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Operator: Good day, and thank you for standing by. Welcome to the First Quarter 2026 Real Matters Earnings Conference Call. [Operator Instructions] I would now like to hand the conference over to your speaker today, Lyne Beauregard, Vice President, Investor Relations and Corporate Communications. Please go ahead. Lyne Fisher: Thank you, operator, and good morning, everyone. Welcome to Real Matters financial results conference call for the first quarter ended December 31, 2025. With me today are Real Matters' Chief Executive Officer, Brian Lang; and Chief Financial Officer, Rodrigo Pinto. This morning, before market opened, we issued a news release announcing our results for the 3 months ended December 31, 2025. The release, accompanying slide presentation as well as financial statements and MD&A are posted in the financial section of our website at realmatters.com. During the call, we may make certain forward-looking statements, which reflect the current expectations of management with respect to our business and the industry in which we operate. However, there are a number of risks, uncertainties and other factors that could cause our results to differ materially from expectations. Please see the slide entitled cautionary note regarding forward-looking information in the accompanying slide presentation for more details. You can also find additional information about these risks in the Risk Factors section of the company's annual information form for the year ended September 30, 2025, which is available on SEDAR+ and in the Financial section of our website. As a reminder, we refer to non-GAAP measures in our slide presentation, including net revenue, net revenue margins, adjusted net income or loss, adjusted net income or loss per diluted share, adjusted EBITDA and adjusted EBITDA margin. Non-GAAP measures are described in our MD&A for the 3 months ended December 31, 2025, where you will also find a reconciliation to the nearest IFRS measures. With that, I'll turn the call over to Brian. Brian Lang: Thank you, Lyne. Good morning, everyone, and thank you for joining us on the call today. Fiscal 2026 is off to a good start with double-digit top line growth headlining our performance in the first quarter. We also launched 8 new clients in the first quarter, including 2 top 100 lenders, and we added a new channel with a Tier 1 lender in U.S. Title. Consolidated revenues were up 14% and net revenue increased 19% year-over-year, reflecting gains across all 3 segments. The company achieved positive consolidated adjusted EBITDA of $0.1 million for the quarter, driven by strong operating leverage in U.S. Appraisal and U.S. Title. Despite the first quarter typically being seasonally slow, the successful onboarding of new clients and expansion of market share, supported by favorable conditions in the refinance market contributed to a positive bottom line. Notably, this is the first time since Q1 2022 that profitability was achieved in the first quarter despite current market volumes being approximately 70% lower than at that time, demonstrating the impact of our market share gains combined with improved efficiencies in the business. It also reinforces that our model can generate significant operating leverage even under these market conditions. In U.S. Appraisal, we maintained leading positions on lender scorecards, which contributed to gaining additional market share sequentially with 2 large clients. Furthermore, the segment demonstrated strong operating leverage as reduced operating costs, combined with a 7% increase in net revenue, drove 36% year-over-year growth in adjusted EBITDA. Refinance origination volumes in our U.S. Title segment more than doubled as a result of new client wins, market share growth and to a lesser extent, mortgage market tailwinds. With increased volumes, net revenue for the U.S. Title segment increased by 110%. The vast majority of that net revenue gain contributed directly to our bottom line, bringing us closer to achieving breakeven results in this segment. Even with the recent increase in our title volume run rate, we still have the capacity to almost double our volumes with the existing cost base outside of variable cost increases. In other words, a high proportion of each incremental dollar of our revenue we will generate in the title segment will continue to flow directly to EBITDA as we continue to scale up the Title business. With the potential mortgage market recovery on the horizon, more lenders are turning their attention toward capacity planning, which includes ensuring they have the right partners to deliver leading performance when volumes ramp up. Our sales team is capitalizing on this trend and our network management model's ability to deliver performance at scale to drive more RFP conversations and accelerate the momentum in our U.S. Title sales pipeline. Turning to Canada. The business launched 3 new clients in the first quarter, and we delivered modest revenue and net revenue growth despite a decline in mortgage market volumes and lower insurance inspection revenues. With that, I'll hand it over to Rodrigo. Rodrigo? Rodrigo Pinto: Thank you, Brian, and good morning, everyone. In fiscal Q1, the average 30-year fixed mortgage rate fell from approximately 6.43% in early October to 6.32% at the end of December, largely due to tighter spreads. From October to December, 10-year U.S. treasury yields rose slightly from 4.1% to about 4.15%. Meanwhile, the gap between 30-year mortgage rates and 10-year treasury yields narrowed by around 20 basis points, finishing the quarter at roughly 200 basis points. This shift indicates that risk premiums in the housing financing market are continuing to ease, showing clear progress towards the long-term historical average spread of 170 basis points. The modest decrease in rates over the quarter prompted growth in refinance market originations, although from a low base. Meanwhile, purchase market origination volume experienced a slightly decline, consistent with projections from MBA and Fannie Mae. We continue to be committed to managing areas within our control, such as scaling operations in response to volume changes and maintaining disciplined expenses practices. As we consistently stated, our priority is to expand our client base and market share by enhancing operating efficiency, driving leverage and margin growth and keeping our balance sheet robust. Turning to our first quarter financial performance. I'll start with our U.S. Appraisal segment where we recorded revenues of $32.9 million, up 12% from the same period last year. Revenues from purchase mortgage originations declined modestly. However, revenues from refinance mortgage originations increased by 27% due to higher addressable mortgage origination volume from refinance transactions. The comparable quarter also included higher purchase and refinance volumes from a temporary reallocation of market share from one of our leading clients, which will no longer impact comparable results after this quarter. Home equity revenues were up 22% year-over-year and accounted for 26% of the segment's revenue. U.S. Appraisal net revenue was $8.4 million for the first quarter compared with $7.8 million in Q1 '25, and net revenue margins decreased by 110 basis points, mostly due to the distribution of transactions volumes as it relates to geographies, clients and product mix. First quarter U.S. Appraisal operating expenses decreased by 5% year-over-year to $5.1 million. We posted U.S. Appraisal adjusted EBITDA of $3.3 million, up 36% from the first quarter of fiscal 2025, and adjusted EBITDA margins increased by 820 basis points to 39.1% compared with the first quarter last year as we benefited from strong operating leverage. Turning to our U.S. Title segment. First quarter revenues increased 76% year-over-year to $4.4 million and refinance origination revenues were up 135%, principally due to market share gains with existing and new clients and higher refinance mortgage origination volume. U.S. Title net revenue was $2.8 million, up 110% from the first quarter last year, and net revenue margins increased to 63.9% from 53.4% due to higher refinance origination volumes. Given the order flow of volumes in Q2, we currently expect net revenue margins to trend closer to the lower end of our target operating model range in the second quarter. U.S. Title operating expenses were up 16% year-over-year, primarily due to additional hires to accelerate the deployment of new title clients, and we recorded an adjusted EBITDA loss of $0.8 million for the U.S. Title segment compared with the loss of $1.8 million we posted in the first quarter of fiscal 2025. If we excluded the investments we made in our title sales capabilities, approximately 85% of the incremental net revenue we recorded in the quarter would have flowed to the bottom line. In Canada, first quarter revenues increased modestly to $9.2 million from $9.1 million in the prior year due to net market share gains with new and existing clients for appraisal, which were partially offset by lower mortgage market volumes and lower insurance inspection services. Net revenue was up 3% to $1.8 million and adjusted EBITDA was flat at $1.1 million. In total, first quarter consolidated revenue and net revenue were up 14% and 19% year-over-year, respectively, principally driven by the growth in our U.S. Appraisal and U.S. Title segments. We recorded consolidated adjusted EBITDA of $0.1 million, up from a loss of $1.7 million in the first quarter of 2025. We ended the year with a very strong balance sheet with no debt and cash of $43.8 million at December 31, 2025. The increase in our cash balance from the prior quarter was mainly due to the timing of collections and changes in working capital, which normalized from the fourth quarter. With that, I'll turn it back over to Brian. Brian? Brian Lang: Thank you, Rodrigo. Our first quarter results marked a strong beginning to the fiscal year. We achieved double-digit top line growth and demonstrated effective operating leverage, resulting in positive adjusted EBITDA during a period that is typically a seasonal low for our business. Additionally, we successfully onboarded new clients, expanded into an additional channel and consistently ranked highly on lender scorecards. Our performance in Q1 illustrates that our business model is well positioned to achieve substantial operating leverage as we scale. Higher transaction volumes on our platform have the potential to meaningfully enhance both margins and profitability. Looking ahead, we remain cautiously optimistic about improving fundamentals in the U.S. mortgage market. Today, there are 13 million mortgages with interest rates above 6%. In fact, there are now more mortgages with rates above 6% than below 3%. That