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JBSS 2026 Q2 财报电话会议

Operator: Good day, and thank you for standing by. Welcome to the John B. Sanfilippo & Son Second Quarter Fiscal 2026 Operating Results Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand it over to your first speaker today, Jeffrey Sanfilippo, Chief Executive Officer. Please go ahead. Jeffrey Sanfilippo: Thank you, Victor, and good morning, everyone, and welcome to our 2026 Second Quarter Earnings Conference Call. Thank you for joining us. On the call with me today is Jasper Sanfilippo, our COO; and Frank Pellegrino, our CFO. We may make some forward-looking statements today. These statements are based on our current expectations and they involve certain risks and uncertainties. Factors that could negatively impact results are explained in the various SEC filings that we have made, including Forms 10-K and 10-Q. We encourage you to refer to the filings to learn more about these risks and uncertainties that are inherent in our business. Turning to results. We delivered record-breaking top line growth and achieved an approximately 32% increase in diluted earnings per share for the quarter driven by executing our ongoing strategic initiatives of disciplined cost management, operational efficiencies and strategic pricing actions. While these results are encouraging, we continue to navigate headwinds from shifting consumer behavior, emerging health and wellness trends and elevated retail selling prices, which weighed on overall sales volume. However, we have a strong and diverse set of products that align with these emerging health and wellness trends and priorities. We are further expanding our pipeline with new innovations to capitalize on these trends and growth opportunities. We believe that the recent reduction in trade tariffs on most imported nuts, primarily cashews, should help lower selling prices of certain products over time and support future demand. I'm confident that we have the right team, capabilities and focus to navigate this dynamic environment successfully and capitalize on growth opportunities. We remain committed to driving growth and profitability to deliver long-term value to our shareholders. At the start of the third quarter, we distributed a special dividend of $1 per share, reflecting our strong financial position and disciplined capital allocation strategy. This return of capital to our shareholders occurred concurrently with one of the largest capital expenditure initiatives in our company's history. These strategic investments position us to enhance operational efficiency, expand production capacity and capture emerging market opportunities to support sustained growth and profitability. Our management team has set clear priorities as we finish out the back half of fiscal '26 and start to build our financial plan for fiscal '27. One of those growth priorities, which we have talked about on previous calls, is to accelerate our snack and energy bar business. While the industry is experiencing softness in certain segments of the bar category, including fruit and grain and granola, the protein-forward bar segment is very strong. The investments we've made in new bar manufacturing capabilities align well with this shift in consumer behavior to healthier protein-forward snacks. Approximately 85% of the new equipment we have purchased is now on site or in transit. We are on schedule to begin production in July this year utilizing our new bar equipment. Our R&D and insights teams have done an extraordinary job building out our bar innovation platform. Our sales and marketing teams have started engaging with customers, and we are already receiving positive interest in our offerings. This is a transformational time for our company. I'm excited about the future growth we will build with our customers, and I'm extremely proud of the hard work, dedication and tenacity of the team members across our company who are so committed to our success. Common themes are emerging among CPG leaders as they discuss priorities and performance on earnings calls. One is margin and productivity. Many continue to see pressure from inflation, rising input costs and supply chain complexity. At JBSS, we remain sharply focused on cost optimization while evolving our structure and processes to support sustainable growth. We are driving efficiency improvements across our operations, supply chain, pricing, trade spending and formula development. There are key leaders across the organization working on what we call OFG initiatives, optimize for growth, which impacts how we do business and how we go to market. I'm excited about the margin enhancement projects that these teams are executing. Another key theme is volume stabilization. Volumes have declined or remained flat across many food companies over the last 12 to 24 months, and we have experienced similar softness in our nut and trail mix and bar categories this past fiscal year. Our commercial teams are focused not only on stabilizing the business but on returning to volume growth. We are allocating resources to strengthen programs with existing partners while also diversifying our customer base and product portfolio through innovative programs, products and packaging. Our portfolio is well balanced between everyday snack and higher growth platforms and for those consumers looking for lower cost options in the snack category. I will now turn the call over to Frank Pellegrino, our CFO, to provide additional information on our financial performance for our first (sic) [ second ] quarter. Frank Pellegrino: Thank you, Jeffrey. Starting with the income statement. Net sales for second quarter of fiscal 2026 increased by 4.6% to $314.8 million compared to net sales of $301.1 million for the second quarter of fiscal 2025. The increase in net sales was due to a 15.8% decrease in the weighted average sales price per pound, which was partially offset by a 9.7% decline in sales volume of pounds sold to customers. The increase in the weighted average sales price primarily resulted from higher commodity acquisition costs across all major tree nuts and peanuts. While our core business of walnuts, almonds and pecans achieved volume growth, overall sales volume decreased during the quarter. This decline was primarily from a reduction of opportunistic granola volumes sold in the contract manufacturing channel. Sales volume decreased 8.4% in the consumer distribution channel, primarily driven by a 7.9% decline in private brand sales due to lower volume in private label bars and, to a lesser extent, nuts and trail mix. Nuts and trail mix sales were impacted by higher retail prices, soft demand including customer downsizing and reduced distribution at a major mass merchandiser. These declines were partially offset by new business with an existing customer and improved performance at another mass merchandiser. Bar sales declined in as prior year's volume were elevated by low industry-wide inventory levels and the lingering impact of a national brand recall, which temporarily boosted private label bars demand. A strategic reduction in sales to one grocery retailer also contributed to the baseline. Branded sales were negatively impacted by lost distribution of Orchard Valley Harvest at a major customer in the nonfood sector and the timing of Fisher snack promotions at a major nonfood customer. Sales volume in the commercial ingredients channel remained relatively unchanged with a decline of 1.1%. Sales volume in the contract manufacturing channel decreased 26.5% due to decreased granola volume processed in our Lakeville facility, which was partially offset by increased snack nut sales to a customer added during the second quarter of the prior year. Gross profit increased by $6.9 million or 13.2% to $59.2 million compared to the second quarter of last year, driven by higher net sales during the quarter with selling prices more closely aligned to commodity acquisition costs compared to the second quarter of the prior year. Additionally, reduced manufacturing spending and operational efficiencies contributed to the overall increase in gross profit. Gross profit margin increased to 18.8% of net sales compared to 17.4% for the second quarter of fiscal 2025 due to the reasons previously mentioned. Total operating expenses were essentially flat compared to prior year's second quarter, increasing by $300,000. The slight increase was primarily driven by higher incentive compensation, which was largely offset by lower marketing, freight, third-party warehouse and compensation costs. Total operating expenses as a percentage of net sales for the second quarter of fiscal 2026 decreased to 10.5% from 10.9% in the prior comparable quarter, reflecting the factors noted previously and a higher net sales base. Interest expense was $500,000 for the second quarter of fiscal 2026 compared to $800,000 for the second quarter of fiscal 2025. Net income for the second quarter of fiscal 2026 was $18 million or $1.53 per diluted share compared to $13.6 million or $1.16 per diluted share for the second quarter of fiscal 2025. Now taking a look at inventory. The total value of inventories on hand at the end of the current second quarter increased $29.6 million or 14.4% compared to total value of inventory on hand in the prior year comparable quarter. The increase was due to higher commodity acquisition costs across all major nut types except for peanuts and inshell walnuts as well as greater on-hand quantities of work in process and finished goods inventory to support forecasted demand. The weighted average cost per pound of raw nut and dried fruit increased 11.8% year-over-year mainly due to higher acquisition costs for all major nut types except for inshell walnuts, partially offset by lower acquisition costs of peanuts and lower on-hand quantities of almonds and cashews. Moving on to year-to-date results. Net sales for the first 2 quarters of the current year increased 6.3% to $613.5 million compared to the first 2 quarters of fiscal 2025. The increase in net sales was primarily attributed to a 12.2% increase in the weighted average selling price per pound, which was partially offset by a 5.3% decrease in sales volume. The sales volume decrease was due to lower sales volume in the consumer and contract manufacturing channels, partially offset by year-to-date growth in the commercial ingredients channel. Gross profit margin increased to 18.5% of net sales compared to 17.1% in the prior period. The increase was mainly attributable to the factors noted previously in the quarterly comparison, along with a onetime pricing concession in the prior year first quarter to a bar customer that did not recur in this fiscal year. Total operating expenses for the current year-to-date decreased $2.1 million to $60.3 million compared to $62.4 million for the first 2 quarters of fiscal 2025. The decrease in total operating expenses was mainly driven by lower marketing and insight spending, reduced third-party warehouse costs, decreased freight expenses, lower compensation and lower third-party recruitment expenses. These savings were partially offset by an increase in incentive compensation. Interest expense was $1.5 million for the first 2 quarters of fiscal 2026 compared to $1.3 million for the first 2 quarters of fiscal 2025. Net income for the first 2 quarters of fiscal 2025 was $36.7 million or $3.12 per diluted share compared to net income of $25.3 million or $2.60 per diluted share for the first 2 quarters of fiscal 2025. Please refer to our Form 10-Q, which is filed yesterday, for additional details regarding our financial performance for the second quarter of fiscal 2026. Now I'll turn the call over to Jeffrey to provide additional comments. Jeffrey Sanfilippo: Thanks, Frank, for the financial update. It's important to note how our Long-Range Plan defined our future growth priorities focused on accelerating our private brand business with key customers and high-growth snacking categories with notably private brand bars while expanding branded distribution behind Orchard Valley Harvest and Fisher via insight-driven product and packaging innovation. Execution of this plan is anchored in delivering value-added solutions and high-quality innovative products based on our extensive industry and consumer expertise. Growth in private brand bars will be supported by capacity expansion and a robust innovation pipeline with continued focus on nutrition bars. For our branded nut and trail mix business, we are focused on attracting new consumers through product innovation, broader distribution across traditional and alternative channels and expanded purchasing occasions, including club stores, e-commerce and the noncomp foodservice segment. Promotional and advertising investments are being prioritized to drive volume growth, supported by an omni-channel strategy across recipe nuts, snack nuts and trail mix. Now we'll turn to category updates. I will share some category and brand results with you for our second quarter. All the market information I'll be referring to is Circana panel data, and for today, it is the period ending December 28, 2025. When I refer to Q2, I'm referring to the 13 weeks of the quarter ending December 28, 2025. References to changes in volume are versus the corresponding period 1 year ago. For pricing commentary, we are using Circana's MULO+ scan data and we are referring to average price per pound. We are using the nuts, trail mix and bar syndicated views of the category as defined by Circana. In the second quarter, we continue to see modest growth in the broader snack aisle as defined by Circana. Volume and dollars were up 2% and 4%, respectively. This is consistent with the performance we saw in Q1. In Q2, the snack nut and trail mix category was down 4% in pounds and up 3% in dollars, which is generally consistent with the performance from the last quarter. Snack nuts prices rose 8% with increases across nearly all nut types. Prices rose 6% for trail mixes. Our Southern Style Nuts brand performed better than the category with a 5% increase in pound shipments, driven by an increase in sales in our e-commerce channel. Fisher's snack nut and trail mix performed worse in the category with pound shipments down 15%. This was primarily driven by some lost distribution and less promotional activity. Orchard Valley Harvest brand, which primarily plays in trail mix, was down 42% in pound shipments driven by discontinuation at a national specialty retailer. Commodity increases, including cocoa and some tree nuts, are resulting in higher prices for Orchard Valley Harvest, but we continue to focus on innovation and renovation opportunities to mitigate this commodity pressure. Our private label consumer snack and trail shipments performed generally similar to the category with pound shipments down 5% versus last year. Now let me turn to the recipe nut category. In Q2, the recipe nut category was up 2% in pounds and up 14% in dollars, driven by the seasonality impact of the holiday season paired with higher prices. The recipe category experienced a 13% price increase driven particularly by walnuts, although other nut types experienced price increases. Our Fisher recipe pound shipments were down 3% in Q2 due to some lost distribution, although we performed very well at our current retailers. Now let's look at the bar category. In Q2, the bars category continued to rebound as a major player continued to reenter the market after a major recall in the winter of 2023. The category grew 6% in pounds and dollars driven by branded player growth. Private label was down 1% in pounds and up 2% in dollars. Our private label bar shipments were down 12% versus a year ago due to softness at one major mass merchandiser. In closing, as we look ahead to the second half of fiscal '26, we do so with cautious optimism driven by recent commercial momentum across the organization. Our consumer team has recently secured new and expanded business with several important customers. Our foodservice team is expanding distribution with strategic partners, and our contract manufacturing team continues to build scalable growth platforms for customers. Together, these efforts position us well as we execute our growth strategies and invest in infrastructure to support the next phase of our business transformation. As always, we will continue to respond to challenges, including the current economic and operating environment and the risk of declining demand. But I am confident we have the right team, initiatives and strategies to overcome these challenges to provide differentiated value to our customers and consumers. We are committed to creating long-term shareholder value through these strategic initiatives and continued operational excellence. I want to extend my heartfelt thanks to all our employees for their hard work and dedication, which have been instrumental in achieving these milestones. Our management team and all our associates continue to work hard to expand our business, to build stronger brands, to build more innovative product platforms and to provide higher levels of quality and service. JBSS is positioned well for strong results in the future. We appreciate your participation in the call, and thank you for your interest in our company. We'll now open the call to questions. Operator: [Operator Instructions] Our first question will come from the line of Hamed Khorsand from BWS Financial. Hamed Khorsand: So first question is where do you stand on this equipment? You're saying it's 85% you're going to be on time for this year. Is it going to be calendar this year or fiscal this year? And then how do you know the quality will be there that you've already started engaging with customers? Jasper Sanfilippo: Sure, Hamed. This is Jasper. So we already have equipment being delivered now in the building and at our Huntley warehouse. All the other product or equipment from Europe is either on water or getting crated to go come on the water. We are very familiar with the manufacturers that we selected for our processing equipment so we know that the quality, the build and the efficiency of the equipment is really what we're looking for. It's very similar to equipment we already have in terms of size and layout. And so we're very comfortable with the fact that the equipment will perform well. When we're talking about having it installed, we're talking about installing and running in July of '26. Jeffrey Sanfilippo: And I would add that Jasper and some of our engineers have been to Europe and visiting the equipment manufacturers several times during the course of this past year. And so they viewed the production of the equipment. They've tested it while they've been there. So we're confident once it gets on the water and installed here that it will be working as we expect. Hamed Khorsand: Okay. And then the other question is just about the pricing. How fast are you able to pass through pricing that you're incurring on the higher cost of nuts? Jeffrey Sanfilippo: Sure. So two things. One, typically with most retailers, we have a 6-month price review depending on whether commodities are going up or down. And then once those 6-month price reviews hit, we need to take pricing, for example, on our brands. There's typically a 60- to 90-day timeline to initiate those price changes. Operator: [Operator Instructions] And I'm not showing any further questions in the queue at this time. I would now like to turn it back over to Jeffrey for closing remarks. Jeffrey Sanfilippo: Great. Thanks, Victor. I appreciate your support. Again, thank you all for being on the call today and your interest in JBSS. This concludes the call for our second quarter fiscal 2026 operating results. Have a great day. Operator: Thank you for your participation in today's conference. This concludes the program. You may now disconnect. Everyone, have a great day.

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AAF.L 2026 Q3 财报电话会议

Operator: Good afternoon, ladies and gentlemen, and welcome to the Airtel Africa 9 Months 2026 Results. [Operator Instructions] Please note that this event is being recorded. I would now like to hand the conference over to Sunil Taldar. Please go ahead, sir. Sunil Taldar: Thank you very much. A very good morning, good evening to all of you, and thank you for joining on today's call. I'm joined on the line by Kamal Dua, our CFO; and Alastair Jones, our Head of Investor Relations. We will shortly be answering your questions. But first, I would like to provide you with a brief overview of the recent performance at Airtel Africa. I think these results speak for themselves. We have continued to produce a strong operating and financial performance with reported currency revenue growth of 28.3% and almost 36% growth in EBITDA over the last year. Constant currency revenues and EBITDA, a reflection of the underlying performance saw encouraging growth of 24.6% and 31%, respectively. The outstanding feature of this performance, in my view, is the continuing scale of opportunity across the business. We operate across African continent with a combined population in excess of 650 million people, where the -- whereas the penetration of both telecom and financial services remains low. We have a broad portfolio of services that are in high demand, spanning data, home broadband, enterprise solutions, mobile money and merchant payments to name a few. As digital adoption and financial inclusion continues to rise, this positions us to sustain strong growth rates over the coming years. Our refined strategy is working to capture this opportunity as we attract customers and build loyalty in order to sustain this industry-leading growth. These results underscore the substantial work we have been undertaking over the last few years to embed this customer-centric strategy across the group. The result has been increased adoption of our digital services, which allows customers to access them with ease, alongside the launch of transformative offerings such as the AI spam alert, which protects our customers from fraud, and the recent partnership with Starlink, which will enhance connectivity to our customers across the footprint. These are strong examples of innovation -- innovative initiatives that differentiate us from competition and solidifies our position of being able to capture the significant opportunities across our markets. To deliver an outstanding customer experience, we have accelerated investment to increase capacity and coverage across our footprint. We've increased our sites by approximately 2,500 and expanded our fiber network to over 81,500 kilometers, as we focus on enhanced coverage and data capacity to further improve the customer experience. This investment remains the cornerstone of our ambition to capture a larger share of the opportunity on offer across the continent and is reflected in the strong operating and financial results we have reported this morning. In summary, our primary focus remains delivering an exceptional customer experience essential for creating value for all our stakeholders. Our revenues reached -- let me now briefly run through the financial performance in quarter 3 specifically. Our revenues reached $1.69 billion, which was 24.7% growth in constant currency, an acceleration from 24.2% in the previous quarter. Given the recent foreign exchange developments, this translated into a growth of almost 33% in reported currency. On a regional basis, a key highlight was the performance in Francophone Africa, which saw its constant currency growth accelerate from 15.8% in quarter 2 to 18.7% in quarter 3, as our investments and strategic focus has helped drive a strong recovery over the last few years. In Nigeria, strong demand and tariff adjustments contributed to a further acceleration in growth to 53% in constant currency. While in East Africa, constant currency growth of 16.1% remains robust despite evolving market dynamics over the quarter. Moving on to our two primary business segments. Our Mobile Services business continued to see strong trends with operating momentum and customer growth, usage and ARPU driving revenues 23.6% higher in constant currency. Customers of 179.4 million grew by double digit with data customers rising almost 15% to 81.8 million. Smartphone penetration increased almost 4 percentage points, reaching to 48.1%, but this also reflects the scale of the potential for further smartphone opportunity and takeup in our footprint. Data traffic increased by almost 47% as data usage per customer reached 9.3 GB per month in quarter 3, up 25.6% from the previous year and an 8% increase from quarter 2 levels. It is clear that underlying fundamentals, combined with our strong execution are enabling the sustained level of demand. In addition, data ARPU remains supported by these operational trends with a 16.2% increase in quarter 3, leading to a data revenue growth of 35.5% in constant currency terms. With data revenues now being the biggest component of revenues, the performance in this segment is key to sustaining a strong overall group revenue performance. Now on to another very significant growth engine for us, the mobile money business. Airtel Money crossed two thresholds in the last quarter. Firstly, it exceeded the 50 million customer mark with 52 million customers at the end of quarter 3. The second milestone was seeing the annualized total process value, or TPV, exceed $200 billion, reaching over $210 billion, a growth of 36%. Both these achievements reflect not only the significant market opportunity, but also the structural competitive advantage and scalable platform, which has driven increased customer engagement as ecosystem continues to expand. With only 52 of our almost 180 million GSM customers using the service, the ability to sustain this strong customer growth momentum remains intact. This, combined with continued uptake of new services and increased engagement on the platform, highlights a very compelling growth narrative. In the quarter, revenue growth of 28% in constant currency and EBITDA margins of over 50% reflect best-in-class financials, where growth, profitability and strong cash conversion enables the continued scaling of this very attractive business. The strong growth across all businesses has also benefited the profitability of the group, with EBITDA margin continuing to expand to 49.6% in quarter 3, up from 49% in quarter 2 as cost efficiencies, a more stable macro backdrop and operating leverage continues to benefit. Notable mentions are Nigeria, where margins increased to 57.8% and a further increase in Francophone margins to 44.3% on the back of strong operating results. At a group level, this has driven a very pleasing 31% increase in constant currency EBITDA, which when combined with currency tailwinds has resulted in a 40.8% increase in reported currency EBITDA. Within finance costs, aside from the more stable FX environment, the group's effective interest rate has declined by 200 basis points. We have seen the interest rate cycle turning more supportive with policy rates moving lower and the increased free cash flow generation, enabling us to pay off higher rate debt. Leverage remains very comfortable with these adjusted leverage declining to 0.7x, down from 1.1x in the prior year. Adjusting the extraordinary items in the previous year and all foreign FX gains or losses, we have seen the underlying EPS increase from $0.074 in the prior period to $0.116 in the current 9-month period, an increase of 57%. Basic EPS has increased to $0.131 from $0.044 in the prior year. Underpinning this performance has been our CapEx investments. As we communicated at the H1 results, we've announced CapEx guidance of between USD 875 million to USD 900 million for this financial year. This is a significant step-up from the previous year, reflecting continued confidence in the outlook for the growth and scale of the opportunities available for us to capture. In this 9-month period, CapEx increased over 30% to $603 million, and we are on track to deliver according to our guidance. As I highlighted earlier, the prospects for multiyear growth remains very apparent, and this accelerated investments will provide the platform necessary to capture a higher share of this growth, while also enabling us to unlock additional growth opportunities in areas such as data centers, but also the home broadband space where we have seen strong momentum. Before I hand it over to the Q&A, just summarize a few key points. Firstly, there were strong results with constant currency revenue and EBITDA growing by almost 25% and 31%, respectively, in quarter 3, translating to a 33% and 41% reported currency revenue and EBITDA growth. Operating momentum remains intact with strong customer base growth and usage growth across our telecom business. Airtel Money continues to scale with strong results, reflecting the truly unique business opportunity. And we are seeing strong progress in the preparations for the IPO, which remains on track for the first half of 2026. We have accelerated our investments to capture the significant growth opportunity that is available to us, and we believe this will put us in a much stronger position to showcase our ability to capture the structural growth potential. We're excited by the future, and we see a unique opportunity to sustain strong levels of growth going forward through a laser-like focus and strategy of putting the customer at the heart and center of everything we do. We look forward to reporting our successes in the future and continuing to generate value for our shareholders. And with that, I would now like to open the line for questions for which I'm joined by Kamal. Operator, I'll now hand over to you to facilitate the Q&A. Operator: [Operator Instructions] The first question that we have today is from Rohit Modi of Citi. Rohit Modi: Congratulations on the results. I have three, please. Firstly, on EA, as you mentioned higher competitive intensity in some of the markets. Can you give more color on which of the markets where you're seeing this higher competitive intensity and how you think that's going to -- how we should model our numbers for future quarters? Do you think that this is more short term that you're seeing or a bit more long-term impact from this? Second is on Nigeria. You'll be lapping the price increases this quarter. Just trying to understand how you see the growth in Nigeria beyond this quarter. I mean I think fully you'll be lapping in the next quarter, particularly and can you give us more color on that? And third question is, if you can please remind us in terms of your leverage targets, given leverage has come down to 1.9x, at what leverage do you really look at the capital allocation policy? Sunil Taldar: Thanks, Rohit, for your compliments and the question. Let me just take the first question first on East Africa. See, if you look at East Africa, it is our largest market segment, and this is one market where we've been consistently performing over the last few years and many quarters. It's a very, very robust business that we manage in East Africa. First, let me talk about the underlying metrics of the business so that we are clear that there is no structural underlying issues in East Africa. Let me start with our base growth. If you look at our base growth, it is about -- the business is growing at about 9.5% in terms of our customer base growth. Smartphone growth, which is another very important metric that we look at, is growing at about 19% or so. So in terms of our underlying metrics performance, the business remains very, very stable and strong. The opportunity in East Africa remains very, very compelling. It's a very strong business for both money as well as for GSM for us. And as I said, we have over the quarters and years, demonstrated our ability to execute very, very beautifully and delivered strong results. In the last few quarters, there is one thing that we've experienced is a significantly higher competitive intensity. And if you remember, this was the same story on Franco Africa about 6 or 7 quarters ago where we had said that Franco, there is a significantly higher competitive intensity and -- but our underlying metrics, which is customer base growth, smartphone penetration, et cetera, et cetera, were all looking all right. So there is -- because of this competitive intensity in few markets, we've seen a temporary challenge, but we've rolled out action. And I'm fairly confident because of our very strong team and their ability to execute plus the capability that we've added that we will be able to accelerate growth in East Africa as well. There is just one more thing that I would like to highlight. In the last 1 quarter, in the quarter 3, there were certain regulatory challenges that the business faced, which are very temporary in nature because of which there were certain -- the Internet outages were called out for certain security issues, which is not only specifically to us, but for the market, which temporarily impacted the growth of the business. And hopefully, because this is now behind us, that was a temporary issue. We are fairly confident of our prospects in East Africa. We don't give guidance with respect to our future quarters. So I'll not be able to give you guidance, but I want to offer confidence that we remain confident about the opportunity that East Africa offers, our ability to execute brilliantly and that is demonstrated capacity that we've shown over the past few quarters and years, and the actions that we've rolled out should start to see results in the coming quarters. Moving to your second question on Nigeria pricing. Nigeria, first, let me just give you a context as to how this price adjustment has benefited the entire industry. This price adjustment was very, very badly needed by the industry. What this has done is it has provided a lot of stability in the industry. And industry has responded very, very positively because our investments in Nigeria have gone up -- overall at the industry level has gone up significantly. What that is doing, it is actually -- is fueling demand in Nigeria. If I look at it from a customer point of view, the price adjustment has been very well accepted by customers because while we see some titrating when it comes to voice consumption, but from a data point of view -- but from a data point of view, we've seen very, very strong acceleration in data consumption numbers. So our base growth has improved, which means there are more customers are coming into the industry. The consumption has gone up, which is obviously a great news, which basically goes to see that the customer has accepted the price adjustment very positive. We've made a lot of investment in improving the quality of service as an industry, and Airtel has done a lot of work in improving the quality of service. We have implemented a lot of digital capabilities so that we continue to accelerate our growth in the coming quarters as well. Coming to your question specifically on pricing, we -- about 40% to 50% of last year growth came from tariff. And we see that -- as you said, we will be overlapping this tariff period. With the growth completely slowed down, we have -- given the current momentum in the business and the investments that we've made, we remain very confident about our growth prospects in Nigeria. The real results will be visible to us in the next 3 to 4 months from now as we start to report the quarter 1 performance, which should be a full overlap of the pricing numbers in Nigeria. Kamal Dua: And as far as your third question is concerned regarding the leverage target for the company, I think we are fairly comfortably placed at 1.9x of leverage. Our lease-adjusted leverage has been coming down gradually and is standing at 0.7x. So financially, I think we've been pretty comfortable. We per se do not have any target in my mind -- our mind to say that like we have taken a target. But nonetheless, I think from a balance sheet point of view, I think we are in a good shape and in a great health. Operator: The next question we have is from Tracy Kivunyu of SBG Securities. Tracy Kivunyu: Congratulations to Airtel Africa for the results. A few questions from me. The first question on Francophone region. Again, congratulations, very strong acceleration this year. I just want to understand which are the key regions in Francophone that drove that for data? And if you could give us an update on how -- if you could give us an update on how mobile money is growing, particularly in countries like Guernsey, which is one of your largest there. What sort of levers are you unlocking? Is it your basic remittances? Or are you seeing it across the business? My second question on Francophone is on voice. I can still see it in declining territory, albeit at a lower base. So do you think we've lapped the effects of voice declines and will be returning to growth in fourth quarter? The next question is on Nigeria, which is the last question is on Nigeria. So on VAT lease reforms that would allow Nigerian companies to claim input VAT, have you done any sort of analysis that you could share on the impact of that on your future EBITDA margin and CapEx estimates for Nigeria? And lastly, on Nigeria, what is your 4G population coverage at the moment? Sunil Taldar: Thank you very much for your compliments and your questions. Let me first address your question on Francophone Africa. If you look at Francophone markets, Francophone markets offer massive opportunity for growth and both in terms of the -- for GSM as well as for the mobile money. There is a massive opportunity for growth for category penetration as well as upgrade opportunity for moving our customers from 2G to 4G. And what we have done is given this opportunity, we've stepped up our investments in Francophone Africa. So that's one thing which is driving growth in Francophone Africa. We've stayed very, very true to our strategy. Our strategy is very focused, which is focused on making sure that we deliver great experience to our customers. And we've made massive amount of investments both in our network, which is on the radio side and also on the transmission side to ensure that we provide seamless experience to our customers. Our teams have done a fabulous job on staying true to our strategy, and that's what is driving growth across markets. What we have done is -- and there's a significant investment, as you pointed out, that voice is actually the -- across all the regions, Francophone markets have the lowest voice usage per customer. And therefore, what we've been -- and we have seen this usage also decline because the voice ARPUs in these markets are high. And what we see is customer moving to OTT. And therefore -- and that leads to also very high data consumption, the data ARPUs are also very high. What we've also done is we have significantly expanded our 4G coverage in our 4G sites in Francophone markets. And today, 90% of our sites are 4G sites. And this number used to be about 85%, 86% about a year ago. And this is resulting into a very strong smartphone customer growth of about 25%, and that is driving our data revenue growth of about 34%, and that demand we see continue to increase. This is a customer behavior. And right now, what we are doing is we are making sure that we continue to provide seamless experience to our customers. You were asking about some color with respect to market. We don't provide market level information, but I've just painted the picture for the overall Francophone Africa. And we remain very, very positive about our prospects in this market, and we see a massive opportunity for both GSM as well as mobile money for the Francophone Africa. Do you want to talk about the Nigeria, Kamal? Kamal Dua: Yes. So Nigeria, as you're rightly saying, the Nigeria VAT is claimable effective 1st of January. And our estimate is roughly that will give us a margin increase of 1.5% in Nigeria starting from quarter 4 of this financial year. Tracy Kivunyu: So one other question on population coverage, yes. Sunil Taldar: So you had asked another question on Airtel Money, the Airtel Money growth and why have we divided this into various segments that we've offered. I think that was your question. So what we've done is we have divided our Airtel Money total revenue into wallet services and financial services and merchant services. Now what we have done is in the past, the business was primarily focused on driving cash in, cash out and peer-to-peer revenue. And as the business has achieved scale and we're seeing very strong traction in our business, what we -- while this is our strength, which is driving our -- leveraging our go-to-market and accelerating customer base, which has been driving business for us. What we now want to do is we want to make sure that our payment and transfer business and financial services business starts to trade with a higher focus. And this is being led through our efforts, which is digital efforts, which is driving app penetration and making sure that we drive engagement on the app and drive multiple use cases, and that's driving and accelerating the growth for our Airtel Money business. Very quickly on the other question that you asked on Nigeria. Nigeria covered -- sorry, 4G pop covered is about 82% for us. Operator: [Operator Instructions] The next question we have comes from Mollie Witcombe of Goldman Sachs. Mollie Witcombe: I just have one actually. It's about the Starlink Direct-to-Cell partnership that you announced recently. I was wondering if you could give us some color, perhaps time line to launch, the potential upside that you see from this and just whether it's customer demand driven or fitting a business need, that would be great. Sunil Taldar: So if I heard you correctly, there was a slight disturbance in the audio. Your question is on Starlink? Mollie Witcombe: Yes, that's correct. Sunil Taldar: All right. So I'll just give you a little bit of a context on what we -- the agreement that we signed with Starlink. This is the second agreement that we announced with Starlink. The first was -- the first agreement that we announced, I think, 2 quarters ago was with respect to offering enterprise connectivity solutions to our customers across our 14 markets and also for backhauling. The recent, which is agreement that we signed on 16th of December that we announced, what it covers is offering Direct-to-Cell services to our customers across the 14 operating markets that we have in our footprint. I'll tell you how it works. The way it works is we'll be offering through the Gen 1 as SpaceX refers to it as Gen 1, which is SMS and light data services. Using these services, all our customers, Airtel customers across our 14 markets, once we launch this service, subject to approvals from our regulators, using their existing 4G and 5G phones will be able to remain connected anywhere across these 14 markets. In their respective markets, each time when a customer goes out of our terrestrial coverage, the customers will fall on to the satellite coverage and which is offered through Starlink. The face of the service remains Airtel. So as long as the customer has an active Airtel SIM, the customer will be connected even if the customer goes out of our terrestrial coverage using their existing 4G or 5G devices. So that's how the service works. What it does is, as I said, because we are the face of the service for the customers, we control end-to-end experience for the customers and also for the security, the entire system moves through our operating systems. What we are doing right now is we are in the process of -- because we announced this partnership on 16th of December, we are in the process of seeking regulatory approvals across all our markets, and we are fairly confident that very soon we'll be able to also tell you where we are launching the service. We are the first operator to offer this service to our customers in our -- in the 14 markets that we operate. And so there's a little bit of time that it is taking us to seek this approval. Both us and the SpaceX teams are working with the regulators to ensure that we get these approvals in time. It's a great service for a continent like Africa where still there is a huge coverage gap. And therefore, what we will do by offering this service, one is pitch the digital divide by -- and make sure that we are driving digital and financial inclusion by offering this service. And as I said, as we are the first operator to offer, at this point in time, if you look wherever we launch this service, it also gives us some amount of competitive advantage to deliver best experience to our customers and showcase that this is -- this service, we believe, is very, very complementary in nature when we start offering this service across our footprint. Mollie Witcombe: That's very clear. Can I just follow up? Since if you're going to launch this Direct-to-Cell product, does this mean that you will scale back your coverage ambitions longer term in some markets? Sunil Taldar: See, it doesn't compromise -- the way we are looking at it is this is a complementary service, and we don't see this as replacing. So wherever as we -- so till the time we expand our terrestrial network, this service is a complementary service in any area where we don't have -- there is no telecom coverage, this service ensures that our customer remains connected with the network. And this ties in actually very beautifully with our core strategy of making sure that we provide the best experience to our customers, and that has been the driving force behind us signing this agreement with SpaceX. It is not to either save our capital investments to say that we will offer this service because customer will need an Airtel SIM, an active Airtel SIM to be able to access this service. So we would like to -- our primary this thing is -- and this service is actually a great benefit for the customers, especially in far of rural areas. In the metro areas or the urban areas, the customer will remain on our terrestrial network unless there is any disturbance on the network, that's when the customer falls on to the satellite network. So customers will not lose connectivity has been the underlying and the driving force behind us signing this agreement with Starlink. Operator: The next question we have comes from David Lopes of New Street Research. David-Mickael Lopes: Congrats on the results. A couple of questions, please. The first one is on margins. I know you don't give guidance on margin, but I was wondering if you can talk how much confident are you for next year for margin improvement? And could you comment on the cost structure? I think with the macro improving and also the Dangote Refinery being at full capacity, how is that going to play on your margins? And the second question is on the network sharing with Vodacom and the one with MTN. Could you comment on maybe the time line when are we going to see a benefit from these agreements? Sunil Taldar: Thanks, David. Let me take your first question on the margins first. See, what we have seen is about 240 basis points improvement on constant currency over last year. And this entire improvement has happened primarily because of, I would say, so three areas because of three things. First is there is a very stable and improving macroeconomic environment where we are seeing currencies have remained stable, inflation is coming down, growth is improving. And overall, the fuel prices have remained stable. So that's been the one area. The second is we've also seen acceleration in our revenue growth that is also helping us to improve margins. And finally, there's a very, very strong, and this is something that we announced about 6 or 7 quarters ago, a cost efficiency program that we had launched. And it's a combination of these three factors, which has helped us to improve our margins by 240 basis points. Now on the cost efficiency side, we remain very, very focused. And the entire organization is very focused on identifying costs -- from the idea of eliminating waste and not attacking any growth enabling costs. So that program continues to run, and we are very fairly confident that this program will continue to give us and it will continue to yield benefits to us. The only thing that the currency environment and the macroeconomic environment, the specific thing that you spoke about with respect to Nigeria, we are seeing currently the currency is improving. It's down to about NGN 1,380 is the last number that we've seen. The actions which have been taken by the government seems to be helping us. The inflation is down, the growth is improving. So the current outlook remains -- economic outlook in our largest market remains very positive. The macroeconomic environment is supporting. There's no reason why our efforts are there to constantly continue to find opportunities to eliminate waste in our business and continue to improve margins. As you said, we don't give guidance. I'll not be able to provide guidance, but I just wanted to paint a picture for you to say our cost efficiency program, we are very, very focused on that. Macroeconomic environment, every indicator today across our large markets because we've seen currency improving across all our markets, barring maybe one. So that environment remains fairly positive from now. And therefore, we remain fairly confident that things should continue to improve. On the network sharing agreement, what we did was we announced a network sharing agreement with MTN for Nigeria and Uganda a few quarters ago and very recently with Vodacom in Tanzania and DRC, and also for -- Tanzania and DRC was coverage expansion duplicate and also for sharing the fiber networks. This was -- this is being done to eliminate -- fundamentally, if you look at in a continent like Africa, there's a huge opportunity for us to expand our coverage, which is the ask. And each time when we expand coverage, we increase our baseload and overall revenue for the industry goes up. To eliminate duplication of investments in infrastructure is the reason why we reached out to all of -- other partners, and we've signed these agreements. The other challenge that we have in our markets is making sure that our networks remain resilient. And that resilience also drives growth. And because if one network goes down, we fall on the other network, and those are agreements that we've signed with our partners. So from the point of view of avoiding duplication and ensuring our -- expanding coverage and ensuring that our networks remain resilient. These benefits have already started accruing to -- some of the benefits have started accruing to our business. From a cost point of view, we will be able to share maybe at a later date. But yes some of these agreements are in play as we speak, and there is more needs to happen. And we will share a little more texture to what benefits are we accruing in the coming quarters. But as I said, the benefits are at three levels. First is additional coverage, which allows us to acquire -- accelerate our base growth and therefore, accelerate our revenue. Resilient networks reduce outages, better experience, continuity improves and it improves our revenue. Avoidance of CapEx, that's something that helps us to expand coverage. And it also reduces our operations and maintenance and some amount of operating expenses comes down. So there are benefits which happen across the growth line and the cost lines, which is the benefit that we are seeing of signing lease agreements with our partners. Operator: [Operator Instructions] The next question we have comes from Samuel Gbadebo of CardinalStone Partners. Samuel Gbadebo: Can you guys hear me? Sunil Taldar: Samuel, can you speak up, please so that we can hear you? Samuel Gbadebo: Congratulations on your impressive performance. It's much expected, right? But my question is on a few things I just need clarity on. Number one is we saw a lower print in effective tax rate. That's despite the higher profit before tax in the period, right? So I'm just trying to understand what brought about that? And why is the number for your effective tax -- hello? Sunil Taldar: Sam, we can't hear you. Is it something about profit after tax? Samuel Gbadebo: Yes. So I'm saying why did you -- why was there a lower print in your effective tax rate despite profit before tax being higher -- effective tax rate was lower in the period despite a higher print in profit before tax. So I just want to understand what drove that, and why is the number for effective tax rate in your earnings release different from the breakdown you have in your IR pack? And my next question is in the period, there's also a line that says your group effective interest rate is lower for 9 months, right? But when I did a glance -- a rough, a surface level check on your cash flow, and particularly the financing activities, there was a higher net borrowing in the period. So I'm just trying to understand why you have a lower effective interest rate in the period despite that. And lastly, Dangote recently announced that there's going to be like an increase in PMS price by about NGN 100 thereabout. And effectively, we've seen first stations do the same here in Nigeria. My question to that effect is, is there a cause for concern with respect to how margins has been recovering, right? So do you guys have a concern? And if there is any concern, how are you moving ahead of that headwind? Did you guys get all my questions, please? Kamal Dua: So our effective tax rate is reported at roughly 39.6%. See, it's -- there are too many moving parts in calculation of this effective tax rate. One is the mix of our profit-making OpCos and loss-making OpCos. So technically, our profit-making OpCos, the weighted average effective tax rate is roughly 32.5%. Then there are a few loss-making OpCos where we haven't triggered this recognition of the DTA. And there's a lot of upstream, which has been happening from OpCos by the way of dividends. So all this WHT, which eventually has been paid for repatriation of dividend also gets accounted in the tax line. So it's a combination of multiple things which eventually is resulting into a higher tax rate of 39.6% versus a corporate tax rate of 32.5% in the profit-making OpCos. On a year-on-year basis, this is coming down from 41% to 39.6%. This is primarily a denominator impact because our profits are rising, hence the WHT, what we are paying for the repatriation as a percentage to the profit, which has been reported is declining. So this is at a very macro level, why the ETR is higher than the corporate tax rate and what are the broad reasons for a reduction in the ETR, the effective tax rate. But if you have any specific questions, I would request you to just drop a note to Alastair, then we can come back to you on that specific question on the ETR. Operator: The next question we have comes from John Karidis of Deutsche Bank. John Karidis: Let me add my congratulations to -- for the results that you printed today. I've got three questions, please. The first one is what are the key considerations driving your decision of where to IPO the mobile money business in which stock exchange? So what are the key considerations driving that decision? Secondly, in the statement, you talk about closer integration of the GSM and the Airtel Money services. It would be really nice to add a little bit more detail to that. What do you mean by that? And what are the consequent benefits? And thirdly, did I hear you correctly that customers with their existing handsets can access Starlink? I didn't know that was possible. Could you sort of help me out there to help me understand why that is? Sunil Taldar: Thanks, John. Let me answer your third question first because the other two are related to money and I'll take it. On the Starlink, the Direct-to-Cell service, customers can access because we have signed up -- we have signed this agreement, and we allow those customers to access the satellite service through our network. And that's how the service works. And you're right that customers with their existing handsets, 4G or 5G handsets, will be able to use the Gen 1 services offered by Starlink, which is SMS and light data. So they'll be able to make calls, voice calls on certain OTTs once we roll out these services, subject to the regulatory approvals from the respective office, and we are, at this point in time, engaged with -- along with the SpaceX teams to get regulatory approvals from the markets. Moving on to your other question. As we've communicated even in the past, we continue to evaluate all major listing venues, and we are very close to -- we are close to finalizing the preferred location. And we will provide further updates to the market regarding the selected venue and the advisers in the due course. The other question that you had with respect to -- see, if you look at the mobile services and money services are interdependent and hence, these services are exchanged in the ordinary course of business, which includes having money providing services to GSM like recharge, collections and disbursements. And the GSM business provides services to Airtel Money like SMS, USSD, IT support and the go-to-market services. And then additionally, Airtel Money provides added services for improving the customer stickiness for which GSM pays remuneration to Airtel Money. So for all this, there's a value or a cost attached to it. As both businesses are gradually maturing and also the -- so all these are governed by an IGA. And this IGA is what pretty much guides all these activities. What we've seen is as the businesses are gradually maturing and also the expiry of the existing lock-ins that we had, the dependencies on each other is coming down. Accordingly, the prices have been revised considering the effect of changing market dynamics and while ensuring that they continue to be at arm's length. So that's what the interdependencies and the IGA is. What we are making sure that these -- both these businesses are intertwined, as I said, but they are all governed by an intergroup agreement that we have. And these are the services that each business provides to the other. Operator: The next question we have comes from Linet Muriungi of Absa. Linet Muriungi: Congratulations on your strong set of results. Two questions from me. The first is regarding Nigeria's renewed leases. Could you please share details on some of the terms that you can disclose, whether there are any changes to USD indexing on the lease agreements and any fuel adjustments? And what does this mean for the new average life term of leases in Nigeria? By how much have they extended? The second question is regarding mobile money business. Could you please share the revenue breakdown from basic services, that's cash in, cash out and airtime advance vis-a-vis the advanced services tied to ecosystem transactions? And in ecosystem transactions, could you give us a breakdown, if possible, between payments, micro lending, micro insurance, et cetera? Operator: Sunil, can you hear us, sir? Kamal Dua: Operator, can you hear us? Operator: Yes, sir, we can hear you now. Kamal Dua: Yes, okay. Sorry, there was some technical glitch in between. So I was saying there are two primary tower companies which we have within Nigeria. The first one is ATC and the second is IHS. So the contract with ATC, if you recall, has been renewed in September 2024. And the term was until, I think, it was 12 years of contract which we renewed. So that is the first element of the renewals. And the second is the IHS. And the IHS contract has been renewed till 2031. So these are the renewal terms from Nigeria to tower companies. And related to your second question, which comes to the breakup of our revenue of Airtel Money. We do not disclose the one which you've been asking for, like what's the revenue of cash in and cash out. What we disclose is the services which are wallet services, payment and transfer and the financial services. So it will be difficult for us to give you the breakup of this one. Thank you. Operator: Thank you, sir. Ladies and gentlemen, we have reached the end of our question-and-answer session. I will now hand back to management for closing remarks. Please go ahead, sir. Sunil Taldar: I would like to thank you all for joining this call, and I look forward to speaking to you again at the time of our full year results. Thank you very much once again. Operator: Thank you. Ladies and gentlemen, that then concludes today's conference. Thank you for joining us. You may now disconnect your lines.

63天前Insight Analytics约5分钟阅读

MOG-A 2026 Q1 财报电话会议

Operator: Ladies and gentlemen, thank you for joining us, and welcome to the Moog Inc. First Quarter Fiscal 2026 Earnings Conference 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 First Quarter 2026 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 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 started fiscal '26 with an outstanding quarter. We delivered exceptional revenue growth of over 20% relative to prior year, underpinned by record quarterly sales in all segments. We increased 12-month backlog by 30%, setting another record. We also improved adjusted operating margin relative to prior year and delivered record earnings per share. Our focus is on delivering for our customers and driving ongoing continuous improvement in pursuit of excellence. Our results are reflective of continuing success in driving both operational and financial performance. Now let's turn our attention to end markets and the macro environment, starting with Defense. The Defense market continues to be very strong. We are already seeing increased Defense spending by governments in the U.S., Europe, Australia and Japan, with further increases expected. In addition, there is an urgency to expand industrial capacity in these regions. Recent U.S. government announcements demonstrate strong commitment to raise production rates. These announcements make public the need, which has underpinned our recent elevated levels of business investments. This positions us very well to respond to increasing production demands. Moving to commercial aerospace. Our customers have strengthened backlogs and our intent on driving increased production rates. We continue to see consistency in their production and have confidence in their growth plans. We are maintaining a 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 through excellent customer service. Finally, within industrial markets, we're seeing signs of recovery. This is reflected both in stronger book-to-bill and continued growth in our 12-month backlog over three successive quarters. We see particular strength in demand for data center cooling pumps and medical pumps and sets. Overall, end market conditions are very favorable for our business. Now turning attention to our leadership priorities, starting with customer focus. We're pleased to have our operational performance, officially recognized by another important customer. We received BAE Systems Gold Supplier of the Year Award for 2025, recognizing 100% quality and 100% on-time delivery performance. Our pursuit of operational excellence enables us to meet our customers' requirement, which drives our organic growth. Our strong customer value proposition was further reflected in several notable bookings and contract awards. We secured over $1 billion in Commercial Aircraft orders across several platforms, reflecting future growth in OE production. We secured an additional order for over $100 million for the PAC-3 missile program and see further potential given the recent contract between Lockheed Martin and the U.S. government. We also received over $50 million of missile orders across PAC-2 and FAD programs. In addition, we won a new space vehicle contract for over $100 million for our existing Meteor satellites. These orders account for close to half of what was a record Space and Defense segment bookings quarter. As we look to further develop our value proposition, we have strengthened our leadership team with the addition of a new C-suite role, namely that of Chief Strategy and Corporate Development Officer. This role will focus on ensuring the robustness of our business development plans and the strategic alignment of our acquisitions. Our ability to proactively pursue acquisitions and to follow through with effective integration will enhance our ability to create value. We will continue to have a balanced approach to capital allocation. Now turning to our employees and communities. We believe that our unique culture is a critical asset. It defines our identity, supports the attraction and retention of extraordinary talent and enhances collaboration with our customers. I'm exceptionally proud that we have been recognized by Glassdoor with a 2026 Best Places to Work Award, which ranks Moog in the top 100 large employers in the U.S. This is a testament to our focus on creating a work environment that is rewarding for our employees and empowers them to make their best contribution. In addition, we were proud to receive the inaugural Business of the Year award from the Buffalo Niagara partnership, our Regional Chamber of Commerce. We were also recognized for our impressive recovery efforts in Tuxbury with Team of the Year award from the local business community. Our financial performance continues to strengthen with solid growth and consistent focus on pricing and simplification. Our pursuit of continuous improvement is built on 80/20 principles. Having deployed 80/20 to all our significant manufacturing locations, our focus now is on further enhancing the maturity of 80/20 across the organization and to embed its principles into our management practices. The following practices are important to exemplars. Portfolio reviews are shaping our focus on the profitable businesses that we want to invest in and grow. This is happening at site, business units and division levels and is informed by segmentation analysis. Portfolio reviews drive our decisions to sell our exit products, sites and businesses and are an ongoing process allowing us to move resources to where they can have the most impact. Voice of the customer feedback directs our continuous improvement actions. We want to enhance the experience of those important customers, which will drive our success and create an even more clearly differentiated offering. We are specifically responding to our customers' needs for greater agility and capacity to meet increased demand. Pricing reviews are integral to our business process and are happening at all levels in the organization. They are data-driven and informed by our simplification and segmentation analysis. Our pricing activities are ensuring that we are fairly compensated for the value that we create for our customers. Now let me switch over to the work we're doing to optimize our balance sheet. Last quarter, I highlighted an opportunity to reduce trade net working capital requirements in our Commercial Aircraft business. This structural improvement is being achieved through the simplification of our global manufacturing and supply chain network and reshaping the relationship with our suppliers. We are committed to achieving these initiatives with the same deal that we have brought to our margin enhancement journey. I'm pleased to share that over the last quarter, we have made considerable progress. I'll share a couple of examples. We are shifting suppliers from long-term discrete purchase orders with fixed quantity and delivery dates to a more agile arrangement based on rolling forecast and short fixed commitment window. This approach allows us to respond to changes in customer demand more effectively and share the burden of customer demand changes more equitably between us and our suppliers. This action is about 2/3 complete. We also used these strategic negotiations to optimally align material supply to production plan needs, ensuring that we're not carrying excess inventory materials to -- sorry, access to requirement. This builds on prior work and has already reduced expected material receipts for 2026, in line with our annual plan, an impact measured in tens of millions of dollars. We've made progress on these structural issues, and we'll further build on this strong focus. Now turning to the full year. We've updated our guidance for fiscal '26 reflecting our excellent performance in the first quarter and a more positive market outlook. We've increased sales and adjusted earnings per share and held adjusted operating margin and free cash flow conversion unchanged. With this updated guidance, FY '26 will be a year of double-digit year-over-year sales growth, further expansion in adjusted operating margin, strong growth in adjusted earnings per share and improved free cash flow conversion. And with that, let me hand over to Jennifer for a detailed breakdown on the quarter and our updated fiscal '26 guidance. Jennifer Walter: Thanks, Pat. Before I get into our financial performance, I'd like to remind everyone about the revisions we disclosed in our FY '25 year-end financial statements. As previously described, we identified an error related to the accounting for a certain group of Commercial Aircraft aftermarket contracts. Accordingly, we revised certain prior period annual and quarterly financial statement amounts to reflect the correction of this error, as well as other previously recognized immaterial out-of-period items in the period in which they originated. The comparative prior year numbers we'll discuss today are those revised amounts. Additional detail can be found in supplemental schedules posted on our website. Now turning to our financial performance. We had another outstanding quarter. We beat our plan for sales, adjusted operating margin, adjusted earnings per share and free cash flow. We took $7 million of charges in the first quarter that we've adjusted out of the operating profit numbers that we'll describe. Over half of the charges were associated with M&A activity with the balance related to simplification efforts and a program termination. I'll now talk through our first quarter results, excluding these charges. Sales in the first quarter of $1.1 billion were 21% higher than last year's first quarter. Each of our segments had a record level of sales and were up double-digit percentages. The largest increase in segment sales was in Space and Defense. Sales were a record $324 million, up 31% over the first quarter last year, reflecting broad-based Defense demand. Demand was particularly strong for missile control and satellite components. Commercial Aircraft sales of $268 million increased 23% 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. Pricing also contributed to the sales growth. In military aircraft, sales of $247 million were up 16% over the first quarter last year. In the first quarter, we had a significant V-22 spares order that contributed to the strong sales increase. In addition, activity on the MV-75 program continued to increase. Industrial sales were $261 million in the quarter, up 14% over the same quarter a year ago. Sales grew within the expanding data center cooling market. We also had particularly strong sales within Industrial Automation this quarter. In addition, sales of Enteral cleaning and IV sets were also strong, reflecting current demand. We'll now shift to operating margin. Adjusted operating margin in the first quarter was 13.0%, up 90 basis points from the first quarter a year ago or up 220 basis points, excluding tariff pressure. Excluding this pressure, each of our segments were up nicely, reflecting operational strength. Base and Defense operating margin was 14.8% in the first quarter, up 280 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 14.1%, a 100 basis points above that of the same period a year ago. Business optimization and sales growth drove our operating margin upwards, while tariffs pressured our margins. Military aircraft operating margin was 11.9% in the first quarter, up 60 basis points from the first quarter last year. We benefited from the strong aftermarket sales, which was offset by a less favorable OE sales mix. Commercial Aircraft operating margin was 10.6%, down 120 basis points from the first quarter last year. The decrease was driven by tariff pressure. Operating margin benefited from increased volume and pricing benefits. Putting it all together, adjusted earnings per share came in at $2.63, up 37% compared to last year's first quarter. The increase reflects the higher operating margin and sales level, offset partially by the impact of tariffs. Let's shift over to cash flow. Although we plan a slow start to the year, free cash flow came in better than expected. In the first quarter, we used $79 million of free cash flow. Growth in our physical inventory consumed cash, and we were negatively impacted by the timing of payments, including the normal timing of compensation payments. Capital expenditures were at about the same level as the quarterly average from last year and are expected to pick up in the rest of this year. We continue to invest in our facilities to support our strong growth opportunities. Our leverage ratio was 2.0x as of the end of the first quarter, putting us at the low end of our target leverage of 2 to 3x. Our capital deployment priorities center around organic growth and will pursue strategic acquisitions to complement our existing portfolio, as Pat already mentioned. We strive to have a balanced capital deployment strategy over the long term. We'll now shift over to our updated guidance for the year. We're increasing our 2026 guidance for sales and adjusted earnings per share from what we provided a quarter ago, and we're affirming our guidance on adjusted operating margin and free cash flow conversion. We're increasing our sales guidance for three of our segments. In Space and Defense, we're increasing our guidance by $30 million to reflect new orders and strong first quarter sales. We're increasing guidance for Commercial Aircraft by $15 million to reflect production ramps on narrow-body programs, as well as strong first quarter aftermarket sales. We're also increasing guidance for Industrial by $15 million, and this largely reflects strong demand for data center cooling pumps. We're holding our adjusted operating margin in FY '26 at 13.4%, a 40 basis point increase over FY '25. We're adjusting segment operating margins slightly in two of our segments based on first quarter performance. We're increasing our operating margin for Space and Defense to 13.9% and moderating our operating margin for military aircraft to 13.8%. We're increasing our FY '26 adjusted earnings per share guidance by $0.20 to $10.20 plus or minus $0.20. The increase reflects sales growth beyond what we had initially projected. For the second quarter, we're forecasting earnings per share to be $2.25 plus or minus $0.10. Finally, turning to cash. We're still projecting free cash flow conversion to be about 60%, an improvement over FY '25. Next quarter, we expect to generate free cash flow at least equal to the amount that we used in the first quarter. Timing of payments, including the normal timing of compensation payments used cash in the first quarter but won't do so in the second quarter. In addition, we'll consume less cash for physical inventories as we continue to reschedule material receipts within Commercial Aircraft. We had an incredible start to the year with our strong first quarter financial performance, and we'll continue to build on our financial strength in fiscal year 2026. We'll achieve a record level of sales, further expand our operating margin and make meaningful progress towards generating strong free cash flow. And now I'll turn it back to Pat. Patrick Roche: So we delivered an outstanding first quarter financial results. We've improved our guidance based on the continuing strong performance in the robust market. And with that, let me open the floor to questions. Operator: [Operator Instructions] Your first question comes from John Tanwanteng from CJS Securities. Jonathan Tanwanteng: And then congrats on a great start to the year. I was wondering if you could comment on just the guidance increase for the year. A little bit less on both the revenue and the earnings versus what you beat in Q1, but, I was wondering if you could give us any color on that, if there's any nuances that we missed, maybe some timing items that were pulled in or maybe 1x items that was sustainable. Help us understand the mismatch there. Jennifer Walter: Yes, Tom, I'll take that. Yes, we did increase our guidance for EPS by $0.20 for the year. And while we beat our Q1 guidance by about twice that. We did have a very strong first quarter performance, as we've described, and we've reflected that in our guidance. In particular, it came in strong sales. We had strong sales in Space and Defense, overall strength of that business. In Commercial Aircraft related to production and aftermarket activity and in industrial, certain areas within industrial automation. So that part has been carried forward and reflected in our guidance for the year, but we also had some pull-ins from later in the year. And these are largely Defense-related things. And I'd attribute it to military readiness. For instance, the V-22 spares order, that is something that reflects basically a year's worth of orders that came in, in just the first quarter. And we saw similar types of things within our Space and Defense business as well. So these latter examples for military readiness are largely pull-ins from later in the year and just reflect timing. So we have reflected the true increases for the year that we achieved in Q1 for the full year. Jonathan Tanwanteng: Okay. Great. That's really helpful. And then second, could you just talk about the decrease in the military aircraft margin outlook, what's going on there? I'm not sure if you went into that. Jennifer Walter: Yes. What we did is we just reflected our Q1 performance and make sure that we took that into consideration as we were going for, for the full year. So previously, we had it at 14.3%, we decreased it to 13.8% as we achieved 11.9% in the year. So basically, it's just fine-tuning it to based on our results for the first quarter. And that's offset by some of the increase that we saw in our Space and Defense business. So we are holding our operating margin for the company at the 13th quarter that we had previously guided to. Jonathan Tanwanteng: Okay. And then finally, just on the better cash flow in the quarter. Was that a result of your better net working cash -- excuse me, net working capital initiatives or maybe lower CapEx? Or was that just a function of higher earnings? Jennifer Walter: It was -- I would say, it's attributable to our physical inventories. We had slowed down the material receipts that we had talked about this quarter and last quarter. We had done a nice job on that, and we saw that come through in our results this quarter, and we look forward to continuing those efforts and building upon those as we move throughout the year as well. Operator: Your next question comes from Michael Ciarmoli from Truist Securities. Michael Ciarmoli: Jennifer, Pat, just on the Commercial Aircraft margins, I know you called out tariff pressure, but is there any other headwind there? I mean, you guys are making really good progress across the portfolio. And I know the aircraft side seems to be the one that's got more of the tariff-related pressure. We saw a year-over-year decline there. And I think that it's probably a couple of quarters since a couple -- more than a couple of quarters that has been down to 10.6%. Anything else going on in that segment that's giving you sort of a challenge in driving those margins higher? Or is it really just all tariffs and some mix? Jennifer Walter: Tariffs is about 300 basis points of the impact on this quarter compared to a quarter ago when we didn't have the tariff impact. So without debt, that business is up very nicely. So operationally wise, we're seeing this increased sales volume and pricing benefits come through really nicely. So that business overall is performing great. The tariff pressure is what -- why we're seeing that downtick there. Patrick Roche: And that tariff pressure was particularly high in quarter 1. We have, as you know, aftermarket repairs coming back from airlines around the world and some of the costs associated with tariffs on that were higher than we had anticipated within the quarter. Not all of those airlines were completing the paperwork in the necessary manner for us in order to bring them in into a bonded area avoiding the tariff, and we're tightening up on that process and helping our customers make sure that they are compliant. So that should go down in subsequent quarters, but it was a relatively significant hit in this quarter. Michael Ciarmoli: Okay. And that was my next question. What else could you do to mitigate this tariff. So it sounds like you just mentioned a paperwork getting them into some bonded areas. Is there anything else? I mean, is it as simple as just pricing? Or are there other levers you can pull to offset that headwind? Patrick Roche: Well, we're actually doing quite a number of things. We have some supply chain routes around the world, which end up bringing product, I would say, unnecessarily into the U.S. and back out to our customer who is outside of the U.S. So we've changed around some of our supply chain. We're now using one of our facilities in the U.K. with a Belgian supplier and then the product gets delivered to France. And so it never comes into the U.S. That actually is single-digit million saving for us in tariff costs. And so we're pursuing all of those avenues, Michael. Michael Ciarmoli: Okay. Okay. And then just moving on, I guess, I can't recall a bookings quarter this strong for you guys. I know you called out some of those major Defense programs. But then I noticed that the 12-month backlog didn't really go up nearly as much as the total bookings. So how much of those $2.3 billion are beyond 12 months? I know you mentioned PAC-3, presumably, that's going to spread over a couple of years. But maybe if you could just give a little bit more color on the bookings and kind of the backlog trends. Patrick Roche: Yes. I mean we're really pleased with the bookings, Michael, because I think they reflect that we're doing the right things for the customer, and it's building a solid book of business for us. And so yes, they are at an exceptionally high level. If I characterize that $2.3 billion, about half of that was the Commercial Aircraft business, and that was C919 order that stretches out for a number of years. And some increased engine valve orders that were in there as well and also reflecting the progression of our wide-body OE sales going forward as well. So there was -- it was reflecting that whole increase in both narrowbody, widebody and engines on the commercial side. About 1/4 of the orders were Space and Defense group related and those orders that brought orders in Space and Defense group to a record level. And what was driving that was -- or a lot of it was PAC-3 over $100 million order for PAC-3, adding to the $100 million-plus order we had a year ago on PAC-3, plus a space vehicle order ordering Meteor satellites you know about those from our previous calls, but that was good to get a follow-on order on those. And then about 60% of it was military aircraft group, and that was reflecting both current platform programs that we're working on and new aircraft or new developments that are moving into production. Michael Ciarmoli: Got it. That's helpful. And just the last one, Jennifer, what's sort of the expectation for working capital and maybe physical inventory for the remainder of the year? Jennifer Walter: Yes. So we're going to -- so as we look into '26, some of the things that we'll see within working capital is we are going to see positive advances. So that will be a positive for us. We will see some growth in receivables and physical inventories associated with business growth, but we are mitigating that with the activities that Pat has described there. Operator: Your next question comes from Gautam Khanna from TD Securities. Gautam Khanna: I was curious on the V-22 order and just in general, are you seeing an uptick in Defense orders in the current quarter? I'm just curious like as -- was that a surprise that you got that order all at once? Is there any change in kind of customer activity that's worth noting one way or the other? Jennifer Walter: I'm not sure that there's too much of a change. This one did happen to be basically what we had expected to have in orders for the year get accelerated into the quarter. So it is an acceleration. On the military side, we are seeing a little bit of acceleration in moving things to the left. We're positioned well so that we can accommodate these orders and take care of that. I don't know that it's too much of a change, but we are seeing that really in the Defense side. As I mentioned earlier, I think it's really just determined by military need for readiness and just making sure that suppliers like us are positioned well, and we are positioned well to meet those needs. Patrick Roche: And if I step back from just that specific case, I mean, there is a sense of urgency in the Defense side of the business to actually accelerate capacity for missile programs, specifically replenishing an arsenal that was heavily depleted. And as Jennifer has said, on readiness, making sure that all the assets that you have are able to be deployed. I think that's a general trend pulling things into the left. Gautam Khanna: Yes. To follow up on that point, Pat, I was just curious like we are seeing these contracts or framework agreements anyway, be negotiated with some of the Defense prime contractors. I'm curious how advanced are your conversations with those primes to kind of get capacity up and perhaps that slowed down to you guys? I'm just curious how far advanced are those talks? Patrick Roche: So how I would characterize it is this need to build capacity has been apparent for at least 18 to 24 months. And when we've been leading on missile programs over that period, we've been asked the question again and again, what would you need to do to double your capacity or to quadruple your capacity. So it has been well flagged through the industry. I think the announcement of the 7-year frame agreement with Lockheed Martin makes it really public that there's this government imperative to increase those production volumes. And so we've been planning through that, and we've been making investments in our business that are supportive. Once we think about the PAC-3 program, we run that through our Salt Lake City facility. Over the course of the last couple of years, we've freed up space in that facility by selling a Navaids business a few years back, as you remember, that space is now completely free and available for new work to be in loaded into that facility. That will be the PAC-3 activity. We've decided to invest in a circuit card assembly line in that plant as well in support of programs like PAC-3 and other missile programs, and those capital investments are all within our current planning. So we're looking forward to seeing a level of volume coming on those programs, Gautam. Gautam Khanna: That makes a lot of sense. And just last one, Jennifer, what was the total company price realization year-over-year in the quarter? Jennifer Walter: Did you say for pricing benefit? Gautam Khanna: Yes. Jennifer Walter: Yes, we haven't given out the pricing benefit year-over-year. But as we look to it, it is -- it does contribute nicely. It's not half of the amount that we're doing. It's definitely volume and demand is being the biggest part. And then I would say it's complemented by price increases that we're securing throughout our book of business. Operator: [Operator Instructions] Your next question comes from Kristine Liwag from Morgan Stanley. Kristine Liwag: Good morning, everyone. And it's wonderful to see some of these strong sales signals converting to orders. I was wondering on PAC-3, can you just let us know how much this is as a percent of company sales? Or if not PAC-3, how we think about overall missiles as the size for Moog? Patrick Roche: So if I think about our missiles business, in '25, it was over $200 million, and it was growing at about 20% a year. In '26, we expect it to be more than a $0.25 billion business for us within that space in Defense group. Kristine Liwag: Great. That's helpful color, Pat. So I was wondering, with the record, I guess, novel contracts at Lockheed signed with the Department of Water for the PAC-3 and the FAD. I mean, it seems like we're in the beginning stages of this new acquisition reform that's providing multiyear outlook and capacity is growing 300%, 400%, 500%. I was wondering how you should -- how we think about what this could mean for your business? And is that the growth trajectory that you could potentially see as we get more of these deals signed? Patrick Roche: We're very optimistic about it, Kristine. We feel that we have been demonstrating over the last couple of years, a really strong commitment to this business. We're delivering really well operationally. As you know from the last quarter, we got an award from Lockheed Martin for 100% on time, 100% quality. In this quarter, we announced the BAE systems have given us an award. Also that was on a missile program. So we are really effective at delivering. And if people are looking for increased capacity and throughput, no better place to go than some places, delivering 100% downtime. So I think we're well set up to meet the needs of our customers in these programs. In terms of our capacity to accommodate it, I just mentioned the Salt Lake City factory. We have the floor -- the square footage available there to meet the expanded needs that we see coming even if it is 2 or 4x current levels on those programs. And our exposure across missile programs is really broad. So we're all focused on PAC-3 here, but FAD is also a program that is experiencing significant growth. We have content on that and hope to increase scope on that. plus Standard Missile 2, Standard Missile 3, Standard Missile 6, Prism, Tomahawk, to name just a few. So it is a really positive upside for us, Kristine. Kristine Liwag: Super exciting. And if I could squeeze a third question about data center cooling, can you talk about what exactly you're supplying? How big could this business be for you? And what's the margin profile of data center cooling? Patrick Roche: So in 2025, it was about $25 million of sales. We expect that to double in 2026 in terms of what we manufacture. It is a pump that is used to circulate the cooling fluids through the long rack of processors and servers that are used in these data centers. So it's a critical component within the cooling system. It goes into what's called a cooling distribution unit, which is at the end of the server line. We have multiple pumps within that for redundancy reasons. Our pump has some highly differentiated features associated with it, which improved its reliability and maintainability in the environment. We've gone from producing at a rate of about 200 a week of these pumps at the beginning of '25 to over 500 a week by the end of '25, and our customers would like us to double the volume on those pumps. And so we're standing up a second production line and boosting capacity in our existing facility. Operator: There are no further questions at this time. I will now turn the call back to CEO, 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 providing an update again next quarter. Thank you. Operator: This concludes today's call. Thank you for attending. You may now disconnect.

