we are exposed to is in total 16.5% of the existing fleet, 19 above 20 years. If you put the threshold at 15 years, 44.3% of that fleet is above 15 and 21.6% of that fleet is sanctioned by either or OFAC U.K., EU and so on. We also have the highest average age in the tanker fleet for more than 20 years. So let's move to Slide 12 and the summary. And I called it old school bull market because some of the characteristics we see in this market, and I've been in this market for quite a while, meaning that I was actually around in the period from 2002 until 2008, we are actually seeing some of the same characteristics, where there is a proper trade going on between a charter and an owner and the brokers actually need to do some proper work to find the right ships and cargoes struggle to get offers basically. So we have high utilization. We have strong oil exports, and we have a positive change in trade lanes. As I've gone through limited growth in the compliant tanker fleet and with compliance, I also add under 20 years. And we also see the sanction trade sucking more tonnage in due to logistical challenges. The overall age profile is key, as I just mentioned, and despite the populated order books, effective fleet growth remains muted. We have firm refining margins and the winter market has actually already started. We are in a situation kind of on global S&D that we might come into a prolonged period of oversupply, and this may yield interesting trading developments, firstly, for oil, but also for shipping. And I can assure you, Frontline are prepared to offer outsized shareholder returns with our efficient profit for fleet. Thank you very much, and we'll open for questions. Operator: [Operator Instructions] Now we're going to take our first question. And it comes the line of Jonathan Chappell from Evercore ISI. Jonathan Chappell: Lars, to your last point about the outsized shareholder returns and then tying it into this financing update that you provided today. Completely understand, I think the dividend policy will remain as robust as it's been since the start of 2024. But are we looking at a new era now where you're looking at deleveraging the balance sheet as well? You're clearly in a strong enough market where the dividends can be strong, but you're still generating enough cash. where you can deleverage and you've done quite a bit of it in the last 3 months. So are we looking at a new Frontline where the balance sheet becomes as strong as maybe some of your public peers without violating your dividend policy? Lars Barstad: No. We are different from our peers. We're actually not particularly comfortable working with this kind of fairly low LTVs. I think as a result of we're being hesitant to invest in this market for reasons I actually described a little bit in the presentation. We've had values moving ahead. So resale values moving ahead of the market. We've had kind of -- since we are prepared, we want our assets to generate cash as quickly as possible. We've been hesitant to stretch kind of far out in time, tying up CapEx on assets that will come in a year or 2 years' time. And so we basically found -- and time charter rates haven't really defended this either. So we kind of just by pure being quite conservative on our financial analysis, we haven't really been kind of up for doing any massive moves since we did the Euronav transaction. So I think kind of that's more a result of it or that's more the reason for us being in this position rather than actively trying to reduce our debt. Jonathan Chappell: And then just a follow-up, I want to push back a little bit on Slide 10, but then offer an opportunity for you to push back to that. I think the premise of scrapping ships at 22 years and at 20 years, given the rate outlook that you just laid out in the prior slides is a bit misleading. I mean people don't scrap ships when they're making that much money. So maybe could you explain to us how those ships become less efficient or they don't have full utilization and they're still kind of like come out of the net fleet supply without them being actually scrapped because if investors are waiting to see big scrapping numbers over the coming years with rates as strong as you think they are, and I think they are, they may be disappointed. So how do those ships become less efficient and still kind of help utilization without actual scrapping? Lars Barstad: Well, as you know, I was going to push back on that. No, the thing is that why we haven't seen scrapping or recycling to be more politically correct, is the fact that you have an alternative use of these vessels, right? And the alternative use in the old days, it could be a conversion into floating storage or production units. There could be kind of other -- it could be floating tanks or whatever. But the alternative use that's been going on ever since 2019 or '18, '19 is the trade of sanctioned oil. And that has obviously paid a lot of money to the owners that have been willing to engage in this trade. The thing is that we circle around the compliant market, and we relate ourselves to the compliant oil market. And in a compliant oil market, even if you're Exxon or even if you're Shell or Glencore or whoever you are, you trade on the margin. If you're going to trade on the margin and you're trying to ensure 2 million barrels of oil on a plus 20-year ship, that price of that insurance is going to be so high that you will struggle to actually make the ends meet. So it means that -- and it also limits your optionality on how you can trade that oil because you have to take away kind of 80% of the terminals that just have a blanket ban on vessels that are older than 20 years of age. So effectively -- and we actually see this, you don't really need to look up which ships are sanctioned by OFAC. You can just draw a line at 20 years. The vessels and the Suezmax and VLCC side that are above 20 years and not sanctioned, you can literally count on one hand. And we actually see a big efficiency loss in the tanker space when the ship reaches 18 years. So -- and I think a little bit of a proof in the pudding here is that the compliant oil market has actually had a terrible development in volume for a sustained period of time. But still, we have had poor rates, but we haven't had like car crash kind of rates. And this is basically due to the fact that ships become less tradable, less efficient, limited use actually starting from the year -- from the turn at 17.5 years. So there could be that we'll have a wall of scrapping, but I actually don't think that's going to happen. I think kind of the alternative use is going to be around for a long time, unless, of course, the sanctions are lifted all around. But now we also have another problem here is that a sanctioned vessel is not easily recycled because the recycling industry is actually a real business, and they access financing and they deal in many ways in dollars. Where you are right, where ships can easily live kind of past the 20-year age kind of ceiling is if it's for specific use, let's use India as an example. If you're India flag and for an Indian refinery, to, of course, control the entire value chain on that oil trade, that ship can easily kind of trade until it's 25 years. But it will only be for the purpose of transporting feedstock to an Indian refinery. But that is only a small portion of the market. And even Indian refiners realize that they can't have too much of an exposure in that market because basically, you have virtually no other options than to do exactly that back and forth between the Middle East and India. Operator: And the next question comes from the line of Sherif Elmaghrabi from BTIG. Sherif Elmaghrabi: Lars, maybe first to just follow up on that line of thought about the sanctioned fleet. India and China are lifting more compliant barrels, as you said. And so there's more noncompliant vessels that maybe have less work. And I'm wondering what you see happening to the dark fleet right now given there's less work and also maybe in the next 6, 12 months, if that's a different picture. Lars Barstad: Yes. No, it's -- there is actually -- so for once, there are an increasing amount of vessels just sitting at anchor with no crew on and keys left in the ignition. These are kind of the first-generation sanctioned fleet that came out of Iran and Venezuela kind of 5, 6 years ago. And there, you will probably never be able to locate who was the owner. But then you have kind of what's in between, and there are actually initiatives or also commercially things that are being worked on, where you basically -- you can buy sanctioned vessels, but you need a license from -- and the most important license is from the U.S. And there is actually some motion in that work now where, of course, since the federal state in the U.S. was closed for a while here, it's not been particularly efficient for the last couple of months. But there is a discussion ongoing to -- if one can kind of set up some sort of mechanism where against a fine, you can actually access the recycling market, but only the recycling market alone. So I think that could be a solution as we proceed here. One side being that local governments actually need to take action to avoid environmental damage for those vessels left with keys in. But secondly, a growing industry around this kind of licensed but also find recycling work being done because kind of if you have -- if you're going to buy sanctioned vessels, it's actually worth 0. But then, of course, if it's worth half the normal recycling price, there is actually still money in it. So -- but I don't know if that's going to be the solution, but at least that is something that is being discussed. But it's still so that the sanctions are -- different countries kind of respect them to various degrees. Oil has a tendency to move anyway. So I have no illusions as to the vast amount of Iranian oil, which is currently kind of being clogged up a little bit, the vast amount of Russian oil, which struggles to find a home. I'm pretty sure it's going to find a home, and it's probably going to find a home on one way or another on ships that are either fully sanctioned, halfway sanctioned or whatever. So I think kind of that industry, that paralleled industry, we're probably stuck with for a while. But the incremental barrel now does not come from the sanction nations. It actually comes from the compliant fleet, and that's the only part of the market we really care about. Sherif Elmaghrabi: That's very interesting. So sticking with the compliant barrels now, you've highlighted the tailwind to futures curve, gifts cargoes lifted from Middle East to Asia. That's not floating storage, like you said. So I'm wondering how that affects vessel demand given it sounds like the contango in the curve lines up nicely with normal voyage time lines anyway. Lars Barstad: Yes. No. So currently, we don't really have the contango. And actually, I'm no expert on oil pricing, but I'm actually quite surprised of the firmness in the oil price considering the oil in transit numbers that we have. Mind you that oil in transit is a combination, of course, of backing up sanctioned oil. It's also backing up oil that was supposed to go to sanctioned terminals. And it's also -- but it's also commercial oil, which is backing up due to weather as well. That's a really old school winter market kind of thing is that there is actually some severe weather around key ports. So we're actually seeing extended kind of waiting time to discharge basically due to that. But with that kind of a pile of oil sitting or being kind of in the logistical chain, I'm surprised that we can have kind of front oil having at these levels. But anyway, if you believe in EIA or IEA or all the kind of market experts, we are actually going to be in an inventory build environment for the next 6 months-ish. But in order to get there, in order for that to be even feasible, we can't have a steep backwardation on oil. So then you get into this contango kind of shape of the curve. And that is interesting, as I mentioned in the presentation, because we tend to see trade lanes extend when you have some sort of carry in the oil curve. And it doesn't need to be supportive of floating storage because then you need like $2, $2.5 per month in order for that to make sense. But only a modest 50% -- sorry, $0.50 contango helps or increases the trading system basically because you get a little bit of tailwind as you try to position a cargo. Operator: And the question comes from the line of Omar Nokta from Jefferies. Omar Nokta: A couple of questions. I wanted to ask just about the LR2s. Obviously, there's a bit of a big gap between what's going on in majority and clean markets. And just wanted to -- if you can just remind us how you're trading those. And then also, do you have any comment regarding some of the chatter from last month that you had sold or in the process of selling that entire LR2 fleet. Lars Barstad: Yes. So let's do the last one first, and let's know and then do the first one. The kind of this spread right now surprises us a little bit as well. You're an expert analyst too. And you know that the kind of high refinery margins, a lot of oil going through the system normally yields a lot of product exports. And we haven't seen that yet. But I'd say that the setup for the LR2s look increasingly exciting because, number one, due to the relatively stronger crude markets, a lot of LR2s are actually trading dirty. So it means that there is a kind of limited amount of LR2s that are clean and ready to do a clean cargo at this minute. Secondly, the Suezmaxes in particular, are making so much money in crude that there is no economics in cleaning up to do a clean cargo at these levels at all. So my point is I don't think you need much in that market to flip it. And it can actually be quite good or you can get this kind of exponential freight development basically because you don't have the lid of a Suezmax cleanup or a VLCC cleanup on top of the LR2 market as it is right now. But I don't have a very good kind of factual answer to you on why we are in this situation. But I think we've already seen some kind of small signals that LR2s have run up $5,000 to $10,000 per day just in the last week. Now we're probably around the $35,000 per day mark, maybe a bit above. It doesn't need much to take it further. So let's see. Omar Nokta: Okay. Yes. So maybe some convergence is happening at the moment. Okay. And I understand Lars, it sounds like you said no comment regarding the sale of the LR2s. But humor me perhaps, if you were to potentially or if you were to consider selling those LR2s, what do you envision the use of proceeds would be kind of maybe along John's question, would it be more towards debt repayment, which it sounds like perhaps you don't want to do? Would it be a special payout? Or would you consider rolling into the Suezmax and VLCC classes? Lars Barstad: I think we've kind of between the lines, you're probably answering that in this presentation. And it's -- we kind of we've been very patient since we started to expand our VLCC part of the fleet. That's grown 33% in the last 5 years. We've doubled the kind of the amount of ships. Regretfully, the trading pattern that developed after Russia-Ukraine did not really support the VLCCs at all. Now that is -- and I don't want to jinx it, but it looks like at least right now, it's coming together. And it's the economies of scale that then gets into play. So kind of long term, if we were to divest of the LR2s, I think we also think that this market has some runway, just showing you kind of the fairly modest -- in our model, at least, the very modest growth total in supply of tankers and actually particularly so on the VLCCs and also our belief that the oil demand is probably going to grow for a few more years. I think it would be natural for us to focus on the big guns on the VLCCs. Omar Nokta: I feel like that's fairly clear between the lines. And then just a last one just in terms of the performance to date here in the fourth quarter. Clearly, a nice big increase in your earnings power coming here across all 3 segments. But this is one of those few times where there's such a gap in terms of what you're showing as a realized average to date in the fourth quarter and where spot rates are. And so you've covered, say, just looking at the VLCCs, 75% of 4Q is at $83,000, the spot market, say, well over 100,000. Load to discharge accounting makes things a bit tricky here as we think about the realized average for the full quarter. Do you think based off of where things are, that there's upside to that 83,000 figure in this quarter? Or are we looking at basically these 100,000-plus rates becoming much more of a January item? Lars Barstad: I think I'll answer that question by saying that in kind of the load dates that are being worked, so say you do a fixture today on the VLCC in the Middle East that has -- and the rates there are around $130,000 per day right now. That's for loading on the 11 -- 10 to 11th of December. So there kind of -- you have only 20 days that you would account for then in Q4 when you load that cargo. So half of it will actually come into January. But if you go to Brazil, for instance, you're already fixing kind of around the 20 mark, if not further out on loading. So then you only have like 5 to 10 days to account for that will actually affect Q4. And for U.S. Gulf loading, it will be more or less the same. So I'm not going to say no, we won't get more money into the chest before we close the year, but I can't categorically say yes either. We'll just have to see. Operator: The question comes from line of [ Devin Sangofrom Tech Investments. ] Unknown Analyst: Lars, I just wanted to ask more about the floating storage. And we're seeing that during the COVID. And how do you see this floating storage and how sustainable this demand? Lars Barstad: If I understood you correctly, so yes, we had very high floating storage during COVID. That was, of course, more due to the fact that the demand disappeared overnight and supply could not follow. But we were also in a 0 interest rate environment, which meant that the capital was basically free. And that is an important part of this because if you're going to purchase or take position of 2 million barrels, it's a sizable kind of amount of money, and we need to finance that. And that adds to the cost of storing on a vessel. So -- and this is why I mentioned that in order for floating storage to work commercially on ships, you basically need $2.5 per month or $2, $2.5 per month or thereabouts. And that's a pretty steep contango. And we're nowhere -- we're actually in slight backwardation right now. So it's nowhere near. The storage that we are seeing right now is more due to logistics or distress or weather. So it's not commercial in that way. I don't know if that answered your question. Unknown Analyst: Yes. The second thing is that I've seen that different -- U.S. has different part of sanctions for black -- dark fleet, U.K. has different, EU has different. And if you put -- so is there anything which has gone that total dark fleet under different sanctions are now getting tighter? And what's your view on that? Lars Barstad: Yes. No, you're right. But it's actually a very high degree of correlation between these sanctions. So normally, it's just a question of time. EU sanctions one vessel, then OFAC will do it 2 weeks after and then U.K. will do it more or less at the same time. So there's actually a lot of overlap between these various kind of regulatory entity or regulatory bodies. So -- but it's for sure, it's getting tighter. And this is global politics, right? I think one doesn't need to be a rocket science to understand that particularly U.S. is putting a lot of pressure on Russia right now, basically to prime them for negotiations. I think this Rosneft/LUKOIL sanction was -- that was a direct kind of hit on creating a lot of trouble for this industry and for Russia's export. You're talking about half their exporting volumes that were serviced by Rosneft and LUKOIL. But for sure, these molecules will, at the end of the day, find their way somewhere. But I think we're probably going to see this pressure continue until we have some sort of resolve on the whole situation. Unknown Analyst: And last, you've seen last year, Q4 was not great, the seasonality didn't come up. But this year, if I see Q4 is good, but how do you see Q1? Because Q1 is going to be as strong as last year or better than what we have seen looking at the current scenario? Lars Barstad: Well, you're asking me to give my view on one of the world's most volatile markets. Actually, the fact that it is -- this volatility tells you that this is not an efficient market. It's a market that's extremely difficult to predict. But what I can say is that from what we're seeing right now, we're not seeing any kind of weakness in this market. We're seeing an old school extremely tight physical shipping market. So -- but of course, who knows what can happen next week. Unknown Analyst: No, because see all the factors that the compliant crude producers have gaining market share, dark fleet is being targeted. The volumes overall, at least as of today, there is no debacle of China on consumption side. In fact, China is buying all the commodities in order to put the extra reserves. So put all things together, Q1 can sustain this rate. I'm not asking you to predict, but it looks like Q1 can be better or as good as Q4, if conditions sustain. Lars Barstad: Yes, yes, 100%. And we pointed to it in this report. There are some key fundamentals here that will not change short term. It's -- there are some key drivers to this market that we didn't have Q4 last year to put it that way. Operator: And the question comes from the line of [ Luis McKibben ] [indiscernible]. Unknown Analyst: Yes, Lars, I wanted to talk about Frame 7, Page 7, where you show the $11.50 a share generated with $149,000 daily VLCC rate. And having -- you were in the business back in the good old days of 2006 and '08 and also during COVID when they had the floating storage. But I think the rates went up to like $240,000, $260,000, $280,000, $300,000 a day. Is that right? Lars Barstad: Yes. That's right. Unknown Analyst: So if you were to get similar rates, your free cash flow would be in excess of $20 a share. Would that be correct? Lars Barstad: Yes. If you do that for 365 days, yes. Unknown Analyst: It could happen. All right. The other thing was that I read somewhere where India will not accept a tanker in excess of 22 years old. And I was wondering if China has a similar policy. Lars Barstad: Well, China is not kind of uniform in that respect. They have kind of 2 different oil systems, one being the -- what is referred to as the TPOs, but these are big refineries that they are privately owned. And they, of course, have a little bit of a different kind of requirement. The terminals are then also privately owned. But if you look at the government system in China and Unipec, which is kind of the biggest, they actually normally have a 15-year kind of threshold. But of course, they have maneuvering room between the 15 and 20, but you very rarely see them take a ship that is materially above 17 years old. So it's a little bit fluid. On India, I haven't seen or heard what you're referring to. All I know is that if you sail under an Indian flag and you're an Indian ship owner, they have at least up till now accepted trading all the way until 25 years. Operator: Dear speakers, there are no further questions for today. I would now like to hand the conference over to your speaker, Lars Barstad for any closing remarks. Lars Barstad: Yes. No, thank you very much again for listening in. It's extremely exciting times indeed. And I wish you the best for the remainder of the year. Thank you. Operator: This concludes today's conference call. Thank you for participating. You may now all disconnect. Have a nice day.
Operator: Welcome to the Geospace Technologies Fourth Quarter 2025 Earnings Conference Call. Hosting the call today from Geospace is Mr. Rich Kelley, President and Chief Executive Officer. He is joined by Mr. Robert Curda, the company's Chief Financial Officer. Today's call is being recorded and will be available on the Geospace Technologies Investor Relations website following the call. [Operator Instructions] It is now my pleasure to turn the floor over to Rich Kelley. Sir, you may begin. Richard Kelley: Good morning, and welcome to Geospace Technologies conference call for the fourth quarter of fiscal year 2025. I am Rich Kelley, the company's Chief Executive Officer and President. I'm joined by Robert Curda, the company's Chief Financial Officer. In our prepared remarks, I will first provide an overview of the fourth quarter, and Robert will then follow up with more in-depth commentary on our financial performance as well as an overview of our financials. I will then give some final comments before opening the line for questions. Today's commentary on markets, revenue, planned operations and capital expenditures may be considered forward-looking as defined by the Private Securities Litigation Reform Act of 1995. These statements are based on what we know now, but actual outcomes are affected by uncertainties beyond our control or prediction. Both known and unknown risks can lead to results that differ from what is said or implied today. Some of these risks and uncertainties are discussed in our SEC Form 10-K and 10-Q filings. For convenience, we will link a recording of this call on the Investor Relations page of our geospace.com website, which I invite everyone to browse through and learn more about Geospace, our subsidiaries and our products. Note that today's recorded information is time-sensitive, and may not be accurate at the time one listens to the replay. Yesterday, after the market closed, we released our financial results for the period ended September 30, our fourth quarter of fiscal year 2025. For the 3 months ended September 30, 2025, we reported revenue of $30.7 million with a net loss of $9.1 million. For the full 12 months of our fiscal year, we had $110.8 million in revenue, with a net loss of $9.7 million. The mixed fiscal year performance across the market segments continues to reinforce our vision of diversification and innovation for the company. Our Smart Water segment delivered another strong year exceeding expectations with double-digit revenue growth for the fourth sequential fiscal year. The Hydroconn connector Line continued to gain market share and drove significant revenue gains compared to last year. We are also seeing increased market acceptance of the Aquana products, both domestically and in the Caribbean markets. For international markets, we will build upon the municipal water management model in the U.S. and address challenges of water scarcity, environmental changes and natural disaster mitigation. Domestically, we'll remain focused on the increased success and interest we have seen in both the municipal and multifamily residential markets. We anticipate continued market demand for both the Hydroconn and Aquana solutions. Continued market uncertainty and volatility in oil prices resulted in lower revenue from Energy Solutions. We experienced another year of reduced offshore exploration activity, increased competition and consolidation. These factors have led to decreased utilization of our ocean bottom node rental fleet that has negatively impacted segment revenue. Despite lower revenue, we achieved strategic wins in this segment. As reported on June 16, 2025, we were awarded a major Permanent Reservoir Monitoring contract with Petrobras, followed by the release and completed major sale of our ultra lightweight land node pioneer to several customers, including Dawson Geophysical, a long-time valued partner. We have a strong backlog going into next fiscal year. And while there are encouraging signs, the short-term exploration market remains uncertain due to continued pressure from low oil prices. However, long-term demand forecast should drive more favorable market conditions in future periods. Our Intelligent Industrial segment continues to provide steady predictable revenue from our industrial sensors and contract manufacturing solutions. As previously announced, to increase revenue from this segment, we acquired Geovox Security Inc., the exclusive licensee of a human heartbeat detection algorithm developed by Oak Ridge National Labs. The Heartbeat Detector complements our border and perimeter security portfolio. It further serves to advance our strategy towards adding more solutions with a move toward annual recurring revenues. We also restructured our Exile product portfolio to increase revenues and improve margins. Both Heartbeat Detector and Exile have been -- have seen increased interest in their respective markets. While Energy Solutions continues to play a key role in our overall strategy, we will continue to drive growth and profitability through diversification. We see incredible opportunities in our Smart Water and Intelligent Industrial Segments to leverage our technology and manufacturing capabilities. We remain well positioned to exploit the tremendous potential we have created with our products and services portfolio, our talented staff and our continuing diversification into new high-margin markets. Additionally, our current backlog places us in a strong position going into the next fiscal year and beyond. Executive leadership continues to address workforce costs and development expenses on our path to sustained profitability. We will continue to pursue growth through acquisition with immediately accretive additions to top line revenue. And now I will turn it over to Robert to provide more detail on our financial performance. Robert Curda: Thanks, Rich, and good morning. Before I begin, I'd like to remind everyone that we will not provide any specific revenue or earnings guidance during our call this morning. In yesterday's press release for our fourth quarter ended September 30, 2025, we reported revenue of $30.7 million compared to last year's revenue of $35.4 million. The net loss for the quarter was $9.1 million, or $0.71 per diluted share, compared to last year's net loss of $12.9 million, or $1 per diluted share. For the 12 months ended September 30, 2025, we reported revenue of $110.8 million compared to revenue of $135.6 million last year. Our net loss for the 12-month period was $9.7 million, or $0.76 per diluted share, compared to last year's net loss of $6.6 million or $0.50 per diluted share. Revenue for our Smart Water Segment totaled $8.5 million for the 3 months ended September 30, 2025. This compares to $11.9 million in revenue for the same period a year ago, a decrease of 28%. For the fiscal year, revenue for this segment totaled $35.8 million versus $32.4 million for the same prior year period for an increase of 10%. The decrease in revenue for the 3 months period is due to decreased demand for our Hydroconn universal AMI connectors. Typically, we expect a slight seasonal drop in demand for these products during the fall and winter months. The 12-month increase in revenue is due to the increased demand for our Hydroconn connectors. Fiscal year 2025 marks the fourth annual year with double-digit percentage revenue growth from these connectors. For the 3-month period ended September 30, 2025, revenue from our Energy Solutions segment totaled $15.7 million for a decrease of 11% when compared to $17.6 million from the same prior year period. Revenue from the 12-month period was $50.7 million, a decrease of 35% when compared to revenue from the same prior year period of $78 million. The decrease for the 3-month and 12-month period is due to lower utilization and sales of our marine ocean bottom nodes, particularly -- partially offset by sales of our ultralight land node known as Pioneer. Revenue from our Intelligent Industrial segment totaled $6.4 million for the 3-month period ended September 30, 2025. This compares with $5.8 million for the equivalent year ago period, representing an increase of 9%. Revenue for the 12-month period ending September 30, 2025, was $24 million. This compares to the prior year period of $24.9 million, a decrease of 4%. The increase in revenue for the 3-month period was due to higher demand for our industrial sensors and contract manufacturing services. The decrease in revenue for the 12-month period was primarily due to revenue recognized for the 3 and 12 months ended September 30, 2024, on a government contract completed in the fourth quarter of fiscal year '24 and lower demand for our imaging products, partially offset by an increase in demand for our industrial sensors and contract manufacturing services. Our 12-month cash investments into our rental fleet and property, plant and equipment was $9.1 million, and we invested $1.8 million in the acquisition of the Heartbeat Detector product line. As of September 30, 2025, we have $26.3 million of cash and $8 million of additional available liquidity from our credit facility. Additionally, as of September 30, 2025, we have working capital of $64.1 million, which includes $28 million of trade accounts and financing receivables. That concludes my discussion, and I'll return the call to Rich. Richard Kelley: Thank you, Robert. The ongoing trade disputes and related tariffs have impacted our material costs. We are working to mitigate the impact to our customers, but our product costs were higher in Q4, and we anticipate similar impacts in fiscal year 2026. The government shutdown resulted in delays related to our projects for the U.S. Navy as well as potential opportunities with the Department of Homeland Security and Customs and Border Protection. Now that Congress has passed the continuing resolution, we are working with our partners to better understand the new time lines for the relevant projects. This concludes our prepared commentary, and I'll now turn the call back to the moderator for any questions from our listeners. Operator: [Operator Instructions] We'll take our first question from Bill Dezellem with Tieton Capital. William Dezellem: You had mentioned the gross margin or cost of goods under pressure, specifically tied to tariffs. So Energy solutions segment was the one that had the greatest pressure and most noteworthy. Would you talk in more detail about that phenomenon given that you had higher revenues and lower profitability in that segment? Richard Kelley: Bill, yes, specific to Energy Solutions, there was actually another weighing factor on that, which is the ongoing price pressure and commoditization of the -- in the land market. And so we did have a nice sale and revenue recognition on our Pioneer sales, but the margin results on that were lower. We also had higher-than-expected manufacturing costs because these were the first units that were built. We've since resolved some of those, and we expect better margins going forward. With regards to the tariff impact overall, we try to build and source as much from the U.S. as we can. However, there are certain components that we have to source overseas. Our procurement team and supply chain team have been working to try to mitigate that as much as possible. We've also been closely following the developments in the ongoing trade disputes. And we're hoping that some of that gets resolved now that it seems that there's a number of agreements in place now. William Dezellem: So walk us through how much of the impact, the margin impact this quarter was transitionary here this quarter versus what you would expect to last longer, if you would, please? Richard Kelley: I don't really have a good feel for the -- if you're looking for percentages, Bill, I haven't taken as deep a dive as I need to on that. We are monitoring it. The procurement team, like I said, is trying to do their best to resolve some of that. The other thing, too, is I want to make a comment. We've talked about this in the past, which is the ongoing capacity and underutilization of the manufacturing. Okay. Anything else, Bill? William Dezellem: Yes. Did you have something more you wanted to add to that? Richard Kelley: No, I was just looking at another note I had. I think we're okay. William Dezellem: So then the way to think about this is that you had inefficiencies with manufacturing of Pioneer given that it was your first order. And there is some commodity pricing, that probably sticks around, but your manufacturing inefficiencies, those will improve and tariffs, you're still trying to get your head wrapped around what the longer-term implications are of those. Richard Kelley: That's a pretty good summary, Bill. Yes. I would say that now that we've built our first several runs of Pioneer, our manufacturing costs are much more in line with what we expected. So we do expect improved margins on that. Some of the tariffs have resolved since we bought those early -- because for those particular orders, we bought those components earlier in the year when the tariffs were actually higher, and we've mitigated some of that as well. So we do expect improved margins on that product line going forward. William Dezellem: So then in your opening remarks, you referenced that you had expected ongoing margin pressure. My initial read on interpreting those comments would have been that this level of gross margin for the Energy Solutions would continue, particularly with the PRM contract, but that is not at all what you're trying to communicate. It sounds like that you have mitigated a lot of those impacts and the margin will maybe be a bit less than historical, but much closer to normal margins than what you had this quarter. Richard Kelley: I would parse that just slightly different. I would say that on PRM because there's not the same pricing pressure on that product line as we see on the land nodes and even on the ocean bottom nodes that we expect better margin performance on the PRM project going forward. So I think that will help balance out some of the lower margin performance on these other products. William Dezellem: Great. Have I taken up my time or may I ask a couple of additional questions? Richard Kelley: You could ask one more question, Bill, how about that? William Dezellem: That's fair. So the government has a couple of different initiatives where they are looking at you all, I believe, the Customs Border Patrol, the military. Update us what you are seeing, hearing and thinking that there may be for a decision matrix with the government activities, please? Richard Kelley: So I'll speak to the tunnel detection on Customs and Border Protection to start with. That has been very quiet from CBP since even before the government shutdown. We anticipate probably some feedback early next year. I don't anticipate with them just not coming back online and trying to understand where they're at with their projects and with the holidays coming up, I don't anticipate really hearing much more until the quarter after next, basically our Q2, Q1 calendar year. Specific to the Navy, we did continue to have informal conversations. We know that, that project is going to be delayed until probably our Q3 before we see any kind of movement on that, maybe even closer to Q4, so middle of the summer next year. Both projects are -- as far as we know are still anticipated, it's really a question of where on the time line it's going to be. Operator: [Operator Instructions] We'll take our next question from Sheldon Grodsky with Grodsky Associates. Sheldon Grodsky: Early this year, you announced 2 large projects, the Brazilian project and another sale of nodes. Have any of these been shipped yet? Or are you still waiting for these to be shipped? Richard Kelley: Sheldon, I appreciate the question. So on the Permanent Reservoir Monitoring project for Petrobras, that is a long-term project for us. We have actually not shipped any of that. We will make our first shipment -- our planned first shipments on that probably the early to middle of next year. So let's say, spring/summer time will be some of the anticipated first revenue recognition on that. And then that revenue recognition will go into fiscal year 2027 for us. That project is expected to last between 12 and 18 months. with regards to the large contract we sold to Dawson Geophysical for -- I'm sorry. Robert Curda: I think he's talking about Mariner contract. Richard Kelley: Yes. On the Mariner contract -- I'm sorry, let me defer it to Robert. Robert Curda: Yes. So earlier this year, we announced the Mariner contract. We have not shipped that contract yet. It's been deferred by our customer due to delays from their customer. Richard Kelley: I do want to speak to the Pioneer sale that we had. That was a large channel count and those shipments were broken into smaller shipments between this quarter and next quarter. So we have shipped some of those units this year. We anticipate a majority of revenue recognition in Q1 with some of the revenue in Q2. Operator: Thank you. And at this time, there are no further questions in queue. I'd like to now turn the meeting back to our presenters for any additional or closing remarks. Richard Kelley: Thank you, Stephanie, and thanks to all of you who joined our call today. We look forward to speaking with you again on our conference call for the first quarter of fiscal year 2026. Goodbye, and happy holidays. Operator: Thank you, ladies and gentlemen. This does conclude today's presentation. You may now disconnect.
Operator: Hello, and welcome, everyone, joining today's Matthews International Fourth Quarter and Year-End Fiscal 2025 Financial Results. [Operator Instructions] Please note, this call is being recorded. [Operator Instructions] It is now my pleasure to turn the meeting over to Chief Financial Officer, Steve Nicola. Please go ahead. Steven Nicola: Thank you, Nikki, and good morning. I'm Steve Nicola, Chief Financial Officer of Matthews. And with me today is Joe Bartolacci, our company's President and Chief Executive Officer; and Dan Stopar, our incoming Chief Financial Officer, beginning December 1. Before we start, I would like to remind you that our earnings release was posted on the company's website, www.matw.com, in the Investors section last night. The presentation for our call can also be accessed in the Investors section of the website under Presentations. Any forward-looking statements in connection with this discussion are being made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Factors that could cause the company's results to differ from those discussed today are set forth in the company's annual report on Form 10-K and other public filings with the SEC. In addition, we will be discussing non-GAAP financial metrics and encourage you to read our disclosures and reconciliation tables carefully as you consider these metrics. In connection with any forward-looking statements and non-GAAP financial information, please read the disclaimer included in today's presentation materials located on our website. Now I will turn the call over to Joe. Joseph Bartolacci: Thank you, Steve. Good morning. Thanks for joining us today to discuss the financial results for Matthews fiscal 2025 fourth quarter and 2025 year-end. Before sharing our solid results for the fourth quarter, I want to take a step back on our strategic progress. Earlier this year, we laid out several objectives: simplify our corporate structure, expand our work with -- in higher growth and higher-margin businesses and reduce our costs. I am proud to say that we have taken decisive actions throughout the year to deliver against each of those goals. I would like to spend a few minutes elaborating on our progress across each of these buckets. The divestiture of SGK and Warehouse Automation at compelling valuations have clearly simplified our story. In selling SGK, we retained a 40% stake in the new company, Propelis, that is outperforming expectations. Thus, we expect to reap a significant benefit when we exit this business, which is likely over the next 18 to 24 months. From a commercial perspective, the market response to Propelis has been very favorable. Propelis is now operating at an EBITDA run rate significantly higher than the $100 million that was assumed at the time the deal was closed. After a period of consolidation post COVID, CPGs are realizing the need to innovate in order to strengthen their brands. Thus, the Propelis core packaging business is having a strong performance. Plus, given our new scale, we are seeing opportunities on the marketing side of the business that neither business had the scale to deliver on before the transaction. Note that over $50 million of synergies are yet to be executed with a significant portion of those synergies to be delivered next year. We expect this to be a highly favorable transaction. Once we exit, we will have a significantly delevered our business, putting us in a position to further increase shareholder value. Building on this, last week, we announced an agreement to sell our Warehouse Automation unit to Duravant LLC, a global leader in engineered equipment and automation solutions. Under the deal terms, Matthews will receive $230 million comprised of $223 million in cash consideration plus the assumption of certain liabilities. After taxes, fees and payments of other liabilities, we expect that $160 million will be applied to debt reduction, significantly reducing our total debt. We believe this to be a highly attractive transaction as well that enables us to further reduce our debt position and strengthen our balance sheet as we work towards our long-term target of 2.5x while enhancing our ability to pursue additional strategic initiatives. The value of our Warehouse Automation business was highly underappreciated by the market, but this transaction reflects its true value. At over 3x revenue and 15x adjusted EBITDA, this transaction was very accretive. Assuming that HSR approval is secured within the customary 30-day period, we expect the transaction to close before the end of December. To further simplify our operating structure, we also expect to complete a few smaller transactions, including the sale of our Saueressig packaging and [indiscernible] GmbH in the next -- in the near term. We continue to actively evaluate other strategic portfolio opportunities assisted by JPMorgan, and we will update you accordingly. As I'll discuss in more detail shortly, across our business segments, we have made important growth investments to better position the company for long-term success. The Dodge acquisition is delivering even better-than-expected results in memorialization. And in October, we acquired substantially all the assets of Keystone Memorials, a wholesale manufacturer of granite materials in Georgia. This highly strategic investment drives equipment, 22 acres of property and 30,000 square foot production facility in Elberton, Georgia that will enable us to produce personal mausoleums, a growing segment of the market. In the Industrial Technologies segment, we launched our new printhead, Axian in October, and I'm pleased to report that the initial response from the market has been overwhelmingly positive. In addition, we have continued advancing efficiency actions, resulting in a reduction of full year corporate costs on a year-over-year basis of $8.5 million. In addition, we reduced our debt by $66 million. Finally, from a governance perspective, we have put in place meaningful adjustments to enhance accountability. We declassified our Board and removed supermajority voting requirements. And on Wednesday, we announced the appointment of Michael Nauman as Matthew's Chairman of the Board. Michael succeeds Alvaro Garcia-Tunon, who retired -- who will retire as Chairman and from the Board and -- as Chairman and from the Board when his term expires at our annual meeting. Michael's extensive technical expertise, M&A experience and leadership come at a transformative time for Matthews as we focus on long-term value creation for our shareholders. We look forward to the contributions that Michael will bring to the Board as Chairman. Turning to our fourth quarter performance. We're very pleased with the company's results. We had a strong finish to the year in a challenging economic environment, driven by improved year-over-year performance in our Memorialization and warehouse automation business units. Additionally, we saw the benefits of our focus on reducing corporate and other nonoperating costs, which added to our strong operating results. From an EBITDA and adjusted earnings per share perspective, our results were higher for the quarter than prior year when you exclude the impact of the SGK divestiture, a strong performance. Let's move on to the specific business units, beginning with Memorialization, which reported higher revenues and adjusted EBITDA on a year-over-year basis. As we reported in May, the Dodge acquisition contributed significantly to our performance in the fourth quarter. We're very pleased with the progress they are making on the integration process as synergies are being captured ahead of plan. Additionally, we are preparing to initiate cross-selling activities and expect this acquisition to be a strong contributor to revenues and EBITDA in fiscal 2026. As for Industrial Technologies, revenues were lower year-over-year, reflective of our ongoing challenges in the engineering business. In Warehouse Automation, we capitalized on the market recovery underway and strong order rates to drive strong revenues and adjusted EBITDA in Q4. This strong performance is reflected in the robust market interest and valuation we received for this business. With respect to our product identification business, building on my earlier comments about the launch of Axian, we also received GS1 certification as the only jetting unit able to meet 2D code quality standards, which can be read at speeds we believe that no other competitor has achieved. This is yet another key differentiator for this novel technology. GS1 certification is the global standard for adoption of the 2D codes, which are beginning to be required across the world. In the current environment, tariffs have impacted all of our businesses and for the most part, we have been successful in mitigating these costs by passing along higher prices. This remains a volatile topic, as you all are aware, but the team has so far done excellent work in managing in this difficult environment. Finally, moving on to the Engineering business segment. Let me first provide an update regarding our proprietary dry battery electrode technology. For almost 2 years, we have been in a prolonged dispute with Tesla addressing their false ownership claims arising from our proprietary advanced rotary processing and calendaring offerings, frequently referred to as the all-in-one solution for the dry battery electrode. We have already successfully prevailed in numerous rulings against Tesla in recent years. Notably, however, I am at a slight disadvantage speaking in any form about the details of our dispute as I cannot further explain components of the litigation given certain matters have been or are being addressed through confidential arbitration. That said, Tesla's vigorous efforts to claim ownership rights in our solutions, solutions that we have been working on and refining with our German engineering team for over 2 decades, further confirm our position that our proprietary technology is highly valuable and sought after. Specifically, many parties continue to show keen interest in our DBE offerings. Consistent with prior rulings, I remain confident we will maintain our ownership rights in our proprietary DBE technology. Indeed, certain rulings have already reinforced Matthew's long-standing leadership in the design, development and manufacturing of continuous process machinery for battery electrode production, including our proprietary dry battery electrode solution. With respect to business activity for the engineering business, during the quarter, we received an order for a production scale machine for a U.S.-based solid-state battery manufacturer, which we will hope will be one of many delivered as this novel technology comes to market. DBE is considered the best solution for solid-state batteries given the lack of solvents in the production process. We expect as more companies come to market with solid-state solutions, interest in our proprietary technology will continue to grow. Also in December, we will engage with a domestic energy solutions provider to prove our equipment's efficacy for a $50 million U.S.-based opportunity for a battery separator line, another product in our energy storage portfolio. We expect this opportunity will convert to an order in early fiscal 2026 as the customer works towards securing supply agreements. Our pipeline of opportunities remain steady with quotes in excess of $150 million, and we expect to announce more orders in 2026. Looking ahead, with regards to the energy business, we are exploring multiple partnerships with several industry participants. Our intent is to partner with others who can help us expand adoption of this technology around the globe. We are open to partnering directly on projects as well as looking for direct investments into the business. This will not be an immediate event, but has been one of the focuses of our strategic alternative efforts. Finally, concluding with a few comments looking forward to 2026. We believe a full year contribution from the Dodge acquisition will enable Memorialization to grow in fiscal 2026. Additional cost reduction actions at the engineering business are planned for next year to mitigate any further declines in the business as we work towards converting several opportunities into orders. Based on these factors and inclusive of our 40% interest in Propelis, we expect our adjusted EBITDA guidance to be at least $180 million for fiscal 2026. Recognize that we will have multiple transition services agreements in place from various divestitures, which will limit our ability to take more significant action to reduce our overhead, but we are working on and expect corporate costs to be materially lower after the expiration of those agreements. Finally, our evaluation of strategic alternatives is continuing. However, we will be prudent in making decisions focused on achieving appropriate value for our shareholders. Like we have demonstrated by the sale of our Warehouse Automation business and the merger of SGK, we know what the true values of our businesses are, and we'll be patient in our process. Now I'll turn it over to Steve for a discussion. Steven Nicola: Thank you, Joe. Before starting the financial review, I want to give a reminder on the financial reporting with respect to SGK. As you are aware, the divestiture of SGK closed on May 1, 2025, and as such, our consolidated financial information reflects the financial results of the SGK business through the closing date. As part of the transaction, the company received a 40% ownership interest in the newly formed entity, Propelis Group. Please note that as a result of the integration process of Propelis Group and transition to its own stand-alone reporting systems, our 40% portion of the financial results of Propelis will be reported on a 1-quarter lag. As a result, except as otherwise noted, the consolidated financial information discussed today only includes our 40% interest in the financial results of Propelis for the months of May and June 2025. Similarly, our financial statements to be included in the annual report on Form 10-K will only reflect our portion of the results of Propelis for May and June 2025. However, in Joe's remarks in the press release yesterday, we provided our adjusted EBITDA results for fiscal 2025, inclusive of estimated Propelis results for July through September 2025 for your reference. Now let's begin the financial review with Slide 7. For the fiscal 2025 fourth quarter, the company reported a net loss of $27.5 million or $0.88 per share compared to $68.2 million or $2.21 per share a year ago. The change primarily reflected significant restructuring charges a year ago, including a goodwill write-down compared to litigation costs and other restructuring costs and asset write-downs for the current quarter. Consolidated sales for the fiscal 2025 fourth quarter were $319 million compared to $447 million a year ago. The decrease primarily reflected the divestiture of the SGK business on May 1, 2025. The consolidated sales impact of the SGK divestiture was approximately $120 million for the current quarter. Sales for the Industrial Technologies segment were lower for the quarter, offset partially by higher sales for the Memorialization segment. Consolidated adjusted EBITDA for the fiscal 2025 fourth quarter was $51.5 million compared to $58.1 million a year ago. The decline primarily reflected the SGK divestiture. The Memorialization segment reported higher adjusted EBITDA and corporate and other nonoperating costs were lower for the quarter, which were partially offset by a decline in adjusted EBITDA for the Engineering business. On a non-GAAP adjusted basis, net income attributable to the company for the current quarter was $15 million or $0.50 per share compared to $16.6 million or $0.55 per share last year. The decline primarily reflected the impact of the SGK divestiture. With respect to Propelis, based on preliminary financial projections that were provided to us, their current estimate of adjusted EBITDA for July through September 2025 was $32.2 million. Please note that these projections are unaudited and subject to review and as a result, may change. Our 40% portion of this amount would be $12.9 million. Accordingly, adjusting for the impact of the 3-month lag, the company's consolidated adjusted EBITDA for the fiscal 2025 fourth quarter would have approximated $57 million compared to the $58.1 million generated a year ago. Please see the reconciliations of adjusted EBITDA and non-GAAP adjusted earnings per share provided in our earnings release. Please move to Slide 8 to review our segment results. Sales for the Memorialization segment for the fiscal 2025 fourth quarter were $209.7 million compared to $196.8 million for the same quarter a year ago. Acquisitions, primarily Dodge, contributed sales of approximately $11 million to the current quarter, which were offset partially by the disposition of the European cremation equipment business. Higher sales volumes for Bronze Memorials and inflationary price increases also contributed to the improvement of the segment sales. Granite Memorials and casket sales volumes declined, primarily resulting from lower U.S. casketed deaths. Additionally, Granite Memorial sales a year ago were favorably impacted by the working down of backlogs that had accumulated during the pandemic. Cremation equipment and related sales were also lower than a year ago. Memorialization segment adjusted EBITDA for the current quarter was $45.1 million compared to $40.5 million for the same quarter last year. The increase primarily resulted from the benefit of inflationary price realization and cost savings initiatives, offset partially by the impact of higher material costs. Acquisitions and the disposition of the unprofitable European cremation equipment business also contributed to the increase in the segment's adjusted EBITDA. Please move to Slide 9. Sales for the Industrial Technologies segment for the fiscal 2025 fourth quarter were $93 million compared to $113.9 million a year ago. The decline mainly resulted from lower sales for the segment's engineering business. The decline was offset partially by higher sales for the Warehouse Automation business. In addition, the shutdown of the unprofitable automotive business contributed to the segment's year-over-year sales decline. Changes in foreign currency rates had a favorable impact of $3.4 million on the segment's current quarter sales compared to a year ago. Adjusted EBITDA for the Industrial Technologies segment for the current quarter was $11 million compared to $15.9 million for the same quarter a year ago. The decrease primarily resulted from the impact of lower engineering sales, offset partially by the segment's cost reduction actions in its engineering business and the impact of higher Warehouse Automation sales. Please move to Slide 10. Sales for the Brand Solutions segment were $16.2 million for the quarter ended September 30, 2025, compared to $135.9 million a year ago. Sales for the current quarter consisted of the segment's European packaging operations. The decrease resulted from the divestiture of the SGK business on May 1, 2025, which had an impact of approximately $120 million for the quarter. Adjusted EBITDA for the Brand Solutions segment was $7.4 million for the current quarter compared to $17.3 million a year ago. The current quarter mainly reflects the company's 40% interest in Propelis as our European packaging business reported relatively breakeven results, which was generally consistent with the same quarter a year ago. The decrease in the segment's adjusted EBITDA resulted from the divestiture of the SGK business. Please move to Slide 11. Cash flow provided by operating activities for the fiscal 2025 fourth quarter was $10.3 million compared to $35.9 million a year ago. For the fiscal year ended September 30, 2025, cash flow used in operating activities was $23.6 million compared to cash provided by operating activities of $79.3 million last year. Cash costs in connection with acquisitions and divestitures, litigation and restructuring of the German operations and the unfavorable working capital impact related to the Tesla project were the significant factors in the operating cash flow decline for the current year. Outstanding debt at September 30, 2025, was $711 million and net debt, which represents debt less cash, was $678 million. Net debt declined modestly for the fiscal 2025 fourth quarter. The company's net leverage ratio at September 30, 2025, based on trailing 12 months adjusted EBITDA was $3.6 million. With the pending sales of our Warehouse Automation business and our European packaging and tooling business, both of which are expected to close in the early part of fiscal 2026, we expect significant reduction in our debt levels. Net cash proceeds from the Warehouse Automation sale, net of income taxes and other costs are projected to be $160 million. This business has a relatively low tax basis and is predominantly a U.S.-based business. Net proceeds from the sale of the European packaging and tooling business are projected to approximate $30 million. The buyer is assuming pension and certain other obligations with the transaction. For the fiscal 2025 fourth quarter, the company purchased 5,262 shares under its stock repurchase program at an average cost of $20.33 per share. These repurchases were solely related to withholding tax obligations for vested equity compensation. For the year ended September 30, 2025, the company repurchased approximately 568,000 shares at an average cost of $21.54 per share. Finally, the Board declared this week an increase in the quarterly dividend to $0.255 per share on the company's common stock. This represents the 32nd consecutive annual dividend increase since becoming a publicly traded company. The dividend is payable December 15, 2025, to stockholders of record December 1, 2025. This concludes the financial review, and we will now open the call for any questions. Nikki? Operator: [Operator Instructions] We'll take our first question from Colin Rusch with Oppenheimer. Colin Rusch: Congratulations on the progress with the customers on the battery side. Can you talk a little bit about the opportunity set when you think about solid-state and ultracapacitors, given what we're seeing with data center power needs and power buffering. Are you seeing any incremental interest on the ultracapacitor side or changes in chemistry that may be more attuned to some of the stationary power application rather than the mobile applications? Joseph Bartolacci: Certainly, Colin, thank you. Good to talk to you. You know a lot more about the energy storage business than many of our investors do, and that's important because factually, you're absolutely correct. The reality is that our dry battery electrode technology applies far more than just the energy that goes into a vehicle, whether it's ultracapacitors who we're having multiple discussions with or whether it's for storage capacity for anything from data centers to anything else. The customer I referred to that is looking at a $50 million order next year is exactly that. It is storage. It is not for automobiles. So we're seeing increased interest. The technology is highly valuable and focused on any type of energy storage, and we're looking to expand upon that opportunity everywhere we look. Colin Rusch: And then with the strategic review, you've been able to divest a number of businesses. You're potentially in a more flexible cash situation. How should we think about M&A and augmenting some of the technology portfolio that you guys have a really solid foundation with here as you look at some of these bigger opportunities starting to emerge in a more concrete way? Joseph Bartolacci: Well, right now, Colin, we're focused on reducing our debt, and we're going to get that in line. And we have a target here of coming at 2.5 or better when we look at our debt. The exit of SGK will clearly, clearly put us well below that target, and we're very comfortable being there. As I said in my comments, that will open up the opportunities for strategic initiatives. And whether it be on the energy side, whether it be on the memorialization side or the execution of our new printheads, we will look at it diligently and try to be prudent about that decision as we go forward. Imminently, though, we do not have anything on the table that we'd be focused on as we try to get out the door of what we do have. There's a lot on our plate right now, folks with 3 transition services agreements, divestitures happening, restructuring associated with that. We have enough on our plate right now to deal with. And I would say in the near term, we're focused solely on debt. Operator: Our next question comes from Liam Burke with B. Riley Securities. Liam Burke: Joe, you called out a firm order, and then you also called quantified another potential order. You also quoted pipeline opportunities. Is it -- are your customers less reticent to start working with you even though the Tesla lawsuit has not been completely resolved yet? Joseph Bartolacci: I would say that they're less -- not less, reticent as much as they're more dependent on the market environments in which they operate. And when it comes to EV, there is overcapacity on the battery side. We are looking at a fairly significant opportunity, we believe, in the European market where one of our potential customers has had success and is looking at the building of a new factory over there. When we look at solid state, that's another completely different market, smaller volumes at this point in time, but higher -- let's call it, efficiency when it comes to the battery itself. As Colin mentioned earlier, included in there are some opportunities when we look at ultracapacitors, another form of energy storage. So I would tell you, Liam, they're not so much worried as much of that as they are in making sure they have market opportunities. Liam Burke: Fair enough. And on Memorialization, cremation, is that still -- how is that doing? Joseph Bartolacci: The business itself or the trend? The business itself is doing fine. We are -- as Steve mentioned in his comments, we sold our underperforming European business, which had been a drag for us for a while. We had shut down our -- many of you may know, we have a facility in Apopka, Florida. From an efficiency standpoint, we looked at opportunities on the West Coast to be able to support that market more locally. We have shut down that facility, integrating that also into Apopka. We still have room for improvement in the business, but it continues to operate at a pretty good rate. Operator: We will move next with Dan Moore with CJS Securities. Will Gildea: This is Will, on for Dan. Can you provide an update on beta testing for the new Printhead solution? What are the key steps before you can commercialize it more broadly? And how should we think about the TAM for that product over the next 2 to 3 years? Joseph Bartolacci: So I mean, key steps is, it's in market. So we will start deliveries here in December. Recognize that we had literally 2 trade shows where our trade -- our booth was overwhelmed, both with competitors as well as with customers. Comments like this is finally an alternative to continuous inkjet. The 2D code thing that I mentioned on my call, getting GS1 certification is big, but we're still early in the process. So the steps that we are going through right now is we have limited chips, so we will begin that process of selling that, but it will be a limited amount. The market TAM that we're going after is over $2 billion. I don't need to have a lot of that TAM to be successful for this part of our business. So I'm looking forward to where this goes. And we'll continue to refine the yield that we're receiving on those -- the chips as we move forward. So multiple steps to really creating the value that this opportunity is for us. Will Gildea: And looking at the balance sheet, the $300 million 5-8 bonds aren't due for another 2 years. What are your options to call or refinance early if you were to choose to do so? Steven Nicola: Well, we're in a call period right now that started October 1. And so that will last, obviously, through the end of the term of the bonds. So as you would expect with the proceeds that we're seeing from some of the divestitures not only the SGK divestiture that's closed, but the warehouse divestiture and the packaging and tooling that are pending. Looking at that 5 and 5-8 bond is something that is definitely on our radar in terms of evaluating the alternatives for it. Operator: Our next question comes from Justin Bergner with Gabelli Funds. Justin Bergner: Just to start, could you elaborate the solid-state opportunities for energy storage, which end markets are those primarily feeding? Joseph Bartolacci: So I'll give you an example. We're not going to name the names of the customer that we already -- that we received the order for. That is -- they have demonstrated the capacity for motorcycles as an example. But imagine anything from small appliances to larger vehicles. I think if you spoke to people that are highly focused on the energy space, they would expect solid state to be long term, solution for all batteries, but I think we're still a while away. At the end of the day, the application of solid-state better density, lighter weight, more safety, a faster charge, all the things that have been the challenges to adoption is addressed by solid state. Justin Bergner: Okay. When you say there's excess capacity in the battery side as it relates to the automotive opportunity for energy storage, is what you're saying effectively that even though you have a better solution with the wet, I guess, capacity already installed, you need to see incremental capacity before customers come to you independent of the legal dynamics? Joseph Bartolacci: Well, clearly, as capacity expands and more importantly, as capacity localized, meaning whether it's produced in North America, right now, China has an overcapacity of battery production capabilities. But as both governments and clients demand localized support, that will change the demand for it as well. But depending on your projections on what battery needs will be over time, we're only scratching the surface of where total capacity for batteries needs to be. I mean, adoption rates are going to determine that. But if you believe what you hear, the trend towards electrification is only just beginning. It's just where we are today relative to adoption of EVs and other energy storage solutions that is EVs and other energy users like that, that our current capacity is overcapacity. So what I'm saying in my comment is not necessarily that there's -- we have to wait for expansion. We have to wait also for localization and also have to kind of deal with the fact that the economics of our solution are better. And as they amortize existing footprints, we can make an easier discussion about replacing their current technology with new technology. Justin Bergner: And then just the certification for the new chip head -- product ID solution. What is the significance of that certification? Joseph Bartolacci: It's massive because GS1 -- if you think about -- I'll try to put it in the simplest terms. So when barcodes came out, you had multiple different readers and everybody had their own solutions. GS1 certification is the standardization so that there'll be one reader capability and one standard for adoption across. So now we all have one individual -- one standardized reader that allows many manufacturers to produce it. Our equipment today is the only equipment that can -- that allows that reader to read at speeds that allow them to remain at current levels. When you walk into a Walmart, I'll give you an example. When you walk into a Walmart, you can scan self-service yourself, and it doesn't really matter to you how long that reader takes to read that barcode. But when you have what they call professional scanners, I mean those are the people standing behind the cash register and actually taking your orders and running them through. If you notice how fast they swipe it, that is critical for efficiency at a retailer. The retailers demand that standard in order to be effective. Our technology, because of our ability to print in multiple sizes, and that's the biggest, we get -- we can produce at multiple size prints with highly, highly defined marks are the only ones that can operate at the speed. So you can swipe just as fast as you do with a barcode. Justin Bergner: Got you. All right. And then one last cleanup question, if I may. So you mentioned $160 million net proceeds from Warehouse Automation and $30 million of net proceeds from European packaging and tooling, both to close in the first quarter. Just how much liability reduction should we also factor in whether it's pension or securitized receivables on top of that $160 million and $30 million? Steven Nicola: Yes. With respect to the packaging and tooling business, Justin, that number is going to be close to $10 million. And with respect to the Warehouse Automation business, that's a little less than $10 million. That's the difference between the $230 million and the $223 million. Joseph Bartolacci: Yes. So it's already included in our calculation. The net of $160 million is what we expect to apply. Justin Bergner: Okay. So the $160 million would be the debt reduction, but then there would be, I guess, the $7 million or a little bit less than $10 million of liability reduction on top of that? Steven Nicola: That's right. So again, if I just quickly run through the math, $230 million was the total value, about $7 million of assumed liabilities. So the cash portion was $223 million. And then there's a significant tax bite out of that plus transaction fees and some other costs to take it down to $160 million. Operator: At this time, there are no further questions in queue. I will now turn the meeting back to Mr. Nicola for final comments. Joseph Bartolacci: Okay. Thank you very much. I'm going to take this off of Steve for a second before he kind of closes out here. For those of you that have been fortunate enough to hear Mr. Nicola speak for the last 20-odd years, many of you know that Steve has announced his retirement effective here December 1. On behalf of Matthews International Corporation, its Board of Directors and its shareholders, I want to thank Steve for his over 25 years of service to this corporation and to the shareholders and wish him well in his retirement. So I'll turn it over to Steve to close it, but then say goodbye. Steven Nicola: All right. Thank you, Joe, and thank you, everyone, for listening and your support all these years. So have a wonderful day and a great weekend. Take care. Operator: Thank you. And this brings us to the end of today's meeting. We appreciate your time and participation. You may now disconnect.