means that we are seeing a rebalancing of the interest rates on outstanding mortgage debt, which is indicative of a shift toward a more normalized distribution of the market. This dynamic gives us confidence that there is a substantial pool of refinance candidates, which could become a significant tailwind for volume growth in the years ahead. Our strategy of adding clients and growing market share through better performance remains on track, positioning our business for scale and the achievement of our target operating model. With that, operator, we'd like to open it up for questions now. Operator: [Operator Instructions] Our first question comes from Stephen Machielsen with BMO Capital Markets. Stephen Machielsen: I was wondering if you could give us a bit of color into the cadence of refi activity through the quarter just as the rates declined. Like did you see a lot of demand front-loaded? And how has demand progressed into Q2? Brian Lang: Great. Thanks for the question, Stephen. So -- and it's a good question. We had another what we would call months boomlet in September and October heading into Q1. So there was definitely a benefit that we saw. We would have actualized a chunk of the September volume on appraisal in the previous quarter, but definitely on title, we benefited because of the time lag to realizing revenue. So refi volumes were solid in the quarter, as I say, a little bit stronger in the front end than the back end. But we're definitely seeing and if you look at the industry MBA and Fannie results, they're going to look to a decent growth in refi in the quarter. On the flip side, purchases definitely struggled. So purchase has definitely been a little bit more of a challenge in the market, but we definitely had some refi tailwinds. When we look at our results, though, Stephen, if we take a look at the title results, 2/3 of that came from -- for us, the growth, 2/3 of that came from the Tier 1 launch that we had. Q1 was the first quarter that we realized the full revenue from that Tier 1. And so 1/3 of it came from the actual market. Stephen Machielsen: Okay. That's some good color. So do you expect your traditional lender Tier 1 clients to continue being as aggressive even as it sounds like the mortgage rate spreads are coming in? Brian Lang: Well, we're definitely seeing that to date. So I can't really comment on forward-looking. But even as we enter into this quarter, some of the big Tier 1s are definitely the most aggressive when it comes to setting their 30-year rates. So that's for us, we see that as a positive potential tailwind on the business. But as we talk about, Stephen, I mean, right now, the way our business runs, we are 50% revenue with banks and 50% revenue with nonbanks. And when I take a look at, at least on the appraisal business, we mentioned that this past quarter, we were sequentially moving up market share with 2 of our significant customers, one of them was a bank and one of them was a nonbank. So we continue to set -- build momentum behind both sides of it. But to your point and to your question, definitely some of the larger banks have been stepping up as the spread has come down and been aggressive from a rate standpoint. Operator: Our next question comes from Gavin Fairweather with Cormark. Gavin Fairweather: An impressive level of new logos that you saw there in the first quarter. Maybe you can just discuss kind of the pipeline and how prospects in the pipe reacting to the more recent drop in rates are you seeing more urgency to find new vendors or more RFPs being issued? Any commentary there would be helpful. Brian Lang: Great. Great question, Gavin. And the short answer would be yes. Yes, that we are seeing customers definitely moving on the RFP side of things. I would say I would specifically point to title simply because there has been a significant amount of movement there. As we mentioned last year, we had invested in the sales capabilities on the title side of the business. And I think we're seeing a lot of that being actualized now with more RFPs. And I think, Gavin, to your comment, it's a reaction to the bump that we saw, the little sort of monthly boom that we saw last year, last September, October, '24, '25. And then again, it's been reemphasized with the bump we saw this last quarter, September, October, where all of a sudden, there's a good chunk more volume. I think it's definitely got a lot of lenders thinking about making sure that they've got the capacity to manage that. So from a pipeline standpoint, we mentioned 8 new clients this quarter. Again, I think that's very positive. And not only that, 2 of them are our top 100 customers. So not only bringing on customers, but the right type of customers, one in title, one in appraisal. And as we look forward, Gavin, I'm very ambitious about the pipeline. As I say, I think the sales investments we've made are really starting to pay off. So we hope that we'll continue to be announcing some good wins over the upcoming quarters. I'm going to anticipate your question about Tier 1s. So we do have 2 Tier 1s on the platform now. Again, good news from the last quarter is that we're now in a second channel with the Tier 1 that we just brought on. So we've now sort of diversified with them. And the third Tier 1, our expectation is that we will launch that this year. So we're again, progress on that has gone very well, and now it's just a matter, frankly, of implementation. Gavin Fairweather: Great to hear. So just to clarify, the new channel with the Tier 1 in title, that was with the more recent Tier 1. And maybe you can just -- is that a big opportunity in that channel? Maybe any further color there would be helpful. Brian Lang: Sure. It is the same one that we launched, Gavin. And of course, it's because I think we launched incredibly well and our performance clicked up quite quickly with them from a performance standpoint. So it's -- we launched in the origination channel, and now we've moved into the home equity channel. That's always a decent channel to be in, Gavin. And so we'll have to see how the home equity market performs over the remainder of the year, but we're happy to be in 2 different channels with them. Gavin Fairweather: Great. And then just lastly for me, maybe a longer-term question. We saw the profitability that Real Matters posted in 2020 and 2021 in a busier market. So as we start to think about the volume ramping back up, maybe not to those levels, how do you expect the business to perform versus the last cycle from a profitability perspective? Do you think that you've found additional efficiencies in the business that could drive more profitability? Are there any mitigating factors we should be aware of? Any thoughts there would be great. Rodrigo Pinto: Sure, Gavin. I'll take this one. Yes, for sure, and that's why we set up the target operating model last year. And we see with volumes and scaling the business that we are still very confident that we can achieve the numbers that we have in our target operating model. So seeing similar volumes as the target operating model demonstrates, seeing similar volumes that we saw 2020, 2021, we should do better. We are talking about adjusted EBITDA close to $100 million, which is higher than what we saw before. And that's a consequence of all the operating efficiencies that we put in the system over the last 5 to 6 years. Operator: Our next question comes from John Shao with TD Cowen. John Shao: I just wanted to revisit your key word cautiously optimistic in your prepared remarks. So my question is, where does that caution come from? Is it just based on yesterday's Fed rate decision or just based on the overall recovery timeline? Brian Lang: Yes, good question, John. And listen, it's the overall recovery timeline. So again, if we take a look at what the industry is looking at for Q2, they're looking both MBA and Fannie, they're looking at the market coming down 10% in Q2. So that the cautiously optimistic is sort of more a comment on Q2. But if you look out at the predictions for the year, you're talking more about 50-plus percent growth in the market. So that's really the only caution we have. We're, as I say, quite ambitious around the growth of the business in title. We're now onboarding customers. We're going to start realizing full quarter revenue from, again, the customers we just brought on, and we're looking forward to the pipeline of customers that we think we're going to be able to announce over the next couple of customers at [indiscernible] quarters. So I think that's really -- there's lots of positive in the business. The comment around cautious is simply the market and the seasonality sort of click in Q2. Q3 and Q4, we're thinking the market is going to be in solid shape. John Shao: I appreciate the color. And in terms of gaining more market share with some of the top lenders, could you maybe remind us the pace of that market share gain? Does that happen with -- at the same time with the market recovery? Or is it going to be independent? Brian Lang: Well, that's actually a really good question, John. So if we look very broadly at how we win market share, it's how much we outperform our other competitors. So when the volume is very low, the gap of competition in performance between first and second is tighter than it is when there's significant volume in the business. And we saw that through '20 and '21, where we could really distance ourselves from the second place competitor when it came to performance. So that's why I think this last quarter, we were happy to talk about moving the market share needle forward sequentially with 2 of our larger players in appraisal, it's been somewhat of a challenge the last year or 2 to be able to really move that, again, just because of the differential in performance. So as the business scales, we always talk about that being a significant driver of supporting the increase in market share gains. On the -- so that's really on the appraisal side because, of course, we've been at that business with those Tier 1s for quite some time. What we're seeing on the title side is that our performance is very strong, especially with the Tier 1 that we just brought on because I think we're a new player now amongst that competitive set. So the feedback we got, we actually had our quarterly review yesterday, if you can believe it, and the feedback was incredibly strong. And I think the fact that they've now launched us into the second channel is very supportive of that strength and performance. So I think with the new Tier 1 that we brought on, we'll continue to build share. We've got a small amount of share now, which is always the case. And as we've always talked about in the first year, we try and march forward to 5% to 10% by the end of the year, I think we'll be in a much better place than that