63天前Insight Analytics约5分钟阅读

TBBK 2025 Q4 财报电话会议

Operator: Good morning, ladies and gentlemen, and welcome to The Bancorp Inc. Q4 and Fiscal 2025 Earnings Conference Call. [Operator Instructions] This call is being recorded on Friday, January 30, 2026. I would now like to turn the conference over to Andres Viroslav. Please go ahead. Andres Viroslav: Thank you, operator. Good morning, and thank you for joining us today for The Bancorp's Fourth Quarter and Fiscal 2025 Financial Results Conference Call. On the call with me today are Damian Kozlowski, Chief Executive Officer; and Dominic Canuso, our Chief Financial Officer. This morning's call is being webcast on our website at www.thebancorp.com. There will be a replay of the call available via webcast on our website beginning at approximately 12:00 p.m. Eastern Time today. The dial-in for the replay is 1-888-660-6264 with passcode of 65852. Before I turn the call over to Damian, I would like to remind everyone that our comments and responses to questions reflect management's view as of today, January 30, 2026. Yesterday, we issued our fourth quarter earnings release and updated investor presentation, both are available on our Investor Relations website. We will make certain forward-looking statements on this call. These statements are subject to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 and are subject to risks and uncertainties that could cause actual results to differ materially from the expectations and assumptions we mentioned today. These factors and uncertainties are discussed in our reports and filings with the Securities and Exchange Commission. In addition, we will be referring to certain non-GAAP financial measures during this call. Additional details and reconciliations of GAAP to adjusted non-GAAP financial measures are in the earnings release. Please note that The Bancorp undertakes no obligation to publicly release the results of any revisions to forward-looking statements which may be made to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events. Now I'd like to turn the call over to The Bancorp's Chief Executive Officer, Damian Kozlowski. Damian? Damian Kozlowski: Thank you, Andres, and thank you for joining our call today. At the beginning of -- we announced the new brand that better represents the future of our company. It is a bold representation of the exciting future in front of us. Please refer to our website and other company marketing materials transformation. The Bancorp earned $1.28 a share in the fourth quarter. EPS growth year-over-year was 11%. GDV continues to grow above trend at 16% increase for the quarter versus fourth quarter prior year. Revenue growth in the quarter, which includes both fee and spread revenue and excludes credit enhancement income was 3% versus fourth quarter prior year. For the year, GDP growth was up 17%. In 2025 over 2024 and total fee growth was up 21%. Our 3 main fintech initiatives ended the year well positioned to create significant shareholder value in the future. First, our credit sponsorship balances ended at $1.1 billion, up 40% from the third quarter and 142% year-over-year. We exceeded our goal of at least $1 billion in credit sponsorship balances ending at approximately $1.1 billion. We hope to add at least 2 new partners this year, and we'll make announcements at the appropriate time. Second, our embedded finance platform development continued to progress on pace with an expected launch early this year. And third, new program implementation time lines, Cash App being the largest are on track and should deliver meaningfully both to GDV and fee revenue in 2026 and beyond. All 3 initiatives should be an increasingly positive effect on our financials as we move through '26 and show significant impact as we enter '27. We also made progress in reducing our criticized assets, which include both substandard and special mention assets, these assets declined from $268 million to $194 million or 28% quarter-over-quarter. We expect more progress over the next few quarters. Delinquency declined substantially from 2.19% of loans at the end of the third quarter to 1.6% at the end of the fourth quarter. I now turn the call over to our CFO, Dominic Canuso. Dominic? Dominic Canuso: Thanks, Damian, and good morning, everyone. Overall, it was a strong fourth quarter and finish to 2025, building momentum on our APEX 2030 strategy. ROE was a record 30.4% in the quarter and 28.9% for the full year, continuing the trend of year-over-year improvements. Ending assets increased to $9.4 billion, up 7% versus prior year as the total loan portfolio increased $919 million to $7.26 billion, driven by $644 million in consumer fintech loans, which now constitutes 15% of our loan portfolio. In addition, in the quarter, we purchased $317 million in bonds, 82 of which were fixed rate agencies, bringing our investment portfolio to 18% of assets and relatively consistent with year-end 2024. Liquidity continues to be very strong with average deposits in the quarter of $7.6 billion with an average cost of 177 basis points. 95% of our deposits are from fintech with 92% of total deposits in short. With the continued growth of credit sponsorship and our overall fintech business, noninterest income, when excluding the credit enhancement, account for just over 30% of revenue in the quarter, with approximately 90% of fees coming from the fintech business. As Damian mentioned, we continue to see significant improvements in our leading credit metrics, including criticized assets, delinquencies and nonaccruals. When excluding fintech loans, which are covered through the credit enhancement, the provision for loans in the quarter was $858,000 down significantly from $5.8 million in the third quarter. Similarly, net charge-offs in the quarter was $629,000, also down meaningfully from the $3.3 million in the third quarter and consistent with the low end of recent historical averages. Noninterest expense for the quarter was $56.2 million and included $2 million from a legal settlement relating to a previously disclosed legal proceeding initiated in 2021. We are actively engaged with our insurance company on recovery, including potentially recapturing historical legal fees. When excluding the legal settlement, costs were up only 5% versus fourth quarter of 2024, as we continue to scale our platform and reallocate resources to support continued top line growth. Lastly, we purchased $150 million of our stock or 5% of outstanding shares in the fourth quarter bringing our full year repurchases to $375 million or 12% of outstanding shares. I'll now turn the call back over to Damian. Damian Kozlowski: Thank you, Dominic. We are initiating guidance of $5.90 EPS for 2026. We are targeting at least $1.75 a share in the fourth quarter 2026. We are maintaining a preliminary guidance for '27 of $8.25 a share. Our guidance in '26 and '27 includes stock buybacks. '26 buybacks are forecast to be $200 million total or $50 million a quarter. Our 3 major fintech initiatives, platform efficiency and productivity gains from platform restructuring and AI tools, plus a high level of capital return through continued buybacks will be the driving forces beat EPS accretion. EPS gains are subject to development implementation time lines in fintech and our stock price for buybacks. Operator, could you please open the lines for questions? Operator: [Operator Instructions] Your first question comes from Joe Yanchunis with Raymond James. Joseph Yanchunis: So your outlook calls for a rather steep EPS ramp. And I understand some of the underlying revenue drivers are dependent on partner activity, such as launching embedded finance and the new Cash App cards. Having said that, are you able to give us some more building blocks to help us bridge the EPS gap? Damian Kozlowski: Yes. So the -- they're large revenue opportunities. And we've got more clarity now than we did last -- end of last quarter where we did not issue preliminary guidance for 2026. We're on track with our initiatives. We continue to -- I think we're going to have some interesting announcements on the credit sponsorship over the next few quarters. And then we're going to be launching our embedded finance platform because we're at the stage now where we're confident that we'll be able to complete the platform for certain use cases by the beginning of '26. We're very clear on the -- because of other program implementation guidelines, we now can better predict where we're going to be at the end of the year. And we think we're confident that we can hit that $175 million number at the end of '26. And then if we stay on track where we are with our plans, '27 could be a really interesting year for the company. Joseph Yanchunis: Okay. I appreciate that. And if we just go back to the fourth quarter, you called out a couple of drivers or a few drivers that kind of weighed on results. Are you able to unpack those a little bit more? Dominic Canuso: Sure. Joe, this is Dominic. Yes, I think the first, obviously, we called out the legal fees. The second driver was just the unexpected duration of the government shutdown, which we believe affected the global economy and flow of both payments and deposits through the business. So reducing GDV slightly versus the higher expectation and run rate we had been at earlier in the year and affected our balance sheet mix, which were the 2 primary drivers, again, with GDV being part of that. And then lastly, while you saw significant growth in our credit sponsorship, balances, most of that was at the end of the fourth quarter, which demonstrates the anticipated growth we expect through 2026. But it occurred later in the quarter than we expected. So we didn't generate as much average balance income that we had expected throughout the quarter. So those are the 3 minor major drivers. And while they affected in the quarter where we ended the quarter, tees us up to achieve the full year and fourth quarter 2026 expectations that we've articulated. Joseph Yanchunis: Okay. So a potential weekend government shutdown is not going to have -- that wouldn't be called out as a potential 1Q '26 headwind should everything come back online? Damian Kozlowski: Yes. We don't think so because we're already receiving -- it's going to be a very large tax year. There's no doubt about it. We're already receiving a substantial amount of tax remittances that will go through our partner programs. So it's -- the first you never -- it hasn't happened yet, but early indications where there's been a lot of talk about how good this tax season, we're seeing it. And obviously, it's going to go to the underbanked and newly developed client wealth clients. So it should have a very good positive impact. And it should also affect our second quarter also as that gets spent through our programs. Joseph Yanchunis: Got it. And then one more for me here. So in your deck, you talked about -- you exited the quarter with $400 million in off-balance sheet deposits. Can you talk about the economics of this program? And should we expect all future deposit flows to be swept off balance sheet? Dominic Canuso: So we do expect to continue to generate, as Damian mentioned, particularly with the tax season coming up, generating deposit growth outpacing our demand for it. And so we will continue to look at the mix of our deposits and on balance sheet, the lower costing deposits while we mix shift to the higher cost deposits off balance sheet. And I think we continue to see this as an opportunity to not only optimize our earnings but generate revenue through this excess liquidity into the systems like IntraFi, and we look to monetize that particularly as we continue to grow in the second half of the year. Damian Kozlowski: Yes. Up to now, it's all been about reducing our funding cost as we've taken the high-cost deposits off balance sheet. In the future though, as we have larger and larger excess of deposits, we will have some income over the reduction in funding costs, but we haven't experienced that revenue yet. Operator: Your next question comes from Emily Lee with KBW. Emily Noelle Lee: This is Emily stepping in for Tim Switzer. So I have a few questions related to the REBL book. Can you confirm that all the announced refinancings were with entirely new partners? And was there any additional equity put in? And what were the new interest rate versus old ones? Dominic Canuso: Sure. Yes. So some of the refinancings were with new partners, some were recapitalizations. At the end of the day, the existing properties were incredibly stronger positions than when they're originated and then given the lower interest rate environment, there was some step down in yield in the portfolio. But all of the positions are stronger than when we originated them with stronger sponsorships and some existing partners, but mostly new. Emily Noelle Lee: Got it. And then what is the plan for the Aubrey now? I think on the Q3 call, you indicated you hope to get more clarity in the next 30 to 60 days. So just wondering if you have any update. Dominic Canuso: So we continue to see the benefits of the investments we've made to stabilize the property. Every incremental room we add increases occupancy rates. So in the last year, we've over doubled the available rooms and continue to see occupancy of available rooms in the '80s. We're getting close to breakeven on a cash flow basis, which we expect in the second quarter. So at this point, we continue to look for exit opportunities. But given the strength and the performance we expect in both occupancy and future positive cash flow after we get through the breakeven by mid-year, we will look for broader opportunities as a stabilized property exit, which would increase the potential value that we get relative to not only our balance sheet, but the estimates that are out there. Damian Kozlowski: Yes. And the appraisal is over 50. We had it reappraised and at a stabilized level now, we're getting -- if we're renting 80% available rooms, we have good line of sight to have completing all buildings and then having easily an 80% occupancy rate over the next couple of quarters. And then that's a -- once you get to that level, the number of buyers multiply significantly, and we have a potential to monetize, obviously, a gain on the property. So we're going to exit -- if we're going to exit in a prudent way, this was probably the most difficult situation that we've had in our portfolio over the last 5 years. But we're working out of it. We've retained the value. We've had multiple partners. There's a lot of people interested, but we're at a stage where we want to exit it in the right way. And now that it's approaching cash flow positive, we're going to be -- we're excited about in exiting, but we're also going to be prudent for our shareholders to make sure we get as much value out of the property as we can. Emily Noelle Lee: Great. That was helpful. And then I have 2 more questions. Just there's been a lot of discussion lately about fintechs obtaining their own bank charters. And most of that in the BaaS world has then how it could be a threat to partners, no longer needing a bank sponsor. So can you respond to that? And also just outline how there might be any opportunities here, if any? Damian Kozlowski: Yes. So in our -- with our partners, there are many partners that will -- that aren't ever going to get a license, right? So we're doing corporate payments. We're doing a lot of things across our 15 verticals governments that you're never going to need a license, right, or you're never going to obtain a license. It's really more narrow in some of the credit sponsorship areas, but also the Chimes and the PayPals of the world. Many of them do have types of licenses like Utah, industrial banks and stuff where they might issue credit and everything. But we don't see our major partners. The reason is valuation and oversight. It's once you -- there was a lot of concentration a few years ago and a few people did get licenses. But you then get all the scrutiny, you don't -- remember, our -- what we deliver to clients is a middle office, very scalable platform at a very low cost. And as you enter our ecosystem, you get to benefit all the information of all the programs and we have $1.1 trillion going through the bank. So it's incredibly scalable. It's at very low cost. Even if you do get a license, you may use our infrastructure. So it doesn't even preclude somebody getting a license and many of our partners have limited licenses of them using us because it's beneficial to them. So we don't see an impact right now on our portfolio, and we don't expect to have a major impact in the future. Emily Noelle Lee: Okay. Great. And then just if I could do one more. Can you walk us through the economics of your off-balance sheet deposits in the sweep program, specifically how much you generate off of that? And is the expectation going forward that most incremental deposit growth will flow from there? Dominic Canuso: Sure, Emily, this is Dominic. We had just mentioned in Joe's question that as of now, the leveraging the balance sheet to off-balance sheet deposits, was really a function to optimize our funding and increase our net interest margin. We believe going forward, as we continue to generate larger amounts of lower-cost deposits, that's when we'll turn it into a revenue generator. Now we do have plans this year to have deposit growth exceeding our balance sheet capacity and loan growth. And so we do expect some revenue generation from off-balance sheet in this but we look for more potential as we continue to add partners and grow programs. . Damian Kozlowski: It should, over time, our funding cost as we continue to generate -- there's like savings deposits that are higher cost. As we take those off the balance sheet, on a relative basis to Fed funds or deposit costs will go down right? It will go down. And if you net out some of the fees that we will generate by taking even lower cost deposits off balance sheet because they'll be under Fed funds, you'll continue -- if you add that back, you'll have even a lower funding cost. So it's very -- we're in a very liquid position with a downward pressure on deposit costs based on the liquidity of the balance sheet. Operator: Your next question comes from Stephen Farrell with Oppenheimer. Unknown Analyst: I just have a quick question about the REBL loans. Regarding the $102 million in criticized loans this quarter, can you provide any color on what markets they were in? Damian Kozlowski: Well, they were in a bunch of different -- there wasn't a single concentration. So we're in red and really red and purple states. We really aren't in California, New York, those type of markets. And the reason we've done that is because that's where the growing markets are, but that's also where the legal structural environment in real estate is advantageous. So for example, when we took over our asset in Houston. So we really focus on the -- it's really the Southeast, a lot in Texas and Florida, but also places like Georgia. And there was no -- it was across our portfolio. There's really no concentration in that number. Unknown Analyst: Okay. And I think you mentioned that some of the LPs were recapitalized. But the principal loan balance and the refinancing was the same, right? Damian Kozlowski: Yes. So we -- so when we do these, there's a very good marketplace after the event that happened. It happened across the industry, right? But there were definitely people -- pools of capital that formed that they're looking to take out other sponsors because if you think about what happened was these are 3-year loans, you transition a property after 2 years is when you might have a problem. You can't finish your property, but now you've invested substantial amount of money and remediating the property. Our worst asset was the Aubrey, and that's close to stabilize now. But generally, it's -- they get tapped out. These will have multiple of these properties usually might have multiple investors and at some point, they get tapped out. But there's pulls of capital there that we can, and we have a great industry knowledge locally in these markets. So there's always someone who's willing to take over in most cases, willing to take over the property, infuse more capital. Usually, the buyer will just either walk away or get some type of note. So when they monetize the property, they will get some of their investment back. So they're -- that formed after the -- as people got in trouble and that started to materialize in '24 and late '23, there was a lot of these sponsors. And we didn't have that many. To be honest, it was like close to 10 or 12 issues in our portfolio of 150-plus loans. But other players, as you are aware, I'm sure, had much more severe issues. And since we had exit debt yields that were fairly high and our loan to values were fairly low, we were able to find additional sponsors with liquidity as it started to appear in -- with investors to work out these properties and to stabilize the loan and get the path forward to full stabilization and takeout usually from government entities. Operator: Your next question comes from Joe Yanchunis with Raymond James. Joseph Yanchunis: So I believe you mentioned earlier in the call that you were looking to add potentially 2 new partners to your credit sponsorship lending portfolio. Do you have a sense for kind of a year-end exit rate for the size of that portfolio? And should you need to rationalize other portfolios to make room? Can you talk about where you kind of start? Damian Kozlowski: Yes. So we want to add at least 2 partners. And I think we've got good visibility on 2 partners. So we'll make announcements when appropriate. We're targeting -- and remember, the China program is growing pretty aggressively. So if you look at that level of growth, we haven't announced exactly where they're going to be. That's up to them. But with their growth and if you've seen the growth over time, we're -- it's going to be at least $2 billion, but it could be as high as $3 billion, right? So it's -- it really depends on the on-ramp of new partners because we have great visibility on the Chime relationship. But I think we're going to -- we could easily be double where we are today at the end of '26. And that's probably a good -- when we look at it, double where we are today is probably a good estimate of where we're going to be. Joseph Yanchunis: And then also, should you need to make room on your balance sheet, what would you... Damian Kozlowski: Yes. So we've already did some restructuring that we announced. So we have a very good idea of the economics of these businesses. So the first area where we reduced our participation was in our institutional business where we do nonpurpose securities loans. We also did loans for life insurance, the whole value and it's obviously liquid value of life insurance. And then we also did investor finance, which is really acquisitions in the RIA market. So we've stopped originating new loans in IBLOC and also in that RIA acquisition business. So we think we have enough liquidity. We also have pools of capital in multiple areas where we can room. For example, we have SBA guaranteed paper that we don't have to hold. And we'll just deemphasize -- we have very good understanding of the economics. So obviously, the lower spread will deemphasize first, and we already have. We think we have enough room for '26 to do business, and it gives us plenty of runway. But ultimately, as credit sponsorship grows, we will continue to refine our businesses to distribute the loans. If you think about what we've -- the businesses we have, we either have a demand loan or in many cases, even in the real estate area, we -- and we've done this before, we've securitized the loans into CLO structures or conduit structures. So we have a very good visibility. We won't have a problem around getting the liquidity we need to invest in new loan areas. And the real trick of our balance sheet is velocity. So as we continue to emphasize credit sponsorship, but also in the traditional businesses, we've set them up so that we can distribute them through usual market means. Joseph Yanchunis: Okay. And then last one for me here. So just kind of taking your prior answer of potentially doubling your credit sponsorship loans kind of winding down some of the lower-yielding portfolios. I was hoping you could kind of put all that in the blender as well as some of your other comments and help us think about the NIM a little bit more, which has been kind of volatile, jumping around a little bit. Dominic Canuso: Sure, Joe. This is Dominic. So there will continue to be some variability quarter-to-quarter in the net interest margin, particularly as deposits flow through and we optimize what's on and off balance sheet. And as Damian mentioned, what we want to do is maintain the flexibility of the balance sheet to maximize the leverage but also create room for the growth of the fintech business. So that mix that we'll see on balance sheet will affect the NIM. We do expect some compression of the NIM throughout the year, particularly as we shift more towards fintech and double that consumption on balance sheet, which generates more fee revenue and lower cost deposits than interest income. So that -- as that happens naturally, our profitability will increase, but net interest margin will come down a bit, but that will be replaced by a larger mix of fee revenue as a portion of total revenue. So I think we expect NIM to compress near 4%, but as we grow fee income to be 35% of total revenue when excluding the credit enhancement. Damian Kozlowski: Yes, you can always add back. We have a line that's very clear in our financials that basically is interest because that's the way we base it on. We get it in fees because that's the way we need to book it through the GAAP system, but you can always add that number back and that will give you a better idea of what total NIM is. Now this is a non-GAAP measure but just to make that clear, but we get a fee, but that fee represents an interest rate that were agreed with our partner on and if you add that back, you get a better sense of the total NIM of the company, even though that is once again a non-GAAP measure. Operator: There are no further questions at this time. I will now turn the call over to Damian for closing remarks. Damian Kozlowski: Thank you, everyone, for joining us on the call today. Management will be attending investor conferences and meetings throughout the quarter, including attending the KBW Winter Financial Services Conference in February, and we look forward to meeting with many of you. Have a great day. Operator, you may disconnect the call. Operator: Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines.

63天前Insight Analytics约5分钟阅读

AARTY 2026 Q3 财报电话会议

Operator: Good afternoon, ladies and gentlemen, and welcome to the Airtel Africa 9 Months 2026 Results. [Operator Instructions] Please note that this event is being recorded. I would now like to hand the conference over to Sunil Taldar. Please go ahead, sir. Sunil Taldar: Thank you very much. A very good morning, good evening to all of you, and thank you for joining on today's call. I'm joined on the line by Kamal Dua, our CFO; and Alastair Jones, our Head of Investor Relations. We will shortly be answering your questions. But first, I would like to provide you with a brief overview of the recent performance at Airtel Africa. I think these results speak for themselves. We have continued to produce a strong operating and financial performance with reported currency revenue growth of 28.3% and almost 36% growth in EBITDA over the last year. Constant currency revenues and EBITDA, a reflection of the underlying performance saw encouraging growth of 24.6% and 31%, respectively. The outstanding feature of this performance, in my view, is the continuing scale of opportunity across the business. We operate across African continent with a combined population in excess of 650 million people, where the -- whereas the penetration of both telecom and financial services remains low. We have a broad portfolio of services that are in high demand, spanning data, home broadband, enterprise solutions, mobile money and merchant payments to name a few. As digital adoption and financial inclusion continues to rise, this positions us to sustain strong growth rates over the coming years. Our refined strategy is working to capture this opportunity as we attract customers and build loyalty in order to sustain this industry-leading growth. These results underscore the substantial work we have been undertaking over the last few years to embed this customer-centric strategy across the group. The result has been increased adoption of our digital services, which allows customers to access them with ease, alongside the launch of transformative offerings such as the AI spam alert, which protects our customers from fraud, and the recent partnership with Starlink, which will enhance connectivity to our customers across the footprint. These are strong examples of innovation -- innovative initiatives that differentiate us from competition and solidifies our position of being able to capture the significant opportunities across our markets. To deliver an outstanding customer experience, we have accelerated investment to increase capacity and coverage across our footprint. We've increased our sites by approximately 2,500 and expanded our fiber network to over 81,500 kilometers, as we focus on enhanced coverage and data capacity to further improve the customer experience. This investment remains the cornerstone of our ambition to capture a larger share of the opportunity on offer across the continent and is reflected in the strong operating and financial results we have reported this morning. In summary, our primary focus remains delivering an exceptional customer experience essential for creating value for all our stakeholders. Our revenues reached -- let me now briefly run through the financial performance in quarter 3 specifically. Our revenues reached $1.69 billion, which was 24.7% growth in constant currency, an acceleration from 24.2% in the previous quarter. Given the recent foreign exchange developments, this translated into a growth of almost 33% in reported currency. On a regional basis, a key highlight was the performance in Francophone Africa, which saw its constant currency growth accelerate from 15.8% in quarter 2 to 18.7% in quarter 3, as our investments and strategic focus has helped drive a strong recovery over the last few years. In Nigeria, strong demand and tariff adjustments contributed to a further acceleration in growth to 53% in constant currency. While in East Africa, constant currency growth of 16.1% remains robust despite evolving market dynamics over the quarter. Moving on to our two primary business segments. Our Mobile Services business continued to see strong trends with operating momentum and customer growth, usage and ARPU driving revenues 23.6% higher in constant currency. Customers of 179.4 million grew by double digit with data customers rising almost 15% to 81.8 million. Smartphone penetration increased almost 4 percentage points, reaching to 48.1%, but this also reflects the scale of the potential for further smartphone opportunity and takeup in our footprint. Data traffic increased by almost 47% as data usage per customer reached 9.3 GB per month in quarter 3, up 25.6% from the previous year and an 8% increase from quarter 2 levels. It is clear that underlying fundamentals, combined with our strong execution are enabling the sustained level of demand. In addition, data ARPU remains supported by these operational trends with a 16.2% increase in quarter 3, leading to a data revenue growth of 35.5% in constant currency terms. With data revenues now being the biggest component of revenues, the performance in this segment is key to sustaining a strong overall group revenue performance. Now on to another very significant growth engine for us, the mobile money business. Airtel Money crossed two thresholds in the last quarter. Firstly, it exceeded the 50 million customer mark with 52 million customers at the end of quarter 3. The second milestone was seeing the annualized total process value, or TPV, exceed $200 billion, reaching over $210 billion, a growth of 36%. Both these achievements reflect not only the significant market opportunity, but also the structural competitive advantage and scalable platform, which has driven increased customer engagement as ecosystem continues to expand. With only 52 of our almost 180 million GSM customers using the service, the ability to sustain this strong customer growth momentum remains intact. This, combined with continued uptake of new services and increased engagement on the platform, highlights a very compelling growth narrative. In the quarter, revenue growth of 28% in constant currency and EBITDA margins of over 50% reflect best-in-class financials, where growth, profitability and strong cash conversion enables the continued scaling of this very attractive business. The strong growth across all businesses has also benefited the profitability of the group, with EBITDA margin continuing to expand to 49.6% in quarter 3, up from 49% in quarter 2 as cost efficiencies, a more stable macro backdrop and operating leverage continues to benefit. Notable mentions are Nigeria, where margins increased to 57.8% and a further increase in Francophone margins to 44.3% on the back of strong operating results. At a group level, this has driven a very pleasing 31% increase in constant currency EBITDA, which when combined with currency tailwinds has resulted in a 40.8% increase in reported currency EBITDA. Within finance costs, aside from the more stable FX environment, the group's effective interest rate has declined by 200 basis points. We have seen the interest rate cycle turning more supportive with policy rates moving lower and the increased free cash flow generation, enabling us to pay off higher rate debt. Leverage remains very comfortable with these adjusted leverage declining to 0.7x, down from 1.1x in the prior year. Adjusting the extraordinary items in the previous year and all foreign FX gains or losses, we have seen the underlying EPS increase from $0.074 in the prior period to $0.116 in the current 9-month period, an increase of 57%. Basic EPS has increased to $0.131 from $0.044 in the prior year. Underpinning this performance has been our CapEx investments. As we communicated at the H1 results, we've announced CapEx guidance of between USD 875 million to USD 900 million for this financial year. This is a significant step-up from the previous year, reflecting continued confidence in the outlook for the growth and scale of the opportunities available for us to capture. In this 9-month period, CapEx increased over 30% to $603 million, and we are on track to deliver according to our guidance. As I highlighted earlier, the prospects for multiyear growth remains very apparent, and this accelerated investments will provide the platform necessary to capture a higher share of this growth, while also enabling us to unlock additional growth opportunities in areas such as data centers, but also the home broadband space where we have seen strong momentum. Before I hand it over to the Q&A, just summarize a few key points. Firstly, there were strong results with constant currency revenue and EBITDA growing by almost 25% and 31%, respectively, in quarter 3, translating to a 33% and 41% reported currency revenue and EBITDA growth. Operating momentum remains intact with strong customer base growth and usage growth across our telecom business. Airtel Money continues to scale with strong results, reflecting the truly unique business opportunity. And we are seeing strong progress in the preparations for the IPO, which remains on track for the first half of 2026. We have accelerated our investments to capture the significant growth opportunity that is available to us, and we believe this will put us in a much stronger position to showcase our ability to capture the structural growth potential. We're excited by the future, and we see a unique opportunity to sustain strong levels of growth going forward through a laser-like focus and strategy of putting the customer at the heart and center of everything we do. We look forward to reporting our successes in the future and continuing to generate value for our shareholders. And with that, I would now like to open the line for questions for which I'm joined by Kamal. Operator, I'll now hand over to you to facilitate the Q&A. Operator: [Operator Instructions] The first question that we have today is from Rohit Modi of Citi. Rohit Modi: Congratulations on the results. I have three, please. Firstly, on EA, as you mentioned higher competitive intensity in some of the markets. Can you give more color on which of the markets where you're seeing this higher competitive intensity and how you think that's going to -- how we should model our numbers for future quarters? Do you think that this is more short term that you're seeing or a bit more long-term impact from this? Second is on Nigeria. You'll be lapping the price increases this quarter. Just trying to understand how you see the growth in Nigeria beyond this quarter. I mean I think fully you'll be lapping in the next quarter, particularly and can you give us more color on that? And third question is, if you can please remind us in terms of your leverage targets, given leverage has come down to 1.9x, at what leverage do you really look at the capital allocation policy? Sunil Taldar: Thanks, Rohit, for your compliments and the question. Let me just take the first question first on East Africa. See, if you look at East Africa, it is our largest market segment, and this is one market where we've been consistently performing over the last few years and many quarters. It's a very, very robust business that we manage in East Africa. First, let me talk about the underlying metrics of the business so that we are clear that there is no structural underlying issues in East Africa. Let me start with our base growth. If you look at our base growth, it is about -- the business is growing at about 9.5% in terms of our customer base growth. Smartphone growth, which is another very important metric that we look at, is growing at about 19% or so. So in terms of our underlying metrics performance, the business remains very, very stable and strong. The opportunity in East Africa remains very, very compelling. It's a very strong business for both money as well as for GSM for us. And as I said, we have over the quarters and years, demonstrated our ability to execute very, very beautifully and delivered strong results. In the last few quarters, there is one thing that we've experienced is a significantly higher competitive intensity. And if you remember, this was the same story on Franco Africa about 6 or 7 quarters ago where we had said that Franco, there is a significantly higher competitive intensity and -- but our underlying metrics, which is customer base growth, smartphone penetration, et cetera, et cetera, were all looking all right. So there is -- because of this competitive intensity in few markets, we've seen a temporary challenge, but we've rolled out action. And I'm fairly confident because of our very strong team and their ability to execute plus the capability that we've added that we will be able to accelerate growth in East Africa as well. There is just one more thing that I would like to highlight. In the last 1 quarter, in the quarter 3, there were certain regulatory challenges that the business faced, which are very temporary in nature because of which there were certain -- the Internet outages were called out for certain security issues, which is not only specifically to us, but for the market, which temporarily impacted the growth of the business. And hopefully, because this is now behind us, that was a temporary issue. We are fairly confident of our prospects in East Africa. We don't give guidance with respect to our future quarters. So I'll not be able to give you guidance, but I want to offer confidence that we remain confident about the opportunity that East Africa offers, our ability to execute brilliantly and that is demonstrated capacity that we've shown over the past few quarters and years, and the actions that we've rolled out should start to see results in the coming quarters. Moving to your second question on Nigeria pricing. Nigeria, first, let me just give you a context as to how this price adjustment has benefited the entire industry. This price adjustment was very, very badly needed by the industry. What this has done is it has provided a lot of stability in the industry. And industry has responded very, very positively because our investments in Nigeria have gone up -- overall at the industry level has gone up significantly. What that is doing, it is actually -- is fueling demand in Nigeria. If I look at it from a customer point of view, the price adjustment has been very well accepted by customers because while we see some titrating when it comes to voice consumption, but from a data point of view -- but from a data point of view, we've seen very, very strong acceleration in data consumption numbers. So our base growth has improved, which means there are more customers are coming into the industry. The consumption has gone up, which is obviously a great news, which basically goes to see that the customer has accepted the price adjustment very positive. We've made a lot of investment in improving the quality of service as an industry, and Airtel has done a lot of work in improving the quality of service. We have implemented a lot of digital capabilities so that we continue to accelerate our growth in the coming quarters as well. Coming to your question specifically on pricing, we -- about 40% to 50% of last year growth came from tariff. And we see that -- as you said, we will be overlapping this tariff period. With the growth completely slowed down, we have -- given the current momentum in the business and the investments that we've made, we remain very confident about our growth prospects in Nigeria. The real results will be visible to us in the next 3 to 4 months from now as we start to report the quarter 1 performance, which should be a full overlap of the pricing numbers in Nigeria. Kamal Dua: And as far as your third question is concerned regarding the leverage target for the company, I think we are fairly comfortably placed at 1.9x of leverage. Our lease-adjusted leverage has been coming down gradually and is standing at 0.7x. So financially, I think we've been pretty comfortable. We per se do not have any target in my mind -- our mind to say that like we have taken a target. But nonetheless, I think from a balance sheet point of view, I think we are in a good shape and in a great health. Operator: The next question we have is from Tracy Kivunyu of SBG Securities. Tracy Kivunyu: Congratulations to Airtel Africa for the results. A few questions from me. The first question on Francophone region. Again, congratulations, very strong acceleration this year. I just want to understand which are the key regions in Francophone that drove that for data? And if you could give us an update on how -- if you could give us an update on how mobile money is growing, particularly in countries like Guernsey, which is one of your largest there. What sort of levers are you unlocking? Is it your basic remittances? Or are you seeing it across the business? My second question on Francophone is on voice. I can still see it in declining territory, albeit at a lower base. So do you think we've lapped the effects of voice declines and will be returning to growth in fourth quarter? The next question is on Nigeria, which is the last question is on Nigeria. So on VAT lease reforms that would allow Nigerian companies to claim input VAT, have you done any sort of analysis that you could share on the impact of that on your future EBITDA margin and CapEx estimates for Nigeria? And lastly, on Nigeria, what is your 4G population coverage at the moment? Sunil Taldar: Thank you very much for your compliments and your questions. Let me first address your question on Francophone Africa. If you look at Francophone markets, Francophone markets offer massive opportunity for growth and both in terms of the -- for GSM as well as for the mobile money. There is a massive opportunity for growth for category penetration as well as upgrade opportunity for moving our customers from 2G to 4G. And what we have done is given this opportunity, we've stepped up our investments in Francophone Africa. So that's one thing which is driving growth in Francophone Africa. We've stayed very, very true to our strategy. Our strategy is very focused, which is focused on making sure that we deliver great experience to our customers. And we've made massive amount of investments both in our network, which is on the radio side and also on the transmission side to ensure that we provide seamless experience to our customers. Our teams have done a fabulous job on staying true to our strategy, and that's what is driving growth across markets. What we have done is -- and there's a significant investment, as you pointed out, that voice is actually the -- across all the regions, Francophone markets have the lowest voice usage per customer. And therefore, what we've been -- and we have seen this usage also decline because the voice ARPUs in these markets are high. And what we see is customer moving to OTT. And therefore -- and that leads to also very high data consumption, the data ARPUs are also very high. What we've also done is we have significantly expanded our 4G coverage in our 4G sites in Francophone markets. And today, 90% of our sites are 4G sites. And this number used to be about 85%, 86% about a year ago. And this is resulting into a very strong smartphone customer growth of about 25%, and that is driving our data revenue growth of about 34%, and that demand we see continue to increase. This is a customer behavior. And right now, what we are doing is we are making sure that we continue to provide seamless experience to our customers. You were asking about some color with respect to market. We don't provide market level information, but I've just painted the picture for the overall Francophone Africa. And we remain very, very positive about our prospects in this market, and we see a massive opportunity for both GSM as well as mobile money for the Francophone Africa. Do you want to talk about the Nigeria, Kamal? Kamal Dua: Yes. So Nigeria, as you're rightly saying, the Nigeria VAT is claimable effective 1st of January. And our estimate is roughly that will give us a margin increase of 1.5% in Nigeria starting from quarter 4 of this financial year. Tracy Kivunyu: So one other question on population coverage, yes. Sunil Taldar: So you had asked another question on Airtel Money, the Airtel Money growth and why have we divided this into various segments that we've offered. I think that was your question. So what we've done is we have divided our Airtel Money total revenue into wallet services and financial services and merchant services. Now what we have done is in the past, the business was primarily focused on driving cash in, cash out and peer-to-peer revenue. And as the business has achieved scale and we're seeing very strong traction in our business, what we -- while this is our strength, which is driving our -- leveraging our go-to-market and accelerating customer base, which has been driving business for us. What we now want to do is we want to make sure that our payment and transfer business and financial services business starts to trade with a higher focus. And this is being led through our efforts, which is digital efforts, which is driving app penetration and making sure that we drive engagement on the app and drive multiple use cases, and that's driving and accelerating the growth for our Airtel Money business. Very quickly on the other question that you asked on Nigeria. Nigeria covered -- sorry, 4G pop covered is about 82% for us. Operator: [Operator Instructions] The next question we have comes from Mollie Witcombe of Goldman Sachs. Mollie Witcombe: I just have one actually. It's about the Starlink Direct-to-Cell partnership that you announced recently. I was wondering if you could give us some color, perhaps time line to launch, the potential upside that you see from this and just whether it's customer demand driven or fitting a business need, that would be great. Sunil Taldar: So if I heard you correctly, there was a slight disturbance in the audio. Your question is on Starlink? Mollie Witcombe: Yes, that's correct. Sunil Taldar: All right. So I'll just give you a little bit of a context on what we -- the agreement that we signed with Starlink. This is the second agreement that we announced with Starlink. The first was -- the first agreement that we announced, I think, 2 quarters ago was with respect to offering enterprise connectivity solutions to our customers across our 14 markets and also for backhauling. The recent, which is agreement that we signed on 16th of December that we announced, what it covers is offering Direct-to-Cell services to our customers across the 14 operating markets that we have in our footprint. I'll tell you how it works. The way it works is we'll be offering through the Gen 1 as SpaceX refers to it as Gen 1, which is SMS and light data services. Using these services, all our customers, Airtel customers across our 14 markets, once we launch this service, subject to approvals from our regulators, using their existing 4G and 5G phones will be able to remain connected anywhere across these 14 markets. In their respective markets, each time when a customer goes out of our terrestrial coverage, the customers will fall on to the satellite coverage and which is offered through Starlink. The face of the service remains Airtel. So as long as the customer has an active Airtel SIM, the customer will be connected even if the customer goes out of our terrestrial coverage using their existing 4G or 5G devices. So that's how the service works. What it does is, as I said, because we are the face of the service for the customers, we control end-to-end experience for the customers and also for the security, the entire system moves through our operating systems. What we are doing right now is we are in the process of -- because we announced this partnership on 16th of December, we are in the process of seeking regulatory approvals across all our markets, and we are fairly confident that very soon we'll be able to also tell you where we are launching the service. We are the first operator to offer this service to our customers in our -- in the 14 markets that we operate. And so there's a little bit of time that it is taking us to seek this approval. Both us and the SpaceX teams are working with the regulators to ensure that we get these approvals in time. It's a great service for a continent like Africa where still there is a huge coverage gap. And therefore, what we will do by offering this service, one is pitch the digital divide by -- and make sure that we are driving digital and financial inclusion by offering this service. And as I said, as we are the first operator to offer, at this point in time, if you look wherever we launch this service, it also gives us some amount of competitive advantage to deliver best experience to our customers and showcase that this is -- this service, we believe, is very, very complementary in nature when we start offering this service across our footprint. Mollie Witcombe: That's very clear. Can I just follow up? Since if you're going to launch this Direct-to-Cell product, does this mean that you will scale back your coverage ambitions longer term in some markets? Sunil Taldar: See, it doesn't compromise -- the way we are looking at it is this is a complementary service, and we don't see this as replacing. So wherever as we -- so till the time we expand our terrestrial network, this service is a complementary service in any area where we don't have -- there is no telecom coverage, this service ensures that our customer remains connected with the network. And this ties in actually very beautifully with our core strategy of making sure that we provide the best experience to our customers, and that has been the driving force behind us signing this agreement with SpaceX. It is not to either save our capital investments to say that we will offer this service because customer will need an Airtel SIM, an active Airtel SIM to be able to access this service. So we would like to -- our primary this thing is -- and this service is actually a great benefit for the customers, especially in far of rural areas. In the metro areas or the urban areas, the customer will remain on our terrestrial network unless there is any disturbance on the network, that's when the customer falls on to the satellite network. So customers will not lose connectivity has been the underlying and the driving force behind us signing this agreement with Starlink. Operator: The next question we have comes from David Lopes of New Street Research. David-Mickael Lopes: Congrats on the results. A couple of questions, please. The first one is on margins. I know you don't give guidance on margin, but I was wondering if you can talk how much confident are you for next year for margin improvement? And could you comment on the cost structure? I think with the macro improving and also the Dangote Refinery being at full capacity, how is that going to play on your margins? And the second question is on the network sharing with Vodacom and the one with MTN. Could you comment on maybe the time line when are we going to see a benefit from these agreements? Sunil Taldar: Thanks, David. Let me take your first question on the margins first. See, what we have seen is about 240 basis points improvement on constant currency over last year. And this entire improvement has happened primarily because of, I would say, so three areas because of three things. First is there is a very stable and improving macroeconomic environment where we are seeing currencies have remained stable, inflation is coming down, growth is improving. And overall, the fuel prices have remained stable. So that's been the one area. The second is we've also seen acceleration in our revenue growth that is also helping us to improve margins. And finally, there's a very, very strong, and this is something that we announced about 6 or 7 quarters ago, a cost efficiency program that we had launched. And it's a combination of these three factors, which has helped us to improve our margins by 240 basis points. Now on the cost efficiency side, we remain very, very focused. And the entire organization is very focused on identifying costs -- from the idea of eliminating waste and not attacking any growth enabling costs. So that program continues to run, and we are very fairly confident that this program will continue to give us and it will continue to yield benefits to us. The only thing that the currency environment and the macroeconomic environment, the specific thing that you spoke about with respect to Nigeria, we are seeing currently the currency is improving. It's down to about NGN 1,380 is the last number that we've seen. The actions which have been taken by the government seems to be helping us. The inflation is down, the growth is improving. So the current outlook remains -- economic outlook in our largest market remains very positive. The macroeconomic environment is supporting. There's no reason why our efforts are there to constantly continue to find opportunities to eliminate waste in our business and continue to improve margins. As you said, we don't give guidance. I'll not be able to provide guidance, but I just wanted to paint a picture for you to say our cost efficiency program, we are very, very focused on that. Macroeconomic environment, every indicator today across our large markets because we've seen currency improving across all our markets, barring maybe one. So that environment remains fairly positive from now. And therefore, we remain fairly confident that things should continue to improve. On the network sharing agreement, what we did was we announced a network sharing agreement with MTN for Nigeria and Uganda a few quarters ago and very recently with Vodacom in Tanzania and DRC, and also for -- Tanzania and DRC was coverage expansion duplicate and also for sharing the fiber networks. This was -- this is being done to eliminate -- fundamentally, if you look at in a continent like Africa, there's a huge opportunity for us to expand our coverage, which is the ask. And each time when we expand coverage, we increase our baseload and overall revenue for the industry goes up. To eliminate duplication of investments in infrastructure is the reason why we reached out to all of -- other partners, and we've signed these agreements. The other challenge that we have in our markets is making sure that our networks remain resilient. And that resilience also drives growth. And because if one network goes down, we fall on the other network, and those are agreements that we've signed with our partners. So from the point of view of avoiding duplication and ensuring our -- expanding coverage and ensuring that our networks remain resilient. These benefits have already started accruing to -- some of the benefits have started accruing to our business. From a cost point of view, we will be able to share maybe at a later date. But yes some of these agreements are in play as we speak, and there is more needs to happen. And we will share a little more texture to what benefits are we accruing in the coming quarters. But as I said, the benefits are at three levels. First is additional coverage, which allows us to acquire -- accelerate our base growth and therefore, accelerate our revenue. Resilient networks reduce outages, better experience, continuity improves and it improves our revenue. Avoidance of CapEx, that's something that helps us to expand coverage. And it also reduces our operations and maintenance and some amount of operating expenses comes down. So there are benefits which happen across the growth line and the cost lines, which is the benefit that we are seeing of signing lease agreements with our partners. Operator: [Operator Instructions] The next question we have comes from Samuel Gbadebo of CardinalStone Partners. Samuel Gbadebo: Can you guys hear me? Sunil Taldar: Samuel, can you speak up, please so that we can hear you? Samuel Gbadebo: Congratulations on your impressive performance. It's much expected, right? But my question is on a few things I just need clarity on. Number one is we saw a lower print in effective tax rate. That's despite the higher profit before tax in the period, right? So I'm just trying to understand what brought about that? And why is the number for your effective tax -- hello? Sunil Taldar: Sam, we can't hear you. Is it something about profit after tax? Samuel Gbadebo: Yes. So I'm saying why did you -- why was there a lower print in your effective tax rate despite profit before tax being higher -- effective tax rate was lower in the period despite a higher print in profit before tax. So I just want to understand what drove that, and why is the number for effective tax rate in your earnings release different from the breakdown you have in your IR pack? And my next question is in the period, there's also a line that says your group effective interest rate is lower for 9 months, right? But when I did a glance -- a rough, a surface level check on your cash flow, and particularly the financing activities, there was a higher net borrowing in the period. So I'm just trying to understand why you have a lower effective interest rate in the period despite that. And lastly, Dangote recently announced that there's going to be like an increase in PMS price by about NGN 100 thereabout. And effectively, we've seen first stations do the same here in Nigeria. My question to that effect is, is there a cause for concern with respect to how margins has been recovering, right? So do you guys have a concern? And if there is any concern, how are you moving ahead of that headwind? Did you guys get all my questions, please? Kamal Dua: So our effective tax rate is reported at roughly 39.6%. See, it's -- there are too many moving parts in calculation of this effective tax rate. One is the mix of our profit-making OpCos and loss-making OpCos. So technically, our profit-making OpCos, the weighted average effective tax rate is roughly 32.5%. Then there are a few loss-making OpCos where we haven't triggered this recognition of the DTA. And there's a lot of upstream, which has been happening from OpCos by the way of dividends. So all this WHT, which eventually has been paid for repatriation of dividend also gets accounted in the tax line. So it's a combination of multiple things which eventually is resulting into a higher tax rate of 39.6% versus a corporate tax rate of 32.5% in the profit-making OpCos. On a year-on-year basis, this is coming down from 41% to 39.6%. This is primarily a denominator impact because our profits are rising, hence the WHT, what we are paying for the repatriation as a percentage to the profit, which has been reported is declining. So this is at a very macro level, why the ETR is higher than the corporate tax rate and what are the broad reasons for a reduction in the ETR, the effective tax rate. But if you have any specific questions, I would request you to just drop a note to Alastair, then we can come back to you on that specific question on the ETR. Operator: The next question we have comes from John Karidis of Deutsche Bank. John Karidis: Let me add my congratulations to -- for the results that you printed today. I've got three questions, please. The first one is what are the key considerations driving your decision of where to IPO the mobile money business in which stock exchange? So what are the key considerations driving that decision? Secondly, in the statement, you talk about closer integration of the GSM and the Airtel Money services. It would be really nice to add a little bit more detail to that. What do you mean by that? And what are the consequent benefits? And thirdly, did I hear you correctly that customers with their existing handsets can access Starlink? I didn't know that was possible. Could you sort of help me out there to help me understand why that is? Sunil Taldar: Thanks, John. Let me answer your third question first because the other two are related to money and I'll take it. On the Starlink, the Direct-to-Cell service, customers can access because we have signed up -- we have signed this agreement, and we allow those customers to access the satellite service through our network. And that's how the service works. And you're right that customers with their existing handsets, 4G or 5G handsets, will be able to use the Gen 1 services offered by Starlink, which is SMS and light data. So they'll be able to make calls, voice calls on certain OTTs once we roll out these services, subject to the regulatory approvals from the respective office, and we are, at this point in time, engaged with -- along with the SpaceX teams to get regulatory approvals from the markets. Moving on to your other question. As we've communicated even in the past, we continue to evaluate all major listing venues, and we are very close to -- we are close to finalizing the preferred location. And we will provide further updates to the market regarding the selected venue and the advisers in the due course. The other question that you had with respect to -- see, if you look at the mobile services and money services are interdependent and hence, these services are exchanged in the ordinary course of business, which includes having money providing services to GSM like recharge, collections and disbursements. And the GSM business provides services to Airtel Money like SMS, USSD, IT support and the go-to-market services. And then additionally, Airtel Money provides added services for improving the customer stickiness for which GSM pays remuneration to Airtel Money. So for all this, there's a value or a cost attached to it. As both businesses are gradually maturing and also the -- so all these are governed by an IGA. And this IGA is what pretty much guides all these activities. What we've seen is as the businesses are gradually maturing and also the expiry of the existing lock-ins that we had, the dependencies on each other is coming down. Accordingly, the prices have been revised considering the effect of changing market dynamics and while ensuring that they continue to be at arm's length. So that's what the interdependencies and the IGA is. What we are making sure that these -- both these businesses are intertwined, as I said, but they are all governed by an intergroup agreement that we have. And these are the services that each business provides to the other. Operator: The next question we have comes from Linet Muriungi of Absa. Linet Muriungi: Congratulations on your strong set of results. Two questions from me. The first is regarding Nigeria's renewed leases. Could you please share details on some of the terms that you can disclose, whether there are any changes to USD indexing on the lease agreements and any fuel adjustments? And what does this mean for the new average life term of leases in Nigeria? By how much have they extended? The second question is regarding mobile money business. Could you please share the revenue breakdown from basic services, that's cash in, cash out and airtime advance vis-a-vis the advanced services tied to ecosystem transactions? And in ecosystem transactions, could you give us a breakdown, if possible, between payments, micro lending, micro insurance, et cetera? Operator: Sunil, can you hear us, sir? Kamal Dua: Operator, can you hear us? Operator: Yes, sir, we can hear you now. Kamal Dua: Yes, okay. Sorry, there was some technical glitch in between. So I was saying there are two primary tower companies which we have within Nigeria. The first one is ATC and the second is IHS. So the contract with ATC, if you recall, has been renewed in September 2024. And the term was until, I think, it was 12 years of contract which we renewed. So that is the first element of the renewals. And the second is the IHS. And the IHS contract has been renewed till 2031. So these are the renewal terms from Nigeria to tower companies. And related to your second question, which comes to the breakup of our revenue of Airtel Money. We do not disclose the one which you've been asking for, like what's the revenue of cash in and cash out. What we disclose is the services which are wallet services, payment and transfer and the financial services. So it will be difficult for us to give you the breakup of this one. Thank you. Operator: Thank you, sir. Ladies and gentlemen, we have reached the end of our question-and-answer session. I will now hand back to management for closing remarks. Please go ahead, sir. Sunil Taldar: I would like to thank you all for joining this call, and I look forward to speaking to you again at the time of our full year results. Thank you very much once again. Operator: Thank you. Ladies and gentlemen, that then concludes today's conference. Thank you for joining us. You may now disconnect your lines.

63天前Insight Analytics约5分钟阅读

SIGI 2025 Q4 财报电话会议

Operator: Good day, and welcome to Selective Insurance Group Fourth Quarter 2025 Earnings Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to turn the conference over to Brad Wilson, Senior Vice President, Investor Relations and Treasurer. Please go ahead. Brad Wilson: Good morning. Thank you for joining Selective's Fourth Quarter and Full Year 2025 Earnings Conference Call. Yesterday, we posted our earnings press release, financial supplement and investor presentation on selective.com's Investors section. A replay of the webcast will be available there shortly after this call. John Marchioni, our Chairman of the Board, President and Chief Executive Officer; and Patrick Brennan, Executive Vice President and Chief Financial Officer, will discuss results and take your questions. We will reference non-GAAP measures that insurance and investment professionals use to evaluate operational and financial performance. These non-GAAP measures include operating income, operating return on common equity and adjusted book value per common share. The financial supplements on our website include GAAP reconciliations to any referenced non-GAAP financial measures. We will also make statements and projections about our future performance. These are forward-looking statements under the Private Securities Litigation Reform Act of 1995, not guarantees of future performance. These statements are subject to risks and uncertainties that we disclose in our annual, quarterly and current reports filed with the SEC. We undertake no obligation to update or revise any forward-looking statements. Now I'll turn the call over to John. John J. Marchioni: Thanks, Brad, and good morning. We are well positioned to build on recent momentum. In 2025, we delivered an ROE of 14.4% and an operating ROE of 14.2%. This exceeds our 10-year average operating ROE of 12.1% and our 5-year average of 12.5%. We are proud of our long-term track record and are taking clear steps to drive future margin improvement. In 2025, we grew book value per share by 18% and returned $182 million to shareholders through our common dividends and share repurchases at attractive valuations. With our strong capital position, we can deploy capital in several ways that are accretive to long-term value, including continued investments to grow and diversify our business, along with opportunistic share repurchases. We have a strong foundation with opportunities to drive improvement across our organization. We delivered a 93.8% combined ratio in the quarter, reducing our full year combined ratio to 97.2%, just outside the 96% to 97% guidance we provided at the beginning of the year and at the low end of the 97% to 98% guidance provided last quarter. Net premiums written growth was 5% for the year as we executed deliberate actions to improve underwriting profitability. This remains our primary focus. However, we are also executing strategies to support future growth opportunities, including expanding our geographic footprint and broadening E&S distribution capabilities with retail access. We believe we have the capabilities and strategy to further diversify our premium and outpace industry growth in coming years. In the fourth quarter, favorable workers' compensation development offset unfavorable prior year emergence in the commercial and personal auto lines and E&S casualty. There are also several smaller adjustments across multiple lines of business, including umbrella, which was driven by auto. In 2024 and 2025, we took meaningful actions to strengthen reserves. Our picks for older accident years have held up well, and our actions have been increasingly weighted to more recent accident years. We are comfortable with our overall carried reserve position. We firmly believe our disciplined approach responds promptly and appropriately to emerging trends and ensures pricing targets keep pace with an evolving external environment, even though it can create short-term volatility. We will stick to our process, continuing to assess emerging information, considering risk factors and booking our best reserve estimates each quarter. We expected 2025 accident year margins to improve for commercial automobile as we have earned double-digit rate increases over multiple years that exceeded our assumed loss trend of roughly 8%. As 2025 progressed, we ultimately increased commercial auto casualty loss cost by nearly 6 points. We also increased our expected severity trend for commercial auto liability to approximately 10%. This assumption is reflected in our book results and incorporated into our 2026 guidance. In total, we strengthened commercial auto reserves by approximately $190 million in 2025. The majority is attributable to the 2024 and 2025 accident years with 2025 representing the largest share. We are addressing commercial auto with both underwriting and claims actions. For example, we have implemented tighter underwriting guidelines for fleet exposures, supported by state-specific tactics and focused our commercial auto telematics rollout in specific segments and states. In general liability, we've discussed our actions to manage limits in challenging jurisdictions and trim underperforming classes. We are also prioritizing new business in better performing segments and have strengthened new business pricing. Standard Commercial Lines is our largest segment and our earnings engine. We have the sophisticated pricing and risk selection tools in the hands of our talented underwriters that are necessary for taking granular action across the portfolio. We are improving mix by achieving stronger rate and retention differentiation based on expected profitability while continuing to focus on overall rate adequacy. This is not new, but we expect the amount of differentiation to increase. We are leveraging our tools, granular insights and differentiated operating model to drive higher renewal retention on our best-performing business and meaningfully lower retention on our poorer performing business through appropriate rating actions. While overall rate increases could moderate in the short term, we expect these mix improvement actions will deliver improved profitability. Our guidance reflects the benefits we expect in 2026 from the various actions we have taken and our multiyear plan points to continued margin improvement in 2027. Now I'll turn the call over to Patrick. Patrick Brennan: Thanks, John, and good morning, everyone. For the quarter, fully diluted EPS was $2.52, up 66% from a year ago. Non-GAAP operating EPS was $2.57, up 59%. Our return on equity was 18.3%, and our non-GAAP operating return on equity was 18.7%, reflecting continued strong investment performance. The GAAP combined ratio was 93.8%, a 4.7 point improvement from fourth quarter 2024, mainly because this quarter had no net prior year reserve development. For the quarter, the overall underlying combined ratio was 92.1%, 1.5 points higher than the 90.6% a year ago. The increase is attributable to the reserving actions we took to address the 2025 accident year, primarily in commercial auto. This quarter's Standard Commercial Lines combined ratio was 92.9%, which included 1.6 points of favorable prior year casualty development and 3.2 points of higher current year casualty loss costs. As John noted, the current environment demands strong underwriting and pricing discipline. Standard Commercial Lines premium growth in the quarter was 5%, driven by renewal pure price increase of 7.5% or 8.5% excluding workers' compensation. General liability pricing increased by 9.8% and commercial auto pricing increased by 8.6%. While there was some deceleration in commercial auto pricing for physical damage, liability price increases continue to exceed 10%. For property, renewal premium change was 12.2%, including 4 points of exposure growth. Retention for the quarter was 82%, stable with recent periods, but down 3 points from a year ago. Excess and surplus lines premium grew 4% this quarter with average renewal pure price increases of 7.8%. We continue to push higher rate levels in E&S casualty based on our view of general liability loss trends. The E&S combined ratio for the quarter was 93.1% and a very strong 87.8% for the year. Turning to Personal Lines. The combined ratio for the quarter was 103%, up 91.7% in the fourth quarter 2024. There were 2 reasons for the deterioration. Catastrophe losses, which were 6.2 points higher this quarter and current year casualty loss costs, which increased by 8.1 points. Current year adjustments were driven by New Jersey Personal Auto. For the year, the Personal Lines combined ratio was 100.6%, improved from 109.3% in 2024. Results are even more favorable for the portfolio outside of New Jersey, and we are positioned for profitable growth in those states. For the quarter, personal lines net premiums written declined 8%, with target business up 5%. Nearly all our new business was in our target mass affluent market. Renewal pure price for the quarter was 15.1%. Across all our segments, the combined ratio was 97.2% in 2025, a significant improvement from 2024's 103%, primarily because of lower prior year casualty reserve development and catastrophe losses. Last quarter, we discussed our third-party claims review, which was ongoing at that time. The review is now complete, and the findings were consistent with what we had previously discussed. Turning to investments. Fourth quarter after-tax net investment income was $114 million, up 17% from a year ago and generated 13.6 points of return on equity. Our investment portfolio remains conservatively positioned, and our investment strategy is consistent with average credit quality of A+ and a duration of 4.1 years. We expect the portfolio's strong embedded book yield to continue to provide a durable source of future investment income even if interest rates decline. We successfully renewed our property catastrophe reinsurance program effective January 1. Our retention remains $100 million, and we increased our coverage exhaustion point to $1.5 billion from $1.4 billion. Property market conditions are attractive, and we completed the renewal with meaningful risk-adjusted pricing decreases and improved terms and conditions. We continue to supplement our main tower with a personal lines-only buydown layer. Our peak peril U.S. hurricane is well within our risk tolerance at 5% of GAAP equity for a 1-in-250-year net probable maximum loss. Our capital management strategies continue to prioritize profitable growth within our insurance business and aim to return 20% to 25% of our earnings to shareholders through dividends. We also expect to opportunistically repurchase shares. These actions reflect our commitment to delivering long-term value to shareholders. During the quarter, we repurchased $30 million of common stock, bringing our total repurchases for the year to $86 million. We believe these repurchases are completed at attractive valuations. At year-end, $170 million remained on our authorization. Book value per share increased 18%, and we reported $3.6 billion of both GAAP equity and statutory surplus. We ended the year with a strong capital position, and we are proud that A.M. Best recently affirmed our A+ financial strength rating. For 2026, we expect a GAAP combined ratio between 96.5% and 97.5%. Our guidance assumes 6 points of catastrophe losses. We do not make assumptions about future reserve development as we book our best estimate each quarter. We expect after-tax net investment income to be $465 million. This is up 10% from 2025, reflecting growth in our invested assets. Our guidance includes an overall effective tax rate of approximately 21.5%. Weighted average shares are estimated to be approximately 61 million on a fully diluted basis without assumptions about share repurchases under our existing authorization. As a reminder, our first quarter underlying combined ratios tend to be higher than the rest of the year due to normal seasonality. For financial modeling purposes, this has historically been most relevant to non-catastrophe property losses. Corporate expenses also tend to be higher in the first quarter due to holding company expenses related to stock compensation. Now I'll turn the call back to John. John J. Marchioni: Thanks, Patrick. Our 2026 guidance implies an underlying combined ratio in the 90.5% to 91.5% range compared to the 91.8% we reported in 2025. Our guidance does not provide segment level combined ratios. However, directionally, we expect underlying combined ratio improvement in Personal Lines and Commercial Lines and continuing strong performance in E&S. Our 2026 guidance considers reserving actions for recent accident years and embeds an overall expected loss trend of approximately 7.5%, up from the 7% we assumed a year ago. Our loss trend assumptions are 3.5% for property and 9% for casualty. The casualty trend would be closer to 10%, excluding workers' compensation. We expect our 2026 expense ratio to increase by about 0.5 point as we make strategic technology investments to support scale, enhance decision-making and improve operational efficiency. With expected strong investment income, our 2026 guidance implies an operating ROE in the 14% range. Before turning to your questions, I want to remind everyone that Selective is celebrating its 100th anniversary in 2026. We are proud of our history, the work of our employees and the value we deliver to our policyholders, distribution partners and shareholders. We are excited to build on our legacy of success. To drive this, we remain focused on a set of key priorities across the company, including relentlessly improving on the fundamentals across risk selection, individual policy pricing and claim outcomes, diversifying revenue and income within and across our 3 insurance segments and further leveraging our use of data, analytics and technology, including artificial intelligence to drive operational efficiency and improved underwriting and claim outcomes. I'll now ask the operator to begin our question-and-answer session. Operator: [Operator Instructions] Our first question comes from Michael Phillips with Oppenheimer. Michael Phillips: John, my first question is around your last comments around the guidance. As you said, the core underlying combined, it kind of implies a bit of improvement from last year in 2025. And you said you kind of expect commercial to improve personal to improve and some strong from E&S. I guess if we focus on commercial for a second, there you're seeing price deceleration, it seems like in line with peers, elevated casualty loss picks that kind of start to pick up in 3Q and 4Q. And then you still got some noise on PYD and commercial auto and GL. I guess given all that, can you just talk about the confidence you have in maintaining or maybe even improving the commercial line margins from here? John J. Marchioni: Yes. Thanks, Mike. And again, as I mentioned, we provide very detailed guidance, but we stop short of providing individual combined ratio guidance by segment. But as you indicated, we did provide some directional guidance, and I think that's the focus of your question. I think without question, we have continued to take rate on the casualty lines of business and where you've seen the most significant deceleration, albeit not as substantial as maybe reported for larger accounts is on the property side. So we expect to see continued strong pricing on the casualty side within auto, casualty, auto liability -- commercial auto liability and in general liability. The other thing I'll point to is, and this has been ongoing for the last couple of years, and this was referenced in my prepared comments is -- we see meaningful opportunity by further leveraging the tools we have from a pricing and a risk selection perspective to drive meaningful mix of business improvement on both the renewal portfolio and the new business selection process. And that will also result in some of the benefit we're talking about here. So with regard to your overall question around confidence, as we are -- based on the confidence in our process, we're confident in the guidance we're providing you. And to your point, on an overall basis, that underlying combined ratio improvement of 80 basis points, if you just focus on the midpoint of our underlying combined ratio, we think, is reasonable. And don't forget, there's about a 50 basis point increase in the expense ratio. So the underlying loss ratio improvement is a little bit more than that. Michael Phillips: Yes. Okay. Good. I appreciate that. That's helpful. I guess second question, we've talked about this before briefly, but maybe just to refresh here. A lot of your comments on reserves have been from higher paid severities in the recent accident years for your casualty business. And I guess I wonder what that means for GL and commercial auto, specifically case reserves for those same recent accident years. What I mean is, I think some companies, there's a disconnect between paid activity and how they set the initial case reserves because a lot of that's done automatically, and there's often a big disconnect there when they see higher paids. I don't think that's the case for you. But I guess, what about yours? We're clearly going to be looking at that pretty detailed in your case reserves for those 2 lines in a couple of months with that data. But can you talk about how -- any changes that might be taking place in your initial setting of case reserves given the higher paid activity? John J. Marchioni: Yes. I would say -- and I know we pointed to paid. I would say that we've seen movement from an incurred basis similar to what we've seen on the paid side. And I think that's reflective of your point relative to case reserves and movement in case reserves. I'll also go back to the point we made last quarter where we talked about the outside studies we had done on both the actuarial reserving and planning process as well as the claims process. And that was our way of doing an assessment with regard to any -- understanding any change in underlying case reserve adequacy, either favorable or unfavorable. And I think as we mentioned, we're pleased with the results of those surveys on both sides. And I think indicated that while there's opportunities for us to continue to drive some improvements in our claims organization, very strong performance there. So -- but we look at both. We look at several methods. We're looking at paid and incurred methods. We're projecting that to ultimate. That continues to be our process, and we think it gives us the best insight into where more recent prior accident years are and more importantly, where run rate profitability is. Operator: Our next question comes from Paul Newsome with Piper Sandler. Jon Paul Newsome: Hoping you could give us just a little bit more detail on the reserve development of the personalized business and how it might sort of fundamentally differ from what you've had in the commercial lines business, size, geography, anything that would suggest other than just sort of differences -- similarity and a delay in the overall liability claim trend? John J. Marchioni: Yes. I guess, Paul, thank you for the question. And we've mentioned this both in prior quarter and this quarter. In personal auto, the prior year development is driven entirely by the state of New Jersey. And in personal auto, New Jersey represents about 30% of our portfolio. So all of that is New Jersey and all of it -- pretty much all of it is the 2024 accident year. And -- that was the case in the Q4 and also the prior quarter. So for the full year number, when you look at that and the impact on Personal Lines overall combined ratio, that prior development was about 3.7 points in total. All of that is New Jersey. And I think that's important, and I know Patrick referenced this in his prepared comments as well. I think when you look at the improvement that we see in personal lines and look at that 100.6% combined ratio, recognize that, that almost 4-point impact of PYD is entirely New Jersey, and it really masks the improvement we've seen and the strong run rate performance we're seeing in that personal lines book outside of New Jersey. And we're also taking pretty significant actions to continue to manage that New Jersey portfolio, so it becomes less of an impact going forward. So that's what I would point to. I think that's an important point to make, and it's a very different environment there. Now we have made comments in prior calls, and I'll kind of reinforce them here. Some of the New Jersey dynamics that we see in personal lines also apply to commercial lines. And New Jersey has always been a higher litigation rate state for both personal and commercial. And we've seen over the last few years through legislative change, a number of what I'll call sort of pro plaintiffs bar legislative enactments that I think have made it more fertile ground for litigation abuse and social inflation. So legal changes that require presuit disclosure of policy limits, increasing private passenger auto minimum limits, increasing mandatory commercial auto limits, to 1.5 million for autos over 26,000 pounds which is a small portion of our book, but I think it's one of those areas that attracts more attorney involvement and then a couple of years ago, a lowering of the bad faith standard for uninsured motorists and underinsured motorist claims. I think all of those things have driven up the interest of the plaintiffs bar in that state and have driven up a more aggressive litigation environment. And I think loss trends have reflected that. And unfortunately, on the personal lines side, the regulatory environment hasn't been as conducive to rate adjustments to make up for those costs. So that's an ongoing challenge. I think you see it in fast track data on an industry basis for personal lines. And I think a lot of those same dynamics impact the commercial auto line for that state as well. Jon Paul Newsome: Okay. Yes, it sounds like all the lawyers are moving back to New Jersey from Florida. My second question is, I want to ask about sort of operating leverage from a capital perspective. Historically, because of your -- the firm's underwriting consistency, it has been able to run with a little bit higher premiums to surplus ratios than some of its peers. And I wanted to know if there was anything that we should think about in terms of that change given capital buybacks and such today and where the stock is. I think that was the question. But if you could talk to that, that would be interesting to you. John J. Marchioni: Yes, sure. So there's no change in how we think about our target operating leverage. You've heard us talk about operating in a range of 1.35x to 1.55x. And over the last several years, we've been in that range where a couple of years we're at the upper end of the range, a couple of years at the bottom range. If you look back historically, that operating leverage did tend to be a little bit higher than the peer group. But I would say if you look over the last decade or so, the peer group has generally moved a lot closer to where we operate from an operating leverage perspective. So I just -- it's not that much of a differentiating factor at this point. But in terms of how we think about target operating leverage, that range continues to serve us well. Patrick Brennan: Yes. And I think I would just add that operating leverage is one of many capital metrics that we use to evaluate where we are relative to what we think we need to run the business, and we continue to on a regular basis, look at our own internal models and calibrate those versus external models as well to ensure that we have sufficient capital to absorb any unforeseen consequences, but still operate with an efficient balance sheet. Operator: Our next question comes from Jing Li with KBW. Jing Li: I'll stay on reserves for a second. Just curious about E&S casualty reserves. Can you kind of unpack some drivers behind the reserve charge? Is it concentrated in specific accident year geography coverage types similar to the commercial lines that's mostly from commercial auto? And how does this impact your appetite for growing the E&S platform going forward? John J. Marchioni: Yes. Thank you for the question. Just let me make sure we're talking about this in the proper context, which is our full year E&S combined ratio was an 87.8%, -- so strong profitability. The reserve action we took in E&S in the quarter, and we hadn't taken any on a year-to-date basis was $10 million, so de minimis in total, but spread across the 2020 through 2023 accident years. So 4 accident years and $10 million are very de minimis movements on an annual basis for each of those accident years. So there's nothing noteworthy there. We disclose a great deal of detail with regard to reserve adjustments. We true up lines at the end of the year, and there's nothing there that's noteworthy from an accident year or a geography or a segment perspective. And again, this is all in the context of extremely strong operating margins in E&S over the last few years, and we expect that to continue going forward. Jing Li: Got it. That's very helpful. My second question is on kind of your geographic expansion. You've been investing a lot on geographic expansion, new state build-outs for several years. Are these newer territories as them mature, what contribution are they making to the top line growth versus the margin profile? John J. Marchioni: Yes. The top line growth, if you just look at it on average over the last several years. And remember, we started geo expansion again in earnest in the 2017 to 2018 kind of time frame. And I would say over that time, as states have come on and some of those states have matured while new states are coming on, it's contributed between 1 and 2 points of growth overall on average over that time period. I would expect that to continue to temper going forward. But that's what the contribution has been to this point. With regard to profitability, as we've talked about in the past, for the first few years in a new state, we plan and incorporate into our planning guidance and expected loss ratios that newer states run at worse profitability than our legacy book runs. But I would say our experience over the last 8 or so years has been that those states have consistently performed within our expectations and have improved as they've matured. So there's nothing we're seeing there that is a different profitability profile than what we talk about in terms of the overall portfolio we have. Operator: And our next question comes from Rowland Mayor with RBC Capital Markets. Rowland Mayor: I guess congrats on 100 years, even though I know you all weren't there the whole time. I wanted to ask just on the workers' comp releases and what accident years those pertain to? John J. Marchioni: Yes, sure. So there are 2 big drivers and I want to hit -- I think it's an important question. First thing is, as you know, we do our annual tail study in the fourth quarter every year for workers' comp. And just without getting too far into the tail study, that's effectively an evaluation of the development to ultimate for accident years and maturities that fall outside of your traditional reserving triangles, which cover 20 years. And you're really going through that analysis to get an accurate reserving picture for those long-term chronic and permanent injuries that may remain open for decades. And then you apply that development assumption to all accident years as your long-term view of medical inflation. That drove about half of the favorable emergence we recognized in the quarter. And I think you want to put that in context, which is because we're talking about decades of accident years, the individual impact by any given accident year for that is de minimis. It's in the, call it, roughly 0.5 point per year over that extended period of time. So that represented half of it. The balance of the favorable booking action in the quarter was from accident years 2022 and prior. So I think that's the other driver. So accident years 2022 and prior. As we talked about throughout the year, we continue to see better-than-expected frequency emergence in the workers' comp line. That held up through the full year. But as has been our practice, we won't react that quickly to a long-term line from a frequency perspective. So the actions were '22 and prior and the workers' comp tail study. Rowland Mayor: That's helpful. And then I wanted to ask on the GL charge. I know this year, I think it's all been umbrella, but in '24, I think a lot of it was primary GL. Was there any movement on the 2024 charges this year? John J. Marchioni: On the 2024 charge -- no. So just to reinforce the point you started with, which is for the quarter and the full year, the GL adjustments we made and booked were predominantly umbrella, and that umbrella is predominantly driven by the auto lines of business. The core GL lines and our booked levels for the core GL lines in the priors have held up well throughout the year. Rowland Mayor: That's great. And then I wanted to see if I could sneak one more in. You talked about the 14% ROE for next year in the guidance. And I think this year, the NII was about 13%. Given all the movement, like do you have an idea of what the long-term target should be at this interest rate level in your portfolio? John J. Marchioni: With regard to investments in particular? Rowland Mayor: No, just for the overall consolidated ROE, is there -- there's a lot of movement in the underwriting margins right now. And I just wondered in a few years from now, is there a goal you're aiming for? John J. Marchioni: Yes. So I would say that we set our ROE target to be something that we expect to achieve on a consistent basis over time. And we set that target on the basis of what we believe to be sort of long-term rates of return on the investment portfolio. To your point, we're generally returning -- think about a 4% after-tax book yield on the portfolio currently is kind of above where you'd expect it to be on a long-term basis. And if you look over time, I think something closer to 3% after tax is a more reasonable long-term assumption. And with our invested asset leverage at just over 3x, I think something in the neighborhood of a 9% to 9.5% after-tax or ROE impact for investments. And that's why we maintain our 95% combined ratio target because that, over time, will position us to meet or exceed that 12% ROE target. That's how we think about it. That's why we keep that target where it is because we recognize that these returns, while there is durability here, and I do want to stress that point, and you heard it in the guidance that Patrick outlined, there is durability in these book yields, if you look at our duration, and we feel good about that over the next few years. But we also know that over the long term, you can expect that to be the case. Patrick Brennan: And I would say the 12% target is intended to provide a spread over what we estimate to be our cost of capital. We want to make sure that we're earning our economic freight. So that's how we ground ourselves in that bogey. Operator: Our next question comes from Michael Zaremski with BMO Capital Markets. Michael Zaremski: Thanks for the color on workers' comp. It clearly a great result this quarter, too. And in the past, you -- maybe it was a bit of a headsake, but there was some indication that loss trend might have been getting a bit worse. But just curious on the underlying loss ratio and comp, I think it still appears elevated. How are you -- how does that line rolling up into the combined ratio guide for next year? That's my first question. John J. Marchioni: Yes. I guess we don't provide individual line guidance. You'll see our reported results, and we give you a lot of detail on the reported results by line. So you'll see that in Q1. But as we talked about in prior years, generally speaking, we've maintained our severity assumptions, our medical severity assumptions and have seen a little bit of upward pressure that we've talked about with regard to utilization and maybe seeing your average medical severities come in a little bit higher than they had been running over the last few years. But we've also continued to see improving frequency trends, and that's held up through 2025. So you have to put those pieces together alongside of the rate level that continues to be slightly negative, and that will all come through in how we set our planned loss ratios for that line of business. And I think you'll see something similar to what you saw in 2025. Michael Zaremski: Okay. That is helpful. My follow-up is back on the expense ratio commentary and initiatives there. It's been interesting, I guess, over the last couple of quarters, there's been a few companies that have come out with very large expense ratio improvement guides based on implementing technology and AI, et cetera. And then on the other hand, there's other companies in your camp that are kind of guiding to upwards expense ratio movement to make further investments. So I guess I'm just curious, would you say that this is like the -- is this kind of a onetime step-up to kind of broaden Selective's capabilities having to do with like newer technologies? Or is this more of kind of all the work you've been doing on improving the reserving and claims processes, et cetera? John J. Marchioni: Yes. No, it's a great question. And I think we've seen and heard a lot of the same commentary. And clearly, we're in the camp that the investment in technology and our investment in technology has continued to ramp up as a percentage of premium over the last several years, and we expect that to continue. And I think when you look at it at the highest level, we expect the investment in technology to continue to rise as a percentage of premium and the cost of labor, the percentage of premium that goes to labor will be coming down over time as a result of gaining the benefit of these technology investments. We're not setting aggressive targets, but we think there are real opportunities here, not just to drive operational efficiency, but to improve decision-making and improve outcomes across underwriting, pricing, decision-making and claims outcomes. And that's what we're pointing to in terms of the increase in our strategic investment dollars. So if you look over the last 3 years, our split of strategic investment dollars in technology relative to running our technology infrastructure, "keeping the lights on," it's about a 50-50 split, which is a pretty significant improvement. So there's more money going into the strategic investments. And we've more than doubled that over the last 3 years and have been able to manage the overall impact on the combined ratio or the expense ratio, and that will be our focus going forward. So it's not a step-up per se, but I think we expect technology investment as a percentage of premium to continue to go higher, and then there will be offsetting benefits in other cost aspects and loss ratio benefit as well to be realized. Michael Zaremski: Understood. That's helpful. And maybe sneak one last one in, and you might have touched on some of this in prepared remarks, but should we be thinking about the retention ratio is staying around current levels based on kind of the indications of kind of making sure that continue to turn out the less profitable business in a decelerating rate environment? Or is this -- or anything you can tease out on the retention ratio would be helpful. John J. Marchioni: Yes, sure. And again, that's not an area we guide to. We don't do growth or retention. But I think generally speaking, to your point, our focus is on the granularity of our execution of our pricing strategy. And we believe that by doing that, we should be able to deliver relatively stable retentions, but there's an assumption around market behavior that I think is a little bit tougher to forecast. And I think depending on market behavior with regard to pricing discipline in the casualty lines, that will ultimately influence what that -- where that retention settles. But our focus, to your point, is on that granularity of execution, which we think does allow us to maintain more stable retentions. Operator: Our next question comes from Daniel Lee with Morgan Stanley. Daniel Lee: I kind of want to switch gears and kind of ask about -- my first question would be on the E&S segment. I know the growth has been strong for E&S in the past prior years, but I'm starting -- it kind of seems like it's slowing down. Kind of wanted to get your thoughts on how -- what you're expecting for E&S overall and your growth aspirations for the E&S segment. John J. Marchioni: Sure. That's a business we really like. It's a business that we would expect to continue to become a bigger part of our overall premium in the coming years, but it's also a business where it's important that you maintain consistent discipline from a pricing and underwriting perspective over time. I think there's been a fair amount of industry commentary around some more aggressive pricing behavior there, not just on the property side, but I think leading into the casualty side as well. And we're going to maintain our discipline there. And that might create some downward pressure on growth in the near term. But in the longer term, I would put that segment in the category of business that we like and we expect to be able to continue to grow as a percentage of our overall premium. We've got meaningful potential to expand our capabilities there from a product and an underwriting perspective, but also having recently opened up retail access channel for our strong retail partnerships on the standard line side, we think that's also a real growth avenue for us in the coming years. Daniel Lee: Awesome. Yes. So my follow-up, I guess, I wanted to also ask about -- so E&S Casualty, just loss cost trends overall. I kind of wanted to maybe ask just the differences between commercial -- standard commercial loss cost trends versus E&S casualty? And what are some nuances there that we should be thinking about for E&S Casualty in terms of loss cost trends? John J. Marchioni: Yes. I would say probably the biggest difference is the E&S and you see it in lower retention ratios, it does tend to be a more transient business, which allows you to turn over the portfolio more quickly and make more significant mix improvements. As we pointed to over the last couple of years, as a result of those actions, we've seen a much more meaningful frequency decline in E&S than we have in standard GL. We've seen frequency benefits in our standard lines, but I think it's been a bigger frequency benefit that we've been able to realize in E&S. But with regard to severity trends, and social inflation, I would say the general dynamics are consistent, and we see them consistent across both admitted and non-admitted business. I would say the bigger difference that we've seen has been more so on the frequency side. And we had also been -- and we pointed to this in prior comments, we had been embedding higher severity increase assumptions into our expected loss ratios in part because of the more transient nature of E&S casualty portfolios. Operator: There are no further questions at this time. I'd like to turn the call back over to John for closing remarks. John J. Marchioni: Great. Well, thank you all for joining us. We always appreciate the engagement. And if you have any additional questions, please feel free to follow up with Brad. Operator: Thank you for your participation. You may now disconnect. Everyone, have a great day.