Jakub Frejlich: Welcome again. We are sitting here in Orlen headquarters in a meeting room to discuss Q3 and 9 months of 2025 ending September 30 financial and operating results. We are here in the room with Slawomir Jedrzejczyk, Group CFO; Daniel Obajtek; and my name is Jakub Frejlich, I'm Head of Investor Relations. Please don't -- please mind that we're doing it old school without video. So this is normal [indiscernible] function or technical problem. We would like to keep it that way for the time being and maybe further. So we will kick off. We're still having some joiners coming in. But since this is 5 past already, we'll be kicking off. And now I'll hand over to Slawomir, please. Unknown Executive: Thank you, Jakub. So good morning, ladies and gentlemen. Let me start only by saying it's good to be back. Warm welcome to everyone. It's my pleasure and privilege to present Orlen quarterly results. I would like to start with the highlights. First of all, macro environment and mixed views on that. First of all, lower oil and gas prices. So as you know, that impacted our upstream business. However, very good refining environment, very high margins. In petrochemicals, still, we see market pressure, both in terms of margins and volumes. Electricity, stable prices. And in terms of retail, fuel retail, we observed lower fuel consumption, especially in diesel. And let's look at operations, and this is very positive news, I believe. We delivered very good results in operations, higher gas production, distribution and sales, higher throughput and wholesale fuel sales. However, lower sales in petrochemical, as I said, higher electricity production and higher nonfuel sales in retail. So as a result, if we look into the financials, we delivered very solid EBITDA, close to PLN 9 billion, very high cash flow from operations altogether for the first 9 months of 2025, PLN 34.4 billion. And we managed to continue our CapEx program. Altogether, we spent PLN 21.1 billion for the first 3 quarters, and we paid record high dividend of PLN 7 billion. So as a result, we managed to decrease our debt level by PLN 6 billion in 2025. So now let's move to Slide #4, which is highlights, financial results highlights. As you can see, revenue dropped to PLN 61 billion in the third quarter. However, that was due to the fact that oil and gas prices were lower. Then very solid EBITDA, close to PLN 9 billion altogether, close to PLN 30 billion in the first 3 quarters. Very good cash flow from operations, as I said, although in the third quarter, slightly lower than in past quarters due to the fact that we increased our working capital by PLN 2 billion in the third quarter due to the fact that the prices increased and the volume increased. CapEx, we continue our CapEx program. Our budget was PLN 35 billion. So currently, after 3 quarters, PLN 21.1 billion. I will come back to this in the slide dedicated to CapEx. And as a result, free cash flow close to PLN 1 billion and very, very safe net debt position and net debt-to-EBITDA of 0.14x. So now let's move to EBITDA delivered by segments. As you can see, we delivered good results in all the segments, Upstream and Supply, PLN 3.3 billion; downstream, PLN 2.4 billion; Energy, PLN 2.2 billion and customer and products, PLN 1.6 billion. So altogether, PLN 8.9 billion. And what's very interesting, I believe, is that the bottom is a change year-on-year. So in Upstream, it's minus PLN 3.2 billion, but I would like to pay your attention that basically the results of '24 were, let's say, inflated, PLN 1.8 billion out of this PLN 3.2 billion is basically higher gas prices we achieved in '24 due to the fact that we contracted '24 based on '23 prices, PLN 0.8 billion is basically purchase price allocation that inflated results in '24. So you may say that this drop is, of course, due to the fact that there were lower prices of oil and gas. However, please bear in mind that '24 is not comparable due to those 2 one-offs, let's say. In Downstream, PLN 1.9 billion higher results, which is, I believe, great due to fantastic macro environment in refining from the refining margin point of view. Very solid results in Energy and Consumer Products. Corporate functions increased by more than PLN 200 million. PLN 100 million is, you may say, phasing and PLN 100 million is due to the fact that we increased our labor and general expenses by a few percentage points year-on-year. Now let's move to Slide #6, where we present our operational results. And this is evidence what I said that from operations, it was a very good quarter. So we increased production and wholesale gas sale in upstream and supply. We slightly increased crude oil throughput and wholesale fuel sale by 1 percentage point. However, you can observe here minus 16% drop in petrochemical, and this is clear evidence that petrochemicals under huge pressure, both from petrochemical margin perspective as well as volumes. In energy, steady growth in almost all areas, gas distribution plus 3%; heat generation, plus 5%; electricity generation, plus 7%. And what's very important, renewables generation increased by 43%. So what I can say is that currently in the electricity generation, renewables constitute 17%. This is 4 percentage point increase as compared to last year. As regards Consumer and Products, very good results in the retail gas and electricity sales. However, we see some pressure on the consumption of fuel in Poland, especially diesel. That's why you can see that our retail fuel sales dropped by 2 percentage points. Now let's move to each segment where we elaborate more. So let's start with Page #7, Upstream and supply. We managed to produce up to 200,000 BOE per day. Majority of this -- more than half of this is, of course, Norway, but then we have Poland and the remaining amount is Canada and Pakistan. Majority of this is gas production. And if you can see, the result is lower by PLN 3.2 billion. But as I explained, upstream Poland and Upstream International, this negative -- huge negative impact of lower gas and oil prices was to some extent or even a big extent, offset by higher production, both in Poland and Norway. And this PLN 2.8 billion, as I explained before, basically, this is lower realized gas sale price. So you may treat it as a kind of one-off from '24 and negative impact of the settlement of PPA, this is PLN 0.8 billion again from 2024. So now let's move to Downstream. And definitely, high refining margins help us a lot. So in the third quarter, that was almost doubling USD 15.2 per barrel. However, petrochemical margin is under pressure, 16% drop to PLN 168 per ton, but was very good. I believe crude oil production improved by 1%. So utilization of our Polish operations was basically 100%, whereas Lithuania, 94%. And in Czech Republic, that was lower utilization, 75% due to plant and unplanned shutdowns. So there was a failure in Litvinov. So that's why we produced less petrochemical products. So as you can see on this slide, petrochemical is minus PLN 92 million contribution to EBITDA LIFO. However, if it hasn't been for Litvínov failure, I believe that would be a kind of slight plus in the petrochemical business as well. However, we all know that we are looking at downstream business from the whole value chain perspective. So of course, great refining is offset by weak petrochemical business. However, altogether, I believe Downstream delivered very solid results of PLN 2.4 billion. Now let's move to Energy. The biggest improvement, higher result by PLN 500 million basically and the biggest improvement is in distribution networks of PLN 318 million, and that was basically due to increase in gas distribution volumes and higher gas and electricity distribution tariffs. In all other areas, as you can see, heating, conventional energy, new energy and electricity trading, we delivered positive results as well. Now let's move to Consumer & Products. Very stable result in retail, fuel and shops. And we see some pressure on the consumption and on the volumes. That's why it was a slight -- slight drop in this -- in that area. However, we managed to regain that drop from the nonfuel sale. We continued our promotions during summer period. So that decreased the margins. However, we managed to regain that from the nonfuel sale. And this increase of PLN 300 million is basically retail electricity and gas. But please bear in mind that part of this increase was again a kind of one-off from '24 that was positive impact of the settlement of PPA, roughly PLN 100 million, so slightly inflated the results. Altogether, PLN 1.6 billion EBITDA, very good result in Consumer Products. Now let's move to CapEx. So you can see the split of CapEx, our budgeted CapEx for '25, PLN 35 billion, and that's almost evenly spread across upstream supply, downstream and energy. However, in the past quarters, we indicated that our CapEx program is roughly between PLN 33 billion and PLN 35 billion. So looking at utilization of CapEx -- realization of CapEx for the first 3 quarters, probably we may expect to be at the closer to the lower end of this range. However, we'll see how this develops in the fourth quarter. Of course, we continue our projects in upstream and supply to increase our production according to our strategic goals. In downstream, of course, we have 3 areas of projects. One is enlarging value chain, which is new chemical project. Then we improve our product slate, and this is the construction of, for example, hydrocracking unit in Mažeikiai or hydrocracking oil block in Gdansk. And of course, we are doing projects that create biocomponents, second-generation bioethanol like [indiscernible] bioethanol in Jedlicze. In energy, of course, we all know that energy transformation is not only renewable energy, but we need to absolutely enlarge and modernize distribution network. So that's why you can see expansion and modernization of power grid and gas distribution network. And our key projects in the renewables energy is, of course, Baltic Sea. So we continue this project, and we target in the second half of 2026 to have this farm fully operational. We continue as well our CCGT project and Ostroleka and Grudziadz second half of '26 should be operational. And of course, we started the new projects like CCGT, Gron, the second plant and in Gdansk. As regards Consumer and Products, we expand and modernize and rebrand our fuel network stations, and we build alternative fuel stations network. So this is ongoing tasks, and we allocate sufficient CapEx for that project. So now let's move to our liquidity position. On Slide #12, we present the waterfall. So we generated -- or we delivered PLN 34.4 million operational cash flow. That was, of course, inflated by a working capital decrease, PLN 4.8 billion altogether for the first 3 quarters. However, the first quarter itself was a kind of minus PLN 2 billion. So we observed this effect of increasing oil and gas prices and volumes increase. So we spent investment cash flow PLN 21.9 billion. That includes our leasing cash out and managed to pay a record high dividend of PLN 7 billion. So altogether, we decreased our debt by PLN 6 billion. So we are in a very good financial position for the next years to come. We all know that we have quite significant CapEx program for the next 3 years. So this safe debt position is very helpful. Maturity, this is very important as well. Average maturity. We have like 2022 and '23, so like 7 years -- 6, 7 years of average maturity. So to finalize outlook, which is probably the most interesting slide in my presentation because here, we present how we see the macro environment and our operations. So we believe that we see fourth quarter so far, at least '25 as compared to third quarter '25 positive in upstream -- positively in Upstream and Energy segments, more or less stable in downstream and lower due to seasonality in customer and products. If we deep dive a little bit in all the segments. So in Upstream and supply, higher production because we don't have any significant maintenance works. We expect higher gas prices due to seasonality and higher sales volumes as well. However, lower oil prices that can, of course, impact the upstream business as well. But altogether, we believe it can be, at least, as I said, so far, good quarter for us. From the energy point of view, again, seasonality, so higher production sales and distribution, higher heat production, higher electricity quotations and higher gas prices may affect slightly negatively, of course, in Energy segment, however, altogether, positive as well. And mixed views in downstream, of course, refining is absolutely great, as we know. So this continues to be great. However, we may expect a little bit lower throughput, lower fuel wholesale volumes due to seasonality and of course, challenging environment in petrochemical business. So that's why, all in all, probably a kind of stable situation is the most probable outcome in downstream. And Consumer & Products, due to seasonality, we expect lower fuel sale and energy and gas negative as well. Of course, higher gas sales volumes, but we expect a negative impact of electricity tariff reduction and maintained frozen prices for household. So that concludes my presentation. So we are ready now for Q&A. So Jakub? Jakub Frejlich: Yes. Thank you very much. As usual, I would like to take your questions by saying who raised their hand first. And surprisingly, but not so much to ourselves. It's Anna from UBS, who's going to be asking the first question. Please go ahead. Anna, we can't hear you. Anna Butko Kishmariya: Can you hear me now? First will be around the wholesale margin in the refining. Can you please provide more details around what is the dynamic there? Because it looks like given how strong the refining margins currently are, it should be a very good support for the downstream segment in fourth quarter? And my second question will be around Azoty Polymers, if you can provide any color around when can we expect any updates for the deal? Unknown Executive: Thank you for your questions. As regards to the first one, we have Slide #17, where we present the kind of the most current macro situation in the fourth quarter. As you can see, model refining margin is absolutely extraordinary. This is 18. per barrel. We all know the macro environment, I believe. So I'm not going to elaborate much on that. This is definitely due to shortage of supply and basically the situation in Russia or the war in Ukraine. So this continue to be like that. Of course, in our base case scenario for the next quarters to come, we don't assume such a high refining margin. This is definitely extraordinary from our perspective. As regards the polymers projects, I can only confirm what is officially published. That means that we put on our offer of 1 billion cash-free debt-free and our offer is valid officially till the end of this year. So we are waiting still for the response of Grupa Azoty. So no progress official progress at least from what we are hearing in that area. Hopefully, this will develop in a positive way, but it's too early to conclude. Anna Butko Kishmariya: But regarding the wholesale refining margins, which you mentioned are a bit on the lower side. What's driving that? Unknown Executive: You mean this model refining margin, as I explained. Anna Butko Kishmariya: No, no, no. Like in the comments for the downstream segment, for example, one of the reasons you mentioned like lower wholesale margin. So can you please clarify there, what does it mean? Unknown Executive: Yes. This is more or less like inland premium we generate, and this is due to seasonality and lower consumption. So that's why this is our indication that in the wholesale business, the margins can be slightly lower. So this is basically the explanation. Anna Butko Kishmariya: And do you see those getting worse in fourth quarter or it will be stable? Unknown Executive: Sorry? Please say it again? Anna Butko Kishmariya: Comparing in fourth quarter to third quarter, do you expect it to worsen further? Or will it be stable? Unknown Executive: You mean fourth quarter? Anna Butko Kishmariya: Third quarter versus third quarter. Unknown Executive: We expect to be slightly lower, of course, as we indicated here, lower wholesale margins in refining. But slightly lower due to seasonality, basically. So this is not going to be a significant impact, I guess, as positive impact of model refining margin, definitely. Jakub Frejlich: Tomasz Krukowski. Santander. Unknown Executive: We can't hear you. Tomasz Krukowski: I think you can hear me now. Tomasz Krukowski, Santander. Three questions. The first one is specifically to Mr. Andre. And actually, I would like to hear your view on the dividend policy of the company. The company has a dividend policy. We are aware of that. But I'm wondering whether do you fully support this policy or you would like to introduce some changes to it. So this is the first one. The second is on the Energa situation. If you could give us some color in direction the analysis which you are performing is going? And the third one is on the refining. You already mentioned that you do not expect the refining macro to be so strong going forward. But actually, what is your reading of the situation right now? I mean, do you see any kind of lack of the product on the market, which is driving the prices? How is the situation with the Russian imports? What's your take on this? Unknown Executive: Thank you so much. As regards dividend policy, of course, we have official dividend policy, which was approved by the Management Board and Supervisory Board. So definitely still valid. And I'm in a position individually to change it, of course. I can give you just my comment on dividend, and I express those comments all the time. I was CFO in Orlen a few years ago. basically, my view is that the best dividend policy is basically to prove to the market that we are a dividend-paying company and consistently each year to pay slightly higher dividend. So if there is no extraordinary situation, my personal view is that Orlen absolutely should be a dividend-paying company, and we try to pay slightly higher each year, which was included in the strategy of Orlen from '25. And the second point, Energa, my comment on Energa is as follows. We have 4 segments, as we know, and we are much bigger due to those acquisitions we did a few years ago. So now absolutely, we should focus on creating a very efficient 4 business lines. And we are working on this efficiency in all the segments, so not only Energy segment, but as well in upstream and supply and customer and product. So this is the task which is ahead of us. We should create as agile and as flexible organization as we can. Of course, we are very, very complicated business, but we should be, as I said, as agile and flexible because macro environment can be challenging, can be dynamic. So that's why we are focusing to create in energy as well a very solid business line. However, no formal final decisions have been made so far. So it's difficult for me to comment at this stage apart from all official information we put is going to happen with Energa. As regards to refining margin, so I believe I said that this is basically perception of the market and the shortage of fuels, which is due to the fact that some installations in Russia were attacked by Ukraine. So basically, there's a shortage of fuel, and this is basically the -- we don't expect the situation continue in a sense that it would be absolutely unwise to create base case scenario based on this margin. So that's why I said that in our base case scenario for the next year and for the next years, of course, we don't assume double-digit refining margins so that we are a little bit conservative, let's say, looking into the current situation. And it's better to be conservative, I believe, in this area than to create a business plan and then CapEx and cash out based on the huge refining margin. So that's my comment on that. Tomasz Krukowski: And actually, do you see the lack of the product on the market? Do you have the clients calling you and saying, giving more diesel or sending more diesel? Unknown Executive: As regards our markets, no, we don't see a shortage. So from our perspective, absolutely, we are fully full of products. Jakub Frejlich: [indiscernible]. Unknown Analyst: Okay. So the first question, again, about dividend policy. Will the payout still be based on operating cash flow rather than free cash flow? Unknown Executive: So as I said the policy. And of course, unless we change it, we are going to follow it. So as regards to dividend policy, this is, as you know, up to 25% operational free cash flow minus interest, but this is up to. So each time each time, as you can imagine, we look before we give the final recommendation as regards to dividend payout, we look into current financial situation, current financial sting. And of course, we will propose this dividend in the second quarter of next year, probably. So we have still 2 quarters to go. So we will see how the market develops, how our cash flow look like, how our CapEx programs continue, and then we'll make the final decision. But yes, this is our... Unknown Analyst: Okay. So you don't assume any changes in dividend policy? Unknown Executive: Unless we update our strategy and we change. Unknown Analyst: Okay. The second question from my side. isn't your approach too conservative when you look at downstream segment for the fourth quarter, assuming current $25 a barrel refining margin? Unknown Executive: Of course, this is our perception. Maybe that's my view. It's better to be slightly less conservative than more optimistic. However, this is our assumption based on 6 weeks of the fourth quarter. So still, we have 6 weeks to go, and anything can happen. So this is our impression so far. And if you look purely from the refining margin, model refining margin perspective, which is more than PLN 18 billion -- USD 18 per barrel. So this is absolutely great. However, we have some challenges, as you know, in petrochemical business. Petrochemical margin is lower than the third quarter. Of course, our volumes should be slightly higher. We still don't know from the operations point of view, how our assets will operate. So that's why we are more cautious on that. That's why we present more or less stable situation. So stable situation means small pluses, small minuses, and we'll see. We'll see how the fourth quarter. Jakub Frejlich: We don't have follow-ups, please, Ricardo [indiscernible]. Ricardo Nasser de Rezende Filho: Can you hear me? Jakub Frejlich: Yes. Ricardo Nasser de Rezende Filho: A couple of questions on my side, if I may. The first one is on the CapEx. You mentioned that you're probably going to be at the lower end of the guidance of PLN 33 billion for this year. Can we assume that those -- that the PLN 2 billion would be spent next year? Or do you expect some CapEx savings and you might not have to disburse those PLN 2 billion? And then the second one is on the Consumer Products segment. You're talking about some of the margin pressures because of promos during the summer, just how the market is in Poland now. Do you still see some pressures there and you're still doing -- having to do some promos? And when should we expect margins to stabilize or even see some inflection on the margin side? Unknown Executive: Thank you so much. So as regards CapEx, -- if you assume that we have the budget of PLN 35 million, and I said that the range was PLN 33 million, 35 million. So basically, there are 2 items -- 2 big items that affects lower CapEx utilization. First one is CapEx spend on gas ships. Probably we explained that, that in the base case CapEx, we assumed 4 ships to be delivered. However, this year, only 2 will be delivered and the next 2 will be delivered next year. So that's why out of PLN 2.4 billion CapEx, PLN 1.2 billion will be booked this year and PLN 1.2 billion will be booked next year. So this is a kind of movement to next year. And second billion, we explained probably as far as my colleague told me, it was first quarter upstream, upstream projects. So we decided to just not to continue with one of the projects. That's why we decreased the CapEx plan for upstream. So it's difficult for me to say whether this is postponed or not, but because in Upstream, of course, we have our plan to deliver more production in the next years to come. So definitely, in Upstream, we'll prepare the CapEx for '26, which is appropriate to the targets we initiated in our strategy. So this is as regards CapEx. As regards Consumer & Products, I would say the margins are stable, and this is a kind of market time to time, we create promotions. If we create promotions, basically, we create promotions and to decrease the margins or to decrease the sales prices. And as a result, the margin slightly decreases. However, our goal is to regain this in nonfuel sale. We have more customers enrolling to our VITAY program as a result, so loyalty program. So definitely, we are going to continue with that. Ricardo Nasser de Rezende Filho: And if I may follow up on the upstream. On the strategy update, you had mentioned that you were looking at potential M&As in North America and the North Sea as well to increase your upstream production. Is there any updates on that front? Unknown Executive: I can give you a little bit kind of my personal view and the corporate view as well. Basically, we have quite significant CapEx for the next years, 3 years to come. Our flexibility in this CapEx is not very significant as we know. And in our strategy, we indicated that we have CapEx, basic CapEx and options for M&A. And this M&A -- in M&A, definitely, we have flexibility. So that's why I'm very cautious as regards putting any meaningful targets in M&A. We need to look into our cash flow position. We need to look into the macro environment development, and then we'll decide how much money we have -- we can allocate for M&A projects. So at this stage, I can confirm there are no meaningful projects on the table as regards upstream in U.S. Jakub Frejlich: [indiscernible]. Unknown Analyst: I got a question on your Upstream and Supply segment. First of all, can you tell us what kind of production dynamics do you expect next year? I think you mentioned that you plan to upgrade production in the next years. And the second question, can you tell us anything on your gas wholesale margins going forward? When I look at your gas contracts signed for next year, I see very big spreads. And can you comment on it? Unknown Executive: So as regards to the gas production, we are in the process of budgeting for '26. So I will not give you at this stage a kind of precise number, of course. And I can confirm what's in the strategy we put as far as I remember, the number of PLN 6 billion production from Norway, like PLN 4 billion from Polish operations. So this is a kind of target for 2030. So step by step, we are going to increase this number. As regards TO the -- can you be more specific as regards to the wholesale margin? You mean wholesale in Poland or wholesale from the kind of U.S. contracts. And... Unknown Analyst: What I mean is the gas margins in Poland, the margins which you book in the upstream and supply segment. So what I mean is the contract signed on TGE, yes, compared to 1 month TTF? Unknown Executive: Of course, we should look into development of gas prices, of course. And you are perfectly right in a sense that I explained a little bit this positive impact in '24. So '23 gas prices were very high. We booked at the high level, then prices dropped. So as a result, we managed to deliver roughly PLN 1.8 billion extra money. As regards to development of gas prices, of course, this is a big question, what kind of development we will see in the 2026. So at this stage, we don't provide a kind of full visibility on our goals. But generally, is going to be more stable than it used to be in the previous year. So I would not assume a very significant differences year-on-year on that. Unknown Analyst: Okay. So if you look at the EBITDA of the upstream segment this year and a scenario for next year that it is stable. Is it like reasonable? Is it optimistic or pessimistic at this moment? Unknown Executive: At this moment, I would assume stable, definitely. So we had this big drop as compared -- 2025 as compared to '24. So if you look longer term, like '26, '25, so it should be more or less -- I would assume this is the most realistic scenario, maybe slightly lower, but generally, not such a significant difference as '24, '25. Unknown Analyst: Okay. Okay. Understood. And a follow-up on CapEx. You mentioned that this year's CapEx will be like in the lower range, like closer probably to PLN 33 billion. And can you say anything about next year's CapEx? Will it -- is the PLN 33 billion benchmark a good one? Or should we expect higher CapEx because where there were some -- a few delays and I don't know, investments kick in. Can you say anything about this? Unknown Executive: Okay. At this stage, I can refer only to our strategic plan. And if you look into the strategic goals, of course, the CapEx is higher than 33%. So I would not assume at this stage that 33% is our benchmark. So please refer to our strategic plan, which is still valid. And -- of course, in the strategic plan, we indicated this M&A as well, which is flexible. So we will be very cautious on that area. But definitely, the range in the strategic plan was higher, as you know. Jakub Frejlich: [indiscernible]. Unknown Analyst: I got 2 questions, if I may. The first question will be a follow-up on refining because you said that you expect lower throughput. Is this because of the -- strictly because of the seasonality? Or do you have like planned turnaround on your plants in fourth quarter? And if so, which installations are you going to turn around? Unknown Executive: Basically, this refers to the planned shutdowns. So for example, in Orlen Lietuva, we have vacuum Flesher and this braking shutdown, plant shutdown. So that's why utilization of Orlen Lietuv is going to be below 80%. As regards Czech Republic, we have planned shutdowns as well in the steam cracker. So utilization of Czech Republic, if you assume roughly 85% would be the good assumption. As regards quartz, we are, of course, trying to achieve as much. It should be close to 100%. However, we have some shutdowns as well. So all in all, probably will be slightly lower than 100%. So if you summarize everything and compared to the third quarter, you can assume slightly lower throughput. Unknown Analyst: Okay. And second question will be about your Orlen project because I think it was like that you plan to come up with some review of that project in September, maybe lower -- maybe changing something in a budget or in assumptions for that project. Is there anything we should know about this? Or you are going to come up with... Unknown Executive: We continue our project. Yes, yes. Thank you for this question. We continue this project. We have only one item still on the table, which is final agreement with general contractor, CHT. And our goal is at least to conclude this up to the end of this year. However, we'll see how the situation develops. And when we have this final agreement with synchronized all the timetables and created the budget, the final kind of budget allocation and budget update. And once we are ready, we'll go to the market and communicate the full picture of that investment. So we should expect that probably first quarter next year. Jakub Frejlich: It does seem that the last speech [indiscernible] because there are no further questions unless this is for the -- we have a follow-up from Tomasz, good timing. Tomasz Krukowski: Yes. Just one on the CapEx. There's quite a lot of investments, especially in the downstream and in energy, which will be completed next year in 2027. And could you give us an estimate what kind of contribution to EBITDA would you expect from those completed investments in 2026 and in 2027, given current macro conditions, not the one which you had when you started those projects, but those that are at this moment. Unknown Executive: One minute ago, I was happy that I answered all the questions. However, finally, there is a question I cannot answer. So sorry for that, but those are the numbers we basically don't specify in details. And first of all, let's wait let's wait for these projects to be concluded. Once they are concluded, we look at into the macro environment, and then we may discuss in more detail. So sorry for this. But at this stage, please allow me not to give you any specific numbers. Tomasz Krukowski: But in general, do you expect this contribution to be positive? Or you think that there are going to be some projects which will be burning at the beginning? Unknown Executive: We believe that all the projects will be positive. However, the question is about the returns. And that's why we book this kind of impairments. Maybe this is the topic we can elaborate. In the third quarter, we booked PLN 1.1 billion impairment of new chemical projects, PLN 0.3 billion on the bottom of the bar in Mažeikiai. So you can -- this is a clear evidence that those projects are not delivering the return higher than weighted average cost of capital. However, this is not negative projects from the EBITDA point of view because it hasn't been negative from the EBITDA, it's a kind of wise move to just basically close this down, as we know. So you can assume definitely positive and which projects are difficult from the return perspective, you can observe our impairments, which we post. Jakub Frejlich: Now it seems that we left you speeches. So we will be concluding before the market opens. Thanks very much for answering this wake-up call from Orlen today. We may consider doing that going forward to have it before the session kicks off, but we're open for your feedback. Thanks very much for joining us today. If you have a spare hour in half an hour, we're having a press conference, including the CEO, so you can access it online. But for joining us. Thanks very much for your insightful questions, and see you in a quarter unless we see on the road before. Unknown Executive: Thank you very much. Thank you Bye-bye. Jakub Frejlich: Thank you very much.
Phillip Bentley: Good morning, everyone, and welcome to Mitie's interim results presentation for the 6 months ended 30th of September 2025, H1 FY '26 as we call it, which as usual, we are broadcasting live here from The Shard We're also joined today by Chris Rogers, Mitie's new Chairman. Welcome, Chris. And I also welcome Sam White. Sam White is our long-awaited and much welcome Managing Director of Technical Services division, who joins us from Costain on the 1st of December. So thank you, Sam, for slipping off quietly here. Now it's just over 2 years ago since our Capital Markets event that we held here, where we launched the Mitieverse, if you remember, in our facilities transformation vision. And we've now reached the halfway mark in delivering our FY '25 to FY '27 3-year plan. As a reminder, our business model set out to leverage our scale, our technology and our capabilities to unlock the value of our customers' estates through facilities management, facilities transformation and with the recent acquisition of Marlowe Facilities Compliance. And as we say, to become the future of high-performing buildings and places. So -- and at this stage, I'm pleased to say that the business is on track and momentum is growing. Encouragingly, we have maintained double-digit revenue growth for the fifth successive 6-month period, significantly outpacing the market, and we've shown good margin resilience despite the headwinds from national insurance and wage inflation. We've delivered record contract wins again and renewals and have continued to grow the order book and pipeline again. Free cash flow generation was good and our leverage at 1x EBITDA is modest, hence, why we launched in October a new GBP 100 million buyback program over the next 12 months. We're confirming our FY '26 EBIT guidance of GBP 260 million with the integration of Marlowe going well. And AI, as I'll show, is having a wide impact in the business. And we're on track not only to deliver our ambitious FY '27 targets, but also to take us beyond '27 with our growing momentum. So I'll discuss all these points shortly after Simon takes you through the H1 '26 numbers. Simon Kirkpatrick: Thanks, Phil. Good morning, everybody. So as Phil said, we're now halfway through our 3-year plan. So before getting into the detail of the half 1 results, I'll give a little bit more color to the financial progress that we've made so far and the financial model that underpins our strategy. Our model is based on profitable growth and free cash flow generation, enabling us to compound earnings, drive value accretion and increase shareholder returns. At the Capital Markets event in 2023, when we launched the MITIEverse, we said revenue would grow in high single digits. At the halfway point of our plan, it's exceeded that target, growing at 12% a year, supported by the increasing pipeline and much larger order book that Phil just referenced. Operating profit is growing a little faster than revenue at 13% a year. And it's worth reminding ourselves that back in 2023, consensus profit for FY '26 was GBP 207 million. Today, we're forecasting GBP 260 million, having made 6 upgrades since then. Margins have been resilient despite the material external headwinds, and this good growth and increasing profitability has led to significant free cash flow generation, enabling us to return cash to shareholders and to pursue value-accretive M&A. As a result of these actions, our TSR since the capital market events is 68%, well above the FTSE 250 average of 30%, and we're compounding earnings with EPS growing faster than revenue at 18% a year. So with that as the backdrop, I'll move on to cover the half 1 results, starting with the headlines. Revenue is up 10.4% in the half to GBP 2.7 billion, driven by good organic growth of 6.4%. Operating profit has grown by 7.6% to GBP 108.8 million. And as Phil said, we've maintained margins at just over 4% despite significant profit headwinds. EPS is up 5.6% to 5.7p a share with profit growth and share buybacks offset by higher net finance costs. We've declared an interim dividend of 1.4p a share, up 7.7% on FY '25. And finally, we've had a free cash inflow of GBP 51.9 million with average daily net debt of GBP 332 million. Moving on then to cover the performance in more detail and turning firstly to revenue. This slide shows the key drivers of the revenue growth in the first half of the year with the good momentum from FY '25 continuing both organically and inorganically. The first block of the chart shows GBP 70 million of growth in core FM from wins and losses and incremental growth on existing contracts with wins significantly exceeding losses. Organic projects growth of GBP 48 million was driven by good growth in both divisions and includes a GBP 13 million reduction in revenue in Mitie Telecoms, where we've exited unprofitable contracts. Pricing accounts for GBP 77 million of additional revenue, and we've shown separately on this bridge, the GBP 41 million headwind from completion of the high-margin one-off surge security work last year. When we combine these 4 blocks, total organic growth for the half is 6.4%. Finally, acquisitions contributed 4% of growth in the half. This block includes the infill acquisitions we've made in the last 18 months, including Argus Fire and ESM as well as the Marlowe acquisition, which added GBP 51 million of revenue. Sticking with the group numbers. Next, I'll cover operating profit. And this slide shows the key financial themes for the half on a profit bridge, highlighting the resilience of our business model. Strategic profit growth of GBP 31.3 million more than outweighed GBP 23.6 million of profit headwinds. Our growth strategy is focused on core FM, projects and acquisitions, underpinned by margin enhancement initiatives. Core FM and projects grew by GBP 6.4 million in the half, driven by new wins, combined with a good projects performance across most sectors. These upsides significantly outweighed lost contracts as well as one specific contract provision, which reduced profit by GBP 5.4 million. I'll come back to this shortly when I cover Technical Services. Next, we added GBP 4.7 million of incremental profit from acquisitions, including GBP 3.1 million of profit from Marlowe. We've made good progress with margin enhancement initiatives, delivering GBP 10 million of profit, and we've turned the telecoms business around, making a small profit in half 1, which is a GBP 10.2 million year-on-year improvement. In terms of headwinds, the completed surge response work was a GBP 7.8 million profit headwind. We made GBP 6.2 million of investments to drive growth, including an extra GBP 2.8 million of contract mobilizations and the headwind from National Insurance and inflation was GBP 9.6 million, which I'll cover in a bit more detail now. Once again, we were successful in managing inflationary pressures in the period. Our contractual protections and strong customer relationships enabled us to pass on 95% of cost inflation to our customers, resulting in only a GBP 3.4 million reduction in profit. We expect cost inflation and pricing recovery in half 2 to be broadly consistent with half 1, resulting in a net P&L impact for the year of around GBP 8 million. We said in June that we expected our employers' NI bill to go up by around GBP 50 million in FY '26 and that we'd recover around GBP 35 million of that through contractual protections and commercial negotiations. Recovery in the first half of the year has been slightly better than we expected, leaving a residual cost of only GBP 6.2 million. As a result, we're forecasting a full year net impact of around GBP 13 million, all of which will be offset by MEI. Moving on then to cover the divisional performance. Over the past 2 years, we've been simplifying our divisional structure, consolidating 4 divisions into 2. First of all, we broke up Central Government and Defense, moving the more soft services-focused central government business into Business Services and the more engineering-focused defense business into Technical Services. We've also broken up Communities with the majority of it being amalgamated into Technical Services other than Immigration and Justice, which now sits comfortably in Business Services alongside the Security business. Turning then to Business Services in more detail. Revenue grew by 15.1% to GBP 1.4 billion, with particularly good performances in Security, Hygiene and in Spain. The Security business grew by 12.2% in the half despite the GBP 41 million headwind from completion of the surge work last year. Growth was driven by Fire Safety and security projects, both organically and inorganically as well as new wins and pricing. Growth of 13.3% in Hygiene was driven by some significant wins in FY '25 and pricing, and the business in Spain has grown by almost 1/3 as a result of the expansion into security and significant wins in the public sector. Underneath the total revenue line, we call out projects revenue, which has increased by 30.5% to GBP 167 million as a result of the growth in the fire safety and security projects that I just mentioned. Profitability in Business Services has been resilient, in line with the first half of last year at GBP 85.3 million, but margins have reduced by 90 basis points to 6%. Revenue growth, MEIs and the contribution from Marlowe have been positive drivers of profit in the half, but they've been offset by the headwinds from cost inflation, national insurance and the completion of the high-margin surge work. Moving on to Technical Services, which has grown by 5.4% to GBP 1.3 billion. Engineering, which includes our private sector maintenance contracts and larger engineering projects, grew by 4.8% in the half. New wins, project work and pricing more than offset the loss of one notable contract and the contracts that we've exited in the telecoms infrastructure business. The Defense growth of 5.2% and the HLG&E growth of 7.1% were largely driven by increases in project work. In Defense, this included projects for the DIO in Gibraltar and Cyprus. And in HLG&E, the projects growth was largely in the health care sector across a number of hospital contracts. These DIO and HLG&E projects, combined with good growth in data centers and power and grid, helped total TS projects to grow by 10.6% to GBP 469 million. This project's growth combined with MEIs and the turnaround in the telecoms business drove a 22.9% increase in profit, boosting margins by 60 basis points. However, although margins have improved, they continue to be impacted by the headwinds from inflation and national insurance as well as a provision for loss-making contract. As I said earlier, this contract was a GBP 5.4 million headwind to Technical Services profit in the half, but it will complete in May 2026. It sits in a structurally low-margin sector, which we're exiting. Without this contract provision, TS profits would have increased by 36% and margin would have been 40 basis points higher. We expect TS margins to improve significantly in half 2 as projects revenue and margin enhancement initiatives ramp up. My final P&L slide shows the consolidation of the group numbers with the business services and technical services profits that I've just talked through, combining with GBP 26.9 million of corporate costs to make up the GBP 108.8 million of group profit and the 4.1% margin. Corporate costs are a little higher in the period as a result of inflation and the national insurance increase. My last 2 slides cover cash flow and the balance sheet, and we generated a free cash inflow of GBP 51.9 million in the half, with the key driver being the operating profit of GBP 108.8 million. Other items was a GBP 25.6 million outflow of cash and was largely made up of acquisition-related costs as well as the costs of delivering our margin enhancement initiatives. Next, we have a cash outflow from working capital of GBP 24.4 million, driven by 3 key factors: our seasonal cash outflow in the first half, where we pay suppliers for the high volume of project work that's completed at the end of the previous year, the growth in the projects business, which consumes more working capital than FM and longer payment terms on a number of new wins, particularly in the retail sector. Offsetting these outflows, we've made further process improvements and rationalized our supply base. CapEx, leases, interest and tax was a GBP 61.1 million cash outflow, GBP 13.8 million higher than the first half of last year. The increase was driven by GBP 8.7 million of CapEx, largely for new contract mobilizations and GBP 3.7 million of additional interest as a result of our capital deployment actions. These capital deployment actions account for GBP 305.1 million of cash outflow, including GBP 41 million of dividends and GBP 228 million of cash consideration for Marlowe. Finally, at the bottom of the page, we see the overall increase in net debt of GBP 272.4 million. This increase results in a closing net debt of GBP 471 million and an average daily net debt of GBP 332 million, with the average leverage ratio of 1x remaining at the lower end of our targeted range. Debtor days are consistent with FY '25 and creditor days have improved as we rationalize our supply base and continue to improve our processes. ROIC reduced by -- ROIC reduced to 16.3% as a result of the Marlowe acquisition, where we've added GBP 380 million of invested capital, but only 2 months of operating profit. And finally, net assets increased to GBP 544 million after adding the net profit for the year and the shares issued for Marlowe, offset by dividends, share buybacks and market purchases for employee share schemes. So in summary, we've made a good start to FY '26. Revenue growth has been better than our high single-digit guidance, and we've maintained our margins despite the investments we've made and the headwinds from inflation, national insurance and the completion of the search work. We made a positive step forward in EPS despite higher interest costs. We generated good free cash flow and ROIC has fallen below 20%, but only temporarily. As we look ahead to the second half of the year, we expect revenue growth to continue in double digits. Margins will be higher than in half 1, and we remain confident of achieving our full year profit target of at least GBP 260 million. Finance costs will be higher as our leverage increases due to the acquisitions and the share buybacks and EPS will grow despite these higher finance costs and the shares issued to acquire Marlowe. Completing the FY '26 guidance, we expect free cash flow to be more than GBP 120 million this year and ROIC will increase back towards our targeted 20%. And on that note, I'll hand back to Phil. Phillip Bentley: Thank you, Simon. They seem a decent set of results to me. But I think more importantly now is to talk about where we are on our strategic journey since we pivoted our business model from service-led facilities management to project-led facilities transformation and then now to regulation-led facilities compliance. Just as a reminder, our strategic plan was focused on growth, growth over 3 pillars. And the foundation of our strategy pillar 1 was centered on growth from the core. Key account growth and scope increases, delivering condition-based maintenance, risk-based security, demand-led hygiene for our customers. And this is a heartland of facilities management. Pillar 2 of our growth strategy was centered on our projects capability and infill acquisitions, transforming the built environment, better workplaces, greater energy efficiency, higher security. This is a heartland of facilities transformation. And our third pillar of growth was M&A, bringing in new capabilities to meet our customers' evolving needs in sustainability, environmental compliance and fire and security. This was our move into facilities compliance with the acquisition of Marlowe. And taken together, our strategy set out to build an unrivaled set of integrated capabilities to deliver the future of high-performing places. Now any successful strategy needs to be underpinned by attractive macro trends and [ Mitie's ] from decarbonization, higher security, repurposing the grid, accelerating data center investments to increase public sector spending in defense, in justice, in health care and immigration. We're fishing where the fish are. And since we launched our new strategy, 2 further macro trends have emerged. Number 9 here, building compliance regulations are raising compliance requirements. Number 10, investments in water infrastructure will top GBP 100 billion over the next 5 years. These are themes that I will return to shortly. In terms of our performance, as Simon touched on, H1 revenue was good. New wins lapping a strong H1 FY '25 plus renewals grew to a record GBP 3.8 billion total contract value in the period. And more importantly, as a leading indicator of growing momentum, our order book grew 31% year-on-year to GBP 16.5 billion TCV. Now we split the order book by time buckets this time. And on the lower left, you can see that revenue expected to be produced from the order book over the next 3 years has grown by 32% to GBP 8.6 billion of TCF since this time last year. And on the right, you'll see how our pipeline has not only grown in size from GBP 17.6 billion TCV 2 years ago to GBP 33 billion TCV today, but it's also grown in quality. Let me explain that. The pipeline funnels opportunities from prospecting at the very early stages, such as identifying future bids on public sector frameworks through to a pre-qualification questionnaire as a bit of a mouthful, and becoming qualified to bid. And then on to a bid submission itself with the final stage of BAFO, best and final offer before a decision is finally made by the client. And as you can see, the quality of our pipeline has been growing. And at this time, at the moment, we've got over GBP 2 billion of TCV sitting in BAFO. This is another leading indicator of our growing momentum, particularly given our improving bid win rates. And it's this growing momentum anchored in the 4 strategic imperatives shown here, which gives us confidence that our business model will not only deliver our FY '25 to FY '27 ambitions, but will also sustain growth beyond this current 3-year plan. Sustaining growth, firstly, by capturing more of our clients' facilities management share of wallet by upgrading, cross-training our strategic client directors, SCDs, we've identified over GBP 1 billion of additional client spend that we could deliver. Secondly, sustaining growth by turbocharging projects, building a GBP 2 billion-plus division over the next few years and sustaining growth thirdly, in compliance and water. Following the Marlowe acquisition, we now have a GBP 550 million Fire & Security Environmental Services compliance business, and we aim to grow this to GBP 1 billion in the coming years. And finally, as our AI strategy drives efficiencies and costs out, we see margins expanding beyond FY '27. Now a little bit of detail on each of these imperatives, starting with SCD, strategic client directors and client share of wallet. By deepening our relationships within our strategic accounts, we know we can deliver more value to our clients. Integrated facilities management, IFM is only currently delivered to 40% of our top 50 contracts just 10 contracts where we've completed a share of wallet deep dive with Kevin, our Sales Director, we've identified a further GBP 500 million of work in security and hygiene, engineering and projects and in compliance currently delivered to our clients by third parties. Winning here requires more senior business builders with new propositions, a wider understanding of Mitie's capabilities and how AI and data can drive insights and upsells with stretch incentivization. And our best SCD of our largest strategic client is now leading this new team. And we know how to do it when done well. Take 2 examples here on the right. One is a retailer has gone from annual revenues of GBP 16 million at the start to an estimated GBP 55 million this year. We've added more facilities management services, increased projects. roof-mounted solar panels, for example, is a big push for this client. And that's before we talk to them about refrigeration services where we announced an infill acquisition today or about F-Gas compliance and water services for Marlowe. And second is a transport customer with annual revenues of GBP 25 million in FY '14. And today, that number is GBP 119 million, and we've added more sites and more services. And turning to the blue triangle in the upper right there, we always expected growth from the core of facilities management to be the biggest contributor of our 3-year plan. Growth from the core for me is probably the most important thing that we think about day-to-day. And we've outperformed our own expectations here and have already delivered over 90% of our GBP 600 million incremental growth target at the halfway stage of our strategy. Our Block 2 growth imperative is turbocharging projects in facilities transformation. And by any measure here, our performance has been outstanding with strong growth from the capabilities we've added in fire & security, power and grid and building engineering. An order book of GBP 2.9 billion today, up 53% year-on-year, a pipeline of GBP 6.9 billion, up 130% year-on-year and an average project size now at GBP 270,000 per job, up 80% year-on-year. And turning again to the Maroon triangle this time on the upper right. Again, we've outperformed our own expectations here and have just about delivered all of the GBP 200 million incremental growth that we set for FY '27 at the halfway stage in our strategy. Our final growth imperative is in the GBP 7.6 billion facilities compliance market, where the acquisition of Marlowe positions us as the leader -- market leader, providing us with a platform to accelerate growth. Adding Marlowe's capabilities to Mitie's existing Fire & Security business created a differentiated total fire offer with a full suite of active fire and passive fire solutions as well as creating the market-leading provider in security systems. But what really excites us about Marlowe on the right-hand side is their capabilities to build a total managed water solution. And as some of you will have already heard me say, water is the new energy. We buy it, we meter it, we recycle it and we report the usage of it. We've already signed up 2 existing Mitie clients to take these new water services literally in the last couple of months. But the really big prize for me is AMP8 Asset Management period 8, the latest set of regulations from Ofwat that will see GBP 104 billion invested in water efficiency, resilience and sustainability between 2025 and 2030. This is a material opportunity for Marlowe Environmental to deliver end-to-end solutions across the water services value chain from sourcing and metering through to transport, wastewater management and compliance and delivered at national scale. Simply put, our aim is to be the provider of choice for our clients as they navigate increasingly complex regulatory requirements and sustainability goals built around water. So take the public sector, for example, previously, Marlowe did not have pre-qual approval in public sector bids. But Mitie is a cabinet office approved strategic supplier, and we're already now precleared to participate in some material upcoming public sector bids. And on the right upper triangle, again, we set a target there of GBP 400 million of revenue from M&A step out. The step-out being facilities compliance. It's early days after less than 2 months of owning Marlowe business, but revenues will now grow rapidly as Marlowe scales up to approach the GBP 400 million target. Now whilst we are on the subject of Marlowe, it would be remiss of me not to take a moment to update you on our progress with the acquisition and the integration. The business is trading in line with our expectations and the synergy work streams are moving ahead. We're on track to deliver at least GBP 15 million of cost synergies in FY '27, and we'll exit FY '27 having fully integrated Marlowe and having captured the full GBP 30 million of synergies to be delivered in FY '28. We're removing duplicate corporate, administrative and other support functions through automation. We've reviewed procurement opportunities and moving the Marlowe supply chain to Mitie's preferred supply list and 3 sites in Marlowe's property portfolio have already been closed. We're exploring major efficiencies from automating field force scheduling and delivering route density savings. We've already migrated 1,500 of Marlowe's Environmental Services colleagues onto Mitie's HR platforms, putting in controls around pay rises and bonuses with the remaining fire and security colleagues to follow before the fiscal year-end. And we're migrating Marlowe's IT applications on to Mitie's Azure platform to raise cyber resiliency. So in short, we're making good progress. And of course, in FY '27 and beyond, Marlowe will be a positive to the group's total overall margin. A final contributor to our 5% margin target. And the last of our 4 imperatives is the execution of our AI strategy, reimagining and automating workforce and workflow management to drive better service efficiencies, reduce back-office costs across the business and drive margin accretion. And I've tried to capture our thinking in the next 2 slides, going back to the MITIEverse of the center there, the Mitie Command Center, which we introduced at our Capital Markets event in October '23. We haven't forgotten about it, creating the single pane of glass of the built environment. And our AI strategy has 4 components. Upper left, all our core systems, which are already cloud-based have been AI-enabled or in the case of Workplace+ and SAP will shortly be AI-enabled. Lower left, all of our major customer apps, Merlin for risk and for cleaning, ARIA, ESME and Net Zero are all interconnected via our HARK connected workplace to the IoT platform and they're producing real-time data. And the upper right, the output from our core systems and apps feeds our leading enterprise insight platform, Mozaic360, developed on Microsoft Fabric and integrating all the operational data across all our intelligent solutions. Mozaic360 provides comprehensive operational and strategic insights into the daily operations of the built environment of our clients. And finally, bottom right, as it were, our task mining from SkanAI has led to a growing number of AI bots or agents, enabling smarter, faster, more consistent ways of delivering tasks. But the real game changer since we launched our 3-year plan is the power of agentic AI and agentic mesh using the Microsoft Copilot Studio platform to connect and orchestrate our AI agents to deliver a single pane of glass in the MITIEverse Command Center. In Technical Services, we're orchestrating those AI agents which deal with our clients, those that execute work orders, those that interact with the supply chain, develop life cycle upgrades, close out jobs in the CAFM. When completed, this agentic mesh will provide that single pane of glass for workflow management. And in the MITIEverse Command Center and Business Services, a single pane of glass for workforce management will mesh all our recruiting, vetting, onboarding, training, deploying payroll AI agents with outputs from the supervisor layer highlighting productivity numbers, best-in-class performance. And the final output from the MITIEverse Command Center will be a large language model, answering questions such as how does my building running costs compare to others? Or what's the optimum way of reducing costs by 10%. These are the questions that today, although we have much of the data, we simply didn't have the processing power to answer. But with the MITIEverse digital twin of the built environment, we'll be able to provide better service, greater insights to our clients and also at a lower cost. So my expectation is that we'll have completed our agentic mesh by summer '26. So if you need a bit of a line down after that, let me wrap up. We've had a strong first half in FY '26 with double-digit revenue growth and good profit growth. Contract wins and renewals are at record levels as is our order book and bidding pipeline. Cash generation is good, and it shows we can undertake value-creating acquisitions and deliver shareholder value from buybacks. It's not either/or at Mitie. FY '26 profit will be at least GBP 260 million, and the Marlowe acquisition is progressing well. AI efficiencies will underpin our 5% margin aspiration. And with 18 months to go, we're on track to not only deliver our stretching FY '27 targets, but with our growing momentum, we're confident our strategy will carry us into FY '28. So with that, let me now turn over to Q&A. Thank you. We need some mics. We've got [ Demolo. We've got Marie ]. Alex Smith: Alex Smith from Berenberg. Just 2 quick questions for me. First one on the projects division, the turbocharging. I guess the sizes of the projects have grown. Can you highlight any key areas of focus? And are you happy with the risk profile of those projects? And then number two -- sorry, just on the growth in the pipeline. Immigration and Justice seems to keep growing there. I guess, kind of Prism renewals and your entrance into that division. If you could provide some color on that, that would be great. Phillip Bentley: So what I'll do is ask Mark Caskey, who runs our projects business. And I think -- I mean, this year, we should end close to GBP 1.5 billion. We've set a target of GBP 2 billion over the next couple of years. That's ahead of where we indicated before. And Mark, why don't you just give a bit of color. We had a Board meeting here earlier in the week, signing up some quite big projects in -- big opportunities in projects. So why don't you talk a little bit about that. Mark Caskey: Happy to, Phil. So thank you. Where do we see the biggest opportunities going? If you go back to the slide, Phil talked about -- sorry, a pipeline greater than GBP 7 billion, which is more than double up from where we were this time last year. And the growth is really coming from 3 areas. Firstly, being data centers. Secondly, being in the power and grid space, you think of everything around buildings need connections to the power systems, you've got battery storage and renewable projects that are underway. And then lastly, there's a significant amount of momentum in the marketplace at the moment around retrofitting the built environment. And if you think about our -- a lot of our project work sits on top of our FM clients and we dedicate project managers to those FM clients, that's where we're seeing the natural uptake. The risk profile, we're so -- I mean, very rigorous around from a contracting perspective, we've invested in our commercial function as well. So we're really sort of like on the ball when it comes to margin profiles. A lot of our projects are short cycles. So even if we are doing larger projects, they're often broken down into numerous phases so we can control the price risk, the delivery risk and the scheduling to manage against ultimately our client expectations. So... Simon Kirkpatrick: Just one -- thanks, Mark. Just one brief build on that, picking up on Mark's point about the short project life cycles. Phil picked it up on his slide, but you see on the turbocharging project side that the average size of our projects is GBP 270,000. So from a risk perspective, the majority of them are relatively small. They turn over relatively quickly. And importantly, 80% of them are with our existing customers. So we know the customers. We've got a good relationship. We can, therefore, negotiate decent commercial terms, and we know the estates that we're working on. Phillip Bentley: And on the prison immigration, I thought I might bring Jason in and stand up, Jason, if you look at the camera that way because Mark, you were sort of off -- you're off screen there. So next time, I ask you back again, come to the front here. But Jason runs our Business Services division, as you know, our largest. And as Simon said, we've moved the immigration and justice because there's a security element of immigration and justice, absolutely in our case. And we're already the largest provider of security services in the U.K., and we're building a strong position in both immigration and in justice. Jason Towse: Yes. Thanks, Phil. Look, the increased pipeline has been driven by, first of all, the announcements of the significant investments being made into the prison infrastructure, driven by the aging infrastructure currently in place and new prison places required. I think we have acquired leading capabilities in Mitie over the last 2, 3 years, and that's resulted in us being successful with Millsike, the U.K.'s first all-electric prison, where we successfully mobilized that prison and in the process of ramping up to full capacity. I was there yesterday and incredibly impressed by the standards that the Mitie people are delivering. But also that puts us in a good position, gives us a good foundation for future growth as more new prisons are getting built and more prison places coming available. And from an immigration point of view, we've all seen the increase in immigration centers. We have -- we are currently mobilizing our latest immigration center at Campsfield, and there's more new immigration centers being opened. And the third point is around the investments being made in the prison and probation estate, which is a significantly aging infrastructure and a current live contract in flight to upgrade all of those services. So 3 real key areas of interest for us with good capability and good opportunity for growth. Phillip Bentley: I mean just to take a little bit more on that, as you saw on the Slide 17, I mean, the pipeline, as you touched on, I've got a great question from Alex, GBP 8 billion. I think it's fair to say we've got a couple of quite big ones in the BAFO stage at the moment. We won't say any more at this point. We don't want to jinx it. But there are some big jobs coming down the track. Simon Kirkpatrick: And we should also say that whilst there is some concentration in immigration and Justice and Defense, actually, that growth in the pipeline that we've seen come through is spread across a number of sectors. So yes, immigration and defense, but also health care, transport and aviation, we've also seen some fairly chunky increases. Phillip Bentley: Sam? Samuel Dindol: Samuel from Stifel. Two questions from me, please. Firstly, on the strategic client directors, can you just remind us how they're incentivized and how you're sort of educating them about the Marlowe proposition? And then secondly, on facilities compliance, having covered Marlowe AMP8 and the water opportunity there is not something they particularly touched on. So I'd be interested to sort of get a sense of the opportunity you see now they're part of the bigger group and sort of what is going to be the typical AMP8 contracts you're sort of going to look to win? Phillip Bentley: Yes. Why don't -- I mean, Mark, I might get you back to the front here with a mic if you come to the front once I set you up on the SCDs, I'll answer the facilities compliance point first because the SCDs, we used to call them SAMs, strategic account managers, but we want them to be much more strategic in business building. And I think it's fair to say we've had people who are good operationally, but not necessarily people who are good client on the client really understanding the client's breadth of the share of wallet. And that's where Kevin Tyrrell, our Sales Director, has been working hard on growing that out. But in terms of incentives, I mean, we've -- talk about some of the people we've got and then we know how they're incentivized. It's going to be on the growth of the business of the client and specific to their account in terms of profit, revenue, Net Promoter Score and employee engagement. But I'll just say a little bit about that. Mark Caskey: In terms of our SCDs, we've identified our top 50 accounts. And part of their role and what we're supporting them with is bringing the best of everything of Mitie to the benefit of those clients, whether it's in hard services and engineering or soft services and/or projects. And what we've recognized as well is we're investing in our sales community or business development community to give them, let's say, the access to the resources to help them support our clients in terms of some of those conversations. Another area we're investing is our consulting capability. And again, whether it's workplace, facilities management, energy and sustainability consultants, we've got over 300 of them in the business, and we're allocating them to the SCDs to be able to have a different order of conversation with our clients to really bring the full value of Mitie to solving their business challenges and improving the value they get from their property portfolio. And as Phil said, on the incentives, we reward them for growth. We reward them for the full P&L stack that sits underneath their client responsibility. Phillip Bentley: And on the pipeline, I could show you that, Sam, but you might go to see it. This is our top 30 opportunities from the Marlowe opportunity. And the first one, I'm not going to say it is, is GBP 47 million, the largest. The point I would make as well is that we don't have not yet scrubbed the pipeline and the order book for Marlowe. So there is nothing in there at the moment in the numbers. We'd expect to have done so when we've got it all in the CRM system, Kevin, and we've actually qualified these opportunities. But -- and I deliberately said the point I made that Marlowe were not public sector bidders. They ended up doing some work in hospitals, but that's because CBRE gave them the job and it was public sector, but they hadn't contracted directly with public sector. We opened up that completely now. And there's some big bids already in play where we've made bids. We're waiting for answers, and we'd hope to announce those quite soon. But the opportunity is probably bigger than I expected. And once we've scrubbed it -- and actually, this is where we need to pivot Marlowe away from -- I've euphemistically used this phrase before, fire extinguishers in Scout huts and get into proper B2B. That's where the price -- that's why we bought the business. And we're quite excited about what it could look like. Tom, yes. Tom Callan: Tom Callan from Investec. I've also got 2. Just one on that GBP 2 billion pipeline that's BAFO. Can you just remind us in terms of the conversion -- the typical conversion of pipeline to order book and also typical contract length? Just trying to get a sense as what that might be... Phillip Bentley: Kev, I might bring you in on that as well, the back there. I know you like hiding in the back. But our win rate on -- there's 2 types of wins. There's wins around -- there's retention and we give you that number, and it's running at 80%. It's quite volatile in terms of if you lost a big contract in a short period of time. And then we've got wins on cold calls and wins on projects as well and the rates of those. But Kevin has been our Sales Director now for about 18 months, and we've got a lot more analysis now. Is it 18 months or 12 months' I can't remember? 18 months. Kevin Tyrrell: Yes. So conversion rate, we look at 2 different numbers. One of them is conversion rate of pipeline. The other one is conversion rate of tender win rate. So our tender win rate is things which come to market, we're actively bidding on. And our win rates have gone up into the low to mid-60s in the past 12 months. Our pipeline conversion rate is sitting about 27%. So it depends whether that pipeline converts into a tender, we bid on the tender, win rates are going up in that area. Phillip Bentley: And I think that's -- it's a double-edged sword for us because we try and take all our private sector clients away from a tender process in what we would call an off-market deal. But that's exactly what our clients do to us. I mean, we went for BT, but it stayed with the incumbent. And the number of -- in tech services, a number of clients that were in the pipeline never came to market. because they rolled it with the incumbent. And it's why -- but in public sector, you can't do that. You can't just do a quiet deal. So it's why there's more volatility in public sector because that is a straight shoot out on a tender process. So that's why not all of that pipeline ever comes to us. But that -- and that's why there's a predominance in the pipeline of government. We know that's definitely going to come out. We might hope NatWest comes out next year, which we do, but we don't know if it'll ever see the light of day. Okay. There's another one, James. Are you sleeping, James? Didn't your wife have another baby? James Beard: Still on the first one. Phillip Bentley: All right... James Beard: But not sleeping. James Beard at Deutsche Numis. I've got 3 questions, please. Firstly, going back to the projects business and the projected growth to GBP 2 billion revenues there. You've -- how much of that is driven by growth in -- expected growth in average ticket value versus just growth in the number of tickets that you're generating in that business going forward? Second question is on Marlowe. Can you just talk through what is happening with the existing customer base there, whether you are retaining or seeing the great of any sort of degree of retrenchment within that existing customer base? And then thirdly, on the telecoms business, noted the GBP 10 million profit swing in the first half. What is your expectation on the second half for that? Phillip Bentley: Okay. I'm just in the mid of speeding it up because otherwise, we'll be here for a while. But I mean, the projects, it's a bit of both. We sell more jobs, but there's some very big jobs out there. If you look at Longcross was a GBP 90 million job at the data center, and that was for only 1/3 of the full potential there. So you get some sense of the size of the scale. And Longcross in when fully built out is 90 megs what's Harlow, that's a lot bigger. Mark Caskey: It's 37 megs, but because they're densifying significantly, the amount of MEP you're putting into a data center now is increasing the average project size. Phillip Bentley: So there's some big stuff there. When you can think about the battery energy storage deal that we announced, Staythorpe, that's GBP 70 million. And there's a lot -- there's a big pipeline in battery energy storage as well. And what was the statistic? We -- our company that we bought ironically out of administration, G2E has done what, 25% of the U.K.'s battery. Mark Caskey: So the battery storage capability in the U.K. is about 4.5 gigawatts at the moment. And G2 Energy, which is the company that we acquired just over 2 years ago, have developed over 25% of that capacity in the U.K. And so they're a really powerful brand when it comes to investors and developers into energy storage and battery storage solutions. Phillip Bentley: Okay. Marlowe, look, we -- it happens every time. Every time we buy a business, if they do any work with a couple of our sworn enemies, they cancel it straight away and Marlowe had a bit of that, but it's not material. We've got it -- and for every bit of business that a competitor has taken away from us, we have work that we were doing with third parties that we can now give Marlowe. So you're going to -- you're not going to see a big change in that number for now. And then on Telco... Simon Kirkpatrick: Yes, just briefly on Telco. So you recall that we already initiated our turnaround plan on Telco, which was starting to have a positive effect in the second half of last year. And therefore, we won't see a big delta half-on-half this year versus last year in the second half. Phillip Bentley: It's growth that we need one of the reasons why we pulled back, we shared work that we were losing money on essentially. And then what we want to do is try and rebuild from a profitable level, but we've taken the revenue down by 50% -- 40%. Chris? Christopher Bamberry: Chris Bamberry, Peel Hunt. A couple of questions. You've also had a very successful period in terms of contract awards. How much would you put down that to what you've been doing over the past few years and perhaps what's been changing in terms of customer behavior? And secondly, on Slide 20, you identified GBP 0.5 billion of opportunities with 10 contracts. Just trying to get an idea of kind of a scale of uplift there, what was the revenues on those contracts? Phillip Bentley: Do you have Kevin, on the 10 -- I don't know if I have that we have to come back to you if you haven't got it. The 10 -- we don't have the revenue -- not on the top of my head, we'll come back to you on that. It's a fair question as a percentage of uplift. But just -- I mean, a quick way of doing it a different way is our top 25 clients generate 25% of our revenue and our top 50 generate 50%. Simon Kirkpatrick: It's a bit more than that actually, yes. So top 25 are closer to 40% actually. And the top 50 are just over 50%. So it's quite a concentration in that top 25. So given that we're taking the 10 largest there, we'll flesh it out. Phillip Bentley: Yes, we'll flesh that one out. I forgot the second question. What was it? What was the second question? So it's about -- the question was around winning contracts. It's quite volatile. I mean, it surprises me in some ways that it keeps going up because it is dependent on the size of some of the deals that are out there and it drives a weighted average. A big -- a government contract, I can think of 2 government contracts that are GBP 2 billion together, okay, that were at BAFO. So -- and that can be -- and because it's -- our public sector win rate, Kevin, will probably be a little bit lower than the number you gave. Kevin Tyrrell: So I guess there's a couple of things for me. I think building capability over the past few years, and we've seen all the capability we've built in our core FM service offering around hygiene, security and engineering, we continue to build. Continue to build capability around our project capability as well, strengthening of relationships on the back of really strong NPS. So strong NPS is the foundation for retention, which gives us the ability to continue to grow. So I think you apply good NPS, improving relationships with our clients, which we'll continue to do through the SCD program and building internal capability, the things which are enabling us to win. Phillip Bentley: That was a much better answer than mine, actually. But it actually reminds me because we've never had a group Head of Sales. Now you may say that's rather shameful in our fault. But we used to leave each business unit running its own stuff, doing its own stuff. And in the end, we decided that wasn't a good idea. So 18 months ago, we brought them all under Kevin. And you've replaced quite a few people now. And we do it through a standard way of bidding, standard reviews, all of the data is in this CRM system. And we've just become a lot more methodical than we used to be. And that hasn't -- the value of that hasn't finished playing out yet. We've still got people literally just having joined us less than 6 months ago who are with a top track record. And one thing I'd say, we've not had any difficulty attracting talent into Mitie. Any more? Excellent. Thank you for your support, as always, and we'll see you at the drinks and not -- what is it? The 20 -- 20 something. Next week. If you're not invited, go and see Kate. Thanks, everyone.