with this player by the end of the year. Operator: Our next question comes from Martin Toner with ATB Capital Markets. Martin Toner: My only question is with respect to the potential change in regulatory environment. You guys got a -- the market as a whole got a nice shot in the arm with the [indiscernible] bond buying, spreads came in nicely very quickly. Obviously, affordability is going to be a key election issue in the midterm. As you guys look at what might happen this year and beyond, just any thoughts to if there's further tailwinds for real lenders in terms of regulatory changes? Brian Lang: Sure. So Martin, you were a little bit light there. So I'll just reiterate the question for folks so they can hear it. It was around regulatory either support or challenge as we look forward with the business, specifically, I think, in the U.S. So I think to your question, I think there's a couple of elements. Again, I won't get into the political side of it. But just if I look at how the administration is looking at affordability, I think clearly, they have a couple of mandates, which are, number one, how do we address home affordability. So you're hearing lots of conversations around portable mortgages, around 50-year mortgages. And as you mentioned, Martin, very recently, the direction to the GSEs around purchasing MBS, $200 billion worth of MBS. I think all of those are very positive signs that the administration is very supportive of going after affordability. On another vector, of course, they've been working hard on trying to drop the interest rates. So again, we'll have to see, Martin, how that eventually evolves over time. We've got midterm elections in November. So I'm assuming over the next quarter or 2, there's probably going to be an awful lot of effort from the administration to do their best to bring down affordability and to bring down interest rates. Operator: Our next question comes from Richard Tse with National Bank Capital Markets. Richard Tse: Yes. As we sort of look out through the rest of this year, when you sort of pull together your internal forecast, like what sort of the base case you use for your kind of market volumes for mortgages, both purchase and refi? And I'm sort of just asking because I'm just sort of curious like how conservative you are in that. Do you kind of really just take the sort of the MBA data forecast and kind of use that as a base case? Or do you make your kind of own adjustments here? Rodrigo Pinto: Yes, Richard. So we do look a lot at MBA and Fannie Mae. Of course, we use our judgment as well on top of this. But like based on everything we are seeing right now, it seems to be reasonable that their estimates for the year, right? They have a single-digit increase for purchases for fiscal -- our fiscal 2026. If you average MBA, Fannie Mae, they are around 50% increases in refinance. As you probably have seen out there for next -- for this quarter, Q2, they're not very optimistic about the volumes. They have a decrease of close to 10%. So what it implies that there's a substantial increase coming up Q3, Q4, which, again, seasonality also helps the market during that time of the year. So not calling rates here, but just stating what we are seeing from MBA, Fannie and others in the industry, that's based on a 30-year mortgage rate hovering around 6%. No one is predicting rates going to close to 5%. And that's what we are using for our estimates as well. Richard Tse: Okay. And then I think you sort of briefly touched on the competitive environment. But if you kind of look broadly this year versus same time last year, have there been any sort of moves among that competitive market that has kind of been notable that we should be aware of in terms of what you're seeing? Brian Lang: No, I'd say, Gavin, it's actually been quite -- Richard, it's been quite a quiet year, I would say, year-over-year. We did have quite a bit of movement the year before where we had sort of one of our bigger competitors that was in both title and valuation sold their valuation business. So they exited that business. So we've seen a little bit of that. But beyond that, we had one other player that was purchased from a different company. So there's been a little bit of that sort of movement from one private equity to another. But beyond that, Richard, no, we've seen very little changes really on the competitive front. The only thing I think I would add to Rodrigo's commentary just on where the market is going. Just remember, when we're talking about the minus 10%, we're talking about quarter-over-quarter. So I mean, if you scan back a little bit, year-over-year, the market, I think, is growing in the right direction. And frankly, as we sort of hopefully outlined today, I mean, our big focus has been on bringing on new customers and continue to perform and drive market share. So -- the fortune we have, I think, right now in title is that because that business is really starting to scale now, the way we're looking at the year is a lot of the growth, we're not looking at the market to enhance the growth. We hope it helps. But as I mentioned in this past quarter that we just came out of, 2/3 of our growth in the Title business came from our customer, right, from growing our customers, 1/3 came from the market. So that's -- our focus is less right now on the rates just because as you guys all know, we can't control them. We'd like them to come down. But the focus is really just on continuing to double down on the core business and drive the volume, whether the rates move significantly or not. Richard Tse: Okay. And then sort of going back to the question on competition, like it was more around the question -- the other question is sort of in terms of like UAD and UAD 3.6 readiness, like the fact that you have this platform, I would imagine that gives you a little bit of edge relative to the competitors. And does sort of UAD require you to invest more or the fact that you do have this technology platform, you can sort of make those modifications on a very cost-effective basis? Brian Lang: Richard, I love the industry knowledge of that question. So I'm not sure how many other folks are following the rollout of UAD, which is the new forms that are coming out, which may sound like a small endeavor, but is probably the biggest, I would say, sort of governance change in the industry in the past decade. So it's a really good question, actually, Richard. So I guess I'm happy to announce that we've actually done our first UAD transaction. We did that in the last quarter. So we are the first, frankly, out of the box to do that, and that's because our -- one of our biggest customers is a forerunner in getting prepared for UAD. So it's interesting you say that, Richard. A lot of our competitors are struggling, of course, right now. We put this front and center. We did make the investment. So we've got a couple of million dollars invested in this. We will continue to invest. Good news, some of that investment comes off this year. So we can redeploy and we will redeploy investments into other areas of our platform just to continue to make sure we're doing the things we need to, to future-proof the platform. But your point around UAD, it is a differentiator for us. We'll see what happens over the next little while. We have had customers call and ask us, we probably need to start talking to you because you guys are UAD compliant, and we're struggling with whoever might be servicing them. Operator: There are no further questions at this time. This concludes today's conference call. Thank you for participating. You may now disconnect.
Osamu Okuda: I am Okuda, President and CEO. I will provide a summary of our 2025 performance and the outlook for 2026. Please refer to Slide 5. Regarding our full year results for 2025, revenues, operating profit and net income all reached record highs on a core basis. Revenue reached JPY 1,257.9 billion, exceeding our initial forecast by 5.7%. This was primarily driven by higher-than-expected exports of Actemra and Hemlibra to Roche. Operating profit surpassed the JPY 600 billion mark for the first time, representing our ninth consecutive year of profit growth. Operating profit margin also hit a record high of 49.5%. Moving to our 2026 earnings forecast. We anticipate another year of record-breaking results. We are projecting a revenue of JPY 1,345 billion, up 6.9% year-on-year and core operating profit of JPY 670 billion, up 7.5% year-on-year, fueled by growth in domestic product sales, royalty income and other revenue streams. At the same time, we expect to maintain a high operating profit margin. The next slide illustrates our revenue trends. We expect revenue to increase by JPY 87.1 billion or 6.9% compared to 2025. Domestic product sales are projected to rise by JPY 25.6 billion as steady growth of new and mainstay products outweigh the negative impact of NHI price revision and generic competition. Overseas product sales are expected to remain flat year-on-year, while NEMLUVIO and Hemlibra will continue to grow. These gains will be offset by lower export unit prices and a decline in Actemra sales due to biosimilar entry. In contrast, other revenues is set to increase significantly, driven by higher royalty and profit share income from NEMLUVIO and orforglipron and Hemlibra alongside an increase in milestone payments. Next is Page 8. I will discuss our dividend policy. Reflecting our strong 2025 performance, we plan a year-end dividend of JPY 147 per share. This includes an ordinary dividend of JPY 72, up JPY 22 from our initial forecast and 100th anniversary commemorative dividend of JPY 75. Combined with the interim dividend of JPY 125, the total annual dividend will be JPY 272 per share. For 2026, consistent with our policy of targeting an average dividend payout ratio of 45% based on core EPS, we plan to increase the ordinary dividend by JPY 10 from 2025, bringing the forecast annual dividend to JPY 132 per share. Page 9. Moving on, I would like to review our 2025 management policies and priority items. Under strengthening RED functions and value creation, we successfully confirmed the proof of concept for NXT007. Furthermore, we accelerated our focus strategy by deciding to collectively discontinue 5 in-house development projects and making go/no-go decisions on 6 others. Open innovation also progressed steadily as evidenced by the conclusion of 12 new research and technical collaborations. We've seen maximizing value of life cycle management projects despite the delay in Elevidys launch, we achieved several key milestones. This includes the successful Phase III results and subsequent filings for orforglipron and continued growth of domestic mainstay and new products and strategic in-licensing of sparsentan from a third party. Regarding strengthening the foundation, while we faced some challenges in meeting our 2030 midterm environmental goals, overall progress is smooth. Key highlights include the rollout of our new HR system and the launch of a company-wide initiative to accelerate business transformation using AI. This slide details the progress of our R&D projects. In early in-house development, MINT91 and the midsized molecule of 001 transitioned to Phase I, while GYM329 for obesity moved into Phase II. Late-stage development also saw significant progress for products expected to drive future domestic growth, including the addition of sparsentan, the transition of trontinemab to Phase III and positive trial data for giredestrant. Additionally, we have successfully obtained regulatory approval for Elevidys. As our project portfolio expanded through the RED shift, we prioritized the selection and concentration of early-stage projects through collective discontinuations and rigorous go/no-go assessment. Consequently, the number of Phase I projects was reduced from 21 at the end of 2024 to 15, allowing us to focus our resources on high-priority candidates. With 9 projects in Phase II and 28 in Phase III, we continue to maintain a robust and healthy pipeline. 