63天前Insight Analytics约5分钟阅读

HEXA-B.ST 2025 Q4 财报电话会议

Operator: Good morning, and thank you for standing by. Welcome to the Hexagon Fourth Quarter Earnings Report Conference Call. [Operator Instructions] I would like also to advise you that today's call is being recorded. I would now like to hand the conference over to your first speaker today, Anders Svensson. Please go ahead. Tom Hull: Thank you, operator. Good morning, everyone, and welcome to Hexagon's Fourth Quarter 2025 Conference Call. First, I would like to direct you to the standard cautionary statement. And then we are turning to the next slide with the agenda. We will start with taking you through the Hexagon Group performance in the fourth quarter and then dive into the Hexagon core business areas performance in the same quarter. I will then hand you over to Mattias Stenberg, who is the incoming CEO of our potential spin-off company, Octave, and he will take you through the performance of Octave in the quarter. Mattias will then hand over to Norbert Hanke, our interim CFO, who will cover the financials for Hexagon Group in more details. And we will then, of course, have time to take any questions that you may have. So moving into the next slide and we can jump directly into the highlights of the quarter. So in the fourth quarter of 2025, we returned to good financial performance. We delivered a 3% organic growth while still taking decisions that improve the long-term performance of both Hexagon and Octave. The operating margin of 29.4% was impacted by significant currency headwinds of 150 basis points. We also began implementation of the restructuring program that we launched during the third quarter to further improve the underlying profitability of the group. The strong delivery of the quarter was the strong cash conversion at 121%. Alongside this, we delivered operationally too. If we look at M&As first, we launched -- we announced that we will acquire Inertial Sense within the Autonomous Solutions business area to strengthen the breadth of our successful positioning portfolio. We acquired IconPro, expanding the range of proactive maintenance services that we provide to our metrology customers. And the sale of our business, Design & Engineering was sold to Cadence, as you know. And the closing of this is progressing on track for a closing during the first quarter. The new operating model, which we began to implement across Hexagon core businesses during the third quarter is progressing well. And this model then decentralizes Hexagon into 17 P&Ls within our 3 externally reported business areas, creating clear accountability and transparency and decisions are taken closer to customers, increasing our customer responsiveness, but also speed in decision-making and execution. Our humanoid robot, AEON, continue to make great progress in its customer pilots and we announced an important partnership with Microsoft, aimed at advancing humanoid robotics further. We also announced a new CFO for Hexagon core, Enrique Patrickson, who I will talk more about in the coming slides. And finally, we continue to progress the potential separation of Octave, which remains on track to be completed during the first half of 2026. Following this set of results, the Board will propose a dividend of EUR 0.14 per share at the Annual General Meeting on April 24. So we had a busy quarter behind us, and we move into the next slide. And I'm pleased to announce that we have appointed a new CFO, Enrique Patrickson, and he will join us then latest in July of 2026, but most likely already early in the second quarter. He is a veteran CFO with many years of corporate finance and strategic experience. At his most recent role at the European private equity firm, Triton. He has been responsible for advising a number of their investment companies on financial matters and best practices. And his experience has been within companies ranging from EUR 300 million up to EUR 5 billion in revenues in all phases of development. Before that, he was at Viaplay, where he played a central role in the turnaround of the business that was a critical part of Viaplay's history. Previously, he also spent time with the Electrolux and Assa Abloy, where he held strategic finance roles across Europe and Asia. So I'm very excited to welcome Enrique to the team, and we look forward to the next phase that he can contribute also with profitable growth going forward. Norbert Hanke will remain our interim CFO until Enrique joins. And after that, Norbert will become Executive Vice President at the group level. So I would again like to thank Norbert for stepping into this role, supporting us extremely well while we found a strong permanent candidate. Turning now to our performance in the quarter. So I was pleased to see that we had good organic growth while allowing some of our businesses to make operational and strategic decisions that will offset growth in the short term, but will ultimately set them up for success in the long term. In Octave, Mattias and the team continue to focus on SaaS deals, generating another quarter of strong double-digit SaaS growth. And in Geosystems, we chose not to restock channels in the market, which has been weak for some time, such as in China. And this had a total top line effect of EUR 10 million in the quarter negative for Geosystems. EUR 8 million out of those EUR 10 million were related to destocking in China. Despite these items, the group grew 3% in the quarter, maintaining the momentum that we already saw in the third quarter. Recurring revenues grew 3%, fully in line with the organic growth and new products contributed with 2%. And we expect that the new products will contribute more going forward as we are ramping up the products that we released during 2025. Turning now into the development by region and industry during the quarter. Here, you get a snapshot of the development. The overall markets remained broadly stable in the fourth quarter. Some highlights, first, by geography. Americas as a standout region grew 11% for the group with positive performance across all of our business areas. EMEA recorded a 4% organic growth driven by Autonomous Solutions and supported by stable performance in Geosystems and Octave, and this was then partially offset by continued weakness in Manufacturing Intelligence in EMEA. China decline with 5%. Strength was shown within Manufacturing Intelligence, but it was offset by continued weakness in Geosystems. And here, I want to again remind us that we had EUR 8 million related to destocking in the sales channel within China. And rest of Asia also declined, mainly due to tough comparables within Autonomous Solutions. If we look by industry, so there was strength within the construction segment in Americas, but it remained weak for us overall, primarily due to China. General manufacturing was strong in the U.S. and in China, but remain muted in EMEA. Aerospace and defense, as you can see, was a standout performer in the quarter, recording strong growth across all our key markets here in Americas and EMEA. Mining also globally, very strong in the fourth quarter across basically all important market for us. Automotive remained weak in the key EMEA markets. And as expected, unfortunately, also turned negative in China due to overcapacity in the market. Electronics was very strong in China, but weaker elsewhere. But that is -- China here is the important market for us within electronics, the other markets are quite small insignificant in comparison. And agriculture remained weak with the market still looking weak globally since the COVID, post-COVID with supply to market, which was an oversupply to market, this market has been quite muted in the last periods. Turning now into profitability. We start with the gross margin, which was a record strong gross margin in the quarter, 67.5%, benefiting from a strong product mix. And I think we can also show that we manage pricing and cost very well. And also then, we got a contribution, which was quite small, but still there of new products going to market with better margins. On a rolling 12 months basis, we were in line with the prior year. So turning now to operative earnings. So during the first quarter, we delivered an operating margin of 29.4%, with significant negative currency impact of 150 basis points, which is under sort of offsetting the underlying strong performance that we had in the quarter. And as we recently launched several new products that are now in ramp-up phase, we also have a negative impact from reduced gap between capitalization and amortization versus the previous year, and Norbert will talk more about this in his slides later. As you know, we also launched the restructuring program in the third quarter to remedy the underlying margin performance, and we are targeting here savings of a run rate of EUR 110 million at the end of 2026. And as a reminder, we said EUR 74 million of those will be within Hexagon core and EUR 36 million would be related to Octave. And Norbert will also cover the progress of this program at a later stage here. So in the first quarter, we will continue to see benefits of the restructuring program. But at current exchange rates, we expect a significant headwind from currency, alongside with the usual seasonality that we have in the first quarter, such as, for example, merit increases across the organization from the 1st of January. I'll now turn to the performance by business area. So I'm going to start with Hexagon core. And this is, as you know, excluding then Octave. And Hexagon core grew 4% in the fourth quarter with operating margins of 28.4%, with significant negative impact from FX year-on-year. There was a slight moderation in the organic growth from the 5% we had during the third quarter, so again, here, I want to highlight the EUR 10 million of destocking within Geosystems. If you would add that back, we actually hit the 5% mark just as we did in the third quarter. So I'm very pleased with the underlying performance that we have made within Hexagon core. So turning now to Manufacturing Intelligence. So we reported revenues of EUR 491 million, which represents a 1% organic growth on 2024. The market dynamics were broadly unchanged from the third quarter with strength in China that grew 5%, America was also good. While as I stated previously, EMEA, the market conditions continue to be challenged. But if you look quarter-on-quarter versus the third quarter, it was stable. So it was not worsening from the third quarter. By industry, demand was particularly good in electronics and aerospace and defense. Automotive remained challenged. And the organic growth moderated from Q3 as we saw delays in customer decision-making, especially early on in the quarter, pushing work into 2026. But if we look at orders here instead, so we had strong order intake growth of 7% versus the previous year. And as a result of this, we exited the quarter with a strong order book to be delivered in 2026. The division or the [indiscernible] reported an EBIT of EUR 139.3 million and an operating margin of 28.4%, impacted by currency effects also here. I now turn to Geosystems. And here, we reported revenues of EUR 363 million during the quarter, and that represents a minus 1% in terms of organic growth compared to the previous year. As I mentioned earlier, the primary reason for Geosystems to turn into a negative growth was the proactive decision that management took to destock the channels where we have seen softer demand for some time, like in China, where our exposure to heavy infrastructure has, as you know, faced significant headwinds and challenges in that marketplace. So excluding this destocking, if you look at Geosystems underlying growth, it was actually plus 2% year-on-year. This destocking headwind will persist on a similar level also during the first quarter of 2026, as we are rightsizing these delivery channels. So after that, we will have a normalized business going forward. So from Q2 and onwards, you will not see effects of destocking further. Markets remain similar to the third quarter with good demand in the Americas for construction software, surveying tools. And we also saw stability in EMEA with a modest growth. But the challenging environment in China heavy infrastructure remains significant. So EBIT declined to EUR 103 million with an operating margin of 28.4%, reflecting the combined effects of low volumes in some of the product segments and also a weaker product mix and, of course, negative currency impacts. Finally, then, turning to the outstanding performer of the quarter, Autonomous Solutions. And within Autonomous Solutions, we delivered revenues of EUR 196.4 million during the quarter, representing a 23% organic growth compared to the prior year. There was a record performance within both aerospace and defense and within mining. This was slightly then offset by the challenging global market situation within agriculture, as I mentioned earlier. Performance was focused on Americas, but EMEA also grew well. Asia declined due to very tough comparables, and this is also in reference to the MinRes project that we're executing in Australia. There were some timing issues, et cetera. So if you look at the underlying performance, it was actually good in Asia as well. EBIT came in at EUR 67.7 million, representing an increased EBIT margin to 34.5%, driven by strong volumes and a positive product mix, but also here, offset by currency. I will now hand you over to Mattias, who will cover the Octave performance. So Mattias, please go ahead. Mattias Stenberg: Thank you very much, Anders, and good morning, everyone. Before we dive into the quarterly performance, I want to start by reminding and reinforcing what Octave is, and the role we play for our customers. We are the market-leading provider of enterprise software that helps customers design, build, operate and protect their mission-critical assets. We serve industries where failure has real consequences, whether that's human safety, operational downtime or material financial impact. Across our portfolio, the common thread is accountability. Accountability for outcomes across the full asset life cycle. As technology capabilities expand, the requirements for uptime, safety and compliance only become more rigorous. And Octave truly provides a platform and the technology to manage that complexity at scale. If we then turn to the next slide. Our market position as you can see, is very strong, and our leadership continues to be validated by leading independent research firms, including names like Gartner and IDC, but also several others. For more than 15 years, we have consistently been recognized across multiple solutions and verticals. In this quarter, however, specifically, we were placed as a leader in Gartner's latest Magic Quadrant for QMS software and as a leader in IDC Marketscape for both Asset Performance Management as well as for EAM. So I think these recognitions underscore our sustained innovation and relevance across the markets we serve. We move to the next slide, digging into the quarter results. As you can see, we delivered 2% organic growth with our recurring revenue slightly outpacing that at 3%. Our recurring base represents roughly 70% of our total revenue, and we continue to make good progress shifting our mix towards subscription-based models which, as you can see, is reflected in our double-digit SaaS growth as well as by another quarter of record new bookings, just like we had in the previous quarter. Our EBIT margin landed at 32% compared to 35% in the prior year period. This profitability is primarily a reflection really of a higher mix of perpetual revenue in the prior year period as well as FX headwinds. It also reflects deliberate investments in innovation, product development and the infrastructure required for us to operate as a stand-alone public company. We expect to gradually offset these investments through the cost savings program we earlier announced in Q3 2025. So all in all, we are confident we are positioning Octave for stronger, durable, profitable growth. Turn to the next slide, please. Here, you can see our business broken down by our four core pillars. As you can see, design is our largest business from the pie chart there. In this pillar, we saw solid platform growth which, however, was offset by a lower contribution from our monthly subscription licenses, which I will describe a bit more on a coming slide. Build, you can see, had a very good quarter, strong SaaS growth in construction software as well as in project performance management software. Likewise, operate saw strong recurring growth especially in our solutions around QMS, APM and EAM. In the protect pillar, the growth we saw in recurring revenue was offset by declines in perpetual licenses mainly due to record activity in the prior year corresponding period. Next slide, please. So yes, like I talked about, if we try to explain a bit what's going on in the recurring revenue, there are two things you need to understand. If we look at our monthly subscription licenses here, it represents roughly 50% of total revenue and is driven by project activity for certain large customers within our design pillar. While this revenue grows over time, it can fluctuate in the short term with macro conditions and customer project timing. So after a strong end to 2024, as you can see from the graph there, we saw a reduction in monthly license volumes in kind of early 2025 going into Q2, as you can see there, as broader market uncertainty influence customer behavior. These levels have, however, been sequentially improving in the second half of the year, and we expect year-over-year comparisons to gradually get easier throughout 2026. So on the right side of this slide, you can see that excluding these project-driven monthly licenses, our underlying recurring revenue is growing in the high single digits, reflecting the solid underlying growth we see in our broader portfolio. Next slide, please. So looking at some customer wins. We, of course, had many, many customer wins in the quarter. I selected these four, because I think it's a good reflection of showing how many different type of critical industry sectors we serve. It's really a good representation of the breadth of our platform and the diversity of our customer base. I think it also shows the level of trust, performance and scale that we are able to provide across a large complex organizations. Such as in this quarter, a very large, fast-growing e-commerce company in Asia, one of the global leaders in the energy sector, one of the largest pharmaceutical distributors in the world, and the largest U.S. police department. Next slide, please. Looking ahead, we are really focused on execution. We recently completed our first global sales kickoff as one Octave, reflecting our next phase as a stand-alone company. We are truly operating with a clear set of priorities, and we expect each of these to support stronger durable growth over time. First, we continue our transition, like I talked about, to subscription-based pricing models, supporting more predictable, high-visibility revenue streams. Second, we are deepening our customer engagement by driving cross-sell across the design, build, operate and protect pillars, supported by a shift in R&D toward a unified architecture and outcome-focused AI capabilities. Finally, we are also scaling our partner ecosystem and strengthening our go-to-market execution while at the same time, finalizing the governance and operating infrastructure that is required for us to be a stand-alone public company. Turn to the next slide, please. So if we look at the process and the update on the spin. It is moving forward as planned. The final spin-off is targeted for the second quarter this year, pending the effectiveness of our public listing steps in the U.S. and Sweden and final approval, of course, from the shareholders and the Board of Directors. We expect our draft registration statement, the so-called Form 10, to be filed publicly in February. We're also very excited that we're going to hold our first Octave Investor Day, be in New York on March 26, '26. We look forward there to share more about the strategic priorities I mentioned as well as our business model and, of course, our growth opportunities. You can expect the invitations and details here in the next couple of weeks. I look forward very much to hopefully seeing many of you there. So with that, thank you very much, and I'll hand it over to you, Norbert. Norbert Hanke: Thanks, Mattias. I will take you now through the Q4 performance for the Hexagon Group. Turning now to the next slide, please. Let us begin with the Q4 income statement, taking the sales bridge first. Revenue were EUR 1.4 billion, generating reported growth of minus 1%. Currency was a negative minus 6% on sales, and there was a positive 1% from structure, resulting in an organic growth of 3%. Gross margins were strong at 67.5% despite the impact of FX. We continue to be confident in driving gross margin expansion as we will have positive impact from new product releases. Operating earnings decreased by 7% to EUR 420 million, corresponding to a margin of 29.4%. I will explain this further in the profit bridge on the next slide. Interest expense and financial costs decreased from EUR 41 million to EUR 30 million, giving a delta on earnings before taxes of minus 5%. The group's tax rate increased to 26.8% for the quarter, reflecting one-off transactions related to legal entity reorganizations ahead of the potential spin-off of Octave and sale of D&E. The tax rate, excluding adjustments, remained at 18%, bringing us down to an adjusted EPS of EUR 0.118, also declining by minus 5%. Just for reference, the EBIT1, including PPA includes EUR 27 million of amortization, and so it dilutes the EBIT1 margin to 27.5%. Next slide, please. During Q4, currency continued to be dilutive, reducing EBIT margin by 150 basis points. The major impact came from a weakening dollar and RMB year-over-year, leading to an unfavorable earnings impact. The structural element was accretive with solid contribution from acquired companies such as Septentrio and Geomagic as we will -- as well by the sale of the dilutive assets in Octave. We saw a quarter-over-quarter improvement in organic EBIT contribution supported by the cost actions implemented in the quarter. Despite this improvement, we ended the quarter with a dilution of 80 bps year-over-year, driven by a few factors. First, tariffs created a headwind of roughly EUR 5 million in the quarter. Secondly, the capitalization amortization gap is narrowing as we normalize our R&D investments. Further, Octave continued to invest in go-to-market capabilities, product development and public company readiness. Turning now to the next slide, please. Now let's discuss the R&D capitalization dynamics. R&D investments are reducing from their peak levels as we have released multiple new products during the year. As many of these products were major new innovations, we capitalized them according to accounting principles. With the launches, our R&D investments are decreasing and we expect the gap between R&D capitalization and amortization to narrow versus 2024 and '25. This creates a year-on-year margin headwind in the near term until the new products start contributing materially over the next 12 months. Turn now to the next slide, please. Let's continue with the restructuring program. We began implementing the program at the end of Q3, and this has generating savings of EUR 11 million in the fourth quarter and achieving an annualized run rate of EUR 65 million. The savings will increase throughout 2026, and we will see the full benefits by the end of '26. Turning now to the next slide. Moving on to the Q4 cash flow, which is a strong performance for the quarter 4. The adjusted EBITDA variance is at minus 5%, demonstrate the continuous stronger cash leverage versus the EBIT1 variance at minus 7% due to keeping D&A flat year-over-year. Capital expenditures declined as a result of less capitalized R&D in line with our previous communication to stabilize our R&D investments. Working capital management remains strong and we presented a release of EUR 121 million in the quarter. As a result of this, we end up with an operating cash flow before tax and interest of EUR 509 million, which led to a very strong cash conversion of 121%. Both interest and tax payments decreased compared to last year. The nonrecurring cash flow of EUR 67 million versus the prior year of EUR 18 million relates to the increased cash outflow of the potential spin-off of Octave and the restructuring program resulting in an operating cash flow of EUR 352 million, decreasing by 13% versus the prior year. Next slide, please. Moving on to the working capital trend. In Q4, we delivered a net working capital release of EUR 121 million compared to release of EUR 141 million in the prior year. As a result, the rolling 12 months working capital to sales ratio improved to 3.2%, lower than last year and well below our 10% threshold. To conclude, our business areas delivered solid organic growth alongside a strong gross margin for the group and a very strong cash conversion. Currency headwinds impact negatively the EBIT1 margin. And based on current FX rates, is expected to have a negative impact as well on Q1, combined with normal quarter-on-quarter margin seasonality. We remain focused on addressing the cost base through the announced restructuring program with additional benefits expected to gradually continue throughout the year. I will now hand back to Anders. Anders Svensson: Thank you, Norbert. And then we can move directly into the summary. So to conclude a bit. So I'm very pleased with our progress in the fourth quarter of 2025. We delivered good solid financial performance while also making decisions that support the long-term health of both Hexagon and Octave. Profitability was again impacted by significant currency movements. And we implemented the restructuring program that Norbert covered that we launched during the third quarter, and that will help to strengthen the underlying profitability of the group. And finally, we are able to deliver a fantastic cash conversion quarter with 121%. So looking at the first quarter of 2026, the market basically looks consistent with the second half of 2025. And we are set up very well with a strong operating model, strong product releases during the previous year and a leadership position within basically all the businesses where we operate. So we are very confident going into the year. However, normal seasonality will, of course, apply in the beginning of the year, as you would expect. And should currencies remain on a similar level as today, we expect also a similar headwind from those currencies. So turning now to my final slide on the upcoming Capital Markets Day for Hexagon. So this is a reminder, the CMD will take place 30 April of this year in London. And this is, of course, in addition to what Mattias talked about, the Investor Day within Octave. So I look forward to seeing you all there. And operator, I think that was all from the team here, and let's move into questions from the audience. Operator: [Operator Instructions] And now we're going to take our first question, and it comes from the line of Daniel Djurberg from Handelsbanken. Daniel Djurberg: Anders, I have a question on MI. You comment in your CEO letter that you have positive order intake. And also, you write here in the presentation of a strong order book. And you have new products out, we've seen the ATS800, MAESTRO, et cetera. So can you comment any more color on this book-to-bill ratio or whatever. Anders Svensson: Yes. Thanks. So the quarter was quite weak in the beginning in terms of closing customer deals. So not weak, but rather that customer postpone things. And we could see that from the second half of the quarter, it started to take off much better for us. And hence, we build up a strong order intake if you compare to the previous year. And we are then moving into the year with a stronger order book than we may be even expected, and we saw good deliveries also at the end of the quarter. So you still have a positive growth number there. But it was a little bit weak in decision-making from customers in the beginning of the quarter. We don't go out with exact numbers on order intake. So I cannot give you how book-to-bill changed, only a reference towards the previous year. So strong development, which I believe, puts us in a good position going forward. And there's no reason why we shouldn't continue to perform well in here. Aerospace and defense doing very well in both North America and EMEA. We have electronics doing extremely well in China. General manufacturing is actually doing really well in America and China. The weakness there is basically in EMEA. So I see that we have a strong setup that will continue also to go into this year. Daniel Djurberg: Sounds great. May I have a follow-up, and that would be on the destocking, you mentioned in China Geosystems, obviously being a little bit more of a structural change, I guess. So is it fair to assume that it will not only impact also Q1, but also to some extent, Q2 and Q3, I think it has some 100 basis point impact on the Hexagon core growth in full. Anders Svensson: No, it's rather like this. We have done destocking previously in 2025 as well within Geosystems to rightsize the delivery channels. So if you look at the full year impact for Geosystem, it's actually EUR 21 million of destocking, and it's primarily Latin America and Asia, but we see that the biggest part is then with China. And we wanted to raise it now because we did EUR 10 million in 1 quarter here, where EUR 8 million of those EUR 10 million were related to China. So we thought it was important to bring it up to increase the understanding. And we also see that it will continue then in the first quarter of this year, and that will be mainly in the China channel, and we expect EUR 8 million to EUR 10 million also in the first quarter of this year. Then there is nothing remaining to be done in Q2, Q3 or Q4. So from the end of Q1, all the destocking within Geosystems is completed, and you will see a normalized business going forward. Operator: Now we're going to take our next question and it comes from the line of Andre Kukhnin from UBS. Andre Kukhnin: I wanted to ask a question on the cost savings. I think the pace that you're delivering at now is steeper than what the chart implies for the rest of 2026, if we are already at EUR 65 million run rate for EUR 110 million. I think we should be at the EUR 110 million run rate probably by middle of the year. So I just wondered if there is any reason for that to slow down? Is there a kind of low-hanging fruit has been picked first. And what is the appetite for further savings beyond EUR 110 million? Can we already start talking about that? Norbert Hanke: Yes, I will answer this. It's Norbert. Yes, we did quite a bit in Q4, as we mentioned, and you can see and you highlighted this earlier, that was, say, in preparation, and we will take this now step by step in the sense. So from our point of view, it will be end of the year where we see the full savings going forward. So I think that will be from our point of view, so going forward. The appetite, I mean, will be constantly to look at the different business and what performance they are, as we have mentioned, and Anders mentioned this, particularly in Q3 as well, but that is an ongoing process from our side. Anders Svensson: And that will be more of an organic development. So we will not launch other programs like this one. It's rather that some of the businesses will have a hiring freeze and they need to reprioritize if someone leaves, et cetera. So it will be more of an organic going forward. But of course, we are continuously working on making further efficiencies within the group. Andre Kukhnin: And if I may just follow up on the question on new product launches. Could you quantify for us what percentage of sales do these new products account for in terms of the predecessors that they replace? And is it possible to give us some idea of your kind of measure of vitality ratio, kind of percentage of sales from products that are less than 3 or 5 years old, so that we can also assess how these new products are shifting that ratio? Norbert Hanke: Yes. It's Norbert here again. So I mean, for us, 2025 was a big year. Fair statement, I mentioned this as well, that sure, the new product does take some time to come to full benefit for us from a contribution point of view. But at the moment, we're running around 3% to 4% overall from our point of view. And yes, we're following this very short -- we're following this up going forward as well. Anders Svensson: And this is a product launched in the last 3 years, the definition. So here, you had a bit of a delay during the COVID cycle. And then we are basically seeing the launches of new products now coming in, in 2024 and 2025. So -- and these products that we launched, these big products like MAESTRO and the TS20, those take time to ramp up. It takes 12 to 15 months because before they are fully ramped up. And that's also why Norbert mentioned the shrinking gap between amortization and capitalization because when you launch a product, that's the day where you start getting the amortization of what you have put on the balance sheet in R&D. But of course, in that day, you have 0 sales for the new products. It takes time to ramp that up. So there is a period where you have that R&D gap headwind before you starting to -- of course, over time, we will have a tailwind with the new products, even though we are paying the R&D gap, right? So that's the whole intention. But there is a time lag in between there. Andre Kukhnin: So you said 3% to 4% in total. My line just broke up. Did I get right? 3% to 4% of group sales? Anders Svensson: Yes. That is correct. You heard this correctly. But the line was broken up, yes. I saw that. Operator: And the next question comes from the line of Mikael Laseen from DNB Carnegie. Mikael Laséen: I have a question on Octave. And on the transition from license to SaaS. If you can elaborate on how much of the 72% subscription revenue today that is true SaaS versus term-based subscription or maintenance? That's the first part. Mattias Stenberg: Yes. Good question. I guess we will lay this out on the Investor Day in detail, Mikael. But I think high level, we have said that out of the 70% roughly recurring revenue, it's about 1/3, right, that is SaaS and about 1/3 that is maintenance and about 1/3 that is monthly subscriptions. Mikael Laséen: Okay. Yes. So the same as you indicated before, of course. But the real question here is how we should think about maybe at this stage on a high level on the migration trajectory when you will have sort of a steady-state SaaS exposure or split? Mattias Stenberg: Yes. Again, I don't want to lay out the whole plan here today. We'll do that at the Investor Day. But as you can see, the perpetual revenue is roughly 15%, right, of total sales. And this will gradually shift. It won't be dramatic in a couple of quarters, right? It will take some time. So you should expect a gradual shift there, but it will increase the pace compared to the history, right? Because we are doing this more -- yes, more aggressive than we have done in the past. But again, you will have to come to New York, and we'll talk about it. Mikael Laséen: And can you also maybe sort of give some indication of the cost situation now, how much of this margin decline is sort of this short-term improvement or readiness costs that you have and how much is in an underlying inflation going into '26 and also '27? Mattias Stenberg: Yes. I think what I can say at this point, again, without giving too much of an outlook would be that I think you can expect a similar trend in Q1, right, where we still will have some headwind of the perpetual shift of the increased investment level and of the FX. And then hopefully, as we gradually start to grow faster, but if you see what I'm saying in the slide on the licenses and recurring revenue, we also expect the margin to start to improve. That's as much as I'll say today. Operator: And the question comes from the line of Simon Granath from ABG. Simon Granath: I also have a question on Octave. Have you seen any impact from the government shutdown then relating to SIG? I think one of your competitors highlighted that a couple of months ago. So I was asking if -- wondering if there are any pent-up demand trends to be materialized in 2026. Mattias Stenberg: Yes, good question. Not material, I would say. I mean as you might remember, we divested two businesses in SIG in the [ Hex fab ] area, right, which had quite a lot of government exposure. So the government exposure we have left in SIG is not that big, right? So some impact maybe, but not really material. Simon Granath: That's very clear. And then I also had a question on AEON. After the Microsoft partnership announcement a couple of weeks ago, should we expect more partnerships ahead of commercialization? Or is the framework now mostly in place? Or -- and how are you essentially tracking versus the general time line here? Anders Svensson: Yes, thanks. I think we are tracking exactly on the time line that we have laid out for AEON from the AEON team. And there's constantly new partnerships being formed with new ecosystem partners, right, that we use within the AEON project. And this is not something that we always go out with. But this one was quite significant because this is how we use Azure Cloud for training of AI models for AEON and also for the imitation learning framework for AEON. So this is quite significant and important one. And that's why we wanted to go out with this together with Microsoft, like we have done previously with NVIDIA, et cetera. So we go out with the big ones when we think it's relevant for the market to understand what we are doing, but we don't go out with all the partnerships that we are creating because there are lots of those. Simon Granath: Very clear. And just a final very brief follow-up, if I may, on the supply chain. Do you see any impact on your operations from the rising memory prices? If so, which segments and what are the bill of material costs here? Or -- and could this be something you can push through to your customers? Anders Svensson: Yes. Thanks. No, in general, we compensate for all types of inflation that we have within our businesses. So of course, we don't prefer when there is parts of the supply chain that's increasing cost. But in general, we take this into account, and we compensate with pricing. And I think we have done that successfully in the past. So we will continue to do so also going forward. When it is challenging for us, it's rather when there is a supply chain constraints like we had a bit previously a couple of years ago, then it becomes more challenging also for others, of course. But for this kind of price hikes on memory or whatever, it's something that we compensate for. It's not significant at all in our total bill of material. Operator: Now we're going to take our next question, and it comes from the line of Sven Merkt from Barclays. Sven Merkt: I have first a question for Mattias. There's a lot of debate in the market currently on how software is positioned in respect to AI. Can you comment what are the major AI initiatives you have in place, both on a product and also on the cost side and how you oversee Octave position in regards to AI? And then a question for Anders or Norbert, on the software growth ex-Octave. Overall, the software revenue decelerated by 2 points despite a 1 point acceleration for Octave. So I'm interested to hear what drove the software growth ex-Octave in the quarter. Mattias Stenberg: Thanks. Yes, I'll start then with the AI question. I mean, how much time do you have, if we're going to go through everything. But I would say -- I mean, first of all, important to say is that we support, like I said in my presentation, customers that do mission-critical things or mission-critical infrastructure and assets. We're not building an app or a website or something. It is truly mission-critical software. So I think it's very sticky, right? And I don't see the threat of being replaced by AI as that high. Then, of course, we are building AI on top of our solutions every day, right? We're launching agents every month. And that will just increase and increase. If we look at internal efficiency, I think that is a very good point. We are training and adopting AI in our own development at a very fast pace. And the goal, of course, there is to get everybody trained and up to speed. And yes, I see it as a big potential efficiency. It doesn't mean necessarily that we are going to get rid of people, right? I see it more as the people we have can do more important things, right, focus on innovation rather than documentation or bug fixing or things like that, right? So yes, great question. But yes, I'm very positive on AI in general. But yes, I don't think we are at a first in line to be at risk. That would be my summary. Anders Svensson: Yes. And then I'll step in and if I understood the question, it was software growth, excluding Octave, in the quarter? Sven Merkt: Correct. Yes, yes. Because I think the overall software growth decelerated while Octave accelerated. Anders Svensson: So we -- software growth for us in the quarter was 4% related to -- compared to previous year. And the general software and services total, and this is only software and not services that grow 4%. And if you look at software and services, the revenue, excluding Octave and excluding the D&E, Design & Engineering, that we are selling is in the range of 45% to 50% of revenue, and the recurring part is 30% of revenue approximately. So that's a high level for you. Operator: Now we're going to take our next question and it comes from the line of Balajee Tirupati from Citi. Balajee Tirupati: Two from my side, if I may. First one on cash conversion, which has been quite strong for the group in recent periods, including contribution from working capital and capital expenditure being in check. As we look ahead, should we see the cash conversion profile as structurally better or are there one-off impacts within which you would expect us to keep in mind before extrapolating current trends? And the second one on margins. as we look for margin evolution in 2026, and I appreciate you already have shared some color for first quarter. But if I look at 2026, there are, of course, a few puts and takes. Could you help us on how should we think of recovery in margin, both on an underlying basis as well as in context of current FX evaluation and growing amortization charges? Norbert Hanke: Yes, this is Norbert. But I'll take the first one on cash conversion. For sure, in Q4, that's very seasonal, let's call it like that. Therefore, we can expect in Q1, not the same magnitude from our point of view. I think the overall as we highlight as well, what our target is the 80% to 90% conversion side. And that is, I think you can, say, take us going forward as well in that range. There will be every time seasonality, particularly in Q4, that is given in the sense. But overall, we remain to our target. Anders Svensson: Yes. And if I move in to try to respond to the question, if I understood it correct, the margin question for 2026. So what we already covered is that we are doing things like the restructuring program that will help both Octave and Hexagon with the underlying margin improvement. We are targeting growth with -- and you can see we have markets like America, we have areas like aerospace and defense and mining that are profitable markets and areas for us that continue to grow very rapidly. We have new products that we have launched to the market and some of those were mentioned with the ATS800, MAESTRO, the TS20 and other very important products that will sort of start ramping up now. And those products will, of course, contribute positively also to the gross margin for us going forward. We are making sure that we compensate the pricing versus cost inflation in all areas. And you can see that we delivered a gross margin of 67.5%, which is the highest quarter in history for Hexagon. So we are managing cost versus price in a very good way. Then like you mentioned, there are drags as well that we have mentioned. We have the similar FX drag that could be significant like it was for this quarter. Also going forward, we don't know when that will even out or how the FX will become going forward. So I think your guess is better than mine. Then as Norbert mentioned, the amortization, capitalization gap, as products ramp up, the effect of that will be smaller since you will get the top line and the profitability of the new products that ramp up that will compensate for that shrinking gap. And of course, we are compensating for tariffs, et cetera. We will have continued investments. Mattias mentioned also that we need to invest for making sure that Octave is ready as a stand-alone company. The Octave team needs to invest in their product portfolio to make sure that they have a strong product portfolio when they stand alone. At the same time, on the Hexagon side, we are investing in AEON, which is pre-revenue basically, which is basically only a cost for us. But long term, that's a strategic right decision to do for the group. So we are taking those investments. I hope that explains something. I'm, of course, not going to go in and estimate margins for the year. But that's sort of some of the underlying drivers for you. Balajee Tirupati: Understood. On cash conversion, I was -- if I can just follow up on that. I was asking more on a full year basis in the last 2 years, conversion has been ahead of 90% despite a rather softer growth. And working capital is one of the contributor being positive in both these years. So I was just trying to understand that structurally are -- because of growing share of recurring revenue, are we now structurally in a phase where the contribution from growing liabilities would provide a kind of tailwind where the cash conversion profile should be going higher? And this is also a period when it seems like we are going much more measured on CapEx. Norbert Hanke: From our point of view, yes, we are looking into, say, cash conversion constantly, I can tell you that. I'm looking for an efficient way of doing this. But from our point of view, we remain to the target, as I said earlier. And from our side, we will not further say, give more information out, honestly speaking. Anders Svensson: It's not structurally changing. What you will see happening during this year is the spinoff -- the potential spin-off of Octave. Octave is a business, as you referred to here as well, which has a structurally difference, which has higher cash conversion than the sort of Hexagon core business. So I see Hexagon core moving in that direction, but much, much lower than Octave. So I think an 80% to 90% would be considered a very good level for Hexagon core going forward. And of course, the tighter we go out with net working capital in the year, the tougher the year -- the next year would be, right? And we had a 3.2% working capital on sales, which is very low. It's the lowest we've ever had. So I think you should not change your structure on the cash conversion for Hexagon core. Norbert Hanke: Yes, for the time being because... Anders Svensson: Yes for the time being. Operator: I would now like to hand the conference over to your speaker, Anders Svensson for any closing remarks. Anders Svensson: Thank you, operator. And thank you, everyone, for participating, listening in, adding valuable questions. And we look forward to speaking to you in a quarter from now, giving you the first quarter of 2026. And then hopefully, very tight after there, only a week after that, to see you in London for the Capital Markets Day. And with that, we say thank you for Hexagon, and wishing you all a nice weekend. Operator: This concludes today's conference call. Thank you for participating. You may now all disconnect. Have a nice day.

63天前Insight Analytics约5分钟阅读

HXGBY 2025 Q4 财报电话会议

Operator: Good morning, and thank you for standing by. Welcome to the Hexagon Fourth Quarter Earnings Report Conference Call. [Operator Instructions] I would like also to advise you that today's call is being recorded. I would now like to hand the conference over to your first speaker today, Anders Svensson. Please go ahead. Tom Hull: Thank you, operator. Good morning, everyone, and welcome to Hexagon's Fourth Quarter 2025 Conference Call. First, I would like to direct you to the standard cautionary statement. And then we are turning to the next slide with the agenda. We will start with taking you through the Hexagon Group performance in the fourth quarter and then dive into the Hexagon core business areas performance in the same quarter. I will then hand you over to Mattias Stenberg, who is the incoming CEO of our potential spin-off company, Octave, and he will take you through the performance of Octave in the quarter. Mattias will then hand over to Norbert Hanke, our interim CFO, who will cover the financials for Hexagon Group in more details. And we will then, of course, have time to take any questions that you may have. So moving into the next slide and we can jump directly into the highlights of the quarter. So in the fourth quarter of 2025, we returned to good financial performance. We delivered a 3% organic growth while still taking decisions that improve the long-term performance of both Hexagon and Octave. The operating margin of 29.4% was impacted by significant currency headwinds of 150 basis points. We also began implementation of the restructuring program that we launched during the third quarter to further improve the underlying profitability of the group. The strong delivery of the quarter was the strong cash conversion at 121%. Alongside this, we delivered operationally too. If we look at M&As first, we launched -- we announced that we will acquire Inertial Sense within the Autonomous Solutions business area to strengthen the breadth of our successful positioning portfolio. We acquired IconPro, expanding the range of proactive maintenance services that we provide to our metrology customers. And the sale of our business, Design & Engineering was sold to Cadence, as you know. And the closing of this is progressing on track for a closing during the first quarter. The new operating model, which we began to implement across Hexagon core businesses during the third quarter is progressing well. And this model then decentralizes Hexagon into 17 P&Ls within our 3 externally reported business areas, creating clear accountability and transparency and decisions are taken closer to customers, increasing our customer responsiveness, but also speed in decision-making and execution. Our humanoid robot, AEON, continue to make great progress in its customer pilots and we announced an important partnership with Microsoft, aimed at advancing humanoid robotics further. We also announced a new CFO for Hexagon core, Enrique Patrickson, who I will talk more about in the coming slides. And finally, we continue to progress the potential separation of Octave, which remains on track to be completed during the first half of 2026. Following this set of results, the Board will propose a dividend of EUR 0.14 per share at the Annual General Meeting on April 24. So we had a busy quarter behind us, and we move into the next slide. And I'm pleased to announce that we have appointed a new CFO, Enrique Patrickson, and he will join us then latest in July of 2026, but most likely already early in the second quarter. He is a veteran CFO with many years of corporate finance and strategic experience. At his most recent role at the European private equity firm, Triton. He has been responsible for advising a number of their investment companies on financial matters and best practices. And his experience has been within companies ranging from EUR 300 million up to EUR 5 billion in revenues in all phases of development. Before that, he was at Viaplay, where he played a central role in the turnaround of the business that was a critical part of Viaplay's history. Previously, he also spent time with the Electrolux and Assa Abloy, where he held strategic finance roles across Europe and Asia. So I'm very excited to welcome Enrique to the team, and we look forward to the next phase that he can contribute also with profitable growth going forward. Norbert Hanke will remain our interim CFO until Enrique joins. And after that, Norbert will become Executive Vice President at the group level. So I would again like to thank Norbert for stepping into this role, supporting us extremely well while we found a strong permanent candidate. Turning now to our performance in the quarter. So I was pleased to see that we had good organic growth while allowing some of our businesses to make operational and strategic decisions that will offset growth in the short term, but will ultimately set them up for success in the long term. In Octave, Mattias and the team continue to focus on SaaS deals, generating another quarter of strong double-digit SaaS growth. And in Geosystems, we chose not to restock channels in the market, which has been weak for some time, such as in China. And this had a total top line effect of EUR 10 million in the quarter negative for Geosystems. EUR 8 million out of those EUR 10 million were related to destocking in China. Despite these items, the group grew 3% in the quarter, maintaining the momentum that we already saw in the third quarter. Recurring revenues grew 3%, fully in line with the organic growth and new products contributed with 2%. And we expect that the new products will contribute more going forward as we are ramping up the products that we released during 2025. Turning now into the development by region and industry during the quarter. Here, you get a snapshot of the development. The overall markets remained broadly stable in the fourth quarter. Some highlights, first, by geography. Americas as a standout region grew 11% for the group with positive performance across all of our business areas. EMEA recorded a 4% organic growth driven by Autonomous Solutions and supported by stable performance in Geosystems and Octave, and this was then partially offset by continued weakness in Manufacturing Intelligence in EMEA. China decline with 5%. Strength was shown within Manufacturing Intelligence, but it was offset by continued weakness in Geosystems. And here, I want to again remind us that we had EUR 8 million related to destocking in the sales channel within China. And rest of Asia also declined, mainly due to tough comparables within Autonomous Solutions. If we look by industry, so there was strength within the construction segment in Americas, but it remained weak for us overall, primarily due to China. General manufacturing was strong in the U.S. and in China, but remain muted in EMEA. Aerospace and defense, as you can see, was a standout performer in the quarter, recording strong growth across all our key markets here in Americas and EMEA. Mining also globally, very strong in the fourth quarter across basically all important market for us. Automotive remained weak in the key EMEA markets. And as expected, unfortunately, also turned negative in China due to overcapacity in the market. Electronics was very strong in China, but weaker elsewhere. But that is -- China here is the important market for us within electronics, the other markets are quite small insignificant in comparison. And agriculture remained weak with the market still looking weak globally since the COVID, post-COVID with supply to market, which was an oversupply to market, this market has been quite muted in the last periods. Turning now into profitability. We start with the gross margin, which was a record strong gross margin in the quarter, 67.5%, benefiting from a strong product mix. And I think we can also show that we manage pricing and cost very well. And also then, we got a contribution, which was quite small, but still there of new products going to market with better margins. On a rolling 12 months basis, we were in line with the prior year. So turning now to operative earnings. So during the first quarter, we delivered an operating margin of 29.4%, with significant negative currency impact of 150 basis points, which is under sort of offsetting the underlying strong performance that we had in the quarter. And as we recently launched several new products that are now in ramp-up phase, we also have a negative impact from reduced gap between capitalization and amortization versus the previous year, and Norbert will talk more about this in his slides later. As you know, we also launched the restructuring program in the third quarter to remedy the underlying margin performance, and we are targeting here savings of a run rate of EUR 110 million at the end of 2026. And as a reminder, we said EUR 74 million of those will be within Hexagon core and EUR 36 million would be related to Octave. And Norbert will also cover the progress of this program at a later stage here. So in the first quarter, we will continue to see benefits of the restructuring program. But at current exchange rates, we expect a significant headwind from currency, alongside with the usual seasonality that we have in the first quarter, such as, for example, merit increases across the organization from the 1st of January. I'll now turn to the performance by business area. So I'm going to start with Hexagon core. And this is, as you know, excluding then Octave. And Hexagon core grew 4% in the fourth quarter with operating margins of 28.4%, with significant negative impact from FX year-on-year. There was a slight moderation in the organic growth from the 5% we had during the third quarter, so again, here, I want to highlight the EUR 10 million of destocking within Geosystems. If you would add that back, we actually hit the 5% mark just as we did in the third quarter. So I'm very pleased with the underlying performance that we have made within Hexagon core. So turning now to Manufacturing Intelligence. So we reported revenues of EUR 491 million, which represents a 1% organic growth on 2024. The market dynamics were broadly unchanged from the third quarter with strength in China that grew 5%, America was also good. While as I stated previously, EMEA, the market conditions continue to be challenged. But if you look quarter-on-quarter versus the third quarter, it was stable. So it was not worsening from the third quarter. By industry, demand was particularly good in electronics and aerospace and defense. Automotive remained challenged. And the organic growth moderated from Q3 as we saw delays in customer decision-making, especially early on in the quarter, pushing work into 2026. But if we look at orders here instead, so we had strong order intake growth of 7% versus the previous year. And as a result of this, we exited the quarter with a strong order book to be delivered in 2026. The division or the [indiscernible] reported an EBIT of EUR 139.3 million and an operating margin of 28.4%, impacted by currency effects also here. I now turn to Geosystems. And here, we reported revenues of EUR 363 million during the quarter, and that represents a minus 1% in terms of organic growth compared to the previous year. As I mentioned earlier, the primary reason for Geosystems to turn into a negative growth was the proactive decision that management took to destock the channels where we have seen softer demand for some time, like in China, where our exposure to heavy infrastructure has, as you know, faced significant headwinds and challenges in that marketplace. So excluding this destocking, if you look at Geosystems underlying growth, it was actually plus 2% year-on-year. This destocking headwind will persist on a similar level also during the first quarter of 2026, as we are rightsizing these delivery channels. So after that, we will have a normalized business going forward. So from Q2 and onwards, you will not see effects of destocking further. Markets remain similar to the third quarter with good demand in the Americas for construction software, surveying tools. And we also saw stability in EMEA with a modest growth. But the challenging environment in China heavy infrastructure remains significant. So EBIT declined to EUR 103 million with an operating margin of 28.4%, reflecting the combined effects of low volumes in some of the product segments and also a weaker product mix and, of course, negative currency impacts. Finally, then, turning to the outstanding performer of the quarter, Autonomous Solutions. And within Autonomous Solutions, we delivered revenues of EUR 196.4 million during the quarter, representing a 23% organic growth compared to the prior year. There was a record performance within both aerospace and defense and within mining. This was slightly then offset by the challenging global market situation within agriculture, as I mentioned earlier. Performance was focused on Americas, but EMEA also grew well. Asia declined due to very tough comparables, and this is also in reference to the MinRes project that we're executing in Australia. There were some timing issues, et cetera. So if you look at the underlying performance, it was actually good in Asia as well. EBIT came in at EUR 67.7 million, representing an increased EBIT margin to 34.5%, driven by strong volumes and a positive product mix, but also here, offset by currency. I will now hand you over to Mattias, who will cover the Octave performance. So Mattias, please go ahead. Mattias Stenberg: Thank you very much, Anders, and good morning, everyone. Before we dive into the quarterly performance, I want to start by reminding and reinforcing what Octave is, and the role we play for our customers. We are the market-leading provider of enterprise software that helps customers design, build, operate and protect their mission-critical assets. We serve industries where failure has real consequences, whether that's human safety, operational downtime or material financial impact. Across our portfolio, the common thread is accountability. Accountability for outcomes across the full asset life cycle. As technology capabilities expand, the requirements for uptime, safety and compliance only become more rigorous. And Octave truly provides a platform and the technology to manage that complexity at scale. If we then turn to the next slide. Our market position as you can see, is very strong, and our leadership continues to be validated by leading independent research firms, including names like Gartner and IDC, but also several others. For more than 15 years, we have consistently been recognized across multiple solutions and verticals. In this quarter, however, specifically, we were placed as a leader in Gartner's latest Magic Quadrant for QMS software and as a leader in IDC Marketscape for both Asset Performance Management as well as for EAM. So I think these recognitions underscore our sustained innovation and relevance across the markets we serve. We move to the next slide, digging into the quarter results. As you can see, we delivered 2% organic growth with our recurring revenue slightly outpacing that at 3%. Our recurring base represents roughly 70% of our total revenue, and we continue to make good progress shifting our mix towards subscription-based models which, as you can see, is reflected in our double-digit SaaS growth as well as by another quarter of record new bookings, just like we had in the previous quarter. Our EBIT margin landed at 32% compared to 35% in the prior year period. This profitability is primarily a reflection really of a higher mix of perpetual revenue in the prior year period as well as FX headwinds. It also reflects deliberate investments in innovation, product development and the infrastructure required for us to operate as a stand-alone public company. We expect to gradually offset these investments through the cost savings program we earlier announced in Q3 2025. So all in all, we are confident we are positioning Octave for stronger, durable, profitable growth. Turn to the next slide, please. Here, you can see our business broken down by our four core pillars. As you can see, design is our largest business from the pie chart there. In this pillar, we saw solid platform growth which, however, was offset by a lower contribution from our monthly subscription licenses, which I will describe a bit more on a coming slide. Build, you can see, had a very good quarter, strong SaaS growth in construction software as well as in project performance management software. Likewise, operate saw strong recurring growth especially in our solutions around QMS, APM and EAM. In the protect pillar, the growth we saw in recurring revenue was offset by declines in perpetual licenses mainly due to record activity in the prior year corresponding period. Next slide, please. So yes, like I talked about, if we try to explain a bit what's going on in the recurring revenue, there are two things you need to understand. If we look at our monthly subscription licenses here, it represents roughly 50% of total revenue and is driven by project activity for certain large customers within our design pillar. While this revenue grows over time, it can fluctuate in the short term with macro conditions and customer project timing. So after a strong end to 2024, as you can see from the graph there, we saw a reduction in monthly license volumes in kind of early 2025 going into Q2, as you can see there, as broader market uncertainty influence customer behavior. These levels have, however, been sequentially improving in the second half of the year, and we expect year-over-year comparisons to gradually get easier throughout 2026. So on the right side of this slide, you can see that excluding these project-driven monthly licenses, our underlying recurring revenue is growing in the high single digits, reflecting the solid underlying growth we see in our broader portfolio. Next slide, please. So looking at some customer wins. We, of course, had many, many customer wins in the quarter. I selected these four, because I think it's a good reflection of showing how many different type of critical industry sectors we serve. It's really a good representation of the breadth of our platform and the diversity of our customer base. I think it also shows the level of trust, performance and scale that we are able to provide across a large complex organizations. Such as in this quarter, a very large, fast-growing e-commerce company in Asia, one of the global leaders in the energy sector, one of the largest pharmaceutical distributors in the world, and the largest U.S. police department. Next slide, please. Looking ahead, we are really focused on execution. We recently completed our first global sales kickoff as one Octave, reflecting our next phase as a stand-alone company. We are truly operating with a clear set of priorities, and we expect each of these to support stronger durable growth over time. First, we continue our transition, like I talked about, to subscription-based pricing models, supporting more predictable, high-visibility revenue streams. Second, we are deepening our customer engagement by driving cross-sell across the design, build, operate and protect pillars, supported by a shift in R&D toward a unified architecture and outcome-focused AI capabilities. Finally, we are also scaling our partner ecosystem and strengthening our go-to-market execution while at the same time, finalizing the governance and operating infrastructure that is required for us to be a stand-alone public company. Turn to the next slide, please. So if we look at the process and the update on the spin. It is moving forward as planned. The final spin-off is targeted for the second quarter this year, pending the effectiveness of our public listing steps in the U.S. and Sweden and final approval, of course, from the shareholders and the Board of Directors. We expect our draft registration statement, the so-called Form 10, to be filed publicly in February. We're also very excited that we're going to hold our first Octave Investor Day, be in New York on March 26, '26. We look forward there to share more about the strategic priorities I mentioned as well as our business model and, of course, our growth opportunities. You can expect the invitations and details here in the next couple of weeks. I look forward very much to hopefully seeing many of you there. So with that, thank you very much, and I'll hand it over to you, Norbert. Norbert Hanke: Thanks, Mattias. I will take you now through the Q4 performance for the Hexagon Group. Turning now to the next slide, please. Let us begin with the Q4 income statement, taking the sales bridge first. Revenue were EUR 1.4 billion, generating reported growth of minus 1%. Currency was a negative minus 6% on sales, and there was a positive 1% from structure, resulting in an organic growth of 3%. Gross margins were strong at 67.5% despite the impact of FX. We continue to be confident in driving gross margin expansion as we will have positive impact from new product releases. Operating earnings decreased by 7% to EUR 420 million, corresponding to a margin of 29.4%. I will explain this further in the profit bridge on the next slide. Interest expense and financial costs decreased from EUR 41 million to EUR 30 million, giving a delta on earnings before taxes of minus 5%. The group's tax rate increased to 26.8% for the quarter, reflecting one-off transactions related to legal entity reorganizations ahead of the potential spin-off of Octave and sale of D&E. The tax rate, excluding adjustments, remained at 18%, bringing us down to an adjusted EPS of EUR 0.118, also declining by minus 5%. Just for reference, the EBIT1, including PPA includes EUR 27 million of amortization, and so it dilutes the EBIT1 margin to 27.5%. Next slide, please. During Q4, currency continued to be dilutive, reducing EBIT margin by 150 basis points. The major impact came from a weakening dollar and RMB year-over-year, leading to an unfavorable earnings impact. The structural element was accretive with solid contribution from acquired companies such as Septentrio and Geomagic as we will -- as well by the sale of the dilutive assets in Octave. We saw a quarter-over-quarter improvement in organic EBIT contribution supported by the cost actions implemented in the quarter. Despite this improvement, we ended the quarter with a dilution of 80 bps year-over-year, driven by a few factors. First, tariffs created a headwind of roughly EUR 5 million in the quarter. Secondly, the capitalization amortization gap is narrowing as we normalize our R&D investments. Further, Octave continued to invest in go-to-market capabilities, product development and public company readiness. Turning now to the next slide, please. Now let's discuss the R&D capitalization dynamics. R&D investments are reducing from their peak levels as we have released multiple new products during the year. As many of these products were major new innovations, we capitalized them according to accounting principles. With the launches, our R&D investments are decreasing and we expect the gap between R&D capitalization and amortization to narrow versus 2024 and '25. This creates a year-on-year margin headwind in the near term until the new products start contributing materially over the next 12 months. Turn now to the next slide, please. Let's continue with the restructuring program. We began implementing the program at the end of Q3, and this has generating savings of EUR 11 million in the fourth quarter and achieving an annualized run rate of EUR 65 million. The savings will increase throughout 2026, and we will see the full benefits by the end of '26. Turning now to the next slide. Moving on to the Q4 cash flow, which is a strong performance for the quarter 4. The adjusted EBITDA variance is at minus 5%, demonstrate the continuous stronger cash leverage versus the EBIT1 variance at minus 7% due to keeping D&A flat year-over-year. Capital expenditures declined as a result of less capitalized R&D in line with our previous communication to stabilize our R&D investments. Working capital management remains strong and we presented a release of EUR 121 million in the quarter. As a result of this, we end up with an operating cash flow before tax and interest of EUR 509 million, which led to a very strong cash conversion of 121%. Both interest and tax payments decreased compared to last year. The nonrecurring cash flow of EUR 67 million versus the prior year of EUR 18 million relates to the increased cash outflow of the potential spin-off of Octave and the restructuring program resulting in an operating cash flow of EUR 352 million, decreasing by 13% versus the prior year. Next slide, please. Moving on to the working capital trend. In Q4, we delivered a net working capital release of EUR 121 million compared to release of EUR 141 million in the prior year. As a result, the rolling 12 months working capital to sales ratio improved to 3.2%, lower than last year and well below our 10% threshold. To conclude, our business areas delivered solid organic growth alongside a strong gross margin for the group and a very strong cash conversion. Currency headwinds impact negatively the EBIT1 margin. And based on current FX rates, is expected to have a negative impact as well on Q1, combined with normal quarter-on-quarter margin seasonality. We remain focused on addressing the cost base through the announced restructuring program with additional benefits expected to gradually continue throughout the year. I will now hand back to Anders. Anders Svensson: Thank you, Norbert. And then we can move directly into the summary. So to conclude a bit. So I'm very pleased with our progress in the fourth quarter of 2025. We delivered good solid financial performance while also making decisions that support the long-term health of both Hexagon and Octave. Profitability was again impacted by significant currency movements. And we implemented the restructuring program that Norbert covered that we launched during the third quarter, and that will help to strengthen the underlying profitability of the group. And finally, we are able to deliver a fantastic cash conversion quarter with 121%. So looking at the first quarter of 2026, the market basically looks consistent with the second half of 2025. And we are set up very well with a strong operating model, strong product releases during the previous year and a leadership position within basically all the businesses where we operate. So we are very confident going into the year. However, normal seasonality will, of course, apply in the beginning of the year, as you would expect. And should currencies remain on a similar level as today, we expect also a similar headwind from those currencies. So turning now to my final slide on the upcoming Capital Markets Day for Hexagon. So this is a reminder, the CMD will take place 30 April of this year in London. And this is, of course, in addition to what Mattias talked about, the Investor Day within Octave. So I look forward to seeing you all there. And operator, I think that was all from the team here, and let's move into questions from the audience. Operator: [Operator Instructions] And now we're going to take our first question, and it comes from the line of Daniel Djurberg from Handelsbanken. Daniel Djurberg: Anders, I have a question on MI. You comment in your CEO letter that you have positive order intake. And also, you write here in the presentation of a strong order book. And you have new products out, we've seen the ATS800, MAESTRO, et cetera. So can you comment any more color on this book-to-bill ratio or whatever. Anders Svensson: Yes. Thanks. So the quarter was quite weak in the beginning in terms of closing customer deals. So not weak, but rather that customer postpone things. And we could see that from the second half of the quarter, it started to take off much better for us. And hence, we build up a strong order intake if you compare to the previous year. And we are then moving into the year with a stronger order book than we may be even expected, and we saw good deliveries also at the end of the quarter. So you still have a positive growth number there. But it was a little bit weak in decision-making from customers in the beginning of the quarter. We don't go out with exact numbers on order intake. So I cannot give you how book-to-bill changed, only a reference towards the previous year. So strong development, which I believe, puts us in a good position going forward. And there's no reason why we shouldn't continue to perform well in here. Aerospace and defense doing very well in both North America and EMEA. We have electronics doing extremely well in China. General manufacturing is actually doing really well in America and China. The weakness there is basically in EMEA. So I see that we have a strong setup that will continue also to go into this year. Daniel Djurberg: Sounds great. May I have a follow-up, and that would be on the destocking, you mentioned in China Geosystems, obviously being a little bit more of a structural change, I guess. So is it fair to assume that it will not only impact also Q1, but also to some extent, Q2 and Q3, I think it has some 100 basis point impact on the Hexagon core growth in full. Anders Svensson: No, it's rather like this. We have done destocking previously in 2025 as well within Geosystems to rightsize the delivery channels. So if you look at the full year impact for Geosystem, it's actually EUR 21 million of destocking, and it's primarily Latin America and Asia, but we see that the biggest part is then with China. And we wanted to raise it now because we did EUR 10 million in 1 quarter here, where EUR 8 million of those EUR 10 million were related to China. So we thought it was important to bring it up to increase the understanding. And we also see that it will continue then in the first quarter of this year, and that will be mainly in the China channel, and we expect EUR 8 million to EUR 10 million also in the first quarter of this year. Then there is nothing remaining to be done in Q2, Q3 or Q4. So from the end of Q1, all the destocking within Geosystems is completed, and you will see a normalized business going forward. Operator: Now we're going to take our next question and it comes from the line of Andre Kukhnin from UBS. Andre Kukhnin: I wanted to ask a question on the cost savings. I think the pace that you're delivering at now is steeper than what the chart implies for the rest of 2026, if we are already at EUR 65 million run rate for EUR 110 million. I think we should be at the EUR 110 million run rate probably by middle of the year. So I just wondered if there is any reason for that to slow down? Is there a kind of low-hanging fruit has been picked first. And what is the appetite for further savings beyond EUR 110 million? Can we already start talking about that? Norbert Hanke: Yes, I will answer this. It's Norbert. Yes, we did quite a bit in Q4, as we mentioned, and you can see and you highlighted this earlier, that was, say, in preparation, and we will take this now step by step in the sense. So from our point of view, it will be end of the year where we see the full savings going forward. So I think that will be from our point of view, so going forward. The appetite, I mean, will be constantly to look at the different business and what performance they are, as we have mentioned, and Anders mentioned this, particularly in Q3 as well, but that is an ongoing process from our side. Anders Svensson: And that will be more of an organic development. So we will not launch other programs like this one. It's rather that some of the businesses will have a hiring freeze and they need to reprioritize if someone leaves, et cetera. So it will be more of an organic going forward. But of course, we are continuously working on making further efficiencies within the group. Andre Kukhnin: And if I may just follow up on the question on new product launches. Could you quantify for us what percentage of sales do these new products account for in terms of the predecessors that they replace? And is it possible to give us some idea of your kind of measure of vitality ratio, kind of percentage of sales from products that are less than 3 or 5 years old, so that we can also assess how these new products are shifting that ratio? Norbert Hanke: Yes. It's Norbert here again. So I mean, for us, 2025 was a big year. Fair statement, I mentioned this as well, that sure, the new product does take some time to come to full benefit for us from a contribution point of view. But at the moment, we're running around 3% to 4% overall from our point of view. And yes, we're following this very short -- we're following this up going forward as well. Anders Svensson: And this is a product launched in the last 3 years, the definition. So here, you had a bit of a delay during the COVID cycle. And then we are basically seeing the launches of new products now coming in, in 2024 and 2025. So -- and these products that we launched, these big products like MAESTRO and the TS20, those take time to ramp up. It takes 12 to 15 months because before they are fully ramped up. And that's also why Norbert mentioned the shrinking gap between amortization and capitalization because when you launch a product, that's the day where you start getting the amortization of what you have put on the balance sheet in R&D. But of course, in that day, you have 0 sales for the new products. It takes time to ramp that up. So there is a period where you have that R&D gap headwind before you starting to -- of course, over time, we will have a tailwind with the new products, even though we are paying the R&D gap, right? So that's the whole intention. But there is a time lag in between there. Andre Kukhnin: So you said 3% to 4% in total. My line just broke up. Did I get right? 3% to 4% of group sales? Anders Svensson: Yes. That is correct. You heard this correctly. But the line was broken up, yes. I saw that. Operator: And the next question comes from the line of Mikael Laseen from DNB Carnegie. Mikael Laséen: I have a question on Octave. And on the transition from license to SaaS. If you can elaborate on how much of the 72% subscription revenue today that is true SaaS versus term-based subscription or maintenance? That's the first part. Mattias Stenberg: Yes. Good question. I guess we will lay this out on the Investor Day in detail, Mikael. But I think high level, we have said that out of the 70% roughly recurring revenue, it's about 1/3, right, that is SaaS and about 1/3 that is maintenance and about 1/3 that is monthly subscriptions. Mikael Laséen: Okay. Yes. So the same as you indicated before, of course. But the real question here is how we should think about maybe at this stage on a high level on the migration trajectory when you will have sort of a steady-state SaaS exposure or split? Mattias Stenberg: Yes. Again, I don't want to lay out the whole plan here today. We'll do that at the Investor Day. But as you can see, the perpetual revenue is roughly 15%, right, of total sales. And this will gradually shift. It won't be dramatic in a couple of quarters, right? It will take some time. So you should expect a gradual shift there, but it will increase the pace compared to the history, right? Because we are doing this more -- yes, more aggressive than we have done in the past. But again, you will have to come to New York, and we'll talk about it. Mikael Laséen: And can you also maybe sort of give some indication of the cost situation now, how much of this margin decline is sort of this short-term improvement or readiness costs that you have and how much is in an underlying inflation going into '26 and also '27? Mattias Stenberg: Yes. I think what I can say at this point, again, without giving too much of an outlook would be that I think you can expect a similar trend in Q1, right, where we still will have some headwind of the perpetual shift of the increased investment level and of the FX. And then hopefully, as we gradually start to grow faster, but if you see what I'm saying in the slide on the licenses and recurring revenue, we also expect the margin to start to improve. That's as much as I'll say today. Operator: And the question comes from the line of Simon Granath from ABG. Simon Granath: I also have a question on Octave. Have you seen any impact from the government shutdown then relating to SIG? I think one of your competitors highlighted that a couple of months ago. So I was asking if -- wondering if there are any pent-up demand trends to be materialized in 2026. Mattias Stenberg: Yes, good question. Not material, I would say. I mean as you might remember, we divested two businesses in SIG in the [ Hex fab ] area, right, which had quite a lot of government exposure. So the government exposure we have left in SIG is not that big, right? So some impact maybe, but not really material. Simon Granath: That's very clear. And then I also had a question on AEON. After the Microsoft partnership announcement a couple of weeks ago, should we expect more partnerships ahead of commercialization? Or is the framework now mostly in place? Or -- and how are you essentially tracking versus the general time line here? Anders Svensson: Yes, thanks. I think we are tracking exactly on the time line that we have laid out for AEON from the AEON team. And there's constantly new partnerships being formed with new ecosystem partners, right, that we use within the AEON project. And this is not something that we always go out with. But this one was quite significant because this is how we use Azure Cloud for training of AI models for AEON and also for the imitation learning framework for AEON. So this is quite significant and important one. And that's why we wanted to go out with this together with Microsoft, like we have done previously with NVIDIA, et cetera. So we go out with the big ones when we think it's relevant for the market to understand what we are doing, but we don't go out with all the partnerships that we are creating because there are lots of those. Simon Granath: Very clear. And just a final very brief follow-up, if I may, on the supply chain. Do you see any impact on your operations from the rising memory prices? If so, which segments and what are the bill of material costs here? Or -- and could this be something you can push through to your customers? Anders Svensson: Yes. Thanks. No, in general, we compensate for all types of inflation that we have within our businesses. So of course, we don't prefer when there is parts of the supply chain that's increasing cost. But in general, we take this into account, and we compensate with pricing. And I think we have done that successfully in the past. So we will continue to do so also going forward. When it is challenging for us, it's rather when there is a supply chain constraints like we had a bit previously a couple of years ago, then it becomes more challenging also for others, of course. But for this kind of price hikes on memory or whatever, it's something that we compensate for. It's not significant at all in our total bill of material. Operator: Now we're going to take our next question, and it comes from the line of Sven Merkt from Barclays. Sven Merkt: I have first a question for Mattias. There's a lot of debate in the market currently on how software is positioned in respect to AI. Can you comment what are the major AI initiatives you have in place, both on a product and also on the cost side and how you oversee Octave position in regards to AI? And then a question for Anders or Norbert, on the software growth ex-Octave. Overall, the software revenue decelerated by 2 points despite a 1 point acceleration for Octave. So I'm interested to hear what drove the software growth ex-Octave in the quarter. Mattias Stenberg: Thanks. Yes, I'll start then with the AI question. I mean, how much time do you have, if we're going to go through everything. But I would say -- I mean, first of all, important to say is that we support, like I said in my presentation, customers that do mission-critical things or mission-critical infrastructure and assets. We're not building an app or a website or something. It is truly mission-critical software. So I think it's very sticky, right? And I don't see the threat of being replaced by AI as that high. Then, of course, we are building AI on top of our solutions every day, right? We're launching agents every month. And that will just increase and increase. If we look at internal efficiency, I think that is a very good point. We are training and adopting AI in our own development at a very fast pace. And the goal, of course, there is to get everybody trained and up to speed. And yes, I see it as a big potential efficiency. It doesn't mean necessarily that we are going to get rid of people, right? I see it more as the people we have can do more important things, right, focus on innovation rather than documentation or bug fixing or things like that, right? So yes, great question. But yes, I'm very positive on AI in general. But yes, I don't think we are at a first in line to be at risk. That would be my summary. Anders Svensson: Yes. And then I'll step in and if I understood the question, it was software growth, excluding Octave, in the quarter? Sven Merkt: Correct. Yes, yes. Because I think the overall software growth decelerated while Octave accelerated. Anders Svensson: So we -- software growth for us in the quarter was 4% related to -- compared to previous year. And the general software and services total, and this is only software and not services that grow 4%. And if you look at software and services, the revenue, excluding Octave and excluding the D&E, Design & Engineering, that we are selling is in the range of 45% to 50% of revenue, and the recurring part is 30% of revenue approximately. So that's a high level for you. Operator: Now we're going to take our next question and it comes from the line of Balajee Tirupati from Citi. Balajee Tirupati: Two from my side, if I may. First one on cash conversion, which has been quite strong for the group in recent periods, including contribution from working capital and capital expenditure being in check. As we look ahead, should we see the cash conversion profile as structurally better or are there one-off impacts within which you would expect us to keep in mind before extrapolating current trends? And the second one on margins. as we look for margin evolution in 2026, and I appreciate you already have shared some color for first quarter. But if I look at 2026, there are, of course, a few puts and takes. Could you help us on how should we think of recovery in margin, both on an underlying basis as well as in context of current FX evaluation and growing amortization charges? Norbert Hanke: Yes, this is Norbert. But I'll take the first one on cash conversion. For sure, in Q4, that's very seasonal, let's call it like that. Therefore, we can expect in Q1, not the same magnitude from our point of view. I think the overall as we highlight as well, what our target is the 80% to 90% conversion side. And that is, I think you can, say, take us going forward as well in that range. There will be every time seasonality, particularly in Q4, that is given in the sense. But overall, we remain to our target. Anders Svensson: Yes. And if I move in to try to respond to the question, if I understood it correct, the margin question for 2026. So what we already covered is that we are doing things like the restructuring program that will help both Octave and Hexagon with the underlying margin improvement. We are targeting growth with -- and you can see we have markets like America, we have areas like aerospace and defense and mining that are profitable markets and areas for us that continue to grow very rapidly. We have new products that we have launched to the market and some of those were mentioned with the ATS800, MAESTRO, the TS20 and other very important products that will sort of start ramping up now. And those products will, of course, contribute positively also to the gross margin for us going forward. We are making sure that we compensate the pricing versus cost inflation in all areas. And you can see that we delivered a gross margin of 67.5%, which is the highest quarter in history for Hexagon. So we are managing cost versus price in a very good way. Then like you mentioned, there are drags as well that we have mentioned. We have the similar FX drag that could be significant like it was for this quarter. Also going forward, we don't know when that will even out or how the FX will become going forward. So I think your guess is better than mine. Then as Norbert mentioned, the amortization, capitalization gap, as products ramp up, the effect of that will be smaller since you will get the top line and the profitability of the new products that ramp up that will compensate for that shrinking gap. And of course, we are compensating for tariffs, et cetera. We will have continued investments. Mattias mentioned also that we need to invest for making sure that Octave is ready as a stand-alone company. The Octave team needs to invest in their product portfolio to make sure that they have a strong product portfolio when they stand alone. At the same time, on the Hexagon side, we are investing in AEON, which is pre-revenue basically, which is basically only a cost for us. But long term, that's a strategic right decision to do for the group. So we are taking those investments. I hope that explains something. I'm, of course, not going to go in and estimate margins for the year. But that's sort of some of the underlying drivers for you. Balajee Tirupati: Understood. On cash conversion, I was -- if I can just follow up on that. I was asking more on a full year basis in the last 2 years, conversion has been ahead of 90% despite a rather softer growth. And working capital is one of the contributor being positive in both these years. So I was just trying to understand that structurally are -- because of growing share of recurring revenue, are we now structurally in a phase where the contribution from growing liabilities would provide a kind of tailwind where the cash conversion profile should be going higher? And this is also a period when it seems like we are going much more measured on CapEx. Norbert Hanke: From our point of view, yes, we are looking into, say, cash conversion constantly, I can tell you that. I'm looking for an efficient way of doing this. But from our point of view, we remain to the target, as I said earlier. And from our side, we will not further say, give more information out, honestly speaking. Anders Svensson: It's not structurally changing. What you will see happening during this year is the spinoff -- the potential spin-off of Octave. Octave is a business, as you referred to here as well, which has a structurally difference, which has higher cash conversion than the sort of Hexagon core business. So I see Hexagon core moving in that direction, but much, much lower than Octave. So I think an 80% to 90% would be considered a very good level for Hexagon core going forward. And of course, the tighter we go out with net working capital in the year, the tougher the year -- the next year would be, right? And we had a 3.2% working capital on sales, which is very low. It's the lowest we've ever had. So I think you should not change your structure on the cash conversion for Hexagon core. Norbert Hanke: Yes, for the time being because... Anders Svensson: Yes for the time being. Operator: I would now like to hand the conference over to your speaker, Anders Svensson for any closing remarks. Anders Svensson: Thank you, operator. And thank you, everyone, for participating, listening in, adding valuable questions. And we look forward to speaking to you in a quarter from now, giving you the first quarter of 2026. And then hopefully, very tight after there, only a week after that, to see you in London for the Capital Markets Day. And with that, we say thank you for Hexagon, and wishing you all a nice weekend. Operator: This concludes today's conference call. Thank you for participating. You may now all disconnect. Have a nice day.