Marco Haeckermann: Welcome to the third quarter earnings call of CTS Eventim. My name is Marco Haeckermann, and I'm going to present the third quarter, followed by a Q&A session. So let's go. The headline for the Q3 result is very clear. We are leaving the noise of Q2 behind, and we are talking about strong signals we've seen in Q3. Ticketing has posted positive like-for-like growth in the third quarter. Adjusted EBITDA margin in the segment is up by more than 200 basis points despite ongoing integrations from See Tickets and France Billet. The development in Ticketing is backed by very strong organic margin growth in the third quarter year-over-year. Live Entertainment returned to growth in the third quarter after a muted Q2. Adjusted EBITDA margin is up by more than 100 basis points in Q3 year-over-year, and our venue operations delivered on prior year's level. We've seen a positive financial result in the third quarter of a little bit more than EUR 2 million versus a negative result of around EUR 0.5 million in Q3 last year. And putting all this together gives us enough confidence to again confirm what we've said already in August when we released the half year results that we confirm our group KPIs and ticketing with regards to the outlook for 2025. Let's look at some highlights for the first 9 months in 2025. The first impression is right, all the arrows point in the right direction and show a green color. Group revenue is up to EUR 2.1 billion, which represents growth of 6% year-over-year. Adjusted EBITDA was almost at EUR 340 million, up by almost 5%. And EBIT is above EUR 260 million, which represents growth of even more than 6%. The development of our retail tickets and the tickets outside Germany posted a tremendous growth of 29% and almost 43%, which is still positive affected by the ongoing integration and first-time consolidation of See Tickets and France Billet. And our last 12 months GTV reached almost EUR 9 billion by the end of September. Let's dig a little bit deeper into the first 9 months results. The growth in revenues of 6% was driven by both segments. Ticketing growth came in across all subsegments despite the nonrecurring Paris 2024 revenues we've seen last year. And Live Entertainment, as I've said earlier, has returned to growth after the second quarter. Adjusted EBITDA is up by almost 5% with margin levels back at prior year's level, mostly driven by very strong organic margin growth in Ticketing and Live Entertainment returning to last year's EBITDA margin level. The impact on EBIT is comparable with almost 6%, which is, of course, reported on an unadjusted basis. Looking at the results from a quarterly perspective, Q3 posted the highest revenue over the last 7 quarters. And the second -- the third quarter in Ticketing captured See Tickets for the first time on a clean like-for-like basis. Live reported positive momentum quarter-on-quarter. The adjusted EBITDA had no adjustments in 2025, while there was in the comparable period last year, an adjustment for M&A-related transaction expenses of a high single-digit million amount. As said, the margin expansion was driven by both segments, which is, of course, a very positive development compared to what we have discussed in August this year. And let's not forget, the main quarter from an earnings perspective is still to come with the fourth quarter of 2025. Bridging now from adjusted EBITDA of almost EUR 340 million to our net profit versus previous year, you see here that our adjusted EBITDA was up by EUR 15 million. And then after depreciation, the financial result, we posted earnings before taxes of EUR 260 million. It is important to highlight that the negative trend in the financial results is mostly determined by what we have discussed already with the H1 numbers as the third quarter financial result was positive, but within the first half, we had negative effects from foreign exchange, mostly U.S. dollar of roughly EUR 15 million. There was a nonrecurring dividend payment of around EUR 14 million from our autoTicket project and the lower interest income, which translated as well to roughly EUR 15 million less interest income in the first half. But this, as I said, was mostly attributable to the first half and Q3 has posted a positive financial result. Adding it all up, we end up with almost EUR 150 million of net profit attributable to CTS shareholders. Taking now a look at the segments. Ticketing revenues grew by 2%, although the organic growth was in the mid-single-digit percentages, and this effect comes from last year's third quarter having seen a high single-digit million contribution from Paris '24, which is a nonrecurring item. The third quarter growth was driven largely across all our core markets. The disproportionate development on adjusted EBITDA shows how strong the organic business has improved its profitability in the third quarter. Even without considering the nonrecurring earnings impact from Paris 2024, adjusted EBITDA has grown by 8% year-over-year in the third quarter. And even with the ongoing integrations and the still dilutive impact on adjusted EBITDA margins from the newly acquired entities, we are able to expand our profitability in the third quarter, mostly backed by very strong performances in our core markets on adjusted EBITDA profitability. Taking a look at our retail ticket volume. The retail ticket volume in the third quarter went up from 36 million to 42 million. And looking at the right side of this slide, you see that due to the ongoing integration of the international businesses, which we've acquired in See tickets and France Billet, the share of Europe is increasing based on the retail ticket volume. Taking now a look at Live Entertainment. Revenue in the third quarter grew by 5.5% despite muted development in Q2. All leading indicators as of 30th September '25 are up. With leading indicators, I'm referring to, for example, prepayments which we have received, which is -- which you can consider an order intake or a KPI for deferred revenue of our Live Entertainment segment for the next season, which is a very positive indicator for what's to come in the next year. As we've discussed in summer, we continue to have our festival portfolio under review where we expect positive impact next year. The strong EBITDA development in Q3 shows that overall, the season and the content has been very helpful to our overall development and is mostly backed by our German and Italian businesses in Live Entertainment. Our venue business, which we report in this segment as well, remains highly profitable at previous year's level. Overall, we see that the Live Entertainment segment has returned into its target margin corridor with 7% in Q3. And this concludes the presentation of our Q3 results for today. And now I hand over back to the operator to open the line for your questions. Thank you. Operator: And we're coming to the first question, and it comes from Olivier Calvet from UBS. Olivier Calvet: Maybe I'll take them one by one. But first, to clarify the guidance comment. On the last call, you guys were saying sort of the 5% to -- that we should take the lower end of the 5% to 15% growth at EBITDA level. It sounds like you're now pointing again to the full range. So I'm just wondering if you'd be able to narrow it down a little bit for us now with only about a month left to the year. Marco Haeckermann: Yes. Thank you, Olivier. So as I said, we would prefer to leave the commentary unchanged versus H1, although having seen the very strong development in Live Entertainment in the third quarter, I can say that we have gained a little bit more headroom in what we've said. But for now, I would leave the guidance unchanged. But you can be sure that we as well are taking into consideration the strong return to positive momentum in Live Entertainment as well. Olivier Calvet: Okay. Okay. And how is Ticketing developing into Q4? Any sort of color you could give here also on the 2026 artist lineup that would be helpful as well. Marco Haeckermann: Yes. I mean while we are still in this quarter, I can't say anything about it in financial terms. But I mean, the highlights we've seen so far, I can say that the demand side is very well on track, seeing what we have put through the pipeline, whether it was big festivals. We're seeing great lineups even for festivals in the second tier. On the other side, we have had some really renowned bands going on sales so far in the fourth quarter. But it's always important to highlight, particularly for us, yes, it's always visible to look at the top act, but the majority of our tickets really come from a very, very diverse content portfolio. And all I can say is here that throughout Q4, what we have seen so far, we see unchanged momentum from artists going on tour and wherever we can make it visible that these shows are on sale, that we will activate the demand and put fans in front of the stages to have a good time with their artists. Olivier Calvet: Okay. Okay. Then just one on the festivals business. Is there -- are there any specific festivals you've made a decision on in terms of going forward, what -- whether they will be operating in 2026 or '27? Is there any such decisions you could point to? And the second one also on -- within LE, the Milan venue ramp, if you could just shed a bit of light on that ramp, how to think about it into next year? Marco Haeckermann: Yes. I mean with regards to the festivals, there are no particular names. And it would be a little bit unfair because I know that our Live Entertainment management is working very closely together with the promoters to plan out what's to come for the next year, looking at the infrastructure. And it is, of course, a completely wrong take to just look at the name of the festivals because there's a very complex infrastructure behind this, how you book artists, through which festivals or even other events you would want to route them. They are very busy. The team around Frithjof Pils together with the promoters to focus on the profitability. And like I said throughout the call, we are confident to see positive impact from their work on the overall portfolio already next year, but it shouldn't stop there because as we've discussed in summer, overall, in that part of the value chain, you have to cope with permanent OpEx inflation, artists asking for more money. The overall infrastructure to operate these formats is not getting cheaper. And it is always the more important to roll over these OpEx inflation onto the ticket price and to become better in selling them at the right price to make these events profitable for everyone. With regards to Milan, everything is on plan, I would say. It's, of course, difficult now to say something more particular about bookings because the venue has to open. But I think it's fair to say we are already seeing a very good demand for that venue. And when we look at nights, which a venue can be booked, which is an important KPI there, I must say that we are positively surprised by how well this new piece of valuable infrastructure for the live entertainment scene in Italy has been received so far and that's -- up to now, even where the venue is still in its final construction stages that we are coming close to a triple-digit number of bookings, which at least promoters and various content providers are asking for where they would wish to host shows in our new arena. Olivier Calvet: Okay. And any ETA on when you would hope to start having shows there, a rough idea? Marco Haeckermann: Yes. I mean the opening act is, of course, the Winter Olympics. And once the ice is off the stage, yes, you can put the speakers on, and host great live music shows there. Sorry, just to be clear, I'm referring to ice because the ice hockey matches will be hosted there, in case someone is listening who hasn't heard about this yet. Operator: Next up is Ed Vyvyan from Rothschild & Co Redburn. Edward Vyvyan: Congratulations on -- it looks like a pretty strong set of results. I have three questions. So just firstly, on Live Entertainment, your adjusted EBITDA came in well, well above consensus. So could you maybe just walk us through some of the moving parts in the quarter? I think last year, you did have a drag from U.S. Touring JV. So it would be good to understand the comp there. Ticketing, sort of a similar question. If you could walk us through what happened with organic margins when you exclude integration costs and then maybe the Paris Olympics, could you sort of quantify these effects? And then lastly, kind of moving away from the quarter, you've been making a lot of changes, it looks like internally to prepare for mobile ticketing. So when should we expect mobile ticketing to be rolled out in a more meaningful way? And could you maybe give us an idea of expected penetration rates and the margin uplift from that? Marco Haeckermann: Thank you, Ed. So first of all, with regards to Live Entertainment and the strong development of the profitability, I mean, on the one side, we, mostly in Germany and Italy, had a very good lineup, just to name one name, Ed Sheeran, makes probably the top of that part in the third quarter with a large number of shows, which we've promoted there. On the other hand, while we were talking about festival, and this is what we've discussed already in August, and now we are seeing the positive side of it. I mean, we had some pre-incurred expenses in the second quarter for the festivals, as we said, which were now compensated by the revenues which we have generated. And as we've discussed as well, there was, for example, one festival, which we've acquired within See Tickets, Garorock, which took place last year in June and which flipped over into the third quarter, but this only had a minor impact on revenues and profitability there. But it was a profitable festival, so it's worth highlighting. On the last bit with regards to the U.S. development, not so much has changed. We are seeing now other acts coming through the pipeline there. And we just had a discussion about this. It seems like that in the U.S. as well, now moving a little bit the portfolio towards higher ages and not to the target group between 15 and 20 years, which seems to be more affected by what's going on in the economy in the U.S. and the willingness to pay high prices for tickets, while now, for example, acts like [ Brandy and Monica, ] the only one I remember, to be honest, which are selling to a little bit more older audience where the $50 notes or $100 notes are a little bit loose, more loose to pay for these tickets. And this is a development which we are curious to see of how it pans out throughout the end of Q4, but this was as well in Q3, any changes in the U.S. had a minor impact. So we were basically running where we were in Q3 last year as well. With regards to Ticketing, excluding the integration costs, we have seen very good organic margin momentum. And I must say this was particularly due to our core markets in Central Europe, including Germany as well. But here, again, it was not particularly a topic driven by top shows. But as I said earlier, we should never forget, although it's always flashy to talk about the big names, yes, we should not trick ourselves a little bit that the large part of our portfolio are not the big acts, but the acts from Tier 2, Tier 3, very independent acts, but other names that fill arenas and which gives us a much more constant flow and which helps us, of course, to leverage our customer reach in very efficient ways to help them to sell out the shows better than the year before, which is a constant task our team is working on and which then ultimately is reflected in constant operating leverage. So if we sell the same category year in and year out, you can always be sure that we become more profitable on that overall genre. Other changes with regards to mobile ticketing, I must say, as you've seen and as we've discussed throughout the first 9 months, hiring new responsibilities starting off at the very top with Karel Dorner as a CTO, and Karel having brought on stream new colleagues for products, for the overall IT infrastructure and development going forward. We are already seeing that development is gaining momentum and where we will become -- where we will be more active in rolling out these parts of the infrastructure, but it's, of course, part of a broader story. And here, with the year to come, we would expect to start reporting material increases in mobile penetration rates. But what is more important than to talk really about the capabilities of the new product generation. As you, of course, know that once you have a customer on the mobile channel, it's not only that you have a direct connection to every ticket buyer or ticket holder, but you have a communication stream on -- which gives you the chance for better cross and upsell opportunities, which, of course, given the market projections, not only in Continental Europe, but I would say, globally over the next 5 to 10 years will become a very important theme, not only to sell more tickets, but as well to increase the GTV per customer and focus on that. And therefore, mobile infrastructure is key. And this won't be a bottleneck for us to utilize the opportunities and capture the value over the next couple of years for CTS Eventim. Operator: And next up is Annick Maas from Bernstein. Annick Maas: So my first question is you just touched on mobile penetration. So I'd be quite keen to understand how many tickets you are selling through fanSALE today. The second one is, I don't have access to the slides, so maybe it's on the slides, but could you isolate the integration costs for Q3? And just confirm that Q3 was really the last quarter with the integration cost and in Q4, it's -- they are none left basically. And then you announced a new CFO. So the background seems not the most obvious to ticketing. So can you just maybe give us a bit more explanation on why the CFO, yes. Marco Haeckermann: Thanks, Annick. So your first question was with regards to fanSALE, and which is a different element, I would say. I mean, rolling out the mobile infrastructure, of course, facilitates better liquidity in the aftermarket for which we can then have fanSALE coming more to fruition with its full potential. As of now, our reselling activities and always considering, of course, that our dominant markets in the EU see more and more regulation on that, but this is not a holdback for us because with being the biggest ticketing platform in Europe, we can provide this aftermarket liquidity with fanSALE, which, of course, mobile penetration is a key growth driver for and where we have already the EVENTIM.Pass product, which facilitates ticket exchanges after the initial distribution. This is becoming a very interesting topic over the next 3 to 4 years. But as of now, the revenue contribution from fanSALE is still negligible, I would say. Integration costs for the third quarter, as we said in summer, we would expect to come in somewhere in the low to mid-single-digit millions, which is on track. But in contrast to the second quarter, the very strong organic development overlapped this impact. What we've said with regards to Q4 was that we might still expect a low single-digit million effect from ongoing integration. But overall, we would expect a net impact so that the overall development will cover the last EUR 1 million or EUR 2 million of integration effects. And with looking at the Q3 development and the strong organic margin development, I must say that this is a very reassuring development because we are even beyond target here because the operating development even covered the integration cost in the third quarter, which is a very positive leading indicator for the fourth quarter. With regards to our new CFO, I mean, first off, we are looking forward to give him a very warm Eventim welcome. As per his past, I think it's very worth highlighting that he brings tremendous expertise in -- not only in M&A, but in the broader finance space from various perspectives. I think it's fair to say that with his expertise coming from Lufthansa, he knows complexity, which is something we're working on to reduce day by day. So I'm very sure that he can help us on our mission there because it's always important to highlight when we talk about our profitability levels here, forgive me, my blunt answer, but there are still too many Excel spreadsheets, which we send around with e-mails. So even behind our very strong profitability levels, there are deep pockets of efficiency gains where I'm very sure that our new colleague, which we will welcome at the beginning of next year, will help us because he probably have seen many of those cases in his former job. So ideally, he brings the protocol to bring us even forward there. So that's why we're looking forward to welcome him as of 1st of January. Operator: The next question comes from Bernd Klanten from Barclays. Bernd Klanten: Maybe first question on organic Ticketing growth. I guess, year-to-date, you should be in the low to mid-single-digit range. I guess without giving any specific guidance, would you expect these organic trends to broadly continue into year-end and into next year? Then second question, can you remind us of just very roughly combined revenue and cost synergy expectations for France Billet and See Tickets maybe also into next year? And any color maybe that you can share on their respective margin developments so far? And then a question somewhat related to the Milan question earlier, how much revenue and margin contribution do you expect for the Winter Olympics next year? And how should we think about the relative attribution to Ticketing and Live there? Marco Haeckermann: Bernd, thanks for your question. So with regards to organic Ticketing growth, I would rather say that so far in the first 9 months, organic growth in Ticketing has been more like in the mid-single-digit percentages. And this is a run rate which we expect going forward into the -- throughout the fourth quarter. Overall, I must say that as we've said earlier, our midterm perspective and expectations for growth, not only for Ticketing, but for the overall live entertainment industry in Europe and even globally points towards 5% to 7% growth until 2030, 2031. And it goes without saying that our ambition is not to grow less than how the markets are growing. Revenue and cost synergies for See Tickets and France Billet, I mean we have said earlier, and this remains unchanged that overall, once the integration project is completed, that as from this combination between our legal entities and the ones which we've acquired that on both sides, we would expect cost synergies somewhere in the low double-digit millions. And with regards to Milan, given that there are contract specifics, I don't want to split out our revenue and earnings expectations for the Olympics in particular. What I think is more important for the overall project is that once the Olympics are done and we have seen the new ice hockey Olympic champion, as I've said earlier, I mean, there are many promoters waiting to put up their gear to host shows in our new arena, which will be more important for the overall profitability in the very first year, although it will still be a ramp-up year, and there will be many more interesting years to come after 2026. Operator: And now we're coming to the next questioner. It is Lars Vom-Cleff from Deutsche Bank. Lars Vom Cleff: Two to three quick questions remaining, if I may. I mean, doing a back-of-the-envelope calculation, gross transaction value per ticket seems to be up 9% quarter-on-quarter. So is that for me an indication that pricing is still strong and that customers are still expecting -- still accepting price hikes? Or is it rather a mix effect we're seeing? Marco Haeckermann: So I mean, honestly, I haven't done this back-of-the-envelope math yet for the third quarter, but it points in the right direction, I can say this. What I -- what is hard for me now to strip out what is really the contribution from the newly acquired entities there, as we know that France Billet and See Tickets, they are selling at lower face values per ticket, which has, of course, an impact, which you've seen on the highlight slide that, for example, the ticket volume KPIs are significantly higher up than the revenue numbers. But given that underlying pricing has been and will continue to be a strong driver for our GTV, it points somewhere in the right direction, but don't name me on whether it's 9% or whether it's somewhere in the mid- to higher single-digit percentages. Lars Vom Cleff: Okay. Perfect. And then thank you very much for sharing your view on synergy effects and integration costs for the French acquisitions and integrations. Just for me to be absolutely sure, this will all be gone in '26, right? We shouldn't expect any additional headwinds for '26 anymore? Marco Haeckermann: Yes, that's the plan. Lars Vom Cleff: Okay. Perfect. And then I think in one of the earlier calls, you or your CFO said that we should expect a low to midsized 2-digit financial result in '25, where you said that looks likely. I mean, after 9 months, you're at minus EUR 4 million. Is that still valid, low to midsized 2-digit financial results? Marco Haeckermann: Honestly, I'm not quite sure whether he said that in particular because we have seen versus last year quite a significant drawdown in the first half due to the effect which we have named. And I think it's important now to look at Q3 as it has been posted in the -- in today's report that although this has turned positive with around -- a little bit more than EUR 2 million, but it is unrealistic to expect for the fourth quarter now an impact that will reverse what we have seen in the first half. And I'm not quite sure whether Holger has said something in that direction. But if that was your perception, I mean, my back-of-the-envelope math now with regards to financial results makes this nearly impossible, simply because the foreign exchange effects and of course, the nonrecurrence of the autoTicket dividend, for example, that's something very hard to capture. Lars Vom Cleff: Understood. Perfect. And then a quick last one. Yesterday, I saw an article in the [indiscernible] that it will be far harder for Vienna to finance the arena in Vienna and that they seem to be struggling. Is there any news on the Vienna arena from your side? Or is it still pending and nothing to add to what you said in the past? Marco Haeckermann: No, there's nothing to add from our side. I've seen some news flow, but this was city related, the way of -- how I saw it, but there's nothing which we could add to what we haven't said in the past. Operator: And next up is Craig Abbott from Kepler Cheuvreux. Craig Abbott: Yes. First of all, just real quick on Live Entertainment. Obviously, a very good quarter in Q3. But obviously, it's always been traditionally lumpy and Q4 traditionally has been a seasonally soft quarter, although the U.S. is a little bit more even out over the year. I just wondered were there any special effects in Q3 that we might see that back out in Q4, if you could at least give us like some color there? And also looking into '26, you mentioned some of the KPIs were shaping up well for '26. I mean, at this stage and given the efforts you're taking on making your festival portfolio more profitable, should we be thinking about Live Entertainment being within its target corridor profitability-wise next year? And then on Ticketing, sorry, I just -- maybe I just missed it. Could you just be a little more precise on the organic development, both for the revenue and the margin, particularly in Ticketing in Q3? Yes, those are my two questions at this stage. Marco Haeckermann: Yes. Okay. So with regards to Live Entertainment, I can say that so far, the strong development in the third quarter, as we said, had some tail -- not really had some tailwinds. I think the only real mentionable spillover effect was this one festival, but this is not really moving the needle on whether it would have occurred in Q2 or -- well, it now occurred in Q3. It was really good lineup, as we said, mostly in Germany and Italy. I referred to at Ed Sheeran doing a tremendous number of shows, which was very helpful here. But I wouldn't really want to flag it as something particular. We are expecting the trends which we have seen so far to roll into the fourth quarter. And as I've said earlier in regards to a question related to the guidance, although we are reiterating what we've said in August, but the strong development of Live Entertainment in the third quarter gives us more confidence, but we would now prefer to take this headroom into the fourth quarter. But overall, I think to that degree, Live Entertainment has been punished in August, led by March, maybe I don't want to ask for an apology, but I think that we will be able to level that out of what Live Entertainment has been punished for in the second quarter. I hope this gives you a direction. With regards to leading indicators, 2026, yes, I mean, it's, of course, a very strong leading indicator when your deferred revenue is up by more than EUR 100 million. If you look at the balance sheet date, 30th of September, I'm referring to the prepayments received, which means the tickets that have been sold for our own Live Entertainment and the revenue which has been generated but will be recognized when shows actually take place next year. So -- and from that perspective, we have no other reasons to believe that we continue throughout 2026 operating in our target margin corridor because, as I've said earlier, that our Live Entertainment management is working very close together with the promoters to optimize the portfolio. And this will definitely be helpful to be in our target margin corridor between 6% and 8% EBITDA margin as well in 2026. And maybe if I can add with regards to next year, while we are talking about Live Entertainment, but we have other great events coming into the pipeline. And just one I would like to mention is that although it's still a couple of years out before L.A. will actually host the Olympics in 2028, but our work starts way earlier. So we are very excited about 2026 and technically can't wait to start on with that. Craig Abbott: My other open question, and then I have one more. The open question was just again to give us a specific -- the organic development in Ticketing on revenues and margin in Q3. And then my last question is on Ticketing. I mean I know you cautioned us earlier not to focus too much on the big headline tours. But looking at the Ticketing outlook for Q4, I mean, actually, the flow of on sales these last weeks in October, November has been very, very good. I'm just a little bit surprised you're not a little bit more, say, confident on that Ticketing outlook for Q4, if there's any more color you want to add there. Marco Haeckermann: Of course. I mean, sorry, that I skipped your first question. Organic growth in Ticketing in the third quarter was around 4.5%, which is in line with the around, yes, 6% we've seen in Q1 and around 5% we've seen in the second quarter in Ticketing. And as I said earlier, we expect to remain on that level going through Q4. And as our projections for the overall market growth show at least this kind of growth going forward for the market that this is, I would say, a threshold more like on the bottom line above which we aim operating going into the next 3 to 5 years. With regards to the Ticketing outlook and the on sales you're referring to, yes, you're right. We have seen some good names. What is more important that even behind those good names, the larger part of the portfolio is developing well and that is not only a single market, but various markets. But again, we would like to stay where we are, which if you understand, we are now in a transition of the CFO role, which for me personally, I thought it's fair just to continue maybe with some more headroom as we thought we would have at the end of August, but with more confidence. And like I said earlier, give Mr. Willms a very warm Eventim welcome when he will report the full year results by end of March. Craig Abbott: That's very clear. Sorry, just to go back to my second question in the middle there, the organic Ticketing margin in Q3, please, and then I'm done. Marco Haeckermann: Was in the high 40s. Craig Abbott: So okay. Comparable with last year. Okay. Marco Haeckermann: Yes, was up versus last year. Operator: We have one more question in the line, and it is Christoph Blieffert from BNP Paribas Exane. Christoph Blieffert: I have one left, please. And this one is on the German Ticketing platform, please. Over summer, you have sent around EUR 10 vouchers, most likely to incentivize fans to buy tickets and you have also granted discounts for long tail events taking place in '26. I'm just wondering how you describe the fan demand, in particular for smaller events and whether you have created some pre-buying in the third quarter? Any comments would be helpful. Marco Haeckermann: Yes. Thanks, Christoph. I mean, first off, these are tools, marketing tools, mostly and products, which we haven't introduced now for the first time, right? So there is no change basically in what we have done. Maybe it has become a little bit more visible to you, which I would say is a positive development because it has been in the pipeline for many years and the more visible we can make to potential buyers in Germany, what we have on offer, the better basically it is for the overall content. So I would say there is no indication that we are seeing some kind of early buying or general timing effect, which was a big topic throughout the pandemic, for example. And overall, I must say, discounts and so forth, I mean, it is a very important, high-priority topic for us constantly and not only for us, I think, for the general industry to create awareness and get more eyeballs directed to where the content is because no matter which market you look at, whether it's Continental Europe and still in the U.S., the biggest problem in this industry is still that there are so many people we know who would love to attend an event, but they simply don't get the information on time. I would say even in the U.S. that when you have a group of target personas that would want to see a particular act of, say, 10 people that even with all the marketing power the market has, that only 7 to 8 are really made aware on time that this content is on offer. In Europe, I would say it's still only 5 or 6. So there is tremendous upside, which we will capture going forward while we are now scaling up and building capabilities and led by Karel Dorner, our new CTO. And just, again, while we are talking so much about back-of-the-envelope math, a EUR 10 voucher is so much below our average face value we're selling that let's assume that whatever the number was last year in the third quarter or fourth quarter of what we have sold in terms of EUR 10 vouchers versus this year, and even if that number would have gone up, in terms of revenues which we make from that voucher, it's really a very low number that would never move the dices on our Ticketing development. Then this concludes our earnings call for the 9 months' figures. Thank you very much for staying up a little bit longer and giving our friends from the West Coast a chance to join in our earnings call. And yes, wishing you all a good night, a maybe very early happy holiday season, and we look forward to seeing and hearing you again on our next earnings call, which will be hosted end of March next year. Thank you very much.
Mark Heine: Apologies for those who are joining us now. We'll just kick off, sorry, we're a bit late. And good afternoon, everyone, and thank you for joining us today for FY '26 annual half year results. I'm Mark Heine, CEO of EROAD. I'm delighted to be introducing Ciara McGuigan, EROAD's new CFO, who commenced at EROAD in September. I'll start by outlining our performance for the half, and Ciara will take you through the financials. We'll then finish with outlook and guidance before opening up for questions. Turning to the key numbers for the half. Free cash flow remains a real strength for EROAD coming at $6.2 million. We've delivered consistent cash generation over multiple periods, thanks to the operational discipline that's been built into the business. Reported revenue was just over $99 million, a 3.3% with steady performance across the installed base and contributions from ongoing rollouts. Annualized recurring revenue increased to over $178 million, up 6.9% or 3% in constant currency. Growth continues to come from higher-value subscriptions and enterprise expansion. Normalized EBIT was $2.5 million, lower than the prior period due to some higher costs and lower R&D capitalization. Ciara will step through these movements in more detail in the finance update. The results show our business remains strong and resilient across its core fundamentals. First, our cash generation continues to be a standout. Free cash flow was over $6 million or almost $17 million on a normalized basis once the one-off 4G upgrade costs are removed. With that program finishing this year, the underlying cash profile becomes much clearer and provides greater visibility in how we allocate our investments. Liquidity remains strong at over $62 million, giving us confidence in the pace and focus of our investment decisions. Second, we've maintained strategic focus on the eRUC passenger opportunity in New Zealand. As the country moves towards universal electronic road user charging, we're preparing the technical, commercial and operational components needed to support a nationwide rollout with clear relevance to emerging global models as well. Third, we are focused on regional market conditions. New growth investment is being directed to Australia and New Zealand, where the near-term return profile is strongest. North America remains important, but slower conditions mean we're managing spend carefully while preserving capability. The impairment of goodwill and other assets in North America of $135 million recorded in the half relates to the previously signaled softer economic conditions, the increased competition, the nonrenewal of a large U.S. customer and our focus on ANZ. And finally, our customer focus and operational capability have continued to improve. Partnerships have been strengthened and boosted by the ramp-up of our Manila office, providing our customers with enhanced responsiveness and support. These improvements are translating directly into outcomes, including the newly inked enterprise agreement with Cleanaway, valued at $5 million ARR once fully deployed. Turning to our sustainable growth across our core markets. Let's start with free cash flow. We delivered 4 halves of sustained reported cash generation. That consistency gives us the flexibility to invest selectively and accelerate where market conditions are most favorable, while also evidencing that management takes a prudent approach to investment. In Australia, our enterprise momentum is driving sustained double-digit annualized recurring revenue growth. Once the new Cleanaway Enterprise deal is fully implemented, ARR in Australia is expected to grow significantly. And finally, the eRUC opportunity presents a global opportunity for EROAD, which we will dig into this opportunity over the next few slides. I'm incredibly excited to be talking about New Zealand's move towards a universal electronic road user charging system and the direction of travel is very, very clear for EROAD. The New Zealand government has committed to transitioning all vehicles, including petrol and light vehicles to eRUC. A series of bills and consultation steps are already scheduled through 2025, with implementation targeted for 2027. EROAD is deeply embedded in the current system, having pioneered eRUC for heavy fleets, and we now facilitate around $946 million in annual RUC collection for the New Zealand government. That experience, combined with our established regulatory relationships and platform capability puts us in a strong position as the country moves to a fully electronic usage-based model. New Zealand is moving early on this transition and the work underway positions us well for what is coming next. What we see in New Zealand is part of a broader shift starting to emerge internationally. As fuel tax revenue declines and EV uptake grows, governments are looking for a more sustainable way to fund their road networks and usage-based charges come to focus in several larger markets. Our priority is to get it right in New Zealand first. As the market moving earliest, it gives us the chance to prove capability at a national scale, while policy conversations elsewhere continue to develop. At the same time, the longer-term opportunity extends beyond New Zealand. New Zealand has 4.7 million vehicles. Australia has around 4x that amount with approximately 20 million vehicles, while the U.S. is around 60x the size of New Zealand, with more than 280 million vehicles. Those markets are actively examining alternatives to fuel in size and the scale involved is significant. This includes the Eastern Transport Coalition mileage usage-based pilots in the United States, which EROAD has participated in, in the past. So while the immediate focus is on New Zealand, our line of sight is global. The preparation underway is intended to ensure we're well positioned to take part in those conversations as they progress. As the New Zealand government works towards design of the future system, we've been preparing so that we're in a position to move quickly once the requirements are confirmed. A key part of that preparation has been testing different ways the service could be delivered, depending on how the government chooses to structure the program. That includes early prototyping of consumer pathways and exploring how the existing EROAD platform might support the scale and simplicity required for light vehicle users. We've also been building a clear view of the commercial considerations, the economics, the potential pricing envelopes and what a high-volume operating model would require. This work ensures any approach we take is both viable and scalable when the program rolls out nationwide. And alongside the core charging model, we're looking at adjacent opportunities that may become relevant as policies develop, such as time of us in concept, tolling and other services that could logically sit next to distance-based charging over time. The intent of all this preparation is to make sure we're technically ready, commercially informed and operationally capable when governments finalize the shape and timing of the program. And New Zealand offers the opportunity to prove capability at a national scale. Doing that well keeps options open in other markets as usage-based models continue to evolve globally. Now on to the regions. New Zealand delivered a stable and disciplined half, with growth across revenue, annualized recurring revenue and ARPU. Annualized recurring revenue increased over 6% year-on-year to $93.2 million, supported by consistent demand from our installed base and continued uptake of higher-value services. Revenue grew almost 5% to over $52 million and EBITDA reached over $35 million, underpinned by strong asset retention at 92%. ARPU lifted at 4.4%, reflecting the mix shift towards higher-value opportunities and the final stage of churn associated with the 4G upgrade program. Importantly, most of the reduction in the period came from fleet resizing rather than actual customer losses. Around 88% of the annualized recurring revenue impact from unit reductions relates to customers adjusting fleet size due to broader economic conditions. These relationships remain in place. A expansion upsell activity across the portfolio more than offset the reduction to give us a net positive annualized recurring revenue position. A quick update on our 4G program. Australia switch is now complete. And across ANZ, as at the half year, 87% of all units out there were EROAD and were 4G compatible. And as of today, this has now reached approximately 90% being 4G compatible. The remaining work is in New Zealand, where one is the schedule to switch off 3G in December of this year. The final activity is planned for the second half and remains fully funded from operating cash flow with no change to total programming costs. With completion now firmly on site, we have been forced to retire this site going forward. North America had a soft half and our numbers show that. Annualized recurring revenue reduced to just under $70 million, down almost 6% on a constant currency basis year-on-year. This was driven by normal churn that wasn't offset by much new growth in the period. Customer decisions have slowed and many fleets that have taken on a more cautious stance on new investment given tariffs, higher operating costs and a broader uncertainty in the freight sector. Revenue was $39 million, down 1.5% and EBITDA was $9 million. ARPU increased 4.1% as the mix continued towards higher-value contracts with lower value units coming out of the base. As previously signaled, North America will be impacted in Q4 by the nonrenewal of a large customer around 10,000 connections. However, North America remains a vital region for EROAD. Our focus is on protecting the core by supporting our customer base, maintaining capability and aligning spend conditions to the region is ready to scale when momentum returns. And finally, Australia. Australia delivered a strong first half with sustained growth across revenue, ARR and EBITDA. Annualized recurring revenue increased by 30% year-on-year to over $15 million, driven by continued enterprise expansion and high adoption of safety and compliance products. Revenue rose 23%, while EBITDA increased to $3.7 million. Retention sits very high at 95.5% and ARPU grew 8.3%, supported by product mix improvements and pricing actions. The standout development of this period was the recently announced Cleanaway Enterprise partnership, covering a national fleet of more than 3,000 heavy vehicles. This Cleanaway partnership is a significant milestone for EROAD and the Australian market. It's a 5-year agreement covering the full safety and vehicle monitoring platform across Cleanaway's national heavy vehicle fleet. The solution includes AI cameras with dual connections, fatigue and rollover detection, critical events monitoring and satellite connectivity for remote options and operations. Deployment has already begun, with full rollout expected by November 2026. The agreement represents $5 million of annualized recurring revenue in Australian dollars with fixed annual escalators over the term. And during this tendering, Cleanaway conducted a comprehensive valuation process. The partnership strengthens our position in the Australian enterprise segment and reinforces the strategic relevance of the investment we've made in product and operational capability. Over the last 3 years, EROAD has secured renewals or wins with a number of marquee Australian businesses, including Boral, Woolworths, Programmed, Ventia, Downer and now Cleanaway. This underscores how significant the Australian market is becoming, and EROAD is committed to focusing on further growth here. I'll pause and hand over to Ciara to take you through the financials for the half. Ciara McGuigan: Great. Thank you, Mark, and good afternoon, everyone. From a financial perspective, we have continued to execute on the 4 pillars of our financial strategy. As a reminder, these are position the company to generate cash, maintain operating leverage in the cost base, invest in innovation to drive growth and maintain a strong financial position. As Mark mentioned, first half revenue of $99.1 million is growth year-on-year of 3.3%. This was driven by annual price increases and an enterprise rollout over the last 12 months, with a strong performance in our SaaS business, where annual recurring revenue also grew by over 5.3%. This underscores the resilience in a challenging environment and the meaningful value that we are offering to customers. Following the recent Cleanaway announcement, the rollout is underway. We began procuring inventory over the previous months and expect to have approximately $2 million in inventory and hardware built up by year-end. About 1/3 of the units are expected to be deployed by year-end, contributing $1.8 million in revenue for the period. The remaining units are scheduled for rollout by November 2026. You will see that we reported a loss in the financial statement of $133.9 million. This was entirely driven by an impairment of the North American asset of $134.7 million. If we remove this plus the 4G hardware upgrade program, our normalized EBIT becomes $2.5 million, and this compares to $4.7 million in the same -- in the half last year. EBIT was impacted by lower capitalization of R&D. This will normalize or is normalizing as we exit the year and the accelerated amortization of a large customer termination in North America. On to the next slide, operating costs. So the chart on the left illustrates that operating costs were 71% of revenue. These include costs as we ramp up our investment in the Philippines office. Last year also included a one-off benefit to transaction revenue due to a change in the GST treatment of transaction fee income. If we exclude these one-off items, operating margins would be broadly in line with last year. Remembering, of course, that by building our engineering and customer support teams in Manila, we are growing our capability at a lower price point to support operating leverage. As a technology business, where transition and change are to be expected, it goes without saying that we will continue to relentlessly focus on cost discipline. Operational efficiency. The chart on the left, our cost to acquire remains stable as a percentage of revenue. Capitalized cost to acquire were lower at the start of this year, which we expect to increase, which will reflect the commissions relating to the closing of the Cleanaway deal in Australia. The chart on the right, our cost to support our customers has increased as a percentage of revenue as we have increased our service and support costs slightly to build capacity to support large enterprise rollouts. I think we skipped a slide of research. Now turning to free cash flow. We are pleased to have generated the significant free cash flow to the firm of $6.2 million in the period, which illustrates the strength of our core business, as Mark referred to. This is the fourth consecutive reporting period that we've delivered positive free cash flow. Once we remove the temporary impact of the 4G upgrade program, the company generated $16.7 million in normalized free cash flow, which you can see illustrated on the chart. This normalization shows the true underlying performance of our business. As the 4G upgrade program is completed by the end of this calendar year, and we continue to deliver on our strategy, we expect to see free cash flow continue to accelerate. There was an inventory buildup in the first half of the year to support our 4G upgrade program, which we expect to normalize in the second half as the program comes to a close. Subsequent to balance date, inventory was purchased to support the rollout of the Cleanaway contract, which is now underway. We also saw the benefit of $2.8 million related to the rollout of our annual billing program in Australia and New Zealand and a large North American account. We continue to see the benefit of this shift in the second half of the year. So turning to our research and development spend. In the first half of FY '26, our R&D expenditure totaled $19 million, which represents 19% of revenue. This is broadly consistent with last year, as you can see on the chart. Our R&D efforts have been more heavily focused on platform scaling, which is not capitalizable. We expect our future R&D investment to be more balanced towards innovation and growth initiatives, which will be capitalizable with a specific call out to work completed to win the Cleanaway deal. We believe this type of customer-led innovation is low risk and generates long-term value as we deploy these features across our customer base. Liquidity. We have maintained our disciplined approach to debt, repaying $2.5 million of outstanding facilities with cash generated from operations, reinforcing our strong balance sheet. Our liquidity remains significant at $62.3 million, providing a high degree of optionality. In addition, we're progressing plans to extend our facilities to ensure we are optimally positioned to execute on forthcoming growth opportunities. And with that, Mark, I'll hand back to you. Mark Heine: Thank you, Ciara. I'll now turn to the outlook and guidance for the rest of the year. Our outlook for the second half of the year is consistent with the updated guidance provided to the market in October as part of the strategic refocus. New growth investments being directed towards Australia and New Zealand, where we see the strongest near-term return profile. North America remains an important market, but the U.S. environment continues to be slow with cautious customer investment. Our approach is retain the base, maintain capability and align spend to the pace of the market. For FY '26, we are reaffirming the guidance we set in October. Revenue of $197 million to $203 million, ARR of $175 million to $183 million and a free cash flow yield of between 5% and 8% of revenue, normalized for the temporary impact of the 4G upgrade program. And finally, we plan to hold Investor Day in March to take you through our product road map and our long-term strategic and financial targets. Further details will follow closer to the time. And with that, we'll now open to any questions. Jason Kepecs: Thanks. The queue is open for questions. The first question is noting the reduction in units in the U.S., how many of those remaining units are part of the core strategy? Mark Heine: So if you look at the U.S. unit base that we have, about 40% of them are cold chain customer units. So a good chunk of it is. The rest are in other verticals, including transport and also ones who are particularly focused on health and safety. EROAD has a really strong product suite in health and safety. And so we're really confident that we can focus on retaining those other customers as well. If you're looking forward, in the U.S., there's over 700,000 cold chain trailers in that market and of which only half of them have any technology in them to date, which means that it provides a great greenfield opportunity for EROAD to grow into that space as economic conditions rebound in that market. Jason Kepecs: Second part to that question is there was a slight reduction in the unit count in New Zealand. How much of that was due to economic factors? And how much of that was due to the 4G hardware upgrade? Mark Heine: We believe a big chunk of that. And in fact, I think we mentioned over 80% was linked to customers reducing the size of their fleet as opposed to leaving EROAD entirety. And that suggests it's largely driven by economic conditions. New Zealand has had a rather challenging economic period over the last 3 years, which impacts particularly the freight sector. And so we are seeing customers park vehicles up, but we expect as economic conditions improve, those customers who have largely stayed with us will add additional units into their fleets. Jason Kepecs: And a question about the free cash flow, strong result at $16.7 million of free cash flow normalized for the half. The guidance suggests a midpoint of $13 million. But wanting to understand what that might mean for the second half of the year and also how to think about the trend for FY '27 in terms of whether that will be a year to harvest the free cash flow or to reinvest in the eRUC opportunity? Ciara McGuigan: So yes, I would agree with all of those points that was a highlight. And the guidance, your point about guidance is correct where you see it sitting broadly. There's obviously timing shifts between the 2 halves. We've got some big inventory purchases and then cash goes out in the different halves. So there is an element of reset between the 2 halves. In regards to the point to FY '27, we'll be obviously talking about that more towards the end of the financial year. We're going through quite a bit of planning, but our intention is certainly to be investing to leverage the eRUC opportunity, and that's where we land at the moment. Jason Kepecs: There's a lot of questions in the queue about the eRUC opportunity. I'm going to list them out, and we'll address them all at once. On the eRUC opportunity, questions about the size of the opportunity, how much service revenue is up for grabs, what the operating margins might be versus fleet management margins, what the revenue model might be? Was it a fixed fee or a percentage of the RUC collected? How capital intensive the opportunity might be? Whether it's free cash flow positive from year 1 and what the potential opportunity is in Australia following this rollout or deployment in New Zealand? Mark Heine: Great. Thank you, Jason. So looking through sequentially. So first, the size of the opportunity. In New Zealand right now, EROAD can service about 1 million vehicles using eRUC. Of that, it's about 200,000 heavy vehicles, and we have a substantial number of them already. And there's about 800,000 EVs and diesel vehicles already need to pay RUC in some form. Some have EROAD technology in them, but a lot of them are passenger vehicles. So right now, we're looking at what sort of passenger consumer-focused applications we can launch for them to really target that part of the market. In addition to those 1 million vehicles, there's an additional 3.5 million to about 3.7 million vehicles, which are petrol. And the government has indicated they want to move all those petrol vehicles starting in 2027 over to eRUC. So we're absolutely focused on winning a substantial part of that share of the market when it comes online. In terms of operating margins and revenue model, those are the things we're working through right now. EROAD is looking at whether we go direct or we work with partners across a range of sectors, including telco, insurance, gen trailers and the like, there's a whole bunch of opportunities for us around how we service that segment. And as part of that, we'll work through what the financial model could look like. And as we indicated in the past, we are looking in March to provide an investor update to go into that in a bit more detail as we have a bit more certainty around what that model looks like. I'll probably reserve for March also the free cash flow impact and what it would mean from year 1. But as you've seen historically, over the last 4 quarters -- 4 halves, sorry, we've provided reported free cash flow positive half, and we're going to continue to be focused on making sure that whatever we invest here that's going to have a strong return for our shareholders in the short to medium term. And turning to the Australian opportunity. So the Treasurer in Australia has noted that this is an area that they clearly need to get into. There's lots of pressures from the states, in particular, New South Wales, who indicated they want some form of road charging in the market by 2027 to help sort of fund their infrastructure challenges. And Victoria likewise are key to do something, too. So we expect movement over the next year or 2 in the Australian market to really unlock the eRUC opportunity there. More broadly, we are aware of RUC being rolled out in Hawaii recently. There are other states in the U.S. looking at it too. And EROAD also participating in past, and we've been invited back around looking at some pilots on the Eastern corridor in the U.S. around how eRUC could be used to fund road up there. So there's no shortage of opportunities, but we're focused on doing New Zealand first really, really well. We'll come to the market, hopefully in March with a bit more detail around what they will look like from a cost and revenue perspective. But we are continuing to watch this space very carefully and explore the opportunities that presents. Jason Kepecs: There's a question about the current pipeline that's in place following the landing of the Cleanaway deal. Was that in your pipeline? And what remains? Mark Heine: Sure. So yes, Cleanaway was in the pipeline. You may recall investors that at the beginning of the year, we said there are 5 enterprise customers in the pipeline, 3 in North America and 2 in Australia. Cleanaway was one. There's another Australian customer that has rather been a big bang, they are more of a customer who's got a large subcontractor fleet that we're working our way through over time. In North America, the other 3 opportunities we've deferred into future years. Just with the economic conditions we're seeing there now, they're quite challenged and it's sort of deferring buying decisions. On top of that, though, we are still exploring other pipeline opportunities. In New Zealand, with the recent all-out government win EROAD's had, we see a number of government fleets really interested in the EROAD solution in this market. And also in Australia, given the opportunity in that market and the size of it, it also -- we don't particularly have very strong competitors, well-resourced competitors in the Australian market. We're seeing more and more customers or potential customers come to us more on that sort of enterprise level between $100,000 and $1 million as opposed to something in that large enterprise, which is Cleanaway, which is above obviously $1 million and a $5 million ARR opportunity. Jason Kepecs: And the customer that didn't renew in the U.S., wondering when that phases off. Mark Heine: So we're working with the customer at the moment around the transition planning. We don't have a definitive date yet, but we expect to happen before the end of the financial year. Jason Kepecs: And on the U.S. business, would you be looking to grow that going forward at what rate? Who is expected to lead that? And what will the cost allocation generally look like? Mark Heine: So start with the first question in terms of -- sorry, Jason, say the first part of the question again? Jason Kepecs: Is it -- what kind of growth are you expecting out of that business going forward and the cost allocation and who's going to be leading that business? Mark Heine: Sure. So in terms of growth expectations, we expect the rollout of this customer, revenue will be backwards both this year and probably into FY '27 as well. In the medium term, we're looking at growth around 3% and greater than that. We expect it to pick up over time as the economy rebounds back. We'll certainly be focusing though on the cold chain opportunity, which should have a strong growth opportunity and ideally pushing towards low double digits or high single-digit growth in '28 and '29. In terms of who will lead it, right now, we are kicking off an Executive General Manager search for the U.S. market around helping to drive sales and marketing with a particular focus, obviously, on the cold chain experience very key here, too. Jason Kepecs: A question on the cold chain market. How much of the opportunity exists in New Zealand? And how much has been captured and same in the Australian market? Mark Heine: So we believe there's about 1 million cold chain trailers in the 3 markets we operate in. So about 300,000 dispersed between Australia and New Zealand, of which between 40 -- 20,000 to 40,000 are based in New Zealand based on type of truck we're talking about. There's relatively low penetration in the cold chain trailer space in New Zealand. It's not one that's particularly been a strong adopter of technology. So we believe we can target existing customers. Indeed, we recently announced or internally at the very least, we won 2 cold chain trailer customers in New Zealand recently who were already existing customers with the front of care part of our business. In Australia, we see greater growth there. Woolworths is one of our cold chain customers in that market, and we're going to be looking to see who else we can leverage from around the cold chain opportunity given it's a very hot continent over there. Jason Kepecs: Great. And final question. What proportion of your customers are now on upfront billing? And what is your target in the future? Ciara McGuigan: So currently, we have about 5% of our customer base on annual bill, and that brings in just under 10% of our revenue. Our ambition is still to go for a strong penetration of annual bill. We won't hit the 40% in FY '26, but we are still very front and center for us. Jason Kepecs: Great. That's it for the questions. Mark Heine: Thank you, Jason. And I just want to close by saying, as you can see, we're disciplined in how we're allocating capital. We're focused [Audio Gap] market showing the strongest returns, and we're preparing well for the structural opportunities ahead in eRUC. Thank you, and have a great rest of your day.