3 projects are currently under regulatory review with approvals expected within this year. Next, Page 11. We're going to review priority items. For strengthening the hemophilia franchise, development of Hemlibra auto-injector progressed, and we confirmed proof of concept for NXT007. For DONQ52, we confirmed biological proof of concept and are steadily progressing towards initiating Phase II studies. Regarding Elevidys, Chugai's first gene therapy product following a fatal case of acute liver failure in an overseas nonambulatory patient, we strengthened safety measures, while maintaining close coordination with relevant authorities. We aim for a prompt launch following reimbursement approval for ambulatory patients aged 3 to 7 years. Regarding the new HR system launched last January, over 20% of all employees volunteered and proportion of job postings in annual personnel transfers exceeded initial target, reaching over 60%. We'll continue to promote employee autonomy and career development. Page 12. We will explain progress in the first 5 years of our 10-year TOP I 2030 plan. Regarding the first pillar, realizing global first-class drug discovery, drug discovery projects and midsized molecule pharmaceuticals made steady progress. We also accelerated external partnerships and investments to drive further innovation, including CVF investments and introduction of RaniPill technologies. For the second pillar, building futuristic business model, we reorganized the value delivery functions of sales, medical and safety. On the production front, we successfully supplied products to meet rapid demand fluctuations and established our own production infrastructure for the future. Simultaneously, we advanced company-wide DX, including projects for the launch of ASPIRE. Page 13. Based on the progress over the past 5 years, we defined 5 targets for the latter half of TOP I 2030. To achieve annual launches of Chugai originated global products, we will enhance early-stage development capabilities, including pharmaceuticals, while collaborating with partnering functions in Japan, U.S., Europe and Singapore to pursue further drug discovery innovation. In production, we'll establish a stable supply system considering geopolitical risks to prepare for increased supply responsibilities accompanying the growth of in-house global products. Furthermore, in the newly entered CVM field and metabolism field, we will build systems and capabilities to enable advanced development, project management, safety, medical affairs and sales activities that respond to the distinct characteristics of this field and changes in the external environment, thereby maximizing the value delivered to patients. To achieve these goals, we will advance the utilization of AI across the entire value chain and drive business transformation. We present the management policies and priority items for 2026, the first year of [indiscernible] 5-year period. The management policies are enhancing RED functions and creating value, maximizing value of LCM projects and strengthening business foundations. The priority items are shown on the right. There are 4 of them. We'll continue to strengthen our hemophilia franchise by advancing development towards application for the Hemlibra auto-injector and initiating Phase II studies for NXT007. We also anticipate the highest number of domestic applications to date. These initiatives are expected to drive short- to medium-term growth in domestic sales. In particular, for Lunsumio, one of the products expected to achieve large-scale growth, we aim for early market penetration of combination therapy with Polivy. We also ensure the successful launch of our new ERP system, ASPIRE, and promote the company-wide utilization of AI. Now looking at the average annual trend in the number of Chugai originated global products launched since 2001, the number has steadily increased in the past. Particularly over the last 5 years, the number of launches of in-house global products have increased, and these products will drive profit growth in the short to medium term. Furthermore, we anticipate that achieving the annual launch of in-house global products target set in TOP I 2030 will lead to further profit growth thereafter. Moving forward, we'll continue to leverage Chugai's unique drug discovery approach to advance drug discovery, including midsized molecules and develop new modalities, thereby expanding the creation of innovative new drugs that only Chugai can deliver. Through these efforts, we'll achieve the TOP I 2030 goals and realize sustainable growth beyond them. The next slide, Page 16. Last but not least, regarding the opening of our U.S. partnering office. We opened the Chugai U.S. Partnering Office in South San Francisco, commencing operations this month. We will explore, identify, evaluate and promote collaborations with U.S. academia and venture companies. In addition to the U.S., we will strengthen our partnership network, connecting Tokyo, London and Singapore to advance global open innovation. Page 17, the last page. This shows the summary of what I said, and that concludes my presentation. Kae Miyata: We have the overview of development pipeline from Kusano. We apologize for the disturbance we had, and we will pause for a few moments at the very beginning of the session. I hope you will make use of that opportunity for a screen capture. Tsukasa Kusano: Thank you. I am Kusano. I am with Project and Lifecycle Management Unit. Please refer to Page 20 of the slides. This looks at our fourth quarter topics. I will go through these starting from first half. We secured 2 approvals. Tecentriq obtained an indication expansion for nresectable thymic carcinoma. Lunsumio was approved for a new subcutaneous injection formulation. On the filing side, there were also 2 key developments for our in-house product orforglipron. Eli Lilly has filed an application in the United States for its use as an obesity treatment. Regarding Tecentriq, we filed an application yesterday for its use as adjuvant therapy in MRD-positive bladder cancer. We also initiated 3 Phase III trials for Roche products; trontinemab for Alzheimer's disease; zilebesiran for hypertension and divarasib for first-line non-small cell lung cancer. Additionally, divarasib received orphan drug designation last December for KRAS G12C mutation-positive unresectable advanced or recurrent NSCLC. There were 2 pipeline divisions. Based on the data accumulated to date, we have decided to discontinue the development of BRY10 for chronic diseases. Furthermore, the development of Tecentriq for perioperative NSCLC was discontinued following the results of the IMpower030 trial. Details regarding recent publications, new contracts and investments by Chugai Ventures Fund are summarized on this slide. Moving on to the second page of topics. For our in-house product, PiaSky, we achieved positive results for Phase III trial for atypical hemolytic uremic syndrome. Orforglipron also met its primary endpoint in its switching trial following the administration of injectable incretins. Furthermore, I am pleased to announce that Enspryng met its primary endpoint in the Phase III trial for myelin oligodendrocyte glycoprotein antibody-associated disease. Based on recent trial data, we plan to file for Gazyva, giredestrant, ranibizumab and sparsentan within 2026. Regarding academic conferences, there were 3 presentations. I will provide a more detailed update on giredestrant later in this session. This is a summary of our major R&D events in 2025. The changes from the previous updates are underlined and shown in bold fonts. While a few items have been carried over to the next fiscal period, we consider these results to be generally highly satisfactory. In particular, looking back, the confirmation of POC for our in-house product, NXT007, a major milestone, and the decision to advance it to Phase III represents a significant progress. Next, I will discuss the major milestones for 2026. A key readout for our in-house portfolio is the Phase III trial of Enspryng for MOGAD, which, as recently announced, successfully met its primary endpoint. Regarding GYM329, we will now refer to it by its international nonproprietary name, INN, emugrobart. We plan to announce results for 3 Phase II trials for emugrobart this year. For SMA and FSHD trials, the data have already been collected, and we look forward to sharing the results with you soon. For Roche product, pivotal trial readouts are scheduled for divarasib, giredestrant, Lunsumio and sefaxersen. Regarding trial starts, we have listed those that have already been publicly disclosed. For NXT007, we have scheduled 3 Phase III trials, including head-to-head comparison with Hemlibra. We also plan to initiate a Phase II trial for DONQ52 in celiac disease. Now I will present the results from 2 trials for giredestrant. First is the evERA trial for hormone receptor-positive/HER2-negative breast cancer in patients previously treated with the CDK4/6 inhibitor. Although these results were presented at last year's ESMO Congress, I would like to review them with you today. Giredestrant is an oral selective estrogen receptor degrader or SERD designed to inhibit estrogen receptor signaling regardless of ESR1 mutation status. It is expected to show efficacy even in tumors that have developed resistance to conventional endocrine therapies, including previous generation SERDs. In, in vitro studies, it demonstrated higher cell proliferation inhibitory activity compared to other oral SERDs. Furthermore, the combination of giredestrant and mTOR inhibitor everolimus is expected to provide