63天前Insight Analytics约5分钟阅读

HOLM-B.ST 2025 Q4 财报电话会议

Henrik Sjölund: Good afternoon, everybody, and welcome to the year-end report presentation for the Holmen Group. It's me, Henrik and Stefan, as usual, now, I must say. Thank you. You are most welcome to listen to us. We do the presentation, then we're happy to take all your questions, and we are especially happy that you take your time on a Friday afternoon like this. So let's start. I think if we just make a very quick summary of the year, it felt like we were a bit optimistic in the beginning of the year. But after a while, it changed into geopolitics, tariffs and also cautious consumers not really spending and also construction business that didn't really take off. But we'll come back to that a bit later. Despite challenging market conditions, we were able for the full year of 2025 to deliver close to SEK 3.3 billion, which is we consider as fairly good also in the fourth quarter. But I think in the fourth quarter, we'll come back to it when we go through the different business areas. It makes more sense. If we then take our industry, which means our right now, loss-making sawmills and Board and Paper, we've been able during the year to deliver return on capital employed of 15%. And based on our performance and also our financial position, we had a Board meeting this morning where the Board of Directors decided to propose to the General Annual Meeting to increase the ordinary dividend from SEK 9 to SEK 9.50. And just to remind ourselves what we have distributed to our shareholders. The last 5 years, in total, SEK 13 billion in dividends and buybacks. And given, as I said, our financial position where our debt-to-equity ratio is at the current moment, roughly 10%. We are in a solid financial situation. All right. Then a few words about the wood market, and we come back to forest and forest evaluation, Stefan, a little bit later. And if we start with the fourth quarter, of course, and then we will also comment on the storm a little bit, which happened in January. But what we saw in the fourth quarter was that the industry is running at a bit lower activity and also lower -- a little bit slower demand for pulpwood and prices have come down a bit and price lists have been adjusted. But what you see here, remember, this is delivered to our mills, both pulpwood and sawlogs in the fourth quarter, meaning it includes also logistics and administration costs. On the sawlog side, however, we see that prices were largely unchanged, most driven by the sawmills. We see that most sawmills, almost all the sawmills in Sweden still have been running at more or less full capacity. And you can see that in the statistics, which we will also come back to when we go through the sawmill operations. This is the situation we had when we ended the year and then came the heavy storm in mid-Sweden in January. To start with, it has limited effects on Holmen. But just to give a figure on what this is, this is roughly 10% or 10 million cubic meters is roughly 10% of what we normally harvest in a year in Sweden in total. In our case, a bit more than 300,000 cubic meters in this area is also roughly 10% of what we in total in Holmen forest land harvest in 1 year. And in this area, where we have now 300,000 cubic meters laying down, it's roughly 1/3 of a yearly harvest. What will happen to that is, of course, that, that will be more local supply and exactly what kind of effect on the local market in terms of pricing for pulpwood and sawlogs. That's a little bit early to say yet. But Stefan, before you talk about the result, will it cost us a lot of money to take care of the trees now laying down? Stefan Lorehn: In general, looking back at what the costs have been with previous storms, we see that the added cost for taking care of these kind of volumes is approximately a bit more than SEK 100 per cubic meter. So for the next year, maybe SEK 30 million to SEK 40 million that will increase costs in the Forest division. Looking at the results for the fourth quarter, that amounts to SEK 403 million. It was heavily negatively affected by a write-down of felling rights of some SEK 160 million. The Forest division in Holmen is not only responsible for the management of our own forest, but also for the supply of wood to our industries. The write-down that we did in Q4 refers to felling rights concerning the sawmill operations. And as you will see later on in the presentation, the financial conditions for the sawmill are really challenging for the moment. That also meant that we needed to adjust the value of these felling rights. Underlying performance in the Forest division was good in Q4. If we exclude this write-down, the result increased by some SEK 25 million compared to the third quarter, and that is mainly due to higher harvesting volumes as we harvested a bit more than 800 cubic meters in Q4. Moving over to the updated valuation of our forest holdings. As you know, we usually do this exercise every fourth quarter every year, so also this year. We own 1.3 million hectares of land, approximately 1 million to 1.1 million hectares of that is the productive forest land, and it is that part that is included in this valuation. 65% of our holdings is up in the northern part of Sweden, as you see from the map to the right, 25% in the middle part and some 10% in the southern part of Sweden. Our holdings consists of more than 4,000 individual forest properties with an average size of close to 250 hectares per property. The valuation that we do is based on transactions with forest properties in the areas where we own forests. We include transactions from the last 3 years in our model. And as you can see from this table, that means that we have included close to 1,000 transactions in the valuation model. The average size to the right in the table of the market transacted properties is 100 hectare per property, while ours are 2.5x the size of that, and I will come back to that later on. Looking at the historical development of property prices in Sweden in general, we see that it has been quite a steady increase over time. And from 2005 up until today, the annual increase in price has been 4.3%, which is a bit more than 2x the inflation during the same period. To that, of course, we should add the cash flow, et cetera, from the owning of these properties during this time to get the full financial result. Historically, property prices have tracked wood prices quite well. What we have seen in the last couple of years is that the increase in wood prices has not yet at least been reflected in the property prices. Coming back to our Forest. The value based on this updated valuation is SEK 57 billion. That is a small decrease by 2% compared to the same period last year. And the decline in value is due to the fact that we -- this year does not include the year 2022 in our valuation model and that particular year, prices for forest properties were higher than normal. We also do a reference valuation every year. This year, it was in Västerbotten up in the northern part of Sweden, where we have 370,000 hectares of land. The outcome of the external valuation were on par with our own model. There is although a size premium in the market, meaning that larger properties trade at a higher price than smaller ones. We don't include that in our model, and it has not been included in the external reference valuation either. But if we would have included it in the external valuation, prices would have been 8% higher. Henrik Sjölund: Correct. But we do not take into consideration that we own forest land based on company-owned forest land either, which normally goes at a substantial premium. Stefan Lorehn: Correct. So it's an upside from that perspective as well. Henrik Sjölund: Okay. Thank you very much. Totally different subject, renewable energy. And here, we have been standing here, Stefan, for some quarters now and looked at very low prices in the northern parts of Sweden. In the fourth quarter, we saw that also prices in SE2 northern parts of Sweden, increased a bit. You will come back to what it means in terms of earnings. But I think we also should include January because -- and do this in kind of 2 phases because it has happened quite a lot lately. In the fourth quarter, we can see that the difference between the different areas, both Germany and SE2 and SE3 it's roughly the same distance. It's like a parallel shift. But if we look at what has happened now in January, it looks a bit different. In the fourth quarter, we should add that there is a cable from SE1, northern -- absolutely northern parts of Sweden into Finland, which has had some impact. We also know that when we were a bit negative about the outlook because we had so much water in our reservoirs. That's no longer the case. Since the autumn, the water levels are on a normal level. And right now, when we have had for some time, should we call it Arctic weather with dry weather, there is a different situation. All of a sudden, now we have a situation where actually the marginal price for gas is setting the price for electricity in the whole of Sweden, gas in Germany. And how can that be? Well, for some reasons. First of all, as I said, drier weather, less water for the hydropower installations and also the cable to Finland has had some impact. But what we also see here is that the price is fairly stable. It hasn't changed much during January, meaning no volatility or not as much volatility. For us, that means when we make money on the electricity market, especially in our Paper division, it's based on volatility. When there is less volatility, as the situation is right now, we make more money. It's like a shift from Paper to our Energy division instead. Nobody knows how long this will stay, but it's kind of a new situation where, again, less earnings based on volatility in the South in our Paper division, but more earnings coming from our Energy division. Then, Stefan, if we go back to the fourth quarter to see, did we get a premium when we were producing? Stefan Lorehn: Yes, we did, as we usually do. We did run our hydropower stations quite efficiently, meaning that we can run them when prices are high and take down production when prices are lower. Harder though to run wind power farms. We did curtail our production from the wind power also during the fourth quarter when prices from time to time were really low. Result-wise, it is an uptick compared to the loss-making quarters that we've seen the last couple of quarters. As Henrik said, prices went up in the fourth quarter, but not to a historical normal level. But of course, if we compare to the situation as it has been earlier this year, it's a clear uptick. That is reflected in the result and also the fact that we had some seasonally higher production in Q4 that also gave some tailwind to the result. Henrik Sjölund: Yes. Thank you. Over to Wood Products. I said already in the beginning, our loss-making wood products, but you'll see that a bit later. Let's start by having a look at the market. I said already in the beginning as well that the construction market is not really taking off. We can see it in the U.S. that demand is not really taking off. Same in Germany, where demand also is not coming up really. And it's also the same when you look at production in Canada, especially in the west side of Canada, production is down quite a lot. And we can also see that in Germany, not only demand is on the lower side, also production has been on the lower side. It's one place, though, where production has not really changed. I think it's only us more or less that have reduced our capacity, especially at our sawmills in the south of Sweden. But if you look at the total in Sweden, North and South, still the Swedish sawmills are on more or less same production level as before. And of course, that has also an effect on what I said before when it comes to sawlog prices that they haven't really changed yet. Now Stefan we are in the beginning of the year, we are always thinking that and they normally do. Wood products prices normally have an uptick. They go up a bit in the springtime when the retailers, et cetera, they buy before we come out there when the weather gets better and we build our verandas and other things, renovate houses. What happened this year is that, well, prices went up a bit during the spring time. But if we look at the price level right now, we are more or less on exactly the same level as we were a year ago. And the difference is that the sawlogs are a lot more expensive than they were a year ago. And especially for us in the southern parts of Sweden, it's really, really difficult to get plus and minus to go together. So given where we are and what we have done, Stefan, it's not very nice reading, but what can we say about the result? Stefan Lorehn: You leave it to me. Thank you. As you said, Henrik, very challenging market condition, and it continued in the fourth quarter when prices went down a couple of percentage points quarter-over-quarter. Wood costs still on same high level as it has been during the autumn, meaning that the result wasn't nice reading and the operating profit was actually a loss of SEK 111 million. Henrik Sjölund: That's it. Maybe we get the question about that a bit later. Let's move on to Board and Paper. And also here, we see that -- I also said that in the beginning that the consumers, they are a bit cautious. But just to clarify, if we look at the bar for '22 and the bar for '23, it looks like we lost a lot of volume there. Remember, this is also -- this is -- half of it at least is what we used to deliver to Russia, which is no longer in the statistics as Russia was seen as part of Europe. But you can see that in 2025, also, as I said before, it's not really taking off. We are not back to where we would like to be, and it's more or less going sideways. There is a little bit of a difference between folding boxboard and solid bleached board and maybe especially for us as we have quite a lot of solid bleached board. There is some price pressure for folding boxboard, I would say stable prices for solid bleached board. But I don't think anyone in this business are running absolutely at full capacity utilization rate right now. And especially if you look for marginal volumes somewhere, of course, then it's a bit of difficult to find it, first of all, and also a bit of price pressure trying to get new orders. That's the situation for board. Our order book, I should mention it, I said we take some market-related downtime also we do that. And we have to be a bit cautious as well how we do when we try to fill our order books. If we then go to Paper, Well, we have talked about structural decline for a long time. And you can see for the last 12 months, it's down a bit, and it's roughly the same pattern as before, 8% to 10% somewhere there. Also here, it's -- I would say it's astonishly stable pricing given the huge overcapacity we can see in the market. There is also overcapacity in the board market, but here, we've been used to it. But I would guess that we are running at so low operating rates also putting kind of a floor to what can be done when it comes to pricing. And that's why, I guess, prices are fairly stable because they are. And here, we are doing okay. Also, we take downtime, but the rest of the market take even more downtime and it's the same when it comes to board, we take less than the market in general. And we cannot really expect an increase in demand here. It's just to make sure that we are the most cost competitive ones and make sure that we have the best product development in order to fill the machines with orders where we can make money. But wood is more expensive, Stefan? Stefan Lorehn: It is. And market is challenging here as well. Despite that, we report a high result from the Board and Paper division in the fourth quarter, partly included some higher-than-normal income from green certificates in the U.K. and also a bit higher than normal income from emission rights. Deliveries were although quite low in Q4, mainly due to seasonality, but that also meant that we needed to curtail our production a bit more than earlier this year that took a toll on the result in the fourth quarter. Energy costs were still lower than normal in Q4, but maybe not to the same extent as what we saw in Q2 and Q3. And as Henrik mentioned, talking about the electricity market, it is more challenging as we see the market behaving today to maintain this lower-than-normal energy cost level in the Board and Paper division. But on the other hand, we gained some or at least right now from the hydropower and wind power production up in the northern part of Sweden. Henrik Sjölund: Well said, I think we are done, aren't we? We are, and we are happy to take any questions you might have, unless you have something more you want to say. Stefan Lorehn: Totally fine. Operator: [Operator Instructions] The first question comes from the line of Linus Larsson from SEB. Linus Larsson: Maybe starting with Board and Paper, who had another good quarter in the end of 2025, but I understand there were some support. You mentioned U.K. green certificates, the carbon emission rights. If we dissect the division just a bit and put numbers on such items, it would be helpful. And also if you could please maybe guide us a bit into the beginning of 2026 on those. Stefan Lorehn: Yes, Linus. If we take the higher-than-normal income from the green certificate and the emission rights in combination with the lower-than-normal energy cost, we see that those items together affect the result by approximately SEK 250 million in the fourth quarter, quite evenly split between lower-than-normal energy cost and the emission and green certificate. Linus Larsson: Great. And I mean, we've seen similar patterns in previous quarters. What do you expect for the first quarter? What is disappearing possibly? Stefan Lorehn: It's very hard to predict how the energy market will trade in the first quarter. But as Henrik said, talking about the energy market, the volatility that we have gained from the last year, we don't see that high volatility in January so far, meaning that it's much harder for us to maintain this lower-than-normal level of energy cost. When it comes to the other items, they are quite evenly spread over the year. So there's nothing unusual on those, but it was in Q4, it was a, so to say, one-off effect from those. Henrik Sjölund: It's a bit weather permitting, Linus. No, but it's important to note that it's more of a shift right now than a loss. Volatility -- without volatility, it's very difficult to make money from the volatility. On the other hand, when you have this kind of weather, then you have high prices up in the north. Linus Larsson: And other companies have reported of the sale of excess carbon emission rights disappearing in the beginning of 2026. Do you see the same thing in any of your mills? Stefan Lorehn: Yes. We lose approximately 30% of our allotment next year as the Iggesunds Bruk mill is not longer part of the system due to them performing too well actually. Linus Larsson: All right. And if we quantify that, how much would that be in terms of tonnes or millions for that matter? Stefan Lorehn: On an annual basis, maybe SEK 50 million. Operator: The next question comes from the line of Robin Santavirta from DNB Carnegie. Robin Santavirta: Can you just provide some more color about the write-down you made in the quarter? Just wondering if this is basically writing down expensive wood raw material for your own timber business? Or how does that work? Stefan Lorehn: No, it's actually so that if you run a business that is loss-making, then you need to take down the value of your raw material cost -- raw material stocks because you cannot use the value of it in your production units as you are loss-making. So it's more of the sawmill operations running with low result that affects this item. Robin Santavirta: Okay. But partly the reason for the weak performance is the high wood cost. Stefan Lorehn: I totally agree. Robin Santavirta: Just trying to understand whether you enter now in a way with lower sort of wood cost outlook into 2026 for the sawn timber business and whether we should expect sort of relief in log pricing that is a bit bigger than what we can see in the market? Stefan Lorehn: We don't see any major shift, as Henrik said, when we look at the timber market, prices has not yet come down. We see that they have flattened out, but they're not coming down. And also, you know that we have a lag in the system, meaning that any potential shift in the market, it takes some time to run through our system. Robin Santavirta: I understand. Now can I ask, when I look at the log prices in Continental Europe and availability, I mean, it's tight and the prices are even higher than in the mid part of Sweden and clearly higher in Europe compared to northern part of Sweden. Still some of those sawmills generate profit, I understand. How does that work? Is it so that they have exposure to different segments? Or what is the reason you would expect them to be bleeding with EUR 150 per cubic for sawlogs that we can see in many markets. Maybe the dynamics here that I'm missing? Henrik Sjölund: I don't think you are missing anything, Robin. It's -- still in Sweden, we have quite big differences between northern and southern parts of Sweden. And as Stefan said as well, what we are consuming now, we bought some time ago. Stefan Lorehn: But it's very hard to comment on other players' financial performance, to be honest, Robin. Robin Santavirta: Yes, I was trying to understand, I mean, the dynamics if -- I mean, the log prices are high, I understand that, but you would expect the end product price start to increase as the raw material is expensive across essentially Europe and in Canada as well. But I guess we need demand for that to happen. Henrik Sjölund: I think we need some more demand, absolutely. But I think it's also important to note that we have said if we go back some quarters that there's a scarcity of sawlogs more or less worldwide. That hasn't changed so much. But right now, demand is not enough to make prices go up. But I don't think so much need to change before you see wood products prices to start climbing. U.S. should be... Robin Santavirta: Yes, go ahead, go ahead. Henrik Sjölund: U.S. is such a place which we should have a close -- we follow it closely, of course, but -- and it's a little bit up and down every week now. But obviously, demand is not enough, even though they are very dependent on the Canadians, and they are partly dependent on us as well. And production has not increased a lot in the U.S. So we have to wait and see, but I don't think it takes so much to turn around the picture or to change the picture. Robin Santavirta: Okay. I understand. I understand. Final one for you guys. Looking at the Board and Paper, now we hear from you and other your peers that demand is still quite weak, and we have more capacity, certainly in board, not in paper, but capacity utilization in both are quite weak. On the other hand, we can see energy prices, gas and power in Europe going up quite significantly now recently. How should we expect prices -- sales prices to develop in paperboard and paper early '26? Henrik Sjölund: I can only agree. You are right. Gas prices are up now a lot, and that has an influence on production cost in Continental Europe as well as in Sweden, of course, when we have these electricity prices. But also the long-term trend for gas is not up. It's rather flat or sideways or maybe even down. So it depends a lot what will happen. Right now, it's the weather, to be honest. And people are a bit scared that they will not have enough gas and all of a sudden, you have a spike. And with the conditions we have right now, the marginal price for gas in Germany goes all the way through up into the northern parts of Sweden. But of course, when we produce in paper mainly, we have hedged our electricity price. So really high gas prices, of course, it's good for us if it stays like this. But if it will, I don't really know. Robin Santavirta: But is it enough then to support pricing this combination of essentially capacity utilization quite weak across Europe and then this sort of energy prices? Henrik Sjölund: You are right again. It's about costs. it's not that we are in the driver's seat because operating rate is over 90%. That will not happen. So it's about cost that you can't produce unless you get coverage for the cost. And I think it depends on how long this goes on. Operator: The next question comes from the line of Pallav Mittal from Barclays. Pallav Mittal: So firstly, on the Board and Paper side of things, can you just let us know the split between Board and Paper? And also, I mean, you definitely highlight weakness in consumer paperboard. Can you now give some more details around how have tariffs impacted the industry so far, given a lot of movement between June and December of last year? And do you expect any change in the near term? Stefan Lorehn: A bit hard to catch your question, Pallav, but I think the first one was about the split of operating profit in the Board and Paper divisions. Main part of the annual result is referring to the Paper division this year due to the lower-than-normal energy cost and also that we had 2 major maintenance shuts in the Board division. Maybe you can take the other. Henrik Sjölund: Maybe you can repeat what you said about Board and especially Board, wasn't it? Pallav Mittal: Yes. On the Board side of things, how have tariffs impacted you so far? And are you seeing any changes in the way you are interacting with your customers? Stefan Lorehn: Well, our exposure to the U.S. market is quite limited, Pallav, when it comes to both Board and sawmill and Paper. So the direct effect from the tariffs is quite limited for us. It's rather the dynamic effects when people that usually exported a lot to the U.S. is taking volumes other places where Europe is a natural part for some of those. So that's more of the dynamic effects that affects Holmen rather than the direct hit from tariffs. Pallav Mittal: Sure. And if I can just ask one on your balance sheet and the returns to shareholders. So your net debt-EBITDA leverage is now around 1x, but I don't see any incremental share repurchases or any plans. So can you just comment on that? What are your plans with capital returns? Stefan Lorehn: If it was CapEx next year or is it maintenance? So let's start with CapEx. We can take both of them. I think you can expect CapEx to be much lower next year compared to 2025 when we have the wind farm in Blisterliden being built. So maybe a bit higher than SEK 1 billion next year in CapEx is reasonable to assume. When it comes to maintenance shut, we have shut in the Iggesund mill next year, which we have annually. It's in the third quarter, and the estimated effect on the P&L is SEK 150 million. Operator: The next question comes from the line of Lindstrom Oskar from Danske Bank. Oskar Lindström: Two questions from my side. First off is coming back to this issue of the gas price spike that we've seen in Europe and the effect it's had. How quickly does that have an impact on the cost for producers in Continental Europe? What's your sort of understanding of how quickly that feeds in? Or does it take a long time? Or is the spot price relevant? That's my first question. Henrik Sjölund: I think it has an impact quite fast actually because you take business today that you are supposed to deliver in 2 to 3 months normally. You have to take a decision today and make your best forecast, what will be your energy cost when you are about to produce and deliver. So in that sense, it has an impact already now that all producers dependent on gas for their production should be a bit more cautious. What the end effect will be, I don't know. And how long it will stay like this? Well, the longer the better for us, of course, but that's a bit more difficult to understand. Oskar Lindström: A follow-up. Have you seen any tendency among your competitors to essentially raise their prices in reaction to this? Henrik Sjölund: I can't say we have seen that yet, but... Oskar Lindström: By asking you. The second question is on Board. And I mean, you operate in a large part in solid bleached board, which is sort of a niche premium segment within the overall board market. It doesn't seem to have been impacted by the type of sort of increased Asian competition in export markets, which we've seen impacting the liquid packaging board niche segment. Should we expect the solid bleached board market to be sort of immune to this wave or waves of Asian capacity and competition or... Henrik Sjölund: I think you're right when it comes to that part of the business. But as I said before, we are not running totally full either. We take some market-related downtime. And if you want to get an extra order as a marginal order, it's very difficult, especially if you try to get it from Asia. But we have not been affected directly, but indirectly, you can say we do feel the competition. Oskar Lindström: If I may ask roughly how much of your board or of your solid bleached board is exported outside of Europe? Or goes to Asia in fact? Henrik Sjölund: It's a good but difficult question because we have a lot -- quite some deals, which we make in different continents than where we deliver the volumes. And again, once they are there, they are sold somewhere else in the world. So we deliver quite a lot to Asia, but it's not Asian business. Oskar Lindström: Right. But you don't feel that we, as analysts or people as investors need to be thinking that you could -- a lot of your current SBB volumes are being very, very challenged in the way that we've seen in liquid packaging world. Henrik Sjölund: Not yet. Oskar Lindström: Not yet. Those were the 2 questions that I had. The other ones have been answered already. Operator: The next question comes from the line of Muir-Sands Charlie from BNP Paribas. Charlie Muir-Sands: It's Charlie here. I just wanted to follow up on a question that wasn't fully answered before around capital allocation. You have not declared any extra dividend this year. How are you thinking about balancing your leverage and capital allocation beyond the SEK 9.50 increase in -- a small increase in the ordinary dividend to potentially an extra dividend at a later date or a buyback? Henrik Sjölund: No, we are -- we feel that we have a good position, the one we have right now when it comes to our financial position and the 10% net debt is fine. But we would never, ever jeopardize anything when it comes to our financial strength, if anything comes up that we think we should spend money on. And given the challenging situation in the market, but also that we are in a fairly good position, we find that an increase, it's 5%, 6%. It's not that small increase. It's balanced given the situation we are in. There are also some uncertainty in the world that we don't have in our own hands. So that's why we landed in today proposing a dividend of SEK 9.50 and no extra dividend as we see things right now. Charlie Muir-Sands: Understood. And then the second question I have is with respect to the pulpwood price. As you indicated, the delivered cost for you has only just dipped a little bit. But clearly, some of the stumpage prices have started to fall quite significantly now. Which quarter in this coming year do you anticipate it starting to manifest as a particular material tailwind in your input costs? And the same question, I guess, if there's any signs at all of movement on stumpage on logs as well. Henrik Sjölund: But as you say, pulpwood prices are coming down. We have changed price lists a number of times already now, but that's not the same as that you have bought a lot to cheaper prices. But I think you should wait a little bit to see what happens with the storm and the it's rather big volume, to be honest, at least outside our Iggesund mill, to be honest. Laying there, we move our capacity, and we do the deals right now to see where the price will land. That will have an effect locally at least, how that will spread and if it will make things go faster when it comes to especially pulpwood coming down, most likely, but how much it will spread and how far down it will go, it's too early to say. Operator: The next question comes from the line of Cole Hathorn from Jefferies. Cole Hathorn: I'd just like to follow up on the chart you put out on Slide 13, looking at the price of forest properties and the nominal wood prices. Just so I understand this, you made the comment that forest prices didn't rise as much as kind of the nominal sawlog and cycle. Are you trying to imply that potentially in the -- if we see some downward pressure on sawlogs or pulpwood, you would hope that the forest property transaction values would be more resilient. I'm just wondering how you're thinking about it into 2026, considering we are seeing and pulpwood prices at least lower? Stefan Lorehn: It's -- as you know, we base our valuation of our forest on deals made by people out in the transaction market. How they will behave is quite tricky to digest. What we see is that the last couple of years increase in wood cost has not been reflected in the behavior from the buyers of forest properties paying a premium based on that. So we have a larger spread now between the wood cost and the property prices than what we've seen historically. How that will play out in the long run, I think we have to wait and see, as Henrik said as well when he comment on pulpwood and timber prices. Henrik Sjölund: But maybe also you can say that, well, wood prices can come down quite a lot before it should have an impact on property prices going down. Stefan Lorehn: You can do that as well. Cole Hathorn: That's helpful just to understand forest prices might be a little bit stickier. Then I've got another 2 on my side. The first is on board prices. I know you less falling boxboard. I'm just wondering, is there any kind of rough estimate you can give on what is the decline you've seen on kind of your pricing segment, just how we think about into 2026? I imagine ratio, but some help on the quantum would be useful. And then I'd just like to follow up on the saw wood industry. I know profitability is really challenged. I'd just like to understand if you've got any color from the players in Central Eastern Europe at all around any closures or any shuts that you're seeing there or capacity curtailments in Central Eastern Europe? Henrik Sjölund: So we start with... Stefan Lorehn: Pricing of FB and SB, as you know, Cole, our prices and the prices in the segment overall tends to be quite sticky. We have not seen any movement hardly at all during 2025. And there is no big movement in our prices for the moment. But as Henrik said, if we want to sell an extra ton of things, then we need maybe to lower the price a bit. But in general, they are quite sticky. Henrik Sjölund: And solid bleached board, it's more like a niche and prices move very slow in case they move. Folding boxboard moves a little bit faster. Stefan Lorehn: The other one was about sawmill operations in Eastern Europe, I think, and potential closure there. Henrik Sjölund: You saw the slide before when it comes to Germany that sawmills are taking down production quite a lot actually. But if they close or not, I really don't know. Operator: The next question comes from the line of Henrik Bartnes from ABC (sic) [ ABG ]. Henrik Bartnes: This is Henrik from ABG. Sorry, I missed this, but have I understood it correctly if hydro and wind power are not hedged, i.e., the current higher energy prices could imply a quite large positive effect Q-on-Q in Q1? And could you also please remind me on the seasonal volumes or the weather in Q1? Are they typically more or less wind? And have you seen anything special so far in Q1? Stefan Lorehn: The first one, I didn't catch. It was if we were hedged or not. And we have no hedges in place for our Energy division. So we are trading at spot prices. The other one. Henrik Sjölund: It was about the weather. Stefan Lorehn: It's cold in Stockholm. Henrik Sjölund: But I think also remind ourselves that we started up the Blisterliden wind farm just before the new year. And that timing was good given the situation we have right now. But as I said before, right now, it's stable winter weather, almost arctic weather with -- it's dry weather. There is not so much water in the reservoirs, meaning hydropower is extremely important to keep stability in the grid and there is enough capacity that can be transmitted. So the volatility is low, both in northern parts of Sweden and southern parts of Sweden right now, but prices are high. It's also less wind when you have high pressure. But remember, we are not metrologists. We're only normal business people. As it looks now, it will stay like this at least for a couple of weeks, but the weather has changed before. Operator: The next question comes from the line of Masvoulas Ioannis from Morgan Stanley. Ioannis Masvoulas: I apologize, I joined a bit late, so I might be repeating some of the questions. The first one I had, just going back to the Storm Johannes and the impact it had to your business. You talked about the timber sales and how much of that is going to impact cost that was clear. So just a question for me to understand in terms of the implications for the overall harvest volumes. So I guess, you might move some of your resources towards some of your third-party forest owners as you try to support them. What sort of impact could that have to your harvest volumes in Q2, Q3? And could that extend into the second half? Or do you think it's more of a temporary situation? Stefan Lorehn: It's more of a temporary thing, but we have not done the complete analysis on how we will deal with the storms effect, but it should be possible to take care of it in the normal operation, meaning that it should not affect our annual harvesting. But we need to do the analysis a bit deeper and need to come back to that in the next presentation, I think. Henrik Sjölund: But you're right, it takes a bit more hours to take care of is laying down rather than standing up. I said we are a company with capacity, so it shouldn't be the biggest problem for us. Ioannis Masvoulas: Great. Second question, just again on the Forest. When I looked at realized price, if I look at revenue divided by volumes in the Forest segment, it feels like there was quite a big step down quarter-over-quarter. And I know there is a lot of sort of trading volumes in the Forest segment. So trying to understand if there are any particular aspects to consider for Q4 that might not repeat in the coming quarters? Stefan Lorehn: No. The prices were quite stable quarter-over-quarter if we look at the sales price that we get from the harvesting of our own forest. If you do the calculation as you did, as you said, it's a lot of timber trading included in that. So it's hard to do that interpretation. Ioannis Masvoulas: I see. Okay. And then turning over to the sawmills where performance and earnings have been under quite some pressure for some time. If we think about Q1, I guess, with the lag effect, sawlogs are probably going to be a little bit more expensive in Q1 versus Q4 and pricing for some good products is not improving. Shall we expect profitability in Q1 to be even worse? And in that case, how are you feeling about your operating rates there? Stefan Lorehn: Well, we have taken down volumes during the autumn. As you know, we've taken down shifts in the Braviken mill in the southern part of Sweden and adjusted at the other sawmills as well. How things will play out in Q1, as Henrik said, it happens from time to time that prices actually increase when we enter into spring season. But it's very hard to predict what it will be. Henrik Sjölund: Wood costs should not go up. Stefan Lorehn: Wood costs should not go up, but probably not go down either. So... Ioannis Masvoulas: And you're talking about Q1 wood costs not going up? Stefan Lorehn: More or less flattish. Ioannis Masvoulas: Okay. Okay. Perfect. And then a very last one for me. I don't know if you mentioned at all any energy sort of optimization or trading gains in the graphics segment that you could talk about? Stefan Lorehn: Well, we said that we had some extra income from green certificates in the U.K., some higher-than-normal income from emission rights and also as earlier this year, lower-than-normal energy cost, but not to the same extent as we saw in Q2 and Q3. Total effect of all this item is approximately SEK 250 million in the fourth quarter. Operator: Ladies and gentlemen, that was the last question. I would now like to turn the conference back over to Henrik for any closing remarks. Henrik Sjölund: Thank you very much. Good questions, good discussion. Look forward to see you soon again. Thank you. Stefan Lorehn: Nice weekend. Henrik Sjölund: Have a nice weekend.

63天前Insight Analytics约5分钟阅读

EMN 2025 Q4 财报电话会议

Operator: Good day, everyone, and welcome to the Fourth Quarter and Full Year 2025 Eastman Conference Call. Today's conference is being recorded. This call is being broadcast live on the Eastman website at www.eastman.com. I will now turn the call over to Mr. Greg Riddle, Eastman Investor Relations. Please go ahead, sir. Greg Riddle: Thank you, Becky, and good morning, everyone, and thanks for joining us. On the call with me today are Mark Costa, Board Chair and CEO; Willie McLain, Executive Vice President and CFO; and Jake LaRoe, Senior Manager, Investor Relations. Yesterday after market closed, we posted our fourth quarter and full year 2025 financial results news release and SEC 8-K filing. Our slides and the related prepared remarks in the Investors section of our website, eastman.com. Before we begin, I'll cover 2 items. First, during this presentation, you will hear certain forward-looking statements concerning our plans and expectations. Actual events or results could differ materially. Certain factors related to future expectations are or will be detailed in our fourth quarter and full year 2025 financial results news release. During this call, in the preceding slides and prepared remarks and in our filings with the Securities and Exchange Commission, including the Form 10-K filed for full year 2024 and the Form 10-K to be filed for full year 2025. Second, earnings referenced in this presentation exclude certain noncore and unusual items. Reconciliations to the most directly comparable GAAP financial measures and other associated disclosures, including a description of the excluded and adjusted items, are available in the fourth quarter and full year 2024 financial results news release. As we posted the slides and accompanying prepared remarks on our website last night. We will now go straight into Q&A. Becky, please let's start with our first question. Operator: Our first question comes from Josh Spector from UBS. Joshua Spector: I wanted to ask 2 things on fibers here to start. First, can you talk a bit more about the actions you're taking, how the shutdown impacts earnings through the year? And second, if you could talk about cellulose a little bit and your ability to pass through costs there if prices go up due to changes in supply behavior. Mark Costa: Sure. So fibers obviously is a top priority for us as we've been focusing on how we manage that business and stabilize it after what happened last year. Before I get into some of the actions we're taking in the context of matters, and so I'm going to just remind you something we said before where tow was certainly the largest driver in the drop in the volume, and we held prices actually relatively well in spreads last year. That about 40% of the EBIT drop is actually not tow, right? So you've got about a $30 million decline that was tariff-driven in the textile business, where normally that's growing to offset market decline in tow and said it reversed in the negative direction with all the tariff pressure and consumer pressure. The second was the overall stream slowed down because of reduced demand across the company using cellulosics, and that was about a $20 million headwind in utilization and energy costs were about $15 million higher. So there are multiple levers, tow plus everything else in this portfolio that matter. When it comes to the tow side of things, we feel good that we've stabilized the volume situation this year relative to last year in our contracts with our customers. It did include a bit of a modest price decline to make that happen. And what that price decline really is about is there were some customers that had higher prices in the marketplace, and they pulled in to be more in line with the broader market and to where we are today. So stable and the volume we're assuming when we say stable is assuming our customers are at their contract minimums because we do expect destocking will continue through this year like it did last year. As a reminder, we have contracts last year, too, and we started the year thinking people would be buying in their normal range of the contract. And then as we told you through the year, they moved to their contract minimums, but we held them to that. That's why they have to continue destocking this year to get to where they want to be. And so -- and Q1 is starting out a little bit light. The contract commitments are annual contracts, but they have some ratability -- flexibility around the quarters, and we expect the first quarter to start off a little soft hence our guidance, and then they will ramp up as you go through the year. And normally, the back half is a little bit stronger anyway as they load channels ahead of the tax increases that normally happen every January. So we feel good about that. Obviously, there are a bunch of actions in addition to stabilizing that business directly that we're taking. So the cost reduction actions across the company, that significant cost reduction goal that we have, that is in the $125 million to $150 million range to build on $100 million last year, a decent portion of that goes towards fibers with some of the actions we're taking specifically on how to optimize, how we operate our assets more efficiently. The growth in textiles, we're seeing growth start to come back slowly, but it's coming back. We expect that to build through the year. We are expanding our efforts. So today, we've mostly focused on selling Naia filament, which is a very high-value product in the textile market. There is another product, which is staple, it's short fibers that you use. It's a more economic product. It typically goes into things like denim and fleece and it's a huge market. And so the margins are not as good, but they're still reasonably attractive. And so we're ramping up our effort, already got sales for this year, and we're going to try and ramp that up as another way to drive asset utilization. And then on the broader stream question around cellulosics, we have the Aventa product, currently lives in Corporate and Other, but that product is moving forward. We're going through a lot of product qualifications last year, and we expect volumes to build this year, especially in food trays and cutlery and straws. And so that will drive stream utilization as well. So a lot of different actions that we're taking. They will build through the year. So how we get to the number this year and stabilize it will sort of build through the year as we build on all the different actions we're taking. When it comes to price, on the tow business, most -- some of the prices do have CPTs in them and allow for adjustment for changes in raw material and energy costs. So a number of those contracts will adjust, a few won't. And the textile prices are market-based. So we can raise prices. But in this weak environment, I would not assume we're raising prices a lot outside of the CPTs managing some of the headwind. So that's sort of where we're at. We're pulling every lever we've got. This is an incredibly important source of earnings and even more important source of cash flow, and we take this business very seriously and what we're going to do. Operator: Our next question comes from David Begleiter from Deutsche Bank. David Begleiter: Mark, looking at Chemical Intermediates, are there other actions or options you're looking at to reduce the earnings volatility of this business? Mark Costa: Absolutely, David. And first of all, the biggest action we're taking, we've already told you about, which is the ETP project. So we have a project to take our bulk ethylene, which is the biggest driver of earnings challenge in the segment given how that ethylene market is challenged. And that's not a new topic. It's been a topic for us for a long time. We have a project where we can take the ethylene and turn it into propylene and that dramatically improves the earnings in the segment. It allows us to not sell bulk ethylene. It allows us to replace higher cost purchased propane -- I'm sorry, propylene. And so we improve a loss as well as reduce and eliminate the loss on the bulk ethylene, and we also improve the margins on the propylene side of the equation at the same time. So that's worth -- if you look at all the different ranges and scenarios of how the industry spreads can change, it's somewhere to $50 million to $100 million improvement in earnings and the payback on that is less than 2 years from a capital point of view. So that project, we're driving forward as one that will definitely structurally improve the business. When it comes to how the business also thrives and improves, frankly, is there's a cyclical nature of this, which is more demand-driven in the business. So the North American market is much more profitable than the export market, especially with all the Chinese dumping going on that's really impacting the markets outside the U.S., the tariffs are helping to some degree, protect the North American markets. So as demand comes back within the segment in North America and building construction, durables, et cetera, that's a big mix upgrade. Also remember, more than half of the product we make in this segment goes into our specialties. So as demand recovers there, you're replacing very low-value exports on the margin with much higher value specialty sales. So that also helps improve the stability in the earnings when we get back to a more normal demand situation in the core CI business. Of course, there is the broader question around the overall market and how it gets better with the current pricing and a lot of the products are coming out of China right now and the cost models we have, they're at their variable cash cost. We don't know how long that's sustainable and that's certainly impacting high-cost assets around the world, especially in Europe, South Korea, Japan. So you see assets are going to get rationalized. I'm not about to guess what the time frame is on that relative to how China is adding capacity. But I do think the market structure around the world will continue to get better over the next few years. We're not banking on any of that this year, to be clear, with the uncertainty that's in the current market situation. But there are a lot of actions we're taking to improve this business long term. David Begleiter: Very helpful. And just on Q1, can you help us with the bridge versus the prior year to get to that decline you're forecasting on an EPS basis? Mark Costa: Sorry, could you repeat that question again? You were just broken up a little bit. David Begleiter: Could you help us with an earnings and EPS bridge from Q1 last year to Q1 this year for that decline that you are forecasting? Mark Costa: Year-over-year decline. Sorry. I just want to make sure I understood the question correctly. So as we look at where we are today, obviously, we went on a journey through last year, right? Q1 was relatively strong and then it evolved over time to where we finished Q4. In Q1, it's important to remember, as we told you on the third quarter call, that was actually a year-over-year growth scenario, right? So the end markets in the consumer discretionary, for example, were up 2% to 4%. So if we had that year, we would have had growth -- normal seasonality for the rest of the year would have had growth for the year. So the evolution of the market after the April Liberation Day causing markets to sort of go from being modestly up to down in meaningful ways, changed and altered the rest of the year. So Q1 is a tough comp because it was actually a growth quarter. Now where we are today, I think it's much more important to think about the progression of how we've gone through the year and how we come out of the back half of this year into Q1 and build from Q1 through this year. And so when I look at where we are now, we feel good about how Q1 is progressing. I think that we wanted to and are seeing a return in volume from fourth quarter to first quarter. So you're seeing strong improvement in volumes in AM with seasonality sort of coming back to some degree, although I'd say customers are still being cautious. We're definitely seeing the lack of destocking of pre-tariff inventory that we told you about in the third quarter call, which obviously was a big driver of the volume decline in Q4 relative to Q3. We think most of that's abated. So we're seeing good recovery in the volumes there, seeing good recovery in the volumes seasonally in AFP as you would normally expect. We've already talked about volume cover being a bit modest in fibers and we'll build through the rest of the year. And even CI is going to have volume recovery as a function of just less shutdowns, so more volume to sell as well as some of the seasonality and destocking that was pretty aggressive in CI abating. So overall, we feel like we've got a meaningful amount of volume recovery coming our way. I wouldn't -- it's by no means taking us back to last year, Dave, but it's making good progress from where we were in Q4. On top of that, you've got utilization benefits that come with the volume and some of the cost benefits and actions we're taking that continue to build as we go from the fourth quarter to the first. There will be some offsets. Obviously, energy costs are higher even in a normal period before we get to the winter storms. We expect the energy headwinds in our guidance. And we expect prices to be a bit off in CI with some contracts resetting. And then fibers, as we already told you, we will have a modest decline in price. So when you put it all together, we feel good about that guidance and starting the road to recovery. But all the things we're doing that we've talked to you about build over time, right? The innovation builds over time. Circular builds over time. Cost reductions build over time. We're assuming we get back to normal seasonality, which will certainly help Q2 and Q3. So while it's -- Q1 is not where we want to be relative to what we think is possible for the full year, we're really encouraged to see the strength of the recovery out of Q4. And we see a lot of levers on how we can build and improve and deliver a strong meaningful earnings growth for the year. Operator: Our next question comes from Patrick Cunningham from Citigroup. Rachael Lee: This is Rachael Lee on for Patrick. So the earnings contribution from methanolysis seems to imply maybe less than 25% incremental margins on additional volume this year. So is this the right way to think about incrementals for some of these noncore applications? Or is there any additional fixed cost or mix drag impacting 2026? William McLain: Thanks for the question. What I would highlight is, obviously, as we think about the benefits of our circular solution for the packaging model as well as the combination of the specialties with Tritan Renew and the end markets that we're going to into those applications. To your point, Rachael, there's, I'll call it, a spectrum of drop-through margins. As we think about 2025 to 2026, volume growth is a key aspect of that, and we've highlighted that with the contracts that we have across a spectrum of key brands that we're growing with in the packaging space and that being the substantial driver. So as you think about that growth rate, what I would say is for the fixed or I'll call it, the model that we've talked about for packaging, where we have volume commitments as well as cost pass-through, we believe that, that is reasonable outcomes and delivers the returns that we've been talking about. What we will also have is upside to that as we have additional mix upgrade and sell into our specialty markets and as we get momentum in the consumer discretionary markets over the long term to drive those returns that we've committed to previously in the circular economy. Rachael Lee: Great. And I know you haven't guided to fiscal 2026 for the full year, but given you're expecting growth across AM and stable AFP, can you help size your latest view on price cost trend for your specialty businesses in 2026? And just one follow-up there. You often talk about defunding your value of your products, but now it seems like you're giving some price back in AM. So I guess what's driving that? Mark Costa: Sure. So that's -- there's a lot of that question, right? So I'm going to try and answer it as best I can. Just to start off with around sort of how we look at 2026 and think about it, we're very clear that the macroeconomic scenario is highly uncertain. I think everyone is pretty much in the same bucket. And so we're not trying to call the macro economy. The biggest driver of our company and earnings and performance and cash is volume. And that's been true for the last 4 years and it will be true for this year. But right now, we're assuming the markets in our planning scenario are relatively stable to last year. And then what are all the different things that we can do to drive value. And so we start with the focus on cost reduction since that's immediately in our control. And as you've seen, we delivered $100 million, which was $25 million over our target last year, great momentum and that we think we can get another $125 million to $150 million on top of that. That's $225 million to $250 million in 2 years, which for our size of company is pretty significant and really demonstrates our accountability to our shareholders to create value in challenging times. But the biggest thing is around growth, right? So we have lower costs and a lot of that cost will flow into Advanced Materials, then it's how do we grow volume. And on the volume front, there are several things that we're doing are more in our control than waiting for the macro economy to get better. First and foremost, there's always innovation to create growth above your underlying markets. The cellulosic -- I'm sorry, the circular economy in polyesters is a key example of that, that incremental $30 million of improvement over '25 is significant with a revenue growth of 4% to 5%, a lot of it being driven by the rPET customers that we talked about in the third quarter that are already ordering and ramping up with us in the quarter. So we feel very good about that and building -- starting to build in Q1 will create more value as we go into the rest of the year. You've got the classic innovation in the films business with HUD and luxury cars and EVs growing around the world. You've got the East to Pure ultra-high purity solvents in semiconductors and AFP. We have all the cellulosic growth I just talked about and how we're trying to drive growth in the fibers business. We're also expanding our aperture and how we think about volume growth across the company, but especially in Advanced Materials and in fibers is how do we target these applications that are outside of our normal core specialty businesses. You don't really want to aggressively go after market share in your high-value products because you just erode your value in those applications in a weak market, that's a bad choice. You want to win on your value proposition, you want to maintain your margin. So we're targeting areas where we can grow that adds volume and utilization to the overall cost structure of the company. One we've already done, which is regained some of our architectural interlayers where we lost some share last year. As I talked about, we're doing the staple product in fibers to drive growth, the Aventa. We also in polyester, just with the actions we're taking in our core business have a lot of volume growth already, but there's still space to look for more volume. So we're expanding some efforts in some markets like heavy gauge sheet and shrink packaging, where the margins are not as high as Tritan, but they're still attractive and allow us to drive asset utilization. So how do we really ramp up volume and utilization and leverage that cost reduction altogether. And the segment that will, for sure, benefit the most from these actions is in AM. Now to your question around prices, there are some price declines. We already mentioned Fibers and CI. In Advanced Materials, we do expect some modest declines there, too, as we share our raw material cost advantages. We can't offset energy headwinds in this market condition and our competitors are outside the U.S. But we certainly have done a phenomenal job of managing our price relative to our costs over the last 4 years. But after you get it in 4 years, if we're doing a great job, you have to start sharing some of that raw material benefit with your customers. And so we're doing that. But in the context of the volume growth we're getting, the overall variable margin is increasing. So those are all the actions that we're taking to try and drive value and create very meaningful earnings growth for the year. Operator: Our next question comes from Vincent Andrews from Morgan Stanley. John Hendricks: This is John Hendricks on for Vincent Andrews. I'm just wondering if you could help with some of the bridge items for Advanced Materials ex methanolysis. I believe that you've commented that innovation reversal of the asset utilization headwind from last year and FX are tailwinds while you should see some price cost headwinds. I'm curious if you could provide some more color or help put a finer point on what you might see on a year-over-year basis in that segment. Mark Costa: Yes. I think I just hit on a lot of it just in the last answer, but the great thing about Advanced Materials this year is it's got a lot of levers to work with, right? So to grow earnings this year relative to last year, the first and foremost is that volume growth, right? It's volume growth delivered by Circular, which is one of the bigger drivers. It's finding volume growth in weak markets through our innovation and the levers that we're trying to pull there. So you've got some core recovery and you got circular. On top of that, you have a good portion of the cost reduction flowing into AM that is part of that overall corporate program. You've got the largest amount of utilization headwind last year was the aggressive inventory actions we took in managing Advanced Materials. And so as these volumes come back, we start getting a meaningful tailwind on utilization in this segment. And then you do have some FX tailwinds and benefits as well. So when you put all those 4 levers together, they're quite material. Now there are some offsets like a bit of higher energy costs this year, that modest price decline I just mentioned relative to the energy costs. And then you've got the -- I just forgot what the other part was. The other headwind is -- that's it. I don't think there's another headwind -- variable comp. That was variable comp is the other. Operator: Our next question comes from Aleksey Yefremov from [ KeyCorp ]. Aleksey Yefremov: Just looking at various bridge items you provided for this year, which sort of crudely came up with about $5.50 to $6 in EPS. I wonder if you could comment if that range is close to what you were thinking? Mark Costa: So I never imagine getting that question. So look, as I already said, the macro economy is incredibly complicated right now. There's a lot of uncertainty. In that context, we're taking a huge amount of actions that are in our control from cost to trying to create our own volume, leveraging asset utilization and certain things like FX, that's a tailwind. So there's a lot that helps. Clearly, there's a few headwinds in the rate at which CI recovers from last year and how we moderate and stabilize the fibers business as well as things like variable comp going back to 1x. So when you put it all together, we've said there's a meaningful improvement in earnings that's possible. What I would say is when you think about the sort of upper end of what you're talking about around $6 a share, that's very much in the range of what we're thinking is possible. But I have to emphasize, there's a wide range here around what could happen. And it is macroeconomic that we're talking about and where the uncertainty is. If you look at GDP and everyone is talking about how great GDP is and its growth last year or expectations of this year, if you back out data centers, AI, health care, GDP is sort of flat. And the consumers, as I think has been well understood through last year, especially the 80% of our consumers out there are really struggling with the economic challenges they have and affordability, the fear of what tariffs are going to do, fear about can I get a new job, if I lose mine, et cetera. So there's a lot of caution out there that's been there for the year, all last year. I don't think it's materially changed. That's why we think the economy could be stable, but it's challenging out there. And there's any number of things, geopolitical wars, et cetera, that could make things worse. On the flip side, there's a lot of potential upside here, too, relative to sort of that 6%. Right now, demand has been incredibly weak since 2019. We've told you housing, and you all know it, total home sales down 20%, not just here, but in Europe, China is worse. You've got consumer durables down 5% to 15%. You've got cars barely getting back to 2019 levels, a lot of pressure in accessories in the auto market because people can barely afford the car. There's a lot of pent-up demand since 2019 to now, not to mention normal market growth being missing that can recover at some point when consumers get confident and stable. And especially for the U.S. economy more than China and Europe, I think the current administration is very focused on getting the economy to grow for the consumers, not just data centers and health care because the midterms are coming up. And so lower interest rates obviously will help. A lot of the tax policy may get more money into the pockets of that 80%. There are a bunch of housing policies that they're considering that could be helpful. So I'm very hopeful that they take those actions and the consumers get healthier and buy more, and that would be upside. So we're very focused on controlling what we can control, very aware that the economy could go in any direction. So we're not going to keep -- take our eye off the ball on everything that we can control. But there's just a lot of uncertainty. And right now, we're just focused on making sure we get a good start to Q1 and build from there. Operator: Our next question comes from John Roberts from Mizuho. John Ezekiel Roberts: It wasn't very long ago that you had a young tick featured on the cover of your slides. What's going on with the ag products you're discontinuing? Mark Costa: We had a couple of crop protection products in Europe that had a regulatory ban going force and so we had to stop selling them. So that's what happened. It's just a European specific thing, but they were profitable products, and we felt the impact. We will feel the impact this year. John Ezekiel Roberts: Maybe I could get a second one then. What's going on with the decline that you cited in rPET from mechanical recycling? Mark Costa: Decline? John Ezekiel Roberts: A decline in quality. I think you cited quality of rPET. Mark Costa: Yes, yes, absolutely, John. So the decline in mechanical recycling quality, what happens is -- and we've been -- we've known this from the beginning of our platform and why we're so excited about chemical recycling, mechanical recycling has a major flaw, which is when you melt plastic, you break down the bonds of the polymer chain every time. And as you do that over cycles, the polymer integrity chains get worse and worse. And so the quality of material degrades and you get impurities also in the polymer because you have to remember, mechanical recycling has no purification. So you take waste plastic, you select the cleanest, clearest bottles you can find in the plastic waste stream and then you wash them and then you chop them up and then you melt them back into pellets. So there's no purification. So also if there's any contaminants in that bottle, it doesn't necessarily get removed from the polymer. So the polymer starts to get yellow, it starts to get gray. You will see that on the bottles on the shelf that's already starting to show up. You also have some integrity issues around the strength of the polymer. So if you're stacking cases, the bottles start to collapse a little bit. And so there was always the belief that -- and understanding that the mechanical integrity would degrade with mechanical recycling. And -- but they thought it would take many years before that impact would actually show up in the polymer, and it's showing up a lot faster. It's already showing up. And that really confirms our value proposition because we have none of those problems, right? Chemical recycling, we -- as we've told you before, we unzip the polymer back to the building blocks. We have a big purification step. So the intermediates that we produce out of it that we then turn back into a polymer are perfect. They're exactly the same as virgin. In some cases, we're finding it's actually -- has a little bit better clarity than a virgin polymer. So -- and we can do this infinitely like aluminum. So we are really the long-term solution in chemical recycling, mechanical is a good thing to do, and it's energy efficient, but its yield is incredibly low because they can only clean up 25% to 35% of the really clear bottles. The rest of it gets downgraded into low-end markets or landfill. That's why long term, we're very confident about the value of this whole platform having a lot more demand, and it's already being confirmed with our customers now recognizing how much our quality is better. And that's why you see some volume being pulled forward with Pepsi and some other brands into buying rPET from us next year, not this year relative to when the second plant was going to come online. Operator: Our next question comes from Frank Mitsch from Fermium Research. Frank Mitsch: Mark, I wanted to get a sense -- I wanted to get your sense of where you think inventory levels are at your customers. Obviously, you spoke a little bit about the volume decline that we saw in 4Q, kind of reminiscent of the great destock back in '22, '23. So I mean, you might make the case that inventory levels have to be bone dry at your customers, but I'm curious as to what your thoughts are. Mark Costa: So I think that a lot of very painful lessons were learned back in '21 and '22 when customers and the retail channel massively overbuilt inventory and then demand corrected, obviously, with inflation, interest rates, et cetera, and people got caught holding on a lot of inventory that took a very long time to destock. I would say this year is very different or 2025 was very different than '23. First of all, people learned their lesson, and we're not building inventory for some expected high-growth scenario. Everyone was at the beginning of '25, pretty cautious about the economic scenario for the year. So customers and retailers were being disciplined on that. Now what -- what was different was April changed everything, right? So when the tariff trade sort of situation escalated, that caused everyone to go into action mode to try and mitigate their exposure and they bought more than they needed for the moment where they were trying to get ahead of those tariffs. And then demand slowed down a bit as we described from Q1 to Q2 with the consumer. So you ended up with some excess inventory, not just for us because we were doing the same thing, building some volume with the expectation of modestly improving sales in the back half of the year. And obviously, that didn't happen. So we had to do our own destocking in Q3. Same was true with our customers, right? They were sitting on more inventory than they needed with the consumer demand not improving materially and had to sort of take action on reducing that inventory. But the inventory levels they started with were much lower than where we were back in '23. And the change in end market demand is not significant, right? The end market demand has moderated a bit, but it didn't sort of collapse like it did in the back half of '22 and '23. I think the other test of it, Frank, is back then, we had a huge and difficult Q4 where volume really dropped. And then it dropped even more in Q1 of '23, right? Whereas now we see orders picking up in January, February relative to last fourth quarter, right? So that also gives me that comfort that they wouldn't be ordering more right now if they hadn't managed their inventory. Frank Mitsch: Okay. Got you. Okay. And so that feeds into my next question. I'm trying to just reconcile a couple of different items related to this. The asset utilization headwind in 2025 was $100 million, running your plants lower because of -- because you want to meet demand. So that's $100 million negative in '25. Now for '26, you're guiding $25 million to $50 million benefit from utilization, lower shutdowns and volume growth. So that's $25 million to $50 million for that. Is that directly comparable to that $100 million negative for '23? And then part [indiscernible] of that is also the $20 million benefit from lower maintenance in '26 versus '25. So if you can reconcile those numbers, that would be very helpful. William McLain: All right, Frank. Just at a high level, what I would highlight for you is, as Mark just highlighted, we had to do some of our own destocking. So first half to second half, we basically had $100 million headwind as we look at the way we ran our plants, the demand that we had in the first half and with the tariff, I'll call it, initiated prebuying, ultimately in the back half, as things got more cautious, we turned our plants down to deliver the $1 billion commitment that we made on cash flow. As you think about on a year-over-year basis, we highlighted in '24, we actually built inventory as we were planning for the strategic transitions to serve our circular economy footprint, including the rPET, and we built inventory in advance of the transition. I would say our Advanced Materials business did a great job of bringing that inventory back down, but it was really the build of inventory in '24 and the implications. So that's why there's a more modest utilization tailwind as we go into '26 from '25 is it's really those lower planned turnarounds as well as the benefit of not planning to build or deplete inventory. We expect to hold it pretty stable in our baseline assumptions starting the year. Mark Costa: The other thing I'd add is we have plans to drive a lot of volume growth and the things that we can control. But we're appropriately cautious like everyone else in the industry right now about what the underlying market demand is going to be. The demand is stable, we get -- we can deliver on all the volume that we're trying to achieve. The tailwind is going to be more than $25 million to $50 million of utilization benefit for this year, but we need to prove all that, right? So we're going to be a little conservative on how we think about that number until we see all the volume come together. William McLain: And also, just as we highlighted on Advanced Materials and why we -- the reason to believe, obviously, a large portion of the benefit will show up in Advanced Materials from utilization. Operator: Our next question comes from Kevin McCarthy from VRP. Matthew Hettwer: This is Matt on for Kevin McCarthy. Could you size the opportunity for your high-purity solvents in the semiconductor end market within Additives and Functional Products? What does that growth rate look like? And how do the margins compare to the rest of the segment? Mark Costa: So the high-purity solvents is a great business. The margins are definitely above segment average in that business, and it's always great to be connected to semiconductors right now and being on that growth. It's not a huge product line, and we don't break out those kind of numbers in our portfolio. But it is a meaningful contributor to sort of how to drive earnings growth, how to offset some of these discontinued products as we think about how we keep AFP stable this year. And the growth rates are high. They're in the 20%, 30% range and how we're growing it, but it's not a huge number when you apply that 20% to 30%. So don't go overboard in how you think about it. But it definitely is helpful as we think about that lower HTF sales and a couple of the discontinued products being a headwind this year in -- sorry, in AFP and how we offset it. Matthew Hettwer: And then in your prepared remarks, you mentioned that the EPS guidance you gave for 1Q does not include the impact from winter storms. I appreciate that's hard to predict, but could you maybe give us an idea of how you're thinking about that given how the winter has progressed so far? William McLain: To your point, it's too early at this point. We still have freezing temperatures here in Tennessee as well as at our site in Longview, Texas, and there's more snow that's getting ready to come. We've seen limited impact on our facility so far. As you might expect, I'm sure you've been watching the natural gas markets. So the main impact is on the energy and natural gas and where does that actually play out and influence. As Mark highlighted, we expected higher natural gas in Q1, but this could also be an additional tailwind. Ultimately, we're taking actions to ensure the safety [indiscernible] as a headwind in addition to what we had already forecasted. We're taking actions to ensure the safety of our team members and reducing rates to also limit the amount of the natural gas headwind that would come from this event. And obviously, we have a hedging program, and we're -- about half of that is hedged as we go through the quarter. We will provide, I'll call it, more information as we talk to you throughout the quarter. Operator: Our next question comes from Salvator Tiano from Bank of America. Salvator Tiano: So firstly, I wanted to go back to the Fibers volume. I know it's been a pretty long discussion, but I still do not really understand getting that, obviously, the textile part was down a lot, how given the volume bounce in tow, the volume was down 19%, setting aside the EBIT that you addressed in the first question of the call. So what are typically the volume bounds in your contracts? Like is the minimum actually 20% below, for example, the normal level? And secondly, as we think about this year's volume, you do mention in the call that you secured flat volumes year-on-year, but there will be continued destocking. So I don't really understand what that leaves us on a net basis for the Fibers volume year-on-year. Should we just assume flat? Or does this mean there is a risk to the downside? Mark Costa: So on a full year basis, you should assume that the tow volumes are stable to last year. So that -- just to get that question on the table. And then we have some volume growth we're pursuing in textiles on top of that sort of stable volume situation. The way you think about the contracts last year relative to the contracts we have this year, we started the year last year with volumes that were obviously better in Q1 and then they became less each quarter. Q1 started largely with customers buying in their contract ranges, but not all at the bottom of the ranges. And that's where the volume sort of was sort of normal in that sense outside of a couple of things that we started the year with on the destocking, but a lot of customers were normal. And then as the year went on, more and more people started taking actions and going to their contract minimums to try and destock. And we had also had some growth commitments from a couple of customers last year that was -- that they had plans on assets in the ground. We're buying the volume for their growth that they thought they were going to have and winning some share from some competitors. And that growth didn't materialize for them. So suddenly, they're sitting on more material they needed and started materially reducing their demand, too. And that's sort of how the volume evolved to where we were where most people are focused on destocking at the end of the year. So in that context, we then sort of pursued and achieved a bunch of contracts they have volume ranges to them. And when we look at those contracts that we have in place now and the actions that we've taken, we believe on an annual basis, the volumes when they're at their minimum will be stable to the volumes we realized last year. But those contracts, while their volume commitments on an annual basis, they're not -- they have flexibility quarter-by-quarter and how much they buy in the annual commitment. And so they're modestly lower in Q1 on their commitments. So they have to buy a bit more to stay in their contact zone as we go through the year, which also coincides with, I think, less destocking that they need to accomplish this year relative to last year. Salvator Tiano: Okay. Perfect. That's very helpful. The other thing is a little bit on the variable compensation. I mean you are working very [ tight ] trying to make sure that earnings will grow this year, as you said in the guidance -- in the outlook. So -- and you're cutting costs by, I believe, over $300 million in terms of the gross cost reductions, right? So in this context, why would the variable incentive compensation be such a big headwind? And I guess if you do not deliver on earnings growth because of whatever happens in the macro environment, how should we think the headwind -- like will the variable comp be a headwind? Or could it actually be -- end up being neutral year-on-year? William McLain: So what I would highlight is, obviously, as we set out with our business plans in 2025, the expectations at the start of the year were much higher than what was realized. Obviously, we reset commitments, but the plan was in place, and we're accountable to shareholders for that plan. As a result, you're going to see lower -- there's lower variable comp expense in our P&L in 2025, and there will be lower cash payments here in '26 for those plans. As we're resetting the business scenarios that Mark's outlined today, we expect to deliver on those. And if we deliver that stable cash and also deliver on all the actions, net of some of the headwinds, we would expect that the variable comp would reset and would be a headwind year-over-year of about $50 million to $75 million, depending on where we see those scenarios play out. Operator: Our next question comes from Jeff Zekauskas from JPMorgan. Wenyi Huang: This is Lydia Huang on for Jeff. How much have you spent on the second methanolysis project? And what would help you make a go or no-go decision? And are you looking for another baseload contract given actually has been pulled forward? Mark Costa: So as far as the second project is concerned and expense, obviously, we've already done some engineering expense around building the facility in Texas. And then we lost the DOE grant and we put all that work on hold. So we're not spending any money on engineering at this stage until we've lined out and developed a compelling project to be a lot more capital efficient in how we're approaching it to restart the project and go forward. So right now, we don't have any engineering expense or headwind from a capital expense point of view. Obviously, there's a team working on the circular economy across all platforms around the globe. And we're taking that cost down to some degree, too, as we adjust the rate at which we're progressing. But so that's where we're at. But I would say, though, around the second project, one, we're really excited that Kingsport can be debottlenecked by 130%, which allows us to grow more from the first plant, have better ROIC from the first plant before we get to the second plant. And that's what's enabling us to be confident that we can grow especially economic recovery and serve the rPET market with some of our customers who are coming back and wanting to buy from us a lot sooner, as I described earlier, due to the degradation of mechanical material that they can buy. So that's all really good. And it gives us time to work on this idea of more capital-efficient second plant, which we very much want to build. And so we've got 3 different options going on there where we're looking at different locations and assets we could leverage that already exist that we feel very good that at least one of them will be quite viable to move forward. But because of the debottlenecking, that means we can avoid ramping up significant CapEx around this platform this year and next. So it's a great solution to moderate our capital in a very difficult economic environment and make sure we have good strong free cash flow right now, but keep on track with the circular platform, which we believe is still going to be incredibly successful over time. I mean, without a doubt, people are buying a little bit slower in the specialties right now because -- not because of recycling, just because there's a lack of demand for their products, right? The consumer durable guys are under a lot of stress. So this all lines up and works out quite well to have a great platform, manage cash in the short term, be responsible to our shareholders on return on investment. Wenyi Huang: And is the Pepsi contract the main contributor, and this is for the Kingsport project. Is that the main contributor to the $30 million incremental earnings in '26? Or is that later in the year? Mark Costa: So the revenue growth for the Kingsport project in '26, '25, certainly, there is a significant amount of revenue coming in from rPET. Pepsi is one of the contracts that we have in place. We also have several other strategic leading brands ramping up volumes with us on rPET as well. So that is a big part of the 4% to 5% revenue increase. To what degree the specialties play a role in the final outcome for the year goes back to the macroeconomic question we talked about. If the world stays stable, we expect some growth in the specialties, especially in consumer durables, where we're new content we involved. We still have 100 customers committed and buying specialty Tritan Renew and some cosmetic Renew products, et cetera. They're just not ramping volumes up as much as we'd like because the economy is so challenged. Once they start -- once you have a stable economy, that starts -- they start launching new products to try and accelerate their growth and our volumes will grow with them. So as the year plays out, we expect some of that specialty business, hopefully, will start coming in and being a bigger part of the mix. But a very good portion is rPET, but it's not just Pepsi, it's several other customers. Operator: Our next question comes from Mike Sison from Wells Fargo. Michael Sison: Mark, when you think about sort of restoring earnings -- Eastman's earnings power back to where it used to be, is there any structural do you think in either the end markets or competition or China or something that could prevent that? Or -- and then just a quick one on your outlook for AM and AFP for sort of underpinning the significant earnings growth. What is kind of the range of volumes that you need? I know you have a lot of that volume with new products and within your control. But what's sort of the variable on the volume growth that you need to get that sort of significant EBIT growth? Mark Costa: Thanks, Mike. And yes, we spent a lot of time on this question, and we talked a bit about it at the deep dive and how we thought about getting back to what we said was normalized earnings. And you can go back and look at some of that material because I think most of it is still true in what we said then to where we are now. Without a doubt, when you think about the driver of where our earnings are today, it is primarily due to lower volume from economic demand that's impacting AM and AFP to some degree as well as CI. So it's -- that demand, whether it's high-value specialty growth in AM, very attractive growth in AFP or even just North American high value relative to exports and CI has all been impacted by the economy. And it's been weak, as we all know, for over 4 years, which is pretty unprecedented in that kind of a time frame, like 2009, 2020 were short blips, really steep down and snapped back. This is a long duration. So as we look at all that, and I said this earlier, there's a huge amount of potential pent-up demand to recover. Cars are 15 years old. Appliances are getting to their end of life when they bought them back in 2020. The housing market being 20% down. And for us, total housing is what matters, not new builds, to be clear. But total housing, which is now down 20% starts to recover. That's a lot of paint. That's a lot of appliances that go with people moving into a new or an existing home. And so there's a lot of upside in demand that can recover a lot of our earnings. So that's sort of the key is that innovation, you've got the circular platform driving a lot of growth on top of the core market recovery. And what's been impressive over the last 3 years, we've done a phenomenally good job of maintaining our price and our variable margins while defending our share because of our innovation, giving us differentiation. So if volume comes back, the incremental margins of that volume recovery and the utilization benefits that go with it, I think, are quite significant to bring earnings in AM and to some degree, AFP back in a meaningful way and even help CI recover in their earnings. So I think that's all really good. Now obviously, the structural -- so I don't think we have a structural problem in AM and AFP. We have a cyclical market demand problem. That has been our challenge. And to some degree, that's also true in CI. Now there are structural challenges in the olefins world, in the acetyl world from excess capacity in China impacting some of the chemical intermediate margins, and there's a debate obviously going on in the industry around to what degree does that structural pressure change. I mean right now, we are for sure at the bottom of the market when the prices are at the variable cash cost of the Chinese. So I don't think that's sustainable. But to what degree it fully recovers is unclear on CI. Now with CI, when you think about it, the actions we're taking on ETP provide a big lift. The margin recovery and demand recovery in North America will provide a lift. So there's a way to get the earnings back from where they are today to probably $150 million, $200 million in a normalized place. Now that's probably below where we were in the past, trying to reflect some of the structural challenges that we expect, but significant improvement from where we are today. Fibers, as we've already covered, I think, we're trying to stabilize in this year. What's interesting is if you look at the EBITDA in 2019 for CI and Fibers together, it's around $520 million. If you look at last year and put the EBITDA together, it's about $100 million less. So from a structural question, which is more of a fiber CI question, just ETP can get you back to where we were in 2019, and then we have the specialties building on that. And we're taking a lot of cost out to $225 million to $250 million of cost is also coming out to offset structural challenges to enable us to get back to normalized earnings. So we still think it's possible to get back to that $2 billion kind of number. Greg Riddle: Let's make the next question please. Operator: Our last question comes from Laurence Alexander from Jefferies. Greg Riddle: Laurence, are you still there? Becky, may we go on to the next one. Operator: [indiscernible] Laurence' line. Greg Riddle: Okay. So I think that's -- go ahead, Becky. Operator: No, that's okay. Sorry, I was just going to say that was our last question. Greg Riddle: Perfect. So thank you, everyone, for joining us today. We appreciate your time, and hope you have a great rest of your day. Operator: This concludes today's call. Thank you for your participation. You may now disconnect.