Marco Haeckermann: Welcome to the third quarter earnings call of CTS Eventim. My name is Marco Haeckermann, and I'm going to present the third quarter, followed by a Q&A session. So let's go. The headline for the Q3 result is very clear. We are leaving the noise of Q2 behind, and we are talking about strong signals we've seen in Q3. Ticketing has posted positive like-for-like growth in the third quarter. Adjusted EBITDA margin in the segment is up by more than 200 basis points despite ongoing integrations from See Tickets and France Billet. The development in Ticketing is backed by very strong organic margin growth in the third quarter year-over-year. Live Entertainment returned to growth in the third quarter after a muted Q2. Adjusted EBITDA margin is up by more than 100 basis points in Q3 year-over-year, and our venue operations delivered on prior year's level. We've seen a positive financial result in the third quarter of a little bit more than EUR 2 million versus a negative result of around EUR 0.5 million in Q3 last year. And putting all this together gives us enough confidence to again confirm what we've said already in August when we released the half year results that we confirm our group KPIs and ticketing with regards to the outlook for 2025. Let's look at some highlights for the first 9 months in 2025. The first impression is right, all the arrows point in the right direction and show a green color. Group revenue is up to EUR 2.1 billion, which represents growth of 6% year-over-year. Adjusted EBITDA was almost at EUR 340 million, up by almost 5%. And EBIT is above EUR 260 million, which represents growth of even more than 6%. The development of our retail tickets and the tickets outside Germany posted a tremendous growth of 29% and almost 43%, which is still positive affected by the ongoing integration and first-time consolidation of See Tickets and France Billet. And our last 12 months GTV reached almost EUR 9 billion by the end of September. Let's dig a little bit deeper into the first 9 months results. The growth in revenues of 6% was driven by both segments. Ticketing growth came in across all subsegments despite the nonrecurring Paris 2024 revenues we've seen last year. And Live Entertainment, as I've said earlier, has returned to growth after the second quarter. Adjusted EBITDA is up by almost 5% with margin levels back at prior year's level, mostly driven by very strong organic margin growth in Ticketing and Live Entertainment returning to last year's EBITDA margin level. The impact on EBIT is comparable with almost 6%, which is, of course, reported on an unadjusted basis. Looking at the results from a quarterly perspective, Q3 posted the highest revenue over the last 7 quarters. And the second -- the third quarter in Ticketing captured See Tickets for the first time on a clean like-for-like basis. Live reported positive momentum quarter-on-quarter. The adjusted EBITDA had no adjustments in 2025, while there was in the comparable period last year, an adjustment for M&A-related transaction expenses of a high single-digit million amount. As said, the margin expansion was driven by both segments, which is, of course, a very positive development compared to what we have discussed in August this year. And let's not forget, the main quarter from an earnings perspective is still to come with the fourth quarter of 2025. Bridging now from adjusted EBITDA of almost EUR 340 million to our net profit versus previous year, you see here that our adjusted EBITDA was up by EUR 15 million. And then after depreciation, the financial result, we posted earnings before taxes of EUR 260 million. It is important to highlight that the negative trend in the financial results is mostly determined by what we have discussed already with the H1 numbers as the third quarter financial result was positive, but within the first half, we had negative effects from foreign exchange, mostly U.S. dollar of roughly EUR 15 million. There was a nonrecurring dividend payment of around EUR 14 million from our autoTicket project and the lower interest income, which translated as well to roughly EUR 15 million less interest income in the first half. But this, as I said, was mostly attributable to the first half and Q3 has posted a positive financial result. Adding it all up, we end up with almost EUR 150 million of net profit attributable to CTS shareholders. Taking now a look at the segments. Ticketing revenues grew by 2%, although the organic growth was in the mid-single-digit percentages, and this effect comes from last year's third quarter having seen a high single-digit million contribution from Paris '24, which is a nonrecurring item. The third quarter growth was driven largely across all our core markets. The disproportionate development on adjusted EBITDA shows how strong the organic business has improved its profitability in the third quarter. Even without considering the nonrecurring earnings impact from Paris 2024, adjusted EBITDA has grown by 8% year-over-year in the third quarter. And even with the ongoing integrations and the still dilutive impact on adjusted EBITDA margins from the newly acquired entities, we are able to expand our profitability in the third quarter, mostly backed by very strong performances in our core markets on adjusted EBITDA profitability. Taking a look at our retail ticket volume. The retail ticket volume in the third quarter went up from 36 million to 42 million. And looking at the right side of this slide, you see that due to the ongoing integration of the international businesses, which we've acquired in See tickets and France Billet, the share of Europe is increasing based on the retail ticket volume. Taking now a look at Live Entertainment. Revenue in the third quarter grew by 5.5% despite muted development in Q2. All leading indicators as of 30th September '25 are up. With leading indicators, I'm referring to, for example, prepayments which we have received, which is -- which you can consider an order intake or a KPI for deferred revenue of our Live Entertainment segment for the next season, which is a very positive indicator for what's to come in the next year. As we've discussed in summer, we continue to have our festival portfolio under review where we expect positive impact next year. The strong EBITDA development in Q3 shows that overall, the season and the content has been very helpful to our overall development and is mostly backed by our German and Italian businesses in Live Entertainment. Our venue business, which we report in this segment as well, remains highly profitable at previous year's level. Overall, we see that the Live Entertainment segment has returned into its target margin corridor with 7% in Q3. And this concludes the presentation of our Q3 results for today. And now I hand over back to the operator to open the line for your questions. Thank you. Operator: And we're coming to the first question, and it comes from Olivier Calvet from UBS. Olivier Calvet: Maybe I'll take them one by one. But first, to clarify the guidance comment. On the last call, you guys were saying sort of the 5% to -- that we should take the lower end of the 5% to 15% growth at EBITDA level. It sounds like you're now pointing again to the full range. So I'm just wondering if you'd be able to narrow it down a little bit for us now with only about a month left to the year. Marco Haeckermann: Yes. Thank you, Olivier. So as I said, we would prefer to leave the commentary unchanged versus H1, although having seen the very strong development in Live Entertainment in the third quarter, I can say that we have gained a little bit more headroom in what we've said. But for now, I would leave the guidance unchanged. But you can be sure that we as well are taking into consideration the strong return to positive momentum in Live Entertainment as well. Olivier Calvet: Okay. Okay. And how is Ticketing developing into Q4? Any sort of color you could give here also on the 2026 artist lineup that would be helpful as well. Marco Haeckermann: Yes. I mean while we are still in this quarter, I can't say anything about it in financial terms. But I mean, the highlights we've seen so far, I can say that the demand side is very well on track, seeing what we have put through the pipeline, whether it was big festivals. We're seeing great lineups even for festivals in the second tier. On the other side, we have had some really renowned bands going on sales so far in the fourth quarter. But it's always important to highlight, particularly for us, yes, it's always visible to look at the top act, but the majority of our tickets really come from a very, very diverse content portfolio. And all I can say is here that throughout Q4, what we have seen so far, we see unchanged momentum from artists going on tour and wherever we can make it visible that these shows are on sale, that we will activate the demand and put fans in front of the stages to have a good time with their artists. Olivier Calvet: Okay. Okay. Then just one on the festivals business. Is there -- are there any specific festivals you've made a decision on in terms of going forward, what -- whether they will be operating in 2026 or '27? Is there any such decisions you could point to? And the second one also on -- within LE, the Milan venue ramp, if you could just shed a bit of light on that ramp, how to think about it into next year? Marco Haeckermann: Yes. I mean with regards to the festivals, there are no particular names. And it would be a little bit unfair because I know that our Live Entertainment management is working very closely together with the promoters to plan out what's to come for the next year, looking at the infrastructure. And it is, of course, a completely wrong take to just look at the name of the festivals because there's a very complex infrastructure behind this, how you book artists, through which festivals or even other events you would want to route them. They are very busy. The team around Frithjof Pils together with the promoters to focus on the profitability. And like I said throughout the call, we are confident to see positive impact from their work on the overall portfolio already next year, but it shouldn't stop there because as we've discussed in summer, overall, in that part of the value chain, you have to cope with permanent OpEx inflation, artists asking for more money. The overall infrastructure to operate these formats is not getting cheaper. And it is always the more important to roll over these OpEx inflation onto the ticket price and to become better in selling them at the right price to make these events profitable for everyone. With regards to Milan, everything is on plan, I would say. It's, of course, difficult now to say something more particular about bookings because the venue has to open. But I think it's fair to say we are already seeing a very good demand for that venue. And when we look at nights, which a venue can be booked, which is an important KPI there, I must say that we are positively surprised by how well this new piece of valuable infrastructure for the live entertainment scene in Italy has been received so far and that's -- up to now, even where the venue is still in its final construction stages that we are coming close to a triple-digit number of bookings, which at least promoters and various content providers are asking for where they would wish to host shows in our new arena. Olivier Calvet: Okay. And any ETA on when you would hope to start having shows there, a rough idea? Marco Haeckermann: Yes. I mean the opening act is, of course, the Winter Olympics. And once the ice is off the stage, yes, you can put the speakers on, and host great live music shows there. Sorry, just to be clear, I'm referring to ice because the ice hockey matches will be hosted there, in case someone is listening who hasn't heard about this yet. Operator: Next up is Ed Vyvyan from Rothschild & Co Redburn. Edward Vyvyan: Congratulations on -- it looks like a pretty strong set of results. I have three questions. So just firstly, on Live Entertainment, your adjusted EBITDA came in well, well above consensus. So could you maybe just walk us through some of the moving parts in the quarter? I think last year, you did have a drag from U.S. Touring JV. So it would be good to understand the comp there. Ticketing, sort of a similar question. If you could walk us through what happened with organic margins when you exclude integration costs and then maybe the Paris Olympics, could you sort of quantify these effects? And then lastly, kind of moving away from the quarter, you've been making a lot of changes, it looks like internally to prepare for mobile ticketing. So when should we expect mobile ticketing to be rolled out in a more meaningful way? And could you maybe give us an idea of expected penetration rates and the margin uplift from that? Marco Haeckermann: Thank you, Ed. So first of all, with regards to Live Entertainment and the strong development of the profitability, I mean, on the one side, we, mostly in Germany and Italy, had a very good lineup, just to name one name, Ed Sheeran, makes probably the top of that part in the third quarter with a large number of shows, which we've promoted there. On the other hand, while we were talking about festival, and this is what we've discussed already in August, and now we are seeing the positive side of it. I mean, we had some pre-incurred expenses in the second quarter for the festivals, as we said, which were now compensated by the revenues which we have generated. And as we've discussed as well, there was, for example, one festival, which we've acquired within See Tickets, Garorock, which took place last year in June and which flipped over into the third quarter, but this only had a minor impact on revenues and profitability there. But it was a profitable festival, so it's worth highlighting. On the last bit with regards to the U.S. development, not so much has changed. We are seeing now other acts coming through the pipeline there. And we just had a discussion about this. It seems like that in the U.S. as well, now moving a little bit the portfolio towards higher ages and not to the target group between 15 and 20 years, which seems to be more affected by what's going on in the economy in the U.S. and the willingness to pay high prices for tickets, while now, for example, acts like [ Brandy and Monica, ] the only one I remember, to be honest, which are selling to a little bit more older audience where the $50 notes or $100 notes are a little bit loose, more loose to pay for these tickets. And this is a development which we are curious to see of how it pans out throughout the end of Q4, but this was as well in Q3, any changes in the U.S. had a minor impact. So we were basically running where we were in Q3 last year as well. With regards to Ticketing, excluding the integration costs, we have seen very good organic margin momentum. And I must say this was particularly due to our core markets in Central Europe, including Germany as well. But here, again, it was not particularly a topic driven by top shows. But as I said earlier, we should never forget, although it's always flashy to talk about the big names, yes, we should not trick ourselves a little bit that the large part of our portfolio are not the big acts, but the acts from Tier 2, Tier 3, very independent acts, but other names that fill arenas and which gives us a much more constant flow and which helps us, of course, to leverage our customer reach in very efficient ways to help them to sell out the shows better than the year before, which is a constant task our team is working on and which then ultimately is reflected in constant operating leverage. So if we sell the same category year in and year out, you can always be sure that we become more profitable on that overall genre. Other changes with regards to mobile ticketing, I must say, as you've seen and as we've discussed throughout the first 9 months, hiring new responsibilities starting off at the very top with Karel Dorner as a CTO, and Karel having brought on stream new colleagues for products, for the overall IT infrastructure and development going forward. We are already seeing that development is gaining momentum and where we will become -- where we will be more active in rolling out these parts of the infrastructure, but it's, of course, part of a broader story. And here, with the year to come, we would expect to start reporting material increases in mobile penetration rates. But what is more important than to talk really about the capabilities of the new product generation. As you, of course, know that once you have a customer on the mobile channel, it's not only that you have a direct connection to every ticket buyer or ticket holder, but you have a communication stream on -- which gives you the chance for better cross and upsell opportunities, which, of course, given the market projections, not only in Continental Europe, but I would say, globally over the next 5 to 10 years will become a very important theme, not only to sell more tickets, but as well to increase the GTV per customer and focus on that. And therefore, mobile infrastructure is key. And this won't be a bottleneck for us to utilize the opportunities and capture the value over the next couple of years for CTS Eventim. Operator: And next up is Annick Maas from Bernstein. Annick Maas: So my first question is you just touched on mobile penetration. So I'd be quite keen to understand how many tickets you are selling through fanSALE today. The second one is, I don't have access to the slides, so maybe it's on the slides, but could you isolate the integration costs for Q3? And just confirm that Q3 was really the last quarter with the integration cost and in Q4, it's -- they are none left basically. And then you announced a new CFO. So the background seems not the most obvious to ticketing. So can you just maybe give us a bit more explanation on why the CFO, yes. Marco Haeckermann: Thanks, Annick. So your first question was with regards to fanSALE, and which is a different element, I would say. I mean, rolling out the mobile infrastructure, of course, facilitates better liquidity in the aftermarket for which we can then have fanSALE coming more to fruition with its full potential. As of now, our reselling activities and always considering, of course, that our dominant markets in the EU see more and more regulation on that, but this is not a holdback for us because with being the biggest ticketing platform in Europe, we can provide this aftermarket liquidity with fanSALE, which, of course, mobile penetration is a key growth driver for and where we have already the EVENTIM.Pass product, which facilitates ticket exchanges after the initial distribution. This is becoming a very interesting topic over the next 3 to 4 years. But as of now, the revenue contribution from fanSALE is still negligible, I would say. Integration costs for the third quarter, as we said in summer, we would expect to come in somewhere in the low to mid-single-digit millions, which is on track. But in contrast to the second quarter, the very strong organic development overlapped this impact. What we've said with regards to Q4 was that we might still expect a low single-digit million effect from ongoing integration. But overall, we would expect a net impact so that the overall development will cover the last EUR 1 million or EUR 2 million of integration effects. And with looking at the Q3 development and the strong organic margin development, I must say that this is a very reassuring development because we are even beyond target here because the operating development even covered the integration cost in the third quarter, which is a very positive leading indicator for the fourth quarter. With regards to our new CFO, I mean, first off, we are looking forward to give him a very warm Eventim welcome. As per his past, I think it's very worth highlighting that he brings tremendous expertise in -- not only in M&A, but in the broader finance space from various perspectives. I think it's fair to say that with his expertise coming from Lufthansa, he knows complexity, which is something we're working on to reduce day by day. So I'm very sure that he can help us on our mission there because it's always important to highlight when we talk about our profitability levels here, forgive me, my blunt answer, but there are still too many Excel spreadsheets, which we send around with e-mails. So even behind our very strong profitability levels, there are deep pockets of efficiency gains where I'm very sure that our new colleague, which we will welcome at the beginning of next year, will help us because he probably have seen many of those cases in his former job. So ideally, he brings the protocol to bring us even forward there. So that's why we're looking forward to welcome him as of 1st of January. Operator: The next question comes from Bernd Klanten from Barclays. Bernd Klanten: Maybe first question on organic Ticketing growth. I guess, year-to-date, you should be in the low to mid-single-digit range. I guess without giving any specific guidance, would you expect these organic trends to broadly continue into year-end and into next year? Then second question, can you remind us of just very roughly combined revenue and cost synergy expectations for France Billet and See Tickets maybe also into next year? And any color maybe that you can share on their respective margin developments so far? And then a question somewhat related to the Milan question earlier, how much revenue and margin contribution do you expect for the Winter Olympics next year? And how should we think about the relative attribution to Ticketing and Live there? Marco Haeckermann: Bernd, thanks for your question. So with regards to organic Ticketing growth, I would rather say that so far in the first 9 months, organic growth in Ticketing has been more like in the mid-single-digit percentages. And this is a run rate which we expect going forward into the -- throughout the fourth quarter. Overall, I must say that as we've said earlier, our midterm perspective and expectations for growth, not only for Ticketing, but for the overall live entertainment industry in Europe and even globally points towards 5% to 7% growth until 2030, 2031. And it goes without saying that our ambition is not to grow less than how the markets are growing. Revenue and cost synergies for See Tickets and France Billet, I mean we have said earlier, and this remains unchanged that overall, once the integration project is completed, that as from this combination between our legal entities and the ones which we've acquired that on both sides, we would expect cost synergies somewhere in the low double-digit millions. And with regards to Milan, given that there are contract specifics, I don't want to split out our revenue and earnings expectations for the Olympics in particular. What I think is more important for the overall project is that once the Olympics are done and we have seen the new ice hockey Olympic champion, as I've said earlier, I mean, there are many promoters waiting to put up their gear to host shows in our new arena, which will be more important for the overall profitability in the very first year, although it will still be a ramp-up year, and there will be many more interesting years to come after 2026. Operator: And now we're coming to the next questioner. It is Lars Vom-Cleff from Deutsche Bank. Lars Vom Cleff: Two to three quick questions remaining, if I may. I mean, doing a back-of-the-envelope calculation, gross transaction value per ticket seems to be up 9% quarter-on-quarter. So is that for me an indication that pricing is still strong and that customers are still expecting -- still accepting price hikes? Or is it rather a mix effect we're seeing? Marco Haeckermann: So I mean, honestly, I haven't done this back-of-the-envelope math yet for the third quarter, but it points in the right direction, I can say this. What I -- what is hard for me now to strip out what is really the contribution from the newly acquired entities there, as we know that France Billet and See Tickets, they are selling at lower face values per ticket, which has, of course, an impact, which you've seen on the highlight slide that, for example, the ticket volume KPIs are significantly higher up than the revenue numbers. But given that underlying pricing has been and will continue to be a strong driver for our GTV, it points somewhere in the right direction, but don't name me on whether it's 9% or whether it's somewhere in the mid- to higher single-digit percentages. Lars Vom Cleff: Okay. Perfect. And then thank you very much for sharing your view on synergy effects and integration costs for the French acquisitions and integrations. Just for me to be absolutely sure, this will all be gone in '26, right? We shouldn't expect any additional headwinds for '26 anymore? Marco Haeckermann: Yes, that's the plan. Lars Vom Cleff: Okay. Perfect. And then I think in one of the earlier calls, you or your CFO said that we should expect a low to midsized 2-digit financial result in '25, where you said that looks likely. I mean, after 9 months, you're at minus EUR 4 million. Is that still valid, low to midsized 2-digit financial results? Marco Haeckermann: Honestly, I'm not quite sure whether he said that in particular because we have seen versus last year quite a significant drawdown in the first half due to the effect which we have named. And I think it's important now to look at Q3 as it has been posted in the -- in today's report that although this has turned positive with around -- a little bit more than EUR 2 million, but it is unrealistic to expect for the fourth quarter now an impact that will reverse what we have seen in the first half. And I'm not quite sure whether Holger has said something in that direction. But if that was your perception, I mean, my back-of-the-envelope math now with regards to financial results makes this nearly impossible, simply because the foreign exchange effects and of course, the nonrecurrence of the autoTicket dividend, for example, that's something very hard to capture. Lars Vom Cleff: Understood. Perfect. And then a quick last one. Yesterday, I saw an article in the [indiscernible] that it will be far harder for Vienna to finance the arena in Vienna and that they seem to be struggling. Is there any news on the Vienna arena from your side? Or is it still pending and nothing to add to what you said in the past? Marco Haeckermann: No, there's nothing to add from our side. I've seen some news flow, but this was city related, the way of -- how I saw it, but there's nothing which we could add to what we haven't said in the past. Operator: And next up is Craig Abbott from Kepler Cheuvreux. Craig Abbott: Yes. First of all, just real quick on Live Entertainment. Obviously, a very good quarter in Q3. But obviously, it's always been traditionally lumpy and Q4 traditionally has been a seasonally soft quarter, although the U.S. is a little bit more even out over the year. I just wondered were there any special effects in Q3 that we might see that back out in Q4, if you could at least give us like some color there? And also looking into '26, you mentioned some of the KPIs were shaping up well for '26. I mean, at this stage and given the efforts you're taking on making your festival portfolio more profitable, should we be thinking about Live Entertainment being within its target corridor profitability-wise next year? And then on Ticketing, sorry, I just -- maybe I just missed it. Could you just be a little more precise on the organic development, both for the revenue and the margin, particularly in Ticketing in Q3? Yes, those are my two questions at this stage. Marco Haeckermann: Yes. Okay. So with regards to Live Entertainment, I can say that so far, the strong development in the third quarter, as we said, had some tail -- not really had some tailwinds. I think the only real mentionable spillover effect was this one festival, but this is not really moving the needle on whether it would have occurred in Q2 or -- well, it now occurred in Q3. It was really good lineup, as we said, mostly in Germany and Italy. I referred to at Ed Sheeran doing a tremendous number of shows, which was very helpful here. But I wouldn't really want to flag it as something particular. We are expecting the trends which we have seen so far to roll into the fourth quarter. And as I've said earlier in regards to a question related to the guidance, although we are reiterating what we've said in August, but the strong development of Live Entertainment in the third quarter gives us more confidence, but we would now prefer to take this headroom into the fourth quarter. But overall, I think to that degree, Live Entertainment has been punished in August, led by March, maybe I don't want to ask for an apology, but I think that we will be able to level that out of what Live Entertainment has been punished for in the second quarter. I hope this gives you a direction. With regards to leading indicators, 2026, yes, I mean, it's, of course, a very strong leading indicator when your deferred revenue is up by more than EUR 100 million. If you look at the balance sheet date, 30th of September, I'm referring to the prepayments received, which means the tickets that have been sold for our own Live Entertainment and the revenue which has been generated but will be recognized when shows actually take place next year. So -- and from that perspective, we have no other reasons to believe that we continue throughout 2026 operating in our target margin corridor because, as I've said earlier, that our Live Entertainment management is working very close together with the promoters to optimize the portfolio. And this will definitely be helpful to be in our target margin corridor between 6% and 8% EBITDA margin as well in 2026. And maybe if I can add with regards to next year, while we are talking about Live Entertainment, but we have other great events coming into the pipeline. And just one I would like to mention is that although it's still a couple of years out before L.A. will actually host the Olympics in 2028, but our work starts way earlier. So we are very excited about 2026 and technically can't wait to start on with that. Craig Abbott: My other open question, and then I have one more. The open question was just again to give us a specific -- the organic development in Ticketing on revenues and margin in Q3. And then my last question is on Ticketing. I mean I know you cautioned us earlier not to focus too much on the big headline tours. But looking at the Ticketing outlook for Q4, I mean, actually, the flow of on sales these last weeks in October, November has been very, very good. I'm just a little bit surprised you're not a little bit more, say, confident on that Ticketing outlook for Q4, if there's any more color you want to add there. Marco Haeckermann: Of course. I mean, sorry, that I skipped your first question. Organic growth in Ticketing in the third quarter was around 4.5%, which is in line with the around, yes, 6% we've seen in Q1 and around 5% we've seen in the second quarter in Ticketing. And as I said earlier, we expect to remain on that level going through Q4. And as our projections for the overall market growth show at least this kind of growth going forward for the market that this is, I would say, a threshold more like on the bottom line above which we aim operating going into the next 3 to 5 years. With regards to the Ticketing outlook and the on sales you're referring to, yes, you're right. We have seen some good names. What is more important that even behind those good names, the larger part of the portfolio is developing well and that is not only a single market, but various markets. But again, we would like to stay where we are, which if you understand, we are now in a transition of the CFO role, which for me personally, I thought it's fair just to continue maybe with some more headroom as we thought we would have at the end of August, but with more confidence. And like I said earlier, give Mr. Willms a very warm Eventim welcome when he will report the full year results by end of March. Craig Abbott: That's very clear. Sorry, just to go back to my second question in the middle there, the organic Ticketing margin in Q3, please, and then I'm done. Marco Haeckermann: Was in the high 40s. Craig Abbott: So okay. Comparable with last year. Okay. Marco Haeckermann: Yes, was up versus last year. Operator: We have one more question in the line, and it is Christoph Blieffert from BNP Paribas Exane. Christoph Blieffert: I have one left, please. And this one is on the German Ticketing platform, please. Over summer, you have sent around EUR 10 vouchers, most likely to incentivize fans to buy tickets and you have also granted discounts for long tail events taking place in '26. I'm just wondering how you describe the fan demand, in particular for smaller events and whether you have created some pre-buying in the third quarter? Any comments would be helpful. Marco Haeckermann: Yes. Thanks, Christoph. I mean, first off, these are tools, marketing tools, mostly and products, which we haven't introduced now for the first time, right? So there is no change basically in what we have done. Maybe it has become a little bit more visible to you, which I would say is a positive development because it has been in the pipeline for many years and the more visible we can make to potential buyers in Germany, what we have on offer, the better basically it is for the overall content. So I would say there is no indication that we are seeing some kind of early buying or general timing effect, which was a big topic throughout the pandemic, for example. And overall, I must say, discounts and so forth, I mean, it is a very important, high-priority topic for us constantly and not only for us, I think, for the general industry to create awareness and get more eyeballs directed to where the content is because no matter which market you look at, whether it's Continental Europe and still in the U.S., the biggest problem in this industry is still that there are so many people we know who would love to attend an event, but they simply don't get the information on time. I would say even in the U.S. that when you have a group of target personas that would want to see a particular act of, say, 10 people that even with all the marketing power the market has, that only 7 to 8 are really made aware on time that this content is on offer. In Europe, I would say it's still only 5 or 6. So there is tremendous upside, which we will capture going forward while we are now scaling up and building capabilities and led by Karel Dorner, our new CTO. And just, again, while we are talking so much about back-of-the-envelope math, a EUR 10 voucher is so much below our average face value we're selling that let's assume that whatever the number was last year in the third quarter or fourth quarter of what we have sold in terms of EUR 10 vouchers versus this year, and even if that number would have gone up, in terms of revenues which we make from that voucher, it's really a very low number that would never move the dices on our Ticketing development. Then this concludes our earnings call for the 9 months' figures. Thank you very much for staying up a little bit longer and giving our friends from the West Coast a chance to join in our earnings call. And yes, wishing you all a good night, a maybe very early happy holiday season, and we look forward to seeing and hearing you again on our next earnings call, which will be hosted end of March next year. Thank you very much.
Operator: Good day, and thank you for standing by. Welcome to the UGI Corporation Fourth Quarter 2025 Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I'd now like to hand the conference over to Tameka Morris, Vice President of Investor Relations and ESG. Please go ahead. Tameka Morris: Good morning, everyone. Thank you for joining our fiscal 2025 fourth quarter earnings call. With me today are Bob Flexon, President and CEO; Sean O'Brien, CFO, and Mike Sharp, President of AmeriGas Propane. On today's call, we will review our fiscal '25 financial results and key accomplishments as well as the strategic priorities and financial outlook for fiscal '26 before concluding with a question-and-answer session. Before we begin, let me remind you that our comments today include certain forward-looking statements, which management believes to be reasonable as of today's date only. Actual results may differ significantly because of risks and uncertainties that are difficult to predict. Please read our earnings release and our annual report for an extensive list of factors that could affect results. We assume no duty to update or revise forward-looking statements to reflect events or circumstances that are different from expectations. We will also describe our business using certain non-GAAP financial measures. Reconciliations of these measures to the comparable GAAP measures are available within our presentation. And with that, I'll turn the call over to Bob. Robert Flexon: Thanks, Tameka, and good morning. UGI delivered record adjusted earnings per share of $3.32 through strong execution across multiple fronts, surpassing our revised guidance range of $3 to $3.15. Continued improvements at AmeriGas, which led to its higher EBIT, coupled with solid operational performance from our utility segment and significant tax benefits drove these exceptional results. We strengthened our balance sheet. We generated approximately $530 million of free cash flow, inclusive of cash generated from asset sales of selected LPG territories and return value to shareholders through dividend payments. Within our natural gas businesses, we successfully upgraded critical pipeline infrastructure and completed several new LNG and renewable natural gas facilities. These investments not only enhance our system integrity, but also expand our revenue-generating capabilities for future growth. At AmeriGas, we continue to make great strides in streamlining and transforming key business processes, better positioning the company for the upcoming winter. At UGI International, we successfully advanced our portfolio optimization strategy. This will allow us to more effectively utilize our resources on core customer segments where we can have competitive advantage and achieve superior returns. Most importantly, I am proud that we have begun to transform our organizational capabilities by investing in our people and fostering a performance-driven culture focused on driving extraordinary outcomes. This cultural evolution defines the way we work and is a critical driver of continued success. Building on this strong foundation, we are raising our long-term EPS growth expectations with a new EPS compound annual growth rate target of 5% to 7%. This increase underscores the multitude of intrinsic opportunities and our confidence in executing on our strategic vision. During fiscal 2025, we delivered on the strategic priorities we set at the beginning of the year. We are transforming the culture of UGI and embedding greater accountability and operational discipline across our teams and businesses. This is improving our competitive advantage to accelerate and realize success going forward. Our portfolio optimization initiatives were successful. We achieved approximately $150 million from LPG divestitures, excluding the impact of divesting the Austrian business, which is expected to close before the end of this calendar year. This year, we deployed roughly $900 million of capital, primarily in the natural gas businesses. At the utilities, we invested approximately $560 million largely towards replacing and upgrading our gas distribution infrastructure, including replacing nearly 130 miles of pipeline. At AmeriGas, while the operational transformation is ongoing, we're seeing meaningful results that Mike will speak to shortly. Notably, this fiscal year, we achieved a 30% reduction in recordable incidents which not only inspires the safety environment but benefits the business. We have deployed stringent project management discipline to drive more efficient business processes through analysis and redesign while increasing technological adoption, including AI throughout the organization, beginning with AmeriGas. Ultimately, these initiatives are strengthening our overall financial profile better positioning the company to deliver long-term shareholder value, which leads me to our strategic vision. Our vision is to create sustainable shareholder value by driving operational excellence throughout our businesses. There are many opportunities to unlock intrinsic value throughout our portfolio. AmeriGas is at the forefront of this strategic evolution. The team has already made substantial progress in transforming operations that will cement AmeriGas as the premier propane company in the U.S., one that optimizes and takes advantage of our distribution network and establishes a business that is safe, reliable and highly efficient. At UGI International, we will maintain strong operational discipline while positioning LPG as a viable alternative to fuel oil. The strategic and operational transformations underway in our global LPG businesses will generate increased cash flows and provide greater flexibility for future capital allocation. Our natural gas businesses operate in a dynamic environment, and are well positioned to capitalize on the significant energy expansion happening, particularly in Pennsylvania. With the prolific investment coming into the region, we are capitalizing on the opportunities whether through increased throughput for our utilities business or incremental opportunities for our midstream assets. All of these operational pillars are underpinned by our commitment to strengthen our balance sheet. Now I'll hand the call over to Mike to provide you with an update on the progress and efforts we are making at AmeriGas. Michael Sharp: Thanks, Bob, and good morning, everyone. I'm excited to speak with you today about the actions we are taking at AmeriGas. As can be seen on the slide, there are 5 strategic pillars, which guide everything we do. First, our stand is that everyone and everything is always safe. We are committed to maintaining a zero harm culture across operations because nothing is more important than ensuring everyone goes on safely each day. Our customers are at the heart of our strategy. We are building deeper relationships with our customers through reliable performance and improved customer service quality. We are driving efficiency through business process improvements as well as optimizing existing and employing new technology. Our success depends on our people and we are investing in known. We are fostering an engaged culture that empowers our employees and encourages transparency, innovation and ownership at every level. Finally, we are exercising financial discipline to enable investment in organic growth while delivering consistent value to our shareholders. These 5 pillars work together to position AmeriGas for sustainable success. Over the past several months, you've heard Bob speak about the fact that we are focused on fundamentally transforming our operations and customer experience. This starts with our customer value and retention work stream where we are working to improve satisfaction and retention by looking at who we serve and how we may better serve them. As part of these efforts, we have segmented our customer base to better understand each group's unique characteristics and needs. This allows us to tailor our service and pricing more effectively while staying true to our stand that every customer matters. As an example, after performing a customer profitability assessment, we decided to exit the wholesale business that represented roughly 11% of our total volumes, but was largely a breakeven business. This decision streamlines our system and removes operational clutter, allowing us to focus squarely on profitable volumes. Ultimately, our goal is to improve customer retention and growth while ensuring that our resources and infrastructure are deployed where they create the most value. Next is a supply and logistics work stream where our goal is to leverage our size and get the best value in our propane supply, allowing us to offer more competitive prices to our customers while ensuring reliable service. We've made great strides in this area and strengthen the team with individuals who have additional commercial expertise. We have enhanced our forecasting analytics, reassessed the number of our suppliers and strengthen our contracting process. We have optimized our supply points and storage locations. We have also improved our hedging practices to provide greater price stability for our customers. In October, we rolled out a new routing and delivery process to reduce inefficiencies and increase reliability for our customers. Our initial pilots demonstrated that we can achieve approximately 10% savings in fuel costs through this approach. By optimizing our scheduling and route planning, we will operate more efficiently and achieve a lower cost to serve our customers. Through dynamic routing, adjusting our schedule period and enhancing use of our existing technology, we have realized broader efficiency gains we intend to capture, including fuel savings. Next, we are working to improve both response quality and customer connection in our call center operations. We are in the process of reshoring our call centers to the United States. Today, we are 40% to 50% complete with that process, and we'll have a hybrid approach as winner to ensure a smooth transition. We've also invested in training and leveraging new technology, including AI to provide better service for our customers. Finally, we are simplifying our billing process to improve clarity and accuracy, which will ultimately reduce cost center volume and free our teams to handle more complex customer needs. All of these operational improvements support our return to growth by strengthening our foundation, we expect to retain existing customers. In addition, we are creating a platform to achieve continued growth through organic customer additions. This strategy is already delivering results with 17% EBIT growth this year, and more importantly, we are expecting sustained year-over-year EBIT growth in the coming years. Each improvement we make builds on the others creating a compounding effect that will drive sustainable, profitable growth. And with that, I'll hand the call over to Sean. Sean O’Brien: Thanks, Mike, and good morning. First, let me highlight our strong financial performance for the year. UGI delivered impressive results in fiscal 2025 with adjusted diluted EPS of $3.32, $0.26 higher than the prior year. This achievement was largely driven by increased contribution from the AmeriGas and midstream and marketing segments, partially offset by reduced EPS at UGI International. AmeriGas generated strong results with EPS of $0.27 due to operational momentum and income tax benefits. The segment achieved a $24 million increase in EBIT while also benefiting from the effect of the 1 Big Beautiful Bill Act, which restored interest expense deductibility. Midstream and Marketing was up $0.12, largely due to a $66 million increase in investment tax credits associated with the RNG facilities placed into service this year, which offset the impact of lower midstream margins. UGI International declined by $0.12 due to higher income tax expense and lower margin contribution from the business. Turning to the key drivers for each reportable segment. Our regulated utilities reported record EBIT of $403 million, up $3 million over the prior year, largely due to higher total margin offset by increased operating and administrative expenses as well as higher depreciation expenses. Total margin increased $39 million, reflecting the 10% increase in core market volumes stemming from the colder than prior year weather, higher gas base rates in West Virginia and continued customer growth. During the year, the utility segment added over 11,500 residential heating and commercial customers, increasing our customer base to roughly 967,000 customers in Pennsylvania, West Virginia and Maryland. Operating and administrative expenses increased $25 million, reflecting, among other things, higher personnel expenses, general insurance costs and maintenance expenses. In our Midstream & Marketing segment, EBIT was $293 million, down $20 million versus the prior year, largely due to lower margin and reduced income from equity method investments. Total margin decreased $11 million as lower margins from natural gas gathering and processing operations as well as the 2024 divestiture of our power generation asset, Hunlock Creek, were partially offset by increased margins from gas marketing activities. Turning to the global LPG businesses. UGI International reported $314 million of EBIT, $9 million below the prior year as reduced margin and lower realized gain on foreign currency exchange contracts was partially offset by lower operating and administrative expenses. LPG volumes were down 4% from the effects of continued structural conservation and the absence of certain customers who previously converted from natural gas to LPG. These declines were partially offset by the effects of colder weather and higher crop drying campaigns. The effect of this volume decline was partially offset by higher LPG unit margins and the translation effects of stronger foreign currencies, leading to a $38 million decline in total margin. Operating and administrative expenses decreased $35 million, primarily due to lower personnel-related distribution, maintenance and uncollectible account expenses as well as from the exit of the energy marketing business. These decreases were partially offset by the translation effects of the stronger foreign currency. Lastly, at AmeriGas, the business reported EBIT of $166 million, $24 million or 17% above the prior year. LPG volumes were largely consistent year-over-year as the effect of customer attrition was offset by the effect of colder than prior year weather. Total margin increased by $10 million due to higher LPG unit margins, partially offset by lower fee income and slightly lower retail volumes sold. Operating and administrative expenses decreased $9 million, reflecting, among other things, lower uncollectible account and vehicle fuel costs. In summary, fiscal 2025 was a strong year marked by solid execution across the business. We delivered a 42% total shareholder return and year-over-year growth in adjusted diluted EPS reflecting the strength of our operating strategy. Our cash generation was robust, exceeding $500 million in free cash flow, which enabled us to return approximately $320 million to shareholders through dividends while strengthening our balance sheet. We ended the year with leverage at 3.9x for UGI Corporation and 4.9x at AmeriGas, the result of disciplined debt reduction combined with improved top line performance. Additionally, we deployed approximately $900 million of capital, primarily in our natural gas business, positioning us for future earnings growth. Our performance through the year underscores the durability of our business model, and we look to build momentum in the coming year. Yesterday, we announced our fiscal 2026 guidance range for adjusted diluted EPS of $2.85 to $3.15, which assumes normal weather based on the 10-year average as well as the current tax environment. This guidance range demonstrates our continued growth trajectory with an expected 5% to 7% increase in reportable segment EBIT on a year-over-year basis. Our core business fundamentals remain strong, and we are well positioned to deliver solid operational performance. While we anticipate higher interest expense and normalization of our effective tax rate, largely due to the absence of approximately $0.40 of investment tax credits received in fiscal 2025. We expect to deliver strong top line growth, positioning the company for long-term success. Looking at each segment specifically, in our regulated utilities, higher gas base rates went into effect this month and we anticipate similar trends in customer growth as we saw in fiscal 2025. At the Midstream and Marketing segment, we expect continued earnings growth in the business, which is underpinned by margins that are highly fee-based and with limited commodity exposure. At AmeriGas, we expect to realize year-over-year growth in both retail volume and EBIT due to the operational transformation underway. Lastly, UGI International is expected to be fairly in line with the current year as strong margin management and organic growth initiatives offset the impact of continued structural conservation. Looking ahead to our fiscal 2026 to 2029 plan. We are targeting an EPS compound annual growth rate of 5% to 7%, which is supported by a robust capital investment program of $4.5 billion to $4.9 billion. These investments support strategic growth opportunities and actions to modernize our infrastructure, enhance system reliability, and position us for long-term success across our portfolio. We continue to project a rate base growth of 9% or higher, which demonstrates the significant regulated utility investments opportunities we see ahead. This strong rate base expansion will provide increasingly predictable earnings and cash flows, further strengthening our business. From a balance sheet perspective, we remain committed to maintaining financial discipline. We are targeting a leverage ratio at or below 3.75x at UGI Corporation, while our AmeriGas business will operate at or below 4.0x leverage. These targets ensure we maintain the appropriate degree of financial flexibility in order to take advantage of attractive investment opportunities. Taken together, these metrics reflect a clear path forward. One more disciplined capital deployment, operational excellence and prudent financial management are the driving force to consistently create value. We are committed to executing our strategy, and these targets represent our commitment to you, our shareholders, for sustainable long-term growth. And now I'll hand it back to Bob. Robert Flexon: Before we open the line for your questions, I want to reinforce 3 critical takeaways that demonstrate the strength of our current position and our trajectory going forward. First, this year, we delivered record adjusted diluted earnings backed by a stronger balance sheet and enhanced liquidity position. This improved earnings profile represents the fundamental strengthening of our financial foundation that positions us for sustained success. Second, the operational and financial improvements underway at AmeriGas and expanding throughout the company are showing meaningful results and will continue to drive year-over-year organic growth well into the future. Finally, our focused approach to talent management and development along with our structured framework for driving operational change is transforming our culture as to how we operate as a business. These initiatives will work together to unlock the intrinsic value within our portfolio as we strive to deliver positive energy every day. Thank you for your time with us today, and we will open the line for questions. Operator: [Operator Instructions] Our first question comes from Gabriel Moreen with Mizuho. Gabriel Moreen: Just if I could just ask may be in terms of -- if I can ask maybe on the guidance, you gave some assumptions for what you're looking for next year out of some of your segments. It seems like the utility growth is awfully transparent over the next couple of years given the rate base growth. But can you talk about what you're expecting from midstream in the LPG businesses in the 5-year plan? Should we expect continued growth out of those businesses and just your expectations there a little bit more? Robert Flexon: Sure, Gabe. So over that planning horizon, we expect to have growth in all of the business lines overall. So we'll see low double-digit growth over that planning period. So we expect to have a continued growth rate in the businesses and our earnings over that planning horizon. Sean O’Brien: A couple of things Gabe as well. When you look at EBIT, we gave the 5% to 7% EBIT growth for this year. I want to make sure people understand that guidance is not back-end loaded. We've got consistent fairly linear growth as you go from '26, '27 to '28 into '29. And as Bob said, the nat gas businesses is more of the same. We've got that kind of locked and loaded. But one of the more exciting things is we do -- we feel very confident we've got a good outlook on the LPG side as well. Specifically, AmeriGas, we're seeing some very consistent growth in that plan over the years coming from that business line as well. Gabriel Moreen: If I could maybe follow up on the natural gas side of things. Last quarter, Bob, you mentioned all the NDAs that you had signed around some of the activity happening in your backyard maybe if you can get an update on that. And then anything, I guess, data center adjacent that might be embedded within your midstream growth plan or utility growth plan over that outlook? Robert Flexon: Yes, we still continue to see a lot of activity even more so than when we last spoke about it. We've advanced some of the projects with some interested parties. We have NDA so we can't necessarily go into it. But again, the amount of NDAs that we have with counterparties is north of 50. I mean, we've got significant discussions underway and in various stages with the various counterparties. So these things take time, but we are definitely keenly focused on it and looking to be part of all the growth that we're expected to see in Pennsylvania. Gabriel Moreen: And then if I could just squeeze 1 last one in. I think there were some media reports about potentially putting your electric utility on the market. Just wondering if you could maybe comment on that and also within the role of just larger expectations around continued portfolio optimization either at utility, midstream or LPG businesses. Robert Flexon: As you know, Gabe, we take a look at our portfolio all the time. We did a lot of that this past year on the LPG side of the business to see. Where do we have particular assets or opportunities to see there's greater value in holding or divesting. We will continuously look at our portfolio for those opportunities. I won't comment directly on anything in either the LPG side or the natural gas side. But looking at portfolio optimization continues to be one of the things that we will always consider. What I think really drives the value in this company for the next several years as we have just a lot of opportunities for intrinsic value growth. That's low risk, high return things that I'd love to find and you'll hear from Mike a little bit more this morning on what we're doing at AmeriGas, but I see that across our portfolio, these opportunities to really drive our growth rates that Sean was talking about by driving intrinsic value. Operator: Our next question comes from Julien Dumoulin-Smith with Jefferies. Julien Dumoulin-Smith: Can you guys hear me okay? So maybe just a follow-up on a few of these things. First off, look, I just wanted to understand a little bit more about the AmeriGas targets here. I mean how do you think about getting to that sub 4x. And specifically, is that deleveraging? Or is that principally going to be underlying adjusted EBITDA improvement? And how do you think about the time line to get there at those sub 4x target? Robert Flexon: Well, I'll go first, and I'll let Mike chirp in. But AmeriGas has a lot of opportunities to really drive value. And we're going to grow the AmeriGas business by winning business. We're not going to go out and buy business. But a lot of the things that Mike and team are working on have just outstanding returns. And if I think things like routing and delivery, the kind of work that Mike and his team is doing there. When you look at the NPV or something like that, it goes according to my math, in triple digits. You're talking $100-plus million NPV on that type of work because we're driving efficiencies in the business and the work Mike and team are doing in these other work streams is just going to have AmeriGas growing throughout that time period. I'll let Mike maybe comment a little bit more of what's going on in AmeriGas since it's his first call since joining about a year ago when I joined and Mike and I have a history going backwards, and I knew he was the right person to drive the improvements in AmeriGas that we're seeing. Michael Sharp: Thank you, Bob. Julien, as Bob said, there's a tremendous amount of intrinsic value here at AmeriGas, right? And to unlock that value, we have the 6 PMO projects that are in progress right now at various stages from supply to around the delivery, customer value proposition, billing. So a number of initiatives, again, that we're seeing -- already seeing the results or the fruits from those projects. So really successfully executing those projects. And we have a number of other projects that we don't advertise outside the PMO, which are also creating -- will create -- creating tremendous intrinsic value. So a lot of effort around there. As Sean mentioned, we had a 70% EBIT growth last year. We foresee this year being in that ballpark, right, the same ballpark. And then going forward, there's additional value going forward. But this isn't a onetime thing. It's an ongoing thing. There's a lot of improvement at AmeriGas. I think anyone this call, it's not a secret that the last several years here at AmeriGas has been difficult but we have stabilized the business, right? So 17% growth in EBIT. Our volumes are virtually flat this year, which is the first time this has happened in 5 years. It's been a sustained decline. So we flattened volumes and then getting all these things right, as Bob says, is there's just a tremendous amount of intrinsic value growth ahead of us. Sean O’Brien: Julien, maybe to answer that last question, I'm just going to add on real quick. So this year, we went from a leverage ratio of about 6 when you look back coming into the year to 4.9, which we're incredibly proud of. That happened in 2 ways. Mike and the team grew EBIT $24 million, 17%. Obviously, that has a positive impact. And we delevered another $200 million, came into the year with about $1.9 billion of debt exited the year close to $1.7 billion. And you were asking in the future, where do we see that going? I'm pretty confident you're going to see us in '26 start to approach or even beat a 4.5 leverage rate in AmeriGas, somewhere in that range, maybe even a little lower, and that's going to come in the same way. We're continuing to delever a little bit more. And as Bob and Mike said, we're expecting low double-digit growth out of AmeriGas in '26. So more of the same and it'll be a pretty impressive day when that leverage rate is sub-4.5. Julien Dumoulin-Smith: Excellent. And then just following up a little bit on the credits and the reset here with '26 here a little bit. Can you speak a little bit more to just the consistency ex credits and just confirm effectively that going forward, you don't have any kind of onetime tax credit items that will roll off or what have you. I just want to make sure that we're abundantly transparent on the same page about this. Sean O’Brien: Yes. Yes. I think -- and I think you've got it pretty right. I mean, there's OB3. I'll start with OB3, it's the smaller of the 2. We lost interest deductibility at AmeriGas. So there was about $0.10 in the numbers this year that related to '24 and '23. So those are hits we took in 2024 and 2023, they will not be ongoing. So there's no more detriment or benefit, right? We were just recouping some hits we took on our interest deductibility. And then the other big one, and I think you picked up on it, Julien, is the ITCs. The bulk of our RNG projects went into service this year. This was all anticipated. We optimized it a little bit, but the bulk of the projects went into service. That was very large. We talked about $0.40 of positive impact. So that kind of timing is out of the forecast. We have no expectations going forward on any ITCs, although we do have -- and we've been clear, we have about $0.09 of PTCs in the ongoing forecast so much lower level. So OB3 out of the picture and then the timing of the ITC is essentially out of the picture, you're seeing a very normalized run rate as you think about '26 through '29 coming out of the company. Julien Dumoulin-Smith: Awesome. And then lastly, the shift in CapEx relative to the $200 million increase in shareholder return, is that meant to be a reduction in utility CapEx and then an increase in dividends or pivot towards midstream CapEx. I know a lot of different moving things, but just super quick, if you can. Sean O’Brien: Yes. I mean, Julien, the way I look at it, the utility CapEx, and I know you're comparing to a prior plan, I see it pretty consistent, maybe even slightly up. So we can go off-line with you. But we pulled back a little bit in '23. But when you look at '24 through '27 and including '28 and '29, we're actually growing the utility CapEx a little bit. So we feel really confident there. One thing I'll say on that is we're a few miles away from completing our cast iron program. So that's a pretty big milestone for the team. You do see a little more midstream capital coming into the equation, and I think you've picked up on our commitment to the dividend in the out years as well. So I think you've got a model pretty quickly, but pretty accurately. But we do see the utility capital at or above the levels that we would have had, I think the last time I gave guidance on that. Operator: Our next question comes from Paul Fremont with Ladenburg Thalmann. Paul Fremont: I just wanted to sort of follow up on the 45Z credits, is the first year that you're going to be collecting that in '26? Or did you collect any in '25? Robert Flexon: It will be '26 will be the first time. Paul Fremont: And then the other question I have is, were you using sort of a negative credit score to calculate the 45Z credits going forward? Robert Flexon: Yes. Not sure about that one. We'll need to get back to you on that. Operator: That concludes today's question-and-answer session. I'd like to turn the call back to Bob Flexon for closing remarks. Robert Flexon: Well, thank you for dialing in. And just to reiterate, on our year, we had a very strong fiscal year '25, adjusted EPS $3.32, record earnings for us. Really love seeing the EBIT growth of 17%. Our leverage getting back in line and, of course, the TSR to our shareholders of 42%. So a great year for us. We continue to be focused very much on our operations across the board. We've got great progress in AmeriGas leading the way on improvement. So that's going to be driving our growth in these future years. Talent management, we've got new people in the right spots and combined with the existing workforce, we've got the right people to bring this forward. So I really look forward to more discussions with you in the future. We'll see a lot of intrinsic growth, we'll be capitalizing on what's happening in Pennsylvania with the data center investments and the future looks very bright for us. So with that, thank you very much for your time, and we'll be speaking to you more in the future. Thank you. Operator: This concludes today's conference call. Thank you for participating. You may now disconnect.