superior antitumor activity compared to monotherapy by simultaneously inhibiting 2 key signaling pathways involved in hormone receptor-positive breast cancer proliferation and endocrine resistance. In the evERA trial, this combination significantly improved investigator-assessed PFS, the primary endpoints in both the ESR1 mutation positive and ITT populations. The therapy reduced the risk of disease progression or death by 62% in ESR mutation positive group and 44% in the ITT population. These results suggest that giredestrant plus everolimus could become a valuable new oral treatment option for patients previously treated with CDK4/6 inhibitors, a segment with limited effective alternatives regardless of their ESR1 mutation status. [indiscernible]. Regarding the giredestrant, I would like to introduce lidERA study, which targeted adjuvant therapy for hormone receptor-positive/HER2 negative early-stage breast cancer. This data was also presented at last year's San Antonio Breast Cancer Symposium. Giredestrant demonstrates stronger growth inhibitory effects than estradiol E2 depletion or tamoxifen in ESR1 wild-type cell models with high estrogen receptor signaling activity and endocrine therapy sensitivity as shown by nonclinical data. Furthermore, in the Phase II study of non-adjuvant -- neoadjuvant therapy for early breast cancer, giredestrant demonstrated superior proliferation inhibiting effects compared to aromatase inhibitors or tamoxifen. Based on these results, an interim analysis of the lidERA comparing giredestrant monotherapy with standard endocrine therapy as adjuvant therapy for hormone receptor-positive/HER2-negative early breast cancer showed a significant improvement in the primary endpoint of invasive disease-free survival or IDFS, compared to standard endocrine therapy. In the interim analysis, this reduces the risk of recurrence or death by 30%. These results demonstrate that giredestrant offers the first benefit in approximately 20 years for a new endocrine therapy in early-stage breast cancer, demonstrating the potential to become the new standard of care for adjuvant therapy in hormone receptor-positive/HER2-negative early-stage breast cancer, which accounts for over 70% of early-stage breast cancer cases. Based on evERA and lidERA studies, we plan to file for approval for each this year and look forward to delivering new treatment options to patients. Next, we'll introduce 3 examples of our efforts to promote open innovation for expanding our drug discovery engine. The first is our collaboration with Gero. Gero excels at identifying targets for age-related diseases using a platform that combines physics-based machine learning models with human dataset analysis. By combining Gero's identified targets with our proprietary antibody engineering technologies, we aim to create first-in-class therapies for age-related diseases. The second is Araris. We have entered into a joint research and license option agreement with Araris. Their AraLinQ Technology features high stability in blood, preserves the inherent properties of antibodies, including pharmacokinetics and can carry 2 or 3 payloads. By combining this with our antibody technologies, we aim to create highly differentiated ADCs that achieve a broader therapeutic window and enhanced efficacy. The third is Rani Therapeutics. The company possesses technologies enabling oral administration of biological products featuring painless drug delivery within the intestinal tracts, high drug delivery efficacy and bioavailability comparable to subcutaneous injections. By combining this, again, with our various antibody technologies, we also aim to realize biological products with high convenience through weekly or monthly oral administration with efficacy comparable to intravenous, subcutaneous injections. We will accelerate innovation by collaborating with partners possessing target discoveries and modality technologies that synergizes with our own. Now this slide shows market sales for major projects. Global sales are based on guidance from Roche or Galderma. There are no updates from previously disclosed figures. Within the domestic sales, the upper range section represents our in-house products, while the lower blue section represents Roche products. This slide shows the status of our portfolio across each modality. We continue to hold a robust pipeline of in-house developed projects, all progressing steadily. We're also pleased to announce that we have named our drug discovery technologies for midsized molecules, our third pillar of focus, SnipeTide. Snipe embodies the characteristics of our midsized molecules, high precision binding to intracellular targets via oral administration. Tide evokes the peptides that form the basis of this technology, while also expressing our aspiration for it to become a new trend in peptide drug discovery. We'll continue to focus on the continuous creation and development of our proprietary products or in-house products, including midsized molecule drugs to address unmet medical needs. Last but not least, our projected submissions. Projects marked with light blue stars are newly added ones. Projects marked with green stars have changed since the previous update. Specifically, for giredestrant, we are advancing the application for adjuvant therapy based on the lidERA study that I mentioned to this year. The following slides are attached as reference materials. That concludes my presentation. Thank you. Kae Miyata: Next, we will have from Taniguchi, presentation on FY 2025 consolidated financial overview. We will pause at the very beginning of the presentation. So those of you who wish to take a capture, please use this opportunity to do so. Iwaaki Taniguchi: Hello. I'm Taniguchi. I look forward to working with you today. I would like to describe the full FY 2025 consolidated financial review. As was mentioned by Dr. Okuda, I am pleased to report that cumulative revenue through the fourth quarter reached JPY 1,257.9 billion, up 7.5% year-on-year. Core operating profit also grew to JPY 623.2 billion, a 12.1% increase. Now I will provide details of these results. First, on the revenue. The pharmaceutical product sales rose to JPY 1,077.8 billion, an 8.0% increase year-on-year. By region, domestic sales were JPY 472.4 billion, up 2.5%. We had strong performance from new and mainstay products, effectively offsetting the impact of generic penetration and NHI price revisions. Overseas sales reached JPY 605.4 billion, up 12.8%, continuing to benefit from robust exports of mainstay products through Roche. Those are for product sales. Other revenues, including royalties here, increased by JPY 7.4 billion year-on-year to JPY 180.1 billion. While milestone income from third party declined compared to previous year, this was offset by an increase in Hemlibra royalties from Roche, resulting in an overall year-on-year gain. Turning to expenses. Cost of sales was JPY 351.5 billion, up 4.0% year-on-year. But if you look at the cost ratio, Actemra was relatively high, ratio has dropped slightly from previous year. So negative -- cost of sales ratio for pharmaceutical products improved by 1.3 percentage points to 32.6%. Regarding SG&A expenses, we successfully maintained these at JPY 103.2 billion, flat more or less year-on-year by driving efficiency to offset rising prices and labor costs. R&D expenses rose by JPY 3.2 billion to JPY 180.1 billion, primarily reflecting the impact of yen's depreciation. Other operating income saw a modest JPY 2.7 billion decrease, mainly due to lower gains from product transfers. As a result, operating profit rose by JPY 67.1 billion to JPY 623.2 billion, but the operating profit margin expanded 2 percentage points to 49.5%. Net income after taxes reached JPY 451.0 billion, a 13.6% increase. Next, on the changes from last year in pharmaceutical sales. Starting with domestic at the very bottom, domestic oncology sales were JPY 246.5 billion, a marginal decrease of 0.5% compared to the previous year. Specifically, steady growth in the new product, Phesgo more than offset the decline in Perjeta sales. Additionally, while Lunsumio is off to a strong start, Avastin sales declined due to generic competition. Specialty sales grew by 5.8% to JPY 255.8 billion. There was, yes, NHI price revisions, but in addition to mainstream products, Hemlibra, Actemra and Enspryng and Vabysmo alongside new products PiaSky, all delivered steady growth. Overseas pharmaceutical sales grew 12.8% to JPY 68.6 billion, primarily driven by strong exports of Hemlibra and Actemra. Next summarizes full year export status to Roche of Hemlibra and Actemra. First, Hemlibra. Fourth quarter sales, the final quarter. If you look at that compared to last year, rose by JPY 35.3 billion year-on-year. If you look at the full year cumulative sales, that reached approximately JPY 20 billion above our initial JPY 318.6 billion forecast. Actemra, since biosimilar penetration has been slower than expected, if you look at just the fourth quarter, we have seen -- well, leading to JPY 8.6 billion year-on-year increase on the fourth quarter. Consequently, for the entire year, Actemra forecast of JPY 123 billion was exceeded by approximately JPY 30 billion. So this was increased by about JPY 30 billion. Next, on the changes, this is like a factor analysis and changes in the operating profit. Starting with the Domestic segment on the left. As noted, there has been an impact of NHI price revision to drive higher operating profit. In the Overseas segment, the more we have sales in the emerging markets, the unit price will become lower. So volume growth significantly outweighed the impact of lower export unit prices, combined with favorable foreign exchange movements, these factors will keep contributing to the growth of operating profit. The revenue also contributed to the profit increase, primarily through higher Hemlibra royalties. This is the breakdown of the increased profitability of JPY 672.1 billion. On a quarterly basis, we are comparing P&L trends. Because of the export timing, there will be more ups and downs. If you focus more on the sales, this is by quarter changes. As you can see, the export to overseas, again, because of timing of the product, disease timing, there will be ups and down. Next is the FY 2025, how the outcome actually landed. So how much of a gap there was to what we have expected. As you can see, both the sales and the profit. And for each segment, we have exceeded the projection. So it was greater than 100%. For the expenses, there were some pluses, but it's been slightly lower. So that led to overachieving the operating profit. This is the byproduct sales as compared to the forecast at the beginning of the year. And the inventory situations have changed and there was slight negative, but everything else, like Actemra