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HLMNY 2025 Q4 财报电话会议

Henrik Sjölund: Good afternoon, everybody, and welcome to the year-end report presentation for the Holmen Group. It's me, Henrik and Stefan, as usual, now, I must say. Thank you. You are most welcome to listen to us. We do the presentation, then we're happy to take all your questions, and we are especially happy that you take your time on a Friday afternoon like this. So let's start. I think if we just make a very quick summary of the year, it felt like we were a bit optimistic in the beginning of the year. But after a while, it changed into geopolitics, tariffs and also cautious consumers not really spending and also construction business that didn't really take off. But we'll come back to that a bit later. Despite challenging market conditions, we were able for the full year of 2025 to deliver close to SEK 3.3 billion, which is we consider as fairly good also in the fourth quarter. But I think in the fourth quarter, we'll come back to it when we go through the different business areas. It makes more sense. If we then take our industry, which means our right now, loss-making sawmills and Board and Paper, we've been able during the year to deliver return on capital employed of 15%. And based on our performance and also our financial position, we had a Board meeting this morning where the Board of Directors decided to propose to the General Annual Meeting to increase the ordinary dividend from SEK 9 to SEK 9.50. And just to remind ourselves what we have distributed to our shareholders. The last 5 years, in total, SEK 13 billion in dividends and buybacks. And given, as I said, our financial position where our debt-to-equity ratio is at the current moment, roughly 10%. We are in a solid financial situation. All right. Then a few words about the wood market, and we come back to forest and forest evaluation, Stefan, a little bit later. And if we start with the fourth quarter, of course, and then we will also comment on the storm a little bit, which happened in January. But what we saw in the fourth quarter was that the industry is running at a bit lower activity and also lower -- a little bit slower demand for pulpwood and prices have come down a bit and price lists have been adjusted. But what you see here, remember, this is delivered to our mills, both pulpwood and sawlogs in the fourth quarter, meaning it includes also logistics and administration costs. On the sawlog side, however, we see that prices were largely unchanged, most driven by the sawmills. We see that most sawmills, almost all the sawmills in Sweden still have been running at more or less full capacity. And you can see that in the statistics, which we will also come back to when we go through the sawmill operations. This is the situation we had when we ended the year and then came the heavy storm in mid-Sweden in January. To start with, it has limited effects on Holmen. But just to give a figure on what this is, this is roughly 10% or 10 million cubic meters is roughly 10% of what we normally harvest in a year in Sweden in total. In our case, a bit more than 300,000 cubic meters in this area is also roughly 10% of what we in total in Holmen forest land harvest in 1 year. And in this area, where we have now 300,000 cubic meters laying down, it's roughly 1/3 of a yearly harvest. What will happen to that is, of course, that, that will be more local supply and exactly what kind of effect on the local market in terms of pricing for pulpwood and sawlogs. That's a little bit early to say yet. But Stefan, before you talk about the result, will it cost us a lot of money to take care of the trees now laying down? Stefan Lorehn: In general, looking back at what the costs have been with previous storms, we see that the added cost for taking care of these kind of volumes is approximately a bit more than SEK 100 per cubic meter. So for the next year, maybe SEK 30 million to SEK 40 million that will increase costs in the Forest division. Looking at the results for the fourth quarter, that amounts to SEK 403 million. It was heavily negatively affected by a write-down of felling rights of some SEK 160 million. The Forest division in Holmen is not only responsible for the management of our own forest, but also for the supply of wood to our industries. The write-down that we did in Q4 refers to felling rights concerning the sawmill operations. And as you will see later on in the presentation, the financial conditions for the sawmill are really challenging for the moment. That also meant that we needed to adjust the value of these felling rights. Underlying performance in the Forest division was good in Q4. If we exclude this write-down, the result increased by some SEK 25 million compared to the third quarter, and that is mainly due to higher harvesting volumes as we harvested a bit more than 800 cubic meters in Q4. Moving over to the updated valuation of our forest holdings. As you know, we usually do this exercise every fourth quarter every year, so also this year. We own 1.3 million hectares of land, approximately 1 million to 1.1 million hectares of that is the productive forest land, and it is that part that is included in this valuation. 65% of our holdings is up in the northern part of Sweden, as you see from the map to the right, 25% in the middle part and some 10% in the southern part of Sweden. Our holdings consists of more than 4,000 individual forest properties with an average size of close to 250 hectares per property. The valuation that we do is based on transactions with forest properties in the areas where we own forests. We include transactions from the last 3 years in our model. And as you can see from this table, that means that we have included close to 1,000 transactions in the valuation model. The average size to the right in the table of the market transacted properties is 100 hectare per property, while ours are 2.5x the size of that, and I will come back to that later on. Looking at the historical development of property prices in Sweden in general, we see that it has been quite a steady increase over time. And from 2005 up until today, the annual increase in price has been 4.3%, which is a bit more than 2x the inflation during the same period. To that, of course, we should add the cash flow, et cetera, from the owning of these properties during this time to get the full financial result. Historically, property prices have tracked wood prices quite well. What we have seen in the last couple of years is that the increase in wood prices has not yet at least been reflected in the property prices. Coming back to our Forest. The value based on this updated valuation is SEK 57 billion. That is a small decrease by 2% compared to the same period last year. And the decline in value is due to the fact that we -- this year does not include the year 2022 in our valuation model and that particular year, prices for forest properties were higher than normal. We also do a reference valuation every year. This year, it was in Västerbotten up in the northern part of Sweden, where we have 370,000 hectares of land. The outcome of the external valuation were on par with our own model. There is although a size premium in the market, meaning that larger properties trade at a higher price than smaller ones. We don't include that in our model, and it has not been included in the external reference valuation either. But if we would have included it in the external valuation, prices would have been 8% higher. Henrik Sjölund: Correct. But we do not take into consideration that we own forest land based on company-owned forest land either, which normally goes at a substantial premium. Stefan Lorehn: Correct. So it's an upside from that perspective as well. Henrik Sjölund: Okay. Thank you very much. Totally different subject, renewable energy. And here, we have been standing here, Stefan, for some quarters now and looked at very low prices in the northern parts of Sweden. In the fourth quarter, we saw that also prices in SE2 northern parts of Sweden, increased a bit. You will come back to what it means in terms of earnings. But I think we also should include January because -- and do this in kind of 2 phases because it has happened quite a lot lately. In the fourth quarter, we can see that the difference between the different areas, both Germany and SE2 and SE3 it's roughly the same distance. It's like a parallel shift. But if we look at what has happened now in January, it looks a bit different. In the fourth quarter, we should add that there is a cable from SE1, northern -- absolutely northern parts of Sweden into Finland, which has had some impact. We also know that when we were a bit negative about the outlook because we had so much water in our reservoirs. That's no longer the case. Since the autumn, the water levels are on a normal level. And right now, when we have had for some time, should we call it Arctic weather with dry weather, there is a different situation. All of a sudden, now we have a situation where actually the marginal price for gas is setting the price for electricity in the whole of Sweden, gas in Germany. And how can that be? Well, for some reasons. First of all, as I said, drier weather, less water for the hydropower installations and also the cable to Finland has had some impact. But what we also see here is that the price is fairly stable. It hasn't changed much during January, meaning no volatility or not as much volatility. For us, that means when we make money on the electricity market, especially in our Paper division, it's based on volatility. When there is less volatility, as the situation is right now, we make more money. It's like a shift from Paper to our Energy division instead. Nobody knows how long this will stay, but it's kind of a new situation where, again, less earnings based on volatility in the South in our Paper division, but more earnings coming from our Energy division. Then, Stefan, if we go back to the fourth quarter to see, did we get a premium when we were producing? Stefan Lorehn: Yes, we did, as we usually do. We did run our hydropower stations quite efficiently, meaning that we can run them when prices are high and take down production when prices are lower. Harder though to run wind power farms. We did curtail our production from the wind power also during the fourth quarter when prices from time to time were really low. Result-wise, it is an uptick compared to the loss-making quarters that we've seen the last couple of quarters. As Henrik said, prices went up in the fourth quarter, but not to a historical normal level. But of course, if we compare to the situation as it has been earlier this year, it's a clear uptick. That is reflected in the result and also the fact that we had some seasonally higher production in Q4 that also gave some tailwind to the result. Henrik Sjölund: Yes. Thank you. Over to Wood Products. I said already in the beginning, our loss-making wood products, but you'll see that a bit later. Let's start by having a look at the market. I said already in the beginning as well that the construction market is not really taking off. We can see it in the U.S. that demand is not really taking off. Same in Germany, where demand also is not coming up really. And it's also the same when you look at production in Canada, especially in the west side of Canada, production is down quite a lot. And we can also see that in Germany, not only demand is on the lower side, also production has been on the lower side. It's one place, though, where production has not really changed. I think it's only us more or less that have reduced our capacity, especially at our sawmills in the south of Sweden. But if you look at the total in Sweden, North and South, still the Swedish sawmills are on more or less same production level as before. And of course, that has also an effect on what I said before when it comes to sawlog prices that they haven't really changed yet. Now Stefan we are in the beginning of the year, we are always thinking that and they normally do. Wood products prices normally have an uptick. They go up a bit in the springtime when the retailers, et cetera, they buy before we come out there when the weather gets better and we build our verandas and other things, renovate houses. What happened this year is that, well, prices went up a bit during the spring time. But if we look at the price level right now, we are more or less on exactly the same level as we were a year ago. And the difference is that the sawlogs are a lot more expensive than they were a year ago. And especially for us in the southern parts of Sweden, it's really, really difficult to get plus and minus to go together. So given where we are and what we have done, Stefan, it's not very nice reading, but what can we say about the result? Stefan Lorehn: You leave it to me. Thank you. As you said, Henrik, very challenging market condition, and it continued in the fourth quarter when prices went down a couple of percentage points quarter-over-quarter. Wood costs still on same high level as it has been during the autumn, meaning that the result wasn't nice reading and the operating profit was actually a loss of SEK 111 million. Henrik Sjölund: That's it. Maybe we get the question about that a bit later. Let's move on to Board and Paper. And also here, we see that -- I also said that in the beginning that the consumers, they are a bit cautious. But just to clarify, if we look at the bar for '22 and the bar for '23, it looks like we lost a lot of volume there. Remember, this is also -- this is -- half of it at least is what we used to deliver to Russia, which is no longer in the statistics as Russia was seen as part of Europe. But you can see that in 2025, also, as I said before, it's not really taking off. We are not back to where we would like to be, and it's more or less going sideways. There is a little bit of a difference between folding boxboard and solid bleached board and maybe especially for us as we have quite a lot of solid bleached board. There is some price pressure for folding boxboard, I would say stable prices for solid bleached board. But I don't think anyone in this business are running absolutely at full capacity utilization rate right now. And especially if you look for marginal volumes somewhere, of course, then it's a bit of difficult to find it, first of all, and also a bit of price pressure trying to get new orders. That's the situation for board. Our order book, I should mention it, I said we take some market-related downtime also we do that. And we have to be a bit cautious as well how we do when we try to fill our order books. If we then go to Paper, Well, we have talked about structural decline for a long time. And you can see for the last 12 months, it's down a bit, and it's roughly the same pattern as before, 8% to 10% somewhere there. Also here, it's -- I would say it's astonishly stable pricing given the huge overcapacity we can see in the market. There is also overcapacity in the board market, but here, we've been used to it. But I would guess that we are running at so low operating rates also putting kind of a floor to what can be done when it comes to pricing. And that's why, I guess, prices are fairly stable because they are. And here, we are doing okay. Also, we take downtime, but the rest of the market take even more downtime and it's the same when it comes to board, we take less than the market in general. And we cannot really expect an increase in demand here. It's just to make sure that we are the most cost competitive ones and make sure that we have the best product development in order to fill the machines with orders where we can make money. But wood is more expensive, Stefan? Stefan Lorehn: It is. And market is challenging here as well. Despite that, we report a high result from the Board and Paper division in the fourth quarter, partly included some higher-than-normal income from green certificates in the U.K. and also a bit higher than normal income from emission rights. Deliveries were although quite low in Q4, mainly due to seasonality, but that also meant that we needed to curtail our production a bit more than earlier this year that took a toll on the result in the fourth quarter. Energy costs were still lower than normal in Q4, but maybe not to the same extent as what we saw in Q2 and Q3. And as Henrik mentioned, talking about the electricity market, it is more challenging as we see the market behaving today to maintain this lower-than-normal energy cost level in the Board and Paper division. But on the other hand, we gained some or at least right now from the hydropower and wind power production up in the northern part of Sweden. Henrik Sjölund: Well said, I think we are done, aren't we? We are, and we are happy to take any questions you might have, unless you have something more you want to say. Stefan Lorehn: Totally fine. Operator: [Operator Instructions] The first question comes from the line of Linus Larsson from SEB. Linus Larsson: Maybe starting with Board and Paper, who had another good quarter in the end of 2025, but I understand there were some support. You mentioned U.K. green certificates, the carbon emission rights. If we dissect the division just a bit and put numbers on such items, it would be helpful. And also if you could please maybe guide us a bit into the beginning of 2026 on those. Stefan Lorehn: Yes, Linus. If we take the higher-than-normal income from the green certificate and the emission rights in combination with the lower-than-normal energy cost, we see that those items together affect the result by approximately SEK 250 million in the fourth quarter, quite evenly split between lower-than-normal energy cost and the emission and green certificate. Linus Larsson: Great. And I mean, we've seen similar patterns in previous quarters. What do you expect for the first quarter? What is disappearing possibly? Stefan Lorehn: It's very hard to predict how the energy market will trade in the first quarter. But as Henrik said, talking about the energy market, the volatility that we have gained from the last year, we don't see that high volatility in January so far, meaning that it's much harder for us to maintain this lower-than-normal level of energy cost. When it comes to the other items, they are quite evenly spread over the year. So there's nothing unusual on those, but it was in Q4, it was a, so to say, one-off effect from those. Henrik Sjölund: It's a bit weather permitting, Linus. No, but it's important to note that it's more of a shift right now than a loss. Volatility -- without volatility, it's very difficult to make money from the volatility. On the other hand, when you have this kind of weather, then you have high prices up in the north. Linus Larsson: And other companies have reported of the sale of excess carbon emission rights disappearing in the beginning of 2026. Do you see the same thing in any of your mills? Stefan Lorehn: Yes. We lose approximately 30% of our allotment next year as the Iggesunds Bruk mill is not longer part of the system due to them performing too well actually. Linus Larsson: All right. And if we quantify that, how much would that be in terms of tonnes or millions for that matter? Stefan Lorehn: On an annual basis, maybe SEK 50 million. Operator: The next question comes from the line of Robin Santavirta from DNB Carnegie. Robin Santavirta: Can you just provide some more color about the write-down you made in the quarter? Just wondering if this is basically writing down expensive wood raw material for your own timber business? Or how does that work? Stefan Lorehn: No, it's actually so that if you run a business that is loss-making, then you need to take down the value of your raw material cost -- raw material stocks because you cannot use the value of it in your production units as you are loss-making. So it's more of the sawmill operations running with low result that affects this item. Robin Santavirta: Okay. But partly the reason for the weak performance is the high wood cost. Stefan Lorehn: I totally agree. Robin Santavirta: Just trying to understand whether you enter now in a way with lower sort of wood cost outlook into 2026 for the sawn timber business and whether we should expect sort of relief in log pricing that is a bit bigger than what we can see in the market? Stefan Lorehn: We don't see any major shift, as Henrik said, when we look at the timber market, prices has not yet come down. We see that they have flattened out, but they're not coming down. And also, you know that we have a lag in the system, meaning that any potential shift in the market, it takes some time to run through our system. Robin Santavirta: I understand. Now can I ask, when I look at the log prices in Continental Europe and availability, I mean, it's tight and the prices are even higher than in the mid part of Sweden and clearly higher in Europe compared to northern part of Sweden. Still some of those sawmills generate profit, I understand. How does that work? Is it so that they have exposure to different segments? Or what is the reason you would expect them to be bleeding with EUR 150 per cubic for sawlogs that we can see in many markets. Maybe the dynamics here that I'm missing? Henrik Sjölund: I don't think you are missing anything, Robin. It's -- still in Sweden, we have quite big differences between northern and southern parts of Sweden. And as Stefan said as well, what we are consuming now, we bought some time ago. Stefan Lorehn: But it's very hard to comment on other players' financial performance, to be honest, Robin. Robin Santavirta: Yes, I was trying to understand, I mean, the dynamics if -- I mean, the log prices are high, I understand that, but you would expect the end product price start to increase as the raw material is expensive across essentially Europe and in Canada as well. But I guess we need demand for that to happen. Henrik Sjölund: I think we need some more demand, absolutely. But I think it's also important to note that we have said if we go back some quarters that there's a scarcity of sawlogs more or less worldwide. That hasn't changed so much. But right now, demand is not enough to make prices go up. But I don't think so much need to change before you see wood products prices to start climbing. U.S. should be... Robin Santavirta: Yes, go ahead, go ahead. Henrik Sjölund: U.S. is such a place which we should have a close -- we follow it closely, of course, but -- and it's a little bit up and down every week now. But obviously, demand is not enough, even though they are very dependent on the Canadians, and they are partly dependent on us as well. And production has not increased a lot in the U.S. So we have to wait and see, but I don't think it takes so much to turn around the picture or to change the picture. Robin Santavirta: Okay. I understand. I understand. Final one for you guys. Looking at the Board and Paper, now we hear from you and other your peers that demand is still quite weak, and we have more capacity, certainly in board, not in paper, but capacity utilization in both are quite weak. On the other hand, we can see energy prices, gas and power in Europe going up quite significantly now recently. How should we expect prices -- sales prices to develop in paperboard and paper early '26? Henrik Sjölund: I can only agree. You are right. Gas prices are up now a lot, and that has an influence on production cost in Continental Europe as well as in Sweden, of course, when we have these electricity prices. But also the long-term trend for gas is not up. It's rather flat or sideways or maybe even down. So it depends a lot what will happen. Right now, it's the weather, to be honest. And people are a bit scared that they will not have enough gas and all of a sudden, you have a spike. And with the conditions we have right now, the marginal price for gas in Germany goes all the way through up into the northern parts of Sweden. But of course, when we produce in paper mainly, we have hedged our electricity price. So really high gas prices, of course, it's good for us if it stays like this. But if it will, I don't really know. Robin Santavirta: But is it enough then to support pricing this combination of essentially capacity utilization quite weak across Europe and then this sort of energy prices? Henrik Sjölund: You are right again. It's about costs. it's not that we are in the driver's seat because operating rate is over 90%. That will not happen. So it's about cost that you can't produce unless you get coverage for the cost. And I think it depends on how long this goes on. Operator: The next question comes from the line of Pallav Mittal from Barclays. Pallav Mittal: So firstly, on the Board and Paper side of things, can you just let us know the split between Board and Paper? And also, I mean, you definitely highlight weakness in consumer paperboard. Can you now give some more details around how have tariffs impacted the industry so far, given a lot of movement between June and December of last year? And do you expect any change in the near term? Stefan Lorehn: A bit hard to catch your question, Pallav, but I think the first one was about the split of operating profit in the Board and Paper divisions. Main part of the annual result is referring to the Paper division this year due to the lower-than-normal energy cost and also that we had 2 major maintenance shuts in the Board division. Maybe you can take the other. Henrik Sjölund: Maybe you can repeat what you said about Board and especially Board, wasn't it? Pallav Mittal: Yes. On the Board side of things, how have tariffs impacted you so far? And are you seeing any changes in the way you are interacting with your customers? Stefan Lorehn: Well, our exposure to the U.S. market is quite limited, Pallav, when it comes to both Board and sawmill and Paper. So the direct effect from the tariffs is quite limited for us. It's rather the dynamic effects when people that usually exported a lot to the U.S. is taking volumes other places where Europe is a natural part for some of those. So that's more of the dynamic effects that affects Holmen rather than the direct hit from tariffs. Pallav Mittal: Sure. And if I can just ask one on your balance sheet and the returns to shareholders. So your net debt-EBITDA leverage is now around 1x, but I don't see any incremental share repurchases or any plans. So can you just comment on that? What are your plans with capital returns? Stefan Lorehn: If it was CapEx next year or is it maintenance? So let's start with CapEx. We can take both of them. I think you can expect CapEx to be much lower next year compared to 2025 when we have the wind farm in Blisterliden being built. So maybe a bit higher than SEK 1 billion next year in CapEx is reasonable to assume. When it comes to maintenance shut, we have shut in the Iggesund mill next year, which we have annually. It's in the third quarter, and the estimated effect on the P&L is SEK 150 million. Operator: The next question comes from the line of Lindstrom Oskar from Danske Bank. Oskar Lindström: Two questions from my side. First off is coming back to this issue of the gas price spike that we've seen in Europe and the effect it's had. How quickly does that have an impact on the cost for producers in Continental Europe? What's your sort of understanding of how quickly that feeds in? Or does it take a long time? Or is the spot price relevant? That's my first question. Henrik Sjölund: I think it has an impact quite fast actually because you take business today that you are supposed to deliver in 2 to 3 months normally. You have to take a decision today and make your best forecast, what will be your energy cost when you are about to produce and deliver. So in that sense, it has an impact already now that all producers dependent on gas for their production should be a bit more cautious. What the end effect will be, I don't know. And how long it will stay like this? Well, the longer the better for us, of course, but that's a bit more difficult to understand. Oskar Lindström: A follow-up. Have you seen any tendency among your competitors to essentially raise their prices in reaction to this? Henrik Sjölund: I can't say we have seen that yet, but... Oskar Lindström: By asking you. The second question is on Board. And I mean, you operate in a large part in solid bleached board, which is sort of a niche premium segment within the overall board market. It doesn't seem to have been impacted by the type of sort of increased Asian competition in export markets, which we've seen impacting the liquid packaging board niche segment. Should we expect the solid bleached board market to be sort of immune to this wave or waves of Asian capacity and competition or... Henrik Sjölund: I think you're right when it comes to that part of the business. But as I said before, we are not running totally full either. We take some market-related downtime. And if you want to get an extra order as a marginal order, it's very difficult, especially if you try to get it from Asia. But we have not been affected directly, but indirectly, you can say we do feel the competition. Oskar Lindström: If I may ask roughly how much of your board or of your solid bleached board is exported outside of Europe? Or goes to Asia in fact? Henrik Sjölund: It's a good but difficult question because we have a lot -- quite some deals, which we make in different continents than where we deliver the volumes. And again, once they are there, they are sold somewhere else in the world. So we deliver quite a lot to Asia, but it's not Asian business. Oskar Lindström: Right. But you don't feel that we, as analysts or people as investors need to be thinking that you could -- a lot of your current SBB volumes are being very, very challenged in the way that we've seen in liquid packaging world. Henrik Sjölund: Not yet. Oskar Lindström: Not yet. Those were the 2 questions that I had. The other ones have been answered already. Operator: The next question comes from the line of Muir-Sands Charlie from BNP Paribas. Charlie Muir-Sands: It's Charlie here. I just wanted to follow up on a question that wasn't fully answered before around capital allocation. You have not declared any extra dividend this year. How are you thinking about balancing your leverage and capital allocation beyond the SEK 9.50 increase in -- a small increase in the ordinary dividend to potentially an extra dividend at a later date or a buyback? Henrik Sjölund: No, we are -- we feel that we have a good position, the one we have right now when it comes to our financial position and the 10% net debt is fine. But we would never, ever jeopardize anything when it comes to our financial strength, if anything comes up that we think we should spend money on. And given the challenging situation in the market, but also that we are in a fairly good position, we find that an increase, it's 5%, 6%. It's not that small increase. It's balanced given the situation we are in. There are also some uncertainty in the world that we don't have in our own hands. So that's why we landed in today proposing a dividend of SEK 9.50 and no extra dividend as we see things right now. Charlie Muir-Sands: Understood. And then the second question I have is with respect to the pulpwood price. As you indicated, the delivered cost for you has only just dipped a little bit. But clearly, some of the stumpage prices have started to fall quite significantly now. Which quarter in this coming year do you anticipate it starting to manifest as a particular material tailwind in your input costs? And the same question, I guess, if there's any signs at all of movement on stumpage on logs as well. Henrik Sjölund: But as you say, pulpwood prices are coming down. We have changed price lists a number of times already now, but that's not the same as that you have bought a lot to cheaper prices. But I think you should wait a little bit to see what happens with the storm and the it's rather big volume, to be honest, at least outside our Iggesund mill, to be honest. Laying there, we move our capacity, and we do the deals right now to see where the price will land. That will have an effect locally at least, how that will spread and if it will make things go faster when it comes to especially pulpwood coming down, most likely, but how much it will spread and how far down it will go, it's too early to say. Operator: The next question comes from the line of Cole Hathorn from Jefferies. Cole Hathorn: I'd just like to follow up on the chart you put out on Slide 13, looking at the price of forest properties and the nominal wood prices. Just so I understand this, you made the comment that forest prices didn't rise as much as kind of the nominal sawlog and cycle. Are you trying to imply that potentially in the -- if we see some downward pressure on sawlogs or pulpwood, you would hope that the forest property transaction values would be more resilient. I'm just wondering how you're thinking about it into 2026, considering we are seeing and pulpwood prices at least lower? Stefan Lorehn: It's -- as you know, we base our valuation of our forest on deals made by people out in the transaction market. How they will behave is quite tricky to digest. What we see is that the last couple of years increase in wood cost has not been reflected in the behavior from the buyers of forest properties paying a premium based on that. So we have a larger spread now between the wood cost and the property prices than what we've seen historically. How that will play out in the long run, I think we have to wait and see, as Henrik said as well when he comment on pulpwood and timber prices. Henrik Sjölund: But maybe also you can say that, well, wood prices can come down quite a lot before it should have an impact on property prices going down. Stefan Lorehn: You can do that as well. Cole Hathorn: That's helpful just to understand forest prices might be a little bit stickier. Then I've got another 2 on my side. The first is on board prices. I know you less falling boxboard. I'm just wondering, is there any kind of rough estimate you can give on what is the decline you've seen on kind of your pricing segment, just how we think about into 2026? I imagine ratio, but some help on the quantum would be useful. And then I'd just like to follow up on the saw wood industry. I know profitability is really challenged. I'd just like to understand if you've got any color from the players in Central Eastern Europe at all around any closures or any shuts that you're seeing there or capacity curtailments in Central Eastern Europe? Henrik Sjölund: So we start with... Stefan Lorehn: Pricing of FB and SB, as you know, Cole, our prices and the prices in the segment overall tends to be quite sticky. We have not seen any movement hardly at all during 2025. And there is no big movement in our prices for the moment. But as Henrik said, if we want to sell an extra ton of things, then we need maybe to lower the price a bit. But in general, they are quite sticky. Henrik Sjölund: And solid bleached board, it's more like a niche and prices move very slow in case they move. Folding boxboard moves a little bit faster. Stefan Lorehn: The other one was about sawmill operations in Eastern Europe, I think, and potential closure there. Henrik Sjölund: You saw the slide before when it comes to Germany that sawmills are taking down production quite a lot actually. But if they close or not, I really don't know. Operator: The next question comes from the line of Henrik Bartnes from ABC (sic) [ ABG ]. Henrik Bartnes: This is Henrik from ABG. Sorry, I missed this, but have I understood it correctly if hydro and wind power are not hedged, i.e., the current higher energy prices could imply a quite large positive effect Q-on-Q in Q1? And could you also please remind me on the seasonal volumes or the weather in Q1? Are they typically more or less wind? And have you seen anything special so far in Q1? Stefan Lorehn: The first one, I didn't catch. It was if we were hedged or not. And we have no hedges in place for our Energy division. So we are trading at spot prices. The other one. Henrik Sjölund: It was about the weather. Stefan Lorehn: It's cold in Stockholm. Henrik Sjölund: But I think also remind ourselves that we started up the Blisterliden wind farm just before the new year. And that timing was good given the situation we have right now. But as I said before, right now, it's stable winter weather, almost arctic weather with -- it's dry weather. There is not so much water in the reservoirs, meaning hydropower is extremely important to keep stability in the grid and there is enough capacity that can be transmitted. So the volatility is low, both in northern parts of Sweden and southern parts of Sweden right now, but prices are high. It's also less wind when you have high pressure. But remember, we are not metrologists. We're only normal business people. As it looks now, it will stay like this at least for a couple of weeks, but the weather has changed before. Operator: The next question comes from the line of Masvoulas Ioannis from Morgan Stanley. Ioannis Masvoulas: I apologize, I joined a bit late, so I might be repeating some of the questions. The first one I had, just going back to the Storm Johannes and the impact it had to your business. You talked about the timber sales and how much of that is going to impact cost that was clear. So just a question for me to understand in terms of the implications for the overall harvest volumes. So I guess, you might move some of your resources towards some of your third-party forest owners as you try to support them. What sort of impact could that have to your harvest volumes in Q2, Q3? And could that extend into the second half? Or do you think it's more of a temporary situation? Stefan Lorehn: It's more of a temporary thing, but we have not done the complete analysis on how we will deal with the storms effect, but it should be possible to take care of it in the normal operation, meaning that it should not affect our annual harvesting. But we need to do the analysis a bit deeper and need to come back to that in the next presentation, I think. Henrik Sjölund: But you're right, it takes a bit more hours to take care of is laying down rather than standing up. I said we are a company with capacity, so it shouldn't be the biggest problem for us. Ioannis Masvoulas: Great. Second question, just again on the Forest. When I looked at realized price, if I look at revenue divided by volumes in the Forest segment, it feels like there was quite a big step down quarter-over-quarter. And I know there is a lot of sort of trading volumes in the Forest segment. So trying to understand if there are any particular aspects to consider for Q4 that might not repeat in the coming quarters? Stefan Lorehn: No. The prices were quite stable quarter-over-quarter if we look at the sales price that we get from the harvesting of our own forest. If you do the calculation as you did, as you said, it's a lot of timber trading included in that. So it's hard to do that interpretation. Ioannis Masvoulas: I see. Okay. And then turning over to the sawmills where performance and earnings have been under quite some pressure for some time. If we think about Q1, I guess, with the lag effect, sawlogs are probably going to be a little bit more expensive in Q1 versus Q4 and pricing for some good products is not improving. Shall we expect profitability in Q1 to be even worse? And in that case, how are you feeling about your operating rates there? Stefan Lorehn: Well, we have taken down volumes during the autumn. As you know, we've taken down shifts in the Braviken mill in the southern part of Sweden and adjusted at the other sawmills as well. How things will play out in Q1, as Henrik said, it happens from time to time that prices actually increase when we enter into spring season. But it's very hard to predict what it will be. Henrik Sjölund: Wood costs should not go up. Stefan Lorehn: Wood costs should not go up, but probably not go down either. So... Ioannis Masvoulas: And you're talking about Q1 wood costs not going up? Stefan Lorehn: More or less flattish. Ioannis Masvoulas: Okay. Okay. Perfect. And then a very last one for me. I don't know if you mentioned at all any energy sort of optimization or trading gains in the graphics segment that you could talk about? Stefan Lorehn: Well, we said that we had some extra income from green certificates in the U.K., some higher-than-normal income from emission rights and also as earlier this year, lower-than-normal energy cost, but not to the same extent as we saw in Q2 and Q3. Total effect of all this item is approximately SEK 250 million in the fourth quarter. Operator: Ladies and gentlemen, that was the last question. I would now like to turn the conference back over to Henrik for any closing remarks. Henrik Sjölund: Thank you very much. Good questions, good discussion. Look forward to see you soon again. Thank you. Stefan Lorehn: Nice weekend. Henrik Sjölund: Have a nice weekend.

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SXI 2026 Q2 财报电话会议

Operator: Good morning, ladies and gentlemen, and welcome to Standex International Fiscal Second Quarter 2026 Financial Results Conference Call. [Operator Instructions] I would now like to turn the conference call over to Chris Howe. Please go ahead. Huang Howe: Thank you, operator, and good morning. Please note that the presentation accompanying management's remarks can be found on the Investor Relations portion of the company's website at www.standex.com. Please refer to Standex's safe harbor statement on Slide 2. Matters that Standex management will discuss on today's conference call include predictions, estimates, expectations and other forward-looking statements. These statements are subject to risks and uncertainties that could cause actual results to differ materially. You should refer to Standex's most recent annual report on Form 10-K as well as other SEC filings and public announcements for a detailed list of risk factors. In addition, I'd like to remind you that today's discussion will include references to the non-GAAP measures of EBIT, which is earnings before interest and taxes; adjusted EBIT; EBITDA, which is earnings before interest, taxes, depreciation and amortization; adjusted EBITDA; EBITDA margin; and adjusted EBITDA margin. We will also refer to other non-GAAP measures, including adjusted net income, adjusted operating income, adjusted net income from continuing operations, adjusted earnings per share, adjusted operating margin, free operating cash flow and pro forma net debt to EBITDA. Adjusted measures exclude the impact of restructuring, purchase accounting, amortization from acquired intangible assets, acquisition-related expenses and onetime items. These non-GAAP financial measures are intended to serve as a complement to results provided in accordance with accounting principles generally accepted in the United States. Standex believes that such information provides an additional measurement and consistent historical comparison of the company's financial performance. On the call today is Standex's Chairman, President and Chief Executive Officer, David Dunbar; and Chief Financial Officer and Treasurer, Ademir Sarcevic. David Dunbar: Thank you, Chris. Good morning, and welcome to our Fiscal Second Quarter 2026 Conference Call. I am very pleased to present results that demonstrate our years-long efforts to build a growth engine at Standex are now reading through in top line results. We recorded 6.4% organic growth and a book-to-bill ratio of 1.04, led by our Electronics segment, which grew 11.1% organically with a book-to-bill ratio of 1.08. The contributions from sales into fast growth markets, new product sales and the improving general industrial markets are now evident in our results. As such, the company is well positioned to deliver mid- to high-single-digit organic growth in the fiscal third quarter and remains on track to the fiscal 2026 sales outlook. I would like to thank our employees, our executives and the Board of Directors for their efforts and continued dedication and support that drove our solid fiscal second quarter 2026 results. Now let's look at the results beginning on Slide 3. In the second quarter, sales increased 16.6% year-on-year. Contributing to this growth were new product sales and sales into fast-growth markets. New product sales grew approximately 13% to $16.3 million. Sales into fast-growth markets were approximately $61 million or 28% of total sales. These results have been literally years in the making as we began our focus on new product development in fiscal year 2021 by increasing our R&D spending from 1% of sales to the current 3%. In the same year, we began directing our efforts to win more applications with customers serving fast growth markets. In our August earnings call, we said that we believe both efforts were reaching an inflection point and would deliver organic growth this fiscal year. These results show they are paying off. Orders of approximately $231 million were the highest quarterly intake ever, showing our growth engine continues to accelerate and setting us up nicely for the balance of the year. In the second quarter, sales increased 6.4% organically with book-to-bill of 1.04, highlighted by the Electronics segment that grew 11.1% organically with book-to-bill of 1.08. In addition, the engraving segment grew 10.3% organically. Adjusted gross margin of 42.1% was up 120 basis points year-on-year. Adjusted operating margin of 19% was up 30 basis points year-on-year. We paid down approximately $10 million of debt and reduced our net leverage ratio to 2.3x. We are reiterating our fiscal year 2026 sales outlook. Barring unforeseen economic global trade or tariff-related disruptions, we expect revenue to grow by over $110 million from 2025. The drivers of this increase are the strong momentum we are seeing from new product sales and sales into fast-growth markets and the full year impact of last year's acquisitions. In fiscal year 2026, we expect new product sales to contribute approximately 300 basis points of incremental sales growth and have increased our expected sales from new products to $85 million from $78 million. We launched 4 new products in the second quarter and remain on track to release more than 15 new products in fiscal 2026. Sales from fast-growth markets are expected to grow over 45% year-on-year and exceed $270 million. On a year-on-year basis, in fiscal third quarter '26, we expect significantly higher revenue driven by mid- to high-single-digit organic growth from higher sales into fast growth end markets and increased new product sales and slightly higher adjusted operating margin due to higher volume and favorable product mix, partially offset by growth investments and higher medical costs. On a sequential basis, we expect slightly to moderately higher revenue driven by higher contributions from fast growth end markets and new product sales and slightly to moderately higher adjusted operating margin due to higher volume and pricing and productivity initiatives, partially offset by growth investments. I will now turn the call over to Ademir to discuss our financial performance in greater detail. Ademir Sarcevic: Thank you, David, and good morning, everyone. Let's turn to Slide 4, second quarter 2026 summary. On a consolidated basis, total revenue increased approximately 16.6% year-on-year to $221.3 million. This reflected organic growth of 6.4%, 9.4% benefit from acquisitions and 0.8% benefit from foreign currency. Second quarter 2026 adjusted operating margin increased 30 basis points year-on-year to 19%. Adjusted earnings per share increased 8.9% year-on-year to $2.08. Net cash provided by operating activities was $20.7 million in the second quarter of fiscal 2026 compared to $9.1 million a year ago. Capital expenditures were $7.7 million compared to $7 million a year ago. As a result, we generated fiscal second quarter free cash flow of $13 million compared to $2.2 million a year ago. Now please turn to Slide 5, and I will begin to discuss our segment performance and outlook, beginning with Electronics. Segment revenue increased 20.6% year-on-year to a record $115.7 million, driven by organic growth of 11.1%, acquisition benefit of 9.1% and 0.4% benefit from foreign currency. Organic growth was driven by sales in the fast-growth markets and increased new product sales. Adjusted operating margin of 28.8% in fiscal second quarter 2026 increased 120 basis points year-on-year due to higher volume, pricing initiatives and product mix. Our book-to-bill in fiscal second quarter was 1.08, with orders of approximately $125 million. This marks the sixth consecutive quarter with book-to-bill near or above 1. As mentioned before, due to the customized nature of our products, the conversion cycle is longer, but with higher sustainable margins. The healthy order funnel is now being realized in our organic growth results. Sequentially, in fiscal third quarter 2026 we expect slightly to moderately higher revenue, reflecting higher sales into fast growth end markets and increased new product sales. We expect similar adjusted operating margin, primarily due to product mix and continued strategic growth investments. Please turn to Slide 6 for a discussion of Engineering Technologies and Scientific segments. Engineering Technologies revenue increased 35.3% to $30.6 million driven by 33.4% benefit from recent McStarlite acquisition, organic growth of 1.2% and 0.6% benefit from foreign currency. Organic growth was suppressed by delays in customer project timing. Adjusted operating margin of 18.9% increased 260 basis points year-on-year, primarily due to higher volume. Sequentially, we expect moderately to significantly higher revenue due to growth in new product sales and more favorable project timing. We expect slightly to moderately higher adjusted operating margin due to higher volume. Scientific revenue increased 5.5% to $19.5 million due to acquisition benefit of 8.1%, partially offset by organic decline of 2.6%, primarily due to lower demand from academic and research institutions affected by NIH cuts. Adjusted operating margin of 24.2% decreased 270 basis points year-on-year due to organic decline and product mix. Sequentially, we expect similar revenue and slightly lower adjusted operating margin due to product mix, investments in research and development and tariff costs, partially offset by pricing and productivity initiatives. Now turn to Slide 7 for a discussion of the Engraving and Specialty Solutions segment. Engraving revenue increased 13.6% to $35.7 million, driven by organic growth of 10.3% from improved demand in Europe and North America and 3.3% benefit from foreign currency. Adjusted operating margin of 19.2% in fiscal second quarter 2026 increased 490 basis points year-on-year due to higher sales and realization of previously executed restructuring actions. In the next -- in our next fiscal quarter, on a sequential basis, we expect similar revenue and slightly lower adjusted operating margin due to project and regional mix. Specialty Solutions segment revenue of $19.8 million decreased 7.2% year-on-year. Operating margin of 10.7% decreased 600 basis points year-on-year. Sequentially, we expect moderately to significantly higher revenue and operating margin. Next, please turn to Slide 8 for a summary of Standex's liquidity statistics and capitalization structure. Our current available liquidity is approximately $213 million. At the end of the second quarter, Standex had net debt of $437.7 million compared to net debt of $413.2 million at the end of fiscal second quarter 2025. Our net leverage ratio currently stands at 2.3x. We paid down our debt by approximately $10 million during the fiscal second quarter 2026. In fiscal third quarter 2026, we expect interest expense between $7 million and $7.5 million. Standex's long-term debt at the end of fiscal second quarter 2026 was $534.7 million. Cash and cash equivalents totaled $97 million. We declared our 246th quarterly consecutive cash dividend of $0.34 a share, an approximately 6.3% increase year-on-year. In fiscal 2026, we expect capital expenditures between $33 million and $38 million. Relative to our debt leverage, we will continue to focus on paying down debt and anticipate that our leverage ratio will further decline through fiscal year 2026. I will now turn the call over to David for concluding remarks. David Dunbar: Thank you, Ademir. Please turn to Slide 9. I I'm very pleased to see the inflection in organic growth in the second quarter as new product sales grew 13% and as fast growth markets contributed 28% of revenue. Organic growth was driven by our Electronics, Engineering Technologies and Engraving segments. The year-on-year organic growth reflects actions and investments since fiscal year 2021. During this time, we ramped up new product development across our businesses and further positioned ourselves in fast growth end markets like Grid, commercialization of Space and Defense. We will continue to align our organic and inorganic growth investments around secular end markets and new products that expand our presence and deepen our customer relationships. This continued momentum in fast-growth markets and from new product sales helped support a record order book in the fiscal second quarter. We are reiterating our sales outlook for fiscal 2026 and remain on track to achieve our fiscal 2028 long-term targets. We will now open the line for questions. Operator: [Operator Instructions] Your first question is from Chris Moore from CJS Securities. Christopher Moore: Congratulations on another solid quarter. Maybe we just start with one on the -- on the purchase accounting side, the $17.98 million redeemable noncontrolling interest redemption value. I know that relates to the 10% that you could not acquire of Amran, Narayan. Maybe you could just kind of walk us through the math there and how that works? Ademir Sarcevic: Yes. Sure. It's Ademir here. So it's a bit of a technical answer. So we -- and we anticipated this question, so we prepared a few remarks. So let me try to explain. So kind of in general, whenever we acquire the business, our goal is to ensure full alignment in objectives and incentives between owners of the business and Standex and in many cases, actually owners and team management of the acquired business stay on board with us not only to ensure successful integration, but also, frankly, to help us grow the business in the future. And that's been our key success with our prior acquisitions has been really strong, strategic, financial and cultural fit. So last year, when we negotiated agreement to acquire Amran and Amran is actually a U.S. legal entity and Narayan, which is an Indian legal entity, our goal is essentially the same, to ensure common goals and incentives between owners of the business and Standex. So in order to achieve this goal, we acquired 85% of Amran in cash and 15% with Standex shares. And then we also acquired 90% of Narayan in cash, and our plan was to acquire the remaining 10% of Narayan, an Indian entity, with Standex shares. This acquisition actually of the remaining 10% of Narayan with Standex shares was not possible at the time of acquisition because it was subject of approval by Indian government as Indian nationals have restrictions on owning foreign equity. And since we didn't have this approval at the time of Narayan acquisition, we included in the purchase agreement, an alternative method to acquire the remaining 10% with cash, using the same 12x trailing 12-month EBITDA multiple which is measured at future points in time. So now after 1 year, the India government approval was not obtained. And at this point, this approval is unlikely. And based on the original purchase agreement, minority owners of Narayan now have the right to sell us 1/3 of their remaining 10% interest in Narayan. And as a result of these 2 facts, per accounting rules we had to record the increased value of remaining 10% of Narayan based on trailing 12 months Narayan EBITDA as of end of fiscal Q2 FY '26 applying the same 12x multiple to frankly represent what it would cost Standex to acquire in cash, the remaining 10% stake of Narayan as of today as per the purchase agreement. So really, Chris, it just shows the increased value of this business since the acquisition and just frankly, a phenomenal performance that this business has had as part of Standex grid. Hopefully, that helps. I mean I can read you the explanation from the Q, which is even more tactical, but hopefully, this helps clarify. Christopher Moore: No, it does. That was perfect. Very helpful. All right. So on to the business. So maybe just continue with Amran or Grid. So OEMs such as Schneider Electric, Siemens, GE, all found it more efficient to outsource the low to medium voltage transformers that Grid is providing much of the engineering that they had done in-house. So maybe just a question or 2 here. How would you characterize the competitive environment here? I'm just trying to understand if -- do most of these OEMs have multiple relationships with companies like Amran? Or are you sole sourcing or how does it work now? And what's your expectation moving forward? David Dunbar: Well, Chris, this is a great example of a customer intimacy market. And the idea of customer intimacy is that as customers design their next generation platforms, they've got their engineers focused on the most critical functionality within that platform, but there are other elements that are very important that must be custom designed and they need partners to do that. So over the years, instrument transformers have moved into that category and Amran Narayan is quickly becoming a valued partner to the global equipment OEMs. If you zoom out and look at the global market for instrument transformers, about 40% of the instrument transformers are made by the electrical equipment OEMs, by the GE, Siemens, by Schneider Eaton. They are outsourcing more and more of that, but not all of it. The other 60%, there are different suppliers in every region of the world. And I would -- they're not small family shops. These are businesses about the size of Amran and Narayan, but there are a lot of suppliers out there around the regions of the world, and we feel that we stack up well against all of them. Christopher Moore: Got it. And very helpful. And maybe just the last 1 for me, maybe just bigger picture. India and EU just signed a trade deal? Just wondering any thoughts there? David Dunbar: Well, yes. Well, first of all, clarity in trade is good. Clarity and consistency, so we can make our investment, make our plans. Now if you think about the Croatia site that we've started up and now ramping up, we're installing machinery now there, that makes that Croatia site even more viable long term because that's there to serve the European market and leverages the India supply chain. So we don't know fully what the implications are, but it can only be good. Operator: Your next question is from Ross Sparenblek from William Blair. Ross Sparenblek: On the electronics, can you maybe just help parse out the sales and order growth for the grid business versus the legacy? Ademir Sarcevic: Yes. I mean, again, our book-to-bill for the electronics in total was over 1 with the Grid business being at about 1.2 book-to-bill and the core business being at about 1.03, 1.04. I think even kind of more of an info is that our orders in the Electronics business have been strong over the past 2 quarters or a few quarters. And as you know, Ross, it takes us a little while to convert some orders into sales. So we are pretty pleased with what we are seeing in the overall order book, both in the core business and especially what we are seeing on the grid business because the demand is very strong. David Dunbar: I just -- there's 3 big pieces of our electronics business, the grid business continues to grow kind of as it has in the last few years. Our switches and sensor business with reed switches and relays is growing upper-single digits and the magnetics business, which is primarily North American business, is less than that. So our core electronics business, mid-single digit growth. Ademir Sarcevic: Yes, correct. Yes, yes. David Dunbar: And then that grid business. Ademir Sarcevic: So yes, in the quarter, right, that's a good point. In the quarter, Ross, the grid business kind of got that organic growth rate because we lapsed the year, got the organic growth rate for the whole total segment over 10% with the core growing at about mid-single digits organically. Ross Sparenblek: Okay. So I mean you get the sense on the legacy side that you're starting to hit an inflection here. That's how it seemed to indicate. But I mean we kind of think through the end markets and the drivers, I mean, is there anything really to call up there? I mean I know EVs was a story for a bit. You won some new content, Aerospace and Defense, just what's helping sustain that legacy? David Dunbar: Yes. On the legacy side, it's -- right, it's primarily the switches and the relays, Asia is very strong. There's a lot of economic activity in Asia, we're seeing a pickup in Europe. North America is still flat. So if you look at the geographies. The end markets, our relay business is growing with test and measurement, sales relays into test and measurement equipment, and that's tied to electrification, grid and data centers. Those are kind of things that stick out. Ross Sparenblek: Yes. Okay. And then can you maybe help us bridge the second half walk to the $270 million of fast growth sales, but we comped over the Amran acquisition and kind of my math, it seems like the biggest 2 bucks are probably commercial space and grid, and then we also have capacity coming online there, too, that might be inhibiting that the next quarter or two, on the grain side? David Dunbar: Well, yes. So last year, our sales in fast growth of $184 million and that included a partial year of the grid business. This year, we're saying $270 million plus, and that's a full year of the grid business. Within that, our sales into defense in North America are up $15 million to $20 million, space about $10 million. EV is about $5 million, and the rest is the grid growth, which is primarily the Amran Narayan acquisition, but there's some sales into grid from our legacy magnetics. Ross Sparenblek: Okay. I mean that's kind of what you're baking in for the year, that's what you've already seen in the first half. David Dunbar: No, we're seeing that. Yes, yes. Ross Sparenblek: Okay. I'm just trying to understand there's going to be a bigger mix shift towards the grid since it is higher margin or what the timing look like there? David Dunbar: Well, it is higher margin. But... Ademir Sarcevic: Yes. No, no, you're right. The grid business has higher margins. So just 1 thing, Ross, that's important is we're also investing in growth and capacity expansion in grid. So there's going to be some cost to set up our Croatia site to expand in Mexico to get the -- to get the Houston, Texas capacity expansion. So we do expect the margins kind of to continue to be very strong, but there's some investments we need to make now to continue to sustain this exceptional growth, frankly, on the grid side. Operator: Your next question is from Matthew Koranda from ROTH Capital Partners. Matt Koranda: Maybe just continuing on the electronics chain of questioning here. Maybe could you just run us through the state of play with the capacity expansion projects you have for Amran Narayan between Houston, Mexico, Croatia, just the status there and how that sort of informs the segment profit guidance that you've laid out for us? David Dunbar: Yes. Let me first kind of zoom out and talk about capacity expansion. Since we acquired the business, we've increased the capacity about 50%, and that's largely through the addition of additional ships, with work on lean, a little bit of automation. Now we're bringing on new sites. The Croatia site is now ramping up. We're moving machinery into our Mexico plant. So now if you zoom out over 5 years, let's say within 3 to 5 years, we'll more than double the capacity with the addition of the Croatia site, the expansion in New Mexico. We will move into a larger site in Houston. That should be up and running in about 18 months, expansion in India. And then just continued automation and lean work, we'll more than double the capacity in 3 to 5 years. Matt Koranda: Okay. Got it. Helpful on the capacity side. Just wondering, maybe Ademir can chime in on how that creates a little bit of a near-term drag on segment profitability. Just wanted to understand how that informs the guidance. Ademir Sarcevic: Yes, yes. No, for sure, Matt. So initially, obviously, to get -- for example, to get the Croatia site up and running, you have the set up the site, you have to hire a general manager, you have to hire people, sales and marketing, production, et cetera. So there is some cost that's going to be incurred before we get to ramp up the production. So we don't expect electronics margins to decline in subsequent quarters. But I would probably tell you that I wouldn't expect them to increase in subsequent quarters as well. David Dunbar: Yes. I guess a good way to say that is we are adding resource, project management resource, expertise in bringing up these new sites because it is so important. And we are doing that with the growth. We're paying for that through the business and increasing margin, margin would be higher right now if we didn't make those investments, but it would compromise the capacity growth. Ademir Sarcevic: That's right. Matt Koranda: Okay. That makes total sense. Okay. And then on ETG, I think you guys mentioned maybe there was some organic growth that was held back by customer timing issues and guessing just based on the guidance that, that slides into the third quarter, but maybe just talk a little bit about some of the puts and takes there. David Dunbar: Yes, absolutely. For long-time followers of Standex, this comes up pretty regularly in that business. And whether the customer, whether it's aviation space or defense, these are large shipments, they sometimes carry over from 1 quarter to the next, and it's really just a matter of timing. There's -- maybe they couldn't get in -- there's a lot of reasons that could happen, they couldn't schedule a final inspection. But these things slip from 1 quarter to the next all the time. The backlog remains healthy and growing. Yes, no. Ademir Sarcevic: Yes, Matt. I mean it could be -- yes, and really for ETG business, you kind of got to look at it over a 12-month period, to normalize for some of these ebbs and flows. But David is right, it could be a change in production on the customer side, change in timing when they need a product, it obviously affects when we work on the product, et cetera, et cetera. But over kind of 4 quarters, it all equalizes out. But you're right, we do at some of the shifts from Q2 to happen this quarter. Matt Koranda: Understood. Okay. Maybe just 1 more if I could sneak 1 in. On the sort of the M&A front, just given where leverage is, it's coming down to a healthy place. It looks like line of sight is to under 2 at some point in the near future. Where are you focusing your efforts now just given sort of the balance sheet looks like it's in order to maybe get larger stuff done potentially? Just curious how -- where your head is at on that? David Dunbar: Yes. We are -- we've had extensive discussions about this recently. We're obviously looking for opportunities in grid and building up a funnel of opportunities in grid, a, to help even accelerate the capacity expansion. Based on earlier questions, there are other companies out there that make instrument transformers, so we can expand the instrument transformer business. Our grid customers are asking us to expand the products we sell them. So we have some ideas from our customers, like Schneider and Eaton about companies we could look at. So we're building up that pipeline. In our legacy electronics business, we know that every time we work with a customer and we customize a switch, relay or a sensor, there are other products that we could work on if we had a broader offering in that components and modules area. So you think about expanding our sensor and switch business into other related technologies, we're building up a pipeline there. So don't be surprised if in the future, you see us building that business out, so we can offer a broader customer set. I guess the final area, we're just -- we feel pleased we have so many great end markets to look at. Space, the space market is becoming a bigger and bigger opportunity. It is not just putting satellites in orbit anymore. If you look at the long-term plan some people have for space, there's going to be a lot going on up there with different kinds of vehicles requiring different pieces of equipment. So we're also building up a funnel in kind of emerging capabilities in the space market. Matt Koranda: Okay. Sounds like a target rich environment, I'll leave it there. David Dunbar: Yes, yes. Operator: Your next question is from Gary Prestopino from Barrington Research. Gary Prestopino: David, your new product sales to date, how many products have you introduced? I think you did 4 this quarter? What is it to date? David Dunbar: Yes. So today, once you do 4, 5, we're 9 to date. Gary Prestopino: Okay. So you're going to do greater than 15 this year, right? David Dunbar: Yes, Yes. Gary Prestopino: Are there any new products that you put out that you would have considered more wildly successful than you initially thought as you were developing them? David Dunbar: Well, I tell you, a lot of our sales in the commercialization of space are new products, and these are -- every year, we seem to take up our expectations of those. So the Engineering Technologies business with the Spincraft business have been very successful with their new products. Gary Prestopino: Okay. So that's where the new products are really hitting. Okay. And then are you at liberty to say if your fast growth markets are going to do $270 million of sales this year, I would assume a lot of that jump year-over-year is due to what you're doing in the grid. So what percentage of your sales are going to the grid right now or out of that $270 million, what percentage of your sales would be the grid? David Dunbar: Yes. I kind of ran through those numbers earlier to another question. And it's just over half of that is into the grid, 50%, 52% or something like that. And that was the run rate we saw these last couple of quarters because we've got Amran Narayan fully in our numbers. And the rest, as I mentioned before, defense and space are the biggest pieces with a little bit of EV and renewable energy. Gary Prestopino: Okay. And then just lastly, in terms of the Amran acquisition, is there any more residual carryover from -- that would impact the next 2 quarters in terms of -- from the acquisition such as it would impact the income statement as it did this quarter? Ademir Sarcevic: Gary, are you talking about this noncontrolling interest adjustment? Gary Prestopino: Yes. Yes, the noncontrolling. Ademir Sarcevic: Yes, we will have -- I mean, obviously, it will not be this sizable because this was the annual true-up based on the 2 factors that kind of led us to have to book it this time. But yes, I mean, it will have to be adjusted on a quarterly basis going forward because the trailing 12-month EBITDA for which the multiple is applied is going to change. David Dunbar: Yes. I'm going to say a word about that. We are delighted that we had to make that large an adjustment because that means that business is doing great. And this incentive, this 10% of that Indian remaining in the hands of the owners really completely aligns our incentives. I mean I'm delighted at the cultural integration and the cooperation we're getting from the teams. And so this is an accounting and a technical matter, but it's playing out the way we had hoped. Gary Prestopino: No, I understand that, but what I'm just trying to get at is because they still own 10%, we're going to have this going forward for the next couple of quarters? I mean does this ever end? Ademir Sarcevic: Well, it would obviously end when the 10% is executed and either sold, even we repurchased the 10% then. But as long as -- I'm sorry. Gary Prestopino: Go ahead, I'm sorry. No, no, go ahead. I'm sorry. Ademir Sarcevic: No, no. At the point when those 10% shares transferred back to us, and we purchase them, obviously, then this would go away. But as long as there is some portion of the minority interest that's owned by the prior owners in India, there will be minority interest that has to stay on the balance sheet and a liability that we would have to pay for the remaining part at some point. Actually, in the contract, we have put and call options the way that this agreement was structured by which, for the first 3 years, the owners have the right to essentially sell us their shares and then we get the right to repurchase starting in year 4. Operator: Your next question is from Michael Shlisky from D.A. Davidson. Michael Shlisky: I want to follow up on your last answer there. I'm also just trying to make sure I get my hands around this. Does the eventual sale of the shares or purchase of the shares has to be approved by the Indian government? And could that be an issue? And will you be just consistently revaluating this every quarter until they approve it? Ademir Sarcevic: Yes. So to come back to the original agreement we had, we actually -- the original objective was to purchase 10% of the Indian entity in Narayan with Standex shares. And the India government needs to approve an Indian national to own equity of a foreign company. So if you're buying it with shares, there needs to be a government approval. If you're paying it with cash, obviously, there is no government approval that's needed. That's a pretty straightforward transaction. David Dunbar: And that's what we're doing. Ademir Sarcevic: And that's, I think, where we're going to end up at some point in time over the next few years. Michael Shlisky: No approvals. Got it. I know it's not your biggest segment, but I did notice the substantial margin decline in Specialty Solutions. I was wondering if you could maybe share what was behind that? I know you mentioned one of the Engineering Technologies Group, but how about that one? Ademir Sarcevic: Yes, it's been just a very, very difficult end market in North America, Mike, in terms of where the Specialty Solutions is playing and it's all North America. And we do expect this quarter to get better. We are seeing some order intake improvement in both businesses that make up the Specialty Solutions segment and we do expect those margins to improve this quarter as the general market conditions improve. But it's market driven. Michael Shlisky: Okay. Okay. And similarly, I wanted to touch on the Engraving business as well, a little bit of a nice comeback coming here after a very long period of waiting. Can you just talk a little bit about what the pipeline of business looks like in Engraving? Does it go beyond a couple of quarters here? David Dunbar: Yes. I mean we -- like we've said in the last few quarters, we think that in North America and Europe, that activity bottomed out, and we were in the kind of in the trough in the last year. We do see that North America is still kind of at similar levels. Europe is starting to pick up. We anticipate programs will be launched in America that will lead to work for us later in the summer and the fall. So we do see a pickup in that general -- in our traditional business there. And another thing we're quite excited about is the increase in our new product sales for the year is actually out of the Engraving business. You might remember in the summer, we talked about a new win they had making these differentiated parts using kind of some proprietary knowledge we have of the soft trim process. So we're producing these parts. That is a new product for us. And the $8 million increase in new products is almost -- is largely from that business. So we think there's a pickup from that, we'll see in the -- late this quarter and into Q4. Ademir Sarcevic: But we are still -- we are still cautious about the overall market in Engraving, the auto market. Operator: Your next question is from Ross Sparenblek from William Blair. Ross Sparenblek: Just quickly on the capacity. I mean you've spoken there were $60 million roughly in Croatia. But can you maybe just remind us of where that stood when you acquired the asset on a dollar basis? David Dunbar: Zero. It was -- there were only -- the Croatia was just a request from customers to install the capacity. Ross Sparenblek: I mean, the capacity of Amran. I mean, you weren't [indiscernible] move to expand there. David Dunbar: Yes. So the capacity at the time of acquisition was basically in line with the sales. It was about $100 million. We have increased that capacity of that -- of the existing capacity about 50%. And then we've got these other sites coming online. Ross Sparenblek: And then just want to clarify, we think through doubling that, are we doubling it off the original base or where we stand today? David Dunbar: No, no, no, no. No, in fact, we're more than doubling it with -- based on -- they're at $150 million now, we will more than double that in the next 3 to 5 with Croatia, Mexico, Houston, new expansion in India, and lean and automation. Ross Sparenblek: Okay. And then just on Amran and just kind of a qualitative and the competitive landscape. Can you say elaborate on the right to win there? Is it the scale, the relationships? Or is it just kind of the prototyping and technical capabilities? David Dunbar: I didn't understand the question, Amran. Ross Sparenblek: Sorry. Yes, on Amran, on the grid business. I mean we're expanding globally. There's a lot -- it's a fragmented market, regional players. I mean what truly is kind of the right to win there for that business? David Dunbar: Well, customers are asking us to expand. They have earned a privileged position with the largest electrical equipment OEMs through great service levels. When we announced the acquisition and in previous quarters, we've explained, they have an advantage, the way their business model works, they can turn around prototypes faster. They can deliver faster than internal teams and a lot of our customers and from our competitors. They have a great track record for quality. And they've got a great supply chain in India that gives them a cost advantage as well. So they win on a lot of fronts, all the expansion plans we're talking about are really at the request of customers. We don't have to go prospecting for business. Customers are very open with us about their long-term plans, what they want us to do. So this is a very collaborative effort to expand this capacity. Ross Sparenblek: Okay. And then maybe just 1 final 1 here. Do we think like the delta of the mid- to high-single, can you put a finer point on those ranges and what could go wrong, what could go right? I know you guys have better visibility in some markets than others, but it feels like the cyclical pieces are pretty -- pretty much a trough at this point. Ademir Sarcevic: Yes. I mean, I think, yes. I mean, that's right. I mean, we feel from a kind of an overall economic environment and when the global markets, we feel we are -- we bottomed out for sure, and now we are starting to recover and see some increased demand. David Dunbar: In terms of what can go wrong, the reason -- back in August, we said that there's a lot of positive energy in the company because we feel we're reaching an inflection point where the new products and the fast-growth markets are overcoming weakness in some other general industry markets. North America is still pretty weak. You heard about it in Specialty. That's kind of a weaker spot in our legacy electronics business. So in terms of what could go wrong, if we don't see a pickup in North America, that would be kind of a... Ademir Sarcevic: Yes, definitely. Ross Sparenblek: Okay. So more macro related, it's not timing of -- or any watch items regarding like the A350 or SpaceX or something like that. David Dunbar: No, no. Ademir Sarcevic: No. Operator: There are no further questions at this time. I will now hand the call back over to David Dunbar for the closing remarks. David Dunbar: I want to thank everybody for joining us for the call. We enjoy reporting on our progress at Standex. Thank you also to our employees and shareholders for your continued support and contributions. I'm excited about the company's potential in fiscal year 2026 and look forward to speaking with you again in our fiscal third quarter 2026 call. Operator: Thank you. Ladies and gentlemen, the conference has now ended. Thank you all for joining. You may all disconnect your lines.