Operator: Ladies and gentlemen, thank you for joining us, and welcome to the Moog Inc. Fiscal 2025 Fourth Quarter and Full Year Earnings Call. [Operator Instructions] I will now hand the conference over to Aaron Astrachan, Head of Investor Relations. Aaron, please go ahead. Aaron Astrachan: Good morning, and thank you for joining Moog's Fourth Quarter 2025 Earnings Release Conference Call. I am Aaron Astrachan, Director of Investor Relations. With me today is Pat Roche, our Chief Executive Officer; and Jennifer Walter, our Chief Financial Officer. Earlier this morning, we released our results and our supplemental slides, both of which are available on our website. Our earnings press release, our supplemental slides and remarks made during our call today contain adjusted non-GAAP results. Reconciliations for these adjusted results to GAAP results are contained within the provided materials. Lastly, our comments today may include statements related to the expected future results and other forward-looking statements, which are not guarantees. Our actual results may differ materially from those described in our forward-looking statements and are subject to a variety of risks and uncertainties that are described in our earnings press release and in our other SEC filings. Now I'm happy to turn the call over to Pat. Patrick Roche: Good morning, and welcome to our earnings call. We closed out fiscal 2025 with an exceptional fourth quarter performance. We achieved record results. This performance capped an outstanding full year in which we achieved strong growth, continued margin expansion and improved free cash flow, continuing our improvement journey launched at our 2023 Investor Day. Our fourth quarter set a new high watermark for performance. Record-breaking results included delivering over $1 billion in quarterly sales, hitting an all-time high 12-month backlog of $3 billion, thus achieving our highest quarterly adjusted operating margin and adjusted EPS and free cash flow. Our successful execution of strategy has resulted in a financially stronger business with outstanding fiscal 2025 results. Our focus on customer drove records for orders, backlog and sales, which are respectively up 36%, 20% and 7% relative to prior year. Our success at growing the business and our focus on operational execution enabled us to drive record adjusted margin and EPS whilst overcoming tariff headwinds. Finally, we improved free cash flow relative to prior year with an outstanding performance in the last 2 quarters. Our results demonstrate our dedication to driving improved operational and financial performance. Our focus is on delivering for our customers and driving ongoing continuous improvement. Our success is driven by our employees' commitment to making this both a great place to work and a strong company. And for that, I want to thank all of those dedicated staff who contributed to our performance over the last 12 months. Now let's turn attention to our end markets and the macro environment, starting with Defense. The Defense market continues to be strong. We're experiencing a secular increase in Defense spending within the U.S., NATO Nations and Indo-Pacific allies, which will continue for the foreseeable future. In addition, there is a growing sense of urgency to increase industrial capacity in these regions. We are well positioned to respond to these demands across a broad-based opportunity set with both primes and new entrants. We're winning in the U.S., we're expanding in Europe, and we're gaining a foothold in Australia. Moving to Commercial Aerospace. Our customers have strong backlogs and our intent to drive increased production rates. Boeing broke ground on a second final assembly building in Charleston, South Carolina as part of its $1 billion commitment to the 787. In addition, 737 MAX rates are set to increase. We continue to see stability and have confidence in the demand outlook. We maintain a stable production plan that supports our customers' needs. On the aftermarket side, we continue to benefit from increased airline activity and aging fleet, increased wide-body fleet utilization and our ability to maintain a strong aftermarket position. Finally, within Industrial markets, we continue to have relative stability. We see steady growth in the medical end market and outsized growth in data center cooling. This is reflected in progressive growth in our 12-month industrial backlog over the last 2 quarters. Overall, end market conditions are very favorable for our business. Now turning attention to our leadership priorities, starting with customer focus. We are incredibly pleased to have our operational performance, officially recognized by our customers. We received the Crystal Excellence Award from CAE for outstanding operational performance and deep commitment to sustainability. We also received a supplier award from Lockheed Martin for a 100% on-time delivery over the last 12 months on the PAC-3 missile program. Our focus on operational excellence ensures that we deliver for our customers and expand our business. Our strong customer value proposition was further reflected in several notable contract awards. We secured an order under the SGT Stout program for our reconfigurable integrated weapons platform. This will equip the fifth of the Army's 8 battalion and extends our production horizon through to 2027. We leveraged our established presence in Australia to win an important position on future guided multiple launch rocket system production in Australia with Lockheed Martin. This represents the first geographic expansion of our missiles business. Finally, we're making substantial progress extending our presence on collaborative combat aircraft. We provide Kratos with flight control and actuation products on the XQ-58 also known as Valkyrie, and the BQM-177, and are in continuing discussions for additional products on their future CCA platforms. This is a great illustration that we deliver fit-for-purpose solutions, not just for advanced military aircraft, but also for the emerging collaborative combat aircraft market. Finally, I saw firsthand how our operations are responding to changing customer needs. Our electric motor and pump operation in Murphy, North Carolina, is a key production site for data center cooling pumps. Our team has done a remarkable job meeting the increased volume requirements from our hyperscaler customers. We've doubled volume over the last 9 months, and I expect this pace of growth to continue in fiscal '26. Our ball and roller screw operation in Bergamo, Italy, is working with an industry disruptor to apply roller screws in a new and extremely demanding application environment. Our team has demonstrated significant agility and accelerated the pace of development, producing 8 prototypes within a year. This underpins my firm belief that we can respond to the expectations of fast-moving new entrants in any market. Now turning to our employees and communities. We're committed to the development of our people and in support of our host communities. We invested in a dedicated hands-on training center for our East Aurora campus. This unit trains machinists and assembly and test operators. It supports onboarding, upskilling and recertification of employees across our Western New York campuses. It is driving a significant improvement to quality, consistency and efficiency of skills training. Our investment was complemented by financial support from the U.S. Navy Maritime Industrial base. We collected over 43,000 pounds, which is close to 19.5 metric ton of waste with a collective effort of almost 1,000 volunteer staff across 19 sites in 15 countries during the week of action in September. This is a notable example of our staff supporting their local communities. Now shifting to financial strength. We're seeing our financial performance improved through solid growth and consistent focus on pricing and simplification. We have embedded 80/20 into approximately 80% of our businesses by revenue. Our focus is further strengthening maturity with 80/20 champions working with business leaders to solve the most relevant challenges. 80/20 insights are leading to data-driven business decisions that are improving profitability. Voice of the customer. We've prioritized key customers covering over 1/4 of our business by revenue, including hundreds of interviews. We're getting actionable insights that will support business growth. We are clear within the organization on how best to serve our most important customers. Simplification. Customer and product profitability analysis is allowing us to focus resources and reduce complexity. Segmented income statements now widely used across the organization are driving better profitability. Simplification has also been achieved through the sale of noncore businesses and product line asset disposals through focused factory approach, which aligns clearly with end market requirements and through consolidation of facilities. These are all ongoing activities within our business. Our simplification initiatives delivered similar margin benefits to that of pricing and volume growth together in the fiscal year. The solid improvement was partially eroded by margins. I look at multiyear trends helps illustrate the profound impact that simplification is having on our business. From fiscal '22 to fiscal '25, while controlling headcount increases to just 4% and reducing our factory space by 8%, we've driven a 27% increase in sales. These achievements reflect strong operational performance and increase our financial strength. Now let's reflect on the improved financial performance over that same period relative to our Investor Day goals. Sales growth was ahead of expectations at 8% CAGR, adjusted margin enhancement exclusive of tariffs averaged 110 basis points or 330 basis points cumulatively and ahead of our 100 basis point average goal. Adjusted EPS growth of 16% CAGR met our goal. Finally, while free cash flow has improved over the last couple of years to 46%, it is short of our target range. We were ambitious for our business at Investor Day in 2023, and I'm proud of the progress that we've made and -- that we've achieved over subsequent quarters and years. Now moving to FY '26. Our FY '26 guidance will further cement this solid multiyear performance improvement. Sales will be up 9% year-over-year, and adjusted operating margin, exclusive of tariffs in both years will be up 70 basis points. FY '26 adjusted EPS will be up 15% and free cash flow will strengthen to 60%. In addition to our ongoing margin enhancement actions, we've launched initiatives that specifically focus on structural change that we believe are necessary to enhance free cash flow. These initiatives will deliver impact over the next few years and make a contribution in fiscal '26. Our Commercial Aircraft business is the most significant contributor to our total trade net working capital requirements. This is because our own manufacturing and supply chain network is complex and dispersed across multiple global locations. In addition, we shielded our supply chain from variations in our customers' demand and challenging terms and conditions. We have multiple actions underway that will help address this situation. Over a few years, these actions will significantly reduce trade net working capital as a percent of sales. We're committed to execute these initiatives with the same focus that we've applied to our margin enhancement journey. I look forward to describing these initiatives over the coming quarters. And with that, let me hand over to Jennifer for a detailed breakdown on the quarter and our fiscal 2026 guidance. Jennifer Walter: Thanks, Pat. Before I get into our financial performance, I'll note an update to our previously reported results. I'll then provide a summary for FY '25, followed by a more detailed review of our fourth quarter financial performance. I'll wrap up with our initial guidance for FY '26. We're revising previously reported results to reflect the correction of an accounting error that we identified this past quarter. The error relates to the accounting for a certain group of Commercial Aircraft aftermarket contracts. We have also reflected other previously recognized immaterial out-of-period items in the correct periods. The net impact of these changes increases our net earnings per share by $0.13 in fiscal year '23, $0.05 in fiscal year '24 and $0.06 in the first 9 months of fiscal year '25. Additional detail can be found in supplemental schedules in our press release and in our upcoming 10-K filing. I'll now move to our financial results, starting with the year. Fiscal year '25 was marked with record sales, expanding operating margins and improved cash flow generation. Sales for FY '25 were $3.9 billion. This represents a 7% increase over FY '24. Our Aerospace and Defense segments drove this growth. Commercial Aircraft sales increased 15% due to strong aftermarket sales and the ramp-up on wide-body programs. Sales in Space and Defense increased 9% due to strong broad-based Defense demand. Military Aircraft sales also increased 9% as activity increased on the MV-75 and new production programs. Industrial sales decreased 4% as a result of divesting two businesses at the beginning of FY '25. Our adjusted operating margin of 13.0% increased 30 basis points over FY '24. Excluding this year's pressure from tariffs and last year's employee retention credit benefit, operating margin increased 120 basis points. Operating margins expanded in each of our segments except for Commercial Aircraft. In Industrial, our operating margin expanded 80 basis points to 13.5% as we continued our simplification initiatives. Military Aircraft operating margin increased 40 basis points to 12.3% as a result of stronger business performance and pricing. Our operating margin in Space and Defense increased 20 basis points to 13.5% due to profitable sales growth, offset by last year's employee retention credit benefit and this year's increased investments in product development, business capture and operational readiness. In Commercial Aircraft, our operating margin decreased 30 basis points to 12.4% as pressure from tariffs was partially offset by the sale of a noncore product line. Adjusted earnings per share in FY '25 were $8.69, up 11%. The increase relates to the higher level of sales and to some extent, the increase in operating margin. For the year, we generated free cash flow near the high end of the range that we shared a quarter ago. We invested in our business in FY '25 to support our strong growth both through capital expenditures and within working capital. Let's shift over to our fourth quarter results. We had a great quarter. Sales were over $1 billion for the first time. Adjusted operating margin was above plan, and adjusted earnings per share significantly exceeded the high end of our guidance range. In addition, we generated about $200 million of free cash flow, which is around 2.5x the level of our adjusted net earnings. We took $18 million of charges in the fourth quarter that we've adjusted out of the operating profit numbers we'll describe. Charges included $10 million associated with the settlement of a legal dispute, $5 million associated with simplification efforts and $3 million associated with acquisition fees. In addition, we took a $4 million tax charge associated with simplifying our legal entity structure. I'll now talk through our fourth quarter results, excluding these charges. Sales in the fourth quarter of $1 billion were 14% higher than last year's fourth quarter. Commercial Aircraft, Space and Defense and Military Aircraft were each up double-digit percentages and Industrial was also up nicely. The largest increase in segment sales was in Commercial Aircraft. Commercial Aircraft sales of $252 million increased 27% over the same quarter a year ago. The increase was driven by volume on major production programs as well as aftermarket associated with strong fleet utilization on the 787 and A350 programs. Space and Defense sales were $307 million, up 17% over the fourth quarter last year. Our sales this quarter were at a record level, reflecting broad-based Defense demand. We're seeing demand particularly strong from missile control and satellite components. In Military Aircraft, sales of $236 million were up 10% over the fourth quarter of last year. Activity on the MV-75 program continued to increase. We also benefited from new pricing primarily within aftermarket. Industrial sales were $253 million in the quarter, up 5% over the same quarter a year ago, or 7% when adjusting for divestitures we completed at the beginning of FY '25 and foreign currency effects. We had higher sales for IV pumps and administration sets as we fulfill backlog that's built up from previous part shortages. Sales of enteral feeding administration sets were also strong, reflecting current demand. Sales also grew within the expanding data center cooling market. We'll now shift to operating margins. Adjusted operating margin in the fourth quarter was 13.7%, up 20 basis points from the fourth quarter a year ago, reflecting operating strength offset by tariff pressures. Our Defense businesses are up significantly, while Industrial is up nicely and Commercial Aircraft is down considerably. Military Aircraft operating margin of 14.1% in the fourth quarter, up 210 basis points from the fourth quarter last year. We benefited from pricing activities, both for the OE and aftermarket as well as a favorable mix. Space and Defense operating margin was 15.1% in the fourth quarter, up 190 basis points. The increase was driven by profitable sales growth offset partially by increased business capture, product development and operational readiness investment. Industrial operating margin was 13.9%, 70 basis points above that of the same period a year ago. We benefited from a favorable sales mix and simplification initiatives, including divestitures. These benefits were partially offset by the impact of tariffs. Commercial Aircraft operating margin was 11.4%, down 440 basis points from the fourth quarter last year. The decrease was driven by tariff pressure and to a lesser extent, an unfavorable sales mix. Our adjusted effective tax rate in the fourth quarter was 24.1%, up from 19.0% in the fourth quarter last year. In last year's fourth quarter, we benefited from an incentive associated with capital investment in one of our U.K. sites. Putting it all together, adjusted earnings per share came in at $2.56, up 19% compared to last year's fourth quarter. The increase reflects the higher sales level. Let's shift over to cash flow, which was at a record level this quarter. In the fourth quarter, we generated about $200 million of free cash flow. This represents free cash flow conversion at around 2.5x the level of adjusted net earnings. The key driver to the strong cash generation this quarter was working capital, in particular, customer advances. Capital expenditures were relatively high compared with spend levels in recent quarters. This past quarter was elevated as certain Commercial Aircraft production was moved into one of our focused factories to optimize our manufacturing space. Our leverage ratio was 2.0x as of the end of the fourth quarter, putting us at the low end of our target leverage of 2 to 3x. Our capital deployment priorities center around organic growth, and we'll pursue strategic acquisitions that will fit in nicely within our business. We strive to have a balanced capital deployment strategy over the long term. Now let's shift over to our initial guidance for the year. Fiscal year '26 will be another great year in which we continue to build our financial strength. We'll achieve a record level of sales, further expand our operating margin and make meaningful progress towards generating strong free cash flow. We're projecting sales of $4.2 billion in FY '26, a 9% increase compared to FY '25. We're projecting the largest sales growth in our Aerospace and Defense segment with a modest increase in Industrial. The largest increase in sales will be in Commercial Aircraft. Sales are projected to grow 15% to $1.0 billion, driven by increased production rates for narrow-body and wide-body programs. Sales will also increase from pricing initiatives, both for the OE and in the aftermarket. Space and Defense sales are projected to increase 11% to $1.2 billion. We're seeing strong Defense demand across our entire book of business, in particular, for controls for missiles and in the European ground vehicles market. In addition, the acquisition of COTSWORKS is contributing 3 percentage points to our sales growth. Military Aircraft sales are projected to increase 7% to $1.0 billion. The increase will be driven by pricing changes that have already been secured and to a lesser extent, growth in new production aircraft. These increases will be offset somewhat by declines in certain legacy programs that are nearing end of life production. Industrial sales are projected to increase 3% to $1.0 billion, driven by increased demand for data center cooling pumps. Let's shift over to adjusted operating margin. We're projecting our operating margin in FY '26 to be 13.4%, a 40 basis point increase over FY '25. Excluding the impact of tariff pressure in FY '26, our operating margin would be 14.2%, in line with the long-term target we shared in our 2023 Investor Day presentation. Military Aircraft operating margin will increase 200 basis points to 14.3%, driven by increased pricing in both OE and in the aftermarket. Industrial's operating margin is also projected to be 14.3%, 80 basis points over FY '25. The increase reflects the benefits of further portfolio-shaping activities. Our operating margin at Space and Defense will remain flat at 13.5%. We'll continue to benefit from profitable sales growth. Net benefit will be offset by continued investments in product development. In Commercial Aircraft, our operating margin will decrease 90 basis points to 11.5%. Tariffs are pressuring this business. Excluding the incremental impact of tariffs, operating margin in FY '26 would expand 60 basis points over FY '25 as the benefit associated with secured price increases will more than offset an unfavorable sales mix. Our effective tax rate will increase to 25.0% in FY '26. Recently enacted legislation helps us from a cash flow perspective through accelerated deductions that causes us to lose some of the related permanent benefits that affect our tax rate. For FY '26, earnings per share are projected to be $10 plus or minus $0.20. That's up 15% over FY '25 adjusted earnings per share. The increase reflects a higher sales level and to a lesser extent, a higher operating margin. For the first quarter, we're forecasting earnings per share to be $2.20, plus or minus $0.10. Finally, turning to cash. We're projecting free cash flow conversion to be about 60%, an improvement over FY '25. Our strong sales growth requires increased working capital, so we're mitigating that through various initiatives. Within Commercial Aircraft, we've already had success in pushing out material receipts, and we will also be destocking later in the year. We anticipate a use of cash in the first quarter to be in excess of $100 million, reflecting normal timing of compensation payments and the timing of incoming receipts and customer advances. Overall, FY '25 was a year marked by record sales and strong operational performance, and we're looking forward to another great year in FY '26. And now I'll turn it back to Pat. Patrick Roche: Now before I move on to closing out, let me just correctly state the impact of simplification from earlier. Simplification initiatives delivered similar margin benefits to pricing and volume growth together in fiscal '25. This solid improvement was partially eroded by tariffs. Now with that, I think we've completed a fourth quarter with exceptional financial results, an outstanding full year, and we're guiding that the business will continue to perform well based on our view of the markets and our success in driving business improvement. And with that, let me open the floor up for questions. Operator: [Operator Instructions] Your first question comes from the line of Jon Tanwanteng with CJS. Jonathan Tanwanteng: Really nice quarter and outlook there. I was wondering if you could focus a little bit more on the cash flow, if possible. Just how do you expect that to phase through the following 3 quarters after Q1? And then maybe talk about some of the underlying items that you addressed in your prepared remarks. You talked about factor improvement, supply chain improvements as well as the terms from your customers. Maybe talk about how those layer in over the next 1 or 2 years and when you expect to hit the target range of 75% to 100% conversion? Jennifer Walter: Sure. I'll start with our forecast for the year. So again, it's at 60% free cash flow conversion. As we've got a nicely growing business, you can see all the organic growth that we've had this past year, we're continuing to see even accelerated growth into next year, that requires working capital. It also requires capital expenditures. We've been investing and we continue to invest in our facilities, and that uses some cash. We are having some initiatives that are mitigating the impact, particularly in Commercial Aircraft. And Commercial Aircraft is growing, and that does have the longest cash conversion cycle within our business. . One of the things that we're doing, and we're already seeing results just a few weeks into the beginning of our year is on material receipts. We are pushing out some of the material receipts that were scheduled to come into the year such that they will be pushed outside of fiscal year '26. So we have a plan for the year, and we've already made nice progress in our FY '26 goal with activity that we've had already. Later in the year, we're going to work on some destocking by bringing in less than we're shipping. We're obviously making sure that we're shipping according to what we need to do for our customers' requirements, but trying to make sure that we can bring in only what's needed, balancing what's already on hand so that we can bring our physical inventory balance down. So those are some of the activities that we've got going on in FY '26. We also have stronger sales or stronger earnings. So that's contributing to some of the growth that we're seeing in fiscal year '26. One area -- other area of pressure that we're seeing is in our receivables, and that's just the timing of when we're going to have our earnings, our sales and then the ultimate collection of it. So in a growing business, where we've got more sales and earnings towards the back end of the year, which is what we're projecting. We're going to have the higher receivables there, and so that will pressure us for the full year. So when we look out beyond fiscal year '26, so we like that we're seeing an improvement from what we had in fiscal year '25. Our target still remains long term for the 75% to 100% free cash flow conversion level. And as Pat mentioned in his prepared remarks, there's a number of activities that we've got going on. I shared a couple of the ones that are going to impact us from fiscal year '26. But there's other things that are already underway that are going to help us in the future so that we can get into that range. Patrick Roche: Yes. So thanks, Jennifer. So I think Jennifer covered some of the here and now things we're doing with material receipts on the cash flow side. But if I look at the structure of that business, we receive supply variations or demand variations coming in from our customers, and we're not in a great position at the moment to reflect those through to our suppliers. We have too many of the suppliers on fixed POs, which means they have certain delivery dates defined up to 1 year or 1.5 years in advance, and we need to change the structure of that over the coming couple of years. We're making good progress towards that end, but we'll report more on that in future quarters. So that's a sort of a structural change, which helps us deal with demand variation on the customer side. I think on the term side that I mentioned, that's -- we have pretty long payment terms with our customers. We need to consider how we're dealing with our supply side in that whole conversation about POs, flexibility, working to forecast rather than working to fixed orders. That's part of the change that's going on there. Jonathan Tanwanteng: Great. And second, if you could, just on the negative, I guess, incremental margin Commercial Aircraft for '26, I know you mentioned that it was mostly a tariff impact on pricing, but I was wondering if there's any mix in there as well. I know you had a very strong aftermarket year this year and production from -- on the [ OE ] side is supposed to ramp up pretty strongly. Is that a component there? Or is there anything else going on just on the margin for Commercial in '26? Jennifer Walter: Yes, there is some negative mix. We have our commercial aftermarket, which is more profitable than our OE portion of the business, becoming a smaller percentage of the entire segment sales. So there is a negative mix impact there. I would say the tariffs is a very significant impact on this business, though. Patrick Roche: Jon, the last thing I was going to add in, when we transitioned back to that subsequent question was to do with our own configuration of manufacturing plants and the movement of product between them. So every transition from one plant to another adds time to the overall cash conversion cycle that Jennifer was talking about, but it also adds buffer stocks and other increases in work in progress. And so we're trying to work that down as well. And so line-replaceable unit by line-replaceable unit, we're working to consolidate the manufacturing footprint and the supplier footprint such that overall conversion time from starting a product production through to delivery to the customer, that overall lead time through the entire network is reduced. That's what takes time to do with projects underway at the moment that are actually working that, and that's what I hope to give updates on in future quarters. Operator: Your next question comes from the line of Mike Ciarmoli with Truist. Michael Ciarmoli: Maybe Jennifer, just to stay on the -- and Pat as well to stay on the cash flow, you mentioned trying to make some of these structural changes. And Jennifer, you called out working capital, and I think you called it out specifically in that Commercial Aircraft. Can you give us a sense of where you're trying to get that working capital as a percent of revenue to where it is now? And then even just more on maybe some of the bridging items to cash next year. I'm assuming CapEx stays elevated at that 4% to 5%. You did get, I guess, a good tailwind on customer advances this quarter, maybe $74 million or so. But how does that look in '26 on the advanced side? Jennifer Walter: Sure. Let me start off with our working capital targets. Right now, we're just putting something out for '26. But based on the comments that you heard Pat describe longer term, we're certainly wanting to make a much more meaningful impact beyond '26 in that. We're not ready to share that yet at this point, but we'll continue to give updates as we move further. But I would reiterate that we still believe that our business when we get through these initiatives, we'll be in the 75% to 100% free cash flow conversion rate. When I look at some of the individual pieces for fiscal year '26, we're anticipating, obviously, we've got a higher level of earnings and then I'll start with some of our working capital items. We'll probably use a little more working capital than we did this year. I would note that physical inventories will plan on keeping around the same level of growth in physical inventories that we had this year. So with the growing business, we certainly need more, but we're able to even a growing business, keep it to the same level of growth that we have this year. We will see some pressure from billed receivables and advances. Our advances were very strong. And I called it out in their fourth quarter comments because it was even -- we expected fourth quarter to be strong. It was well stronger than what we had projected. And so that actually pulled a little bit in from '26 into '25 for us. But when we look at customer advances, it's still going to be positive for next year, just not as strong as it was in fiscal year '25. So those are some of the things that we've got. I would say, capital expenditures are going to stay around the same level as a percentage of sales that we had this year. Again, we are investing in our business for that long-term growth that we've got. This year, we ended at around $145 million. We're projecting to go to $160 million, it's around the same percentage of sales that we have though before. So those are some of the bigger pieces within our cash flow as we're looking out for next year. Michael Ciarmoli: Got it. Got it. And then specifically on the CapEx, I mean we've certainly seen and heard about a number of the projects you're doing. But how are you guys thinking about the return profile on some of those projects and when we should really start to see the benefits and maybe even see some of that CapEx start to trend lower as you complete some of these projects? Jennifer Walter: I would say there's different nature of different projects. So some of the projects are things that we get benefit as we get captured in rates as we do project production over the next couple of 2, 3 years type of thing. So we see the benefit or the recovery really in the next couple of years from that standpoint. Some of it is for anticipated growth and it's the growth that we are seeing. Another aspect of some of the things that we're doing, especially in the automation space, is actually being able to take on these contracts. Otherwise, we would not have had the space, the efficiency and the throughput to get through the increasing volumes that we've had. So it's already -- so those are already improving for our -- coming through from our sales and efficiencies. Operator: [Operator Instructions] Your next question comes from the line of Tony Bancroft with GAMCO Investors, Inc. George Bancroft: Yes. Congratulations, Patrick and Jennifer. Very well done. Just on your growth sort of growth platforms, the MV-75, CCA, F-47, maybe potentially F/A-XX in the space satellites and missiles. Can you just sort of talk about what's in that space where possibly you could do? Is there any M&A in that space that you could do or sort of maybe some more color on what that looks like, where you could maybe grow that? Patrick Roche: Yes. Thanks, Tony, for the question. Thanks for the compliment as well. We are active and have continued to be active in maintaining a funnel of potential acquisition targets. We are interested in growing the business and the Defense side is where we're getting great returns. So it is an attractive area. We have to see what comes up. We're interested in building out the business both here and overseas. I mean, I called out an example where organically, we're using our footprint in Australia to build out our missiles business. We're looking at opportunities to do that in Europe as well. And so if there's acquisitions that fit that agenda, we're interested. Operator: [Operator Instructions] We have a follow-up question from Mike Ciarmoli of Truist. Michael Ciarmoli: Pat, you guys seem to be getting hit a little bit harder on tariffs, maybe in Aerospace. I mean I would have thought you would have seen it a little bit more in Industrial. Is it really just a function of the contracting environment that you can pass these tariffs through? Or there certain materials that you're having to procure? Or what's kind of behind the pressures more concentrated in aircraft? Patrick Roche: So first point is that it's a highly global manufacturing and supply chain structure around that Commercial Aircraft business, unlike the Military Aircraft business, which is mostly U.S.-based or North American-based at least. So that's one difference between them structurally. The Section 232 tariffs, which impact steel and aluminum, obviously, have an impact on materials moving in and out as part of that business. And then as you know, we have a major manufacturing location in Baguio in the Philippines. Now fortunately, many of our customer contracts are ex-factory, ex-works, in nature. So in some of those cases, we're shielded from the impact of the tariff ourselves, but the combination of all of those tariffs that I mentioned and some customer contracts that aren't set up that way means that it does have an impact most heavily felt in commercial relative to other segments. Does that help? Michael Ciarmoli: Okay. Okay. Yes, that's helpful. And then just Commercial Aircraft, you're guiding for 15% growth. It sounded like you're going to be dealing with a little bit of destocking. I'm assuming that's on the 87 and the A350, but you're still getting pretty good growth. Can you maybe parse out, I mean, between aftermarket and OE growth next year in aircraft? Jennifer Walter: Yes. I'll start with the general comment as we -- and then we'll do the aftermarket part of it. Yes, the destocking. So of course, we're going to meet our customers' requirements and what they're doing from that side of it. So it's really us managing it on the supply chain side of things when we're talking about the destocking. We'll continue to ship as we have already previously continued to, but we have some opportunities in the supply chain to delay such that it doesn't impact what we're getting out the door. So that's really helpful. Patrick Roche: I think if I look into '26, a lot of the growth is coming on the OE side. Some of that also is narrow-body actually, and we don't talk about that a lot in the calls because of the lower content value on the narrow-body aircraft, but the volumes there are beginning to pick up as well, and that seems to be coming through. Michael Ciarmoli: Okay. Got it. And then maybe just a final one on cash, Pat and Jennifer. I mean the 60% conversion. Last year proved to be a bit of a challenge with a couple of downward revisions. I mean, as you guys contemplated and set the 60% conversion, I mean the confidence level, I think I previously asked for some of those bridging items. But I guess just the line of sight and confidence to that 60% right now? Jennifer Walter: Yes, we're confident in our projection that we've got out for this year. We've got the increase in our earnings, and it's being driven by our sales growth. The sales growth is strong. You heard Pat talk about the backlog. So that's certainly contributing to it as well. We do have customer advances in line in sight. Not to the extent that we had last year, but we have those in sight, so we can do that. And then I mentioned a couple of the areas where we have -- especially on pushing out some of the material receipts. We've already achieved that. We've actually pushed some of those out already. So we're seeing that -- we know that, that progress is going to come through for us. So we are confident in our projection for next year. Operator: There are no further questions at this time. I will now turn the call back to Pat Roche for closing remarks. Patrick Roche: So that concludes our earnings call. I appreciate you taking the time to listen to our update on the business, and I look forward to updating you again on our next quarterly call. Thank you. Operator: This concludes today's call. Thank you for attending. You may now disconnect.
Masahiro Hamada: I am Hamada, Group CFO of Sompo Holdings. Thank you for joining our earnings call despite your busy schedule. I will go through the first half results and the full year earnings forecast for FY '25 as well as the shareholder return, all of which we disclosed today. Please turn to Page 3 of the presentation. This is the executive summary. First, the overview of the FY '25 first half results. Driven primarily by a decrease in nat cat in Japan and globally, profitability improvement in domestic P&C business and strong net investment income overseas, adjusted consolidated profit increased by JPY 78.1 billion year-on-year to JPY 247.4 billion. Next, the full year FY '25 earnings forecast. Based on the first half results, adjusted consolidated profit for the full year is revised up by JPY 77 billion from the initial forecast to JPY 440 billion. Although direct comparisons are not possible due to our transition to IFRS accounting this fiscal year, we expect to significantly surpass our previous record high profit. Last but not least, shareholder returns. The total shareholder return for the first half of FY '25 is JPY 145.5 billion, including JPY 77 billion of share buybacks. For the full year, in addition to the upward revision of adjusted consolidated profit, the plan for the sale of strategic shareholdings has also been revised up from JPY 200 billion to JPY 250 billion. Therefore, the total shareholder return comprised of the basic return and gains on strategic share divestitures is expected to be approximately JPY 250 billion, JPY 26 billion higher compared to the initial forecast. I will elaborate on these 3 key points on the following pages. Please turn to Page 4. The JPY 78.1 billion year-on-year profit growth was driven by profit increase of JPY 54.7 billion in the domestic P&C business. Compared to last fiscal year with significant hail damage, we had fewer major nat cat in the first half of this year. Improvement in the base profitability of fire insurance, thanks to the rate revision implemented in October 2024 as well as strengthened underwriting also contributed to the profit growth. The profit also grew for the overseas business by JPY 20.7 billion. Similar to the domestic environment, fewer natural disasters and increased investment income driven by growth in assets under management contributed to this profit growth. On Page 5, let me explain the upward revision of FY '25 full year forecast. Full year adjusted consolidated profit for FY '25 has been revised up by JPY 77 billion to JPY 440 billion from the initial forecast. On a year-on-year basis, it is to be a significant profit increase by JPY 116.3 billion, renewing record high both on a consolidated basis and for all business segments. Based on first half results, second half forecast has been revisited with a certain level of conservatism. On Page 6, I'll explain shareholders' return. As to interim shareholder return for FY '25, dividend per share is JPY 75 as initially forecasted, totaling JPY 68.5 billion. Share buyback with basic return and sales gains on strategically held shares combined amounts to JPY 77 billion. Full year shareholder return forecast for FY '25 is expected to be JPY 250 billion, up JPY 26 billion against the initial forecast, driven by increase in adjusted profit and increased reduction of strategic shareholdings. Lastly, some supplementary explanation on domestic P&C and overseas insurance. Please look at Page 7. First, let me explain domestic fire insurance. Fire insurance, even without favorable nat cat experience, it's showing strong improvement driven by rate increases and enhanced underwriting. Loss ratio of fire insurance for FY '25 full year without nat cat impact is expected to improve to 32% by 4.3 points year-on-year and by 2.4 points against initial forecast. Impact from last year's rate revision and underwriting enhancement is expected to continue and the positive profit is becoming well established. Meanwhile, motor insurance excluding nat cat impact remains in a different situation. Given the first half results, the assumption for the second half had been revisited and reflected in forecast. As traffic volume increased, rate of accident frequency in the first half FY '25 was up 0.6% year-on-year against the initial forecast of down 1%. Accordingly, full year forecast has been revised up to the level of the first half results. Unit repair cost in first half FY '25 was up 7% year-on-year, mainly driven by price hike of auto and its parts due to higher performance as well as inflation. Accordingly, full year forecast has been revised up to the level of first results. In January, auto insurance rates will be revised up by 7.5% on average. This revision has factored in higher-than-expected rate of accident frequency and unit cost, meaning midterm, our outlook for profitability improvement remains intact. Lastly, supplementary comment on overseas business. Currently, rate environment is becoming softer, but insurance revenue increased in all segments, namely commercial reinsurance and consumer, driven by geographic expansion and other growth strategies. Combined ratio is expected to be on a favorable level with certain level of prudence included. With that, I end my presentation. Long-term management strategies, including progress on MTMP will be explained at the IR meeting scheduled on November 25. Thank you for listening. Operator: So the first question is from Mr. Muraki of SMBC Nikko. Masao Muraki: This is Muraki from SMBC Nikko. My first question is on Page 5. So you show the breakdown of the upward revision that you made. And on the right-hand side, you see the factors. Of these, what are not one-off? And what will still prevail as you plan for next fiscal year? Unknown Executive: Thank you for the question, Mr. Muraki. So regarding your question around the factors driving the upward revision for this fiscal year, which will remain for next fiscal year? So first, with the domestic P&C business, compared to the initial plan, the upward revision was JPY 59 billion. As you can see on Page 5, lower natural catastrophe and larger loss experiences are going to be absent next fiscal year. So it will be adjusted to the normal year level. And for the higher investment gains at the outset of the year, we normally make conservative projections for the net investment income. So in that sense, most of this factor would also be taken out for next fiscal year. On the other hand, for the improved profitability for fire and casualty lines, as Mr. Hamada explained earlier, the improvement was driven by rate revisions and also stronger underwriting capabilities. So these positive factors would remain next fiscal year. And also, it is not indicated on the slide, but for the auto loss ratio, recently, it has been deteriorating. And compared to the initial plan, we expect the downward pressure to be JPY 3 billion on an after-tax basis. But as Mr. Hamada explained earlier, in January of 2026, we plan to execute rate revisions. And also with the following rate revisions, we aim to offset this negative impact. So the deteriorating loss on the auto policies will be absent next fiscal year. And moving on to the overseas insurance business. This fiscal year, we revised up the forecast by JPY 20 billion from the initial plan due to multiple factors. But most of this will not be remaining for next fiscal year. Specifically, this fiscal year, we are also benefiting from lower natural catastrophe overseas, and this will normalize for next fiscal year in our projection. On the other hand, the upside on the net investment income is stemming from the growth of the asset under management. So the positive impact on the investment side will remain. And for the insurance business, other than the nat cat risk, the change in the portfolio mix is impacting the profitability. And assuming that this portfolio mix will be similar to that of this year, this impact would also remain. So as a result, for the overseas business, the upside for this fiscal year will mostly be absent, and we expect to see growth without the one-off upside we saw this year. Masao Muraki: My second question is in a follow-up to my first one. So regarding achieving the ROE target for next fiscal year, can you update me on the necessity of adjusting the capital? Looking at Page 16, you have 10 points impact by the sales of the stocks sold by Sompo Holdings. And I assume that you have sold a lot of the Palantir shares. ESR is going up, but the base profitability is improving, and you would also get profit contribution from Aspen. So should you be able to still achieve that 13% ROE target without the capital adjustment? Or do you need to make that adjustment? Masahiro Hamada: Yes. Thank you for the question. So this is Hamada, and I will be responding to that question. On Page 19, we show the full year ROE target for FY '25, which is a first line on the table. Initially, we were expecting 10% ROE for the end of this fiscal year, but it has been revised up to 11.5%. But as we explained, there are many one-offs, primarily the nat cat impact. So when normalizing this, this 11.5% will be pushed down by a little over 1 percentage point. Also on a normalized level, the ROE for this fiscal year will be a little over 10%. And then we will have the Aspen impact and also improvement of the profitability. And with that, we can expect the ROE to be boosted by roughly 2%, but we will still be short of the 13% target. So beyond what I have explained, we are still considering this. So these are not fixed. But we have a few options. We can keep the current 13% target. And if it seems not doable, we may decide to adjust the denominator. Or as you said, this year, we have been actively selling our Palantir shares. And this is because the Palantir market cap increased significantly. And by selling our ownership, we saw some inflation of the denominator, which we were not expecting at the beginning of the year. So that has a negative impact of 1% on the ROE. So we can set the target for ROE, excluding this factor. So that will be a feasible option to consider. So leading up to the end of the fiscal year, we will discuss this matter in the management meeting. But having said all that, we cannot say that we do not need capital adjustment. We may need that or we may not need it. We cannot be too optimistic about the outlook. So we will continue to strive to build up both the denominator and the numerator. Operator: Next question is from Tsujino-san of Bank of America Securities. Natsumu Tsujino: So this time, you have revised the domestic business. As to fire insurance, profitability has been improved, while auto insurance is worsening. But fire has been performing well. So as Page 7 shows, well, this is the comparison with the previous year. On a full year basis, I don't expect that the comparison between first half basis, any case, the fire is getting better, auto is worsening. So I think that the similar trend that might be in the first half as well. My question is, to what extent auto has been worsened, maybe JPY 3.5 billion, as you mentioned earlier, and the improved profitability of fire insurance, that would have some impact in the next fiscal year. And in addition, auto insurance is going to be better -- should be better next year. Could you please give some color on that? Unknown Executive: Tsujino-san, thank you for the questions. First, about auto insurance, as you have pointed out correctly, increases in unit repair cost or in rate of accident frequency, some elements are behind the initial forecast. For the first half of the year compared to the previous year actuals, auto insurance losses have been aggravated by about JPY 2 billion after-tax basis. Given such situation on a full year basis, the worsening of about JPY 3 billion against initial forecast is expected. Meanwhile, as to auto insurance, in January next year, we are going to revise the rates and the rate increases will have full year impact for FY 2026. So while factoring in the shortfall against the initial forecast, we would like to make good catch-up so that we are going to achieve the earnings level expected for auto insurance in FY '26. With respect to fire insurance, its base profitability has been improving at every maturity. As a result of rate increases and other underwriting enhancement measures, we have been accumulating those efforts, and we are seeing good results this year. As you know, fire policy periods range from 1 year to 5 years. At every maturity, we will continue to improve our profitability. And we would like to make it sure that we are going to see good impact next year and beyond. Natsumu Tsujino: So my next question is, you have revised down the large losses. But without it, to what extent the business -- fire business has been improved. Large losses this time for this fiscal year, on a pretax basis, we assumed JPY 30 billion at the beginning of the year. Given the results of the first half, we changed it to JPY 26 billion. So after-tax basis, it's about JPY 3 billion add-on on the results. But as to this add-on, for example, as Page 5 shows, it will be included in the very first one, nat cat and large losses experience. And other than that, we have other elements such as the fire insurance, casualty, improved profitability and that impact will be felt next fiscal year. Operator: So next is Mr. Watanabe from Daiwa Securities. Kazuki Watanabe: Yes. This is Watanabe from Daiwa Securities. I have 2 questions. My first question is your thoughts about the sales of the Palantir stocks. Hamada-san, you have always said that you would like to use the proceeds of the Palantir share sales for M&A. So have you sold the Palantir shares this time to fund for the Aspen M&A? Or is it because the share price has gone up and the risk has also gone up? So that's why you decided to sell your stake in Palantir? Masahiro Hamada: Yes. Thank you for that question. My answer will be both. The share price has been rising significantly. And we are managing the exposure by setting an upper limit vis-a-vis our net asset value, and we have the opportunity. So we thought this was a golden opportunity. And we sold roughly 50% of what we owned. Kazuki Watanabe: I see. My second question is regarding dividend policy. In the Aspen M&A conference, you mentioned that the level of DPS may go up. But this time, you have not changed the dividend outlook. So if we were to raise the DPS, is it going to be happening from next fiscal year? Masahiro Hamada: Yes, like you said, we have not yet closed the Aspen deal, and we don't know the timing for that exactly. And we expect the profit contribution to be happening mainly from FY '26. So that's when we would like to raise the EPS. But other than that, we did revise up our outlook. So we discussed about the dividend. And basically, as we have been explaining, we basically do not want to lower the dividend and would like to raise it, reflecting our fundamental earnings capability. But this time, the upside mainly came from more moderate nat cat. So we decided not to change the dividend, and we would like to consider hiking the dividend next fiscal year. Operator: Next question is from Sato-san of JPMorgan Securities. Kazuki Watanabe: My first question is about Palantir and its size. So according to earnings report and looking at consolidated statement of changes in equity, I understand that you have transferred JPY 250 billion from investment in equity instruments to retained earnings. And you have about after-tax sales gains of JPY 90 billion from the selling of strategically held shares. That means about JPY 150 billion, the post-tax capital gains by selling Palantir shares. And earlier, you talked about the possibility of reusing those gains for Aspen. And as you explained at the time of the Aspen acquisition, there was some -- the investment profit loss in the funding, and you assumed about JPY 15 billion. Is there any expectation that this -- the loss can be alleviated or be less? Unknown Executive: Thank you for the question. And I cannot talk about details about any individual shares, but it seems that you have read correctly. And you're right about the first -- second half of your comments. When we were considering to acquire Aspen, of course, we did not think about how much we should use the capital gains from Palantir shares for the acquisition and so on. So we just set the rough percentage of the acquisition amount. And so based on that, I would say that the investment profit loss actually will be less than expected. Kazuki Watanabe: My second question is about domestic fire insurance and its improved profitability, especially when you look at expense ratio, in your plan, you originally assumed about 30% for fire insurance, if I remember correctly. But now I think it has been reduced, looking at Page 28. So original 30% expense ratio is now at 28.3%. And on an absolute amount basis, it has come down to some extent. So what kind of initiatives are involved there? Unknown Executive: Sato-san, thank you for the question. The expense ratio of fire insurance, well, initially, at the beginning of the year, we assumed about agent commission, and we were rather on the conservative side in assuming the commission level. But given the actuals, given the current status, what things are in a very favorable status and we have made revision. Kazuki Watanabe: I think it was part of your strategy to revisit the relationship with your agents. It's not that it is behind this revision. It's not emerging yet in this fiscal year. Am I right? Well, in that sense, I would say that the agent commission included, we are now working on the overall relationship with agents. And part of it is included in here as well. Operator: Next, Mr. Takemura from Morgan Stanley MUFG. Atsuro Takemura: Yes. This is Takemura from Morgan Stanley MUFG. I have one question, which is about how you think about ESR. So I am looking at Page 16 on the presentation. And you have indicated the impact of the Aspen deal, which is pushing down the ESR by roughly 30 percentage points, and you stand at 250.6%. So without the Aspen deal, it would have stood at 280% approximately. And moving on to the next slide on Page 17, you show that you have JPY 5 trillion of adjusted capital and risk amount of JPY 1.7 trillion. So the simple math keeps me 294%. And there's a difference of roughly 14 percentage points. So other than the Aspen deal, are there any factors that will be impacting the ESR? Unknown Executive: Yes. Thank you, Mr. Takemura. So regarding how we think about ESR, as we indicate on Page 17, and as you pointed out, we showed the adjusted capital and the risk amount. But this is a rough calculation, and we round down the numbers. So there is some gap between the simple calculation and the actual ESR, and that is the primary reason for that deviation. Atsuro Takemura: Also, you have sold some of the shares in Palantir. And even with that, the ESR will be in excess of 250%. In managing ESR, I'm sure that you are looking inorganic opportunities, including the one for the domestic well-being business. So a certain level of excess over 250% is going to be something that you will tolerate. So should we expect the ESR to be in excess of 250% to a certain extent? Masahiro Hamada: Yes, this is Hamada speaking. As we set the upper limit, we recognize that our ESR is in excess of that upper limit. And the reason we set the upper limit is because we want to achieve and manage the ROE. So we look at how is the ROE level and also how we strike balance between investment and shareholder return. So with that in mind, we deal with the capital that is in excess of the upper limit. Operator: Next question is from Sakamaki-san of Mizuho Securities. Naruhiko Sakamaki: Here is Sakamaki, Mizuho Securities. I have 2 questions, one for domestic business, another for overseas business. Starting with domestic business. I'd like to ask about combined ratio of auto insurance. Like fire insurance, expenses are lower than your initial forecast. Initially, you also assumed increase in systems investment expenses. So rate revision, agent commission and systems investment, all included. Could you please talk about profitability of auto insurance business? And if there's any time lag of booking for systems investment, could you please talk about that, too? That's my first question. Unknown Executive: Sakamaki-san, thank you for the question. As to expense ratio of auto insurance, here, the factors involved are more or less the same as factors for fire, namely the agent commission ratio, the contribution is significant there. And as to systems investment and other nonpersonnel costs and any potential time lag, well, things are moving on in line with the plan and the size or the amount involved remains unchanged from the initial forecast. Naruhiko Sakamaki: My second question is about overseas business. I would like to know more about the actual real performance. As to combined ratio assumption without discount, initially, it stood at 95%. It is now 94.9%. So the difference is only 0.1%. But the nat cat, the impact was revised down by $200 million. So maybe there are other factors which were actually worse than initial factors? Unknown Executive: So combined ratio without the discount, as we touched upon earlier, this fiscal year, the rate level and the contract terms, we are looking at those elements, and we are making a shift in our portfolio mix to casualty line. As to casualty line, for example, compared to property line, volatility is very low, while the expected loss ratio is a bit high. As a result, when combined ratio without the discount impact is in line with the initial forecast. The major reason there is the changes in the portfolio mix. So going forward, base loss ratio might go up, but the volatility will be less going forward. So compared to initial forecast, more changes in the portfolio mix. Operator: Sakamaki. So next, Mr. Sasaki from Nomura Securities. Futoshi Sasaki: Yes. This is Sasaki from Nomura Securities. I would like to ask 2 questions. First, on the improvement of the profitability for the domestic fire business. Is the magnitude of the profitability improvement going to get larger next year? My second question is regarding Page 56 of the presentation deck. You mentioned that for the overseas insurance business, the combined ratio compared to what you presented from the FY '24 results, the combined ratio projection seems to have been raised. Is it because the business is deteriorating from the original plan? Or is it because of the change of the portfolio mix that you explained earlier? Or is it both? And also, generally speaking, listening to the global insurance companies, they talk about the impact of the softening market. So looking at the Q3 and beyond and also for next fiscal year, what is your outlook for the overseas underwriting profit? Unknown Executive: Yes. Mr. Sasaki, thank you for those questions. First, regarding the improvement on the profitability of the domestic fire business, and is it going to be sustainable? As we explained earlier, as the policies are rolled over, we will see improvement in the profitability. So basically, this benefit will continue to be observed next fiscal year. But of course, the policies needing such improvement within our total portfolio will get smaller in terms of the proportion. So in that sense, if we look at the improvement year-over-year, the magnitude would be more moderate. And regarding your second question on the overseas combined ratio, like you mentioned, this is mainly because of -- due to the change in the portfolio mix and the impact is bigger than initially expected. Futoshi Sasaki: I have a follow-up question. So now looking at the same risk base or risk amount, do you see any lines of business where you see a big downward pressure on the rate? Or do you not have much visibility? Unknown Executive: Your question is around the overseas premium rate. Is that correct? Futoshi Sasaki: Yes, that is correct. Unknown Executive: Yes, I will take that question. It varies quite significantly depending on the line of businesses. As you know, for the property policies, we see softening of the market. On the other hand, for the casualty products, especially for the excess layer products, we continue to see relatively high rate. Also, we still see some hardening of the market. Also, we will underwrite in a selective manner to build a profitable portfolio. So that is what we have been explaining as a change in the product mix. Operator: Next question is from Majima-san, Tokai Tokyo Intelligence Lab. Tatsuo Majima: I also want to ask about fire insurance. So-called 2025 problem has arrived. It used to be like 30-year maturity, now more and more policies renew every 10 years or so. So from September '25 through September '26, during that 1 year, I think there will be more renewals than normal level. But that impact has not been factored in yet? That's my first question. The second question is about fire insurance premium. It seems that the premium is increasing faster from the first quarter to the second quarter this year. Is it because of some large policies? Or is it the phenomenon observed every year from first quarter to second quarter pace up in increase in premium? Unknown Executive: Majima-san, thank you for the question. As to your first question, fire insurance loss ratio and the impact of massive renewals coming up, if it is factored in or not. As to fire insurance loss ratio, as you know, denominator is insurance revenue or earned premium. And so -- as to massive renewals, basically, on a written basis, the renewals are expected to increase during this 1 year that you mentioned, but it would not give big impact on base loss ratio. As to your second question, fire insurance and its premium, you said that maybe there's some acceleration of the pace in the second quarter. Well, that is actually a phenomenon, which is unique for IFRS. In the first quarter, the insurance, the revenue was booked on the smaller side than the larger side. And in July to September period, usually partly because of nat cat, the fire insurance losses tend to be larger. So in the second quarter at IFRS because of this seasonality, insurance revenue tends to be booked larger. So it's not that there's some special factor or some unexpected against the plan happened. [Statements in English on this transcript were spoken by an interpreter present on the live call.]