overseas, Hemlibra overseas and domestic. Overall, compared to our forecast, there was a positive number. Next page is the impact of foreign exchange rate fluctuations and the performance. The actual rate was JPY 161.2, including the forward contracts, which is the basis for the sales recording and JPY 173.57, so JPY 12.50 depreciation. So there was an impact in terms of revenue, JPY 49.6 billion plus and JPY 44.2 billion operating profit on the positive side. And this is the actual rate of pricing compared to the forecast rate. So 80% of the contracts are hedged in the previous year. So 20% are unhedged and use the actual rate, and there's change in exchange rate. So as a result, in 2025, there was a further depreciation of yen. So JPY 5.6 billion in sales and JPY 3.6 billion in plus for operating profit was recorded. And the balance sheet, JPY 2,468.6 billion, which is JPY 260.2 billion increase. There was a working capital increase and also net asset increase because of investments. And net assets increased by JPY 124.2 billion. Compared to total assets, there was a slight lower increase, but there was some interim payment of dividends and 82.1%, which is shareholders' equity ratio, which is over 80%. And here, you're talking about cash status. And last year, at the end of 2024, JPY 996.3 billion, but now there was a decrease of JPY 160.6 billion. And operating cash flow, JPY 452.1 billion, there was further positive size by income tax payment and dividend payments and JPY 170 billion for special dividend was included. So cash increase was slightly suppressed. In total, this shows the trends in ROIC and ROE indicators of capital efficiency. We have been focusing on ROIC so far. But depending on the company, the definitions of ROIC may vary. So in our case, the denominator doesn't include cash. So ROIC has been at the higher level, 43.9% for this year, which is 1 percentage point increase from year-on-year. And as for ROE, which is attracting more attention and definitions are actually universal from company to company for denominator and numerator and 22.1%, which is an increase from the year before. So this is ROE that is way exceeds the capital cost. And this is -- this fiscal's earnings forecast. As Okuda said, as for revenues, 6.9% increase to JPY 1,345 billion. Core operating profit to increase by 7.5% to JPY 670 billion. That is our forecast. Domestic sales are expected to grow despite the headwinds from drug price revisions and generic penetration. We're expecting JPY 25.6 billion growth because of new products growth, so 2.2% growth, which is exceeding the last year's growth. As for overseas exports for products for Hemlibra and NEMLUVIO, they are expected to increase, but there will be further marked impact from the biosimilars in Actemra. So there is JPY 3.4 billion, slight decrease is expected. But for the other revenues, JPY 64.9 billion increase is expected from the previous year, but there will be some foreign exchange impact. The cost side is not going to change that much. So there is going to be a support for profit growth. And this is the slide for the pure product sales aside from the other revenues. And Actemra is significantly negative and Avastin, for various reasons, will remain in the negative territory. But Lunsumio on the other hand, which is a new product, is expected to grow significantly. And Hemlibra overseas will remain on the growth trajectory. And this -- also, this is a core and noncore adjustment. So previously, the intangible asset impairment and also restructuring costs and ERP business foundation system introduction and restructuring costs. These are actually items for core and noncore adjustment items. But in the third quarter, there was also discontinuation of 5 development products that will be recorded. And this is the capital investments currently approved internally. And last page is just for your reference. We have attached details regarding the status of our 5 Chugai-originated global products. That concludes my presentation. Thank you for your attention. Kae Miyata: We will now move on to a Q&A session. We will also have Hidaka, who heads the sales and [indiscernible] who is also representing marketing and the sales to join. [Operator Instructions]. The content of the Q&A session will be uploaded later together with the presentation materials. We would like to take questions first from those in the room, in the venue, and then we will take questions by Zoom webinar. [Operator Instructions]. Kazuaki Hashiguchi: I would like to, first of all, ask about the Hemlibra. And you said that on the core base, this grew by double digit. And based on foreign currency denomination, I think it has also increased. But for this term, if you use that, it is negative, what are your thoughts about the volume as well as unit price? How will this change from last year? And for volume, I would like to know what your forecasts are for end user sales and the fluctuations in inventory in Russia. Unknown Executive: Thank you very much for the questions. For FY '26 on a whole, you are correct. We expect a positive number. But if we do elemental breakdown analysis at the point in time -- as for volume and the foreign exchange impact, we are not disclosing this at the moment. Now at the JPMorgan conference, they talked about the single-digit growth, so positive growth, which means that we would like to replenish the inventory through our export on a whole. Hemlibra guidance number has been as disclosed. Kazuaki Hashiguchi: The second question, in Dr. Okuda's presentation, auto-injector filing for Hemlibra has been mentioned several times. I believe that this is a very important agent in terms of competitiveness. When do you expect this to become available? Is it very close? Or do you still have some issues that needs to be resolved before that can take place? I would like to know more about the progress of this product. Unknown Executive: Thank you very much for asking about Hemlibra AI. We are moving along very steadily in terms of development. We are not disclosing the dates, but we would like to provide the Hemlibra AI to the patients as quickly as possible. So we are doing everything possible to move things forward. Unknown Executive: The person next to him please. Unknown Analyst: [ Yokoyama ] from [ Nikkei Medical ]. Giredestrant is what I like to ask about. So many companies are developing oral SERD drugs, but how do you look at the differentiation from competitors? The inavolisib is going to be a set of those, and this is going to be significant with the combination with inavolisib in breast cancer, but there is no schedule for filing for inavolisib. How do you see this? Unknown Executive: So giredestrant question. Thank you very much for your question, Yokoyama-san. Other SERD products comparison with those, as I said in the slide, in the in vitro test -- trial, giredestrant compared to other SERD oral product, proliferation suppression inhibitory activities were shown. And in the lidERA study, giredestrant and everolimus combination therapy compared to the conventional standard of care, ESR1 positive patients in addition to that population, ESR1 non-mutant population, there was a PFS that is statistically significantly achieved. So ESR -- regardless of ESR1 mutation, there was efficacy that was proven in the SERD oral product. So the CKD inhibitor -- previously treated with CDK inhibitor patients had a bad prognosis. So there's high hopes on that. And giredestrant and everolimus combination therapy, if you look at this, they are both oral drugs. So there is no injection to be required. So there's high convenience and 2 different signal pathways can be inhibited simultaneously. So compared to monotherapy, there is a higher antitumor effect expected and also adjuvant -- compared to endocrine therapy, standard of care at the interim analysis, primary endpoint was achieved. And for early breast cancer as a new endocrine therapy, this is the first one in the last 20 years, new benefit was brought about. So this could become an adjuvant standard of care. So there's a high hope. And more than 70% of early breast cancer is the target for this study. So we are hoping that giredestrant can contribute to many patients. And as for inavolisib, there is one study with a combination with inavolisib by Roche. But at the moment, the combination of giredestrant and inavolisib, there's no plan for a study with that. Unknown Analyst: But with the study of giredestrant and everolimus, what sort of strategy can work out will be something that we work with Roche. So that's not my question. ESR can be covered, but CDK4 and 6 has to be suppressed. But -- there's studies overseas, but Japan has not participated, but Phase II study will be done in Japan, and there will be a bridging study. And then at that timing, the inavolisib can be used for the oral SERD study. So when will it be? Unknown Executive: As for inavolisib, as you said, Phase I study is now underway, and there will be bridging with overseas study data to file for approval. But at this moment, I'm sorry, but we're not in a position to disclose that timing. Unknown Analyst: So for the timing of filing has not been disclosed. And what you filed for yesterday, the bladder cancer, MRD-positive patients. So for all comers, nivo can be used and [indiscernible] has been presented as part of the data. And so to other -- compared to other products, what will be the superiority of this drug? Unknown Executive: I'm not sure who this is addressed to. So Tecentriq adjuvant, the muscular invasive bladder cancer. Thank you for your question. And compared to PFS, in OS, the primary and secondary endpoint, there was a statistically significant benefit that was proven. And in the CDR monitoring, the atezolizumab or we can identify patients that can benefit from atezolizumab. There could be avoidance of overtreatment or personalized medicine can be done with the CDR approach. So the patients with lower risk can avoid overtreatment. That will be the benefit. Unknown Executive: We now would like to invite questions who are joining us through Zoom webinar. [Operator Instructions]. From JPMorgan, Wakao-san, please. Seiji Wakao: Wakao with JPMorgan. The first question -- first of my questions is related to the royalty other than coming from Roche and also other revenues. Royalty from other than Roche is both for orforglipron and nemolizumab sales or increase thereof, I believe, am I right? If that is the case, orforglipron has not been approved. So I would like to know how you are incorporating that. And we also expect the sales to grow considerably. I would like to have you comment on this. Iwaaki Taniguchi: This is Taniguchi speaking. Thank you Wakao-san. Revenue stream from other than Roche, yes, is expanding in '26. And you are absolutely right in your