63天前Insight Analytics约5分钟阅读

WT 2025 Q4 财报电话会议

Operator: Greetings, and welcome to the WisdomTree Q4 2025 Earnings Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce Jessica Zaloom, Head of Corporate Communications. Please go ahead. Jessica Zaloom: Good morning. Before we begin, I would like to reference our legal disclaimer available in today's presentation. This presentation may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 including, but not limited to, statements about our ability to achieve our financial and business plans, goals and objectives and drive stockholder value. A number of factors could cause actual results to differ materially from the results discussed in forward-looking statements, including, but not limited to, the risks set forth in this presentation and the Risk Factors section of the WisdomTree annual report on Form 10-K for the year ended December 31, 2024, and in subsequent reports filed with our furnished to the Securities and Exchange Commission. WisdomTree assumes no duty and does not undertake to update any forward-looking statements. Now it is my pleasure to turn the call over to WisdomTree CFO, Bryan Edmiston. Bryan Edmiston: Thank you, Jessica, and good morning, everyone. I'll begin by covering our fourth quarter results along with updates to our forward-looking guidance for 2026, before turning the call over to Jarrett and Jono for additional updates on our business. Our assets under management ended the year at $144.5 billion, a record, up 5% from the third quarter and over 30% year-over-year. While we experienced modest outflows in the fourth quarter, we generated $8.5 billion of inflows for the year, representing an 8% organic growth rate. Our AUM also benefited from positive market movement and the Ceres acquisition, which closed on October 1. This acquisition marked an important step in our expansion into private assets and further diversified our AUM mix through exposure to U.S. farmland, one of the largest and least penetrated real asset classes. We are now managing almost $2 billion in farmland based strategies and the transaction has expanded both our annual revenue capture and operating margins by more than 200 basis points. Looking more broadly at our AUM performance. Growth was broad-based and well diversified across regions and asset classes. Our European listed products delivered a very strong year with AUM increasing from $30.7 billion to a record $53.3 billion supported by more than $6 billion of net inflows and a favorable market environment. European inflows were led by $4.3 billion into our UCITS franchise, spearheaded by the successful launch of our European defense ETF earlier this year, while our commodity products generated approximately $1 billion of inflows. In the U.S., AUM increased to a record $88.5 billion, with $1.4 billion of net inflows for the year, driven primarily by our U.S. equity offerings alongside favorable market conditions. Our digital assets platform continued to gain traction, with AUM reaching approximately $770 million at year-end. Growth was led by strong inflows into our digital money market fund largely through WisdomTree Connect, reflecting continued progress across our digital platform. Overall, record AUM, strong organic growth Disciplined execution and thoughtful capital deployment drove approximately 300 basis points of operating margin expansion during the year. Taken together, we believe these results position us well to build on our momentum and continue delivering sustainable growth and long-term shareholder value. Global AUM today stands at $160.8 billion, up $16 billion or 11% from year-end driven by favorable market conditions and almost $2 billion of net inflows, a very strong start to the year. Next slide. Adjusted revenues were $147.4 million during the quarter, an increase of 17% from the third quarter and up approximately 33% versus the prior year quarter, driven by higher average AUM. Ceres contributed $12 million of revenues this quarter, of which $7.1 million was derived from performance fees. These performance fees were driven by price appreciation on farmland under management along with favorable developments related to the solar portfolio. Our other revenue continues to grow, recognizing $12.7 million this quarter as compared to $11 million in the prior quarter. This increase was largely driven by higher European listed AUM as approximately 70% of these revenues are asset based. While difficult to forecast, we would suggest the magnitude of other revenue generated in this most recent quarter serves as a fair approximation of what we could expect going forward, assuming current European AUM levels. Further increases in our European listed AUM should drive this revenue higher. On a year-over-year basis, our adjusted revenues have grown 15.4% while our adjusted operating margin has expanded almost 300 basis points, finishing the year at 36.5%. Adjusted net income for the quarter was $41.2 million or $0.29 per share. Adjusted net income excludes amortization of intangible assets related to the Ceres acquisition, the remeasurement of the Ceres earn-out and other items. Next slide. Now a few comments on our 2026 guidance. We are forecasting our compensation to revenue ratio to range from 26% to 28%, representing a 2 percentage point downward shift from our prior year guidance. This update takes into consideration planned hires as well as compensation adjustments and the annualization of hires made during 2025 and further demonstrates the operating leverage in our business model as we continue to scale. The range reflects variability in incentive compensation, driven by factors including the magnitude of our flows, revenue, operating income and margin targets and our share price performance in relation to our peers. As a reminder, compensation expense is seasonally higher in the first quarter as we recognized payroll taxes, benefits and other items related to year-end bonuses. As a result, we estimate our first quarter comp to revenue ratio to be approximately 30% before stepping down over the course of the year and landing within the 26% to 28% overall guidance range. Our discretionary spending guidance is forecasted to range from $80 million to $86 million compared to $71 million this past year. Primary drivers of the increase include incremental marketing spend, higher sales and distribution-related expenses as well as the impact of the Ceres acquisition and additional factors. Our gross margin guidance is estimated to range from 82% to 83% compared to 81.9% this past year. This range reflects revenue based on current AUM levels and the positive impact of Ceres on our gross margin, partially offset by incremental costs associated with the anticipated product launches. As AUM continues to grow, we would expect gross margins to trend higher. Third-party distribution expense is anticipated to range from $17 million to $19 million compared to $16 million this past year, driven by higher AUM on these platforms. Interest expense is forecasted to be approximately $40 million this year, taking into consideration the retirement of a substantial portion and potentially all of our convertible notes maturing in June of 2026. Interest expense should be approximately $10.5 million for each of the first and second quarter, declining to roughly $9.5 million per quarter in the second half of the year. Interest income is estimated to be approximately $8 million in 2026 driven by the magnitude of our interest-earning assets and forecasted interest rates. We expect those assets to decline in the second half of the year following the retirement of our 2026 notes. Our estimated adjusted tax rate is anticipated to be approximately 24% aligned with our tax rate this past year. And we anticipate our weighted average diluted shares to range from $152 million to $157 million as compared to $145 million this past year. This guidance contemplates approximately $7 million to $12 million of incremental shares associated with our convertible notes, assuming a stock price approximating recent levels. As a reminder, an illustration is included within our earnings presentation to assist and quantifying the incremental shares associated with our convertible notes going forward. That's all I have. I will now turn the call over to Jarrett. Robert Lilien: All right. Thanks, Bryan, and good morning, everyone. 2025 was another strong year for WisdomTree and more importantly, a year that reinforced the core premise we've been building for several years that consistent organic growth paired with disciplined execution drives margin expansion and meaningful earnings growth. As Bryan mentioned, we delivered $8.5 billion in net flows, translating to an organic growth rate of approximately 8% for the year. And that puts us ahead of many of our public peers but just as importantly, it came through volatile markets and shifting macro conditions. Our growth held across risk on rallies, interest rate uncertainty and equity rotations and Q4 reinforce that momentum. From a profitability standpoint, we expanded operating margins by nearly 300 basis points. We've maintained tight expense discipline while continuing to invest in growth, demonstrating that margin expansion and investment are not mutually exclusive and that balance remains a defining strength of our model. We saw especially strong momentum in our metal strategies, including both physical and overlay products with AUM up 83% and more than $1 billion in net inflows across the suite. Importantly, this traction showed up in both Europe and the U.S., reflecting a global reallocation towards real assets and we believe there is a multiyear growth story unfolding in metals, which currently represents 28.5% of our global AUM as investors continue to seek inflation-sensitive and alternative exposures and our lineup is well positioned to capture that demand. In Europe, we're now seeing the results of years of investment coming fully into view. What began as a diversification effort has become a true growth engine. Our European Defense Fund was one of the most successful launches in firm history and among the top-performing launches industry-wide in 2025, but the story is broader than any single product. Product development remains a core strength of the firm. We launched more than 30 new strategies last year across commodities, thematics and tactical exposures with successful launches in areas such as rare earths, quantum computing and nuclear energy. These are not one-off outcomes, they reflect our ability to identify themes early, execute across the platform and sustain momentum across market cycles. As we look to 2026, our focus remains on delivering differentiated products that perform and persist. Our portfolio solutions business, models and SMAs continues to be another major growth engine. Model AUA grew to over $6 billion, up from $3.8 billion at the end of '24, driven by both new users and deeper adoption. We're also seeing strong growth in custom model mandates, which enhance stickiness and deepen client relationships. The expansion of our SMA capabilities through Quorus is unlocking a larger and more complex adviser opportunity set. These solutions are helping to stabilize flows in volatile markets and embed us more deeply into adviser workflows. It's no longer about selling a single ticker, it's about portfolio construction, and we're winning in that space. In digital assets, we moved from infrastructure build-out to early monetization. Tokenized AUM reached $770 million by year-end, up from essentially zero just 12 months ago and that reflects real adoption and growing client trust. Our institutional platform, WisdomTree Connect scaled from 4 onboarded institutions to 29 and the number of wallets holding WisdomTree assets now totals more than 3,500 with engagement steadily improving. The infrastructure is built. The products are live and the focus is now on scaling. Finally, in private markets, our acquisition of Ceres Partners added a long duration diversifying revenue stream to the firm. And since closing in early October, AUM has grown to about $1.9 billion including 8% annualized organic growth in the fourth quarter. It's a strong early outcome and one that's already expanding the types of conversations and clients that we're engaging with. So stepping back across public markets, digital assets and private markets, we're building a broader and more powerful business. As we enter 2026, several growth engines are already in motion. Our ETF platform continues to deliver consistent organic growth. Europe has scaled into a meaningful contributor, models and SMAs are embedded deeper into adviser workflows, tokenization is generating real flows and private markets are expanding our reach and revenue mix. We're seeing broad-based traction across asset classes, delivery channels and client segments, and that balance creates durability and durability is what compounds over time. we are clearly executing against the strategy that is working. And with that, I'll turn it over to Jono. Jonathan Steinberg: Thank you, Jarrett. Hello, everyone. I'll be brief today. You've heard the story today from both Bryan and Jarrett: strong results, improving guidance, clear vision and disciplined execution. What you're seeing is our strategy playing out as intended. Organic growth and operating discipline working in tandem having delivered margin expansion, higher earnings per share and sustained momentum across market regimes. WisdomTree is the strongest it's ever been. We've reached new levels of scale, not just in AUM, but in capabilities, in client reach and in delivery. We're diversified across asset classes, geographies and channels, and that diversification is powering resilience and growth at the same time. Europe, models, tokenized assets and private markets, these aren't experiment anymore. They are real businesses contributing real flows and creating real value for shareholders. With strong and improving guidance from Bryan, it's clear that we're entering 2026, not just with confidence, but with conviction and momentum. We are building something durable and something compoundable. Today's results speak for themselves, but still, I'd characterize it anyway as the beginning of the next chapter at WisdomTree. With that, I want to thank you for your attention today. Operator, let's open up the call for questions. Operator: [Operator Instructions] And our first question comes from the line of Mike Grondahl with Northland Securities. Mike Grondahl: Congratulations on the December quarter and January so far, too. One question. When you look at Slide 5, what do you see as the biggest maybe one or two opportunities for WisdomTree in '26 and '27? Like what's the low-hanging fruit for some market share you should be taking on that slide? Jonathan Steinberg: Thanks, Mike. Market share, I guess I'll turn it over to Jarrett or to Jeremy to make initial comments. Jeremy Schwartz: From one of the places we are seeing incredible success. I'm sitting in Milan right now and Team Europe has taken leadership in a number of different areas from commodities as the franchise, but thematics generally, when you look at where we've done the sort of blockbuster European Defense Fund raised where one of the most successful funds is bleeding into other thematics. You see the interest in industrial metals and rare earths as a key geopolitical spot. We have a rare earth fund rare that was $100 million in November. Today, it's at $700 million and 3 of our rare earth and strategic metals funds, about $1.4 billion. They've had market-leading performance and like the most important themes for the market of the geopolitical tension and to rare earth supply chains. And so we're incredibly bullish on the leadership position in thematics. The thematic lineup within Europe is growing. And we have -- in just January alone, we've taken 25% of all the flows to thematics, and we see that continue to be a very ripe place for market share gains out of Europe. And back in the U.S. on the commodity run that we've seen, our capital fishing family is a very efficient family for unique exposures. You've seen this big move in gold and silver over the last months and people have been under allocated to gold. We see finding ways to help people add more of these precious metals portfolio as very useful. And Jarrett referred to the $1 billion that's been in our capital fishing gold portfolios in the U.S. Those are big market share, very innovative new strategies when the typical U.S. investor has 2% in commodities when being neutral to commodities is, in gold in particular, will be a 12% allocation. So the U.S. investors have been very under-allocated there. We think there's more to come, and we've got a lot of creative solutions there. Robert Lilien: And I'd just jump in, this is Jarrett, just adding additional thoughts. I mean, really, look back, we continue to successfully execute against what's been a multiyear strategy that's working. We've got a differentiated asset mix. But in that, we've got an ETF product suite that is really broad. It's very deep, and we think has the ability to win share and win business in any market environment. We've got the models business, SMAs, direct indexing, we're gaining share there. We look to gain share in tokenization in private markets. And as we said in the prepared remarks, we've got a growth engine that's firing on many different cylinders, and really gaining share across the board, but this isn't a one-quarter event. This has been a multiyear event, and we just keep doing it quarter after quarter. Mike Grondahl: Yes, you're definitely on a roll. I mean, just look at the AUM. Second question is just, hey, that discretionary spending $80 million to $86 million, what are the major categories that's going to? Can you kind of help us think about those investments? Bryan Edmiston: Yes. So it's Bryan. I would say it's largely driven by marketing and sales-related expenses. It's really tied into our growth initiatives. We're looking to accelerate momentum on the back of our record AUM, our 8% organic growth and a strong start to 2026. The number is up versus last year, but we continue to manage our expenses with an eye towards maintaining incremental margins north of 50%. So notwithstanding the increase in guidance, we should see further margin expansion versus 2025. Operator: The next question comes from the line of George Sutton with Craig-Hallum. George Sutton: Great job on the margins. So I wanted to ask you, Bryan, when we look at the $0.29 for the quarter, and we obviously look out to Q1 where the comp ratio may be a little higher. But truth be told, we did not have $0.29 quarter on our bingo card for the next two years. So can you just give us a sense, are we talking about a higher start base pretty consistently going forward? Bryan Edmiston: Yes, I would say so, absolutely. What drove, I think, our beat versus where the analysts were the comp ratio was one main component there. Our comp ratio came in at 28% this past quarter. And again, our range is 26% to 28% going into next year. So that's a 1 to 2 percentage point downward shift versus where maybe the Street was and versus where our comp guide was -- where our comp was in the fourth quarter. Other revenue is another one. I think last quarter, we were at about $11 million per quarter. We're doing $13 million now, and that's on the back of higher AUM in Europe, but also there's higher turnover that we're seeing as well generates more transaction fees. And so that's helpful to the revenue base. I think some of the beat this quarter may have been Ceres' performance fee, that's a wildcard. I think as it relates to our internal expectations, the number was maybe $2 million higher than kind of what our baseline was. But all in, I would say that our guidance and where we sit today with our AUM at about $160 billion positions us for more quarters to come like the ones that we just experienced. Robert Lilien: It's Jarrett, just jumping in one more time. When I look at consensus estimates over the last number of years, we leave it up to the Street, to the analysts to come up with their own growth forecast, but we always seem to be underestimated on our flow growth and once again, looking back at last consensus, I think there was sort of $5 billion of net inflow growth where we've already gotten $2 billion this year. So just another area where we're consistently underestimated. George Sutton: Jarrett, one question for you specifically. So the tokenization trend is becoming massive and you've been way in front of that. You mentioned it is now time for us to scale. Just curious how you do plan to scale, particularly in the light of many other folks sort of joining the party? Are some of them going to join you from a partner/customer perspective? Or how do we think forward there? Robert Lilien: Well, let's let Will have a shot at that one first. Will, do you want to take it? William Peck: Yes, sure. It's Will here. So yes, we absolutely do expect to scale going forward. I'd say to your questions, we see distribution through really three channels: one is direct to retail, which for us would be WisdomTree Prime; the second would be WisdomTree Connect direct to business; and the third, which is really evolving is more of a platform sale, also a sale to self-hosted wallets. So as a lot of people are entering the space, we're in a lot of active conversations with whether it's other fintech apps, whether it's kind of software service providers, broker-dealers around making our products and services available through their platforms as well. And that's some of the beauty of how we've built this, right? We actually have the capacity to serve retail, which a lot of the other firms in the tokenization space just do not have that capacity. They've been focused on offshore exempt products that have like really high minimums, some north of $1 million. The minimum R&R in money market funds the dollar. So we're really well served to serve retail especially, including through these platform relationships. And that's part of why we've kind of shifted how we're disclosing funded account metrics. So we're talking about funded wallets now. I mean the vast majority of that is WisdomTree Prime-funded wallets. But especially in 2026 and going forward, we expect that mix to evolve where a lot of the wallets are going to be holding our products are going to come through other channels and other platforms. So all told, we think that gives us an opportunity to scale really quickly going forward. It is just kind of a nice reflection of the way we've built our infrastructure. Jonathan Steinberg: Let me just -- one thing. In the old days, sometimes going back 10 or 15 years, the analysts would ask me like what's the next top fund? And if I were to go out on a limb and make a prediction, I wouldn't be surprised if over the next 3 years, our tokenized money market fund isn't the largest fund within WisdomTree's Empire. But I'm sorry to interrupt you, George, you keep coming. George Sutton: Well, actually, I do have a specific last question for you. I was a little stunned at the price paid for Innovator Capital. They had $30 billion in assets and got paid $2 billion for them, not terribly distant from where you trade on a substantially larger asset base. And I'm just wondering if part of the growth strategy for you may look into this outcome-based ETF/Modern Alpha, I know you've got a couple of funds there, but what is the plan in that market specifically? Jonathan Steinberg: So the -- as Jarrett said, we have a very ambitious fund launch strategy in the year ahead. We do have a number of option-based strategies that are performing very well. We should be able to drive significant more adoption through those already. But we definitely have an eye towards building out more within that space for sure. We see it as a big opportunity as well as do others. Jeremy, is there anything you'd want to add to that? Jeremy Schwartz: Yes. I mean the WTPI is our equity premium income fund in the U.S. a $400 million fund. We've taken steps to improve performance and distribution and characteristics. We think that fund does have a lot of potential. But I would say, like Jono said, very aggressive plan for that space, and we're going to do a lot more. Operator: The next question comes from the line of [indiscernible] with Raymond James. Unknown Analyst: Does the macroeconomic volatility generally benefit WisdomTree's business as most products are diversified across asset classes? Or is it more dependent on specific themes that are present, such as gold and commodity prices, which we've seen this year? Jonathan Steinberg: Jeremy, do you want to start there? Jeremy Schwartz: Yes. I think a large theme you've heard is just the breadth of funded exposures and how well diversified we've become. If you go back 10 years ago, currency hedged Europe and Japan, where 80% of the business. I know it was a very concentrated world where only a strong dollar in Europe and Japan in favor were your key drivers. Now you have a very, very broad cross-section. You had growth in value. I talked about the thematics that are a growing range for us that are really some of the biggest growth companies out there. We launched a Quantum computing fund, and it's raised $150 million in a short amount of time, but also things like AI, we have big expansion plans for more thematic, but also our traditional value fund from small cast to quality and a lot of -- really all marketing environment type funds. So I think we're as well positioned for a strong dollar and weak dollar environment as you can get. And the commodity -- the macro uncertainty, which has led to the big moving commodities, there's really no firm better position for that environment. So I think we are proud of the diversification that we've achieved. Robert Lilien: And I think that's another point that gets missed a lot is just how well diversified we are and how well suited we are for almost any market environment and again, we haven't just proven that in one quarter, that's been something you've been able to look at and witnessed over the last 5 to 10 years. Unknown Analyst: Is WisdomTree's approach to growing digital asset base, is it more about educating people about digital assets into accreditation? Is that a big part of the strategy? Or are you more focused on capturing clients that are already familiar with these types of assets and services? Jonathan Steinberg: Will? William Peck: Yes, it's really the latter right now. I mean I'd say we are serving people who have decided that they want to be operating on chain. So that would be retailer institutional people. And the universe of people who have made that decision is growing very rapidly. So you look GENIUS Act, I'd say, a real milestone in the U.S. for more and more people just having the regulatory clarity around stablecoins and the ability to use stablecoins and wallets going forward. So I'd say, to use our products well, you need a wallet. And as more and more people are starting to adopt wallet-based infrastructure for financial services to use stablecoins to access these tokenized funds, other real-world assets, that just grows the applicable universe of who we can serve. So WisdomTree Prime has got a great experience for allowing retail to kind of -- they can also fund with Fiat, but fund with stablecoins as well. We just pushed some new updates there where New York users, for the first time, can fund with stable coins. And that just allows more and more people to kind of access the products that we're bringing forward. Unknown Analyst: Okay. And if I could squeeze one more in. When building out new products, do you generally utilize existing expertise and staff members? Or do you tend to seek out more outside talent when looking to build on your strategies? Jonathan Steinberg: I'll take this. For the most part, there's tremendous leverage to the business. For the most part, it's all off of existing talent and we have a very strong research and product development team that spans truly every asset class. So I think it's the -- that we're really building off of the core strengths of the firm today. Actually, as you say that, I am reminded though, we do we are always investing in our capabilities. So Quorus was one of the investments that we made towards the end of last year, but one that seems to not get that much attention. We made an investment in the firm AlphaBeta, an Israeli AI firm that's helping us with product development and we have recently launched a fund based off of that. So it is a mix. There's no question. It is a mix, but it's very, very scalable. Our head count has remained very, very disciplined type. Operator: The next question comes from the line of Keith Housum with Northcoast Research. Keith Housum: It's been a quarter now with Ceres under your belt a little bit more on that. I guess perhaps you could talk a little bit about lessons learned so far through the acquisition and opportunities going forward to expand their distribution to help grow their AUM even further? Jonathan Steinberg: I'll start but Jarrett, please jump in. I mean we're -- this was one, we've proven over the last -- in our history that M&A has been very successful for us. This was a very specific acquisition, very determined in our desire for this particular asset class. The integration could not have gotten more smoothly, the employee base and the way we structured the transaction really seems to have made a lot of sense to both the seller and to WisdomTree. And so we're really -- it's been very, very easy integration. So I wouldn't say that's lessons learned, I would say that's added confidence in our ability to do strategic M&A. But Jarrett, is there something you would want to add or Jeremy? Robert Lilien: Yes. I guess I'd add, it's not so much lessons learned. So far, it's confirmation of what we thought. What a great business, what a great fit with us, what a great team. They've averaged 6% to 7% net inflows over the past 10 years. They've had zero years of net outflows in almost 20 years where they've been operating. We see definite synergies both with distribution and product. We don't give out growth forecast, but we believe that we should be able to do better than the historical averages because of that confirmation of just what a great business and what a great fit this is for us. Keith Housum: Great. And a second question for you. In terms of the digital asset strategy, nice growth in the third-party WisdomTree Connect users from the beginning of year to the end of the year. Can you just give us an example of perhaps who some of those users would be just in terms of the type of businesses? So that we can better kind of visualize who the end customer is here. Jonathan Steinberg: Will? William Peck: Yes, absolutely. So really seeing kind of four main types of use cases right now. Specific to the money market fund, that's a eligible reserve asset under the GENIUS Act for stablecoin reserves. So we do have stablecoin issuer clients, and we think that's going to be one that continues to grow. We're using WTGXX as part of the reserves. The second and kind of related is really around businesses that are using stablecoins as part of their treasury management workflows. And then they can invest in WTGXX as kind of a yield-bearing asset within treasury management. The third is really as a collateral instrument. So people talk a lot about collateral mobility in tokenization, the ability to move collateral around much more quickly. So we are seeing use cases of investors holding WTGXX as a collateral instrument. And I'd say the fourth is really just around broadly on chain investing, right? So there are lots of investors in the crypto DeFi space who are looking for access to real-world assets, looking to use those as part of their investing strategy, use them in DeFi. And that's where we're actually very well served to service them. we've got a wide range of exposures beyond just the money market funds. So if they want equity exposure, they can -- their private credit exposure, they can do that through our platform. So it's really those four use cases that we're seeing to date. Operator: This will conclude the question-and-answer session. I'd like to -- and I would like to turn the call back over to Mr. Steinberg for closing remarks. Jonathan Steinberg: Thank you. as I said earlier, it does feel that WisdomTree is entering a new chapter in our history, new scale and new capabilities that are investments that we've been making over the last to 7 years are really starting to drive shareholder momentum. I'd also like to turn that more into a conversation about valuation. It does feel that WisdomTree is underappreciated in the market. We have certain elements that I'd really like to bring your attention to. The first is the diverse AUM mix, which -- the mix of our assets makes WisdomTree more resilient than other asset managers, we're showing the upside in a market in the recent -- in January or year-to-date. But we're also -- it really gives us downside protection, the breadth of the commodities, the short duration fixed income with the upside of digital assets as well as just sheer equities and the thematics that Jarrett spoke about earlier. And our record of strong organic growth and margin expansion, it really should start showing up, I think, in multiple expansion, WisdomTree trading at, if you would update your numbers, if the analysts will update their numbers for AUM with today's guidance, it looks like we're trading at 7 or 8 terms below the S&P 500. And it just doesn't feel like with the outlook that we have with the footprint that we have that we should be trading as -- at a lower multiple to the market, WisdomTree's footprint in global ETFs, a leader in tokenization, an emerging player in differentiated private assets, it really feels that we have barely tapped into what we're capable of doing. And I think going forward, we expect to be able to drive significant valuation. Over the last 5 years, we've been a leader, if not the leader, in stockholder total return within our base of -- our category of traditional assets. So for the last 5 years, really driving substantial improvement over relative to the other asset managers. And as we start to scale our market cap to $2.5 million and beyond, I hope we'll be able to pick up more analysts. To help us tell the story, it does feel that we are an underappreciated story within the marketplace. Within digital assets, there are a number of firms that are sort of pure plays that have come to market with extraordinary valuations. And I'm not saying their valuations are right. But as someone who has a vertically integrated digital asset business, not just the funds, but our tokenization platform, our digital TA, we really have this fully integrated platform, which I believe is being fully underappreciated by the market today. And as I did say earlier, I wouldn't be surprised if our tokenized money market fund doesn't emerge as the largest fund within WisdomTree if that growth, which started in 2025 where we went from almost nothing to $700 million of AUM. If it continues, I hope that we'll be able to really drive investor attention into how successful and well positioned we are within the digital asset story. So with all that, I just would say, I hope that our shareholders fully appreciate what we're doing. And to the analysts, I think you should focus even more closely on the WisdomTree story. It feels like the best is yet to come. So thank you, everybody. Operator: Thank you. This concludes today's conference. You may disconnect your lines at this time, and we thank you for your participation.

63天前Insight Analytics约5分钟阅读

AVBH 2025 Q4 财报电话会议

Operator: Good morning. My name is Jordan, and I'll be your conference operator today. At this time, I'd like to welcome everyone to the Avidbank Holdings, Inc. Fourth Quarter 2025 Earnings Conference Call. [Operator Instructions] Thank you. I'd like to introduce the presenters, Chairman and CEO, Mark Mordell; Chief Financial Officer, Pat Oakes; and Chief Operating Officer, Gina Thoma-Peterson. You may begin your conference. Gina Thoma-Peterson: Good morning. Thank you for joining us today for Avidbank Fourth Quarter 2025 Earnings Call. Before we begin, let me remind you that today's call is being recorded and is available in the Investor Relations section of our website at avidbank.com, along with our earnings release and presentation material. Today's call contains forward-looking statements, which are subject to certain risks, uncertainties and other factors that could cause actual results to differ materially from those discussed. These statements are intended to be covered by the safe harbor provisions of the federal securities law. For a list of factors that may cause actual results to differ materially from expectations, please refer to our earnings release under the heading Forward-Looking Statements as well as the disclosures contained within our SEC filings. We will also reference non-GAAP financial measures alongside our discussion of GAAP results. We encourage you to review the GAAP to non-GAAP reconciliations provided in our earnings release. With that, I'd like to turn the call over to our Chairman and CEO, Mark Mordell. Mark Mordell: Now thank you, Gina. Thank you, Jordan, and thank you all for joining us for our second actual -- as second earnings call for being a public company. And I apologize for my voice. I'm just getting over a little bit of a flu from the beginning of this week. So we had a great quarter, I think, a real strong quarter of growth, which is really what we've been striving for really since the crisis in '23, and we're leaning into being that growth bank again, and we've been demonstrating that for the last couple of years at this point. Loans were up $190 million for the quarter. And $283 million for the year, which is a 15% annualized growth rate. Deposits were up $92 million for the quarter and $241 million for the year, again, a 13% growth rate for the year. When you look at the loans, they were led significantly by our sponsor finance and corporate banking team for the quarter, but really every vertical with the exception of construction contributed to that growth in terms of loan growth for the quarter. Deposits were similar. It was led by corporate banking and venture lending, but all divisions contributed to those growth in core deposits, which is really setting us up for a strong 2026 for sure, given those balances are -- met our goals and are setting us up for a better earning engine for '26. Talking about the elephant in the room, NPAs did go up. That's clear. But that centered around as the earnings release mentioned about around 2 construction loans and 1 sponsored finance loan. The good news is that we said that we're well collateralized in those 2 construction loans and one is already taken care of itself because we've taken care of it, it has already been paid off. And that was about a $3.7 million construction loan because we were well collateralized, it didn't have to go to NPA and they took care of that. The other loan is a $16 million construction loan, multiunit mixed-use in Palo Alto. And that's been a hangover from COVID, a lot of delays. We feel we're well collateralized there as well. We have houses and guarantees, and we just have to work through this. It's going to be on our books for anywhere from 4 to 6 months probably, unless we can find a softer landing. So we feel we're well collateralized. So credit migration has not changed all that much when you consider that criticized and classifieds are pretty much holding steady at $37 million and $38 million, respectively. So we don't see any trends in credit. These are -- we don't take credit for granted here, as you all know, very well. We're always anxious about credit, but I think the -- where we sit with these loans, we feel that we'll have to work through them, but we'll get out of them and it shouldn't result in any losses as we can see at this point. I'll turn it over to Pat to talk about some of the income items and some of the metrics. Patrick Oakes: Thanks, Mark. Good morning, everyone. So we reported net income of $6.9 million or $0.65 per diluted share for the fourth quarter and adjusted net income for the full year of $24.9 million or $2.80. Pre-provision net revenue for the fourth quarter was $12.9 million compared to $10.7 million for the third quarter. The NIM expanded to 4.13% in the fourth quarter compared to 3.90% in the third quarter, and net interest income increased to $25 million from $22.7 million as we benefited from the strong growth in loans and core deposits, the full impact from the IPO and repositioning of the investment portfolio, a 32 basis point decrease in the cost of interest-bearing deposits and the $44 million increase in average noninterest-bearing deposits. These items helped offset the impact of the $726,000 interest reversal on the 3 new nonperforming loans. We purchased an additional $62 million in investment securities during the fourth quarter at an average yield of 4.48%, increasing the total available for sale balance to $218 million at the end of the year with a yield of 4.61% compared to 2.55% in the third quarter. The provision for credit losses was $2.8 million in the fourth quarter compared to $1.4 million in the third quarter. The increase in the provision expense was primarily driven by the $190 million in loan growth, along with a $1.2 million specific reserve on the downgraded commercial loan. Charge-offs totaled 30 basis points in the fourth quarter and 7 basis points for all of 2025. Noninterest expense rose to $13.9 million, an increase of $372,000 from the third quarter. The increase was primarily due to higher credit-related legal fees, an increase in our FDI assessment due to the impact of the net income loss in the third quarter and an increase in consulting and professional fees. These increases were partially offset by lower salary and benefits expense, driven by an increase in capitalized loan origination costs from the strong loan growth in the quarter, and that was offset by a higher incentive accrual. Our adjusted efficiency ratio improved to 51.72% from 55.72% in the third quarter. The tax rate in the fourth quarter increased to 31.1% compared to 28.9% in the third quarter. The increase was primarily due to a decrease in the California tax rate as we finalize the impact from the change in the California tax law earlier this year. Since we reported a loss for 2025, the decrease in the California tax rate caused an increase in our effective rate for the fourth quarter. In 2026, I expect the tax rate to move back to around 28.5%. Mark, I turn it back over to you. Mark Mordell: Well, I think we're -- again, as I mentioned earlier, we're kind of pleased with the progress that we've been making, getting the noise of our balance sheet from the securities restructuring and really looking to having more of an even down earnings projection for '26. So with that, I'm sure there are questions out there. We're happy to open it up for questions at this time. Operator: [Operator Instructions] Your first question comes from the line of Matthew Clark from Piper Sandler. Matthew Clark: Yes, I just wanted to start on the margin, if you had the spot rate on deposits at the end of the year. Patrick Oakes: I'm sorry, the -- spot rate, yes. So for interest-bearing deposits at year-end was 2.91%. Matthew Clark: Okay, good. Yes, so your beta -- your deposit beta this quarter was 80%, pretty high and the spot rate is encouraging. So how do you think about your deposit beta from here? I assume you can't hold 80%, but how are you thinking of managing that? Patrick Oakes: Yes. So a couple of pieces there, right? We do have some of our deposits, about 20% of our interest-bearing deposits that are indexed that will move down directly. And then with every Fed rate cut, so far, we're pretty successful lowering deposit costs that's kind of higher than we model, probably 60% beta on the rest of them for the December rate cut. Without a rate cut, it's hard to reduce deposit costs. In fact, there could be a risk it could go up a little bit because of where we put on new deposits. But with every Fed rate cut, hopefully, we can -- I don't know if we can get 60% on the nonindex. But hopefully, we can get -- it appear to get a pretty good deposit beta down. Matthew Clark: Okay. Good. Good. And then just update us on the sub debt that's outstanding and what your plans might be there? Mark Mordell: That's a 2026 thing for sure, Matthew. We have been working on in our investment-grade rating, and we'll do something certainly before another 20% burns off given where rates have been and what we expect rates to happen. We'll take care of that in '26 here. Matthew Clark: Okay. Good. And then just on the deposit growth, noninterest-bearing, really, really strong. It looks like venture contributed some of it. But where else is that coming from? And was there anything lumpy in there or transitory? Or is it all sticky? Patrick Oakes: Some of it can be a little bit lumpy for us and especially with the growth that we had. I mean it was across the board, right? So for the fourth quarter, yes, venture had a good quarter. They had a great year in DDA. So did our finance group, so did corporate banking. So it was across the board. But this number is going to bounce around for us as a commercial bank, right? We're not going to get the same level of growth in '26 that we saw in '25. The goal will be, hopefully, we can grow it at a similar pace to overall growth in deposits. That will be our goal at this point. But it does bounce around quite a bit. Operator: Next question comes from the line of Andrew Terrell of Stephens. Andrew Terrell: If I could just stick on the margin quickly. Just with the nonaccrual migration this quarter, was there any kind of interest reversal headwind that impacted the loan yields in the fourth quarter? Patrick Oakes: Yes.So yes, the 3 loans we put on nonaccrual, the $726,000 interest reversal impacted the margin about 12 basis points. So it would -- for the quarter, probably would have been closer to 4.25% without that. Andrew Terrell: Okay. So I guess once you normalize that, if it's kind of 4.25% level post normalizing the interest reversal and then you've got what sounds like really strong repricing at the end of the period that I think should carry forward on the deposit side. I mean, could you help us with maybe near-term margin expectation? I mean it feels like it should go like 4.30-ish plus. Is that an unfair assumption? Or any color on where you think the margin can go kind of near term, Pat? Patrick Oakes: So yes, I mean it's -- you can put the math together and see that the headwinds that we just got to be careful of for us is where we're putting on new deposits as we cut existing deposit rates. And look, we're trying to fund loan growth here. So it's possible that new deposits come on at a higher rate than our existing deposit portfolio that could put a little bit pressure on the deposit costs, not significant, but that's a headwind. And then look, we're benefiting from a lot of flowing floors at this point, right? We have $240 million at floors. About 60% of that are maturing in 2026. So we know when those loans renew that we're going to be resetting those rates. So that's going to put a little bit of pressure on there. So there is a few things that are headwinds that offset it from going up too much, but we can keep at that 4.25%, maybe a little bit higher than that, that would be great, right? But I don't expect it to go up significantly from here. Andrew Terrell: Got it. Okay. No, that makes sense. I appreciate it. And just overall, I mean, Mark, you kind of -- you touched on it a bit in your comments. Just you guys have a banner year in growth for the balance sheet, both loans and deposits. Just maybe send yourselves a high bar for 2026, but any kind of initial thoughts on pipelines for both loans and deposits and kind of your growth expectations for the year? Mark Mordell: I'm not a big believer in cycles, but if you do look historically, Q4 has always been one of our stronger quarters and first quarter has always been a little bit softer. I think based on the pipeline we saw in the second half of the year and what closed in Q4 and what's closing in Q1, that we do have good momentum and good pipelines throughout the bank, virtually in all divisions going forward. So we're still targeting that double-digit loan and deposit growth. I mean, that's what we are. We need to be that growth bank. Bringing everybody back around again. I mean we have high velocity and churn in our portfolio. I mean we have to do almost $2 of new loans to net $1 new loans for the year given the portfolio churn. This year was exceptional in construction. We had a significant amount of payoffs in our construction division, and that really held our loan growth down. So I think we always are targeting this 10% to 15% type of asset growth every year. So that's what we're targeting this year and feel that it's very accomplishable. Operator: [Operator Instructions] Your next question comes from Ross Haberman from Rlh Investments. Ross Haberman: Pat, could you just talk about your expected loan growth in '26? And how is your backlog today? Mark Mordell: Yes, we're expecting -- again, we're expecting loan growth for '26 to be something between 10% and 15%. And we feel that the team that we have as well as what we're seeing in the pipeline and even the things that are cyclical that's an achievable number for us. Ross Haberman: And just one follow-up question about the loan quality. Anything else on the delinquent or criticized that's keeping you up at night besides the ones you've described earlier? Mark Mordell: Ross, they all keep me up at night because they can go one way or the other. And just as we -- that criticized and classified is pretty dynamic, both positive and negative, and that's why we keep a pretty strong eye on it. But those ones are obviously -- we feel good that we're going to get out of the ones that we mentioned because we are well collateralized, but it is going to be a process, and that's a distraction for all of us in order to kind of work through that. So there's nothing else in credit of any trend that we're concerned about. It's kind of business as usual at this point with migration happening both positive and negatively. But this was a big one. This is a $16 million one that really drove that number significantly up from where it was at the end of Q3. Operator: Next question comes from the line of Timothy Coffey from Janney. Timothy Coffey: Is it a reasonable expectation to think that the loan-to-deposit ratio is either flat to slightly down this next year? Mark Mordell: Yes. I think we're going to -- I think we'd like to drive it down, but I think we'd like to drive it down. We're 100% core funded at this point, which is great. But I don't expect it to come down substantially. Timothy Coffey: Okay. Yes, because of the cost that Pat was talking about earlier. And then looking at kind of the noninterest expense run rate these last 2 quarters, obviously, elevated for specific reasons. Is that the kind of go-forward run rate where we're talking $13.5 million plus? Patrick Oakes: Yes. In fact, look, first quarter is always a little bit higher in the first place. So it will go up from there in the first quarter from where we were in the Q4, right, with higher taxes, insurance costs going up. But we'll get a little bit of reset on the bonus accruals since that was high in the fourth quarter. And hopefully, we'll -- legal credit-related costs will come down a little bit, but it will creep up here from the fourth quarter and the first quarter and then hopefully back down a little bit. But it's -- that run rate is definitely going to be higher than the $13.5 million. It will be $14 million plus at this point going forward. Timothy Coffey: Okay. That's helpful. And then, Mark, just kind of talk about the opportunities in the market. Obviously, you've been benefiting from the dislocation that happened almost 3 years ago now, plus we've got Comerica exiting the market. Do you feel more optimistic about the opportunity to take business from other banks that you have in probably the recent past? Mark Mordell: I don't know if it's any more opportunistic, Tim, than it has been over time. I do think we've benefited from a lot of disruption because of our consistency and the way we are this high-touch bank, big bank council with small banks service type of thing. There's going to be opportunity for us. And I don't -- I think if our bankers are out there doing what they should be doing, they're going to uncover more and more opportunity. But I don't think it's a significant change with the disruption that happened in the second half of last year to what our plan is for this year. We always are opportunistic on people as well as clients. Operator: There are no further questions. I'd like to turn the call back over to the presenters for their closing remarks. Mark Mordell: Well, again, thank you all for attending our earnings call, and we're pretty optimistic going into '26 here. We're pleased with how we ended the year in '25 and are going to do our best to take advantage of our IPO, take advantage of our restructuring and manage our balance sheet the best way we possibly can and continue to grow at a double-digit rate. So hopefully, in Q2, that we have this -- end of Q1 earnings, we have an earnings call that kind of matches up with us. So I appreciate everybody's interest and support over time. Operator: This concludes today's conference call. You may disconnect.

63天前Insight Analytics约5分钟阅读

BEN 2026 Q1 财报电话会议

Operator: Welcome to Franklin Resources Earnings Conference Call for the Quarter Ended 12/31/2025. My name is Rob, and I'll be your call operator today. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Selene Oh of Investor Relations for Franklin Resources. You may begin. Good morning, and thank you for joining us today to discuss your quarterly results. Selene Oh: Statements made on this conference call regarding Franklin Resources, Inc., which are not historical facts, are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements involve a number of known and unknown risks, uncertainties, and other important factors that could cause actual results to differ materially from any future results expressed or implied by such forward-looking statements. These and other risks, uncertainties, and other important factors are described in more detail in Franklin's recent filings with the Securities and Exchange Commission, including in the risk factors and the MD&A sections of Franklin's most recent Form 10-K and 10-Q filings. Now I'd like to turn the call over to Jenny Johnson, our Chief Executive Officer. Jenny Johnson: Welcome, everyone, and thank you for joining us today as we review Franklin Templeton's first fiscal quarter results. I'm joined today by Matt Nichols, our Co-President and CFO, and Daniel Gambach, our Co-President and Chief Commercial Officer. We'll answer your questions momentarily, but before we do that, I'd like to review some key themes. We are operating in a period of continued transition for investors, marked by significant market turbulence globally resulting from heightened geopolitical trade policy and consequently economic uncertainty. Markets are adjusting to a more persistently volatile environment, shifting capital flows, and a growing need for resilience in portfolios. Across regions and client segments, investors are focused on the same fundamental questions: how to generate durable returns, how to manage risk through uncertainty, and how to position portfolios for long-term outcomes rather than short-term noise. That environment is reshaping what clients expect from asset managers. Over the past few months, I've traveled overseas across Europe, the Middle East, and Asia. In my conversations with clients, it's clear they are no longer looking for individual products in isolation. They're looking for partners who can help them construct portfolios across public and private markets, deliver personalization at scale, and navigate complexity with discipline and insight. Franklin Templeton is well-positioned for this moment. Over years of deliberate planning combined with the strength of a global brand, we have earned the trust of investors around the world. At Franklin Templeton, we bring together specialized investment expertise across public markets, private markets, and digital assets, supported by a global platform with reach in more than 150 countries. Clients are increasingly engaging with us across multiple asset classes, reflecting a shift toward integrated solutions and long-term strategic relationships. This alignment between client needs and capabilities is driving growth. Our diversified platform, continued innovation, and focus on scale and efficiency position us to capture opportunities across market cycles and deliver long-term value for our clients and shareholders. Now turning to our results for the quarter, which marked another important step forward with tangible progress across the firm. We continue to deepen client partnerships, broaden our investment in solutions capabilities, and strengthen our global platform. Key priorities that remain central to our strategy. Our first fiscal quarter continued the momentum we built last year with strong client activity across Franklin Templeton's diversified global platform with positive net flows in both public and private markets. We had record long-term inflows of $118.6 billion, up 40% from the prior quarter and 22% from the prior year quarter. Long-term net inflows were $28 billion with record AUM and positive net flows across equity, multi-asset, alternative strategies as well as ETFs, retail SMAs, and Canvas. Excluding Western Asset Management's long-term net inflows totaled $34.6 billion, nearly double the prior year quarter, extending our track record to a ninth consecutive quarter of positive flows on a comparable basis. Assets under management ended the quarter at $1.68 trillion. AUM increased from the prior quarter due to long-term net inflows and the acquisition of Apira, partially offset by the impact of net market change distributions and other. Excluding Western Asset, long-term net inflows were $34.6 billion compared to $17.9 billion in the prior year quarter, with nine consecutive quarters of positive net flows. We continue to see strong momentum across our platform with record AUM in three of our four asset classes. Public markets remain a key strength, an important source of growth. Equity, multi-asset, and alternatives generated positive net flows totaling $30.4 billion for the quarter and excluding Western Asset, fixed income delivered its eighth consecutive quarter of positive net flows. Equity net inflows were $19.8 billion for the quarter, including reinvested distributions of $24.6 billion. We saw positive net flows across large-cap value and core, all-cap growth, and value sector international equity, equity income, and infrastructure strategies. Fixed income net outflows were $2.4 billion. Excluding Western Asset, fixed income net inflows were $2.6 billion driven by Franklin Templeton fixed income. Positive momentum continued in multi-sector municipal, highly customized, stable value, government, and emerging market strategies. Our institutional pipeline of won but unfunded mandates remains strong at $20.4 billion, underscoring sustained demand for our investment capabilities. The pipeline remains diversified by asset class, and across our specialist investment teams. Trade and private markets, Franklin Templeton is a leading manager of alternative assets with $274 billion in alternative AUM. Alternatives fundraising has been a key contributor to our growth, with $10.8 billion raised during the quarter, including $9.5 billion in private market assets. Fundraising was diversified across our alternative specialist investment managers, reflecting client demand in secondary private equity, alternative credit, real estate, and venture capital from institutions as well as from the wealth channel. Aggregate realizations and distributions were $4.8 billion. Lexington Co-Investment Partners VI, one of the largest dedicated global co-investment funds, closed in October with $4.6 billion in committed capital. Today, Lexington's AUM stands at $83 billion, up 46% since its acquisition in 2022. In addition, we continue to expand our private credit platform with the October 1 closing of the Apira Asset Management acquisition. This strategic acquisition enhances our direct lending capabilities in Europe, growing lower middle market. In January, BSP Real Estate Opportunistic Debt Fund II closed with $10 billion of investable capital, including related vehicles and anticipated leverage across $3 billion of equity commitments. Franklin Templeton's US and European alternative credit businesses are now aligned under an updated Benefit Street Partners brand with $95 billion in private credit AUM at quarter end. Clarion Partners continues to be well-positioned with a large diversified portfolio and positive returns despite a challenging capital raising environment. Capital flows remained well below averages largely due to clients seeking more liquidity in private equity overall. Recent M&A activity in the industry underscores the importance of alternative assets, reinforcing the strategic rationale behind our acquisitions and investments, and further highlights our ability to grow our alternative asset platform at scale. Franklin Templeton Private Markets, our alternatives wealth management offering, continues to gain traction and generated over $1 billion in sales for the quarter, underscoring the strength of our global distribution partnerships and client reach. Lexington Partners, Benefit Street Partners, and Clarion Partners each have scaled perpetual funds totaling $700 million in AUM. These are semi-liquid perpetual vehicles open to ongoing subscriptions, giving investors efficient access to long-term private market exposure. Taken together, these capabilities are driving increased client adoption and strengthening our position as demand for private market solutions continues to grow globally. As investors continue to seek enhanced diversification and differentiated sources of return, private assets have taken on a more prominent role within traditional mutual fund structures. We've been incorporating private assets into traditional mutual funds for over a decade. Today, we manage approximately 60 products representing about $160 billion in traditional mutual fund assets that have exposure to private markets. Liquidity is closely and continuously monitored to ensure these products remain aligned with our traditional fund objectives. Multi-asset AUM is nearly $200 billion and had net inflows of $4 billion during the quarter, the eighteenth consecutive quarter of positive net flows led by Franklin Income Investors, Franklin Templeton Investment Solutions, and Canvas. These flows underscore clients' increasing preference for outcome-oriented diversified solutions across public and private asset classes, an area that Franklin Templeton continues to focus on and evolve through innovation. Clients are increasingly turning to Franklin Templeton for a broad and differentiated set of investment vehicles, and we're seeing that demand translate into sustained growth across our platform, with record AUM across ETFs, retail SMAs, Canvas, and investment solutions. Our ETF platform continues to grow at a faster rate than the industry and reached a new high with $58 billion in AUM and generated $7.5 billion in net flows, marking its seventeenth consecutive positive quarter. The net flows were inclusive of $3.5 billion in mutual fund conversions. Our focus on active ETFs produced strong results this quarter. Active ETF net flows were $5.5 billion or approximately 70% of total net flows. Today, we have 15 ETFs that exceed $1 billion in AUM. The industry conversation continues to shift toward delivering personalization at scale, and we see this as a durable long-term opportunity. Advancements in technology are allowing features of separately managed accounts, such as tax-loss harvesting, which were historically underutilized, to be implemented efficiently and consistently across a broad client base. We are well-positioned in retail SMAs with our breadth of capabilities, along with our custom indexing technology, Canvas. As a leader in retail SMAs, AUM increased to $171 billion with $2.4 billion in net inflows driven by Putnam Franklin fixed income and Canvas. Canvas generated $1.4 billion in net flows and reached $18 billion in AUM, reflecting strong client interest in personalization and tax efficiency. Canvas has been net flow positive since its acquisition in 2022. We are also seeing increased demand for multi-asset model solutions, including portfolios that combine both public and private asset classes. This trend is extending into retirement channels where investors are increasingly seeking diversification, income, and risk management through more holistic portfolio construction. Investment solutions leverage our capabilities across public and private asset classes to pursue strategic partnerships. This quarter, Investment Solutions enterprise AUM surpassed $100 billion. Digital assets also continue to play an important role in modernizing financial infrastructure, and Franklin Templeton remains at the forefront. Earlier this month, the state of Wyoming debuted the nation's first state-issued stable token with Franklin Templeton-managed reserves, further demonstrating our leadership in blockchain-enabled investment solutions. Our digital asset AUM is $1.8 billion, inclusive of approximately $900 million in tokenized funds and approximately $800 million in crypto ETFs. Turning to artificial intelligence, we've made significant progress in advancing our AI efforts. Yesterday, we announced the launch of Intelligence Hub, a modular AI-driven distribution platform powered by Microsoft Azure. Building on the advanced financial AI initiatives announced in April 2024, Intelligence Hub delivers our vision for US distribution by modernizing core activities, improving sales effectiveness, and enhancing the client experience. One of Franklin Templeton's strengths is our global presence, and international markets are an integral part of our growth strategy. We currently operate in over 30 countries, and our international business continues to expand with positive net flows for the quarter with strength in EMEA. Now in terms of investment performance, over half of our mutual fund and ETF AUM is outperforming its peer medium across the three, five, and ten-year periods. Similarly, over half of strategy composite AUM is outperforming its benchmarks over the same time periods. Compared to the prior quarter, mutual fund investment performance increased in the five and ten-year periods and declined modestly in the one and three-year periods due to select U.S. equity strategies. On the strategy composite side, investment performance improved in the ten-year period, was stable in the three-year period, and declined in the one and five-year periods. The one-year decline was primarily driven by the liquidity strategies. Overall, long-term performance remains competitive and continues to support both organic growth and client retention. Turning briefly to financial results, adjusted operating income was $437.3 million, reflecting lower performance fees and the annual deferred compensation acceleration for retirement-eligible employees, partially offset by the impact of higher average AUM and realization of cost savings initiatives. We remain disciplined in managing expenses while continuing to invest strategically in areas of growth and innovation for the benefit of all stakeholders. We are confident that our diversified business model, global scale, and client-first culture positions us well to capture the long-term trends reshaping our industry across public and private markets. Finally, in December, Franklin Templeton was once again recognized by Pensions and Investments as one of the best places to work in money management. I'm proud to lead such a talented and dedicated team, and I want to thank our employees for their continued hard work and commitment to serving our clients. Now let's open up the calls to your questions. Operator? Operator: Thank you. If you'd like to ask a question, please press 1 on your telephone keypad. The confirmation tone will indicate your line is in the question queue. If anyone should require operator assistance, please press 0. We request that you limit yourself to one question to allow as many additional participants on the call as possible. Thank you. And the first question is coming from the line of Bill Katz with TD Cowen. Please proceed. Bill Katz: Thank you very much for taking the question and all the update. Thank you for the extra disclosure in the supplement around expenses. I think that was quite welcomed, for sure. Maybe on that, just a two-part question. To the extent that the market were to be a bit under pressure as the year goes by, how much flex do you have to sort of bring that number down? And then secondarily, I think in there, you sort of affirmed you're going to get to $200 million of cost savings. Could you speak to maybe the residual amount yet to be realized and the timeline against that? Thank you. Matt Nicholls: Yeah. Hi, Bill. Good morning. It's Matt. So as outlined on that page, thanks for highlighting it in the investor deck, at flat markets, as we mentioned the assumptions and excluding performance fee comp, we do expect expenses to be in line with 2025. This is inclusive, again, as we also outlined on that slide, about key investments that are essentially offset by the expense savings. From a modeling perspective, if you take the guidance, which I can give on the second quarter and then you add that to the first quarter, take those take that sort of combined number for expenses and then take the last two quarters and divide it roughly evenly between the last two, that'll get you where we believe we'll be at this point in time. It may be that the expense saves shift a little bit between the third and the fourth quarters, but that's how we expect things to play out in terms of our cost savings. And that is, of course, as I've mentioned in the past, in conjunction with margin expansion, in particular, going into the third and fourth quarter. So I think for the second quarter, you won't see much of margin expansion. You'll see that going into the third and fourth quarters where we expect to be again, given current markets, given current AUM levels, we expect our margin to be getting into the high 20s at that point from where we are today. Jenny Johnson: Thank you. Operator: The next question is from the line of Craig Siegenthaler with Bank of America. Please proceed with your question. Craig Siegenthaler: Thank you. Good morning, everyone. My first question is on the M&A activity. I know you've been very active, and I wanted to see if you had an update on potential contingent consideration liabilities because I see there's only about $20 million in the new 10-Q that you put out today. But I actually thought it was larger than that. So is that really it? And or could there be more, especially with the deal you just closed last quarter? Matt Nicholls: No. That's the contingent consideration around specific transactions that we've done. So it's really virtually nothing at this stage. What that doesn't include is some compensation related to transactions, but that's all that compensation line and all included in our guidance. So and some of that, you can see in the GAAP versus non-GAAP disclosures for specifics. But for transaction-related consideration, it's a very low number that's left, and that's probability-weighted, Craig. So yeah. Got it. Nothing additional to report there. Craig Siegenthaler: Okay. Thanks, Matthew. And it's just one question. Right? Matt Nicholls: Yes. Well, I think you had you want to ask something else about M&A. I think Jenny, do you want to cover the M&A question? Jenny Johnson: Yeah. Yeah. I'll be that. Great. Matt Nicholls: Yeah. Do you want to just Jenny Johnson: Sorry, Craig. Are you asking about what kind of our view is on M&A? Or what's your question on that? Craig Siegenthaler: Actually, I did in the first part, but, you know, if you want to kind of update us in your M&A priorities, product gaps, kind of where you're looking, where you kind of strategic benefits, that'd be helpful too. Jenny Johnson: Yeah. Sure. So it hasn't really changed. I mean, you know, what we've always said is we do M&A for strategic purposes, and they're usually around whether we need to fill out an obvious product gap. Today, honestly, we are pretty full. I mean, the one area that we had said was infrastructure. You need a lot of scale for infrastructure. And we feel like we've filled that, at least for now, with the partnerships that we've done with the three infrastructure managers. And we're focused on the wealth channel there. Any kind of M&A we do going forward is going to really be in three areas. It will be like what we did with the Apira, which is to fill in a specific bolt-on area, either geographically or capabilities to our alternatives manager. So in that case, they gave us European direct lending, which we are able to combine with Alcentra's direct lending group. And I think we're now at $10 billion in European direct lending there. So that's kind of a bolt-on both geographically and capability. And then the second area would be if it somehow furthers distribution. So we've done either investments or actual M&A that help us like the Putnam deal where we also brought with it some sort of distribution capability. And then the third area is really in high net worth. We've said we want to grow we want to double the size of fiduciary in our five-year plan, and that can be both that will be both organic as well as inorganic. So those are the kind of three areas that we're focused on. Matt Nicholls: And I'll just add something to this, Craig, that you know, it's almost reiterating what we said in the past, but what we've done in 60% of our operating income that's been added over the last several years through M&A. And I think the know, we're a bit of a modest company at the end of the day, but the timing of our private markets acquisitions was quite good. And as you know, we've been growing the multiple down very substantially in terms of those transactions. So we're very comfortable with M&A. And as Jenny mentioned, we've got some things that we're reviewing. We're kind of in the strategic flow. It would probably be an understatement. But right now, the return on M&A is very important to us. We have high bars and obviously given where our equity is trading. You know, the bar is even higher for M&A. So first thing we look at is, you know, the return on buying back our shares relative to what we could get from M&A or providing more seed capital and these other things around capital management. Operator: Thank you. The next question is the line of Brennan Hawken with BMO Capital Markets. Please proceed with your question. Brennan Hawken: Good morning. Thanks for taking my question. Matt, I didn't don't think I heard it in the prepared remarks. So I figured I'd drill in. Would you have any expectations for EFR, either both in the coming quarter and then if you have a view maybe for the balance of the year. I know you've got Lexington the Lexington Flagler is expected to start. I'm guessing that'll help. Matt Nicholls: Yeah. I'd say that for the next quarter, we expect EFR to be stable, where it is today. And then in the following two quarters, there could be some, you know, upside to that based on fundraising around alternative assets as you've, as you've just highlighted. Brennan Hawken: Great. Thanks for taking my question. Operator: Next question is from the line of Alex Blostein with Goldman Sachs. Please proceed with your question. Alex Blostein: Hey, good morning, everyone. Thank you for the questions. Well, Matt, I was hoping you could expand the margin discussion a little bit longer term. Franklin's done a really nice job integrating a number of assets over the years. Good to see the expense flex come through. But when you think about the operating margins for the firm as a whole, kind of running in the mid-twenties, to your point, maybe entering high twenties towards the end of the year. Where do you see the profitability over time? Many of your peers are well in the thirties, kind of mid-thirties, percent range. So, no one would you know about the business. Knowing what else might be on the come with respect to integration. Of some of your managers. How should TheStreet think about profitability over kind of a multiyear basis, and what's kind of the goalpost there? And maybe just a clarification. I know you said high twenties margin exiting 2026. Is that with market, or is that also assuming flat markets? Matt Nicholls: The latter one is flat markets. So it's part of our guidance from where we are today. In terms of the first question, you know, we put out there a five-year plan where and we've got four years well, three point seven five years to go of that plan. And we said we'd be in excess of 30% by the time that's finished. The reality is we are well on our way to 30% margin, all else remaining equal, going into '27, let's say, fiscal twenty twenty seven. So sometime in 2027, we'll be there. And then if all else remain equal around the market, as we've said, you know, there isn't any other reason why we couldn't be somewhere between 30-35% if we achieve all the goals that we put into our strategic plan that we've highlighted to all of you and as we highlighted where we're at against that. End of last year. So yeah, that's where we're at on the margin. As I mentioned, where we should end this year, all else remain equal, in the high 20 nines going into 2027 fiscal at some point would be 38. And then if the market stays where it is today, we should go in excess of that in future years where we thought we'd be more like 30%. So we have some upside there. Remember as well, we do have the highly episodic situation around Western where we've been providing support to the Western expense structure since August 2024, which has had an impact on our overall margins of probably several points. So we'd already be in the high twenties, or 30% now. Excluding that, but we've done the right thing in our opinion by providing that support. And it definition, also supports future growth opportunities that we've highlighted in our five-year plan. Alex Blostein: Yep. All makes sense. Thanks so much. Operator: The next question is from the line of Glenn Schorr with Evercore. Please proceed with your question. Glenn Schorr: Thank you very much. Jenny, it felt like you had strong conviction in how you talked about you said something like no longer people are no longer looking for products in isolation. Curious how much you were leaning towards the institutional versus the wealth side and more importantly, how you're organizing around that? Have you deliberate Is it your own models? Is it getting on other people's models? And is it also bigger strategic, broader relationships with LPs? I'm just curious to flush that out a little bit. Thank you. Jenny Johnson: Yeah. No. Great question. So that comment is both a wealth comment as well as an institutional comment. So you talk to any of the big wealth platforms, and what they're basically saying is, there's more demand from their clients to offer truly what used to be just available to high net worth people. So it's financial planning, tax efficiency, education, education of the heirs. And so what their message is look. We're going to consolidate to fewer managers we're going to look at the ones that have scale, that have breadth of capabilities, and can offer these additional services to us. And part of that and so I'm talking first on the wealth side. And part of that on the wealth side is if you have traditional and private show me that you can support us on the education of the sale of our private. That's why we have 100 people whose sole job is to support our market leaders out there as they meet financial adviser by financial adviser from an education standpoint. And so really focusing on streamlining on the wealth channel. We're having the same discussions on the institutional side where the conversations are around, okay. Show me your broad breadth of capabilities. I want to be able to second some of my more junior folks. Show me how you can build a program around that that goes cross market, so fixed income equity secondary private credit. Like, we want that education across. And that you will support those types of programs. And again, they're consolidating the number of managers. And you have to remember, you have a blow up with one manager, it taints your firm's reputation. There's as much due diligence on a multitrillion dollar manager as there is on a single $20 billion manager. And so the amount of time that they have to do and do due diligence on the managers making them want to consolidate, just use larger managers and expect more from the managers. So that's both, like I said, institutional retail. We've seen it on the insurance side. Where as they're looking, you have this trend towards leveraging sub-advisors. They want broad breadth of capabilities there. So we're seeing it on as you talk to retirement managers, me the breadth of capabilities that you have and show me how you can help support the business. So I would say this trend has been going on for the last few years. And it continues. We feel really well positioned for it. Glenn Schorr: Thanks so much, Jenny. Daniel Gambach: I wanted to add a comment into Glenn's comment on actually our success, especially on the wealth space. Which you mentioned, we have over 100 our specialists that complement the field and the wealth people on the ground. And the success that we've seen, actually over the past year alone, we've increased substantially the amount of AUM that we fundraise in the wealth space. And we expect that that's going to be, you know, between 15-20% in 2026. But also importantly, 40% is coming outside The US. So it's also growing outside The US, both in Europe and Asia. And the other part that is important is over the past two years alone, we built seven perpetual funds that are close to $5 billion in fundraising and the fundraising is just going up every quarter. So this quarter is 50% higher than the quarter before, and the momentum continues because we continue to sign up new wealth groups. And to your question, Glenn, we're also starting to build those model portfolios of perpetual funds that will continue to accelerate the growth on the wealth. So that's an area of focus, and I think that's an area of a lot of success from frankly. So I just wanted to add that to the conversation. Jenny Johnson: Well and you just reminded me, Daniel. Glenn, you asked the question about do we also try to get in other people's models? Yes, the answer is we do. If other people have OCIO and they're open architecture, and we are, in that case, in other people's models. So our goal is to meet the client and however the however we can meet the client, whether it's whatever vehicle or vehicle agnostic, I think that you would see that all of our flagship products are being sold in multiple vehicles. So some form of ETF mutual fund, CIT, SMA, We're adding tax efficiency to our active SMAs. And so having that flexibility is really important as they select you as one of their core providers. Operator: Our next question comes from the line of Dan Fannon with Jefferies. Please proceed with your question. Dan Fannon: So Matt, wanted to follow-up on some of your comments around long-term margins and the expenses. So just thinking about expense growth beyond this year, are you can you give us a sense of how you're thinking about that? And do you anticipate in those longer-term targets for margins additional cost savings and or cost programs that will help you get there. Matt Nicholls: I mean, it's possible that we're deep in on AI. We're deep in on how to maximize our presence that we have. In India or in Poland, for example, where we've got very large operational capabilities and great talent in these places. We're working on meaningful integration across the firm to maximize and capitalize on what we've and what we've, what we've got here. Every time when we progress down one of those paths, we find other places that can frankly absorb areas that we need to invest, at least absorb. What we're demonstrating this year is a meaningful increase in margin or else remaining equal and an acceleration of our plan to get to 30% plus. And, you know, we're doing that through very disciplined expense management whilst continuing to invest the business at the same time as the market going up. So we've got meaningful investments for growth. We've got the market that's meaningfully up. Yet our expenses are staying flat to last year. I think going into 2027, obviously, look, we're not we're only a quarter through 2026 fiscal. But I feel, I feel confident that going into 2027, that, a lot of the other initiatives we have going on will help to continue to absorb the additional expenses that are required to grow and invest in our business. But, obviously, we can't comment on, you know, reliably on fiscal twenty twenty seven when we're not even through '26. But I hope through these comments when you look at how we've performed from the expense perspective, '25 versus '24 and now what we're guiding in '26 versus '25 that, you know, we've mostly achieved what we said we're gonna achieve even with upward momentum in the market. So I do think we've got some room in the numbers, in terms of further cost saves going into fiscal twenty seven based on everything that we know. But right now, we're focused on delivering on fiscal twenty six as we've highlighted. Jenny Johnson: And I'm just going to add, Matt. Like, when we think about where is there upside opportunity and margin, I'm going to throw it into kind of three categories in the shorter term. But sort of a '27 on. One is streamlining the products. We've done a lot around, I think almost a third of our product we've looked at and either repositioned merged a few cases closed, and in some when I think about repositioning, it's like turning them into ETFs. We did big ETFs conversion where we think they'll get more upside potential. So as we determine that, there's opportunity there. The second is it always takes a lot longer. And you think about all the acquisitions that we've done, kind of say, I think, 11 acquisitions in the last five or six years, but the reality of Legg Mason was like an acquisition of five companies or six companies, not one company, because they were all on their own systems. They had own versions of CRM, different CRM systems. That is still ongoing. And those and some of that's built into the projections that we have. But some of it, you continue to uncover more opportunities there as you integrate. And it takes multiple years to do the full integration. And so that's still working. And then finally, like AI and technology, I think we think blockchain is going to be a great efficiency adder as it as it's adopted out there. But like AI, just you may have seen that we announced this intelligence hub. It's one area that we're working on AI to make our distribution people more effective. What we saw is the time to finalize call lists dropped 90% when we rolled this out. Now what is that? It's you know, it went from three to four hours to fifteen minutes. And the prepping for meetings dropped you know, from six hours to two hours or something per week. Those are small little incremental cost savings or hope more importantly, what it's done is actually added 9% to 10% increase in the number of meetings that our distribution team has. So hopefully, that translates into more sales. But think about that as you're rolling it out. We've already talked in the past about AI and the improvement in our RFPs. We're doing a lot of work on our investment side. It will either translate into growth opportunities or it will translate into cost savings. But honestly, it's a bit hard today to build that into direct cost savings opportunities that expand into margin. But those are big opportunities, we think, going forward. And we are very focused, we think, on the AI side. We're actually the leaders in that space. So I just want to add that to kind of Matt's comments. Matt Nicholls: And then finally, Jenny, thank you for that. And then finally, most of the stated growth areas that you can see as demonstrated by our positive flows in them scaling. They're scaling up. And in particular, ETFs, Canvas, and Solutions, for example, each of those three areas for us obviously, they're lower fee. And when they're smaller AUM and when you're growing, overall is a business, you have a lower margin. As a result of that of that investing to grow the business to a scaled position. What's happening now in terms of ETFs Canvas, and solutions in particular, notwithstanding that the lower fee rate associated with those vehicles, those businesses, let's call it. They're getting to the point now where the size of them and certainly going into later into 2627, all else remaining equal, we expect the scale of scaling of those businesses to create higher margins overall. So you have a lower fee rate. I know everybody's very focused on the fee rate. But at a certain point, when you get above a certain AUM, expenses are very managed and you've done all the investments. You've got the team you need, and then you could be two, three times as size of AUM and therefore have a much higher margin. Similarly, in our alts areas, we continue to grow significantly across all three of our three, four of our primary alternative assets businesses. We're getting more margin from that. I mean, the $10 billion that Jenny talked about earlier on, the $9.5 billion of fundraising doesn't include, for example, Lexington Fund 11. So it's important to note that. Operator: Our next question comes from the line of Ken Worthington with JPMorgan. Please proceed with your question. Ken Worthington: I guess pressing AI further, Jenny, you've been in the press talking about the impact that AI has on asset management. Suggesting that it could drive, if not accelerate, more consolidation in the asset management industry. So maybe one, how does AI drive consolidation? And then two, from Franklin's perspective, how would AI sort of alter your ability and willingness to do the M&A transactions and fill in the gaps that you mentioned sort of earlier in the call? Jenny Johnson: Yeah. So a couple things. So one of my comments on M&A consolidation has been really what I said is look. If you haven't if you're a traditional manager and you haven't already purchased scale in alternative managers, it's going to be really difficult to compete going forward, especially because one, that comment on distributors trying to consolidate, so they're demanding more from you. Two is, as Matt pointed out, we were fortunate that we were very early in these acquisitions. Traditional alternatives managers have gotten incredibly expensive since we did our acquisition of BSP and Clarion. And it will be very, very difficult to be able for a traditional manager to be able to go and acquire. Number two, this convergence particularly in fixed income, you're going to see, but across the board with products that are that contain both private and public in them, you don't have that under the same roof, we don't think you're going to get the same kind of just synergies that you get from learning and managing and research. We have over 50 products between Western ClearBridge and Western and, frankly, Franklin's been doing private markets in their traditional mutual funds for over a decade. So over 50 products actually have privates in them today. So we already have that in our mutual funds. So one is in the alternative space. The second is AI. AI the amount of data required to truly train a model is really significant. And if you're a smaller manager, one is you won't be able to buy you won't be able to buy the kind of data. We spent hundreds of millions of dollars on data. And so to be able to scale that data, plus the data you generate internally across all of your different capabilities is really important in training models. And it's just going to be hard to compete on training those models if you don't have a scale. So that's where why my comment was, think that's going to drive some consolidation because I think over time, we're already seeing it. Now look. Anytime you have technology breakthroughs, first thing people do is just make more efficient what they do today. That's why we give you quotes like, hey. We're more efficient on the call. Because it's hard to measure the actual value-added output because that doesn't happen right away. It doesn't happen until you start to put in the hands of your people so that they can build those ideas. I wanted to say it's like, you know, when the iPhone came out, we all looked at it as this is a pretty cool camera. And, you know, and flashlight and whatever. It was unleashing the hands of the public that came up with all these credit applications. Applications. As you start to train your workforce on how to leverage Agenic AI, which we were very early adopters of broadly rolling out ChatGPT, and we do training on how to create a genetic AI. We do hackathons with our investment teams. And it's a cross-functional hackathons. We put people together that are across various sins to say, go build a Genic AI. And they're doing things that are built one on top of the other, and then we take them and we test them across others. So to me, the ability to do that and compete is going to be very difficult. If you are small, and in particular, if you are singly focused on, you know, kind of one area of the capital stack. Ken Worthington: Got it. Okay. Thank you. That's very helpful. Operator: Our next question comes from the line of Michael Cyprys with Morgan Stanley. Please proceed with your question. Michael Cyprys: Morning. Thanks for taking the question. Just wanted to come back to your commentary Jenny on blockchain and tokenization. Just curious if you could talk about your objectives for that over the next couple of years. What steps are you looking to take here in '26 to enhance your positioning? To help improve adoption, for example, of your existing tokenized funds? And then to your point on efficiency, I guess, how do you see blockchain contributing to improve efficiency at Franklin? How much lower cost is it to operate tokenized funds versus your traditional funds in rails? Jenny Johnson: Sure. So I'll tell you, like, this is just an incredibly efficient technology. And my the best example to give you an idea of how it become how I think it's from a cost savings standpoint, how significant it is I'll start there. And then kind of what the opportunities and the hurdles are to more broad adoption. So the first thing is, when the SEC approved our money market fund, they had this parallel process. It was something like we did over a six-month period between our old agency system and our blockchain system. And we were one of the few firms that were still running that the transferring C systems in-house. So we got to see that comparison. And we did about 50,000 transactions that cost us about a dollar 50 per transaction. Cost us a dollar 13 to run it. Total. To run those 50,000 transactions on the Stellar blockchain. We picked the right chain. There's a lot that goes into that. But it showed us the dramatic difference in cost. And today, if you open an old money market fund, you need $500 open up because below that, we probably lose money and the other shareholders subsidize you. In the case of blockchain, you could open a Benji. You downloaded the Benji app and open a money market fund, you would you would you only need $20. So we could probably go less than that. So it's cost savings. The second thing is there's a huge amount of cost in financial services that's just reconciling data between your own systems and then reconciling with your counterparty. All that goes away when you have a single source of truth that is updated immediately. So those that's you're going to have cost savings, which is why I believe it will fundamentally replace all of the rails. There's a lot of toll takers in the system today. That will slow that down as much as they can because it threatens their business model. But you know, water runs downhill no matter how many obstacles you put in it. It will it will become very significant. So why the slow adoption? You cannot hold a tokenized product without having what's called a wallet. Okay? Now it's a blockchain wallet. It's merely an encryption key that's your own personal one, but you can't hold any of those. And in The US in particular where you had you didn't have regulatory clarity until the Genius Act came in, there was no point in any of these big wealth advisors on the traditional side to even think about it because it was kind of like the third rail from a regulatory. I can tell you this year, I feel like is completely changed. You now have the large crypto exchanges interested in trying to offer traditional types of funds, ETFs and others that would be tokenized. And you have the big traditional managers who are saying, can you please educate us on how we access this space? How do we build a wallet? What's required there. And so I think you're going to start to see much greater convergence between TradFi and DeFi. We our tokenized money market fund, what we see is if anybody's been involved in securities lending, you know that people will move who they they'll borrow where they can get the highest collateral return even if it's a basis point. Why would you keep their $300 billion in stablecoins? Why would you park your money in a stablecoin that doesn't give you yield when you could move into a Benjie money market fund earn that yield, and when you want to do a payment transactions convert into a stablecoin. We think by the March, we will have the ability for somebody who has a stablecoin. We're Benjie has been integrated with multiple different stablecoins, where on these crypto platforms, we now a partnership with Binance. We have with OKX and Kraken and others where you'll be able to convert from your stable coin into our money market fund. And on a Saturday, convert out if you want to leverage it for payment and earn that yield. And, again, because it's on blockchain, we actually pay you that yield in your account every day. If you're a corporate treasurer, and you can get use of those funds every day versus accruing and waiting for that capital to be paid to you at the end of the month on a money market fund. That's going to be a benefit. And so that's we think there's an opportunity. But Benjie is just the beginning of where we think this goes. Michael Cyprys: Great. Thanks so much. Operator: Our next question is from the line of Patrick Davitt with Autonomous Research. Please proceed with your question. Patrick Davitt: Hi. Good morning, everyone. Following up on the expense guide, I don't think you've ever talked about the scale of the third-party performance-related expenses you're excluding. So could you give how much that runs each year? And then I think, Matt, you hinted you have a detailed rundown of next quarter expenses you can give. Thank you. Matt Nicholls: Thanks, Patrick. That should be the third-party piece should be relatively small. I'll check with the team quickly just in case. But that larger performance fee that we had to run through G&A last quarter was associated with a large performance fee we got from BSP and it was for previous employees. So, but I'll get what that number could be going forward. In terms of but it'll definitely be smaller. In terms of the third quarter or sorry, second quarter guide, I already mentioned EFR we expect it to be in line with this quarter. And as I mentioned, the last two quarters, we had some upside potential in EFR related to potential fundraisings in alternative assets. Comp and benefits, we expect to be around $860 million. This includes $30 million of calendar year resets, you know, for 401k payroll. Salary increases, and so on. It also assumes $50 million of performance fees. And a 55% performance fee compensation ratio on that. IS and T, we expect to be $155 million consistent with last quarter. Occupancy, $70 million, again, consistent with last quarter and as we've guided in the past. G&A, $190 million to $195 million again, in line with the previous quarter. This assumes a little bit higher fundraising expenses and a little bit higher professional fees. And then the tax rate, we guided last time for year 26-28%. We're keeping that guide, but we're now on the lower end of the guide or low to mid let's say, in that guide. So we're bringing the guide down on taxes for the year from the higher end, which I think I said last quarter to the lower to mid part of that guide. And then really importantly, I want to reiterate the '26 because I know you'll be calculating back what should how do we to the flat expense guide or remaining equal and excluding performance fees and the other assumptions we put in the deck, how do we get to that guide? I would add the quarter I just gave you to the first quarter and then look at the last two quarters. And just spread the expense savings over those two quarters. We recognize about 20% of the 200 in the first quarter. And we expect to spread the rest of it out over the next three, but there'd be larger amounts of it in the last two quarters. And, again, we expect to end the year in a very similar expense position as we were to twenty five. Notwithstanding all the investments that we've talked about, making in the company and at a higher margin, as I mentioned when I answered Alex's question. Operator: Thank you. Our next question comes from the line Ben Budish with Barclays. Ben Budish: I was wondering if you could maybe talk a little bit about the equity flows in the quarter. I know calendar Q3 is typically seasonally stronger. And obviously, there's been a trend of improvement over the last couple of years. But this quarter looked particularly strong. Anything unusual or one time you'd call out or was it more, you know, broad-based and, you know, I know it's still a bit earlier in the fiscal year, but you know, any thoughts on how the rest of the year may shake out, would be helpful. Thank you. Jenny Johnson: I'll start, and then I know Daniel will want to jump in. I mean, obviously, it's a quarter that you have a strong reinvested dividends. So that is part of the flows, which is important. But I have to tell you, I mean, Putnam continues to have excellent performance and continues to have very, very strong flows. And honestly, that has even continued into January. I don't want to steal the thunder here, and January hasn't closed yet, but we actually are looking like we will be positive net flows inclusive of Western, which has been a long time since that in January. Now again, I caveat that since it hasn't actually closed today. But part of that has just been the strike in Putnam. Daniel, do you want to add? Daniel Gambach: I think you got it. I will say it's a combination of platinum, clearly, large-cap value, on research. Also, on emerging markets, we got some institutional flows from our temples and emerging markets capability. Which is very, very encouraging. And I will also say our ETF franchise had excellent results. Especially on the active ETFs, which is also a combination of the results from our Boston affiliate, but also a couple of ClearBridge funds did also very well on that. And the momentum continues to be we own ETFs. We had a great quarter. 75% of the quarter was on active ETFs. So it continues to actually show that that's where the industry is going, and we have a very ambitious plan to continue that growth. Ben Budish: Alright. Thank you very much. Operator: Next question is from the line of Bill Katz with TD Cowen. Please proceed with your questions. Bill Katz: Great. Thanks for taking the extra question. Just a couple of cleanups for me. One, can you just remind us what the variable expenses against net asset value were happening by the incremental margin on market action. Number two, maybe just on the WAMCO side, I haven't asked about this in a while, but it seems like volumes there are stabilizing. How are conversations progressing with the investment community given that some, but not all the overhang with the regulatory investigation is sort of winding down? And then finally, was wondering if you could talk a little bit about broadly, you mentioned that Lexington was not in this most recent quarter. How do we think about maybe the pace of opportunity on Lexington and maybe broadly where you see the big opportunities for growth in fiscal twenty six? Thank you. Jenny Johnson: Great. So I'll take the Western and Alts, and then I'll turn it back to Matt on the variable expense there. So just one on Western. I mean it helped a lot, obviously, The DOJ came out and said that they're not going to pursue criminal charges and it'll be resolved through disposition and acknowledged. I think this was also important that the additional time needed was not due to Western. So I think that gave clients a little bit of a breather of an uncertainty. And you have the benefit. The investment team is incredibly stable. They have very, very good performance. We've been integrating the corporate functions. We've been integrating the institutional sales and the client service that's going very well. And so I think that with clients that is that essentially calm them a bit. I mean, we did while there's still an outflows, it did have, I think, was $6.6 billion in gross sales. In the last quarter. So there's obviously clients that are still allocating to Western. With respect to Alts, as Matt said, so we had a very strong quarter. Our target for the year is 25% to 30%. We're going to it's still early, so we're going to maintain that target. But obviously, at $95 billion coming into the private markets, and that is across all private credit secondaries, real estate and venture. So it's nice and diverse. A little over half of it is in the private credit area. None of it was Lexington's flagship fund 11. Lexington did have it was a combination of its co-invest flex middle market. There were over 33 vehicles that had inflows in our private markets this quarter. So tells you it's really broadly distributed, which for us is exciting. Lex flagship Fund 10 are active or 11, they're actively fundraising in the market right now. Their target is to be about where they were on their last fund. They would expect to first close this year, but it'll depend. Secondary continues to be just a great space to be. Last year was a record number in secondaries transactions. Lexington is considered one of the trustiest trusted and long-term partners with experience, and they're not affiliated to any single PE firm. So that also gives them an advantage. So they're having very good strong conversations. But we're pleased to see the extent of inflows and growth even without the Lexington flagship fund. So Matt, and I'll turn it over to you again for the last part of that. Matt Nicholls: Sure. Thanks, Jenny. So Bill, on the variable question, about 30 between 35-40% of our expenses are variable. And I'm sorry I didn't address the I remembered you asked that this question at the end of your previous question. Where you said if the market goes down, do we have flexibility now? Expense base? The answer is yes. We always have variability in our expense base in the event the market goes down. So that's the answer to that. And then to answer another expense question Patrick had. Patrick, just to make sure I fully answer your question. As it relates to the geography of performance fee-related compensation, first of all, we would always, guide to apply 55% to the number of performance fee overall. So 55% is the correct application whether it's in our computation line or the G&A line. And we do, as I mentioned, in the answer to the question initially, we expect that number to be quite low in the GNA segment. The G&A segment is just literally for former employees that where we have to where we're paying a, you know, a portion of the company out that they owed. But that's de minimis at this point. It was just larger that one quarter. I think it was $24 million to be specific. Last quarter and was because it was a large older fund that had a number of folks that are no longer they're retired from the company that had interest in the performance piece. Patrick Davitt: Thank you. This concludes today's Q&A session. Operator: I'd now like to hand the call back over to Jenny Johnson, Franklin's President and CEO for final comments. Jenny Johnson: Great. Well, I'd like to thank everybody for participating in today's call. And more importantly, once again, we'd like to thank our employees for their hard work and dedication delivering this strong quarter. And we look forward to speaking with all of you again next quarter. Thanks, everybody. Operator: Thank you. This concludes today's conference call. You may now disconnect.