David Lockwood: So good morning, everyone, and welcome to the half year results for the period to 30th September 2025. My name is David Lockwood, CEO of Babcock. We've got a very exciting 29.5 minutes coming and then a super exciting minute after that because apparently, there is a fire alarm test, which may or may not be canceled because we -- obviously, health and safety comes first in our company. And if it does happen, it will go on for a minute. So you need to pay attention for 29.5 minutes, and then you can do your e-mails for a minute, okay? And if you're online and the fire alarm test happens, I hope they're going to mute it for you, but if they don't, I'm sorry. So what to say about this half? It's been a really good half. It's been a good half to be part of actually because all of the groundwork we've put in place over the last few years, we're really seeing come to bear. So good momentum across all of the business in the defense area, driving some really strong financial results with year-on-year increases across all of our metrics that David has decided he wants to explain to you, but they are really good. Constantly delivering to customers. When I come back up, I think it's this -- we always said that the market was there for us. What we needed to do was deliver well. That would expand margin. That would then expand the market and that would drive growth. And I've got a couple of examples later. But we're seeing that happen across the business. We have some very interesting market dynamics, commitments to budget growth, but also fiscal pressures sort of counteracting that and seeing interesting behaviors in governments, but net positive in all of our markets actually. And that's left us with a confident outlook for '26 and also an ability to recommit to our medium-term guidance. So before I come back into all of that color, David will put that into a financial context. David Mellors: Thank you very much. Good morning, everyone. Okay. My main 3 messages for today are: this is a really good set of interim results on all financial measures, number one; number two, the margin improvement of 7.9% is encouraging and gives us confidence in the 8% full year target; and number three, with a good level of full year revenue under contract at H1, we're confident in the full year expectations. Summary numbers first and there are some pretty positive numbers on this summary slide, and I'll move through them fairly quickly before we come back to detail. So organic revenue growth was 7%. Operating profit margin increased 90 basis points, to 7.9%. These first 2 delivered an underlying operating profit up 19%, to GBP 201 million. All the above led to earnings per share up 21%, enabling a 25% increase in the dividend. Cash conversion was 83%, delivering free cash flow of GBP 141 million, and we've executed GBP 49 million of the share buyback in H1, and we'll complete the rest over the course of H2. So let's break down the organic revenue growth first. This summarizes the 7% organic growth by sector. Three of the four sectors grew in the period, led by Nuclear, as you can see, but with good performances in Marine and Aviation. The Land sector revenues were lower in the period as a result of the nondefense businesses, and I'll come back to the sector detail in a moment. Next, the summary of profit. In absolute terms, Marine, Nuclear and Aviation drove the profit improvement, resulting in the group delivering GBP 201 million for the half, a 19% improvement on H1 last year, as I mentioned. The other bit of good news on here is that all four sectors contributed to margin progression in the period, helping the group to 7.9%. And whilst we're on margin, we set ourselves a target of 8% for this year, as you know, and 9% plus for the medium term. And hopefully, this slide will give you some confidence that we're on track. As you can see from the line graph on the left-hand side, we make progress every period, and we'll continue to do this. On the right-hand side are the activities that deliver the margin across the group. You've seen these before. There's nothing new here. They're all still relevant, and there's plenty more to do in these areas across the group. So that gives us confidence in the 8% for this year and the 9% plus in the medium term. And one other thing that we noticed when we put this slide together is that we delivered in absolute terms in H1, the same amount of profit that we did in full year '21. And I know full year '21 was a low base for all sorts of reasons, but we have had a few issues to deal with along the way. So doubling in those 5 years wasn't bad at all. So that's the summary. On to the sectors. These are the usual busy sector slides with lots of content for reference. So I'll just pick out the key points. It was a good performance in Marine, with revenue growing 6% organically, profit up 38% and margins moving upwards by 160 basis points. Compared to last year, the performance improvement was largely driven by the LGE business and by the Skynet contract. On LGE, you remember last year that it booked a record order intake of over GBP 400 million, and we knew that was a surge following the sort of new ship-build market dynamics, and we're delivering that over this period and the start of next. And also the Skynet contract, which successfully mobilized last year. In the period, we had additional services contracted and that also helped drive revenue and profit growth for Marine. And just for reference, the Type 31 revenues that go through here, we did about GBP 100 million in the first half, which is flat on the same period last year. And you know we booked the revenues at 0% margin on Type 31. So on Nuclear. Nuclear had another strong period with both Cavendish and submarine support activity growing very well and more than offsetting the expected reduction in infrastructure revenues. So I'll just expand on those a little. So Cavendish grew 25%, largely in clean energy with more work at Hinkley Point. The submarine support work grew 31%, with activity increases both at Clyde and Devonport, benefiting from some of the infrastructure upgrades at Devonport as well as productivity improvements at both locations. Infrastructure or MIP revenues reduced as expected following the opening of 9 dock last year and 15 dock nearing completion. And all of the above enabled the profit increase of 18% and the margins to reach 9.1%, so the first sector in the group to hit the 9% mark. Moving to Land. Revenue decreased 11% organically in the half. Defense revenues in the U.K. were largely flat due in part to the mobilization period of the DSG reframe contract, and we're expecting this to start to grow in the second half. The nondefense revenues that weighed on the sector were the rail business and the South African vehicle business, and we have a cautious view of the rail business revenue, in particular, in the second half. But pleasingly, despite the top line, margins still managed to progress 20 basis points, with the overall sector now at 7.9%. On to Aviation. We've been waiting for Aviation to take a step forward for some time. And for me, the winning of Mentor 2 in France at the end of last year was the start. So the 26% organic growth was due to 3 main factors: firstly, the mobilization of Mentor 2 as well as increasing aircraft support contracts in France as the defense business takes root; secondly, scope growth and additional services in the U.K. defense contracts; and third, the mobilization of the new Canadian BC HEMS contract. Moving to profit. Achieving some sort of scale on the top line has allowed profits and margins to approach a sensible level. This was assisted by some renegotiation of old contracts in the period, allowing margins to rise to 7.2%. Moving to the cash flow. Again, this is another detailed slide because you need the detail for reference, but I'll just pick out the key numbers. The most important is the free cash flow number at the bottom, GBP 141 million. This is substantially better than we've ever done in H1 before. This is, of course, partly due to the growth in the profit, but it's also due to the reduction in pension deficit payments following the long-term deals we did last year. Only 3 years ago, the pension cash outflow was GBP 90 million in the half. And now as you can see, it's GBP 7 million. So much more of the cash that we earn in the operations is now available for the group to invest. Moving back up to the middle of the table, we have operating cash flow of GBP 166 million with a conversion of 83%. Within that, we managed to keep working capital pretty flat. So there was an outflow of GBP 32 million. There's a little bit of inventory increase in there and then the usual pattern of payments, VAT and annual licenses and what have you. So basically, the rest of working capital was largely flat, which is good. CapEx was GBP 46 million for the half, very similar to the first half of last year. And again, CapEx will be H2 weighted. And lastly, I've put some full year guidance on the slide here. As usual, pensions, interest and tax are H2 weighted. I'll come on to capital allocation in a moment, but you know one of our top priorities is a strong balance sheet, and that's important for customers and other stakeholders given the critical things we do. Getting from a weak balance sheet to a strong one was always essential, but getting there by now was even more critical because all of our debt and bank facilities fall due over the next 18 to 24 months. So to get ahead of this, we've already gone out and refinanced the revolver in the last couple of months. We now have a new GBP 600 million 5-year facility with extension options, and we expect to refinance the first of the bonds in Q4. So on to capital allocation. This is the same capital allocation policy we've been -- published a few years ago, and we keep repeating. The priority order hasn't changed, but I'll just pick out a few status updates. Priority #1, organic investment. We're working on a number of relatively significant investment opportunities to enhance growth, so-called strategic growth CapEx. The kind of things that we're looking at are facility expansion and build and operate models to enable new work or greater capacity. An example of this would be in Rosyth, where we're looking at a new build hall and also to upgrade the missile tube facility to allow greater production. The status of priority 2 and 3, the balance sheet, the dividend, we've already mentioned. Then on the 3 capital allocation options on the bottom. On the left, we have a pipeline of potential bolt-on acquisitions that we're tracking, and we are working on a couple, and we'll keep you posted as they progress. Moving to the middle box, pensions, there's no news. That's tracking really well. So all going okay. And on the right-hand side, shareholder returns, you know we're executing the GBP 200 million share buyback. And the buyback also serves as an investment return floor for other options to beat before they get considered. So before I hand back to David, I'll just go back to the summary again. So point one, really strong half on every measure. Two, margin progression, very encouraging, and the 8% margin for the year is in sight. And three, given the revenue cover at the half, we're confident in the full year. And with that, I'll now hand back to David. David Lockwood: I'm not doing my e-mails. It's just checking for the alarm. Right. Actually, before I go to my slides, when David was going through that, it occurred to me I haven't got a Type 31 slide, which kind of shows that it's become business as usual. But I just thought because we're bound to get questions, I'd try and not get questions by talking about it quickly here. So I see the next 12 months for Type 31 is important, but then every 12 months is important. And the way we see Type 31 is in 2 chunks. So chunk 1 is ship 1. We need to finish ship 1, which is always going to be the prototype because it's first of class, first of yard. We all knew that. We also knew that a lot of the build was done during lockdown, and we talked before about how we had to adjust our processes. So that's a project. I don't think -- that's a project, to finish ship 1. And it's really important that gets done in the next 12 months because that's the flagship for all the export orders and the growth. Ships 2 to 5 are all about production, production norms and so on. And if we look at ship 3 because that's the one that's right down the production curve, that's the one that becomes the reference, and that's going really well. So there's 2 distinct things: driving a production facility; building a pipeline of ships and finishing the prototype. Those 2 things we'll report on the full year. They're both where we want them to be at the moment, but there's a lot to do on both of those. So that's kind of how we see it. And that's why there's sort of nothing to talk about. So I haven't got a slide because the project on finishing 1 is the project and then the production build is the production build. So no questions on Type 31, please. The over -- so David did a couple of history charts. We said 5 years ago, 2 things: one is that this is a people business; and secondly, that our growth and our margin expansion is delivered by those people working in the best possible way to improve our delivery to customers. There was no lack of sort of -- no lack of market. We just had to perform. And our performance, as you have seen, has improved and improved. And I've just got a couple of examples of how that's worked. So 5 years ago, the DSG contract was in a lot of trouble. We had external reports and Boatman and all this stuff. The first thing we did was fix the delivery. That led to growth through the order we booked for the 5-year extension, which is quite a different contract in terms of mindset from the original contract in that it's all about driving output, and it's more customer focused. That's gone really well. That improved performance means we've won the contracts for frontline support in places like Ukraine, where we have people deployed, but also that confidence people have in us as an engineering company. In the Land domain, means we've delivered the Jackal program. And what all of that has meant is we are now Toyota's sole partner in Europe, for taking the Land Cruiser into a military variant. We call it the GLV, the General Logistics Vehicle. The big program in the U.K. is the Land Rover replacement, but there are multiple programs outside the U.K. as well. Toyota are one of the world's great engineering companies. There would -- there is no way they would have agreed to work with us without us solving our engineering pedigree by fixing the past. The same is true with the Common Armoured Vehicle program in Europe led by Patria, the 6x6 variant, which the U.K. has just joined -- DSEI joined the program, the technical program, which is a step towards buying the vehicle, where we are the U.K. build partner and engineering partner. Again, couldn't have happened with our performance of 5 years ago. Now we're the natural choice. And then finally, for the 120-millimeter mortar program, that's Singapore Technologies, Singaporean engineering, world renowned. They don't work with companies that aren't -- don't match their engineering standards. So we've gone from fixing a legacy U.K. program which the outside world thought was a disaster case through to 3 really, really major companies, Patria, Toyota and Singapore Technologies deciding we are the exclusive partner for the European market because our engineering meets their standards. And that's how delivery doesn't just drive margin and growth in what you do, but it changes your reputation. And the same is true. David talked about expanding missile tubes. Missile tubes, we have 80% of the joint Columbia Dreadnought program. So this is a key component of -- in fact, it's central to -- literally central, it goes right in the middle of the submarine. It's central to the next-generation deterrent submarine for the U.K. and the U.S., and we have 80% of the delivery when the program is dominated by Columbia. Obviously, they buy a lot more Columbia's than the U.K. buy Dreadnought because our engineering is the best in the world at doing these things. And that's been -- that growth gets driven by our investment in automation, all the things David talked about. But those techniques are the ones that are driving the improvements in Type 31 so that ship 3 is this real high-value, low-cost production build ship, and you can take production norms across because you know you can do complex things well. But also because it's nuclear, it gets us into a whole pile of nuclear build opportunities for radioactive handling because people know we can do -- we can build nuclear stuff. And then if you look into the opportunities, Rosyth is probably the most capable facility in the U.K. for building -- supporting the build of AMRs and SMRs, obviously, Rosyth build reactors, but everything that goes around it, which is very significant, it's the most obvious place to build it. And because of our pedigree and because of the lack of build capacity in the world, moving into broader submarine build. So going from an okay high-integrity engineering program to being a recognized world-class high-integrity engineering facility in 5 years is quite a thing and drives a whole host of opportunities. And there are multiple other areas in the business where we could make the same track through. But it starts with, there is no lack of demand as the next few slides will show, the question is, have you got the pedigree to own that demand? So what is the demand? It's driven, as we said at the full year, by global insecurity and threats, and share prices move around, but is there a peace in Ukraine, isn't there a peace? Europe will continue to want to strengthen its defenses. It may be a few basis points up or down on the high-level statement, but the world is materially less secure now than it was 5 years ago. And for all the reasons I've just outlined in 2 areas, but we could go across a whole range of things. Babcock is, I think, as well-positioned as anyone and better positioned than most to take advantage of that because we're now combining -- as those who came to DSEI, we're now combining some innovative digital. And in fact, we launched our first AI product at DSEI. We're combining the ability to get the best out of legacy while delivering new at the same time. And I think that's a unique combination. And across into civil and -- civil nuclear, we are the U.K.'s only significant nationally owned nuclear business at a time when sovereignty and security and energy is at the forefront. So whether it's AMRs, SMRs, building out large reactors, as David said, clean energy has driven huge growth this half and will continue to drive it. In my mind, the civil nuclear business is -- we're only just beginning to tap the opportunities. So I think all of that is really good. And if you look at us in U.K. Defense, having a resilient industrial base is really important. That is physical -- that is facilities, it's the equipment and infrastructure we have on those facilities and it's people. We are a people-based business. So David said there's some strategic investment necessary to drive this growth, and it's true. But there's also our commitment to people and investing in skills. So a couple of things, which as -- I said to the press this morning I get quite frustrated about because I think this is one of our biggest achievements, people. And I think the people pipeline will drive our high-quality growth. So just a couple of facts. So we were Company of the Year for the Association of Black and Minority Ethnic Engineers. Is that a big thing or not? Well, it wasn't Google. It wasn't Oracle. It wasn't people -- it wasn't people with big bases here. It was an engineering company working in defense and nuclear that does some quite heavy stuff, that operates in some quite difficult to get to facilities, Plymouth is not the easiest place to go. It's not the M4 corridor. It's not that. And we won, okay? I think that's pretty cool from where we came from. We've got a 35% increase in minority representation in our early careers. I think that's pretty cool. And this year, we had our highest intake over early careers. That's apprentices and grads to you and me, highest intake. And we also had the highest subscription. So not only did we take more, but we have more candidates for every post than ever before. And for the first year ever, our intake was 50-50 gender balanced. So from where we were 5 years ago as an employer, we are in just an utterly different place. And that pipeline of people is necessary to drive the pipeline of growth. So I think that's really cool. And then you can see all the other things that, that leads to. We spend GBP 550 million with small and medium enterprises. So we drive the economy in the regions we work in. As I've just said in the growth thing, we partner with a whole bunch of really high-quality engineering companies who see us as the best of breed in the U.K. We contribute GBP 4.3 billion to the U.K. economy, which is pretty important in the current climate. And you can read the whole slide at your leisure. And we are working with the government. I spend a lot of time with the government, and I'm a core member of the Defense Industrial Joint Council, there are some permanent and rotating members, driving how the U.K. Defense does its business differently. So we are right across U.K. Defense, from the people, the supply chain and into the government. And then Nuclear, it's great that Nuclear is in our core. I think civil nuclear, there's the big stuff, Hinkley and Sizewell C. There's SMRs, MEH is mechanical, electrical, handling, which is, if you like, the mechanical and electrical plumbing of a major nuclear power station, which is quite a complex thing. So we are the lead in the alliance. That's growing dramatically. And we have seen actually real progress more than I would have guessed 6 months ago. So we know where the first 3 SMRs are going to go. We did funded work for Centrica and X-energy, X-energy is U.K. partner, for AMRs in Hartlepool, which is a massive rollout. So real momentum -- more momentum, I would say, in civil nuclear than I was expecting in the last 6 months. I think that's really positive. And then we all know about defense nuclear. David has touched on the numbers. I will talk about the FMSP follow-on. So FMSP is Future Maritime Support Program. That's how we support the nuclear fleet. There's some surface ship stuff in there, but it's basically the submarine fleet. That contract comes to an end at the 31st of March next year. So we've been busy with funded work to work with the customer on the successor program. If you look at -- so 5 years ago, when we were doing the work, 2020-ish, just as I was coming in, that was pre forceful invasion, pre the current Chinese activity. It was -- FMSP is very much a cost-driven program. The metrics are very cost driven. The successor is going to be very output driven because 5 years later, what we really need is submarine availability, not cost out. And that's just the changing environment. And so it's not surprising that we and the government are taking a lot of time to make sure that, that program is going to work for us and for them to drive a new set of outcomes. So you should not, in any way -- in fact, I had a call with the government yesterday on this, and we are completely aligned that the job is to get the right contract for both of us and that -- the fact it might take us right -- we might end up using every minute through to midnight on the 31st of March when I should be relaxed and David probably having kittens. You shouldn't worry about that. It's because we are trying to -- this is genuine transformation. And then AUKUS, H&B Defense, our joint venture with HII has finally got its first orders. There's a lot of activity now in Australia. I think the Trump -- President Trump review definitely shone a light on some of the areas where we were moving forward, but not fast enough as the 3 nations. So I think we'll see a lot more progress on infrastructure, training and support in the next 12 to 18 months. So all together, Nuclear looking really positive. And where does that lead us then? For those of you who came to the Rosyth Capital Markets Day teach-in, whatever we call it, you will have seen the scale of our capability, but also the scale of opportunities in Denmark, Sweden, Indonesia, and New Zealand. And there's a lot to be decided in the next 12 to 18 months. I think since we stood up at the full year, all of them have progressed positively from our point of view. Nothing is done until it's done, and these are big governmental decisions. So you've got to win the officials over, and then you've got to win the political debate. So it's not done until it's done, but they're all pointing in the right direction, I think. Advanced manufacturing, you've seen the journey we've been on. We have a range of really significant opportunities there. AUKUS, I've just touched on. FMSP, I've just touched on. And the land vehicles, we went through as an example. So if you just look across that without even thinking about the fact we've won our first defense order in South Africa on submarines or -- yes, we've won all the stuff that -- the churning of the engine that generates smaller orders, which is still going really well. I think the growth opportunities are really significant. And the fact that we are now in discussions with Korean companies to do the kind of things we've done with Singaporean and European companies and Japanese companies, it just shows that we are now firmly established on the international stage as one of the credible partners. So summary. I'll summarize, David's summary. By the way, it's 9:32, so no alarm, that was cool, and that shows our influence. Strong financial results. Metrics, great. I hope you've got a flavor of how delivery is driving this business forward, not just 6 months to 6 months, but establishing multiyear relationships with governments and industrial partners that will underpin sustained consistent growth. And that helps us get the best out of the market dynamic, but also going back to that kind of fiscal versus defense pressures helps us manage those, which is why we kind of feel confident about this year and beyond. So with that, we'll go to the appendix. No, we won't. There should have been a question slide. We'll have questions instead of going to the appendix. If it's Type 31, I probably will get upset. I'm just warning you, I'm just putting it out there. Sash Tusa: Sash Tusa from Agency Partners. It's a Marine question, but not a Type 31 question. You specifically referenced this big slug of liquid gas equipment orders that you won last year and are now delivering out. Should we see that as being a bubble? Or is that now the ongoing run rate of the business? Are you replenishing those orders at broadly that rate so that you can keep up this sort of level of revenues? That's my first question. David Mellors: So it's definitely a record order intake. If you remember, for 2 or 3 years, we were waiting for them to come, and then it all came in a period. So the next 12 months, 18 months or so will be the delivery of those. We are obviously winning new orders, but not at that rate, and we never expected to because it matches the ship-build market. Sash Tusa: Okay. And then Aviation question. BA, Boeing, Saab announced teaming to offer T-7 for the U.K. How does that affect your involvement with MFTS? Because they are pitching this as a very, very broad military pilot training contract rather than just supply of aircraft. Where does the replacement of the Hawks fit in with MFTS? David Lockwood: So as you know, the Hawk is outside the scope of MFTS anyway. So we go up to the Textron -- we go up to the Textron and then we do some -- we do the maintenance of the legacy Hawk fleet, but BAE Systems supply it. So it's not a particularly big thing. And there's still a debate about how government will procure the next jet trainer. Sash Tusa: But there's always overlap, or rather there's a wavy line in terms of the capabilities of different aircraft types and therefore, how much of the syllabus you can do? So clearly want to grab more of the syllabus. David Lockwood: So that's true. If you look at most -- so the Germans are now coming out, for example, if you look at most pilot training, the cost per hour in the lead-in jet is multiple times the cost per hour in the turbo -- turboprop. So I would say, on a cost and actually also for those governments who report emissions, from a cost and emissions point of view, you want to maximize simulator, then you want to maximize turboprop, and you want to minimize jet for both cost and emissions. At the front, on your right. James Beard: It's James Beard from Deutsche Bank. Two questions, please. Can you talk through the building blocks from a margin perspective in H2? Obviously, you've done a 90 basis point margin uplift in H1, which given that you've retained your 8% margin guidance for the full year implies relatively modest or circa 10 basis point margin uplift in the second half. And then second question, you gave some interesting color around the people agenda during the presentation. Can you talk about the other side of the funnel in terms of churn rates? And I guess, in particular, in the U.K. Nuclear business, one would guess that demand for labor significantly outstrips supply at the moment and what you're doing. What initiatives you're taking to sort of combat any unwanted attrition in that side of the business? David Lockwood: I'll do the people one and David can do the number one. So you're right. So our churn rates are significantly down. It is a bit regional. So it's not so much the business is in. It's the business location. So if you're in civil nuclear in Warrington, we're probably the highest paying employer. My Warrington colleagues may not agree with that, but we probably are. In Bristol, it's quite different because there's a lot of high-paying jobs in the Bristol. So it's more a regional issue than an activity issue. But we've done a bunch of things from -- you will remember from the full year, we've had our first ever all employee free share scheme, to start anchoring people in. We've historically had very low take-up on a lot of the benefit schemes we've had. And so we've got a Babcock bus actually, the blue double-decker bus that is going around all our sites, doing open sessions. We've got 10,000, I think, more inquiries in the U.K. onto that -- onto all our employee platforms now as a result of that compared with a year ago. So we're taking all of those. And I could go on and on and on. There's a whole bunch of things we're doing to make people realize the full benefit of being part of Babcock. And if I look at our global people survey, which we do every year, which finished a couple of -- finished a month ago, a lot of those measures, which are kind of indicators of attrition, would I recommend the company as a place to work? Am I going to -- do I think I'm going to be here in 5? All of those continue in a positive direction. And interestingly, when we did the Board presentation 2 days ago, there were a number of those metrics were against the benchmark. So our partner who does all the independent survey, they give you these benchmarks. In the U.K., a number of these engagement scores are going backwards over the last 3 or 4 years. Ours are going forward. So we're kind of bucking the trend on engagement. So lots of stuff actually. David Mellors: And on the margins, so lots still to do. Obviously, very encouraging in the first half. The building blocks are largely the same, actually. If you look back, maybe just comparing against first half of last year isn't that helpful. If you look back, the margins really sort of inflected about a year ago. So if you look at second half of last year, first half of this year, you'll see a trajectory that 20, 30 basis points for the second half maybe -- it would be achievable in some of the sectors. There's no particular building block in the second half that wasn't there in the first. It's the same dynamics. LGE and Skynet and Marine, the businesses going forward in Nuclear, infrastructure coming off a bit, rail in Land, and everything going well in Aviation. So we're very confident in the 8%, but I think just comparing against the first half of last year misses the shape of the curve, if you see what I mean. David Richard Farrell: David Farrell from Jefferies. I think I've got 3 questions. Firstly, in the release, you talked about GBP 300 million tender related to the SMRs for owner engineering services. Could you explain a little bit more what that entails and then the potential for that to grow into other areas? David Lockwood: Yes. So that's the customer side work basically to support the delivery of the SMR program. One of the things you may have seen in Great British Nuclear's announcement is, the kind of conflict of interest, the thing that they're managing. So you can't sit both sides of the equation. You can't set the question and answer it. So I think that's just for the current rollout. So there's -- the opportunity is, if you look at the expectation of SMR volumes, you can kind of multiply that by the volume. So it's quite significant. David Richard Farrell: Okay. Some of your peers have obviously suffered in the wake of the SDR and the release of contracts from the U.K. MOD. Just wondering to what degree you've seen kind of any impact there, acknowledging you have slightly different kind of characteristics in your order book? David Lockwood: Yes. Well, I think you've answered the question almost. We have a very different characteristics. So like some others, we have a framework and then call off. But for us, the framework is the dominant bit, and the call-off is kind of the icing. Whereas in some other contracts, the framework is a smaller partner, for the call-off, is more important. So I think it's just the structure of the contracts really. We have more resilient contract structures. David Richard Farrell: Okay. And then probably for the other, David, a question around the bond refinancing. David Lockwood: No, I'd like to answer that -- I wouldn't. David Richard Farrell: It's quite simple. David Mellors: You're saying he can't do simple, is what you're saying. David Lockwood: He's saying you can't do simple. David Mellors: Probably right. David Richard Farrell: Do you need to refinance both of them at the same size? David Mellors: No. So I think size and duration are things that we will work on over the next few months. George Mcwhirter: George Mcwhirter from Berenberg. You mentioned about some bolt-on M&A that you have been looking at. Can you just go into a bit more detail about that, please? Firstly, that's the first question. David Lockwood: So sort of, but we can't -- obviously, any specifics, as David said, there are a couple in process. They're covered by NDAs and confidentialities. We can't be specific, except to say when we did the Capital Markets Day 18 months ago, we talked about areas that we wanted to move into. So we've already done -- we talked about the need to become more digital. We've talked about the need to have greater access to autonomy and so on. So you could imagine that anything we're looking at is consistent with the strategy we laid out 18 months ago. George Mcwhirter: The second one is on FMSP successor. In terms of the length of the contract and size and the contracting terms that you're looking at, can you just go into a bit of detail about that, please? David Lockwood: So what can I say that I haven't already said? So the terms will be, as I've said, output not -- will be more heavily weighted towards output rather than cost. Obviously, cost really matters. Government wants to do a lot with its money, wants to do it efficiently. So I'm not saying cost doesn't matter, but it will be weighted more heavily towards output. I think duration is still unclear about what is optimal. And it kind of depends who does what on investment profile and some of the things that David talked about what -- and there could also be scenarios where you would have things outside -- a bit like MIP is outside FMSP, and yet it exists, as David described, to drive it. There's kind of what's inside and outside the envelope. So that's all the stuff we want to get right so that we don't create -- we create a framework that can deal with anything that might happen in the period the contract covers and not suddenly wonder who does what on something. Christopher Bamberry: Chris Bamberry. Three questions, if I may. First, in terms of the pipeline, what are the major decisions you're expecting over the next 12 months? David Lockwood: So we said at the Marine Capital Markets Day that if a number of customers want to hit their in-service dates, they have to make their decisions in the next 12 to 18 months, and that was 3 months ago. We had that -- so that's probably still about true. So it's now 9 to 15 months. It is a fact of working with all governments that they like to hold the end date, but take longer than they thought to make the decision. So we're encouraging all of those decisions to get made early. And I think because of the situation in the world, whether you're in the South China Sea or whether you're in Europe, there are external pressures encouraging decision-making. So I'm optimistic those decisions will get made in that period and hopefully towards the front end of that period. Christopher Bamberry: Second, you won your first defense contract in South Africa. I was wondering if you could give us a bit more color on that market and the potential there. David Lockwood: Yes. So I mean, I think almost since the Rainbow Nation started, South Africa hasn't really had an identified need for a defense force. So it's kind of gone backwards for a period. And now whether it's pirates moving further and further down the Western Coast of Africa, whether it's incursions into their territorial waters by other people, there is a bigger and bigger need. So I think, actually, for different reasons from some other markets, there's now a recognition that they need to reactivate. So if we execute this program well, I'm very optimistic that it's kind of a good market for us because it's big enough to be meaningful, but it's not big enough to interest a Lockheed Martin or someone like that. So it's an ideal sort of market for us. Christopher Bamberry: And final question. Could you give us perhaps a bit more color on how DSG has performed under the new contract? David Lockwood: Yes. So far, so good, really. Nothing else to say. It's going well. I can't think of... David Mellors: It is going -- well, we're not going to give all the internal KPIs. But yes, mobilization is good. Christopher Bamberry: Hitting all the KPIs, et cetera? David Mellors: Sorry? Christopher Bamberry: Hitting all the KPIs, et cetera? David Lockwood: No one hits all the KPIs. Christopher Bamberry: A reasonable number? David Lockwood: Yes. If we hit all the KPIs, they would argue they set the wrong KPIs. So you can't hit all the KPIs, but hitting the volume, we'd expect to. Behind you. Benjamin Pfannes-Varrow: Ben Varrow from RBC. First one, just on -- you've made a point about the CapEx projects here. Can you shed any more light on those at this point? David Lockwood: And they're not all in the U.K. So if you take Mentor 2, for example, we buy the platforms and then there's a progressive sort of handover. So that's a good example. If you look at modernization in New Zealand, there's a big debate about who funds what. They probably can't fund everything. If you look at infrastructure for AUKUS in Australia, who funds what. So there's just a lot of -- and it's similar in the U.K., but there's a kind of the whole build -- I don't think anyone wants to do a PFI, which is kind of a build and forget, which is just kind of an off-balance sheet financing thing where the financing is more important than the thing. But I think what people are looking at now is a kind of build and operate so that you have operate skin in the game for doing the build properly. So that's the sort of direction of travel. Benjamin Pfannes-Varrow: Okay. And also with regard to your sort of 2 specific ones, obviously, with Rosyth. David Lockwood: David mentioned those, so you better talk about the Rosyth's expansions. David Mellors: Sorry, what was the question? Benjamin Pfannes-Varrow: So the actual -- the CapEx projects that you mentioned for Rosyth. Can you give any more sense? David Mellors: Yes. So obviously, we've got a pipeline of ship-build activities that we talked about in the Capital Markets Day. We'll need extra capacity. So we're looking at a new build hall for that. We want to ramp up the missile production volume. David Lockwood: Missile tubes. David Mellors: Sorry. David Lockwood: Not missiles. David Mellors: Missiles. That's what we want to ramp up. So we'll be looking to invest in that as well. So this is all stuff to enable greater scale, growth and productivity. Benjamin Pfannes-Varrow: I assume you can't say anything on sort of decision points or when you pull the trigger on missile tubes? David Mellors: Well, I mean, it's -- those two. Well, the first one is our decision, and we've got to make that decision based on what we see in the pipeline and how close it is and how certain we are. So we'll just have to keep you posted on that. The missile tubes, obviously, we will do in tandem with the customer. So -- but again, we'll talk in the next few months, certainly within the next 12. David Lockwood: Because we built the last build hall so recently, we have -- what can cause delay in a build hall? Things like the condition of the ground. You got to put foundations in, and you have to make them stronger because the ground is -- but because it will be right next to the existing one, we know everything about that. We know how we build it. We would use the same contractors. So it's a -- although it will be a big thing, it's relatively quick. So we can align it quite closely to the order intake maturing. Benjamin Pfannes-Varrow: And last one, just a bit on visibility. Obviously, in the first half, you've had Nuclear, I guess, in particular, come in a bit stronger. So can you chat through just about the visibility on that and how that perhaps comes in a bit quicker sort of in submarine support and also on the Cavendish side? And I guess the question sort of rolls in, can you maintain those growth rates? David Mellors: Yes. So we've got pretty good visibility. I mean, I always look at the revenue under contract for forecasting. So -- but we generally have very good visibility of stuff that isn't under contract yet. So you can't necessarily be absolutely sure of timing, but you've got a pretty good idea. So I start with what's under contract. In terms of visibility in Nuclear, it's good. We've got a pretty good idea on both naval and civil, what's coming down the track. Timing isn't always precise, but you've got a pretty good idea. They're obviously doing extremely well, but a 14% growth rate is pretty punchy to be -- to straight line out into the future. It's definitely all sustainable revenue. There's nothing one-off in there. But it can't keep going at 14%. But it is the high-performing business, and it will continue to be for the near term at least. Benjamin Pfannes-Varrow: Just a follow-up question to the last one on civil nuclear. You've given it a lot of prominence in the presentation. It's only about 5% of the group. I think at the teaching you did in May, you talked about sales at least doubling over the medium term. given how much is going on there and the prominence you've given it today, are you thinking more positively? I mean, can you update on the at least double? Is it now going to be a meaningfully bigger opportunity? David Lockwood: So that was a teach-in on Cavendish, which is the nuclear consulting business. So it excluded -- we made reference to, but the numbers excluded build opportunities for building elements of SMRs and AMRs. So can I give an update? I think the risk is on the upside, how about that? Is that enough? Do you want to? David Mellors: Yes. Look, I mean, I don't think we can -- we said we'd double the business by 2030, just to be precise. I don't think we're going to change that right now. Everything we've seen in the market is encouraging. And there are some potentially big things there, but I think we have to just wait a little bit longer to see how they -- how and when those things crystallize before we start changing numbers. Benjamin Pfannes-Varrow: Just to follow up. I actually didn't know that. I'm not an expert on nuclear engineering, say the least. So what is -- when you talked about the business doubling, I thought it was civil nuclear in its entirety. So just how big is the buildup? And maybe if we look beyond the medium term because it might take longer. I mean, just how big can the civil nuclear holistically get to for you? David Lockwood: If you include build -- so one of the interesting things is how we choose to report it because typically, everything that happens in Rosyth gets reported in Marine because Marine owns Rosyth. So it would depend how we reported it. But if you believe -- if you just look at the Hartlepool 6 gigawatts of AMRs, if we were a material build partner of that, and we are X-energy's partner in the U.K., then we're talking about civil nuclear production would probably become bigger than the consulting -- the engineering consulting business of Cavendish. That's a huge if, but just to give you a scale thing. Benjamin Pfannes-Varrow: Sorry. That's for one of the SMRs, is it? David Lockwood: No. This is AMRs. This is just Hartlepool AMR thing. Benjamin Pfannes-Varrow: This is just Hartlepool? So if Hartlepool, AMRs go ahead, SMRs go ahead in the numbers, it's multiples then of Cavendish, is what you're saying? David Lockwood: If we win the build because we don't build that either at the moment. So there's a huge if. Benjamin Pfannes-Varrow: And who else could do the build? David Lockwood: Well, it kind of partly depends whether the U.K. Government decide that U.K. SMRs and AMRs have to be built in the U.K. Because if they decided not, which -- if there's a change in government, it might be the case, and there could be -- there are places outside the U.K. you could build them. There aren't -- there's not that much U.K. competition. David Richard Farrell: David from Jefferies. A follow-up question, please. Just around kind of the share buyback. We've obviously talked about kind of CapEx potential. You talked about kind of M&A. Do you think that you could do both of those and still reload the buyback at the end of this year? David Lockwood: Yes. So the great thing about having cash is that you actually have a capital allocation problem, which is relatively new for this company for a long time. In my mind, the buyback creates the hurdle for all other investments. So we know what return the buyback gives shareholders. And therefore, our job as management is to find alternatives to recommend to the Board, which we believe provides superior returns to buyback. And if we don't find them, then buyback becomes a likely option. So I think it's hard to say, can you do both because it depends how many superior options we come up with. But I think that's -- I think I'm looking at Ruth, and she's nodding. It is our job as management to come up with superior options to buyback. That's our job. In 1 minute's time, this will be the longest half year presentation I've done in 14 years. I just thought I'd let you know that. Sash Tusa: I'll drag the question out then. David Lockwood: Go on then, record-breaking you. Sash Tusa: First of all, continuing on nuclear. I probably may have missed -- you said that MIP was basically flat. Did you actually give an absolute number for MIP revenues in the half year? David Mellors: For the half? Yes, it's on the slide. So it's GBP 215 million. Yes. It was down. It wasn't flat. It was down. Sash Tusa: Okay. And then the other side of David's question about Cavendish. You actually haven't talked very much about the Nuclear side of Cavendish in this set of numbers. What's happening at the moment with AWE and particularly with the 2 very big AWE capital projects as part of the Fissile Materials Campus? David Lockwood: Yes. So those are still evolving. I think all of our debates with AWE about what our role should be, a very positive. Yes, very, very positive. They've ultimately got to decide how to chunk up those 2 big programs. I think there's no doubt that AWE wants to be the overall contractor. So it's not going to go to a GOCO or anything like it. But the question is then, how do they chunk it up underneath? And I think so far, those are very intelligent and sensible conversations between us and them. I couldn't put a number or duration on it. But you're right, I didn't mention it, but it's going -- it's a very positive conversation. Sash Tusa: And I mean, just to extend that, if you had to estimate whether ultimately that scale of build work is bigger or smaller than the AMRs and SMRs? David Lockwood: Gosh. David Mellors: Go on. David Lockwood: That's an impossible question and a very unfair way to finish. And I'm never going to talk to you again. Great. Well, thank you for your questions. That's an hour up. If you've got any more questions, I'm sure Andrew will answer them. Thank you.
Operator: Good afternoon, and welcome to the Tracsis Plc Final Results Investor Presentation. Today, we are joined by David Frost, CEO; and Andy Kelly, CFO. [Operator Instructions] I'll now hand over to David to begin the presentation. Thank you. David Frost: Yes. Thank you, Harry, and welcome, everybody. We appreciate you joining us today. It's a real pleasure to be here and presenting to most of you for the first time. Next slide. So on to the agenda. Andy and I will start by walking you through a review of performance in FY '25, and we'll then talk about the strategic direction, the growth opportunities and the outlook for Tracsis in FY '26 and beyond before we move on to take questions from you. Next slide. So just to set the scene from myself, a few key messages for FY '25. Firstly, performance improved in the second half, which meant we were able to deliver full year results that were in line with the revised guidance that we gave back in April. As part of that, we resolved the profitability issues in Traffic Data & Events, and we entered the new financial year in a much stronger position as a result of that. Secondly, we made good progress in the areas that matter most for the long-term success of the business. Recurring revenues are an important focus area for us, and they continue to grow at a healthy rate. We won new strategic multiyear contracts, both in pay-as-you-go and also in GeoIntelligence, which will support future revenue growth. And we also completed the transformation of our operating model, bringing the Rail Technology & Services division under a single global leadership while investing into next-generation product platforms, which we'll come on to later in the presentation. Market-wise, we continue to see uncertainty in U.K. rail, which looks very likely to persist through FY '26. Control Period 7 funding remains constrained, and the proposed renationalization of the train operating companies alongside the creation of Great British Railways is having a negative impact on procurement timelines. While the recently announced railways bill is a step forward, there is still a long way to go before GBR is fully up and running. So we cannot control the timetable, but Tracsis continues to be well positioned to help deliver the government's long-term strategic vision for the future of the U.K. railway. In our planning for FY '26, we had anticipated that these headwinds in the U.K. would continue. And so our expectations for the full year are unchanged and consistent with market expectations. In the immediate future, we are focused on building on our H2 performance with a major emphasis on execution. In parallel, we have a clear and focused strategy for driving longer-term growth and margin accretion. We will share more later in the presentation, there's no real change in direction, it's more about building on foundations and tightening up on how we put the strategy into action. Next slide. Before we go into the detail of the presentation, I thought it was appropriate to share and reflect on my first 100 days with the business. My first observation is that the fundamentals of the group remain really strong. Tracsis has a combination of market-leading technologies and deep domain expertise that differentiate us in the attractive transport end markets that we serve. We're continuing to win new strategic contracts and embed long-term customer relationships, which in turn support growing levels of annual recurring revenue. And the progress we've made in organizational transformation means we're now ideally placed to deliver our near-term priorities while positioning the business for future growth. Those near-term priorities are really clear for us. The leadership transition has been completed smoothly with a structured handover from my predecessor, Chris Barnes. There have been no other changes to the senior leadership team, and we are now focused on continuing to build organizational capability to support both FY '26 operational delivery and our longer-term growth ambitions. It's all about progressing the drivers of organic growth transformation, building the pipeline of future opportunity, investing in SaaS-native products and increasing penetration in international markets in a very disciplined way. We continue to believe that North America offers a significant long-term opportunity for the group. I have actually been there twice during my first few months and have met with customers, industry leaders and railroad CEOs while spending time with the Tracsis team in the region. It's pretty clear to me that we have a high-quality, well-differentiated profit -- product offering in North America with our PTC-enabled train dispatch software. The deployment with Northern Indiana that was completed in September of 2024 is operating well. And from my recent conversation with other railroad leaders, it's clear there's a healthy pipeline of opportunities across passenger, freight and industrial operators with the industry actively looking for credible new technology providers. It's no secret that our progress in winning new opportunities has been slower than we anticipated, but procurement timelines can be lengthy. Behind the scenes, the team have been working hard to build and progress our pipeline. We do need to remain patient, but I firmly believe North America is a key growth opportunity for us. And finally, we're continuing to review our portfolio alignment, something I know many investors are interested in. And to be clear, M&A remains very much a key component of our growth strategy and something that we're focused on. So with that, let me hand off to Andy, and he will talk you through the financial highlights for the year. Andrew Kelly: Thank you, David, and good afternoon, everyone. So as David mentioned, our performance for the year was in line with the guidance we gave back with the interims in April. And that includes a much improved second half trading performance following a softer first half of the year. The second half improvement included the recovery in our Traffic Data & Events businesses, where actions that we took early in the year helped to improve profitability as well as the benefit from delivering the first phase of development work on a Tap Converter contract that we announced in February 2025. The group is typically more profitable in the second half of the year. That reflects the seasonality of our revenue streams. And in H2 of FY '25, we achieved an adjusted EBITDA margin of 19.2%, which was 331 basis points higher than in H2 of the prior year. And overall, we delivered modest revenue growth year-on-year despite the market headwinds that we referenced earlier. Importantly, within this, we've continued to deliver stronger growth in recurring and transactional revenues, which are key long-term value drivers. And in combination, these increased by 8% over the prior year. The group's balance sheet remains strong. We saw a healthy improvement in free cash flow generation. And we ended the year with GBP 23.4 million of cash on the balance sheet, having fully completed the GBP 3 million share buyback that we announced in April. We put in place a new GBP 35 million RCM in the second half of the year, and this remains undrawn. And on the dividend, we've maintained our progressive policy. We're recommending a final dividend of 1.4p per share, which would result in an 8% increase in the total dividend to 26p. So looking at the financial performance in more detail. As usual, I'll start with the group consolidated performance and then break out the divisional results in more detail. So total group revenue of GBP 81.9 million was 1% higher than prior year on a reported basis. It was 3% higher on a like-for-like basis after adjusting to revenue from the lower margin, non-software-related consultancy activities that we exited at the end of FY '24. Adjusted EBITDA of GBP 12.6 million was slightly lower than last year. And this really reflects 3 main drivers. Firstly, the Control Period 7 funding headwinds impacted volumes of our Remote Condition Monitoring hardware in the U.K. Revenues here were 42% lower than in the prior year, and this had an adverse effect to profit of approximately GBP 1.5 million. As you'll probably recall from the interim results, we have seen a significantly lower level of profitability in our Traffic Data & Events businesses in the first half. Second half performance here was much improved, I'll talk more about that when we get to the divisional review. However, the total profit contribution from this part of the business was lower than we achieved in FY '24. And offsetting these headwinds, the rest of the group delivered an EBITDA performance that was approximately GBP 2 million higher than last year. That includes the benefit from exiting those lower-margin consultancy activities as well as healthy underlying growth across the rest of the U.K. rail portfolio, excluding Remote Condition Monitoring. Over the last 2 years, we have completed a program of actions to transform the group's operating model. That's focused, in particular, on integrating and enhancing our technology, development and delivery capabilities. And alongside this, we've been working hard to upgrade operational systems, streamline our operating footprint, exit from lower-margin activities and, in some cases, contracts and address other legacy issues that have restricted our ability to deliver revenue and margin growth. Our FY '25 results include the final tranche of costs associated with these actions, with GBP 2.4 million of exceptional costs charged to the income statement, of which GBP 2 million were cash costs. Our statutory profit metrics were improved versus prior year. In addition to a lower level of exceptional costs, this also includes over GBP 0.5 million of additional interest income on our cash balances, and that includes the benefit from having centralized our cash management actions, which is one of the work streams that we completed as part of those transformation activities. So turning now to divisional performance, and I'll start with the Rail Technology & Services division. Total revenue in this division was 1% higher than the prior year. As I previously referenced, that did include a lower level of Remote Condition Monitoring hardware revenue in the U.K. from CP7 headwinds. And excluding this, the rest of the portfolio delivered revenue growth of approximately 7%. And as you can see from the charts on the right-hand side of this slide, the quality of revenue in this division is improving. And in FY '25, we delivered further growth in recurring and transactional revenues, which are the drivers of long-term value. Recurring software license revenue increased by 6% to GBP 23.2 million. And transactional revenues from our smart ticketing and delay repay products grew by 17% to GBP 4.1 million. The balance of the revenue in this division includes that Remote Condition Monitoring hardware revenue as well as milestone-driven project and bespoke development work. This was overall 14% lower than in FY '24, principally driven by the lower level of Remote Condition Monitoring hardware in the U.K. There was a lower level of project revenue in North America that followed the go-live of our Train Dispatch product with Northern Indiana in September 2024. And from a divisional perspective, that was offset by the first phase of development work on the Tap Converter that started in the second half of FY '25 and will continue throughout FY '26. EBITDA of GBP 9.6 million was 2% lower than the prior year that includes the approximately GBP 1.5 million adverse impact from Remote Condition Monitoring, offset by growth across the rest of the U.K. portfolio. Turning next to our Data, Analytics, Consultancy & Events division. Revenue here was 5% higher than the prior year on a like-for-like basis after excluding the exited consultancy activities. This was principally driven by high activity levels in events, where we achieved a record year with revenue in excess of GBP 20 million. That more than offset an overall lower level of revenue from Traffic Data. You may recall from the interims, we had approximately GBP 0.5 million revenue headwinds as one of our largest customers suffered a cyber attack in our first half of our financial year. That has been fully resolved. Activity levels in Traffic Data and with that customer return to normal in the second half of the year. However, we weren't fully able to recover that lost revenue from H1. We also saw a slightly lower revenue contribution from our GeoIntelligence business based in Ireland. And after a very soft first half, full year profitability in this division was overall consistent with FY '24. That includes a much improved performance in Traffic Data & Events. And whilst the absolute EBITDA contribution from those businesses was still lower than the prior year, together, they achieved an H2 EBITDA margin performance that was approximately 400 basis points higher than in H2 of FY '24, and we expect to see a full year benefit from that in FY '26. The lower EBITDA contribution on the Traffic Data & Events side was offset by professional services. Our GeoIntelligence business post year-end has won a multiyear contract with the U.K. government, and that underpins our growth expectations for FY '26. And then turning lastly to cash. The group continues to deliver a healthy level of cash generation. Despite the slightly lower level of EBITDA, free cash flow generation in the year of GBP 7.7 million was GBP 2.3 million higher than in the prior year. That was driven largely by favorable working capital movements including an unwind of the large trade receivables position that we had at the end of FY '24. There was a lower level of cash outflows relating to transformational activities and higher net cash interest received. Of the GBP 1.4 million cash outflows for exceptional items in FY '25, GBP 0.4 million of that relates to costs booked in FY '24. And there's approximately GBP 1 million of cash outflows that we anticipate in FY '26 in relation to costs that have been booked in FY '25. We've continued to invest in product development through the year, including future enhancements for our train dispatch product in North America. We also invested to acquire and develop the AI platform that's used by our Traffic Data business. Overall, our total cash balance increased by GBP 3.6 million to GBP 23.4 million. That includes completing the full GBP 3 million share buyback in the second half of the year. So this leaves us well positioned to continue to invest in a disciplined way, consistent with our capital allocation framework. And the new RCF provides us with additional headroom, flexibility and strategic optionality to invest for growth while continuing to maintain a robust balance sheet. So with that, I'll now hand you back to David to update you on the group's strategy and growth transformation opportunity. David Frost: Yes. Thanks, Andy. As mentioned previously, we've refreshed our strategic thinking as we move into the next phase of growth. And look, our purpose is simple. We make transport work, but we do so while driving safety, efficiency and sustainability in our customers' operations. We want to lead the future of sustainable, intelligent transport, and this is a really dynamic and fast-moving space. Our world is becoming ever more digitized and more connected, and the importance of transport networks to support the way we live and work in safe, efficient communities is only going to increase. Our ambition is to be at the center of that, creating technology and solutions that revolutionize how the world moves and make a lasting difference. Next slide, please. At the highest level, we have a very substantial global transport market, which is growing at an attractive rate, fueled by the demand for safer, more sustainable and seamless journeys. There are endless opportunities for Tracsis within this, but we are choosing to play in rail and road segments of the transport market, where we have a presence today, deep domain expertise and cost leading technology. The tailwinds in these sectors increasingly align with the solutions that we provide from urbanization, population growth and aging infrastructure through to multimodal frictionless travel and the growing demand for digital transformation, automation and the deployment of AI, this is what we do. We are talking about long-term structural trends that play directly into our strengths, and we are well positioned to benefit from them. Next slide. So moving forward, we think of growth in the form of 4 transformation factors. Firstly, and importantly, our priority is to focus on our core markets continuing to expand into white space through cross-sell and upsell opportunities. Secondly, we will invest in our roadmaps, producing a pipeline of SaaS-native products that we can sell in our core and international markets. Thirdly, we will target international growth through the deployment of our go-to-market model, augmented by the new products and the services that we will develop. And then lastly, M&A will continue to play an important strategic role in supplementing and supporting our organic growth. We have a disciplined approach to investing in target opportunities, and all acquisitions will be fully integrated into the one Tracsis business structure. These 4 vectors give us a very clear, practical and deliverable pathway for long-term growth. Next slide. So our journey continues. We have a great business at Tracsis, one built on technology and deep domain expertise. We have completed the operational transformation phase, opening the door for the next logical chapter in our story, the growth transformation phase. There is an opportunity here for us to scale our business internationally, expand into attractive transport adjacencies and invest in SaaS-native products that address global market requirements while accelerating recurring revenue and margin accretion. Look, it's not going to happen overnight, but we feel we have the strategy, the capability and the ambition to deliver steadily and sustainably. We know what the building blocks are for us to make this long-term vision a reality, and we really look forward to sharing our progress with you all as we move forward. Next slide, please. Finally, we'd just like to recap on the key takeaways from today. We have delivered a much improved financial performance in the second half of FY '25, and our expectations for FY '26 remain unchanged, with ongoing U.K. rail uncertainty already factored in. Our short-term priorities are clear. Our underlying fundamentals remain strong, and we continue to win new multiyear contracts that grow our recurring revenue. In summary, we are prioritizing near-term delivery while we build for an exciting future, one defined by greater scale, improved margins and enhanced long-term value for our shareholders and other stakeholders alike. Next slide. So at this point, we're happy to take any questions. Operator: [Operator Instructions] We've had some pre-submitted questions and questions submitted live. The first one being, Tracsis is trading at its cheapest multiple since it was listed in 2007. You have over 20% of your market cap in net cash. Stock buybacks would create a lot of value for long-term shareholders at these depressed levels. How high are these on your capital allocation priorities and why? Andrew Kelly: Yes. Thanks for that, Harry. So in our announcement, we have laid out our capital allocation framework. So we've got clear priorities in 3 areas. So firstly, that's around organic growth, and that includes investment in new product development. Secondly, as David said, we see M&A as a core component of our growth strategy, applying very disciplined criteria to that with an intention to integrate acquisitions into our operating model. And then thirdly, from returns to shareholders perspective, we're committed to the progressive dividend. Right now, we haven't got any firm plans to do a further buyback, but as you can imagine. And as the question hints at the current levels, that will be something that we continue to review as we go forward. Operator: The next question is, what is the acquisition pipeline of good businesses like? David Frost: Yes. So look, coming into the business, I was really pleased to see that there is an active M&A pipeline. I think Andy and I would like to see more strength in that with higher-quality assets available to us, but having said that, we are actively pursuing opportunities today through this disciplined lens of making sure that it aligns fully with the strategic direction we're looking to take the business. So it must enhance the technology capability, it must help us to address the attractive adjacencies within the transport market and hopefully help us to progress on our internationalization plans that we have shared with you. So we expect M&A to be more of a bolt-on type approach, certainly for the near and midterm as we -- it's been 3.5 years since we've done an acquisition in this business. We believe we've got good foundation to get back onto the M&A trail, but do that in a very disciplined way. We're not considering anything transformational at this time because we do genuinely believe that there are good quality assets out there that fit the criteria that we are outlining here. And importantly, we now have the financial capital and financial firepower to be able to go and execute in this area of our strategy. Operator: The next question is, there is cash in the bank, and you recently agreed a new RCM. Does this mean you're weighing up something more transformational from an M&A perspective? David Frost: Well, I mean, I guess I've just covered that off in my previous answer to how we're thinking about disciplined approach on M&A. So nothing transformational on the agenda at this point in time, but certainly looking at bolt-on opportunity. Operator: This comes from an investor. If I hold for the long term, i.e., 3 to 5 years, what's the main reason Tracsis' share price should go up? Andrew Kelly: Well, we believe that there's an awful lot of growth opportunity available to the business. We have -- our top line has been flat for the last 3 years in this business while we've been delivering that transformation, while we've been putting those foundations in for future growth. So as David summarized at the start of the presentation, we've got extremely strong fundamentals here. We've got a rich IP in the business. We've got deep domain expertise. We've got a strong balance sheet, healthy cash generation, and a healthy capital position today. And we're embedded in a transport ecosystem and transport markets where we believe the digital journey has only just begun. So we see an awful lot of upside and future opportunity for the business. And that's really our focus as a management team is to deliver and execute on that and hopefully create a lot of sustainable value for all of our stakeholders going forward. Operator: Another question on cash. H1 revenue was flat, but cash increased. How did you manage to generate so much cash despite lower EBITDA? Andrew Kelly: So we have a fairly seasonal revenue pattern in this business, driven largely by the activity levels, particularly on our base side of the business in H2, but also in our Rail Technology business. So we typically end the year with a high trade receivables balance that unwound in the first few months of FY '25 as it typically does. So that helps to support the healthy cash generation in the first half of the year despite the lower EBITDA performance. Operator: You say Tracsis is the go-to U.K. Rail Technology provider. If this is the case, how much white space can there be in your core markets? David Frost: Yes. We think about core markets as geographically, U.K. and Ireland. And then from a transport market point of view, obviously, rail and road, but also some, what we call, land application areas for things like agricultural technology. So they are our core markets. And within that, there is a well-defined customer group that we serve today and have done since the birth of the business back in 2004. Having said that, we are well positioned across that customer group, but there is always opportunity for us to cross-sell and upsell the broader Tracsis portfolio. And I'll give you a good example of this because we think of this as land and expand. So when we sell to any customer, we do not sell the entire Tracsis portfolio on day 1, in fact, quite the opposite. We penetrate a customer by selling 1 part of our capability, and then we're really good at then landing and expanding. So once you are in, it gives you an opportunity to present the broader capability. Probably a good example case study to share with you is Transport for Wales, where we are now delivering both Rail and Road Technologies into that single customer, but that took time, took sort of patience and time for us to develop, but good example of our ability to do that. And that's what we mean by white space within our core markets. We are not selling the entire portfolio to every customer that we have today, and therefore, that continues to present opportunity for us as we go forward. Operator: Why would international growth create value for shareholders? Isn't the market saturated with solutions already? David Frost: I think the short answer is no to that. And hopefully, we've shared some of the color behind how we think about international markets today. We are -- Andy and I are very focused on firing up an organic growth engine in this business, something that we've not particularly had in the past. Tracsis has been borne out of a buy and build through acquisition principally. And we're now sort of turning attention to how do we really get organic growth to a level that we would like to see. And the investment in the product developments that we've talked to and then the disciplined internationalization of our business will be 2 growth factors that support the organic growth side of our strategy. Operator: The U.K. Rail Funding headwinds, especially the CP7 hardware revenue decline of 42% in 1 category, what contingency plans does management have if those headwinds persist? Andrew Kelly: Yes. Look, we see the headwinds in the U.K. Rail market at the moment persisting through FY '26 -- for our financial year FY '26, but we do see them as temporary in nature. The government has published the railways bill in the last few weeks, which is a key step on the path to creating Great British Railways. And we think when you look at the strategic objectives that are outlined in that bill around efficiency, around asset availability and network reliability and around rolling out pay-as-you-go ticketing, we think Tracsis is really well placed to support with that and to continue to be a key technology provider that enables that future. So I think it's less about having contingency plans. We have fully factored the current market conditions into our forward guidance and into our market forecasts. So we are not reliant on the market improving in order to achieve our FY '26 ambitions. And as David outlined when talking about those growth factors, we're laser-focused on being well positioned, maintaining that position in our core markets, ready to respond where those opportunities come, whilst also increasingly diversifying the business so that we're not fully reliant on factors that are fully within our control. Operator: Do the internationalization efforts imply incremental technology investment? How much incremental investment should we expect over the next couple of years? David Frost: Yes. We're going to start with rail in the international markets because that's where we think we are; a, the most mature and importantly, have the right products to position and sell into the international geographies. So that's kind of our start point how we're thinking about it. Undoubtedly, we will continue to invest in SaaS-native application software products. That is a commitment that we are making. And as we understand the requirements of international markets, we believe that will present further opportunity for us to consider the investment. But the important part of moving to SaaS-native products is that you are developing an offering that meets market requirements, not just the requirements of one specific customer. So that's one aspect of it. But we do genuinely believe that today, with some of the technology we have around digital ticketing, our capability around Remote Condition Monitoring and also some of the software around safe working practices are products that are right and ready to go into international markets today, and that's how we will be starting to move down that pathway. Operator: Due to time, this will be the final question today. What should we expect in terms of PAYG revenue contribution over the next 3 years? With the National PAYG rollout, should we expect revenues to grow substantially from this year's levels? Andrew Kelly: So if -- just as a reminder for everybody, it's all on the same page. So Tracsis secured the Tap converter contract in February 2025, which is to provide the back office technology solution that will underpin rolling out pay-as-you-go ticketing across the rest of the U.K. Rail Network. So we've got a contract to do the development work for that, which is giving us a full order book in that part of the business for FY '26. The rollout in terms of making that technology available to the customer will be delivered through the Rail Delivery Group and the transport operators. So we're not in full control of that. And therefore, we don't have full visibility right now in terms of exactly when that's going to happen and how that's going to happen. So when you step back from that, absolutely, we expect that as that technology gets rolled out and customer usage increases, our revenues there will increase, but we're not able at this point in time to be precise about the timing or even the quantum of that because it depends on a number of factors, including pace of rollout, speed of customer adoption, customer usage patterns, et cetera, et cetera. So in our forward guidance, we don't have any incremental pay-as-you-go transactional revenue in those numbers. As that comes into more focus, we will guide the market and guide investors. So we certainly see it as a significant opportunity for the business. We're just not able to fully size that ourselves at the moment. Operator: I'll now hand back to the management team for any closing remarks. David Frost: Yes. Thanks, Harry. So look, just in closing, again, much improved financial performance in second half '25. We feel good about our expectations in FY '26. They're unchanged despite some of the challenges ongoing in U.K. Rail. Short-term priorities for us are really clear, fundamentals underlying really strong. We're prioritizing near-term delivery, but we're also building for an exciting future. And hopefully, you've been able to see through sharing how we think about the growth factors going forward, there's an exciting future ahead for our business. And we really look forward to continuing to share progress with you as we go forward on this journey. So thanks for listening today. Thanks for your questions. Look forward to speaking with you all again in the future. Operator: Thank you to David and Andy for joining us today. That concludes the Tracsis final results investor presentation. Please take a moment to complete a short survey following this event. The recording of this presentation will be made available on Engage Investor, and I hope you enjoyed today's webinar. Thank you.