understanding. Vast majority comes from those 2 product royalties. That's true. But other sales revenue, in general terms, this is like milestone payment. Seiji Wakao: Now as for the content, this still is not disclosed, including what we are filing today, we have introduced several assumptions and have reflected in what we are saying. I would like you to tell us about how you incorporate the orforglipron. I think because the product is not out there, you must be exercising conservatism? Unknown Executive: Yes, for anything that is uncertain, our basic thinking is to make sure that we will use reasonable assumptions. Seiji Wakao: Second question is about 45% dividend payout ratio. The operating profit in the mid- to long term will lead to greater profit and you are focused more on ROE, which means that at some point in time in the future, you will raise payout ratio. There are no reasons for you not to. Are you discussing this internally of raising the payout ratio to above 45%? And if you have decided no, why? Unknown Executive: Thank you Wakao-san for that question. We have provided last year at this timing, our capital allocation policies, and we wanted to target 40% stably. And so dividend payment included is based on that. For the time being, we have no plans of revising or reviewing this. And I'm sure you understand that. Now the question is, will we ever consider revisiting? Are we not going to revise this ever? Well, we cannot say anything definitive at this point in time. We'll be looking at the objectively our situation as well as our financial conditions. Now ROE, yes, we are looking at our cost of capital, and we have disclosed this, we consider to be about 7%, which means that our ROE is well above that. So it's not that we are going to make active adjustment of the capital. We don't think that we are at the situation where we need to boost ROE today. In any case, we should continue to maintain and try to strive for improvement of capital efficiency. Kae Miyata: Muraoka-san, MUFJ Securities. Mr. Muraoka, please. Shinichiro Muraoka: I'm Muraoka from Morgan Stanley. My question is also addressed to Taniguchi-san for the forecast or guidance for a more detailed way of interpretation. The Slide 7, the forecast by product. So overseas and others, there will be an increase of JPY 70 billion, which is significant. And NEMLUVIO export will probably the biggest contributor. And if that's the case, then the royalties from entities other than Roche, the increase of JPY 730 billion compared to NEMLUVIO also would be larger. That's our guess. Is that something that is valid? Iwaaki Taniguchi: Thank you very much for your question, Taniguchi speaking. For the breakdown of royalties for the portions that are not from Roche, those 2 that you mentioned is overwhelmingly important. That's what I can tell you. But as for the allocation between these 2, at the moment, we cannot answer that question. So also orforglipron, it has not been launched yet. And you have to look at the timing of launch, which is quite difficult discussion. So we remain undisclosed for the allocation. As for exports. As for NEMLUVIO exports, so this was recorded in the previous fiscal year. But for this fiscal year, we still continue to expect growth, and that has been incorporated in our guidance that we provided at this time. Does that answer your question? Shinichiro Muraoka: So overseas others, JPY 32.6 billion, JPY 17 billion year-on-year, it is mostly from NEMLUVIO. Iwaaki Taniguchi: Yes. Shinichiro Muraoka: And also the breakdown of this Page 7, the domestic and specialties and others sales, JPY 33.3 billion year-on-year growth of JPY 12 billion. Tamiflu is not going to grow. So what's included in this number? Earlier, you talked about P&L cost of goods -- cost of sales ratio that is assumed to increase. So maybe the products that are included here have higher cost of sales. So those that are not in the pipeline, but there is something that you are going to start to sell. That's my personal guess, but am I wrong? Iwaaki Taniguchi: For the cost of sales ratio, compared to '25, in 2026, there's a positive growth. The background, there is a lot of factors. But if you compare domestic and overseas sales, the cost of sales ratio is much higher in domestic products. So this is related to products. So overseas, there's JPY 3.4 billion decline, but JPY 20 billion increase for domestic sales. So domestic product ratio has increased, and that has brought up the cost of sales overall. As for more details, it is not disclosed, but you mentioned Tamiflu. There are various factors involved, products that are not mentioned and that are expected to grow this year that are included in others. Shinichiro Muraoka: So that those are expected to grow are not in the pipeline or the filing schedule on Page 39. Those are not included in those schedules? Iwaaki Taniguchi: No, no, no. That's not the case. There are some that are included. So -- but all that are expected to be filed are anticancer drugs. Shinji Hidaka: Well, Hidaka from sales speaking. As you said, there's still uncertainty, a lot of uncertainty. But Elevidys, gene therapy sales are incorporated to some extent. And maybe that would satisfy your question. Kae Miyata: Next, from Citigroup, Yamaguchi-san, please. Hidemaru Yamaguchi: Yes. At the very beginning about the update of midterm business plan. You talked about the production efficiency of blockbusters have improved from 0.3 to 0.6. My understanding, of course, is you are aiming for 1. Although there are different risks based on current pipeline, do you think that you are achieving what you can achieve? So what are your thoughts about this 0.6 vis-a-vis 2026 and 2030? Osamu Okuda: This is Okuda speaking. Thank you, Yamaguchi-san, for your questions. So you're looking at this slide, right? Looking back, in the 2000s, it was 0.1. So 1 per 20. In the 2010, it tripled. And in the 5 years since we began the Strategy 2030, we have actually launched 3. You talked about, Yamaguchi-san, blockbusters, but this is about global in-house original product being successfully developed and launched. We are focused on antibody plus a small molecule that we have achieved launch targets between 2026 through to 2030. So in the latter half of TOP I 2030, our strategy is to further increase this. As we talk about midsized molecule, middle molecule, the white will gradually become more purple. If we succeed beyond 2031, this could become like 1 every year or greater global launch that will further drive growth or even better than that. Hidemaru Yamaguchi: With increased modality, there's this growth will increase because of the midsized module. Unknown Executive: Yes, we will look at antibody, small molecule, mid-molecule and our imbalance. And we're talking about other modalities. We were discussing this in the TOP I 2030 strategy discussion. We hope to achieve multi-modalities. So we want to increase that. Hidemaru Yamaguchi: The other question is giredestrant, which you have explained in length, and we have high expectations. What is your peak sales forecast? Or is it too early? Unknown Executive: Well, thank you for that question. For giredestrant, we are not disclosing that. Hidemaru Yamaguchi: What would be the TAM in Japan? So the targeted market size. Number of patients or the existing market size is probably quite large, but I would like to know which segment you are targeting? If you don't have that information, if you could provide information later? Unknown Executive: Yes, we would like to confirm and get back to you. Kae Miyata: From Macquarie Capital, Mr. Tony Ren, please. Tony Ren: The first question I would like to ask is about your CapEx. You commented on the Araris partnership for ADCs, right? My understanding is that the CapEx can be very intensive for ADCs. In fact, one of your peer companies recently announced a very large CapEx project for their ADCs. So I just wanted to see how are you thinking about the CapEx related to the ADC drugs? Are you building the production capacity internally? Are you using CDMOs? Are you using facilities from Roche? Is this included in your CapEx budget for 2026? So that's my first question. Iwaaki Taniguchi: Thank you very much for your question, Mr. Tony Ren. As for the CapEx, for the current status, Araris and Chugai Pharmaceutical are now engaged in joint research. So we haven't discussed the CapEx. We just engaged in joint research. Therefore, as for the 2026 in the CapEx budget, this was not included. Tony Ren: Okay. Very good. My second question is on the development of your GYM329/emugrobart in obesity. So the [indiscernible] Phase II trial of emugrobart in obesity. If we look at the clinicaltrials.gov, the primary completion is August 2026. Can you confirm that you will be releasing Phase II results roughly around that time as well? Unknown Executive: GYM329 Phase II trial. Thank you very much for your question on that. So at the outset, as I said in the presentation, the result of the clinical study is going to be released by the end of this fiscal year. Kae Miyata: [indiscernible] from UBS Securities, we have [indiscernible]. Unknown Analyst: I'm [indiscernible] with UBS. We congratulate you on an excellent performance. In other revenues, this royalty or milestone is -- it includes something -- some items that are outside of Chugai's control. If the actual revenue, other revenue, does that meet your target? What are some avenues that will change or don't we need to worry about this because you are being very conservative? Iwaaki Taniguchi: Thank you very much [indiscernible], I am Taniguchi. The latter, we have exercised conservatism. But if it is so unexpected happen, we cannot negate the possibility that something will happen outside this. But how this will be absorbed within the entire portfolio? This is something that we will be communicating to you in the quarterly earnings call. So we will keep you appraised or updated within the project planning. Unknown Analyst: The second question has to do with biological POC of DONQ52. And I would like you to supplement my understanding. What does this mean? In Phase I study like PBMC, like peripheral blood monocytes? Or are you looking at that kind of response at the cellular level? Unknown Executive: Thank you very much for that question about the DONQ52. We have conducted what we call Phase IC study. This is celiac disease patients who are stable after administering DONQ52 in such patients for 3 days, we challenge them with [indiscernible]. And gluten-dependent immune response is what we are trying to induce. And then we give DONQ52 to see if gluten-dependent immune response can be suppressed. In this study, in addition to PK, we'll be looking at pharmacological action. T-cell activation suppression due to gluten ingestion is also looked into as well