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CVX 2025 Q4 财报电话会议

Operator: Good morning. My name is Katie, and I will be your conference facilitator today. Welcome, everyone, to Chevron's Fourth Quarter 2025 Earnings Conference Call. At this time, participants are in a listen-only mode. After the speakers' remarks, there will be a question and answer session and instructions will be given at that time. As a reminder, this conference call is being recorded. I will now turn the conference call over to the Head of Investor Relations of Chevron, Mr. Jake Spiering. Please go ahead. Jake Spiering: Thank you, Katie. Welcome to Chevron's Fourth Quarter 2025 Earnings Conference Call and Webcast. I'm Jake Spiering, Head of Investor Relations. Our Chairman and CEO, Mike Wirth, and our CFO, Eimear Bonner, are on the call with me today. We will refer to the slides and prepared remarks that are available on Chevron's website. Before we begin, please be reminded that this presentation contains estimates, projections, and other forward-looking statements. A reconciliation of non-GAAP measures can be found in the appendix to this presentation. Please review the cautionary statement and additional information presented on slide two. Now, I will turn it over to Mike. Michael K. Wirth: Thank you, Jake. 2025 was a year of execution. We set records, started up major projects, and strengthened our portfolio. Production reached record levels globally, and in the US, supported by key milestones and strategic actions. Including completion of the Future Growth Project at Tengiz, 260,000 barrels of oil per day. Start-up of Valleymore and Whale and the ramp-up of Anchor in the Gulf of America. Advancing toward our goal of 300,000 barrels of oil equivalent per day in 2026. Achieving 1,000,000 barrels of oil equivalent per day in the Permian, and shifting focus to free cash flow growth. And closing the Hess acquisition. Creating a premier upstream portfolio with the highest cash margins in the industry. Additionally, in the downstream, we delivered the highest US refinery throughput in two decades reflecting recent expansion projects and higher efficiency. This performance drove strong results. Including industry-leading free cash flow growth, excluding asset sales, adjusted free cash flow was up over 35% year over year even with oil prices down nearly 15%. And for the fourth consecutive year, we returned a record cash to shareholders. Delivering on our consistent approach to superior shareholder returns. Chevron has been in Venezuela for over a century. And we remain committed to leveraging our deep expertise and long-standing partnerships for the benefit of our shareholders, and the people of Venezuela. Since 2022, in full compliance with US laws and regulations, we've worked with our Venezuelan partners to increase production in our ventures there by over 200,000 barrels per day through a venture-funded model to recover outstanding debt. We see the potential to further grow production volumes by up to 50% over the next eighteen to twenty-four months. We're reliably delivering Venezuelan crude to the market including our own refining system. There is significant potential in our assets, and in the country. We're optimistic the future holds a more competitive and robust pathway to deliver value to Venezuela, the United States, and Chevron. We've been a pivotal part of Venezuela's past. We're committed to the present, and we look forward to a continued partnership into the future. Our advantaged assets in the Eastern Mediterranean continue to grow. And we're advancing multiple high-return projects to bring world-class gas to regional markets. Leviathan recently reached FID to further expand production capacity. Combined with a near-term expansion, gross capacity is anticipated to reach roughly 2,100,000,000 cubic feet per day at the end of the decade. Contributing to a doubling of current earnings and free cash flow. At Tamar, the optimization project start-up is in progress, increasing gross capacity to approximately 1,600,000,000 cubic feet per day. An Effort ID has now entered feed. Working toward developing a competitive investment in Cyprus. We expect these projects to build on the existing assets' top quartile reliability and unit development costs further expanding our differentiated position. Before concluding, I want to provide a brief update on TCO. Earlier this month, TCO experienced a temporary issue on the power distribution system. Production was safely put in recycle mode while the team identified the root cause. Early production has now resumed. We expect the majority of the plant capacity to be online within the coming week and unconstrained production levels within February. Our full-year 2026 guidance of $6,000,000,000 of Chevron share free cash flow from TCO at $70 Brent is unchanged. I want to reiterate our message from Investor Day. Chevron is bigger, stronger, and more resilient than ever. We're entering 2026 from a position of strength, and will continue building on our momentum in the years ahead. Now, to Eimear to discuss the financials. Eimear Bonner: Thanks, Mike. Chevron reported fourth-quarter earnings of $2,800,000,000 or $1.39 per share. Adjusted earnings were $3,000,000,000 or $1.52 per share. Included in the quarter were pension curtailment costs of $128,000,000 and negative foreign currency effects of $130,000,000. Cash flow from operations was $10,800,000,000 for the quarter, and included a $1,700,000,000 from a drawdown in working capital. In line with historical trends, we expect to build in working capital in 2026. Organic CapEx was $5,100,000,000 for the quarter, and full-year organic CapEx was in line with guidance. Inorganic CapEx related mostly to lease acquisitions and new energies investments. We repurchased shares at the high end of our fourth-quarter guidance range at $3,000,000,000. Our balance sheet remains strong ending the year with a net debt coverage ratio of 1x. Compared to last quarter, adjusted earnings were lower by roughly $600,000,000. Adjusted Upstream earnings decreased primarily due to lowered liquids prices. Adjusted Downstream earnings were lower largely due to lower Chemicals earnings, and Refining volumes. Adjusted free cash flow was $20,000,000,000 for the year, and included the first loan repayment from TCO and $1,800,000,000 in sales. Share repurchases combined with the Hess shares acquired at a discount were over $14,000,000,000. Looking ahead, we expect continued growth in cash flow driven by low-risk production growth ongoing cost savings and continued capital discipline. 2025 marked the highest full-year worldwide in US production in Chevron's history. Excluding impacts of the Hess acquisition, net oil equivalent production growth at the top end of our 2025 guidance range of 6% to 8%. Production of TCO, the Permian, and the Gulf of America was in line with or better than previous guidance. Due to strong performance and disciplined execution. We expect volume growth to continue in 2026. As we see the benefits of project ramp-ups, a full year of Hess assets, and continued efficiency in our Shield portfolio. A full year of Permian above 1,000,000 barrels of oil per day and back in production underpins the expected growth in Sheel and Tite. Recent and upcoming project start-ups in Guyana, the Gulf of America, and the Eastern Mediterranean are anticipated to increase offshore production by approximately 200,000 barrels of oil equivalent per day. We expect TCO to grow 30,000 barrels of oil equivalent per day delivering near its original plan as the 2026 maintenance schedule has been optimized. In total, growth in these high-margin assets is anticipated to contribute to a 7% to 10% increase in production year over year, excluding the impact of asset sales. Last year, we launched our structural cost reduction program as part of our continued commitment to cost discipline. Execution has exceeded expectations, $1,500,000,000 delivered in 2025, and $2,000,000,000 captured in the annual run rate. These results reflect a broad organization-wide effort to operate more efficiently. Challenging high and more work gets done, streamlining processes, integrating advanced technology, and leveraging our scale across the supply chain. We've restructured our operating model to be leaner and faster, with a more intense focus on benchmarking and prioritization. And we're not done. We expect this momentum to continue as we aim to deliver on our expanded target of $3,000,000,000 to $4,000,000,000 by 2026. With more than 60% of savings coming from durable efficiency gains. As Mike referenced, entering 2026 a position of strength. Our diversified portfolio has a dividend and CapEx breakeven below $50 Brent, and a deep opportunity queue with lower execution risk. Capital discipline remains at the core of our strategy, as we focus on only the highest value opportunities. Our balance sheet is in excellent shape, with significant debt capacity that provides additional resilience and flexibility. This disciplined approach allows us to manage through cycles, invest for the future, and consistently reward shareholders. Over the last four years, we've returned more than $100,000,000,000 in dividends and buybacks. As we showed you at our Investor Day, our track record of growing the dividend is unmatched across decades. Today, we announced a 4% increase in the quarterly dividend, in line with our top financial priority. I'll now hand it off to Jake. Jake Spiering: That concludes our prepared remarks. Additional guidance can be found in the appendix to this presentation. As well as the slides and other information posted on chevron.com. We are now ready to take your questions. We ask that you limit yourself to just one question. We will do our best to get all of your questions answered. Katie, can you please open the lines? Operator: Thank you. If you have a question at this time, please press 1 on your touch-tone telephone. To allow for If your question has been answered or you wish to remove yourself from the queue, please press 2. If you are listening on a speakerphone, we ask you please lift your handset before asking your question to provide optimum sound quality. We'll take our first question from Arun Jayaram with JPMorgan. Arun Jayaram: Good morning, Mike. I was wondering if you could elaborate on a few of the moving pieces around TCO volumes in 2026. Including the optimized maintenance schedule, and perhaps, Mike, you could just discuss the issue on the power distribution system and where you stand with some of the debottlenecking activities that could potentially result in an increase in your productive capacity at TCO? Michael K. Wirth: Sure. Let me start with the power issue since that's been the most recent information there. The team proactively suspended production at the facility when an issue was identified in the power system. I'm really proud of the organization for taking that step being willing to reduce production when they identified a condition that created a risk and focusing on the safety of people, assets, the environment. They acted with urgency to get the facility into a safe posture. Immediately, began working on root cause identification and very quickly began implementing solutions to get production back online. Production has been resumed at the Korolev field. A number of the assets or power distribution assets have been taken out of service, have been brought back into service. We've actually got power now to one of the pressure boost facilities. And are in the process of beginning to ramp things back up to higher rates, through the processing plants as I outlined in my opening comments. Also, you know, in the news, just to close the loop on it, you know, we have two morning births back in service at CPC. We've been working for the last thirty plus days, maybe thirty to forty-five days, through a single mooring berth. So back into, you know, start-up mode on TCO, and as I indicated, full field production capacity is not far away. When you look at the full-year guide where we said we expect to be near our original production expectations, two things I would point to. One is a maintenance optimization, which is timing of activity. And optimizing downtime. And so as we've looked at the schedule for this year, we've got a more optimal plan that will accomplish the maintenance objectives and reduce the amount of planned downtime that goes with those. And then the second thing gets to your question about debottlenecking. At our investor day, we shared some history at TCO. That demonstrated over our years there in multiple projects, we've been able to steadily improve plant capacity beyond nameplate. We're working on that again now with the new project. And in fact, one of the pit stop turnarounds that we took late in 2025 was to address to retray a column or a portion of a column and address some issues that have been identified that we believe will allow us to push some more throughput through the plant. We've actually not run that at full capacity long enough to be able to speak to exactly what the impact of that is because of some of these other constraints that I just mentioned. But as we're back up and running, we'll certainly have a chance to test that. And I would expect, that and other steps that we take will lead to gradual debottlenecking, and we'll look to try to creep capacity further upward. And we'll advise you as we've got, you know, run time and confidence that we can demonstrate that we'll let you know what that looks like. Thanks, Arun. Operator: We'll take our next question from Neil Mehta with Goldman Sachs. Neil Mehta: Morning, Mike and team, and thanks for the comments. Just Mike, if you could unpack Venezuela a little bit more, specifically, your just thoughts on the conditions of the assets on the ground and how much running room there is in terms of the resource there. You know, how big could this be in the context of Chevron's portfolio? And I think Mike, you alluded to the fact that might be thinking about this more in a self-funding model type of way. So anything you can unpack there too be great. Michael K. Wirth: Yeah, Neil, maybe I'll put a little bit of a context around this just because I had different discussions with people over the years, and I'd like to get everything kinda level set on it since it's been more front and center recently than it has been historically. First of all, our operations there through the last month and all the things that have happened on the ground have continued uninterrupted. Our people are safe. We continue to work closely with our partners in Venezuela to get crude to the market. So we've not been impacted by any shipping issues or anything else. Have been in the media. We're actually in four different joint ventures with Petabesa, three of which are producing assets. Since 2022 when there were some changes in the licenses out of OPEC under the Biden administration, we've grown production by over 200,000 barrels a day. Gross production now is up around 250,000 barrels a day. And as Mark mentioned during the White House meeting, there's the potential for up to an incremental 50% production growth over the next eighteen to twenty-four months as we get some additional authorizations from the US government. The activity on the ground right now is entirely funded through the cash within those ventures. And so the current license agreement requires us to pay certain tax and royalties that we're legally obligated to pay. It enables repayment of debts that, that we have you know, still have debt balances that were owed, and we've been gradually working those down. And then the additional cash goes back into the operations for normal operating costs. That has funded, things like well work workovers, basic maintenance on pump and pipelines and compressor stations and the like. Which have allowed us to improve production. As we have and would continue to, as I indicated, up to maybe 50% additional growth. So that's the current state of things. As I think everybody on the call knows, the resource potential in Venezuela is large. It's well established, and there's a lot of running room ahead. I can speak to the state of our assets, and we have worked hard to keep them safe and reliable and maintain them during this period of time. I think as you look at the performance out of other assets that we're not involved in, you can see that that may not be the case across the rest of the industry in the country as, you know, the production has kinda steadily eroded over, you know, the last decade or so. And so I think the opportunity to do some of the things we've done in some of these other operations is probably there. I think it's a little early to say what our longer-term outlook is Neil. You know, should expect us to remain focused on value and capital discipline. It's a large resource that has the opportunity to become a more sizable part of our portfolio in the future. But we also need to see stability in the country, we need to have confidence in the fiscal regime. There was a hydrocarbon law that was passed just yesterday. They were in the process of reviewing to understand how that applies. And so there'd be a number of signposts that we'll be watching, you know, and, you know, as I try to remind people always, like anywhere that we invest, fiscal terms, stability, regulatory predictability are important. And so it'll have to compete in our portfolio versus attractive investments in many other parts of the world. The right changes, we certainly could see our operations and footprint expand in Venezuela. And, you know, we're working with the US government and the Venezuelan government to try to create circumstances that would enable that. Jake Spiering: Thank you, Neil. Operator: We'll take our next question from Doug Leggate with Wolfe Research. Doug Leggate: Good morning, everybody. Mike, I wonder if I could just quickly take you back to Tengiz. And it's I guess it's really more of a macro question because I think you're aware that Kazakhstan seemingly has some fairly substantial compensation cuts planned in the summertime. And I don't know how much of that was supposed to be Tenge's. I think it was a previous question from one of the guys asking about maintenance, but now that you've had this unplanned downtime, I'm wondering does that kind of meet the compensation if you had any contribution to that? In other words, we should not expect any further cuts later in the year. I don't know if you can speak to that both on a macro and a Chevron specific level, please. Michael K. Wirth: Yeah, Doug. I really can't. You know, that's a matter for the Republic and obviously OPEC plus as they engage in their discussions, which we're not privy to. I'll point out that historically, because the TCO barrel is a pretty attractive barrel from a fiscal standpoint to the republic, that, what we've seen historically is if there are restrictions on production in the country, you know, those tend to affect the barrels that are less fiscally attractive to the government, and TCO doesn't have a history of being, you know, impacted to a great degree by that. And so you know, I would point to that. I know history is not always a prediction of the future, but that's how things have historically worked. And I just don't know what agreements or understandings there are within the country relative to OPEC. Thanks, Doug. Operator: We'll take our next question from Ryan Todd with Piper Sandler. Ryan Todd: Great, thanks. Maybe on the Eastern Med, you've made a lot of progress in the Eastern Mediterranean over the last six months. Can you walk through kind of the drivers of the progress in the region, keys to Aphrodite development, getting that to FID, and then maybe additional opportunities in the region, including places like Egypt where we've seen some headlines, involving yourselves of late. Michael K. Wirth: Yeah. Thanks, Ryan. We continue to be very excited about the resource potential in the Eastern Mediterranean. You know, I used to get some questions back during, you know, the last year or so when there was a lot of, kinda geopolitical, uncertainty in the region. But you know, this is a tremendous resource. All credit to Noble Energy for the way they developed both tomorrow and Leviathan. And, you know, across our core assets, on a gross basis, we've got over 40 TCF of resource. This is comparable to our assets in Australia, have been the focus of investors for a long time. But this is similar scale. In the near term, we're focused on safely bringing online projects at both tomorrow and later this year. Tomorrow, we'll add about 500,000,000 cubic feet a day of capacity. Leviathan, about 200. And then the Leviathan expansion, just took FID on, will take gross production there to 2.1 BCF by the end of the decade. So steady growth, combined those projects should increase production about 25% and double earnings and cash flow by 2030. And then as you mentioned, Aphrodite just entered FEED. We're working towards a competitive project in Cyprus. This is one that's been, kind of on the drawing board for quite some time, and we've reached, I think, a good understanding with Cyprus on the development concept there. And so all of these, you know, lead to our confidence in the region. Last thing is we've got at least one exploration well I know that is going to go down offshore Egypt. We've got a large position in a number of blocks offshore Egypt further to the West in areas that are relatively underexplored and have been under some military exclusions. Historically, working petroleum systems onshore, and, you know, we've got reasons to believe they could extend offshore. So we're gonna be testing that. We shot seismic and gonna be getting some wells down. So an important part of our portfolio, good things underway now, and I think you know, the running room on this one continues well into the future. Jake Spiering: Thank you, Ryan. Operator: We'll go next to Devin McDermott with Morgan Stanley. Devin McDermott: Hey, good morning. Thanks for taking my question. Eimear, you had some helpful comments and details in the slides on the cost reduction progress so far. And if we look at what's on deck for 2026, what's ahead still, I think some of the remaining improvement is really driven by some of the fairly material organizational changes that Chevron implemented last fall. And now that you're a few months into this new operating model, was wondering if you could talk about some of the early results that you're seeing so far, both on cost and operations? So any positive surprises or conversely, kind of lessons learned or areas that are still a work in progress. Eimear Bonner: Okay. Thanks, Devin. Yeah. We've hit the ground running, and we went live with the new organization in October. And, the new operating model is live and well, and, you know, we're seeing that reflected in the early results that we've shown you today in the prepared comments. So we've saved $1,500,000,000 thus far on the cost reduction program. So some of that's coming from divestments. Some of that's coming from efficiencies and technology, and so you see the early results of the organizational impacts in the results already. The run rate's greater than $2,000,000,000. You know, at the end of the year. So, we are expecting the organizational efficiencies to add to the results that we're seeing thus far. So we're very confident in the target that we've set and delivering that over the course of this year. And just a reminder, that's three to four billion dollars. Look. In terms of the lessons learned, what I'd say is we're seeing results everywhere. Every team as part of this program has been benchmarking, has been looking for areas of improvement. So we've got a lot of programs that are looking at improving our competitiveness across every metric. Some of the examples that I would call out, production chemicals, now that we have our shale and tight portfolio and assets altogether in one business, we've been able to look at that from an operational efficiency perspective not only the optimized operationally, know, the chemical treatments, but also the cost, and the dose. So that would be an operational lessons learned, word of the scale, and the design of the new organization makes that easier to do, and the results speak for themselves. Another area, maybe in the technology space, you know, we've talked about this for a number of years, but AI, is really starting to take off in terms of being used in every part of the business. And in the new organization, our supply chain team is set up a little bit differently, and they've really been using AI in a neat way to glean more intelligence around how to approach certain negotiations, and so that would be an example as well. So all in all, we're on track to deliver the 3 to 4,000,000,000 I'm very confident in that. This is overall OpEx reduction while we significantly grow. So we'll keep you updated on the progress. Thanks for the question. Operator: Thank you. We'll take our next question from Sam Margolin with Wells Fargo. Sam Margolin: Hi, good morning. Thanks for taking the question. Maybe revisiting the Permian you know, I think it was, like, the '23 where you called out that productivity well, productivity in the Permian on the operated side was inflecting higher and you know, now two years later, seems like we're really seeing it flow through in capital efficiency. And so the question is, like, when you get this kind of momentum in short cycle capital efficiency, you know, does what does it do to your decision-making process? Not you know, I wanna spin you around on Permian Plateau, but just given the cost and productivity structure of your operation there, feels like it's getting incrementally capital efficient to accelerate. So just in the context of what you're seeing performance-wise, you know, how do you feel about the Permian strategy? Eimear Bonner: Hey, Sam. I'll take this one. Yeah. Well, what we're seeing is exactly what we set out to achieve, and that was to hold Permian at a million barrels a day. We've seen that for three quarters and optimize on cash generation. And we're already seeing cash efficiency improve. We're at $3,500,000,000 of CapEx, already, and that was something that we thought that it was gonna take us some time, but the team has just done a terrific job. Every aspect of the factory there has seen efficiency and improvement. And now, you know, we're taking that further given that our shale and tight portfolio is together as part of the new organization in one business. And so we'll see we'll see in that capital efficiency extend to the back end extend to, the DJ, and extend to Argentina. You know, one data point I'd give you just to illustrate it clearly is drilling rig efficiency. And since 2022, you know, we've more than doubled our drilling efficiency from that point. And so we're drilling, the development areas for much less. In terms of our decision-making, right now, I know change to our decision-making. I mean, Permian plays a role in our portfolio. We're focused on growing cash flow. Not growing production. And, you know, the capital efficiency, enables that. So, I just finished by emphasizing, you know, all of these actions are improving returns. Jake Spiering: Thank you, Sam. Operator: We'll take our next question from Paul Cheng with Scotiabank. Paul Cheng: May can you discuss how you see the opportunity set in two of the OPEC countries Libya, and Iraq, where a lot of your competitors seems to be believe that the opportunity sets have margin improved and making wave. We haven't heard from Chevron. And also that comparing to your peers, your LNG size or portfolio size is much smaller. And how that fit into your long term? Do you have a different view comparing your peer, on the LNG business? Thank you. Michael K. Wirth: Hey, Paul. Couple of questions there, I guess. First of all, you might have seen we recently signed an MOU in Libya. You know, we're a little bit underweight, relatively speaking, Middle East. Versus some other parts of the world, and that's been intentional. The types of contracts and the terms have been on offer in The Middle East broadly speaking, for the last decade or more, have not been very competitive versus some of our alternatives. And so you've had a lot of service type contracts. And, you know, in a world of limited human resources and limited capital resources, we need to deploy these to what we believe are the highest return opportunities. And it's been tough for a lot of those to compete within our portfolio. So we've not gone into Iraq. You know, it's been a decade or more than since we've last really had any kind of a serious look at Libya. Those things are changing. And I think in part, you know, when we saw President Trump make a visit through the region earlier this year, we saw a notable uptick in inbound inquiries and a desire to engage not just in those two countries, but in any number of other countries that would like to see American companies invest in their economies. And so, you know, we you know, the resource potential in some of these countries is undeniable. They're two of the largest resource holders. In the world. And so we're engaged in discussions in both of those countries. They've been reported in the media. To look at everything from existing producing fields and coming into those to operate and grow. Also looking at exploration opportunities as well. Improvements in fiscal terms have been critical. Pairing discovery resources with exploration opportunities to make things more attractive. And so we need to see compelling value opportunities there if we're going to invest. We intend to stay disciplined on capital and seek the highest returns. My quick response in LNG, Paul, I think I've spoken to this before is you know, we're a global player. We need to be in projects that compete. And, a lot of things that we've passed on around the world similarly, to my comments about, some of these Middle East opportunities. They also don't deliver the returns that we're looking for. And so got some US offtake where we don't need to put capital to work because we have a large gas position. We got strong, you know, credit position, and we can get attractive throughput rates and let somebody else deploy the capital into those so we'll have some LNG offtake from US. And, you know, we'll continue to look at opportunities. We're not opposed to adding, but it's got to deliver competitive returns. Thanks for the question, Paul. Operator: We'll take our next question from Stephen Richardson with Evercore ISI. Stephen Richardson: Hi. Thank you. I was wondering if we could maybe just dovetail on those the comments just there on changing fiscal terms internationally and the opportunity. Just feels like you've positioned the company arguably really well to win in a low commodity price environment. And with a ton of leverage to the upside as your sensitivities suggest. So that's it, but the opportunity set just keeps on getting bigger. I mean, we're just talking about Venezuela. Talking about some of these opportunities in The Middle East. You've got a revamped exploration program. So can you just follow-up on that in terms of how do we think about maintaining that leverage to the upside while developing some of these future opportunities? And how do you instill that discipline in the organization, if you could? Michael K. Wirth: Yeah. Steve, I mean, we've steadily worked to high grade our portfolio. We've looked to add very strong and competitive assets to our business. And we have divested ourselves of positions that are not bad assets but they fit better for somebody else than they do for us. And so in doing so, I think we've strengthened the company. You've seen our breakeven has come down. You see that, you know, we've we're able to operate at lower cost because we're actually in fewer positions that have more scale. They've got longevity, so we can apply technology to these assets. And, and I think you can expect us to continue to do so. We want to grow, you know, gradually over time. The demand for our products isn't growing at an enormous rate. You know, demand for us is growing arguably 1% a year, give or take. Gas is growing a bit more strongly than that. And so, you know, we've got a volumetric growth a little bit above that. Last year, this year. We got some acquisitions and project start-ups. But over time, we've got to grow cash flow. And that's the focus. We got to drive breakevens down because we're in a commodity business. We can never forget about that. We've got to apply base business excellence to everything that we do. So we got to drive value out of these assets. We got to work them better. I'll give you and Eimear talked earlier about bringing all of our shale businesses together. As you look now at what we're doing with, the Permian, the DJ, the Bakken, and Argentina, all as part of one organization. And I see people, practices, technology, standards being shared across those businesses, we're steadily driving the kind of improvement that Eimear was addressing in her response to Sam across that entire portfolio. And so we've consciously positioned the company as you say. To have the resilience that I talked about. I said we're bigger, better, and more resilient than ever. That means we can ride through the cycles in even better position than we could in the past. And we've got you know, a balance sheet that provides ballast if you get into a long cycle. And, you know, we've got this track record of continually raising the dividend, steadily buying shares back through the cycle, and being able to reinvest in the business to strengthen it over time. And that's the playbook going forward. Jake Spiering: Thank you, Steve. Operator: We'll take our next question from Biraj Borkhataria with RBC. Biraj Borkhataria: Hi, thanks for taking my question. Just a follow-up on portfolio. Been touched on a couple of times, but we've seen a bunch of headlines on you maybe looking to sign deals in various countries. I was just wondering is this a concerted step up in your efforts or is this largely initiated by resource-rich countries and reverse inquiry some perspective there would be helpful. And one of the things just to note on is your portfolio has become more concentrated over time. Which is good and bad depending on the situation. So I was just wondering if that part of your thinking is looking to diversify and how you're thinking about the portfolio there. Thank you. Michael K. Wirth: Yeah, Biraj. So look, business development is part and parcel of what we do every day, week, month, and year. There are times you're in a pretty sparse environment in terms of opportunity, and there's times when it's more target-rich. What I would say is and this tends to kinda work on a long cycle sometimes. What we see today are more attractive opportunities, frankly. Than I think we've seen in the past. And I spoke to The Middle East, so I won't repeat that. But you know, we do see a lot of interest in that part of the world and it's reflected in these more competitive fiscal terms. And so I don't think we've necessarily changed our appetite or our level of diligence and activity in the BD environment. We just see a more attractive suite of opportunities out there. We'll continue to be very selective and pick and choose. I hear your comment about portfolio high grading and concentration, if you will, at the core, you know, we run big things big. We like long large positions that have lots of running room. We like to apply technology and base business excellence to drive value through those assets. When you're in a position with a lot of smaller assets spread all over the world, your safety exposure, you've got a lot more surface area on safety, environmental issues, compliance issues. You just go down the list. So you deploy a lot of your great people to manage those things across assets that can be small and out there kind of in the tail of a portfolio having large positions where you can put your best people to work on assets that really matter is something that I believe is important. And so I recognize you could get too concentrated. I don't believe that we are. And as I mentioned earlier, we're a little underweight in The Middle East, which is an area we wouldn't mind having some more exposure if we can find it in a competitive financial standpoint. Jake Spiering: Thank you, Biraj. Operator: We'll take our next question from Manav Gupta with UBS. Manav Gupta: Good afternoon. You have a very strong refining portfolio, and there are two tailwinds we see to that refining portfolio. One is your competitor closing capacity in California, leaving you with one of the biggest footprints out there. Above mid-cycle margins. And second is the possibility of using some of those Venezuela and heavy sour barrels in your refining systems, the Gulf Coast and other places. Can you talk a little bit about those two possible tailwinds to your refining margins? Thank you. Michael K. Wirth: Yeah, Manav. Thanks for bringing up something near and dear to my heart, the downstream business where I spent a lot of my career. First off, on where you ended on Venezuelan crude, we've been bringing about 50,000 barrels a day, give or take, into our Pascagoula, Mississippi refinery on the Gulf Coast. We can take another 100 barrels a day into our system, both at Pascagoula and on the West Coast where we've got coking capacity at El Segundo. So I think you should expect to see us assuming it competes, against alternatives, to be running more Venezuelan crude in our system. Over time. In California, it's an interesting situation. We have a very strong downstream position there. We've got scale. We've got complexity in terms of conversion capacity. We've got flexible crude sourcing, advanced logistics, a very strong retail brand to integrate the business. And so we're as competitive as anybody, and I would argue advantage really versus the rest of the competitors in California. You're seeing some refineries close. That is going to take capacity out of the system. And, already, you know, we've got a market there that is geographically and logistically isolated. So isolated by specification as well. And as a result, California pays higher fuel prices than the rest of the country. By simple market forces being at work there. We've seen decades of what, in my opinion, has been, you know, poor energy policy making that has made it more difficult to invest. The irony is we have places in the world like Venezuela that are trying to become more attractive to investments as, places like California enact policies to become less attractive to investment. All of that is unfortunate as someone who spent a lot of time in that state, but it highlights the need, for policy that enables investments and, and for, competitive terms and regulatory environment. And so we'll see how things play out in California over time. Jake Spiering: Thank you, Manav. Operator: We'll take our next question from Alastair Syme with Citi. Alastair Syme: Thanks very much. Reserve replacement this year obviously benefits from Hess, but you'd also take on the new production. And, you know, that means reserve life has dropped again. And it's now a lot lower than it was five to six years ago. You know, the question is how do you think about the suitability of this metric to your business and really as a guide for investors in your business? Thank you. Eimear Bonner: Hey, Alastair. I'll take this one. Yes. I mean, triple R, our reserve replacement ratio, in a business that has depletion is an important metric. It's not the only metric that we look at when we think about the depth of our inventory or the quality of the portfolio. And last year, in addition to the triple R that was associated with the inorganic growth you know, with closing Hess and bringing Guyana and back into the portfolio. They're also, you know, some of that did come from organic ads as well, so extensions, discoveries, and project sanctions. So it's a blend it's a blend of both. Look. With triple R, it can be lumpy. So some years, you know, you can get a kind of a flurry of things happening at one time. So what we look at is we look at the one year, but we also look at the longer-term trends as well. We look at the competitive, metrics too. And, you know, when we take all of that into consideration, we had a great year in 2025 on triple R, and we lead the peer group in both five and ten year. Thanks for the question. Operator: Thank you. We'll take our next question from Jean Ann Salisbury with Bank of America. Jean Ann Salisbury: Hi, good morning. You all had said at the Investor Day that you had started to test the chemical surfactants in other basins outside of the Permian. Have you gotten any early results back from the DJ or Bakken? And anticipate that it's going to work as well there? Eimear Bonner: Yeah. Thanks. I'll take this one. So we've been primarily focused on, Permian, and in fact, we've increased the treatments from about 40% of the new wells being treated at the first half of 2025 to, almost 85% will be treated this year, and we're striving to 100% in 2027. So it has been more of a focus, in the Permian, and, I just point out we're testing our proprietary chemical technology, but we're also testing the combination of that with other commercially available chemicals. So cocktails as such, we're trying out different things depending on the development area. We showed in Investor Day some of our results. What I'd say is we're now realizing 20% improvement in ten-month cumulative recovery on the new wells. So we have even more information than what we shared and said. So we're really excited and we expect that's at least a 10% recovery uplift when we think about it over the full life of the well. What we've also learned is we can apply these technologies not only to the new wells, but the existing wells. And what we've seen in almost 300 of the treatments that we've done in existing wells that we've declined by five to 8%. So all in all, very encouraging. The programs to scale and other parts are underway, though. We don't have results that we can share with you today. We did do some treatments in Bakken in the fourth quarter. We expect to see some of that soon. We have pilots underway in the DJ as well. And so we'll share the results. I mean, we publish the results. They're verifiable. We give you the paper references, so that you can see for yourself. But we will share all of that in due course. But we're really excited. And what I would also say, this is one technology program amongst a set of programs that's really focusing on doubling shale and type recovery. We've got a stimulation program that it's very deep. We've also got, an effort to leverage the unmatched data position we have around our shale and tight wells using AI to clean insights into how to design wells, develop wells, and increase recovery. So very comprehensive. We anticipate we'll have some results for you this year, but right now, we're just focused on getting the treatments out to those other shale and tight basins. Jake Spiering: Thank you, Jean Ann. Operator: We'll take our next question from Betty Jiang with Barclays. Betty Jiang: Good morning. This is a good follow-up to Jean's question. Wanna ask about the Bakken specifically since you've been there for a couple of quarters now. How is it performing relative to your expectations with the cross-learning between the two teams? And how do you think about the Bakken position overall today? Michael K. Wirth: Yeah. Thanks. Thanks, Betty. Look, we're pleased with the Bakken. We're applying best practices as Eimear mentioned, from other parts of our portfolio. We're looking at things that Hess had been doing in the Bakken to apply those in the DJ, the Permian, or in Argentina. We've already optimized our development program to reduce capital spending better utilize existing infrastructure, maximize value. We've moved from four rigs to three with a similar drilling output. We've optimized the workover fleet, renegotiated some of the key supplier contracts, working on advanced chemicals with some optimism. We're implementing long lateral development in 60% of the wells this year and up to 90% in 2027. So driving value there, we're gonna you know, Hess had a target, and we will hold that to, you know, level it out around 200,000 barrels a day plus or minus and really focus on cash flow. So similar to the way you've heard us talk about the DJ and the Permian, we think we can drive a lot of asset productivity efficiency technology and free cash flow growth in this asset as well. Operator: Thank you. We'll take our next question from Geoff Jay with Daniel Energy Partners. Geoff Jay: Hi, guys. I was just really struck by the margin improvement sequentially in US upstream. And I know there's a lot of moving parts, but it looks like realizations were down over $3 on a BOE basis, but, you know, costs you know, the margin was actually up. And I guess I'm wondering if there's a way you can help me understand how much of that are those structural cost savings or and optimization efforts you guys are doing and kind of what the pathway for that looks like going forward over the next year or so. Michael K. Wirth: Yeah, Geoff. I'd point to a couple of things. Number one, you know, we've been bringing on new production in the Gulf of America. These are high-margin barrels. And so when you bring that into the mix, you start to see the margin expand. Number two, as we've moved to plateau in the Permian, and I also mentioned the DJ in the Bakken. That's 1,600,000 barrels a day. As you start to drive efficiency and productivity and technology across that kind of a production base, you can see a real impact of that. The third contributor then are some of these structural reductions that we're making. In our organization, in a more efficient support of people, to these businesses, consolidating all of our shale assets into one organization. So I'd say there are multiple levers there. But your broader point is one, that I think is important. I mentioned earlier that, you know, we're in a relatively low grow it's a growth business. No doubt about it. But the band for energy globally grows gradually. We need to focus not only on growing volumes in order to meet that demand, we've got to continually work on expanding margins. And that's your value chain optimization. That's through all these other things that I just talked about. And so margin expansion is something that in my background in the downstream, we worked hard to expand margins through things we can control. You can do that in the upstream too. I've got we've got people focused on that. And we're seeing the results as you point out. Jake Spiering: Thanks, Geoff. Operator: Thank you. We'll take our next question from Bob Brackett with Bernstein Research. Bob Brackett: Good morning. A follow-up around Venezuela. You mentioned bringing Venezuela heavy into Gulf Coast refineries and having some capacity on the West Coast. Do you have a sense of how much heavy from Venezuela could be absorbed by The US without impacting heavy light dips or without backing up Canadian heavy? Michael K. Wirth: You know, Bob, good analysts do great work on that. Markets are wonderful things. And what's gonna happen as you bring more of these barrels in, as you say, you're gonna kinda back out what's currently feeding the system. They're gonna redistribute around the world and kind of a new equilibrium will establish. And light heavies will reflect that. Flows will reflect that. I don't have a simple rule of thumb I can give you or a kind of a simple way to describe that. I'm pretty sure you can get down into the details and model that better than I'm gonna be able to describe it to you. But you're right. It's gonna shift these things around. Eimear Bonner: Thank you. We'll take our next question from Phillip Jungwirth with BMO. Phillip Jungwirth: Thanks. Good morning. On chemicals, you made no secret about wanting to get bigger in this area. Obviously, you need a willing buyer and seller price that works, plus it's tough to do deals at the bottom of the cycle. But the question is, how do you view the benefits to Chevron of owning more of CPChem? Are there things you could do differently whether versus the current JV structure, whether it's operational or strategic? And are there other avenues to get larger in pet chems beyond this? Michael K. Wirth: Yeah. So look, CPChem is a well-run company. And wanna give them full credit. And it's been a well-run company for a long time. We've been very pleased with our investment in that company. We've been pleased with our relationship with our partner and it's been a good vehicle for us. We think the long-term outlook for chemicals is positive. We're in a tough part of the cycle right now. But with the growing middle class and the growing global population, the products CPChem needs are increasingly going to be in demand around the world. We got a couple of projects underway that will be highly competitive when they come on next year. We'll see how this cycle plays out. I think it's still got some time to go. We would like more exposure to the sector. But, you know, as you say, you gotta have two people that want to do a deal. Are there other ways we could do things, you Yes. We can look at things. I'd remind you, we also have a very large aromatics position in North Asia at GS Caltex. One of the largest aromatics plants on the earth. And so we'll look for the right ways to increase our exposure to petrochemicals. Over time. Jake Spiering: Thank you. Thank you, Phil. Operator: Thank you. We'll take our next question from Paul Sankey with Sankey Research. Paul Sankey: Morning, Mike, good to hear that you're not modeling the heavy lights spread constantly. Mike, if I could ask you a couple of specifics. On Kazakhstan, which you've already referenced, but was the power outage what caused that? Was that just an upset? And secondly, the specifics of the loading was that owing to military activity, I guess? Michael K. Wirth: Yes. So look, the investigation is ongoing on the power outage and I don't want to speculate on it. The team is gathering new information each day. We've got our subject matter experts from in-country, from outside the country. We've got OEMs from all the various vendors that we work with. Involved in this, and they're making good progress. But I'm not gonna comment on it at all. I think it's a mechanical issue, I can say vast. But beyond that, I don't want to say anything more. It's not a sabotage or cyber or anything like that. On the loading birth, it's been well publicized. You know, one there's three offshore single point moorings at the Nova Resisk Terminal or offshore at Nova Resisk. One of those was out for maintenance. Two were in service. One of those two was hit by a submarine drone back in December as part of the military activity in the Black Sea. So that's what took CPC down to one loading berth. It is you know, we're back up to two loading births now, and there's a third one that is slated for some big maintenance work, and we'll be back later this year. Historically, the Caspian pipeline and that terminal have been very, very reliable. And I think if you look at it in the fullness of time, the uptime and the reliability record has been very good. Notwithstanding that, when it's you know, when you're pinched back like that, it's frustrating, and a lot of people have been working very hard at TCO and all the shareholders at CPC to address these issues. Jake Spiering: Thank you, Paul. Operator: Thank you. We will take our final question from Jason Gabelman with TD Cowen. Jason Gabelman: Yes. Hey, thanks for taking my question. I wanted to ask about the balance sheet as it relates to M and A. In the past, funded acquisitions primarily through shares, and there are some assets on the market in Kazakhstan that can make sense to acquire though it seems like maybe that acquisition would need to be funded by cash instead of stock. So with that in mind and maybe in a broader sense, how do you view using cash to fund acquisitions, you know, not of the Hess size, but of some of a smaller size like Reggie and Noble. Versus using equity given the current balance sheet. And kind of related to that, I noted that, on the front of the earnings release, you put debt to cash flow instead of, net debt to cap. It looks like that's maybe a preferred debt metric. Is that so? And if so, why the change? Thanks. Michael K. Wirth: Yeah. Jason, let me talk about transactions, and I'll let Eimear talk about ratios and metrics. When we do a deal, you're negotiating with a counterparty. And the consideration is part of the negotiation. And there are times when your counterparty prefers cash. There's times when they prefer equity. There's times when they may want a mix. And so that's a matter of negotiation. On large-scale M and A in our sector, where you're gonna have a long time between deal signing and close. I e, a deal we just closed after a pretty long cycle. Using equity hedges commodity price risk on both sides of the transaction. And if you enter into a deal on one commodity price environment and you close it in another and you've got a lot of cash in the deal, you can find out that you know, you find yourself where one party feels like the deal got a lot better for them and the other feels like it got a lot worse. And so, equity and transactions like that tend to be preferred by both counterparties because the way to hedge out some of the commodity price risk. Smaller deals that close faster and are of a different nature, you can find cash is preferable. And so we'll work with whatever consideration makes sense in a negotiation. We're flexible, and, you know, we've bought things with cash over the last many years, and we've done equity deals. So it really depends on circumstances. Eimear, do you want to talk about metrics, debtors? There's a number of metrics out there to look at the debt. Ratios. And so what we've done here is we've just moved towards what our rating agencies look at and what, many of you look at in terms of. So we're just trying to be consistent. I mean, we still look at net debt ratio, but overall, the message is our balance sheet is in really good shape, and we're in a position of strength. Thanks for the question. I would like to thank everyone for your time today. We appreciate your interest in Chevron and your participation on today's call. Please stay safe and healthy. Katie, back to you. Operator: Thank you. This concludes Chevron's Fourth Quarter 2025 Earnings Conference Call. You may now disconnect.