Phillip Bentley: Good morning, everyone, and welcome to Mitie's interim results presentation for the 6 months ended 30th of September 2025, H1 FY '26 as we call it, which as usual, we are broadcasting live here from The Shard We're also joined today by Chris Rogers, Mitie's new Chairman. Welcome, Chris. And I also welcome Sam White. Sam White is our long-awaited and much welcome Managing Director of Technical Services division, who joins us from Costain on the 1st of December. So thank you, Sam, for slipping off quietly here. Now it's just over 2 years ago since our Capital Markets event that we held here, where we launched the Mitieverse, if you remember, in our facilities transformation vision. And we've now reached the halfway mark in delivering our FY '25 to FY '27 3-year plan. As a reminder, our business model set out to leverage our scale, our technology and our capabilities to unlock the value of our customers' estates through facilities management, facilities transformation and with the recent acquisition of Marlowe Facilities Compliance. And as we say, to become the future of high-performing buildings and places. So -- and at this stage, I'm pleased to say that the business is on track and momentum is growing. Encouragingly, we have maintained double-digit revenue growth for the fifth successive 6-month period, significantly outpacing the market, and we've shown good margin resilience despite the headwinds from national insurance and wage inflation. We've delivered record contract wins again and renewals and have continued to grow the order book and pipeline again. Free cash flow generation was good and our leverage at 1x EBITDA is modest, hence, why we launched in October a new GBP 100 million buyback program over the next 12 months. We're confirming our FY '26 EBIT guidance of GBP 260 million with the integration of Marlowe going well. And AI, as I'll show, is having a wide impact in the business. And we're on track not only to deliver our ambitious FY '27 targets, but also to take us beyond '27 with our growing momentum. So I'll discuss all these points shortly after Simon takes you through the H1 '26 numbers. Simon Kirkpatrick: Thanks, Phil. Good morning, everybody. So as Phil said, we're now halfway through our 3-year plan. So before getting into the detail of the half 1 results, I'll give a little bit more color to the financial progress that we've made so far and the financial model that underpins our strategy. Our model is based on profitable growth and free cash flow generation, enabling us to compound earnings, drive value accretion and increase shareholder returns. At the Capital Markets event in 2023, when we launched the MITIEverse, we said revenue would grow in high single digits. At the halfway point of our plan, it's exceeded that target, growing at 12% a year, supported by the increasing pipeline and much larger order book that Phil just referenced. Operating profit is growing a little faster than revenue at 13% a year. And it's worth reminding ourselves that back in 2023, consensus profit for FY '26 was GBP 207 million. Today, we're forecasting GBP 260 million, having made 6 upgrades since then. Margins have been resilient despite the material external headwinds, and this good growth and increasing profitability has led to significant free cash flow generation, enabling us to return cash to shareholders and to pursue value-accretive M&A. As a result of these actions, our TSR since the capital market events is 68%, well above the FTSE 250 average of 30%, and we're compounding earnings with EPS growing faster than revenue at 18% a year. So with that as the backdrop, I'll move on to cover the half 1 results, starting with the headlines. Revenue is up 10.4% in the half to GBP 2.7 billion, driven by good organic growth of 6.4%. Operating profit has grown by 7.6% to GBP 108.8 million. And as Phil said, we've maintained margins at just over 4% despite significant profit headwinds. EPS is up 5.6% to 5.7p a share with profit growth and share buybacks offset by higher net finance costs. We've declared an interim dividend of 1.4p a share, up 7.7% on FY '25. And finally, we've had a free cash inflow of GBP 51.9 million with average daily net debt of GBP 332 million. Moving on then to cover the performance in more detail and turning firstly to revenue. This slide shows the key drivers of the revenue growth in the first half of the year with the good momentum from FY '25 continuing both organically and inorganically. The first block of the chart shows GBP 70 million of growth in core FM from wins and losses and incremental growth on existing contracts with wins significantly exceeding losses. Organic projects growth of GBP 48 million was driven by good growth in both divisions and includes a GBP 13 million reduction in revenue in Mitie Telecoms, where we've exited unprofitable contracts. Pricing accounts for GBP 77 million of additional revenue, and we've shown separately on this bridge, the GBP 41 million headwind from completion of the high-margin one-off surge security work last year. When we combine these 4 blocks, total organic growth for the half is 6.4%. Finally, acquisitions contributed 4% of growth in the half. This block includes the infill acquisitions we've made in the last 18 months, including Argus Fire and ESM as well as the Marlowe acquisition, which added GBP 51 million of revenue. Sticking with the group numbers. Next, I'll cover operating profit. And this slide shows the key financial themes for the half on a profit bridge, highlighting the resilience of our business model. Strategic profit growth of GBP 31.3 million more than outweighed GBP 23.6 million of profit headwinds. Our growth strategy is focused on core FM, projects and acquisitions, underpinned by margin enhancement initiatives. Core FM and projects grew by GBP 6.4 million in the half, driven by new wins, combined with a good projects performance across most sectors. These upsides significantly outweighed lost contracts as well as one specific contract provision, which reduced profit by GBP 5.4 million. I'll come back to this shortly when I cover Technical Services. Next, we added GBP 4.7 million of incremental profit from acquisitions, including GBP 3.1 million of profit from Marlowe. We've made good progress with margin enhancement initiatives, delivering GBP 10 million of profit, and we've turned the telecoms business around, making a small profit in half 1, which is a GBP 10.2 million year-on-year improvement. In terms of headwinds, the completed surge response work was a GBP 7.8 million profit headwind. We made GBP 6.2 million of investments to drive growth, including an extra GBP 2.8 million of contract mobilizations and the headwind from National Insurance and inflation was GBP 9.6 million, which I'll cover in a bit more detail now. Once again, we were successful in managing inflationary pressures in the period. Our contractual protections and strong customer relationships enabled us to pass on 95% of cost inflation to our customers, resulting in only a GBP 3.4 million reduction in profit. We expect cost inflation and pricing recovery in half 2 to be broadly consistent with half 1, resulting in a net P&L impact for the year of around GBP 8 million. We said in June that we expected our employers' NI bill to go up by around GBP 50 million in FY '26 and that we'd recover around GBP 35 million of that through contractual protections and commercial negotiations. Recovery in the first half of the year has been slightly better than we expected, leaving a residual cost of only GBP 6.2 million. As a result, we're forecasting a full year net impact of around GBP 13 million, all of which will be offset by MEI. Moving on then to cover the divisional performance. Over the past 2 years, we've been simplifying our divisional structure, consolidating 4 divisions into 2. First of all, we broke up Central Government and Defense, moving the more soft services-focused central government business into Business Services and the more engineering-focused defense business into Technical Services. We've also broken up Communities with the majority of it being amalgamated into Technical Services other than Immigration and Justice, which now sits comfortably in Business Services alongside the Security business. Turning then to Business Services in more detail. Revenue grew by 15.1% to GBP 1.4 billion, with particularly good performances in Security, Hygiene and in Spain. The Security business grew by 12.2% in the half despite the GBP 41 million headwind from completion of the surge work last year. Growth was driven by Fire Safety and security projects, both organically and inorganically as well as new wins and pricing. Growth of 13.3% in Hygiene was driven by some significant wins in FY '25 and pricing, and the business in Spain has grown by almost 1/3 as a result of the expansion into security and significant wins in the public sector. Underneath the total revenue line, we call out projects revenue, which has increased by 30.5% to GBP 167 million as a result of the growth in the fire safety and security projects that I just mentioned. Profitability in Business Services has been resilient, in line with the first half of last year at GBP 85.3 million, but margins have reduced by 90 basis points to 6%. Revenue growth, MEIs and the contribution from Marlowe have been positive drivers of profit in the half, but they've been offset by the headwinds from cost inflation, national insurance and the completion of the high-margin surge work. Moving on to Technical Services, which has grown by 5.4% to GBP 1.3 billion. Engineering, which includes our private sector maintenance contracts and larger engineering projects, grew by 4.8% in the half. New wins, project work and pricing more than offset the loss of one notable contract and the contracts that we've exited in the telecoms infrastructure business. The Defense growth of 5.2% and the HLG&E growth of 7.1% were largely driven by increases in project work. In Defense, this included projects for the DIO in Gibraltar and Cyprus. And in HLG&E, the projects growth was largely in the health care sector across a number of hospital contracts. These DIO and HLG&E projects, combined with good growth in data centers and power and grid, helped total TS projects to grow by 10.6% to GBP 469 million. This project's growth combined with MEIs and the turnaround in the telecoms business drove a 22.9% increase in profit, boosting margins by 60 basis points. However, although margins have improved, they continue to be impacted by the headwinds from inflation and national insurance as well as a provision for loss-making contract. As I said earlier, this contract was a GBP 5.4 million headwind to Technical Services profit in the half, but it will complete in May 2026. It sits in a structurally low-margin sector, which we're exiting. Without this contract provision, TS profits would have increased by 36% and margin would have been 40 basis points higher. We expect TS margins to improve significantly in half 2 as projects revenue and margin enhancement initiatives ramp up. My final P&L slide shows the consolidation of the group numbers with the business services and technical services profits that I've just talked through, combining with GBP 26.9 million of corporate costs to make up the GBP 108.8 million of group profit and the 4.1% margin. Corporate costs are a little higher in the period as a result of inflation and the national insurance increase. My last 2 slides cover cash flow and the balance sheet, and we generated a free cash inflow of GBP 51.9 million in the half, with the key driver being the operating profit of GBP 108.8 million. Other items was a GBP 25.6 million outflow of cash and was largely made up of acquisition-related costs as well as the costs of delivering our margin enhancement initiatives. Next, we have a cash outflow from working capital of GBP 24.4 million, driven by 3 key factors: our seasonal cash outflow in the first half, where we pay suppliers for the high volume of project work that's completed at the end of the previous year, the growth in the projects business, which consumes more working capital than FM and longer payment terms on a number of new wins, particularly in the retail sector. Offsetting these outflows, we've made further process improvements and rationalized our supply base. CapEx, leases, interest and tax was a GBP 61.1 million cash outflow, GBP 13.8 million higher than the first half of last year. The increase was driven by GBP 8.7 million of CapEx, largely for new contract mobilizations and GBP 3.7 million of additional interest as a result of our capital deployment actions. These capital deployment actions account for GBP 305.1 million of cash outflow, including GBP 41 million of dividends and GBP 228 million of cash consideration for Marlowe. Finally, at the bottom of the page, we see the overall increase in net debt of GBP 272.4 million. This increase results in a closing net debt of GBP 471 million and an average daily net debt of GBP 332 million, with the average leverage ratio of 1x remaining at the lower end of our targeted range. Debtor days are consistent with FY '25 and creditor days have improved as we rationalize our supply base and continue to improve our processes. ROIC reduced by -- ROIC reduced to 16.3% as a result of the Marlowe acquisition, where we've added GBP 380 million of invested capital, but only 2 months of operating profit. And finally, net assets increased to GBP 544 million after adding the net profit for the year and the shares issued for Marlowe, offset by dividends, share buybacks and market purchases for employee share schemes. So in summary, we've made a good start to FY '26. Revenue growth has been better than our high single-digit guidance, and we've maintained our margins despite the investments we've made and the headwinds from inflation, national insurance and the completion of the search work. We made a positive step forward in EPS despite higher interest costs. We generated good free cash flow and ROIC has fallen below 20%, but only temporarily. As we look ahead to the second half of the year, we expect revenue growth to continue in double digits. Margins will be higher than in half 1, and we remain confident of achieving our full year profit target of at least GBP 260 million. Finance costs will be higher as our leverage increases due to the acquisitions and the share buybacks and EPS will grow despite these higher finance costs and the shares issued to acquire Marlowe. Completing the FY '26 guidance, we expect free cash flow to be more than GBP 120 million this year and ROIC will increase back towards our targeted 20%. And on that note, I'll hand back to Phil. Phillip Bentley: Thank you, Simon. They seem a decent set of results to me. But I think more importantly now is to talk about where we are on our strategic journey since we pivoted our business model from service-led facilities management to project-led facilities transformation and then now to regulation-led facilities compliance. Just as a reminder, our strategic plan was focused on growth, growth over 3 pillars. And the foundation of our strategy pillar 1 was centered on growth from the core. Key account growth and scope increases, delivering condition-based maintenance, risk-based security, demand-led hygiene for our customers. And this is a heartland of facilities management. Pillar 2 of our growth strategy was centered on our projects capability and infill acquisitions, transforming the built environment, better workplaces, greater energy efficiency, higher security. This is a heartland of facilities transformation. And our third pillar of growth was M&A, bringing in new capabilities to meet our customers' evolving needs in sustainability, environmental compliance and fire and security. This was our move into facilities compliance with the acquisition of Marlowe. And taken together, our strategy set out to build an unrivaled set of integrated capabilities to deliver the future of high-performing places. Now any successful strategy needs to be underpinned by attractive macro trends and [ Mitie's ] from decarbonization, higher security, repurposing the grid, accelerating data center investments to increase public sector spending in defense, in justice, in health care and immigration. We're fishing where the fish are. And since we launched our new strategy, 2 further macro trends have emerged. Number 9 here, building compliance regulations are raising compliance requirements. Number 10, investments in water infrastructure will top GBP 100 billion over the next 5 years. These are themes that I will return to shortly. In terms of our performance, as Simon touched on, H1 revenue was good. New wins lapping a strong H1 FY '25 plus renewals grew to a record GBP 3.8 billion total contract value in the period. And more importantly, as a leading indicator of growing momentum, our order book grew 31% year-on-year to GBP 16.5 billion TCV. Now we split the order book by time buckets this time. And on the lower left, you can see that revenue expected to be produced from the order book over the next 3 years has grown by 32% to GBP 8.6 billion of TCF since this time last year. And on the right, you'll see how our pipeline has not only grown in size from GBP 17.6 billion TCV 2 years ago to GBP 33 billion TCV today, but it's also grown in quality. Let me explain that. The pipeline funnels opportunities from prospecting at the very early stages, such as identifying future bids on public sector frameworks through to a pre-qualification questionnaire as a bit of a mouthful, and becoming qualified to bid. And then on to a bid submission itself with the final stage of BAFO, best and final offer before a decision is finally made by the client. And as you can see, the quality of our pipeline has been growing. And at this time, at the moment, we've got over GBP 2 billion of TCV sitting in BAFO. This is another leading indicator of our growing momentum, particularly given our improving bid win rates. And it's this growing momentum anchored in the 4 strategic imperatives shown here, which gives us confidence that our business model will not only deliver our FY '25 to FY '27 ambitions, but will also sustain growth beyond this current 3-year plan. Sustaining growth, firstly, by capturing more of our clients' facilities management share of wallet by upgrading, cross-training our strategic client directors, SCDs, we've identified over GBP 1 billion of additional client spend that we could deliver. Secondly, sustaining growth by turbocharging projects, building a GBP 2 billion-plus division over the next few years and sustaining growth thirdly, in compliance and water. Following the Marlowe acquisition, we now have a GBP 550 million Fire & Security Environmental Services compliance business, and we aim to grow this to GBP 1 billion in the coming years. And finally, as our AI strategy drives efficiencies and costs out, we see margins expanding beyond FY '27. Now a little bit of detail on each of these imperatives, starting with SCD, strategic client directors and client share of wallet. By deepening our relationships within our strategic accounts, we know we can deliver more value to our clients. Integrated facilities management, IFM is only currently delivered to 40% of our top 50 contracts just 10 contracts where we've completed a share of wallet deep dive with Kevin, our Sales Director, we've identified a further GBP 500 million of work in security and hygiene, engineering and projects and in compliance currently delivered to our clients by third parties. Winning here requires more senior business builders with new propositions, a wider understanding of Mitie's capabilities and how AI and data can drive insights and upsells with stretch incentivization. And our best SCD of our largest strategic client is now leading this new team. And we know how to do it when done well. Take 2 examples here on the right. One is a retailer has gone from annual revenues of GBP 16 million at the start to an estimated GBP 55 million this year. We've added more facilities management services, increased projects. roof-mounted solar panels, for example, is a big push for this client. And that's before we talk to them about refrigeration services where we announced an infill acquisition today or about F-Gas compliance and water services for Marlowe. And second is a transport customer with annual revenues of GBP 25 million in FY '14. And today, that number is GBP 119 million, and we've added more sites and more services. And turning to the blue triangle in the upper right there, we always expected growth from the core of facilities management to be the biggest contributor of our 3-year plan. Growth from the core for me is probably the most important thing that we think about day-to-day. And we've outperformed our own expectations here and have already delivered over 90% of our GBP 600 million incremental growth target at the halfway stage of our strategy. Our Block 2 growth imperative is turbocharging projects in facilities transformation. And by any measure here, our performance has been outstanding with strong growth from the capabilities we've added in fire & security, power and grid and building engineering. An order book of GBP 2.9 billion today, up 53% year-on-year, a pipeline of GBP 6.9 billion, up 130% year-on-year and an average project size now at GBP 270,000 per job, up 80% year-on-year. And turning again to the Maroon triangle this time on the upper right. Again, we've outperformed our own expectations here and have just about delivered all of the GBP 200 million incremental growth that we set for FY '27 at the halfway stage in our strategy. Our final growth imperative is in the GBP 7.6 billion facilities compliance market, where the acquisition of Marlowe positions us as the leader -- market leader, providing us with a platform to accelerate growth. Adding Marlowe's capabilities to Mitie's existing Fire & Security business created a differentiated total fire offer with a full suite of active fire and passive fire solutions as well as creating the market-leading provider in security systems. But what really excites us about Marlowe on the right-hand side is their capabilities to build a total managed water solution. And as some of you will have already heard me say, water is the new energy. We buy it, we meter it, we recycle it and we report the usage of it. We've already signed up 2 existing Mitie clients to take these new water services literally in the last couple of months. But the really big prize for me is AMP8 Asset Management period 8, the latest set of regulations from Ofwat that will see GBP 104 billion invested in water efficiency, resilience and sustainability between 2025 and 2030. This is a material opportunity for Marlowe Environmental to deliver end-to-end solutions across the water services value chain from sourcing and metering through to transport, wastewater management and compliance and delivered at national scale. Simply put, our aim is to be the provider of choice for our clients as they navigate increasingly complex regulatory requirements and sustainability goals built around water. So take the public sector, for example, previously, Marlowe did not have pre-qual approval in public sector bids. But Mitie is a cabinet office approved strategic supplier, and we're already now precleared to participate in some material upcoming public sector bids. And on the right upper triangle, again, we set a target there of GBP 400 million of revenue from M&A step out. The step-out being facilities compliance. It's early days after less than 2 months of owning Marlowe business, but revenues will now grow rapidly as Marlowe scales up to approach the GBP 400 million target. Now whilst we are on the subject of Marlowe, it would be remiss of me not to take a moment to update you on our progress with the acquisition and the integration. The business is trading in line with our expectations and the synergy work streams are moving ahead. We're on track to deliver at least GBP 15 million of cost synergies in FY '27, and we'll exit FY '27 having fully integrated Marlowe and having captured the full GBP 30 million of synergies to be delivered in FY '28. We're removing duplicate corporate, administrative and other support functions through automation. We've reviewed procurement opportunities and moving the Marlowe supply chain to Mitie's preferred supply list and 3 sites in Marlowe's property portfolio have already been closed. We're exploring major efficiencies from automating field force scheduling and delivering route density savings. We've already migrated 1,500 of Marlowe's Environmental Services colleagues onto Mitie's HR platforms, putting in controls around pay rises and bonuses with the remaining fire and security colleagues to follow before the fiscal year-end. And we're migrating Marlowe's IT applications on to Mitie's Azure platform to raise cyber resiliency. So in short, we're making good progress. And of course, in FY '27 and beyond, Marlowe will be a positive to the group's total overall margin. A final contributor to our 5% margin target. And the last of our 4 imperatives is the execution of our AI strategy, reimagining and automating workforce and workflow management to drive better service efficiencies, reduce back-office costs across the business and drive margin accretion. And I've tried to capture our thinking in the next 2 slides, going back to the MITIEverse of the center there, the Mitie Command Center, which we introduced at our Capital Markets event in October '23. We haven't forgotten about it, creating the single pane of glass of the built environment. And our AI strategy has 4 components. Upper left, all our core systems, which are already cloud-based have been AI-enabled or in the case of Workplace+ and SAP will shortly be AI-enabled. Lower left, all of our major customer apps, Merlin for risk and for cleaning, ARIA, ESME and Net Zero are all interconnected via our HARK connected workplace to the IoT platform and they're producing real-time data. And the upper right, the output from our core systems and apps feeds our leading enterprise insight platform, Mozaic360, developed on Microsoft Fabric and integrating all the operational data across all our intelligent solutions. Mozaic360 provides comprehensive operational and strategic insights into the daily operations of the built environment of our clients. And finally, bottom right, as it were, our task mining from SkanAI has led to a growing number of AI bots or agents, enabling smarter, faster, more consistent ways of delivering tasks. But the real game changer since we launched our 3-year plan is the power of agentic AI and agentic mesh using the Microsoft Copilot Studio platform to connect and orchestrate our AI agents to deliver a single pane of glass in the MITIEverse Command Center. In Technical Services, we're orchestrating those AI agents which deal with our clients, those that execute work orders, those that interact with the supply chain, develop life cycle upgrades, close out jobs in the CAFM. When completed, this agentic mesh will provide that single pane of glass for workflow management. And in the MITIEverse Command Center and Business Services, a single pane of glass for workforce management will mesh all our recruiting, vetting, onboarding, training, deploying payroll AI agents with outputs from the supervisor layer highlighting productivity numbers, best-in-class performance. And the final output from the MITIEverse Command Center will be a large language model, answering questions such as how does my building running costs compare to others? Or what's the optimum way of reducing costs by 10%. These are the questions that today, although we have much of the data, we simply didn't have the processing power to answer. But with the MITIEverse digital twin of the built environment, we'll be able to provide better service, greater insights to our clients and also at a lower cost. So my expectation is that we'll have completed our agentic mesh by summer '26. So if you need a bit of a line down after that, let me wrap up. We've had a strong first half in FY '26 with double-digit revenue growth and good profit growth. Contract wins and renewals are at record levels as is our order book and bidding pipeline. Cash generation is good, and it shows we can undertake value-creating acquisitions and deliver shareholder value from buybacks. It's not either/or at Mitie. FY '26 profit will be at least GBP 260 million, and the Marlowe acquisition is progressing well. AI efficiencies will underpin our 5% margin aspiration. And with 18 months to go, we're on track to not only deliver our stretching FY '27 targets, but with our growing momentum, we're confident our strategy will carry us into FY '28. So with that, let me now turn over to Q&A. Thank you. We need some mics. We've got [ Demolo. We've got Marie ]. Alex Smith: Alex Smith from Berenberg. Just 2 quick questions for me. First one on the projects division, the turbocharging. I guess the sizes of the projects have grown. Can you highlight any key areas of focus? And are you happy with the risk profile of those projects? And then number two -- sorry, just on the growth in the pipeline. Immigration and Justice seems to keep growing there. I guess, kind of Prism renewals and your entrance into that division. If you could provide some color on that, that would be great. Phillip Bentley: So what I'll do is ask Mark Caskey, who runs our projects business. And I think -- I mean, this year, we should end close to GBP 1.5 billion. We've set a target of GBP 2 billion over the next couple of years. That's ahead of where we indicated before. And Mark, why don't you just give a bit of color. We had a Board meeting here earlier in the week, signing up some quite big projects in -- big opportunities in projects. So why don't you talk a little bit about that. Mark Caskey: Happy to, Phil. So thank you. Where do we see the biggest opportunities going? If you go back to the slide, Phil talked about -- sorry, a pipeline greater than GBP 7 billion, which is more than double up from where we were this time last year. And the growth is really coming from 3 areas. Firstly, being data centers. Secondly, being in the power and grid space, you think of everything around buildings need connections to the power systems, you've got battery storage and renewable projects that are underway. And then lastly, there's a significant amount of momentum in the marketplace at the moment around retrofitting the built environment. And if you think about our -- a lot of our project work sits on top of our FM clients and we dedicate project managers to those FM clients, that's where we're seeing the natural uptake. The risk profile, we're so -- I mean, very rigorous around from a contracting perspective, we've invested in our commercial function as well. So we're really sort of like on the ball when it comes to margin profiles. A lot of our projects are short cycles. So even if we are doing larger projects, they're often broken down into numerous phases so we can control the price risk, the delivery risk and the scheduling to manage against ultimately our client expectations. So... Simon Kirkpatrick: Just one -- thanks, Mark. Just one brief build on that, picking up on Mark's point about the short project life cycles. Phil picked it up on his slide, but you see on the turbocharging project side that the average size of our projects is GBP 270,000. So from a risk perspective, the majority of them are relatively small. They turn over relatively quickly. And importantly, 80% of them are with our existing customers. So we know the customers. We've got a good relationship. We can, therefore, negotiate decent commercial terms, and we know the estates that we're working on. Phillip Bentley: And on the prison immigration, I thought I might bring Jason in and stand up, Jason, if you look at the camera that way because Mark, you were sort of off -- you're off screen there. So next time, I ask you back again, come to the front here. But Jason runs our Business Services division, as you know, our largest. And as Simon said, we've moved the immigration and justice because there's a security element of immigration and justice, absolutely in our case. And we're already the largest provider of security services in the U.K., and we're building a strong position in both immigration and in justice. Jason Towse: Yes. Thanks, Phil. Look, the increased pipeline has been driven by, first of all, the announcements of the significant investments being made into the prison infrastructure, driven by the aging infrastructure currently in place and new prison places required. I think we have acquired leading capabilities in Mitie over the last 2, 3 years, and that's resulted in us being successful with Millsike, the U.K.'s first all-electric prison, where we successfully mobilized that prison and in the process of ramping up to full capacity. I was there yesterday and incredibly impressed by the standards that the Mitie people are delivering. But also that puts us in a good position, gives us a good foundation for future growth as more new prisons are getting built and more prison places coming available. And from an immigration point of view, we've all seen the increase in immigration centers. We have -- we are currently mobilizing our latest immigration center at Campsfield, and there's more new immigration centers being opened. And the third point is around the investments being made in the prison and probation estate, which is a significantly aging infrastructure and a current live contract in flight to upgrade all of those services. So 3 real key areas of interest for us with good capability and good opportunity for growth. Phillip Bentley: I mean just to take a little bit more on that, as you saw on the Slide 17, I mean, the pipeline, as you touched on, I've got a great question from Alex, GBP 8 billion. I think it's fair to say we've got a couple of quite big ones in the BAFO stage at the moment. We won't say any more at this point. We don't want to jinx it. But there are some big jobs coming down the track. Simon Kirkpatrick: And we should also say that whilst there is some concentration in immigration and Justice and Defense, actually, that growth in the pipeline that we've seen come through is spread across a number of sectors. So yes, immigration and defense, but also health care, transport and aviation, we've also seen some fairly chunky increases. Phillip Bentley: Sam? Samuel Dindol: Samuel from Stifel. Two questions from me, please. Firstly, on the strategic client directors, can you just remind us how they're incentivized and how you're sort of educating them about the Marlowe proposition? And then secondly, on facilities compliance, having covered Marlowe AMP8 and the water opportunity there is not something they particularly touched on. So I'd be interested to sort of get a sense of the opportunity you see now they're part of the bigger group and sort of what is going to be the typical AMP8 contracts you're sort of going to look to win? Phillip Bentley: Yes. Why don't -- I mean, Mark, I might get you back to the front here with a mic if you come to the front once I set you up on the SCDs, I'll answer the facilities compliance point first because the SCDs, we used to call them SAMs, strategic account managers, but we want them to be much more strategic in business building. And I think it's fair to say we've had people who are good operationally, but not necessarily people who are good client on the client really understanding the client's breadth of the share of wallet. And that's where Kevin Tyrrell, our Sales Director, has been working hard on growing that out. But in terms of incentives, I mean, we've -- talk about some of the people we've got and then we know how they're incentivized. It's going to be on the growth of the business of the client and specific to their account in terms of profit, revenue, Net Promoter Score and employee engagement. But I'll just say a little bit about that. Mark Caskey: In terms of our SCDs, we've identified our top 50 accounts. And part of their role and what we're supporting them with is bringing the best of everything of Mitie to the benefit of those clients, whether it's in hard services and engineering or soft services and/or projects. And what we've recognized as well is we're investing in our sales community or business development community to give them, let's say, the access to the resources to help them support our clients in terms of some of those conversations. Another area we're investing is our consulting capability. And again, whether it's workplace, facilities management, energy and sustainability consultants, we've got over 300 of them in the business, and we're allocating them to the SCDs to be able to have a different order of conversation with our clients to really bring the full value of Mitie to solving their business challenges and improving the value they get from their property portfolio. And as Phil said, on the incentives, we reward them for growth. We reward them for the full P&L stack that sits underneath their client responsibility. Phillip Bentley: And on the pipeline, I could show you that, Sam, but you might go to see it. This is our top 30 opportunities from the Marlowe opportunity. And the first one, I'm not going to say it is, is GBP 47 million, the largest. The point I would make as well is that we don't have not yet scrubbed the pipeline and the order book for Marlowe. So there is nothing in there at the moment in the numbers. We'd expect to have done so when we've got it all in the CRM system, Kevin, and we've actually qualified these opportunities. But -- and I deliberately said the point I made that Marlowe were not public sector bidders. They ended up doing some work in hospitals, but that's because CBRE gave them the job and it was public sector, but they hadn't contracted directly with public sector. We opened up that completely now. And there's some big bids already in play where we've made bids. We're waiting for answers, and we'd hope to announce those quite soon. But the opportunity is probably bigger than I expected. And once we've scrubbed it -- and actually, this is where we need to pivot Marlowe away from -- I've euphemistically used this phrase before, fire extinguishers in Scout huts and get into proper B2B. That's where the price -- that's why we bought the business. And we're quite excited about what it could look like. Tom, yes. Tom Callan: Tom Callan from Investec. I've also got 2. Just one on that GBP 2 billion pipeline that's BAFO. Can you just remind us in terms of the conversion -- the typical conversion of pipeline to order book and also typical contract length? Just trying to get a sense as what that might be... Phillip Bentley: Kev, I might bring you in on that as well, the back there. I know you like hiding in the back. But our win rate on -- there's 2 types of wins. There's wins around -- there's retention and we give you that number, and it's running at 80%. It's quite volatile in terms of if you lost a big contract in a short period of time. And then we've got wins on cold calls and wins on projects as well and the rates of those. But Kevin has been our Sales Director now for about 18 months, and we've got a lot more analysis now. Is it 18 months or 12 months' I can't remember? 18 months. Kevin Tyrrell: Yes. So conversion rate, we look at 2 different numbers. One of them is conversion rate of pipeline. The other one is conversion rate of tender win rate. So our tender win rate is things which come to market, we're actively bidding on. And our win rates have gone up into the low to mid-60s in the past 12 months. Our pipeline conversion rate is sitting about 27%. So it depends whether that pipeline converts into a tender, we bid on the tender, win rates are going up in that area. Phillip Bentley: And I think that's -- it's a double-edged sword for us because we try and take all our private sector clients away from a tender process in what we would call an off-market deal. But that's exactly what our clients do to us. I mean, we went for BT, but it stayed with the incumbent. And the number of -- in tech services, a number of clients that were in the pipeline never came to market. because they rolled it with the incumbent. And it's why -- but in public sector, you can't do that. You can't just do a quiet deal. So it's why there's more volatility in public sector because that is a straight shoot out on a tender process. So that's why not all of that pipeline ever comes to us. But that -- and that's why there's a predominance in the pipeline of government. We know that's definitely going to come out. We might hope NatWest comes out next year, which we do, but we don't know if it'll ever see the light of day. Okay. There's another one, James. Are you sleeping, James? Didn't your wife have another baby? James Beard: Still on the first one. Phillip Bentley: All right... James Beard: But not sleeping. James Beard at Deutsche Numis. I've got 3 questions, please. Firstly, going back to the projects business and the projected growth to GBP 2 billion revenues there. You've -- how much of that is driven by growth in -- expected growth in average ticket value versus just growth in the number of tickets that you're generating in that business going forward? Second question is on Marlowe. Can you just talk through what is happening with the existing customer base there, whether you are retaining or seeing the great of any sort of degree of retrenchment within that existing customer base? And then thirdly, on the telecoms business, noted the GBP 10 million profit swing in the first half. What is your expectation on the second half for that? Phillip Bentley: Okay. I'm just in the mid of speeding it up because otherwise, we'll be here for a while. But I mean, the projects, it's a bit of both. We sell more jobs, but there's some very big jobs out there. If you look at Longcross was a GBP 90 million job at the data center, and that was for only 1/3 of the full potential there. So you get some sense of the size of the scale. And Longcross in when fully built out is 90 megs what's Harlow, that's a lot bigger. Mark Caskey: It's 37 megs, but because they're densifying significantly, the amount of MEP you're putting into a data center now is increasing the average project size. Phillip Bentley: So there's some big stuff there. When you can think about the battery energy storage deal that we announced, Staythorpe, that's GBP 70 million. And there's a lot -- there's a big pipeline in battery energy storage as well. And what was the statistic? We -- our company that we bought ironically out of administration, G2E has done what, 25% of the U.K.'s battery. Mark Caskey: So the battery storage capability in the U.K. is about 4.5 gigawatts at the moment. And G2 Energy, which is the company that we acquired just over 2 years ago, have developed over 25% of that capacity in the U.K. And so they're a really powerful brand when it comes to investors and developers into energy storage and battery storage solutions. Phillip Bentley: Okay. Marlowe, look, we -- it happens every time. Every time we buy a business, if they do any work with a couple of our sworn enemies, they cancel it straight away and Marlowe had a bit of that, but it's not material. We've got it -- and for every bit of business that a competitor has taken away from us, we have work that we were doing with third parties that we can now give Marlowe. So you're going to -- you're not going to see a big change in that number for now. And then on Telco... Simon Kirkpatrick: Yes, just briefly on Telco. So you recall that we already initiated our turnaround plan on Telco, which was starting to have a positive effect in the second half of last year. And therefore, we won't see a big delta half-on-half this year versus last year in the second half. Phillip Bentley: It's growth that we need one of the reasons why we pulled back, we shared work that we were losing money on essentially. And then what we want to do is try and rebuild from a profitable level, but we've taken the revenue down by 50% -- 40%. Chris? Christopher Bamberry: Chris Bamberry, Peel Hunt. A couple of questions. You've also had a very successful period in terms of contract awards. How much would you put down that to what you've been doing over the past few years and perhaps what's been changing in terms of customer behavior? And secondly, on Slide 20, you identified GBP 0.5 billion of opportunities with 10 contracts. Just trying to get an idea of kind of a scale of uplift there, what was the revenues on those contracts? Phillip Bentley: Do you have Kevin, on the 10 -- I don't know if I have that we have to come back to you if you haven't got it. The 10 -- we don't have the revenue -- not on the top of my head, we'll come back to you on that. It's a fair question as a percentage of uplift. But just -- I mean, a quick way of doing it a different way is our top 25 clients generate 25% of our revenue and our top 50 generate 50%. Simon Kirkpatrick: It's a bit more than that actually, yes. So top 25 are closer to 40% actually. And the top 50 are just over 50%. So it's quite a concentration in that top 25. So given that we're taking the 10 largest there, we'll flesh it out. Phillip Bentley: Yes, we'll flesh that one out. I forgot the second question. What was it? What was the second question? So it's about -- the question was around winning contracts. It's quite volatile. I mean, it surprises me in some ways that it keeps going up because it is dependent on the size of some of the deals that are out there and it drives a weighted average. A big -- a government contract, I can think of 2 government contracts that are GBP 2 billion together, okay, that were at BAFO. So -- and that can be -- and because it's -- our public sector win rate, Kevin, will probably be a little bit lower than the number you gave. Kevin Tyrrell: So I guess there's a couple of things for me. I think building capability over the past few years, and we've seen all the capability we've built in our core FM service offering around hygiene, security and engineering, we continue to build. Continue to build capability around our project capability as well, strengthening of relationships on the back of really strong NPS. So strong NPS is the foundation for retention, which gives us the ability to continue to grow. So I think you apply good NPS, improving relationships with our clients, which we'll continue to do through the SCD program and building internal capability, the things which are enabling us to win. Phillip Bentley: That was a much better answer than mine, actually. But it actually reminds me because we've never had a group Head of Sales. Now you may say that's rather shameful in our fault. But we used to leave each business unit running its own stuff, doing its own stuff. And in the end, we decided that wasn't a good idea. So 18 months ago, we brought them all under Kevin. And you've replaced quite a few people now. And we do it through a standard way of bidding, standard reviews, all of the data is in this CRM system. And we've just become a lot more methodical than we used to be. And that hasn't -- the value of that hasn't finished playing out yet. We've still got people literally just having joined us less than 6 months ago who are with a top track record. And one thing I'd say, we've not had any difficulty attracting talent into Mitie. Any more? Excellent. Thank you for your support, as always, and we'll see you at the drinks and not -- what is it? The 20 -- 20 something. Next week. If you're not invited, go and see Kate. Thanks, everyone.