63天前Insight Analytics约5分钟阅读

LYB 2025 Q4 财报电话会议

Operator: Hello, and welcome to the LyondellBasell Teleconference. At the request of LyondellBasell, this conference is being recorded for instant replay purposes. [Operator Instructions] I would now like to turn the call over to Mr. David Kinney, Head of Investor Relations. Sir, you may begin. David Kinney: Thank you, operator. Before we begin the discussion, I would like to point out that a slide presentation accompanies today's call and is available on our website at investors.lyondellbasell.com. Today, we will be discussing our business results while making reference to some forward-looking statements and non-GAAP financial measures. We believe the forward-looking statements are based upon reasonable assumptions and the alternative measures are useful to investors. Nonetheless, the forward-looking statements are subject to significant risk and uncertainty. We encourage you to learn more about the factors that could lead our actual results to differ by reviewing the cautionary statements in the presentation slides and our regulatory filings, which are also available on our Investor Relations website. Comments made on this call will be in regard to our underlying business results using non-GAAP financial measures, such as EBITDA and earnings per share, excluding identified items. Additional documents on our Investor website provide reconciliations of non-GAAP financial measures to GAAP financial measures, together with other disclosures, including the earnings release and our business results discussion. A recording of this call will be available by telephone beginning at 1 p.m. Eastern Time today until March 2 by calling (877) 660-6853 in the United States and (201) 612-7415 outside the United States. The access code for both numbers is 13746215. Joining today's call will be Peter Vanacker, LyondellBasell's Chief Executive Officer; our CFO, Augustine Izquierdo; Kim Foley, our Executive Vice President of Global Olefins and Polyolefins, Aaron Ledet, our EVP of Intermediates and Derivatives; and Torkel Rhenman, our EVP of Advanced Polymer Solutions. During today's call, we will focus on fourth quarter and full year 2025 results and progress on our strategic initiatives. We will also discuss current market dynamics and our near-term outlook. With that being said, I would now like to turn the call over to Peter. Peter Z. Vanacker: Thank you, Dave, and welcome to all of you. We appreciate you joining us today as we discuss our fourth quarter and full year 2025 results. I am proud of our people and how they continue to navigate cycle in 2025, while maintaining focus on our long-term strategy, despite some of the most challenging market conditions I have seen in my career. . The team delivered exceptional results in our cash improvement plan, while keeping safe and reliable operations at the center of everything we do. So with that in mind, let's begin, as we always do with our safety results on Slide 3. LyondellBasell delivered exceptional safety performance in 2025. Our total recordable incident rate reached a historic low, slightly surpassing even our record-setting performance in 2022, making 2025 the safest year in our company's history. These results are especially meaningful given the significant volume of maintenance and turnaround activity we executed across our sites in 2025 in Europe and U.S. Despite this elevated activity, our teams demonstrated operational excellence and an unwavering commitment to safety, even under challenging conditions. Safety remains our top priority. This consistent industry-leading safety performance reflects the discipline and care our employees and contractors bring to every aspect of our operations. I want to thank everyone across the organization for their dedication in keeping our colleagues and communities safe. Now let's turn to Slide 4. As we navigate one-off, if not the longest long term in our industry, LyondellBasell continues to execute on our 3-pillar strategy in a way that creates and protects value even when this means adjusting the timing for implementing our plans. In our first strategic pillar, we continue to grow and upgrade the core. In 2025, we prioritized safe and reliable operations. We advanced our portfolio transformation with material progress on the divestment of 4 European assets which is on track for completion in the second quarter of 2026. We also moved forward on strengthening our cost advantage position in the Middle East, with a new allocation for cost-advantaged feedstocks in Saudi Arabia. In our second pillar, we're building a profitable circle and low carbon solutions business. Construction on MoReTec-1 is progressing well and is on track for a 2027 startup. We're also advocating for supportive policy frameworks which will enable the successful and profitable transformation of our industry while we executed on low-cost and no-cost energy efficiency initiatives across our sites. In our third pillar, we're stepping up performance and culture. Our team is laser-focused on value and cash generation. I'm pleased to report that the value enhancement program exceeded our original target and achieved $1.1 billion of recurring annual EBITDA in 2025. This program has been a critical enabler of our cash improvement and cost discipline efforts, helping offset inflation, improve reliability and fund profitable growth. Building on this momentum, we are extending the value enhancement program and targeting $1.5 billion of recurring annual EBITDA by 2028. Importantly, these recurring earnings are based on mid-cycle margins and operating rates. We expect the benefits of the value enhancement program would become more prominent once volumes and margins recover from this prolonged downturn. Given the current market environment, we have focused our investments on the immediately profitable projects aligned with our long-term commitments, and we are reviewing the timing of achieving certain 2030 sustainability goals. We have also materially reduced our capital expenditure plans for circular solutions and prioritized markets that provides supportive regulation and resilient proven demand such as Europe. We will update the market on our progress over the coming months, including the April publication of our 2025 sustainability reports. Even as we accelerate select initiatives and adapt the timing of others, our strategic priorities remain intact. Our disciplined execution positions us to capture substantial value once the cycle turns, and we remain confident in our ability to deliver sustainable growth for our stakeholders. Let's turn to Slide 5 and take a moment to reflect on where LYB in the industry or in the current cycle. 2025 was another exceptionally challenging year with industry margins remaining deeply depressed across all of our core businesses. Industry margins were approximately 45% below historical averages, even worse than the already difficult conditions we saw in 2024. In North America, Polyolefins margins reached their lowest levels in more than a decade. This margin erosion has weighed heavily on LYB and the entire sector. Several factors are pressuring margins. These include global trade disruptions, low demand for durable goods, a lower oil-to-gas ratio, ongoing lower capacity additions and in Europe, increased competition from imports and structurally higher energy costs. Even under these conditions, LyondellBasell continues to generate positive free cash flow at the bottom of the cycle. While the environment remains tough, the market is responding with an increasing rate of capacity rationalization, which is accelerating the rebalancing of supply and demand. Once margins begin to normalize, LYB is well positioned to capture significant upside supported by our low-cost positions, world-class technologies and a disciplined approach to generating value and cash. Let's now turn to Slide 6 to discuss our 2025 full year highlights. Despite this backdrop of weak margins, our teams remained disciplined and focused on the actions within our control. We generated $2.3 billion of cash from operations during the year. This performance reflects strong working capital discipline, focused cost management and our ability to operate safely and reliably through a prolonged industry downturn. Our excellent cash conversion ratio of 95% demonstrates the resilience of our operating model and the additional focus provided by the cash improvement plan, even in an environment of compressed spreads. Full year earnings were $1.70 per diluted share and EBITDA totaled $2.5 billion. Throughout the year, we remain focused on maintaining financial flexibility, prioritizing safe and reliable operations and low-cost investments in VEP projects while preserving the ability to pursue selective investments in high-value growth once cash flows improve. Now we will continue to maintain strong capital discipline to ensure we are making the right decisions for the long-term strength of our company and all stakeholders. Now with that, I'll turn it over to Augustin to walk through our 2025 achievements in the cash improvement plan. Agustin Izquierdo: Absolutely, Peter, and good morning again, everyone. Let's continue with Slide 7. Our disciplined execution throughout 2025 enabled us to surpass our initial targets for the cash improvement plan. We set a goal to conserve $600 million of cash relative to our 2025 plan, and we exceeded that goal by roughly $200 million to achieve $800 million. This outperformance was driven by a $400 million reduction in working capital relative to our 2025 plan. We also reduced our global workforce by 7% or approximately 1,350 employees to the lowest levels the company has seen since 2018. Capital spending remained disciplined as we took advantage of opportunities to realign project schedules across the portfolio. While we achieved our capital reduction goals on an accrued basis, cash realization lagged due to the timing of payments. Our teams executed on these priorities, while maintaining focus on safe and reliable operations, reinforcing the culture of value creation we have been building over the past several years. Looking ahead, we expect to deliver an additional $500 million of incremental cash in 2026 relative to 2025 actuals. This increases the cumulative target for our cash improvement plan from $1.1 billion to $1.3 billion through the end of 2026. We are not considering any potential benefits from our European asset sale in these numbers. This higher target reflects not only the strong progress we delivered in 2025, but also cost efficiencies we expect to achieve in 2026 and the lower capital expenditure plans, which we have already announced. These efforts strengthen our ability to generate cash through the bottom of the cycle, while protecting our financial flexibility and liquidity. Moving on to Slide 8, I will review the details of our capital allocation. Maintaining an investment-grade balance sheet remains foundational to our capital allocation strategy. During 2025, we generated $2.3 billion from operating activities, supported by strong working capital execution, which released over $1 billion in working capital during the fourth quarter alone. This strong performance enabled us to sustain excellent cash conversion, even at the bottom of the cycle. We also took proactive steps to preserve liquidity, including issuing $1.5 billion in bonds to help address 2026 and 2027 maturities. As a result, we ended the year with $3.4 billion of cash and short-term investments and $8.1 billion of available liquidity. Throughout the year, we prioritized safe and reliable operations while advancing strategic growth projects like MoReTec-1 and low to no cost projects in the value enhancement program while appropriately realigning other growth investments in response to current market conditions. As markets recover, we will be ready to advance an attractive portfolio of opportunities, including Flex-2 to balance olefin production, MoReTec-2 to expand our circularity capabilities at the former Houston refinery site and cost advantaged investments in the Middle East. In addition, the positive impact from completed VEP projects is expected to grow when sector margins and operating rates recover, and we continue to provide cash returns to shareholders, returning $2 billion in the form of dividends and share repurchases during 2025. Our capital allocation strategy aims to preserve flexibility while positioning LyondellBasell to unlock value as industry conditions improve. On Slide 9, we highlight the cash performance from our business during 2025. One of the strongest indicators of our resilience is our ability to consistently generate cash from operations, even at the bottom of the cycle. In 2025, LyondellBasell delivered $2.3 billion of cash from operating activities. Our cash conversion ratio remained exceptionally strong at 95%, well above our long-term target of 80%. We achieved this level of conversion through strong cost control across all segments, tightly managing receivables and inventories, while facing maintenance where appropriate to help ensure that earnings efficiently translated into cash even with lower operating rates. This consistent cash performance positions us well to fund essential investments in maintenance and advanced critical projects, while remaining ready to accelerate strategic value creation once margin begins to recover. Now let's turn to Slide 10 for an overview of our fourth quarter segment results. In total, our business delivered $417 million of EBITDA during the fourth quarter. Across most segments, we saw the typical year and seasonal pressure on volumes, coupled with elevated costs for feedstocks and energy. Maintenance downtime contributed to lower operating rates in both our U.S. and European operations. Oxyfuels performance softened sequentially as margins trended downward from unusually strong levels toward the end of the third quarter, once industry outages eased and gasoline blend stock premiums normalized to typical winter levels. The fourth quarter included identified items of $61 million net of tax, primarily associated with closure costs for the Dutch joint venture and the APS Specialty Powders business. Across the portfolio, noncash LIFO inventory valuation charges reduced fourth quarter results. These charges were partially offset by a reduction in bonus compensation accruals that benefited fourth quarter results. The net amount was quarterly impact of $52 million. As a reminder, our fourth quarter LIFO changes reflect movements in inventory valuation over the full year and are not necessarily linked to fourth quarter valuations. Before we review our segment level results in detail, let me discuss our capital expenditure plans for 2026. As we've previously announced, we are deferring some growth investments until later in the decade given the difficult operating environment. For 2026, we expect our CapEx will be approximately $1.2 billion. Our 2026 capital plan includes approximately $400 million for profitable growth and $800 million of sustaining investments. The reduced capital plan prioritizes safe and reliable operations and the ongoing construction of MoReTec-1. We expect our 2026 effective tax rate will be approximately 10% with a cash tax rate approximately 10 percentage points higher than the effective tax rate. We have provided additional 2026 modeling information in the appendix to this slide deck describing the expected impacts from major maintenance and other useful financial metrics. With that overview, I will turn the call over to Kim. Kimberly Foley: Thank you, Augustin. Let's move to Slide 11 and discuss the performance of the Olefins and Polyolefins Americas segment. Fourth quarter EBITDA for the segment was $164 million, down from the prior quarter. The sequential decline was primarily driven by higher feedstock costs and lower polyethylene margins as well as planned and unplanned maintenance across several sites. . In olefins, ethylene margins weakened as ethane and natural gas prices increased coupled with lower ethylene and propylene prices. In polyethylene planned and unplanned maintenance across several facilities and seasonally lower domestic demand contributed to lower volumes and pressured margins sequentially. Industry inventories fell roughly 3 days or 500 million pounds as customers continue to draw down stocks ahead of year-end. Polypropylene continues to face challenges with subdued demand and weak margins. During the quarter, we successfully completed the turnaround at our Matagorda polyethylene plant and implemented reliability improvements at our Hyperzone plant. These actions strengthened our asset performance and position us to capture value as demand returns. Our fourth quarter operating rate for the segment was approximately 75%, with our crackers operating at approximately 90%. During the first quarter, we expect tight year-end inventories reduced supply due to winter storm Fern and stronger seasonal demand will all be supportive of our polyethylene price increase initiatives in the market. We expect to operate our O&P Americas assets at an average rate of approximately 85% in line with demand. Now let's turn to Slide 12 and review the performance of our Olefins and Polyolefins Europe, Asia and International segment. Fourth quarter EBITDA was a loss of $61 million. Seasonally lower prices and higher levels of planned and unplanned maintenance pressured profitability. In Olefins, volumes were significantly impacted by weaker demand, year-end inventory control measures and maintenance events at several of our sites. Polyolefins markets in Europe continue to face soft demand driven by increased competition from low-cost imports and ongoing destocking across the value chain. As a result, polyolefin margins remain under significant pressure and volumes were seasonally lowered. In the fourth quarter, we proactively aligned our inventories with market demand through targeted rate reductions. These actions helped reduce our working capital and generated positive cash flow from this segment even in a highly challenging environment. Our teams executed safely and deliberately to provide a reliable supply of products for our customers while supporting our balance sheet. We continue to make steady progress on the planned divestiture of our 4 European assets. Regulatory reviews, work council consultations and transition plans are all advancing as expected, and we remain on track to complete the transaction in the second quarter of 2026. This is a significant milestone in reshaping the regional footprint of our global O&P portfolio. As we move into 2026, our O&P EAI segment has no major turnaround scheduled for the coming year and expect improved volumes with lower maintenance activities. We expect to operate our European assets at a rate of 75% during the first quarter. With that, I will turn it over to Aaron. Thank you, Kim. Aaron Ledet: Please turn to Slide 13 as we take a look at our Intermediates & Derivatives segment. Fourth quarter EBITDA was $205 million. The typical seasonal decline in Oxyfuels margins was delayed due to planned and unplanned industry outages that tightened supply early in the quarter and supported stronger blend premiums. Additionally, propylene glycol demand improved due to aircraft deicing demand, while acetyls results were negatively impacted by the turnaround. . During the quarter, the team completed the turnaround at our La Porte acetyls unit. This turnaround included key initiatives to begin converting our vinyl acetate monomer production to an innovative LYB catalyst system that improves margins and helps reduce our reliance on costly precious metal catalysts. The turnaround was completed on time, but we kept the asset down longer to help manage inventory levels. We began the start-up process in early January, and the asset has come back down due to cold weather. We expect the January downtime to impact first quarter EBITDA by approximately $20 million as seen in the modeling information in the appendix to our slides. To align with maintenance and softer year-end demand, we operated our IND assets at a rate of approximately 75% during the fourth quarter. As we began the first quarter, we expect to see positive trends in our [ PO&D ] business with additional glycol sales into the DIC market and capacity rationalizations in both Europe and the United States, improving LYB's market share. Acetyls volumes are expected to improve following the fourth quarter report turnaround and oxyfuels profitability should exhibit typical seasonal margin improvements towards the end of the quarter. Our plan is to operate our assets at approximately 85% during the quarter. With that, I will now turn the call over to Torkel. Torkel Rhenman: Thank you, Aaron. Now let's review the results of our Advanced Polymer Solutions segment on Slide 14. Fourth quarter EBITDA was $38 million. EPS volumes were lower due to typical fourth quarter seasonal demand patterns, including softer automotive production across all regions. Even with the softer backdrop, year-over-year APS delivered 55% higher EBITDA, along with substantial improvement in cash generation, reflecting meaningful progress in our commercial execution and cost discipline. I'm extremely proud of the progress the APS team is achieving in our transformation. Throughout 2025, we delivered substantial operational and financial improvements drove exceptional fixed cost discipline and strengthened customer centricity despite a challenging market. Looking ahead, we expect seasonal demand improvement across our key markets, and we will continue to regain market share with our renewed focus on customer centricity, reliable service and differentiated solutions. With that, I will return the call to Peter. Peter Z. Vanacker: Thanks, Torkel. I agree with you. The APS team is doing excellent work in managing their business turnarounds, despite all the market challenges. To close out on the segments, let's turn to Slide 15 and discuss the results for our technology business on behalf of Jim Seward. During the fourth quarter, the segment delivered solid results. Catalyst demand strengthened across key regions and revenue increased as a higher number of previously sold licenses, reached revenue recognition milestones. Together, these factors contributed to segment EBITDA of $80 million in the quarter. Looking ahead, we expect first quarter results for the Technology segment to trend lower, potentially approaching levels seen in the second quarter of 2025. While we anticipate a typical seasonal uplift in catalyst sales, licensing revenue is expected to decline as fewer revenue milestones are expected in the quarter. The substantially lower demand for licenses is an indication of the ongoing trends of reduced global investments in petrochemical capacity additions at the bottom of the cycle. Now let's turn to Slide 16 for our near-term market outlook. Following pronounced fourth quarter seasonality, we expect modest improvements as we move through the first quarter, and we're likely to consume some working capital as normal. In North America, we expect typical seasonal demand recovery. Additionally, our polyethylene price increase initiatives are supported by low industry inventories, while exports continue to play an essential role in balancing markets. In Europe, demand should also seasonally improve, although the impact of imports into the region continue to pressure pricing. Supportive regulatory frameworks for circularity along with the continued asset rationalizations in the region remain a helpful tailwind over the medium term. In Asia, near-term capacity additions continue to weigh on margins, while medium-term rationalization announcements are an encouraging trends that should eventually help to balance global supply. In the packaging sector, demand remained stable and driven by essentials. Consumer continue to be value focused, and we're seeing a sustained shift towards private label brands across both North America and Europe. In Building and Construction, sentiment remains cautious. Low interest rates should provide some support, but we expect the environment to remain soft in the near term. In the automotive sector, North America continues to reflect challenged affordability dynamics even as interest rates decline, while Europe is showing signs of stabilization. For oxyfuels, geopolitical uncertainty is expected to keep markets volatile. We continue to monitor supply developments closely. Overall, while macro conditions remain mixed, we expect modest sequential improvements from the seasonal lows of the fourth quarter. Our teams remain focused on execution, cost discipline and value-driven growth as markets gradually strengthen. Even in this challenging environment, I'm confident that LYB continues to be well positioned, and I'm proud of how our team continues to execute with discipline. Now with that, we're pleased to take your questions. Operator: [Operator Instructions] Our first question comes from the line of David Begleiter with Deutsche Bank. David Begleiter: Peter, just on the dividend, your yield is twice that of your closest peer, you trade at a full turn multiple discount on EBITDA to that peer. So investors aren't really giving you a credit for the higher yield. But why not just cut dividend, invest that cash into your project pipeline because investors do pay for growth and move on from there? Peter Z. Vanacker: Thanks, David. Of course, I mean that's the core question, very good question, I mean to start with. What you have seen what we have accomplished during the year 2025, yes, they're very difficult market environments, but the team delivered cash from ops of $2.3 billion in such a market environment. We overperformed on our cash improvement plan, $800 million. I give you a couple of data points. We're running the entire company at the end of 2025 with 18,700 people. That's a very lean organization that we have, and that's 1,350 people less than at the end of 2024. It doesn't mean, I mean that we don't continue to work on that as we announced also that we will continue to focus on our cash improvement plan during 2026, with a target of an additional $500 million. Of course, all that in the context of navigating the cycle. Needless to say, we've said it multiple times that our investment-grade balance sheet is the foundation of our capital allocation strategy. And of course, when we are focusing on our cash improvement plan, we will continue to prioritize, I mean, safe and reliable operations. I said it in the prepared remarks, this has been the safest year 2025, I mean, at LyondellBasell. So it's a clear evidence that we prioritize safe and reliable operations, continue to work also on our value enhancement program, but we focus on projects that have a no cost or low cost and immediate return on investments. It's clear that at the bottom of the cycle, we are evaluating the balance between cash returns to shareholders and growth investments, as you alluded to, and that in the context of a lower cash generation and, of course, also considering the metrics that are required for an investment-grade balance sheet. You know that we have delayed, I mean, certain growth investments, Flex 2, MoReTec-2, some other smaller growth initiatives. We continue to work on the projects that we have in Saudi Arabia, where we continue to get, I mean, quite a lot of support from the local authorities. And definitely also, the last thing that I want to say to that is we have, of course, regular robust conversations on our capital allocation strategy with our Board and decisions on whether we recalibrate the dividend to maintain our investment-grade metrics, they are decided by our Board, and they are regularly being reviewed during our scheduled Board meetings and the next one will take place in February Operator: Our next question comes from the line of Patrick Cunningham with Citi. Unknown Analyst: This is Alex on for Patrick. I had a question on your CapEx guide for $26. You're guiding about $1.2 billion. Now historically, Lyondell was around somewhere between $2 billion. So I'm just wondering if the reduced CapEx guide is a function of just recent asset sales or if there's a change in your maintenance CapEx or if the new $800 million on maintenance is the normal baseline for Lyondell? If you could help us understand your CapEx outlook for '26 and maybe the years beyond that, that would be helpful. Peter Z. Vanacker: Yes. Let me start with your question, Patrick. Thank you for your question. Indeed, I mean, $1.2 billion in 2026 is the CapEx that we have communicated that we are planning. And out of that, I mean, $0.8 billion in maintenance. Let me put that a little bit into the context. We've been investing in our company in growth, in reliability, in productivity, also through our value enhancement program, but also big investments like our PO/TBA facility that ran above nameplate capacity, as you know, very successfully above depreciation during the last years. So we have invested in growth. Also last year, Cash CapEx, $1.9 billion, accrued CapEx, $1.7 billion is well above, I mean, our depreciation level. So also here, in 2025, I mean, we have continued to invest in growth, reliability, safety and productivity. So in that context, when we revisited our plan for 2026, we came to the conclusion that in 2026, we can actually postpone a couple of turnarounds because of all the work that we have done already in '24 and '25. We could, of course, also limit the maintenance CapEx [ safety ] and maintenance CapEx for '26, I mean to that $800 million. And then the delta is a couple of the growth projects. But of course, important in that is our continued progress that we have on the MRT-1 investment in Cologne. Anything you want to add, Augustine. Agustin Izquierdo: Peter, that was a very comprehensive answer. I would say just, Alex, that the other point is also a fairly light year in terms of turnaround. We only have the turnaround on the Midwest land. Then we have also a smaller one for IND. And as Peter alluded, we have been very diligent on managing our maintenance CapEx. And this time, that's why we can achieve now this $800 million for maintenance CapEx, and as Pete mentioned, $400 million for growth projects. Peter Z. Vanacker: Just to be clear, I mean, normally, I mean, we have turnarounds, I'd say, in the environment of 3 to 4 per year. So we only will have, I mean, 2 in 2026. It doesn't mean that you can take, I mean $800 million as safety and maintenance CapEx and extrapolate for the foreseeable future. You know that we have $1.2 billion in the past in safety and maintenance CapEx. Once we have fully executed our European assessments, we expect that number to go down to something around, let's say, $1.1 billion. But you can always steer it a little bit, I mean, from 1 year to the other, just like we do in the cash improvement plan then for 2026 with $800 million Operator: Our next question comes from the line of Frank Mitsch with Fermium Research. Frank Mitsch: So you shut down the Houston refinery a year ago. And some may argue that things have changed with respect to the outlook in the midterm, given the events at the beginning of this year, in terms of Venezuela. And as you know, that Houston refinery was perfect for running [ Ven ] crude. I'm curious as to what your thoughts are. Obviously, this was something that you were looking at possibly doing with MoReTec, et cetera. But given that it's only been shut down a year, what might be the possibility that Lyondell would look to monetize that asset should some of the refiners look at, hey, the Ven crude becomes more plentiful down the line , that asset could be rather valuable. What are your thoughts there? Peter Z. Vanacker: A good question. I mean on the refinery in the context of what happened in Venezuela. I mean our plan with the refinery continues to be, as we explained before. Of course, we look at in the context of the cash improvement plan. You know that we have delayed, I mean, the investment in MRT-2. One thing that I want to highlight as well, remember, I mean, when we decided to shut down the refinery, we avoided CapEx of, I would easily say, I mean, $1.5 billion because we hadn't done a turnaround anymore on the refinery since, what, about 8 years in total. So in order to continue to run the refinery at that time, we would have taken the decision, of course, to do the turnaround, which would have been quite costly. Of course, I mean, the [ Holt ] refinery is not the only one in the United States that can take that kind of crude quality from Venezuela. There is quite a lot of refineries that can take that crude. So our plan, I mean, continues to be, as we have explained, I mean, transform, I mean, the refinery in the context, of course, from a time line perspective of the cash improvement plan. And as such, I mean we continue to remain very open in what we can do, I mean with the existing assets that we have there. Operator: Our next question comes from the line of Jeff Secoskus with JPMorgan. Unknown Analyst: The balance sheet was managed very, very well at the end of 2025 with your receivables and inventories really coming down. Do those need to be built back up in 2026? And what do you think your working capital benefit or use will be in 2026? Peter Z. Vanacker: Jeff, good question. I'm going to start with some comments and then hand over to Augustin. I heard you saying that was very well managed at the end of 2025. Thank you for your comments on that. But of course, I would like to point out that we managed it very well also during the last, I mean, 4 years. . If you look at our cash conversion since 2022, we have been consistently above 90%. And yes, I mean, 95% in 2025. I think that's fantastic work. You see the discipline in our organization, fantastic execution by our people. And it was not just, I mean, in Q4, again, in the cash improvement plan I alluded to that already before, partly because of our portfolio management partly before -- because of further streamlining our organizations we reduced, I mean, our headcount by 1,350, which is quite substantially if you take that from a 20,000 number approximately. It's quite an accomplishment that has been delivered by our people. Working capital also over revenue. If you look at it, I mean, and you exclude, I mean, the revenue of the refinery that we had historically, so apples-to-apples, I mean [indiscernible] trade working capital, running the entire company at somewhere between -- over the year between 12% and 13%, which also in my history, having worked in different companies is extremely low, especially if you also consider that we don't do any factoring. So with that, Augustin? Agustin Izquierdo: Yes. Thank you, Peter, for the answer. Jeff, so you're absolutely right. Actually, the working capital level on an absolute value is the lowest we've had since 2020. And again, I commend the teams really for the excellent work they did on managing working capital, especially here in the second half and most importantly during Q4. To your point, yes, we will have to rebuild some working capital as we go into 2026. . But this has all been factored now into our cash improvement plan and allows us -- we have enough offsets and initiatives in place to allow us to deliver the $1.3 billion cumulative in '25 and '26. But yes, you should see some moderate build as we go through the year in working capital terms. Peter Z. Vanacker: It would not be surprised, Jeff, I mean, just like what we said on the cash improvement plan, $600 million target for 2025, and we over-delivered that $800 million. That means that the entire team is, of course, very, very much focused in also finding ways and how can we overdeliver the $500 million in 2026. That's the way how we work. . Operator: Our next question comes from the line of Vincent Andrews with Morgan Stanley. Vincent Andrews: Just wondering if you could give us your assessment of the oxyfuels market for 2026. I know '25 had some peculiarities with another competitor asset startup or refinery startup as well as maybe some volatility negative in the oil market. But how would you assess your opportunity there in '26 versus 2025. Peter Z. Vanacker: Two points, and I will hand over. I mean, to Aaron. I mean, first point, you're right. I mean, Vincent, was quite volatile in 2026. But the second point I also want to make is that, if you look at average margins and you compare them historically, they were slightly above and you saw that in the one slide that we showed. So with that, Aaron? Aaron Ledet: Yes. Thanks, Peter, and thanks, Vincent, for the question. I think the short summary is that we are expecting Oxyfuels to normalize following a pretty volatile 2025 to your earlier comment, with typical seasonal improvements during the summertime. We're watching crude along the comments that you made as well, just all the geopolitical unrest that we've seen here in the first quarter. We've seen a lot of volatility in crude itself, whether it's Brent or WTI is up $8 a barrel over the month. So obviously, that's going to impact our profitability looking forward. We did start the year with pretty low inventories consistent across all of our businesses and with some of the freeze outages here in the U.S. Gulf Coast, it created a little bit of upward price movement, but demand does remain seasonally low here in the first quarter. Operator: Our next question comes from the line of Matthew Blair with TPH. Matthew Blair: Great. Could you talk a little bit more about the polypropylene market. is it safe to say that polypropylene is actually weaker than polyethylene due to higher exposure to areas like autos and construction. And over the next couple of years, are you more optimistic on recovery in polyethylene or polypropylene? Peter Z. Vanacker: Very good, Matthew, good question. I mean clearly, I mean, polypropylene, if you look at the different sectors and applications at polypropylene go in, which is, let's say, also for propylene oxide, a bit the same. It's more, I mean, dependent on demand in durable goods and how demand and durable goods is actually behaving if it is growing or not. Now let me go back a little bit in history. Everybody knows that in 2021, the demand for durable goods after the pandemic 2020 was exceptionally high. And since then, it has been quite weak, which is a quite long period that demand for durable goods has been weak. In addition to that, I mean, everybody sees and knows that the inflation rates are coming down, interest rates little by little, but they are coming down. Yes, consumer confidence is not yet up to the level that we would like to see. But if that leads, I mean, to consumer confidence also moving up, then one may expect that both for polypropylene and propylene oxide that demand would also recover. With that, let me hand over to Kim. Kimberly Foley: Okay. Yes. Peter has alluded to the demand side of the equation. I'll just make a couple of comments about the supply side. We've mentioned in other calls, and I'm sure you've heard from others, the polypropylene cost curve globally is pretty flat. So most players don't export. I say most. For example, North America doesn't export polypropylene, but the Middle East and China because China is so heavily oversupplied in polypropylene, they are exporting. And what you are seeing in the margin charts in the slides that we showed today is just that. We believe polypropylene is at the bottom based on the combination of oversupply and the demand factors that Peter alluded to. So as Peter alluded, as demand would come back. And as people are rationalizing, it could have to your question about which may bounce more, it may bounce higher initially. Peter Z. Vanacker: And you see quite some activities also going on in consolidation, rationalization, not just I mean of crackers, but of course, also linked to that, I mean, polypropylene. And I would even say probably more heavy weighted I mean to polypropylene today than it is to polyethylene. . Kimberly Foley: Agreed. Operator: Our next question comes from the line of Kevin McCarthy with Vertical Research Partners. Kevin McCarthy: I'd appreciate your updated thoughts on the U.S. Gulf Coast market for polyethylene. So maybe for Kim, I love your thoughts on kind of the contract pricing opportunity as you see it. I know some of the consultants are inclined to give pretty good credit for price realizations. Maybe you could talk through what you would anticipate on a gross basis and also net of any changes in annual contract discounts this time of year. February pricing that may be on the table? And then maybe on the other side of the coin, ethane feed has been quite volatile, so on the back of natural gas. So would love your thoughts on how you see that flowing through on a unit margin basis. Kimberly Foley: Okay. Kevin, a lot of moving parts in that question. And let me just kind of talk through how I think about it. So if you think about the ACC data that many of us look at on the inventory side, second quarter of '25 probably was one of the high points with the 44 days right after liberation. You saw the industry kind of lower inventories in third quarter to [ 43.5 ]. Now while we don't have December data yet. November data shows for the fourth quarter down to [ 40 ]. So big pool in the fourth quarter. I would anticipate December probably even took that lower. So you're coming into the year on very, very low inventories in the industry. Number two, you had higher pricing in the fourth quarter. So on the upstream side, you had ethane that was higher, you had natural gas that was higher. So people were not making the profitability that they wanted to in the fourth quarter. Now here comes winter storm Fern, and you've seen the variability in ethane and natural gas price, and you've seen industry producers like ourselves proactively take down derivative units through the storm. Now that enabled an ease or seamless restart, but nonetheless, it took even more capacity off short term. So inventory or available inventory is very scarce. You also see export pricing increasing as we enter into the January time frame. And you're now starting to see downstream converters announcing price increases. So I think when you put all those factors together, the price initiatives that are out in the market today are very supported. Peter Z. Vanacker: Yes. Good answer, Kim. I mean, so you can clearly hear I mean that we are seeing lots of indicators that are supporting, I mean, our announced price increases, and we expect that integrated margins as a consequence, should go up. I mean demand has been very robust. Operator: Our next question comes from the line of Aleksey Yefremov with KeyBanc Capital Markets. Aleksey Yefremov: You have a good window into China and the local policy. What's your latest thinking in terms of anti-involution policies, what we would have -- any more specific news maybe in the next few quarters there? Has your thinking changed at all over the last 3 months? Peter Z. Vanacker: Thank you, Aleksey. It's a good question. I mean on China, mean a couple of points that I want to make. I mean, we've seen, I mean, in China that there has been also some price increases on a modest level, but there has been some price increases in January. And that probably also has to do, I mean, with the fact, I mean, there was some inventory depletion and growth, I mean, continue to be at around a 4% level for polyolefins. . When we look at the anti-involution, with our people that we have on the ground and all the relationships that we have in our technology business unit, there is a lot of movement. There is a lot of discussion. And we're waiting to see, of course, what the decision will be. But we believe, I mean, that because of all the discussions that are happening that there is a very diligent and very serious evaluation that is going on by the NDRC. So we expect that something will come out. Will it be in Q2 remains to be seen. But I mean, there is lots of pressure, I mean, behind it. And we hear, I mean, for example, criteria for asset rationalization, not at 300 kt for a cracker but 500 kt these kind of discussions. Another thing I want to point to is you see some other policies that are being put in place, like we heard, I mean, from a new naphtha consumption tax that is being put in place not small. I mean, for emerging domestic transactions, [ $300 per tonne ]. Yes, refundable, but it would have to be paid, first of all, upfront, which means, I mean, cash flow and especially, if you have nonintegrated players, nonintegrated ethylene cracker capacity in China is about [ 11 million tonnes ]. Remember that. So that's not -- it's not small. They would have to then pay upfront, I mean that new naphtha consumption tax. So what I want to say is there is a lot happening, I mean, in China that all points in the same direction. And that is making sure that there is also a rationalization going on in that market. I've had another look, I mean, also at the numbers that we presented on a global basis in terms of capacity rationalization. Remember the slide that we showed during the third quarter earnings results. At that time, we talked about a little bit more than [ 21 million tonnes ] of ethylene capacity rationalization, and that did not include the anti-involution. When we look at the further announcements, here and there, news on the ground, we're now looking more at a bit more than 23 million [ tonnes ] of capacity rationalization, again, ethylene capacity rationalization and still that does not include I mean, the anti-involution. Operator: Our next question comes from the line of Mike Sison with Wells Fargo. Michael Sison: In OP Americas, how much of that capacity do you export? And export margins have been noticeably kind of [ zippo ] or very low relative to domestic. What do you think needs to happen to get that part of those margins up over time? And should you reduce your exposure to export given it seems like it's more structurally impaired than the domestic profitability? Peter Z. Vanacker: Mike, historically, I mean, we always had, I mean, lesser exports. I mean, because your question mainly goes, I assume into polyethylene. We always have lesser exports because of the portfolio of products, I mean that we have that are more differentiated. So we are selling more in the domestic market as a consequence and therefore, lesser dependent on polyethylene exports. With that, Kim, anything you want to add? Kimberly Foley: Yes. I would just say, in general, I think we've typically said to the investment world that we're 10% to 15% lower than the industry on exports. So if you look at LIBs exports in '24 and '25, we were 34% and 38% versus an industry number of closer to like 48%. The other thing I would say is you asked kind of about pricing and how to make that a better margin. I think '25 is a very difficult year to look at export pricing and actually, I would even say domestic regional pricing. There were so many changes and thoughts around tariffs and supply chains were constantly changing. I think an upside to '26 is that tariffs normalize, supply chains will normalize and everybody will have an opportunity to have the best netback to their individual regions. Operator: Our next question comes from the line of Josh Spector with UBS. Joshua Spector: Just a quick one. I was wondering on the Olefins EAI, I know there are a number of shutdowns and outages, some outside of your control from a supplier perspective. How much of a detriment was that in the fourth quarter? And how much of that do you expect to come back in the first quarter? Kimberly Foley: So the olefins impact for EAI in the fourth quarter was $35 million. Operator: Our next question comes from the line of Hassan Ahmed with Alembic Global. Hassan Ahmed: Peter, I just wanted to get a little more granular about a couple of comments you made earlier about rationalizations. You talked about that [ 20 million tonne ] figure of rationalizations that you guys highlighted in your Q3 presentation going up to 23 million. And obviously, that's not including the Chinese anti-involution potential. I mean as I sort of sit there and run the numbers and try to sort of identify announced rationalizations where an actual facility, name facility, has been identified. The number comes up closer to around 10 million. And I know that obviously, the Koreans are talking about 2.5 million to 3.5 million. But again, some of the facilities have not been identified. So I guess, long-winded way of asking you, how comfortable are you with that [ 23 million tonne ] figure, clearly with some of the facilities not having been identified as yet. Peter Z. Vanacker: It's a good question, Hassan, and thanks for asking that question. I mean, first of all, I am comparing my baseline is 2020. Just to be clear on that, if -- to your questions on South Korea, I have nothing included in those numbers on closures to date since 2020 or announced closures. But it is, in my number as an anticipated closure of around, I mean, 3.7 million tonnes of ethylene in capacity. So the vast majority clearly continues to be in Europe, where we see closures to date of around 5 million tonnes announced closures on top of the 5 million tons of 2 million tonnes, and I have not included yet any anticipated closures on -- in the European region. But if you ask me, I think we're going to see more. I think we have not seen everything there may be more, I mean, to follow. There has been some closures, I mean, of course, also in China that maybe not a lot of people talk about since 2020, which adds up, I mean, to around 5 million tons. And there have been some closures in the meantime smaller number that have been announced. And as I said, I mean, anti-involution is not included in that. And then, of course, in Southeast Asia, there have been closures announced by our peers like in Singapore. So you need to add them up as well. It's about 3 million tonnes in Southeast Asia closures to date and then another 1 million tonnes of announced closures and then I haven't talked about Japan, but also in Japan, you already have closures that have been executed to date and then you also have announced closures. So in total, that adds up to about we've anticipated another 1.5 million tons. So I hope that helps you, Hassan. Operator: Thank you. Ladies and gentlemen that concludes our question-and-answer session. I'll turn the floor back to Mr. Vanacker for any final comments. Peter Z. Vanacker: Thank you again for all your excellent questions. And as I said in my prepared remarks, this is one of the most challenging and longest downturns in our industry. but we see clear evidence of reduced rates of capacity additions and rationalization of all their assets being implemented globally that should help, I mean, to accelerate recovery. Our LYB team has over delivered on our promises to control the controllables by outperforming in safety, operational excellence, our cash improvement plan and our value enhancement program during 2025. And that resulted in the fourth consecutive year delivering an industry-leading cash conversion that exceeded 90%. I want to thank, I mean, the global LYB team for delivering value and maximizing cash conversion during these challenging times while operating safely and reliably. This performance has convinced us to target another $500 million cash improvement in 2026 compared to 2025 and continue to progress on our value enhancement program by raising the bar to $1.5 billion of recurring annual EBITDA by 2028. We remain committed to our long-term strategy but have focused our investments on projects that are immediately profitable. Another way to look at this prolonged downturn is as follows: I mean, the longer we are at the bottom of the cycle, the closer we get back to an up cycle and LYB will be ready to capture value accordingly. I wish you all a great weekend, stay well and stay safe. Thank you. Operator: Thank you. This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.

63天前Insight Analytics约5分钟阅读

FHB 2025 Q4 财报电话会议

Operator: Good day and thank you for standing by. Welcome to the First Hawaiian, Inc. Fourth Quarter 2025 Earnings Conference Call. [Operator Instructions] Please be advised today's conference is being recorded. I would now like to hand the conference over to your speaker today, Kevin Haseyama, Investor Relations. Please go ahead. Kevin Haseyama: Thank you, Kevin, and thank you, everyone, for joining us as we review our financial results for the fourth quarter of 2025. With me today are Bob Harrison, Chairman, President and CEO; Jamie Moses, Chief Financial Officer; and Lee Nakamura, Chief Risk Officer. We have prepared a slide presentation that we will refer to in our remarks today. The presentation is available for downloading and viewing on our website at fhb.com in the Investor Relations section. During today's call, we will be making forward-looking statements. So please refer to Slide 1 for our safe harbor statement. We may also discuss certain non-GAAP financial measures. The appendix to this presentation contains reconciliations of these non-GAAP financial measurements to the most directly comparable GAAP measurements. And now I'll turn the call over to Bob. Robert Harrison: Hello, everyone. Thank you for joining us today. I'll start with some local economic highlights. The state unemployment rate continued to fall and was at 2.2% in November compared to the national unemployment rate of 4.5%. Through November, total visitor arrivals were down 0.2% compared to last year, primarily due to fewer visitors from Canada. Japan remained a bright spot, up 2.8% on a year-to-date basis. However, year-to-date spending through November was $19.6 billion, up about 6% compared to the same period of last year. Housing market remains stable with the median single-family home price on Oahu in December was $1.1 million, up 4.3% from the prior year. The medium condo sales price on a long in December was $512,000, down 5.2% from last year. Turning to Slide 2. We had another strong quarter. Our NIM expanded Net interest income grew, expenses were well contained and credit quality remained strong. Our profitability measures remained solid with return on average tangible equity of 15.8% in the fourth quarter and 16.3% for the full year. The effective tax rate in the fourth quarter was 24.8%. This was due to the reversal of our previously cure tax benefit. We expect the effective tax rate to return to about 23.2% going forward. Turning to Slide 3. Balance sheet remains solid. We continue to be well capitalized with ample liquidity. We had good growth in C&I loans as well as retail and commercial deposits. During February, we repurchased about 1 million shares, which used the remaining $26 million of our $100 million purchase authorization for 2025. Our new stock repurchase authorization is for $250 million. And unlike prior authorization, the current authorization is not for a specific time frame. Turning to Slide 4. Total loans grew $183 million in the quarter or 5.2% on an annualized basis. We had good growth in C&I loans primarily due to draws on existing lines as well as the addition of a new auto dealer customer. The CRE growth and decline in construction was primarily due to a couple of construction deals that were converted from construction to CRE. Outside of those conversions, balances in both portfolios were relatively flat. Now I'll turn it over to Jamie. James Moses: Thanks, Bob. Turning to Slide 5. We saw good growth in retail and commercial deposits, while a lot of the public operating deposits that came in during the third quarter flowed out in the fourth quarter as we expected. Retail and commercial deposits increased $233 million, while public deposits declined by $447 million. That dynamic resulted in a net increase in deposits of $214 million in the fourth quarter. The total cost of deposits fell by 9 basis points to 1.29% and our noninterest-bearing deposit ratio was 32%. On Slide 6, Net interest income was $170.3 million, $1 million higher than the prior quarter. The NIM in the fourth quarter was 3.21%, up 2 basis points compared to the prior quarter. The increase in the margin was primarily driven by lower deposit costs and the full quarter benefit of the borrowing that matured in September, partially offset by lower loan yields. The exit NIM for the month of December was 3.21%. Turning to Slide 7. Noninterest income was $55.6 million. Noninterest expense in the fourth quarter was $125.1 million. And now I'll turn it over to Lea. Lea Nakamura: Thank you, Jamie. Moving to Slide 8. The bank continues to maintain its strong credit performance and healthy credit metrics. Credit risk remains low, stable and well within our expectations. Overall, we're not observing any broad signs of weakness across either the consumer or commercial books. Classified assets decreased by 7 basis points, while special mention assets increased by 16 basis points. Quarter-to-date net charge-offs were $5 million or 14 basis points of total loans and leases. Year-to-date net charge-offs were $16.3 million. Our annual net charge-off rate was 11 basis points, unchanged from the third quarter. Nonperforming assets and 90-day past due loans were 31 basis points of total loans and leases at the end of the fourth quarter, up 5 basis points from the prior quarter, primarily driven by a single relationship. Moving to Slide 9, we show our fourth quarter allowance for credit losses broken out by disclosure segments. The bank recorded a $7.7 million provision in the fourth quarter. The asset ACL increased by $3.2 million to $168.5 million with coverage increasing to 118 basis points of total loans and leases. We believe that we continue to be conservatively reserved and ready for a wide range of outcomes. And now I'll turn it back over to Bob. Robert Harrison: Thanks, Lea. Turning to Slide 10. We have summarized our current full year 2026 outlook for some of our key earnings drivers. Starting with loans, we expect full year loan growth to be 3% to 4% range. The growth will be driven primarily by CRE and C&I loans. We anticipate that the full year NIM will be in the 3.16% to 3.18% range. We continue to expect tailwinds from fixed asset repricing and with additional Fed rate cuts and a decreasing deposit beta will remain headwinds. We expect noninterest income to be stable and to come in at about $220 million for the year. And finally, we expect expenses to be about $520 million in 2026. That concludes our prepared remarks and now we'll be happy to take your questions. Operator: [Operator Instructions] Our first question comes from David Feaster with Raymond James. David Feaster: I wanted to start on the loan growth. It was really encouraging to see some of the trends that you guys had and especially to see the C&I growth. I was hoping to maybe just get some color on, I guess, first of all, how pipelines are shaping up? And how much of the growth in C&I was increasing utilization versus new relationship growth? Just kind of some of the underlying trends you're seeing there. And then just some commentary too, on mainland versus Hawaii as well. Robert Harrison: Sure. Great question. Thanks, David. This is Bob. So on the loan growth, when we looked at it, it really was more -- as far as what happened in the quarter. It wasn't quite what we thought it would be. We had some payoffs in the CRE portfolio that we anticipated to come in later, which is why we didn't quite hit the number we had talked about on the third quarter call. But having said that, it really was pretty broad-based in local, primarily in some mainland draws underlines and then a new dealer relationship helped out as well. We'll see more of that, I think, in the quarters to come. So as we look forward, we're really looking towards as far as the pipeline of multifamily is still there. We're very, very busy and. And of course, when you book those deals, it will take a while for them to fund, we're still a little bit outrunning the payoffs that happened in that gap period we talked about on the last call of SVB kind of slowing down production for a while a couple of years ago. So that's behind us mostly in the first half of the year, and we expect the second half of the year to start to see more normalized growth in the CRE on the Mainland. We are still seeing activity here in Hawaii, a good amount of the activity this past quarter in Q4 was Hawaii-based but not exclusively. Does that cover what you're thinking about? David Feaster: That's extremely helpful. And could you maybe talk about the -- payoffs and paydowns have been a real headwind in the industry. Could you maybe touch on what led to maybe some of the payoffs and paydowns coming sooner than expected? And as you think about your outlook that you guys have laid out for loan growth, does that contemplate a continuation of payoffs and pay downs? Or is that a risk that you all are concerned about? Just kind of curious your thoughts on that side. Robert Harrison: Sure. I think there's 2 pieces to that. The first piece are the payoffs coming sooner than we expected. They have been a bit this year. I think all the permanent lenders are just as hungry for assets as the banks are. And so they're coming in maybe a little bit earlier than normal, not like we saw a few years ago when they were coming in before properties were even completed construction. But maybe before full stabilization, you're seeing permanent lenders come in on some of those multifamily projects. So that's kind of a men up the calendar a bit but not really a big difference. The paydowns in the industry, as we talked about before, I think we're in that belly of the part of the curve that -- where deals didn't get done a couple of years ago, after the concerns about liquidity with SVB, First Republic, Signature, et cetera. So we think that should be kind of burning through in the first half of this year and the back half of the year, that should give but there is still a high desire for assets out there and a good quality assets, which are the ones we like to fund, people are looking for that. David Feaster: Okay. And then maybe just shifting to the side of the balance sheet. I mean core deposit for instance has been really good. It's not -- you already have a low cost of deposits and you're continuing to take it down further, A lot of the NIM expansion that we've seen has come from reduction in funding costs. I know your margin guide has, I think, 2 cuts in there. As you think about margin expansion going forward, is on the funding cost side and the back producing really the tailwind there. And just how is the to reducing deposit costs thus far. Like have you seen any attrition or much pushback as you work through that? Robert Harrison: So Dave, you kind of cut out there a little bit, but I'm going to answer the question as I think you asked it. And then you can let me know if I missed something for you. I think the margin guide reflects both an ability to continue to cut deposit rates when the Fed cuts as well as that fixed asset repricing that we continue to talk about, and we've seen those trends over time. We think the beta is probably going to be a little bit lower go forward than where we were before. So fourth quarter interest-bearing deposit beta around 35%. And we would anticipate with 2 rate cuts that the interest-bearing deposit beta on that somewhere between 30% and 35%. So less than where we've been, but still pretty healthy for now at least. And then on the fixed asset repricing side, we kind of summarize that for you. So inclusive of all of the paydowns in the securities portfolio as well as fixed rate cash flows coming out of the loan portfolio. We think that's about $400 million a quarter or so with about 150 basis point repricing accretion on that. So we -- all of those things suppose a particular set of loan growth and obviously the way that the pace and timing of Fed rate cuts will impact that as well. But yes, that's kind of where we're at on the NIM. Operator: Our next question comes from Andrew Terrell with Stephens. Andrew Terrell: Just to start and just to clarify, the $385 million of fixed cash flows, that's on a quarterly basis, so kind of checks with the -- I think we've talked about like $1.5 billion in the past on an annual basis? James Moses: Yes. That was the fourth quarter to be very specific, Andrew, Yes. Robert Harrison: We did put that in the deck. Clarify that was in the quarter and not some of the annual assumptions we had in there in the rest of that page. Thank you for clarifying. Andrew Terrell: Yes. No worries. Could you maybe help me just bifurcating that out a little bit? And I think we have a good sense of relative dollars on other side that you've given. But just -- I want to talk about maybe spread competition you're seeing for new assets today. How much in marginal pickup would you expect from securities cash flow versus where loans are running off versus where you're kind of able to reprice that today? Just we've heard a lot on competition recently from other banks, and I'm curious if you're seeing the same thing on new loan growth James Moses: Yes, I would say that there is some spread competition. We've definitely seen that. We still think it's 180, 200 basis points on the securities portfolio, and that's that's pretty fixed. That's pretty well known. And so again, that's about $600 million for the next year and then about $1 billion on the loan portfolio. So a little bit less than that, maybe 100 basis points, somewhere like 80, 100 basis points pickup on the loans versus the $200 million or so on the securities. Andrew Terrell: Yes. Okay. And then on the -- just on the full year loan growth guide of 3% to 4%. It sounds like you might expect some payoffs maybe in the first part of the year, but then better on the second half of the year. And I guess the question is, is it fair to think you could start at the low end or even below the guide in terms of loan growth and then it picks up throughout the year? Or should we just think about it as kind of ratable 3% to 4% throughout the year? Robert Harrison: Yes. I think it's not so much more payoffs than the first half of the year. I think it's a normal payoff activity. There's just were fewer loans that are going -- that were done 1.5 years, 2 years ago that are going to be funding now. So it's really less of the new production from that multifamily portfolio, and that should be through that back half of the year. So yes, a fair assumption that it should be probably lower in the first half and a pickup in the second half. Operator: Our next question comes from Janet Lee with TD Cowen. Sun Young Lee: To clarify on your deposit beta expectations for 30% to 35% and after 2 cuts. So I see 40 -- if my calculation is correct I think I see 47% interest-bearing deposit beta for fourth quarter. So starting in the first or second quarter, does that step down at 30% to 35%? Is that the right way to interpret? James Moses: Yes. I think that's the right way to interpret it is that the interest-bearing deposit beta is going to step down over time. But we're -- I think we're okay with -- like with the 2 rate cuts, it should be -- it should continue to be close to what we've had in the past. Robert Harrison: And that goes to -- we've got a very low deposit cost. So at some point, you just can't keep cutting rates, even though rates are coming down. Sun Young Lee: Yes, definitely. And for the expenses. You've had, I guess, 2 years of flattish expense growth. It looks like it's going up about 4%, 5%. Is there -- is this just a normal adjacent of expense? Or are you hiring a little more in 2026? Or I mean it's a pretty specific number for the expense guide. How should we think about potentially you beat 520 or coming in above how should we think about your expense trajectory? Robert Harrison: Yes. Great question, Janet. Let me kind of back up a little bit and tell you one of the primary reasons why we've been able to hold costs down in the last year or 2 has been we're still going out and trying to hire people. Just to answer that part of your question, it's difficult to find the people we want to hire. So we haven't been able to staff all the people we want. But the reason for our good expense control over the last couple of years has been some of the investments we weighed in the past in technology enabled us to exit higher cost delivery, whatever it was, higher cost ways of doing business as we've brought things in-house. And so that's really been a huge help for us over the last couple of years as we've terminated expensive vendor relationships and been able to take that in-house. So -- we -- our rate of growth has been increasing over the last couple of years but it's been held down by our ability to reduce costs in other areas so far expense base. So as go forward into 2026, we see that most of that we've captured still be a little bit of it. And we will go back to a little bit more of a normalized expense growth number. Operator: Our next question comes from Kelly Motta with KBW. Kelly Motta: On capital return and the buyback, you've been pretty diligent with executing the $100 million you had for 2025. And you noted the 250 doesn't have any time period associated with it. I'm just wondering your appetite for continuing on at a similar pace here and how you're thinking through that versus some other maybe M&A aspects of the capital. James Moses: Thanks, Kelly. I think that we have a pretty good appetite to continue the pace that we had set last year. I think there always will be other considerations as well. There will be some -- potentially some opportunism baked into the program that we've set out but we haven't really made any firm commitment, I would say, internally, even around exactly the pace and timing of the share buyback other than that we recognize we have plenty of capital to do any number of things with, I think that Obviously, organic growth is what we're really looking for. And then the share buyback is a way for us to return some of that capital. So I think it's kind of a combination of all the things that we are looking at and that will determine that sort of pace. Robert Harrison: And just to add to Jamie's comments. We've messaged for a couple of years now a 12% CET1 target, and we're certainly well above that at 13 plus. So I think this larger buyback capacity, it's just an acknowledgment of that and it just gives us flexibility to bring it back closer to what we had targeted -- or what we had messaged in the past. . Operator: Our next question comes from Matthew Clark with Piper Sandler. Matthew Clark: Can we get the spot rate on deposits at the end of the year? James Moses: Spot rate on deposits at the end of the year, 124 in December. Matthew Clark: Okay. In December or at the end of December? . James Moses: It -- that's December. I'm not sure my calculus is good enough to give you that derivative at the moment. Matthew Clark: Okay. Just wondering if it was lower at the end of the year. Okay. And then on the -- on expenses, as sort of -- for the first quarter, can you remind us how the seasonality works, whether or not it's more in the first quarter or second or a combination of both? Just trying to get a sense for the run rate to start the year. James Moses: Yes. For the most part, the expenses are pretty flat throughout the year. We do see a pickup a little bit in the first quarter. You can see that in our numbers last year and the year before, and then they kind of declined a little bit from that. But in general, I think we're thinking about it pretty flat at the moment. Matthew Clark: Okay. Okay. And then just your updated thoughts on Mainland M&A any discussions you've been having and whether or not things are more active? And maybe just remind us what your ideal target would look like? . Robert Harrison: Yes. No, we're -- as Jamie mentioned, our focus is still on growing our core business, but still an option for us to consider for M&A. Some of the things we've talked about in the past, just to reiterate, we'd be looking for a strong management team, will stick around, be good partners with us. obviously, a disciplined lending culture, which is similar to the way we look at the business, strong deposit franchise. And I guess it's a little more touchy feely, but we want it well managed. We're not looking for fixer upper if we were looking to partner with somebody. And just for location, west of the Rockies is more what we're familiar with as an organization and where we've had people on the ground and where we have have a lot of relations already. And as far as size, probably somewhere between $2 million and $15 million would be the range. Operator: Our next question comes from Anthony Elian with JPMorgan. Anthony Elian: On deposits, Jamie, how are you thinking about balances in 1Q? If I look at your past couple of 1Qs, you typically see a seasonal decline. James Moses: Yes. I think that's fair. Again, that's probably something that we should expect in the first quarter. And then in totality, throughout the year, I think we're sort of mostly focused on what we can do with commercial and retail deposits. And so we're expecting kind of low single digits on that for the for the entire year. And then for us, it's tough in totality, the public deposits that we have, the kind of fluctuate, generally speaking, quarter-by-quarter, week by week even. But I think those -- in general, we should probably see some normal like state, like a GSP type increase for those things. So I think that's how we're thinking about balances. Anthony Elian: Okay. And then on the full year NIM guide of $3.16 to $3.18, so that's a pretty tight range. Do you expect each quarter to be within that range this year? James Moses: Probably -- that's maybe a little -- taken a little too far. But I think it's going to -- it really will depend on the amount of rate cuts that we see and the timing of those and whether they're 25, or whether they're 50. So this contemplate sort of a May, September version of that. And so I guess that's how I'd answer it. Anthony Elian: Any direction for the 1Q NIM, specifically relative to the $321 million you printed for 4Q? James Moses: Yes. I think we think it's going to come down a little bit. We had 2 cuts -- 2 rate cuts in the quarter, obviously, 1 in December. So we think it's probably going to come down a few basis points off of the December number. Operator: Our next question comes from Timur Braziler with Wells Fargo. Timur Braziler: Maybe just going back to the loan growth and trying to bifurcate how much of it is expected to come from some of the increased draws on production in years past versus what the opportunity to kind of reengage on the Midland with seemingly some better momentum starting there. Robert Harrison: Timur, I'm not sure 100% I understand your question, but there has been -- for our existing lines, it's a little hard to predict with our larger corporate and commercial customers exactly when an opportunity to come up that they need to fund versus their line versus new production. We are seeing while still continued activity here in Hawaii for sure and in Guam, there's just a broader economic base on the West Coast where we operate, and there's a lot of opportunities up there. So we're continuing to pursue new dealer opportunities as well as commercial real estate opportunities on the Mainland U.S., primarily on the West Coast. So I don't have a breakdown for you per se, but I guess that's broadly how we're looking at it. Timur Braziler: Okay. And maybe another way of asking that, just if you can kind of frame the opportunity set of -- I think you had mentioned the multifamily production that was booked 12, 18, 24 months ago that is going to start funding up, just how much of an opportunity that's going to be? Robert Harrison: Yes. I don't have that number handy, but we can look into that. Timur Braziler: Okay. And then during the prepared remarks, you had made a comment that you had a couple of construction deals that were converted to commercial real estate. I'm just wondering, is that pretty normal to have kind of the construction piece of it and then do the permanent financing in-house? Like is that a pretty normal kind of continuation for you guys? Robert Harrison: It depends on the sector. For customers kind of within the footprint, that is very normal. For the multifamily construction activity we're doing primarily in the Mainland on the West Coast, but it's not. And so it wasn't those deals. It was really more of our other customers within the footprint. So it really depends on the customer segment, if that's normal or not. Timur Braziler: Okay. Got it. And then just last for me. The C&I yields held up really well this quarter. I'm just wondering, is that kind of new production maybe offsetting some of the decline in the variable rate portfolio? Or maybe just kind of talk me through internally, if you were maybe surprised or that was kind of an expected decline within the C&I book because it seemed to hold up pretty well relative to the type of decline we saw during the 2024 rate cutting cycle. Robert Harrison: I think a little bit -- well, I'm not -- I don't have a perfect answer for you, but given that the draws were under existing lines, so I think that speaks to why the rate -- the yield didn't change as much in the fourth quarter. I think if you go back to, right, when the pandemic happened, you had a lot of backup lines with very highly rated customers that just had lower pricing at the time. And so when they were drawing that pricing structurally in those agreements was lower than more of our "normal base." -- but I need to do more analysis to make certain of that. Operator: And I'm not showing any further questions at this time. I'd like to turn the call back over to Kevin for any further remarks. Kevin Haseyama: We appreciate your interest in First Hawaiian, and please feel free to contact me if you have any additional questions. Thanks again for joining us, and have a good weekend. Operator: Ladies and gentlemen, this does conclude today's presentation. You may now disconnect, and have a wonderful day.

63天前Insight Analytics约5分钟阅读

SRTTY 2026 Q3 财报电话会议

Operator: It is time to start the ZOZO Q&A session for institutional investors for the third quarter of FY '25 ending in March 2026. We have on the call Director, Executive Vice President and CFO, Koji Yanagisawa, who presented the earnings results. And there will be Director and COO, Fuminori Hirose; and General Manager of Corporate Planning Office, Yusaku Kobayashi. The session will last until 6:00 p.m. Operator: [Operator Instructions] Yoneshima-san, go ahead. Unknown Analyst: My name is [indiscernible] Securities. I have 2 questions. One, is about ZOZOTOWN consignment business. I feel like it was a bit weak. That's my impression. And then you did mention that the fall and winter merchandise was slower. And then from January to March, you undershot plan. So my question is, do you think it is possible for you to reach to a 5% level for your growth? . And my second question, it's not so much about the earnings results, but it's really about your future direction. So inflation is happening. Cost of goods is also increasing as well. And I believe that costs are coming up as well. So cost of goods and also easing of taxes, how would they affect you? So, yes, it is true that, that could be both a headwind and tailwind for you. So what do you think about the country's financial situation and how that will affect you? Koji Yanagisawa: Okay. So the first question will be answered by Hirose and I will answer the second question. First of all, thank you for your questions. So this Q3, it is true that November and December were big -- were weak. And then last year, Black Friday took place, and then we also had the sales. So we started off from quite a high benchmark and then the situation changed quite dramatically. Last year, we didn't have so much outerwear. And then in the third quarter, we sold a lot of outerwear in order to accelerate the growth. On the other hand, this year, we did have outerwear inventory, but the brand did not do markdowns. And then we couldn't really sell down the inventory. And you asked about the fourth quarter as well. So the inventory of outerwear, we have plenty of that as we got into the winter sales in January. So, so far, January has been doing well. So there has been some time difference. So there is the GMV budget, so consignment business for ZOZOTOWN as well as LINE Yahoo! So what we'd like to do is to continue to aim so that we can achieve the target. So we've been talking about the increasing cost of goods. So in that context, the salary is not coming up. The actual income needs to come up. I believe that, that is the fundamental event that we need to see happening. And how does cost -- increase of cost of goods affect us, our business? So, so far, it hasn't affected us much, but we are starting to see that the young segment is starting to be affected slightly by the increase in cost of goods. So there is a young segment that loves apparel. So it seems as though that segment is starting to be impacted slightly by this And then -- and we hope that the lower tax will affect us positively if it happens. Unknown Analyst: So just kind of building on my question about increase of cost of goods. As you mentioned, the young segment is being affected by this. Do you have numerics that proved it? Maybe that is showing in LYST. But for ZOZOTOWN, when you look at your overall business, do you feel like young people are starting to be more hesitant to make a purchase? Unknown Executive: LYST doesn't have so much -- LYST doesn't have to do with it, but for ZOZOTOWN. And it's not actually evident or prominent impact, it seems like that is starting to show a little bit but may be starting to show. Operator: Okay. Let's go to Nagao-san. Yoshitaka Nagao: Nagao from BoA. I have 3 questions. First, just kind of building on Yoneshima-san's question, I think this is a really interesting topic. So if young segment is starting to have an effect of that, what is the evidence of that? Do you think that's going to affect you in the average retail price or frequency of purchases? What would that show in? And my second question is GMV growth rate fell short of plan, but EBITDA achieved the highest to date number. So do you think that you'll be able to sustain this momentum for EBITDA? Or do you think that this was a one-off result? And my third question is, so there's outerwear, so heavy garments and you will be affected by the inventory level of heavy garments. Do you think that your strategy was not enough to meet the demand because of your product mix? Or do you think that you're starting to see structural change there? So that's 3 questions from me. Unknown Executive: Okay. So I would like to answer them. So demand of the youngsters -- well, I actually didn't want the investors to react too much to that comment I just made. But the image that I have, the impression that I have is that it's not really going to the area of us seeing an impact on average retail price, but it's more about the sensitivity. So I'm not saying that the average retail price or the frequency or conversion are coming down significantly among the young people. But it seems like it's getting. We're seeing like little signs of these -- this segment weakening. That's my nuance. I'm sorry, that was a little ambiguous, no problem. And the second question is about the delivery cost. I think that's going to continue. Okay. The third question, I'd like to answer that. So changes in the product mix, the lineups. So compared to last year, the amount of outerwear did increase. But when it comes to the number of SKUs, we're seeing a decrease in the breadth of SKUs. So basically, brands are giving us more volume of the same SKU. So that is the change we're seeing this year from last year. Yoshitaka Nagao: Sorry, can I ask additional questions? So what you're saying is that you're getting more volume of some SKUs, but it still didn't contribute. Unknown Executive: So basically, we are -- our strategy was to sell down the inventory with the same strategy as last year, but the SKUs that had -- that were offered with markdown prices, the number of those SKUs came down for this year. Operator: Okay. Let's go to Kazahaya-san. Takahiro Kazahaya: Hello. This is Kazahaya from UBS. My first question is about ZOZOCOSME update. May I ask Hirose-san to give me an update on ZOZOCOSME? Fuminori Hirose: Sure. So it's going well. So third quarter, we have the holiday season. It's going quite well. It's had a good start for the third quarter. And then the brands are starting to understand how they can better sell on our platform. So they're doing discounts, markdowns. So it's going quite well. Takahiro Kazahaya: I see. So ZOZOCOSME, is it growing faster than the plan? Fuminori Hirose: Yes -- it's going well. Takahiro Kazahaya: Okay. My second question is about LYST. So you mentioned before that adding a card function is going to be important. How is that going? Unknown Executive: Sure. I'd like to answer that. So about the card function. So we are working to implement that feature. And in the third quarter, we've been able to implement that in to some companies or brands. So this is something that we need to continue to work on in the next period as well. Takahiro Kazahaya: So about LYST, you mentioned when you purchased the company that you wanted to be in profit from the next -- from next fiscal year in the long term? Unknown Executive: So I think what I said was that it will be flat for this year and next year. So there might be a recording of a slight loss. Takahiro Kazahaya: So is it correct for me to understand that, that outlook hasn't changed? Unknown Executive: Right. Operator: Let's go to Yamaoka-san. Hisahiro Yamaoka: Hello. Yamaoka from Nomura Securities here. I have 3 questions I'd like for you to answer. My first 2 questions is about SG&A. The logistic-related personnel costs improving and then the inventory operation improving. Do you think you'll be able to sustain this momentum going into the future periods? Unknown Executive: Thank you for your question. So yes, it is continuing into the third quarter. And then I believe that we can sustain this momentum as well. I may have mentioned this before, but in our warehouses, there is slow-moving inventory. And with the permission from the brands, we are engaged in the operation to return such inventory. So that we can optimize our inventory, and we believe that we'll be able to continue to do this. Hisahiro Yamaoka: Got it. And my second question is about your shipping costs. And then in your handout, it said that as a result of the delivery cost improvement, the financial terms have improved. Could you elaborate on this? Koji Yanagisawa: Sure. So I won't be able to go into details, but basically, at ZOZO's logistic basis, we have implemented the facility and then Yamato has been using that. And then now the load efficiency of the Yamato trucks has improved significantly, and then they were able to -- and then we were able to improve the financial terms. Hisahiro Yamaoka: So what you're saying is that your operational efficiency has improved and then it had a positive impact onYamato? Koji Yanagisawa: Yes, I think that's the right image. So it was not an effort made just by us, they also collaborated. Hisahiro Yamaoka: Okay. My third question is about the effect of MUSINSA and how you see the future -- next fiscal period? Unknown Executive: So MUSINSA is not strong enough to have an impact on the overall GMV yet. Hisahiro Yamaoka: Where should I expect positive value impact of GMV will show up in? Koji Yanagisawa: So MUSINSA, the impact to the overall GMV, I think you asked the same question in the second quarter. So obviously, the GMV generated with MUSINSA is not big enough to have an effect on the overall GMV, but there is Korean business customs, and we're still kind of learning our way to work with them. So we'd like to continue to communicate with the Korean brands so that we can explore the best way to work with them. And then in terms of website UI. I believe that there is a lot of room for us to improve. So by working on that, we are going to work to generate more sales -- more GMV with MUSINSA. Hisahiro Yamaoka: So what you're saying is that the third quarter -- in the third quarter, this has just started. So is it correct for me to understand that I can accept a little more positive effect of MUSINSA in the fourth quarter and onward? Unknown Executive: Yes, I mean, we just started our collaboration with them in the third quarter. So we want to make it full throttle in the fourth quarter and onward. Operator: Okay. Let's go to Kanamori-san. Kuni Kanamori: Hello, Kanamori from Nikko. I just have one question about LYST. If you can kindly tell me about list. So during the earnings call, you said that there was industry headwinds and the changes in the U.S. tariff. What do you exactly mean by that when you said headwinds of the industry and changes of the U.S. tariffs? I mean, if it's U.S. tariffs, do you think that, that's going to continue? And we also have to ask ourselves whether that's actually legal anyways. Earlier, you said that LYST was not going so well. Do you think that we are in a situation where we need to start reviewing and changing our strategy for LYST? Unknown Executive: I'd like to answer that. So the situation of high fashion MUSINSA I mean, some are doing well. But actually, when it comes to luxury industry, my understanding is that it's not going so well, and then we are negatively impacted by that. So there are luxury EC sites that are on LYST. They are not doing so well and some have decided to exit from the business. And then U.S. tariff has changed when they're exporting to the U.S. and then LYST is negatively impacted by that. So GMV is doing below the plan. And then we believe that in terms of GMV, it's going to continue to struggle. But in terms of profit, we believe that that's going to be flat. But for LYST the advertising fee makes up for most of the promotion fees. So we can control that to control profitability or margin. So what I mean by that is that GMV is not growing as much as we hope. So what we'd like to do is control the advertising cost so that we can have a certain level of profit. Any other questions? Operator: Nagao-san go ahead, please. Yoshitaka Nagao: So Yamaoka-san asked this partially. I wanted to also ask about MUSINSA. So you mentioned that it could have about 1,500 brands, but I think you had a really great vertical start. Now you have 2,015 brands. And then that -- and then from the fourth quarter, you'll be able to enjoy the effect of that for the full term. So I'd like to ask you about how you plan to spend advertising expenses for that? And you also talked about exploring ways to work better with a Korean company. So is it correct for me to understand that MUSINSA continues to be positioned in your company as something that you'd like to continue to focus on? Unknown Executive: It is definitely a focal area for us. And this is one of our efforts in enhancing different categories. So the pillar of what we are doing is to strengthen different categories. And then MUSINSA is one of the things that we are doing in order to enhance categories. And then for MUSINSA, it doesn't mean that the more number of brands we have, the more successful because some brands do not have traction power. So what we'd like to do is to work with those Korean brands and collaborate in a better way so that we can generate more GMV. Operator: Sato san, go ahead. Hiroko Sato: Sato from Jefferies. I just have one single question about the number. So Korean brands, so you started out with 140 brands. And then did you say that you have 250? No, no, no. Did I hear it wrong? Unknown Executive: Yes, you heard it wrong. So we started out with 140, and then we have 2,015 brands. Hiroko Sato: Oh, I'm sorry, 2,015. I understand. And then the contribution of sales, when is that going to show in a prominent way. Do you think that, that can show up not in the next term, but afterwards because there are many things that you need to make adjustments? Koji Yanagisawa: Well, I'd like to answer this, sorry. So the question is how much impact do you define as a prominent impact? If your expectation is that MUSINSA does JPY 20 billion or JPY 30 billion, if that is your outlook, that's not the level that we are expecting. It is true that they have a lot of number of brands. But I wouldn't call it just a single shop, but it is an addition of one incremental category. I want to use COSME as an example to explain this. So this is our fifth year. And then finally, in the sixth year, we generate JPY 15 billion with this category. So that's the type of speed. Hiroko Sato: So for some reason on my app, it's not showing up. MUSINSA is not showing up maybe because I'm older, I don't know. So I was wondering how that was like. And then before, previously, you -- you were saying that you're considering to increase the number of categories that you handle. Can you give me an update on that? Unknown Executive: So MUSINSA is the first addition of a new category. And -- so increasing the number of categories in terms of that, so MUSINSA is the very first example of marketplace model that we implemented. And now we have the right foundation in place for such business model, a marketplace model. So -- and then now we're able to have companies and brands do business without sending their inventory to our warehouse. Hiroko Sato: My third question is that when you do shopping on ZOZOTOWN, you oftentimes come across like announcements, notifications, pop-ups that said, we'll give you 10% discount if you buy apparel and cosmetic at the same time. Do people buy that way? Unknown Executive: Yes, there's a lot of cross purchases. So there are users that are willing to buy an apparel item, and then we engage in a promotion to promote cosmetics so that they can buy cosmetics with apparel. So it's not the other way around. Right. So that's what we need to strengthen for ZOZOCOSME because now apparel plays the main role and then -- and COSME comes as a secondary category. So what we want to do going forward is to create a cycle so that the users can start to come to our platform looking and wanting to buy cosmetics. Hiroko Sato: Okay. So you started out with guidance of 2% and then your -- you've been making upward revision. So for sales and GMV, it's a little bit lower. So is it correct for me to understand that this is something that you want to enhance? Or is it more going to be organic growth? Unknown Executive: You said 2%, where is that? Hiroko Sato: Well, your annual guidance was at 2-point-something percent. That's only for advertising business. Unknown Executive: Oh, no. It's the advertising revenue. Okay. Sorry, yes, you're right, 2%. Sorry, what was your question? Hiroko Sato: So in the fourth quarter, do you want to step on the gas for advertising business? And then in the Q&A section, when you came up with the guidance, I think someone mentioned that this was a little conservative or weak. So I thought that and then some thought that -- this is something that you could strengthen by to reply that, you said that there aren't so many places you can place an add. So it seems as though the number is growing more than we expected. Although it's in the later part of the single digit. So is this something that we can have high expectations. So -- like sorry, spots to place in ad. Unknown Executive: I mean we don't have so many places to put as I mean -- because it's basically listing ad. So the number of places -- placements -- places we can have those ads is limited or it's fixed. And it is true, but as you mentioned, that it's going well. It's going steadily. So far, we don't expect to see a prominent growth of our advertising business because -- and then we need to find another opportunity. Otherwise, I don't think we can have a significant growth there. Okay. We're getting close to the closing time. Let's go to the last question. Operator: [indiscernible] san go ahead. Unknown Analyst: So I just wanted to ask one question. So when you divide this November -- sorry, October, November and December. So I believe that for a particular month, there are colder days. Shimamura and other players have had weaker results. So if you separate October, November and December, how does demand look like? And then you said that the number of SKUs came down. I'm sorry, I'm not so good in Japanese and Korea. So I didn't quite understand that part. So coats and like heavy garments, you carried them as your inventory, but the product mix was different. Is that what you're saying? Or are you saying that some SKUs turned out to be weak. Unknown Executive: Okay. So to answer your first question, which is about the situation of October, November and December. So in -- so November, we were on plan. And with October and December where we undershot the plan. So in November, we had ZOZOWEEK, so that's a sales event. And -- we didn't -- we had lower-than-expected GMV from that. And then in December, it did pick up in the latter part, but it wasn't enough to offset. And you asked about the SKU. So let me rephrase it so in a way that it's easier to understand. So the number of styles, I guess, of outerwear turned out to be less. But the inventory volume was higher. Does that make sense? Unknown Analyst: Yes. Unknown Executive: Really, did you. Did that make sense? All right. Thank you. Operator: It is time to end the Q&A session. Thank you very much for your participation. [Statements in English on this transcript were spoken by an interpreter present on the live call.]

63天前Insight Analytics约5分钟阅读

OXLC 2026 Q3 财报电话会议

Operator: Ladies and gentlemen, thank you for standing by. My name is Tajiri, and I will be your conference operator today. At this time, I would like to welcome everyone to the Oxford Lane Capital Corp. Third Fiscal Quarter Earnings Conference Call. [Operator Instructions] I would now like to turn the conference over to Jonathan Cohen, CEO. You may begin. Jonathan Cohen: Thank you. Good morning, everyone, and welcome to the Oxford Lane Capital Corp. Third Fiscal Quarter 2026 Earnings Conference Call. I'm joined today by Saul Rosenthal, our President; Bruce Rubin, our CFO; and Joe Kupka, Managing Director. Bruce, could you open the call with a disclosure regarding forward-looking statements? Bruce Rubin: Sure, Jonathan. Today's conference call is being recorded. An audio replay of the call will be available for 30 days. Replay information is included in our press release that was issued earlier this morning. Please note that this call is the property of Oxford Lane Capital Corp. Any unauthorized rebroadcast of this call in any form is strictly prohibited. At this point, please direct your attention to the customary disclosure in this morning's press release regarding forward-looking information. Today's conference call includes forward-looking statements and projections that reflect the company's current views with respect to, among other things, future events and financial performance. We ask that you refer to our most recent filings with the SEC for important factors that can cause actual results to differ materially from those indicated in these projections. We do not undertake to update our forward-looking statements unless required to do so by law. During this call, we will use terms defined in the earnings release and also refer to non-GAAP measures. For definitions and reconciliations to GAAP, please refer to our earnings release posted on our website at www.oxfordlanecapital.com. With that, I'll turn the presentation back to Jonathan. Jonathan Cohen: Thank you, Bruce. On December 31, 2025, our net asset value per share stood at $15.51 compared to a net asset value per share of $19.19 as of the prior quarter. For the quarter ended December, we recorded GAAP total investment income of approximately $117.8 million, representing a decrease of approximately $10.5 million from the prior quarter. The quarter's GAAP total investment income consists of approximately $114.3 million from our CLO equity and CLO warehouse investments and approximately $3.5 million from our CLO debt investments and from other income. Oxford Lane reported GAAP net investment income of approximately $71.8 million or $0.74 per share for the quarter ended December compared to approximately $81.4 million or $0.84 per share for the quarter ended September 30. Our core net investment income was approximately $108.9 million or $1.12 per share for the quarter ended December compared with approximately $120 million or $1.24 per share for the quarter ended September 30. As of December 31, we held approximately $263.1 million in newly issued or newly acquired CLO equity investments that had not yet made initial distributions to Oxford Lane. For the quarter ended December, we recorded net unrealized depreciation on investments of approximately $305.4 million and net realized losses of approximately $7 million. We had a net decrease in net assets resulting from operations of approximately $240.7 million or $2.47 per share for the third fiscal quarter. As of December 31, the following metrics applied. We note that none of these metrics necessarily represented a total return to shareholders. The weighted average yield of our CLO debt investments at current cost was $17.3 million -- 17.3%, down from 17.4% as of September 30. The weighted average effective yield of our CLO equity investments at current cost was 13.8%, down from 14.6% as of September 30. The weighted average cash distribution yield of our CLO equity investments at current cost was 19%, down from 19.4% as of September 30. We note that the cash distribution yields calculated on our CLO equity investments are based on the cash distributions we received or which we were entitled to receive at each respective period end. During the quarter ended December, we made additional CLO investments of approximately $97.2 million, and we received approximately $85.5 million from sales and from repayments. On January 29, our Board of Directors declared monthly common stock distributions of $0.20 per share for each of the months ending April, May and June of 2026. We note that the Board has historically considered a range of factors in setting our monthly distributions, including the company's GAAP and core NII and the distributions necessary to maintain our qualifications as a RIC under the Internal Revenue Code. At the current time, and given the opportunities that the company sees in the market for CLO equity and junior debt tranche investments, the Board has concluded that it would be beneficial for the company and its shareholders to have additional capital to deploy in those markets. We support the idea of a stable or growing net asset value as a meaningful component of the return we seek to generate for shareholders. The Board believes that this reduction in distributions will support that objective, while complying with the company's requirement to distribute to shareholders each year and at least 90% of its investment company taxable income as defined in the code to maintain its RIC status. With that, I'll turn the call over to our Managing Director, Joe Kupka. Joseph Kupka: Thanks, Jonathan. During the quarter ended December 31, 2025, U.S. loan market performance declined versus the prior quarter. U.S. loan price index decreased from 97.06% as of September 30 to 96.64% as of December 31. The decrease in U.S. loan prices led to an approximate 2-point decrease in median U.S. CLO equity net asset values. Additionally, we observed median weighted average spreads across loan pools within CLO portfolios decreased to 311 basis points compared to 318 basis points last quarter. The 12-month trailing default rate for the loan index decreased to 1.2% by principal amount at the end of the quarter from 1.5% at the end of December 2025. We note that out-of-court restructurings, exchanges and subpar buybacks, which are not captured in the cited default rate remain elevated. CLO new issuance for the quarter totaled approximately $55 billion reflecting an approximate $2 billion increase from the previous quarter. Additionally, the U.S. CLO market saw approximately $74 billion in reset and refinancing activity in Q4 2025, compared to approximately $105 billion in the previous quarter. Oxford Lane remained active this quarter, investing over $97 million in CLO equity and warehouses. During the quarter, we also led or participated in more than 10 resets and refinancings, taking advantage of tightening liability spreads to lower the cost of funding and lengthen the weighted average reinvestment period of Oxford Lane's CLO equity portfolio from May 2029 to August 2029. We continue to evaluate existing investments for opportunities to improve the economics of our CLO equity positions. Our primary investment strategy during the quarter was to engage in relative value trading and seek to lengthen the weighted average reinvestment period of Oxford Lane's CLO equity portfolio. In the current market environment, we intend to continue to utilize our opportunistic and unconstrained CLO investment strategy across U.S. CLO equity debt and warehouses as we look to maximize our long-term total return. And as a permanent capital vehicle, we have historically been able to take a longer-term view towards our investment strategy. With that, I'll turn the call back over to Jonathan. Jonathan Cohen: Thanks, Joe. Additional information about Oxford Lane's third quarter fiscal quarterly performance has been uploaded to our website at www.oxfordlanecapital.com. With that, the operator can now open the call for any questions. Operator: [Operator Instructions] And our first question comes from the line of Mickey Schleien with Clear Street. Mickey Schleien: Jonathan, CLO equity funds have been very weak over the last year, even on a total return basis. And over that time, we've seen tighter loan spreads and while CLO liability spreads have been relatively stable, and that's pressured the returns on CLO equity. Some of that trend is being attributed to captive CLO funds, which are accepting lower stand-alone equity returns because they internalize the management and incentive fees. Could you give us a sense of what share of the primary market is represented by these captive funds? Jonathan Cohen: Joe, do you want to take an estimate of that? Joseph Kupka: Yes. It's hard to say, given we don't have specific insight into that. I would say 2025 was probably a more balanced year since the arbitrage was still relatively attractive. Some third party continue to issue primary. I expect in 2026, the majority of that issuance if it continues, will be from these captive funds just given the compressed arbitrage. Mickey Schleien: And how do you assess the impact of those funds on the outlook for CLO equity returns for third-party investors like Oxford Lane? And do you think this is a secular trend, which permanently reduces expected returns for the equity tranche? Jonathan Cohen: I mean it's really impossible to know, Mickey. The behavior of the world's largest credit investors, and whether they're manifesting a portion of their strategies in these captive CLO funds, these captive equity funds is just extraordinarily difficult to try to predict. That is certainly a potential factor in terms of future likely performance for CLO equity tranche investments, but I think there are a great deal of other factors that are equally or perhaps even more important. Mickey Schleien: Okay. If I could follow up, looking ahead, it seems like the constructive case for CLO equity would require more new money loan issuance from improved M&A activity which could help balance the loan market and perhaps widen loan spreads without a recession. So with that in mind, what's your outlook on the balance of supply and demand in the loan market this year and maybe next year? Jonathan Cohen: We would like to think, Mickey, based on historical norms that, that balance will be restored, at least to some extent, over that time frame. Operator: Our next question comes from the line of Erik Zwick with Lucid Capital Markets. Erik Zwick: I wanted to start with a question just on the kind of reduction in the dividend level. And the way I hear you, Jonathan, is one of the big opportunities you see for Oxford Lane going forward is to continue taking advantage of the secondary market and attractive pricing and returns there. And that's one of the driving factors for the magnitude of the dividend cut and not so much your view into where the earnings power of the fund is going. Is that correct? Jonathan Cohen: It's an interesting question, Erik, because we have never adhered to the dictum that we need to focus solely on the primary market or solely on the secondary market. For the last 15 years or so, we've had the flexibility, the investment flexibility to vacillate between those 2 opportunity sets. And at the moment, we are seeing what we consider to be generally strong opportunities in the secondary market for a host of reasons, many of which are related to what may be a fundamental supply-demand imbalance in the secondary market on a flow of funds basis. But to answer your question, the answer is we see probably more opportunities in the secondary than in the primary market. And given that we believe we are one of the world's largest market participants in the secondary market, we are trying to position ourselves to take advantage of those. Erik Zwick: And just a bit of a follow-up on that one. The opportunities that you're seeing in the secondary market, I would assume, but opportunities buying things at discounts that if they perform well, would have a pull-to-par effect, which would kind of help in terms of your goal of supporting the NIM -- I'm sorry, the NAV and potentially [indiscernible] as well. Is that right? Jonathan Cohen: Yes. Erik, I think that's definitely one of the profiles we're focusing on previously in times of more benign environments, you see a healthy premium to NAV based on trading levels in this environment with the arbitrage add or near historic types, you see that NAV compress or sometimes even flip. So the optionality -- you really see that optionality in terms of capturing the NAV, whether that's through a reset plays or just liquidation of the CLO [indiscernible]. So yes, there's definitely potential to support the NAV with those profiles. Erik Zwick: And then for my next question, I haven't fully gone through and fine-tune my forward estimates, but just kind of quick back to the calculations would suggest that the earnings power of the fund is still in excess of the distribution -- the new distribution level that you've disclosed. So is there a potential then for a special dividend at some point over the next year or so? And if so, does -- would that be on a calendar year? Or based on your fiscal year, which ends March of each year, how would you think about that? Jonathan Cohen: We think about that, Erik, principally in terms of maintaining compliance with the RIC test under the code, under the tax code. So to the extent necessary or to the extent that we want or need to reflect the earnings level of the fund in the distributions yes, we -- it is certainly possible that we declare a special dividend or modify the existing rate of distribution to comport with those fundamentals. Erik Zwick: Got it. And timing on that when you do your RIC test, is it the calendar year? Or is it based on your fiscal year reporting? I can't recall how that's done. Jonathan Cohen: Fiscal, so March. Erik Zwick: Fiscal. Got it. And last one for me. Either Jonathan or Joe, if you could just kind of frame the current opportunity for resets and refis in your portfolio and how that could potentially support cash flow going forward? Joseph Kupka: Yes, this year should be a very active year in terms of resets and refis for us this past year. 2025 was also very active. We participated or led about 70 resets of refinancings. We have a few in Q1 and Q2 that are rolling off non-call. And starting in July, we have a lot of our portfolio rolling off that we see AAA spreads generally in the 130s or 140s just based on where AAAs were 2 years ago when we initially issued those deals. So just based on the timing, we see a lot of take some kind of action. Jonathan Cohen: Right. Market fundamentals permitting. Operator: There are no further questions at this time. I would like to turn the call back over to our CEO, Jonathan Cohen for closing remarks. Jonathan Cohen: Thank you very much. I'd like to thank everybody on the line and everybody who's listening to the replay for their interest in Oxford Lane Capital Corp. and their participation on this call. Thank you very much. Operator: Ladies and gentlemen, that concludes today's call. Thank you all for joining in. You may now disconnect.

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