Alan Dickson: Good morning, ladies and gentlemen, and welcome to Reunert's results presentation for the year that ended 30 September 2025. I'm Alan Dickson, the Group Chief Executive; and together with Mark Kathan, our Group Chief Financial Officer, will be presenting our results today. This is a prerecorded webcast with a live Q&A session immediately after the webcast. 2025 was a challenging year for the group as tough macroeconomic conditions and global volatility were evident throughout the year. This was specifically true in the South African environment, where as we guided in our half year prospect statement, the macroeconomic conditions remain challenging. Pleasingly, Reunert's strategy of increasing our non-South African revenues provided good results and largely offset the challenging South African environment that we faced. In South Africa, despite there being solid progress made towards improving several of the country's key structural impediments to accelerate economic growth, the real impact on the ground is yet to be felt. The key drivers of Reunert's growth, which are reflected in the macroeconomic indicators of GDP and business confidence for our ICT segment, and gross domestic fixed investment, or GDFI, for the Electrical Engineering segment, all tracked negatively through this year. South Africa's infrastructure investment specifically decreased year-on-year and fell well below both government commitments and expectations. We do, however, believe that this decrease will be temporary, but in this financial year, it fell to the extent that it negatively impacted both the Electrical Engineering segment and the overall group's financial results. Conversely, our non-South African markets have much better macroeconomic dynamics and their general growth rates remain positive. Within this operating environment, the group's businesses performed well, specifically in the second half of the year, where we delivered on the commitments that we made to shareholders at the half year results period and produced good growth in profit and built positive momentum for 2026. Although the full year headline earnings per share were down by 5%, the second half delivered a strong performance with HEPS increasing by a pleasing 6% over what was already a good second half performance in the prior year. Importantly, despite the challenging conditions, the cash flow generation of the group was strong. The group converted profit for the year to free cash flow at 128%, which was 8% better than last year and generated cash of nearly ZAR 1.2 billion, which resulted in our net cash position increasing by ZAR 207 million to ZAR 743 million by the end of the year. In addition to the financial performance, good strategic progress was made across the group, as we improved access to our key international markets and took decisive action to optimize the group's portfolio. Internationally, in total, the group secured just under ZAR 5 billion or 35% of its revenue from non-South African sales this year. The defense cluster made significant progress in entrenching their long-term market participation in the key growth markets of Europe and the Middle East. While in the Electrical Engineering segment, over 40% of the segment's revenue now comes from outside of South Africa. The group's portfolio was strengthened through the efficient sale of Blue Nova Energy, and the mergers of Etion Create and Nanoteq in the secure communications cluster in our defense business and Skywire and ECN in the business communications cluster in ICT, which were all successfully completed with the latter coming into effect from the 1st of October 2025. These mergers bolster the financial capacity of these businesses. They create quantifiable synergistic benefits and they position the merged businesses for increased resilience and accelerated growth. Shareholder value was created in the year as a strong second half performance and the good cash flow generation enabled the final dividend to be increased by 6% to ZAR 2.93 per share, resulting in a total dividend for the year increasing by 5% to ZAR 3.83 per share. Although the group's return on capital employed decreased to just over 17% on the back of the slightly lower earnings this year, it pleasingly remains well in line with the steady increasing trend that we've been delivering over the past 4 years. And finally, the 3-year CAGR in total shareholder return remained at a healthy 14% per annum despite the challenging environment. So in summary, the good strategic progress, the group's positive performance in the second half, the strong cash flows have generated meaningful momentum, and we believe this establishes the base for the group's growth trajectory into the new financial year. I'll now hand over to Mark, who will take us through the details of the financial year's performance. K. Kathan: Thanks, Alan. Good morning to everyone, and thank you for joining us on the webcast today. I truly appreciate the opportunity to present our financial performance for the year ended 30 September 2025. Before I dive into the numbers, let me highlight some of the key drivers of the macroeconomic environment that impacted the group and its operations through the past financial year. On a positive note, we have experienced an improvement in the ports and consistent electricity supply. These factors contributed to a 1% growth in GDP, albeit sluggish. The consumer price index is into a lower range between 2.7% and 3.8%. The repo rate dropped by 1% over the past 12 months. Both the rand and the Zambian Kwacha strengthened against the U.S. dollar in the last quarter of the year. On the commodity front, copper and aluminum prices remained high throughout the period. Against this backdrop of low growth, low inflation, lower interest rates and a currency strengthening, I would like to take you through the group set of results that hold testimony to our resilience. The results presented in these slides are summarized extracts from the 2025 group audited annual financial statements, which are available in full from Reunert's website under the Investor Center tab. The group's auditors, KPMG, have issued an unmodified audit opinion on these financial statements. Consolidated statement of profit and loss. This slide represents total operations. The slides thereafter will only focus on continuing operations. And the comparatives for 2024 have been represented to accommodate the discontinued operation. The performance from total operations shows a decline in the headline earnings per share of 5%, which is similar to continuing operations. The difference between continuing and total operations relates to the disposal of the discontinued operation, Blue Nova Energy, which we highlighted in the first half of the year. Management and the corporate finance team efficiently concluded the disposal on the 15th of September of 2025. The total loss incurred, including the trading loss, impairments and the loss of disposal, was ZAR 142 million. The impact of the discontinued operation was ZAR 0.64 per share on basic earnings and ZAR 0.19 per share on headline earnings. We have excluded the impact of this disposal from the continuing operations performance. Revenue from continuing operations has declined for the reporting year by 2%. The decline in revenue can largely be attributed to weak transmission infrastructure spend by state-owned entities that impacted the Electrical Engineering segment's revenue of ZAR 7.5 billion, which is 3% lower than the 2024 year. On the positive side, circuit breaker revenue benefited from exports into the U.S.A. The ICT segment's revenue of ZAR 3.9 billion was resilient given the low growth environment, and this was flat year-on-year, with operating profit down by 9% to ZAR 644 million. The 7% lower Applied Electronics revenue of ZAR 2.8 billion was primarily due to a stronger rand and lower activity in the South African market. This translated into a 21% increase in operating profit to ZAR 500 million, up from ZAR 414 million in 2024. Approximately 35% of the group's revenue now originates from outside South Africa and is spread across 5 continents. The contribution of international revenues to the group's revenue has grown since 2021. The 8% decline in profit is attributable to the drop in financial performance in the Electrical Engineering and ICT segments. This was partially offset by a strong performance in Applied Electronics' defense cluster. As highlighted in the interim results, the nonrecurring COVID-19 business interruption insurance claim receipt positively impacted the prior year's results. Operating expenses were well managed. As a result, the operating margin that was delivered was 11%. Basic and headline earnings per share for the year declined by 5%. However, when we reflect on the first half's HEPS performance, which declined by 20%, then the second half's financial performance demonstrated a clear momentum by delivering a 6% growth on 2024's second half. When you adjust HEPS by the nonrecurring COVID-19 insurance claim receipt in the year-on-year headline earnings per share performance would be more or less flat. The group continues to maintain a strong balance sheet and remains in a net cash position, which has improved from ZAR 536 million last year to ZAR 743 million. The decline in long-term borrowings arose from the net settlement of external loans of almost ZAR 300 million. The headroom of unutilized debt facilities amounts to ZAR 1.8 billion. The put option liability relates to the issuance of a put in favor of a noncontrolling interest resulting from the merger of +OneX and the IQbusiness. Furthermore, the balance sheet is strengthened when reflecting on the net asset value per share, which has improved by 1% to almost ZAR 45. The group generated more than ZAR 1.7 billion in cash from operations. Working capital remains well controlled. However, the ZAR 103 million outflow relates to the high level of revenue in the last 2 months of the financial year. Included in the reduced tax paid of ZAR 284 million is a size refund of ZAR 62 million relating to the Quince fraud transactions identified in 2020. The excellent free cash flow of almost ZAR 1.2 billion allows the company to pay a healthy final dividend of ZAR 293 per share. The total dividend for the year represents a cover of 1.6x and a total yield of about 6.6% based on a ZAR 48 share price. The group has been extremely disciplined in respect of capital spend and allocation. During the year, the group spent ZAR 225 million on capital expenditure. Of this, ZAR 130 million was for expansion projects, while ZAR 95 million related to sustenance capital. The capital spend for the year was lower than the depreciation charge. The expansionary spend was directed towards growth projects for international markets, expansion of the last mile broadband network and technological advancements. With our strong balance sheet, our significant unutilized banking facilities, our continued positive cash generation, the group remains well positioned to continue executing its strategy and generating positive cash returns for our shareholders. In conclusion, I would like to thank my finance team throughout the Reunert Group for concluding these results quite efficiently throughout this period. With that, I will hand back to Alan to take us through the segmental review, the group strategy and the group's prospects for 2026. Alan Dickson: Thanks, Mark. I'll now take you through the segmental review, which will give you an understanding of what's taken place in this year so far as well as looking forward. The Electrical Engineering segment had a challenging year as a result of 3 discrete factors: Firstly, there was negative growth in South Africa's GDFI. Despite government's commitment to drive local infrastructure investment and credible progress being made on investment into the transmission grid, rail liberalization and port infrastructure, the extent of the actual investment on the ground fell this year and negatively impacted both the South African circuit breaker and power cables volumes. Secondly, there were ForEx losses and a product mix change in Zambia. In June of this year, Zambia's currency reversed the long-term weakening trend against the U.S. dollar and rapidly strengthened, which resulted in margin degradation and foreign exchange losses at the business. In addition, the drought in Zambia last year resulted in reduced energy generation for the Zambian power utilities ZESCO. This negatively impacted ZESCO's cash flow and reduced the volumes our Zambian power cable business sold to them. Pleasingly, these volumes were replaced by exported copper rod and cable, but this change in product mix negatively impacted margins. And then finally, the third impact was the U.S.A. import tariffs on South Africa. The implementation of a 10% import tariff on South African product imported into the U.S.A. in April, which was further escalated to 30% in August resulted in an unplanned increase in cost for the circuit breaker business. The business engaged with its customer base and successfully retained the market. However, some costs could not be fully recovered by the circuit breaker business and some margin degradation occurred during this period. These 3 key challenges were somewhat offset by a solid non-South African performance. Power cable volumes remained stable, and the circuit breaker business had a strong export performance. Although there was some margin degradation, as I discussed before, into the U.S.A. market, significant steps were taken by the business and were implemented to offset the additional tariff costs and to retain the market. And these 2 actions resulted in volumes increasing year-on-year by 25%. Going forward, the U.S.A. remains a significant market for our circuit breaker business. The actions taken have ensured that the business' market share has been retained and product volumes into the U.S.A. are expected to increase. The extent of the tariff costs that we faced in 2025 are unlikely to be experienced in future financial years. Looking forward for this segment, the segment's non-South African business remains positioned for continued growth. The circuit breaker volumes are expected to retain the positive growth trajectory they've had over the last number of years and new product releases into the U.S. market will support this continued growth. The non-South African power cable volumes should increase as ZESCO now has improved cash flow and the investment into mining infrastructure in Central and Southern Africa remains healthy. In South Africa, however, the market conditions are likely to remain somewhat constrained until overall, our infrastructure spending improves. Whilst orders for the transmission development plan, or TDP, have already been received, the volumes remain quite a bit lower than desired. Pleasingly, the Eskom framework agreements for the TDP have been awarded, which will secure volumes for the power cable business as these projects accelerate. In the ICT segment, the South African market for the group's businesses remained challenging as low GDP and weak business confidence, extended sales cycles and reduced market activity. Pleasingly, the segment's performance was achieved as collectively 3 of the 4 clusters delivered a year-on-year growth in operating profit, which demonstrated good resilience and strategic execution. The business communications cluster performed well with a pleasing growth in operating profit. Fixed line minutes remained stable throughout the year and the clusters last-mile broadband connectivity solutions grew healthily. The rental-based finance cluster performed well. The clusters revenue was negatively impacted by a lower average rental book than the prior year and reduced revenues due to the lower interest rates in the country. These were, however, more than overcome by additional efficiencies delivered through the implementation of improved control systems and processes. The collections remained of a high-quality and resulted in actual bad debts being well within the normal limits at less than 0.5% of the book value. The closing rental book remained nominally flat at just over ZAR 2.35 billion. In the total workspace provider cluster, Nashua delivered a stable revenue and operating profit result despite some of the complementary revenues coming under pressure as renewable energy sales fell due to reduced load shedding in the country. The business continued its strategy of enhancing the entrepreneurial strength of the franchise channel and 2 further franchises were sold this year, resulting in Nashua now only owning equity in a large metro franchises. The decrease in segment operating profit all occurred in the Solutions and Systems Integration Cluster, specifically due to reduced spending in the enterprise market vertical. Importantly, the business restructured its cost base to align to the expected future market demand, the restructure process and all of the associated costs were concluded in the 2025 financial year. Looking forward, although the local conditions remain tight, the broad market trends remain positive and position the ICT segment for growth and an improved performance in 2026. The Business Communications cluster's merger of ECN and Skywire is already delivering synergies and the market growth on their broadband connectivity continues at double-digit levels, specifically in Skywire's underserved target markets. Nashua is likely to deliver steady growth as complementary revenues increase and stable print volumes are expected to continue. These Nashua revenues also support both the Quince's rental book and its earnings, although we do expect Quince's revenue to remain relatively stable in this low-interest environment. The new leaner solutions and systems integration cluster provides agility specifically for the consulting leg of IQbusiness and the ongoing demand for digital transformation, cloud and AI supports an improved performance for 2026 for the segment. In the Applied Electronics segment, the reduction in segment revenue was caused by the impact of a stronger rand on the cluster's large foreign-denominated export sales and reduced demand in the local maintenance and support services market. The quality of the revenues, however, improved significantly as segment operating profit increased strongly. This was driven by efficient production, improved margins and some foreign exchange gains that were made on some of the long-term export contracts. Within the defense cluster, they had an excellent year, increasing operating profit on the prior year by more than 20%. There were record financial performances that were delivered by the radar and the fuze businesses, as they executed their strong order books and delivered improved operating profit and margins. The investment into the fuse factory in prior years produced a positive outcome as increased product volume we delivered to our major customers. In the half year results, we reported that a key fuze order had been delayed. Importantly, this order was successfully delivered in the second half and contributed to the record performance. At the radar business, they secured record defense and mining sales, and the business continues to expand both its product offering and its geographic footprint. There were also good performances from the Dynamic Control business, Etion Create and the communications business, which all contributed to the strong result for the cluster. There were some foreign exchange gains that were made in the year due to the well-hedged, long-term foreign exchange positions that we've taken. The clusters revenue for the first half of 2026 is already hedged, which limits any potential foreign exchange risk. But post this period, the cluster's revenue and income will be more exposed to the strength of the rand against the euro and the U.S. dollar. Importantly, the arrangements with the South African regulatory authorities that control the export of our defense products, the ports efficiency and the availability of electronic subcomponents are operating well and are expected to continue for the foreseeable future. Strategically, the defense cluster also progressed well in 2025. We developed new fuses and these were launched successfully into the Middle East, while the completion of the radar strategic IP co-development program, that we've been sharing with you over the last number of results, will be achieved by the end of this calendar year. This achievement positions the Radar business to participate in the future large volume production orders. And in addition to that, more fuse orders are imminent. Equally importantly, the cluster also entered a number of new markets for existing products at the radar company in Southeast Asia, North America and Europe, while the communications business made its first sales into South America. Looking forward, all 3 of the defense clusters key markets of Europe, Southeast Asia and the Middle East retain their strong growth trajectories. The graph at the bottom of the slide illustrates the clusters order book as it currently stands, which is well balanced across both local and export markets. This provides a cluster with a diversified product and geography exposure and largely eliminates any product, geography or customer concentration risk. Importantly, the strong execution performance of the cluster over the past 4 years has enabled it to now bid for larger and higher-margin defense export contracts as our customers seek to secure the long-term supply of critical products and services. The pipeline for the cluster remains robust and is complemented by good mining demand and increased spending on the South African rail infrastructure. And finally, after many slow years, there is improved activity in the South African defense space, which will further boost the cluster. We retain our view that the defense clusters growth trajectory is medium- to long-term in nature. Within renewable energy, the growth continued at the group's Solar Energy business as the key metric of EBITDA exceeded the prior years, although as expected and as we've guided, the growth rate has diminished of the double-digit levels that we have delivered in prior years. The business delivered good project margins and increased the quantity of owned assets under management during the year. By year-end, owned in construction and near financial close build-own-operate or BOO plants increased by 22% to 95 megawatts. Normalized EBITDA from these plants grew positively and exceeded the prior year by an impressive 71%. The group's wheeling business, Apollo had a solid year. Shortly after NERSA awarded Apollo its trading license in October 2024, Eskom indicated that it would take the award of the trading license and the other three companies that were awarded licenses at the same time on legal review. Apollo has continued normal business operations throughout the year and Eskom's actions have not impeded the business development achievements that they have made. Importantly, Apollo is concluding its first customer power purchase agreement and this agreement secures the business' revenue-generating capability, which will commence when the independent power producer finalizes its construction. Looking forward, the renewable energy cluster will continue to grow into 2026. The Solar Energy business has a good pipeline of BOOs and its track record on project execution and cost management, protect the returns on these projects. The commercial and industrial market or C&I market, which is the Solar Energy business' target market, remains robust as high energy inflation, unreliable municipal grids and battery storage, all present longer-term support for this market. Pleasingly, Apollo is likely to commence trading in 2026 with only the successful conclusion of the IPP project and Eskom's legal challenges being the inhibitor. In 2025, the strategic initiatives of the group had 2 key focus areas: firstly, strengthening of our international market positioning, to continue the recent good growth in non-South African revenues and secondly, to optimize the group's portfolio to strengthen the financial returns and growth prospects of our assets, specifically for our South African focus businesses with a current low interest, low growth environment may continue for some time. Internationally, despite the stronger rand and the reduced revenue into Africa, the group's non-South African revenues grew again this year. The group secured nearly ZAR 5 billion in non-South African revenues, delivering a 17% CAGR over the past 4 years. This focus on increasing these revenues and entering international markets remains a key strategic focus across the group. Both the electrical engineering and defense markets remain robust, and we believe defense specifically retains its high expectations for continued strong growth. Importantly, the circuit breaker access to the U.S.A. market and an improving Zambian economy after the devastating drought of last year create increased opportunities for the Electrical Engineering segment. The second key strategic focus area was to enhance the resilience and agility in some of our key operations. This was achieved through 2 mergers of existing assets and the disposal of one. The group concluded the sale of Blue Nova Energy this year. The rapid change in the South African battery market precipitated this sale, which has been concluded efficiently with no job losses and with a result that was significantly better than we projected in our half year announcements. In the secure communications cluster in our defense area, Etion creates a nanotech merged and in the ICT segment, ECN and Skywire emerged in the business communications cluster. These 2 mergers have delivered rapid synergies, have created larger business units, which have increased financial resilience and have simplified the Reunert portfolio. But perhaps most importantly, these mergers position these businesses for stronger growth. Nanoteq's encryption technology will provide new revenue streams to Etion Create export markets and will accelerate profitability of that entity, while in the business communications, Skywire's successful direct B2B go-to-market strategy will leverage ECN's channel partners and accelerate the growth rate of their last-mile broadband connectivity solutions. So ladies and gentlemen, in conclusion, and if we offer a view to next year, the momentum created through the group's positive second half performance and strategy execution positions Reunert well for growth in the 2026 financial year. It is anticipated that the South African economy will steadily improve as the impact of the energy and rail liberalization and port infrastructure investments continues, private participation in infrastructure projects increases and the benefits of the structural improvements flow into the economy. Whilst we believe this will be a steady increase, Reunert's track record reflects that steady economic improvement results in positive operating leverage and improved financial performance. Pressure is, however, expected to continue on the South African Electrical Engineering product volumes until the infrastructure investment increases, which is not anticipated to materially improve in the first half of the financial year, although they are at least expected to perform in line with 2025's results. When it will continue executing on its strategy and will deliver growth into next financial year through, firstly, solid growth in our offshore markets in the defense and circuit breaker business. Secondly, a refocused and restructured ICT segment is set to deliver sustainable growth. And finally, our renewable energy investments are expected to grow in both asset ownership and an enhanced trading footprint. Ladies and gentlemen, thank you for your interest and attention this morning. We'll now move into the live Q&A session. Thank you. Good morning, ladies and gentlemen, and thank you for your interest in Reunert and for joining us today for this 2025 results presentation. Prior to us just kicking off of the Q&A, I'd like to just spend a minute on my transition, which was also covered in a sense that was issued yesterday. We weren't able to include it in the webcast because the webcast was prerecorded. And for confidentiality purposes, it was left out of the webcast itself. But ladies and gents, just on behalf of the Board, I just wanted to share the following key messages, and there's 4 of them, that I think should be seen in conjunction with the SENS that we issued to the market yesterday. Firstly, this is a well-planned and structured process, and it carries the full support of both the Board and myself and is a culmination of an extensive and thorough process to identify and appoint the best person for the role. Secondly, the Board has confirmed that the group's strategy, operational and financial trajectory remains consistent with that, that we've been following for the past 5 years. Thirdly, I'm deeply invested personally in the success of Reunert and the success of this transition and my arrangements with the company and with the Board mean that I will remain involved with Reunert for the next 12 months to assist in ensuring its success. And I believe in Anthonie de Beer, we've got a candidate who's got the requisite skills, track record and leadership credentials to deliver sustainable growth for Reunert and long-term value for shareholders. And I think particularly important, his value system and culture are well aligned with Reunert, and we have full confidence in him. Ladies and gentlemen, on behalf of the Chair of the Board, any shareholder who would like to meet to discuss anything in the respect of this transition, if you could please let Karen Smith know, and we'll make the necessary arrangements to engage you directly with either the Chairman himself or the Chairman and myself should you so request. So ladies and gents, the Q&A will be managed by Mark Kathan, our Chief Financial Officer; and myself. I'll sort of try and chair the questions and move them in a direction whoever is most suitable between the 2 of us to answer those questions. Alan Dickson: The first question comes from Charles Boles at Titanium Capital. His question relates to the circuit breaker business. And the question is, over the long -- medium to long term, will Reunert remain competitive in exporting these products? Do these products not become commodity items over time where Reunert struggles to compete in the export market? So Charles, where we play, particularly in the U.S. market is we actually sell into the OEM market. We don't sell into the mass market as we typically do in South Africa. We design our circuit breakers together with the OEMs for the specific application that they are looking at. So there is a long run-up while we design, develop and approve those products. Those products go into their systems. And typically, they remain in those systems for the life of those systems. So when we talk about being involved in telecommunications or 5G rollout, once we approved, we tend to remain in that system for the life of that rollout. So they are long term in nature, and they are designed into those products where we work very closely with those OEMs in that regard. And those 2 elements give us quite a significant capability or competitive advantage to remain in those areas for a long time. More generally, if you look at our circuit breaker business today, we export 66% of all the product that we manufacture. So 2/3 of our products are exported globally. The fastest growing of those markets is the U.S.A., but we export globally. And that's not a new number. We've been exporting in that nature for at least 10 years, if not more than that. And I think that gives also an indication of the sustainability of our ability to export our circuit breakers and the likelihood that we will continue to do that, both from a strategic point of view, but also from the tactical way in which we get ourselves into those markets and remain in those markets. The second question is from Rowan, actually, the second and third from Rowan Goeller from Chronux Research. The first question relates to whether we expect an acceleration in transmission projects in the coming years given the 14,000 kilometers that need to be put in place or built by 2033. The short answer to that, Rowan, is yes. But if I give a little bit of color to it, we referred in our presentation that we have received and delivered some cables into those transmission projects that were executed by Eskom this year. But these are small projects. And we would argue that these volumes in the 2025 financial year are less than 10% of what Eskom will consume when these projects get up to full scale. So we anticipate a growth from where we are now, let's call it, less than 10% of what we expect, somewhere up to about 100% for those Eskom projects over the next 2 or 3 years as they ramp up those projects and the construction phases of those continue to accelerate. The other part of that question is that Eskom will do a portion of these transmission lines and private that PPP projects will do another portion. And to date, there are no PPP projects in place. The bids for those have been delayed. They were meant to be submitted now in November. They've been delayed until the middle of next year, and then those will start to ramp up from there. So there's none of those volumes in these volumes that we see at the moment. So we see a significant ramp-up in cables to go into those transmission projects, first of all, into the Eskom-led projects and then following those into the PPP projects, which will come a little bit later on. Rowan's next question relates to the growth rates that we expect in the defense cluster over the next 3 years, given the increased global spend on the defense segment. So in terms of that, we do anticipate still steady growth in terms of that defense market. We shared with you in the presentation the distribution that we have globally of our order book at the moment, which roughly, roughly is about 25% for each of our major markets, which really gives us a broad market access. All of those markets are looking for our products and services, and we're able to sell into those consistently across the globe at the moment. So without putting too fine a number on it, 2 comments I want to make. First of all, we believe it's a medium- to long-term trend in growth in our defense business. We've got that type of sustainability in it. And we anticipate that we will be doing double-digit growth for the next 3 years at least. The next question comes from Timothy Olls from Laurium Capital. There's 3 questions he's put in. One is that segmental EBIT from other dropped from ZAR 196 million last year to ZAR 109 million this year, and he's asked for some clarity on that. We don't often give too much clarity on it, but I'm going to ask Mark if he's got something, I asked him when the question first came on. Perhaps he's got something to offer without giving too much away on it. But Mark, do you want to field that one first for us, please? K. Kathan: Yes. So Timothy, last year, the share price -- the closing share price was higher than this year's share price, which is at ZAR 53. So when we provided for the ESOP, that's the employee share plan on the BE scheme as well as on the conditional share plan, we provided at a higher share price. So this year, we had a lower share price and hence, we charged less to the income statement. Alan Dickson: Thanks, Mark. Perfect. The second question that Timothy has is what is the total EBIT loss for the renewable energy this year? And when do we expect it to break even? I'll need to do some homework. Again, we don't normally give the level of detail at a particular business unit as that. So Timothy, we'll revert back to you on that one, but not be able to share with you the exact levels of the numbers we've got. I don't have those at hand as we speak right now. And then the third question relates to the record fuze and radar performance. And the question is where will all the growth come from here? And are the higher EBIT margins of approximately 24% in defense sustainable? So there are a number of our markets where further growth comes from. So in the fuze market, there is definitely further growth, and that really comes from increased volume into more geographies. We did share with you that we have got new fuzes into the Middle East, and those haven't reached full capacity yet. And equally, we are underexposed to some markets in Europe that we are actively trying to penetrate. So those are the 2 areas in the fuze business that we still anticipate further growth. And in the radar business, a portion of the radar businesses and the radar's revenue and income in this year relates to, what we call, strategic IP co-development. And that's the development of IP and a product. And when that is approved, which will be done by the end of this year, that over time converts into a production run. And we will then benefit from that production run going forward, which actually brings run rate growth into that business. So that's the source of the growth both for fuze and radar. And then if we look more broadly across the rest of the cluster, we can anticipate greater and improved profitability still from our communications business and Etion Create on the back of improved export potential for them. So we have quite broad opportunities for growth across our defense businesses. And then with relating to the defense margins, we think our margins remain healthy. The supply and demand at the moment is such that we can price correctly. There is one element in that, that one should take cognizance of. And around about 90% of our sales this year were export in nature, and those are in hard currency, either euro or dollar based. So to the extent we have a strong rand, somewhere around about the 17 that we have now or even if it gets a little bit stronger than that, that would put a little bit of pressure on to those margins, not material pressure on to it. But just from a, call it, an analyst point of view or shareholder point of view, one should remain or be aware and take cognizance of the fact that our exports and defense are all hard currency based and the rand does play a little bit of a role on that. We tend to hedge those revenues to protect them. But obviously, when it gets very much stronger, there would be some negative impact on the margin in terms of that. We then have another question or the next question is from Myuran Rajaratnam from MIBFA. There's 2 questions. One is, is our circuit breaker business exposed to the data center market in the U.S.A.? Yes, it is. We have a couple of access points into those data centers, and it's part of the good growth that we're seeing into that market at the moment, and we expect that to continue for some time. And then also asked a question around for a group with diverse segments. If I was forced to choose, although both are important, is it more important for the group Chief Executive to be good as a technical engineering person or a good capital allocator? It's a question that we thought deeply about through the process. Reunert today has a very strong executive team. We -- and the executive team is structured with Mark as the Chief Financial Officer; Mohini Moodley, HR Director and Sustainability Director. And then we have 3 segment heads. Each one is responsible for their line of responsibility, one for Electrical Engineering, one for ICT and one for Applied Electronics. And those gentlemen carry the biggest responsibility of, let me call it, the technical expertise and the delivery of the numbers. And our view was that within such a strong executive committee that we have at Reunert at the moment that it was important to have somebody who was a good allocator who understood how to run a portfolio and was capable to provide some inorganic strength to the group going forward as well. The next question is from Siphelele Mdudu from Matrix Fund Managers. He's asked, how should we be thinking about our circuit breakeven margins into the U.S.A. Will volumes more than cover the rand that are lost? So we think there is some thinning in the margins. Roughly, we believe we are able to recover somewhere between 65% and 70% of the tariff costs that we've got. So that's the nature more or less of the margin degradation into those circuit breakers, but we think that's sustainable. We don't think it gets any worse. And we are working with our customers to try and make those recoverables better, but we don't think they're going to get any worse at the moment. So we think the margins that we see in this year are probably the lowest that we'll see into the circuit breaker business going forward. And at a percentage level, we don't necessarily think it gets much better in terms of how much of those tariffs we can recover. But certainly, in a rand volume point of view or the rand growth that will come through the volumes, we do think that will more than cover the cost that we had in this year. [indiscernible] from RMB. The question is continued cash generation in the business. May we understand if there are any key plans for this cash going forward? I'm going to ask Mark if he can turn to that one, please. K. Kathan: Yes. [indiscernible], we have a very defined cash allocation policy as to how we invest our cash. And we would look at -- number one, we would first look at business requirements, and that would take working capital into account and then around our fixed assets, around sustenance and expansion. And then at the same time, we would then look at how we would distribute cash to -- on investments, if there are potential acquisitions or at the end of the day, we look at dividends and share buyback. So there's a defined process that we go through. And -- but the intention is obviously always to look at -- to come back to shareholders and tell them what we're going to do with our cash. Alan Dickson: Thanks, Mark. And then I'll ask you to do the next one as well from Myuran from MIBFA. And he has asked, can you please give some color into the nature of the amortization of intangible assets that we have reported as well as our annual investment into intangible assets in rands. K. Kathan: Yes. So Myuran, there are 2 distinct differences in the intangible assets, how we account for them. The first would be on acquisition where we would allocate part of the purchase price into intangible assets. And that will be typically customer lists, et cetera, that we write off those intangibles typically between 3 and 5 years. That would be part -- that will be on acquisition. And then in our defense cluster, we would also create some level of intangible assets, whereby we will start creating technology. And that would be part of our annual CapEx budget, and that will also be written off over the contractual period that we have with customers there. Alan Dickson: Perfect. Thank you, Mark. Ladies and gents, that's all of the questions that we have at the moment. I'm maybe just going to wait 10 seconds or so just to see if there's any last-minute questions that pop in. Okay. We've got one from Kgosi Rahube who just beat the bell from Melville Douglas. Can you please provide more insight into the expected improvements in South African defense given that the key issue has been the defense forces constrained budget? Yes, I can, Kgosi. There's been a little bit more budget that has been allocated. And certainly, one of the programs that have been announced that have been awarded is the armored vehicle program, which is a large vehicle program to replace the legacy Ratel vehicles. And into that vehicle goes some of our products, particularly our communication products. There's one example whereby we are seeing the kickoff of some larger scale projects, and that first one, as I've described, has been allocated. So there is some more budget that has been allocated into the South African defense force. There is no shortage of need for projects and expenditure there. So as the funding becomes available and as I think South Africa's fiscal position becomes a little bit better, which we do anticipate over time, we do believe that there will be more funding flowing to the SANDF for some of these projects. And our exposure at Reunert across those requirements is actually very good. So invariably, when any large capital project gets announced, we will get the benefit from that. Now it will take a little bit of time before that comes into play in the communications, so probably not in 2026, but 2027 onwards. But those type of projects coming through a real boost to our export volumes that we've got at the moment, which are also long term. So yes, we do think sort of this increased allocation to the SANDF, we do believe is part of our view that South Africa gets steadily better. [indiscernible] thank you for your kind words as well. I appreciate it. Thank you very much for that note. And ladies and gentlemen, that brings us to the end of the presentation today and the Q&A session. Thank you very much for your attention. We appreciate you taking time out to listen to Reunert and Mark and myself today. We appreciate your interest and your -- and value your contribution. Thank you very much, ladies and gentlemen.
Unknown Executive: 3 quarters of 2025. And as you maybe already saw in the presentation, we have plus 6.7% in revenue to CHF 845 million. EBITDA is up 2.4% to EUR 377 million and group net profit up 4.2% to EUR 215 million. So overall, very, very encouraging results. The only problem we face since maybe the last 3 years, but especially '24 and '25 is an ongoing cost pressure, which burdens our EBITDA and is slightly reducing our productivity. As you see in the latest figures of passenger growth, our guidance for 2025 is well based, and we can confirm it right now with already a clear visibility for full year expectations. What we need now is an efficiency improvement and cost reduction program, which is under work right now because we are in the process of making our budget for 2026, which will be for approval in our Supervisory Board mid of December. And details for the program, we will release beginning of January with the traffic results of 2025. But what we hope for is and what we are working on is to at least partially mitigate the effects of the tariff reduction and maybe lower traffic results for the coming year. I mean, cost management is always a very important issue. And I'm very positive that we will reach a lot of effects throughout the whole company in all departments, in all our daughter companies. And last but not least, we will also reduce our personnel costs, which is the most challenging issue all the time. But with a step-by-step approach, I think we will be also successful there. If we look at the figures more in detail, you see that despite the fact that interest rates are going down, we maintained a positive development of our financial results, only slightly below the first 9 months of 2024 with now EUR 11.6 million compared to EUR 11.9 million. And from today's perspective, we will have a lower EBITDA margin. It was 46.5% in the first 9 months of 2024. It's now 44.6% for the first 9 months. So it's not too bad at this level, but definitely, it's less than it was the year before. And the reason for that is that cost increases all over the board and especially also with personnel costs negatively impacted overall profitability. If we move on to expenses, you see that consumables and services used could kept more or less stable. Personnel expenses went up by 9.2%. If we put into account the change in consolidation of our subsidiary GET2, which is responsible for the cleaning, the personnel cost increase would even be 13.4% year-on-year, including also a high degree of increase from Malta. That's even beyond the cost increase here in Vienna. Other operating expenses went up by 11.6%. That is the other side of the coin of the personnel expenses of GET2, which has been included for in the personnel expenses and is now in the other operating expenses. Depreciation is slightly below the figures of 2024 and as already mentioned, EBITDA margin at 44.6% compared to 46.5% and EBIT margin at 33% compared to 33.9% in the last year. If you look at our cash flow, you see that it is slightly down. Cash flow from operating activities from EUR 322 million to EUR 268 million. On the other hand, the free cash flow went up 26% from EUR 114 million to EUR 145 million. The increase in CapEx is as planned. So we went up from EUR 131 million to EUR 199.5 million. And we will see how much will be added until the end of the year. So we will end up below the expected EUR 300 million, but not too far from that. The net liquidity was slightly reduced also by the high dividend payout and is now at EUR 438 million compared to EUR 511 but it's still on a very satisfying level given the fact that we are now in a cycle of investments and still we plan that we will finance the major investments of the coming years out of cash flow and net liquidity. So we will not need credits for the foreseeable years now. Equity went up from EUR 167 million to EUR 1.731 billion, so a plus of 3.7% and an equity ratio of roughly 70%, which still is a very good figure. Our Southern expansion of Terminal 3 is on budget and on schedule and will open as planned in 2027. We now are going to work on the tenant fit-outs and interior construction work and all the technical systems and the energy supply and as well as the connection to the existing terminal areas, but everything so far is on plan and no major issues there. We are also expecting the new hotel to open operations already in December. And we will start in the next weeks the expansion of our Office Park 4 so that we can start the operation there at 2028. A lot of other projects are underway. And so far, everything is within the plan. So last but not least, to remember the financial guidance for 2025. We expect a revenue of EUR 1.80 million, EBITDA approximately EUR 440 million or even a little bit better. Group net profit approximately EUR 230 million, maybe a little bit better given the latest traffic results and CapEx somewhere below EUR 300 million, but more or less close to EUR 300 million, we should end up at the 31st of December. So that are the main information and figures from my side, and I hand over to Julian. Yes. Julian Jäger: Yes, I will continue with the traffic development. In the first 3 quarters, we saw growth in the group of 4%, 32.9 million passengers, mainly driven by Malta, plus 10.8%; Vienna, plus 1.9% [indiscernible] nearly 10% growth. Yes, we had a strong October. Vienna was better than in the rest of the year as well with 3.1 million passengers, plus 3.7% Malta, again, a stunning 16.7% and [Kosice] more than 15% growth. So overall, we are at 4.3% growth in the group in January to October and plus 11% Malta, plus 10%, [Kosice] plus 2% Vienna. If we continue on the next slide, the peak was very strong. So we had a solid passenger growth in summer. We had in August, the highest month passenger volume in history, 3.4 million passengers in Vienna. We had a new single day record with more than 120,000 passengers in August. So overall, a very positive development here in Vienna, ongoing robust cargo growth of 7.8% to 233,000 tonnes in Q1-Q3. So overall, I think we can be happy with the development as well. Although we know we will not reach these figures next year, but I'm coming to that later. I think growth factors are really strong. If you look at October, last year, we had a record year in terms of growth factors. This year, October was even better and January to October, slightly below the 2024 figures. So overall, I think we can be quite happy with the development. If we look at the regional distribution, I think the only thing which is probably outstanding on this slide is Asia Pacific, plus 25% market share, 4%. So we saw growth to Tokyo, Bangkok, Singapore, Beijing, Chengdu. Overall, as expected, Asia, East Asia is coming back with a certain delay after the pandemic. North America, essentially flat, Europe essentially flat with the exception of Eastern Europe, here, mainly Southeastern Europe, Tirana, Pristina, Chisinau, Burgas growing. Middle East, slight below growth, plus 2.2%; Africa, plus 2.9%. So overall, I would say, a satisfying development. Looking at the lines, Austrian, slight growth, plus 0.8%; Ryanair flat this year, Wizz Air already a slight reduction of minus 4.4%, Yes. And I think the rest is pretty solid. Pegasus growing, Etihad growing. Overall, I would say, yes, an okay development. Lufthansa Group pretty much flat, close to 50% market share. Low-cost carriers probably for the last time for a couple of years, above 30% market share, 30.4%. So we will see here quite some significant changes in the distribution of our passengers next year. But overall, yes, a good picture this year. What works really well in Vienna is operations, punctuality, again, amongst the top 3 above 25 million passenger airports, just also in Copenhagen in front of us with an average of 83.7%. Again, like most airports this year, we improved punctuality in 2025, but we are still, yes, in the top 3. So I think better than Munich, better than Frankfurt, better than Zurich. So especially within the Lufthansa Group, we kept our lead as the operationally best hub of Lufthansa Group. Yes, what do we have to expect in terms of low cost next year? Wizz Air will close their base operations in Vienna already went down to 3 aircraft in the winter schedule and will close the base completely mid-March. Essentially, I think this was the result of a strategy change of Wizz Air. I think they will concentrate again more on Eastern Europe. We had -- until, yes, mid this year, we had interesting discussions with the top management about a possible base of XLR here in Vienna and flights to India. As you know, they reduced the order of the XLR then very significantly from more than 40 to less than 10. So I think this strategy has changed from Wizz Air again. They are leaving the Middle East essentially. In Vienna, we always had a high proportion of flights to the Arabian Peninsula. So overall, yes, we would have had to reduce our charges so significantly that on the one hand, we didn't want to do that. On the other hand, I think even legally, this would not have been possible for us. So that's why we eventually decided to close their base here. Ryanair, in my perspective, will attack Wizz now in Bratislava, and we will see quite some growth here in Bratislava next year. My impression is that Ryanair wants to get rid of Wizz Air in the catchment area. So therefore, yes, my impression is that what we've seen here in 2019 that Ryanair is fighting their turf and showing with their limits will happen next summer in Bratislava. And yes, it's anybody's guess how this will end. Obviously, I would say, in terms of Ryanair reductions, we are a bit the victims of the circumstances in terms of tax environment in Vienna. We have a flat EUR 12 per passenger tax. As you know, Ryanair is fighting all the governments, which have taxes on aviation in place. So -- the same here in Vienna. They are taking the Austrian government quite fiercely. If this strategy works out or not, we'll see in the future. But obviously, if you take this EUR 12, this is roughly a 40% increase on our airport charges. And obviously, in a competitive environment where Hungary, Sweden reduced their charges to 0, where Slovakia is actively supporting airlines, especially for the intra-Slovakian flight from [indiscernible] to Košice. This is a competitive disadvantage. So therefore, we will, yes, do our utmost to get here at least a reduction in the future. But yes, which is difficult to achieve on the short term. We still don't exactly know the flight plans of Ryanair for next summer. I think we will see -- hopefully, we have some more clarity here in January. I mean those reductions are painful and will put pressure on revenues, costs and result next year. But I think we have to see it a bit in perspective as well. And you probably -- those who are covering us for a couple of years already know that we had extraordinary change in 2018, '19 following the Air Berlin bankruptcy. So to a certain extent, it was always clear that probably not all of the growth is really there for the long run and really sustainable. So we saw huge growth between '17 and '19. We went from 24 million to 32 -- or nearly 32 million passengers. We recovered very quickly after the pandemic. And now we will see next year a reduction of something around 2.5 million passengers from Ryanair and Wizz Air, probably a bit more. But overall, if you see our average growth, which was 5.3% between 2000 and 2019, so significant above the European average, I think we will sustain a year or 2 where we are below our record, which we will achieve this year. And I'm pretty optimistic that we will reach the 32 million passengers and probably surpass this mark in 2025. To talk about the positive developments, Austrian is, let's say, fighting back. They will base 2 additional aircraft next summer. They will launch a Dubai service. We will see increased frequencies to Bangkok, to Mauritius to Rome. So overall, I think a good summer flight schedule as far as we see it today for '26. Scoot will increase next year by frequency to Singapore, Air Corsica launches new flights to Ajaccio and Bastia, Air Baltic resumption of flights to Tallinn as of March. SES has come back to Vienna recently, 12 frequencies per week to Copenhagen. Condor just increased their frequencies to Frankfurt up to 3 daily. EasyJet is expanding their offering. Air India is going to 4 frequencies. Air Arabia with a daily frequency to Sharjah. What is not on this slide, but what news which reached us very recently, we expect Etihad to increase by 4 weekly frequencies by next summer. So overall, there are positive developments as well, and we will lose a bit of ultra-low cost, but we will get some other capacity as well. And I would say, overall, the passenger outlook for 2026 remains challenging at this point. Typically, airlines announce their capacity at the beginning of the year. So there's still a lot of movement. And you can see here that we still get news in the one or other direction. So therefore, as I said, the capacity reduction of Wizz and Ryanair from today's perspective should be roughly 2.5 million passengers, maybe a bit more, but we are confident to compensate around 1/4 of this reduction. And as usually, we will get in much more detail in this respect in January. Yes, I think I've said everything to this slide. We can confirm our passenger guidance. We will probably slightly head the 32 million in Vienna. We will get very close to the 10 million in Malta. We will have a record in Košice. So I'm optimistic that we will surpass the 42 million passengers in the group. Yes, record results wherever we look, but we all know that 2026 will be challenging for us. Still, I would say there are some -- we can see some light on the horizon as well. I think -- if the Middle East remains or will get more peaceful than in 2025, I think this would be a huge opportunity for Austria. I think these are extremely important passenger flows from Tel Aviv to the U.S., but as well from Tirana. So the whole region, Aman. So I think there's a lot of potential for Vienna in the Middle East. obviously, Ukraine was always a very important market for us and would be a strong market for us again. So midterm, we are optimistic that sooner or later, these geopolitical tensions will ease, and I see quite some growth potential from these areas. Coming to the segment results, starting with the Airport segment. Yes, I think we obviously capitalize on the passenger growth Q1 '23, plus 7.8% in EBIT, plus 4.1% EBITDA, plus 5.7% revenue. Overall, healthy results, I would say. Obviously, there as well. And in so far, we'll get a double whammy next year with reduction in passenger numbers, reduction in passenger charges. So the passenger service charge, minus 4.6%, landing fees, minus 2.1% to be expected. The formula kicks in again. But obviously, this will not make our life easier in 2026. Coming to handling, I think we had a strong third quarter overall, still below the 2024 figures. EBIT of EUR 8.4 million versus EUR 10.9 million in 2024. Obviously, this is the area where the personnel expense increase hits the most. We've got 1,500 people in ground handling. We have 1,000 people in security. So overall, this is where we feel the hit. Still, I think in terms of revenue, things are going in the right direction. Cargo, in particular, very strong. So overall, we -- I think the development is okay. We are significantly positive, but we see here the pressure in terms of staff costs, and this is an area where we will have to focus on a lot in the coming months and years. Just last week, we celebrated the establishment of AIRZETA, the newly established South Korean cargo airline, which officially launched their operations in Vienna and selected us as their primary European hub. So overall, we are still optimistic that cargo will continue to grow, and we are doing our utmost to keep here very close relations, in particular, with the big Korean airlines like Korean and the newly founded AIRZETA, which is joint venture of Asiana, which went bust and Incheon. Retail & Properties, yes, I think in reality, the result is better than the figures shown here actually because we have a flat EBIT development when the revenue increased by nearly EUR 8 million or even more than EUR 8 million. I think we had a number of negative one-offs, respectively, one positive one-off in the same period of last year. So we were impacted here by increasing personnel expenses, mainly provisions and costs related to the demolition of existing buildings for the purpose of space optimization. This is a negative one-off, those are the 2 negative one-offs in the third quarter this year, and we had a positive effect relating to the reversal of a bad debt allowance in the previous year. So overall, if we remove these one-offs, we would have the normalized margin here in the Retail & Properties segment. So overall, I think the negative one-offs were a bit more than EUR 4 million. The positive effect last year was a bit more than EUR 1 million. So overall, we are talking about more than EUR 5 million one-offs, which seem to burden this segment. What is still encouraging. So I think overall, sales in center management and hospitality and parking in Vienna are above the passenger development. So center management revenue plus 7%, parking plus 5%, rentals plus 2%. And we see a lot of interest in our tender for the space in the South extension of Terminal 3. We are in the very final stages of choosing the operators for our 10,000 square meter extension. And in particular, in terms of F&B space, we are at the very late stage, and it will be sincerely best of Vienna with very good commercial offers as well. So we will disclose this in the coming weeks, and we are quite happy with the outcome of this tender. Yes, let me come to my last slide, Malta, yes, uninterrupted rise in passenger volume, revenue, plus 10%, EBITDA plus 6.7%, EBIT plus 5.4%, EUR 62.7 million, strong growth to Poland, again, Ryanair growing, Wizz Air growing more frequencies, new destinations in the winter flight schedule. So as far as I can judge. I think the outlook for next year is not bad as well. Hotels being built or extended in Malta. So overall, Malta is still banking a lot of growing tourist numbers. And therefore, yes, we remain optimistic in Malta as well. Obviously, as you know, we have a very significant investment program in Malta. We need to urgently extend the terminal building, which just started now, I would say. We have already extended the Apron, which will now cover us for, yes, the coming decades, I would say, in terms of aircraft parking space. We are building a new Sky Park building. We are building a hotel. So overall, I think there's a lot going on here in the next 3 years, I would say. But due to the significant growth, this is urgently needed to cater for the growing passenger numbers. Yes, that's it from my end. Thanks a lot for your attention, and we are happy to discuss our report now. Unknown Executive: Yes, let's start the Q&A session. Happy to discuss any topics of interest. Hands are already raised. Let's go in order, Vladimira, please go ahead. Vladimira Urbankova: Congratulations to a very solid set of numbers and it seems to be that growth is maybe more dynamic now in October than one would originally anticipate. Yes. My questions would be focusing on upcoming challenges. That means 2026, you said that you plan to introduce cost reduction and efficiency improvement program. Could you a little bit more elaborate what are the key elements of the program? And if you can share maybe already some preliminary scope of savings you want to achieve? And next would be, yes, you pointed out to the lower passenger numbers because of the withdrawal or partial withdrawal of low-cost carriers. Do you have maybe some plan here how to improve position of Vienna, increase its attractiveness? Do you take some active measures to fill in this gap and get maybe more passenger traffic? Or you simply wait and see what are the plans of other carriers? So this would be my major questions. Julian Jäger: Yes. Starting maybe with your first question, that's our daily work now and work in progress because we are in the second half of our budget process. And what you can expect is that through the whole company in all departments, in all our daughter companies, we defined measures to improve productivity and to lower costs. So material costs, service costs, personnel costs. So in all parts of our operations, we are defining such measures. What is not possible right now is to give you an exact number what it will end up because this is part of the budget that will be approved by the Supervisory Board in 4 weeks from now. And what I can generally claim is that we try to offset as much as possible from the effects for 2026. Will we be able to offset all of the problems? No, that would overstretch, I think, the possibilities, but it will be a very substantial part of it. Günther Ofner: Yes. Let me continue with your second question. We obviously never just wait and see [indiscernible]. So I think we are always very actively engaging with our airlines regardless if these airlines are already operating in Vienna or they are not yet operating to Vienna. So we are obviously -- and our team is in touch with, I would say, all relevant European airlines. And obviously, it will not be easy to replace 8 or 9 aircraft here in Vienna on the short run. There is no airline I can see, which would just come and base 8, 9 aircraft here in Vienna. So I think we will have to work with many individual airlines to replace the capacity over the years in total, but not with one bang and one airline. I mean, obviously, easyJet comes to anybody's mind, but easyJet is a very slow mover. And therefore, as I said, I think -- and I think you saw the list. So there is a number of good news and airlines coming back to Vienna growing in Vienna, but it will take until we replace this intra-European capacity. And on long haul, me and my team, we are constantly in touch with airlines, mainly in Asia who could fly into Vienna. And there, I'm optimistic as well we will see in the next 1 or 2 years, like we saw in recent years with the comeback of ANA Air India. Now this year, we got school from Singapore. So I'm very optimistic that we will see here some long-haul growth as well. In terms of conditions, we reduce our charges or we have to reduce our charges next year anyway. So this should improve our competitive position a bit. We will definitely do our utmost, but probably in a completely different style than Ryanair to convince our government that overall, it would be a net contribution to the Austrian budget if there would be a reduction in the tax because this would be financed with more tourists coming to Austria. But I don't foresee next year any other changes in terms of charges. I think a reduction on average of 4% is anyway a significant improvement. And what we will stop next year is the winter incentive. So the winter incentive is still applicable now in January and December, but it will not be applicable anymore next year. Vladimira Urbankova: Yes. This was my sub question, if you have any incentives already in plan maybe to attract more airlines. Günther Ofner: I think honestly our. Vladimira Urbankova: Of existing players. Günther Ofner: For new airlines and new destinations, we have an attractive package anyway in place. For airlines which have a certain volume, I think we have good conditions. I think what really harms us is the ticket tax, and you can see the development in Germany, where the German government now is reducing the ticket tax. They are not abolishing it. But I think in terms of ultra-low cost, our biggest problem is the ticket tax. And I think it shows how strong our market is that in the years after COVID, they didn't care. But now more and more countries reduce aviation taxes, and this makes obviously the competitive environment for us more difficult. Unknown Executive: Henry, please continue. Henry Wendisch: Congrats on the strong results. I have, yes, one question regarding the latest topic we just talked about the air taxes. So we already mentioned Germany is reducing them, not abolishing them. But I've seen that in Austria, there's a parliamentary motion to abolish it completely. This is, I think, by the FPU, or the opposition party. So sort of what is your assessment on this that it might go through even? And then a direct follow-up question, would this maybe alter the decision of Ryanair and Wizz Air to reduce? Or is this more or less final? And maybe then speaking more long term, if this may be reduced, we will see this effect now, the Ryanair and Wizz Air reduction now, but then maybe 2027, 2028, they will come back now because the capacity planning is already done. So what sort of your idea here? What's your take on this? Julian Jäger: I think there's a 0% chance that this motion goes through. I think it does not help. And this is where I completely disagree with Michael O'Leary, although probably not in content, but in style. I think there would be a lot of discussions behind closed doors necessary to get a reduction or an abolishment of the ticket tax. It does not work with the sledge hammer, I would say. But let's see. So I don't think that -- I mean, we have a double budget. '25, '26 and nobody in the government will touch this budget now. So the earliest imaginable reduction would be in 2027. We will do our utmost, and I think we have a lot of good arguments, but there will be no change immediately. I think Wizz Air even -- I mean, in the end, they had a lot of troubles in recent years as well with the capacity, with engines and so on. So I don't see Wizz Air coming next soon. I think we will -- it will be interesting to see how the battle between Ryanair and Wizz Air will turn out next year in Bratislava. But obviously, yes, if there would be a significant reduction or even an abolishment, [indiscernible] year to date. So I think we will have to wait and see. We will try to convince our government to give here really a reduction in the financial burden on the airlines. And then I would be optimistic that we would see ultra-low-cost growth again in Vienna, probably more from Ryanair than from Wizz Air. Henry Wendisch: Thanks for the political sort of more color on this. That helps a lot. because we don't follow in Germany here, your Austrian news on a daily basis. So it's always good to have this picture. Then second question for me is maybe for Dr. Ofner, I've seen the operating cash flow was lower due to cash out for taxes, mainly in this I see if I look at the P&L, there's a discrepancy between P&L taxes and cash taxes. So what's sort of the difference here? And can we expect something like that to revert back in the coming quarters or years? Or what's sort of behind this? Günther Ofner: Yes. I mean, in the phase of Corona and immediately after that, all our prepayments have been reduced. And now we have to, let me say, refill what we didn't pay in advance. And we also have now higher advanced payments. And all that sums up to roughly EUR 120 million. And it includes also the tax payment in Malta for 2025, which amounts to roughly EUR 33 million. So it's a normal process. And in '26 and the following years, we will not see such extraordinary events because the prepayment now is adapted to the expected results. Henry Wendisch: Right. And then my last question, I think also for you, Dr. Ofner, on next year personnel expense. So now the inflation rate is still at 4%. The [indiscernible] expects 2% for 2026, if my understanding is correct. So that gives us sort of something between 2% and 4% for, I think, a demand for the collective labor wage increase for next year as well. So this is sort of against your cost efficiency program or one step against this. What sort of your take if you had a -- I mean, you don't have it, of course, but if you had a glass ball to look in the future, what would your estimate be on the wage inflation for 2026 for the one in May, actually? Günther Ofner: So it will definitely below inflation rate. I mean, finally, we will have to agree for the new collective agreement in May 2026. But we definitely will be below inflation. And we will reduce workforce throughout the year. So altogether, I hope that we can see an absolute reduction in personnel expenses compared to 2025. Unknown Executive: Philip, your questions are still on the table. Philip Hettich: Hope you can hear me. First question, I just would like to revert on the incentives on the winter incentives of Wizz Air again. So could you elaborate again why you don't want to repeat those incentives given the pressure on traffic is much higher this year. So what basically changed here on your thinking compared to last year? And then also regarding traffic, can you already judge how much of the planes of the ultra-low-cost carriers that have left the Vienna base will maybe be compensated by them still flying into Vienna from other bases? Is there any visibility that you have here? So this would be the first 2 questions that I would have. Julian Jäger: Yes. To start with your second one, no, we don't have visibility there. I don't expect that Wizz Air will fly a lot into Vienna, probably not at all. But Ryanair, we don't have yet full visibility. So we don't even have full visibility for February and March. So there are still some things in the air. And yes, overall, I just have to delay this discussion for January. We'll get every day some good news, some bad news, but the net effect of the reductions of the ultra-low cost in next year, we will just get a better idea in January. Regarding your first question, I think this is pretty easy to answer. When we introduced the winter incentive this year, we looked at a very significant increase in airport charges, plus 4.6% passenger service charge. And what our idea was back then to even it a bit out. So that's why we introduced the winter incentive. And I would not see that, again, the winter incentive would have any significant positive impact on capacity next year. And therefore, with a reduction of 4.6% on our passenger service charge and security charge, we -- that's why we discontinued this incentive for next year. Philip Hettich: Okay. Okay. Understood. And then maybe one more for the retail segment. Do you also see any weakness here as regards to the spending per passenger from any potential weaker macro? So is there a feeling that you see that passengers just take back on their spending at your shops at the airport? Julian Jäger: Actually, this is something we expect all the time, but it doesn't really happen that much. What we see is a reduction in banks. This is not a major part of our business. So the market share here is minute. But this is an area where we see constant decreases, which is not a big surprise given that we don't have a lot of Russians anymore that we -- so passengers from areas where you usually carry some cash and exchange it are significantly less than probably before the pandemic. But all the rest is at passenger development or even above. So this year, so far, we cannot complain. And in terms of F&Bs, it's good. or it's significantly above the passenger development. duty-free is slightly above the passenger development. So overall, we are satisfied, I would say, with the development. And yes, as I said, PRR center management and hospitality cumulated is 5.7%. Passenger development is below 3% in Vienna. So overall, it's okay, I would say. Philip Hettich: Okay. And then maybe one more, if I can, on Malta. So the EBITDA margin reduction in Malta that led to basically a flat Q3 EBITDA year-over-year. Is it mainly due to investments that you are now conducting? Or is there any other effect here weighing as well that you would see pressuring margins? Julian Jäger: I mean it's -- I would say it's not only investment. We see some cost uplift overall in motor as well. But CapEx is part of it and CapEx will expand in the coming years. So we will invest more than EUR 100 million probably next year, and we will invest more than EUR 300 million until 2030, so in the next 5 years. So overall, I think we -- I mean, if you see the passenger numbers going through this small terminal, which has insignificantly changed since I left in 2011 when we had 3.5 million passengers. I think everybody will understand that we will have to invest here very significantly. And therefore, yes, I would say probably not next year, but in the years to come, the margins in Malta will reduce here as well. But overall, I see still a very strong sentiment in Malta. I see a very ambitious government in terms of how to grow tourism figures. I see a very strong cooperation between the tourism industry, the airport and government. So overall, we are very optimistic for the future development here. But yes, obviously, to sustain these levels of passengers and cater for future growth, we will have to invest here very significantly. Unknown Executive: Any further questions? No hand is raised, then I would thank everybody in the call for discussing the topics of interest for showing the interest in Vienna Airport. And the next scheduled event is January 20 with the traffic figures for 2025 and the outlook -- financial outlook for 2026. Thank you. Julian Jäger: Thank you. Bye-bye. Vladimira Urbankova: Thank you. Bye-bye.