as other biomarkers. Unknown Analyst: What was the outcome of the 3-day challenge study? Unknown Executive: We are now in the process of analyzing this. And when we are ready to publish data, we would like to do so. Kae Miyata: Next, from SMBC Nikko Securities, Mr. Wada, please. Hiroshi Wada: Wada from SMBC Nikko Securities. So I'd like to also ask about DONQ52. So licensing out schedule, how do you look at that schedule and development. As you saw, Phase II study is going to be initiated. So as I heard, this is going to be licensed out to other companies. I think that is the main strategy. Maybe it would be the Phase II timing that you're going to do that. But this is going to be -- Phase II is going to be performed by your own company on your own. So what will be the timing of Phase II as you see it? Unknown Executive: So Wada-san, thank you very much for your question on DONQ52. For licensing out strategy and timing of individual products, we cannot answer those questions. But the Phase II study that we announced this time would be performed by Chugai Pharmaceutical. Just for clarification. So in the Roche pipeline, this is in Phase I. Hiroshi Wada: So you're not aligned with Roche on this particular product. Is that correct? Unknown Executive: Probably. This is not described in the Roche material or pipeline. We don't have the information that they have introduced this. So in the Roche pipeline, Chugai's projects are also described, but this is -- this doesn't show that they have licensed in our product. As Yamaguchi-san asked Page 15, TOP I 2030, 1 per year global product launch that is target. And I'd like to ask about the strategy of research and development. So from 2011 to 2020, 0.3 per year, but '21 to '25 0.6 per year, it has doubled. But R&D around 2015, JPY 80 billion was spent. And in '23, JPY 160 billion. So this was doubled as well. Hiroshi Wada: So that's why the number of launches has been increased. I understand that. But between now and 2030, if you are to launch 1 per year, then 1.5x R&D expenses will be required. So in order to achieve on 1 launch per year, what is your expectation on the R&D expenses or spending? Unknown Executive: Okuda will answer that question first. And then for the future R&D investments, I would like to ask Taniguchi to answer the question. Osamu Okuda: So the R&D expenses and number of launches, whether they are correlated or linked, it's not necessarily the case. So the number of launches, what would be the function of this? So R&D -- aside from R&D, but the cycle time of development, the speed of development and probability of success, those will be significant factors. So there is a time line between R&D activities and launch of the products. So there is not that simple correlation. So as a principle for R&D activities, high-quality products have to be developed. So this has been the case in the past, but with a higher probability of success, we came up with the molecule in the Phase III development. The first indication has achieved 100% success probability. So that quality principle has to be maintained or expanded while engaged in this drug development. So R&D expenses and number of launches are not directly related necessary. But on the other hand, if you look at R&D expenses, it includes the personnel cost, and this is a very important resources to drive research. So this R&D expenses have been increased in accordance with the profit increase. So I'd like to ask Taniguchi to add up. Iwaaki Taniguchi: Compared to 2025, 5.5% increase was recorded. That was a fact. But as Okuda said -- so the productivity increase is something that we give priority and that is also true for R&D by utilizing AI and go or no-go decision will be further refined. So we are hoping to enhance productivity. So it doesn't necessarily mean that R&D expenses are going to keep going up rapidly. And the target for percentage of R&D expenses, there is no such figure that we have in mind. But as the projects make progress, there could be increase in development expenses. That could be the one that we might end up with, but we're also keeping an eye on productivity and efficiency so that we can maximize our efforts. Kae Miyata: Next from Bernstein, Sogi-san, please. Miki Sogi: About Hemlibra. I have two questions. The first question is related to overseas sales. This time in 2026, the assumption on Swiss franc, I mean, you are expecting 6% depreciation of the yen. If that is your assumption, Hemlibra, I understand the plan is to decrease. Of course, sales in the international market, I mean, by Roche or by Hemlibra going up, you said will lead to lower unit price. Even if the volume increases, the lower unit price will have greater effect. So you're selling more, but is it possible that the yen amount exports come down? Is that possible? Iwaaki Taniguchi: Thank you very much, Sogi-san, this is Taniguchi speaking. Hemlibra forecast for this year, and you're asking about the breakdown, which, of course, is related to unit price, volume and foreign exchange factors. I would like to keep from giving you any responses in detail, but it is true that there has been a foreign exchange effect, positive. What about the net of that? Then we have the unit price multiple wide by volume. Unit price actually has to do with the weighted average in the market previous year applied. So we will be looking at market price and that sort of decides what the export price is going to be. Volume is something that's updated every term in emerging markets, not just the emerging markets, but it is possible that volume increase globally. This has happened in the past. So there's no reason to think that this will not happen in the future. And that multiplied by unit price will give us the results. Miki Sogi: Also about Hemlibra. And this is related to auto-injector. By launching this, what level of upside do you expect? Hemlibra, I believe, has penetrated the market. Uptake has been great. So who are the patients that have not been able to capture without the auto-injector? And I also would like to understand what Roche has in mind related to this. Unknown Executive: Well, I would like to respond. Auto-injector development for Hemlibra, we have been striving with the aim of raising convenience of our patients. If we have auto-injector of Hemlibra, we expect the uptake to increase, but [indiscernible] competition could come up with a very convenient device. So please do understand that we are being defensive -- we're taking a defensive approach to that, too. Kae Miyata: Because of time, we would like to take one last question from Goldman Sachs, we have Ueda-san. Akinori Ueda: Ueda from Goldman Sachs securities. The first question is about the U.S. partnering office that has been launched. So at the moment, in the previous activities, what were the challenges that you faced to trigger this? And what kind of effects that you're expecting out of this initiative? Unknown Executive: Thank you for the question. Well, as for U.S. partnering office, this is located in South San Francisco and the West Coast, and it just started operation. So in Silicon Valley, there are many bioventures and universities in the U.S. There are numerous universities located there. And of course, we can keep communication from Japan, but by physically locating in the area, bioventures and academia and venture capitals, we will have closer communication with those parties so that we can achieve open innovation. The drug discovery capabilities increase is the primary purpose, but there will be effective results that we can expect. So that's why we've decided to locate our office in West Coast or South San Francisco. But ahead of this, there was a corporate venture capital that was established in 2023 in Boston, and it's been already 2 years since the start of the operation. And we went into venture communities and from venture companies or start-up companies, there was a lot of information that we received. So as the technology reaches maturity, we could have a joint collaboration with those, and there's a link there as well. But it's not just in the U.S., but in Singapore, there is a similar function. And there's also a partnering function in London and Chugai headquarters, Tokyo headquarters, has this function. So by establishing a global partnering network, we are hoping to increase our drug discovery capabilities. That's our intention. Kae Miyata: Thank you very much. With that, we would like to conclude Chugai Pharmaceutical fiscal year 2025 financial results presentation. We apologize for the difficulty that you experienced at the first half of the presentation. We will provide backup information via web. If there are any questions that you were not able to ask, please do contact us at the corporate IR. The phone number as well as mail address is shown on the last page of the presentation material. Thank you very much once again for joining us, taking time out of your various schedules.
Osamu Okuda: I am Okuda, President and CEO. I will provide a summary of our 2025 performance and the outlook for 2026. Please refer to Slide 5. Regarding our full year results for 2025, revenues, operating profit and net income all reached record highs on a core basis. Revenue reached JPY 1,257.9 billion, exceeding our initial forecast by 5.7%. This was primarily driven by higher-than-expected exports of Actemra and Hemlibra to Roche. Operating profit surpassed the JPY 600 billion mark for the first time, representing our ninth consecutive year of profit growth. Operating profit margin also hit a record high of 49.5%. Moving to our 2026 earnings forecast. We anticipate another year of record-breaking results. We are projecting a revenue of JPY 1,345 billion, up 6.9% year-on-year and core operating profit of JPY 670 billion, up 7.5% year-on-year, fueled by growth in domestic product sales, royalty income and other revenue streams. At the same time, we expect to maintain a high operating profit margin. The next slide illustrates our revenue trends. We expect revenue to increase by JPY 87.1 billion or 6.9% compared to 2025. Domestic product sales are projected to rise by JPY 25.6 billion as steady growth of new and mainstay products outweigh the negative impact of NHI price revision and generic competition. Overseas product sales are expected to remain flat year-on-year, while NEMLUVIO and Hemlibra will continue to grow. These gains will be offset by lower export unit prices and a decline in Actemra sales due to biosimilar entry. In contrast, other revenues is set to increase significantly, driven by higher royalty and profit share income from NEMLUVIO and orforglipron and Hemlibra alongside an increase in milestone payments. Next is Page 8. I will discuss our dividend policy. Reflecting our strong 2025 performance, we plan a year-end dividend of JPY 147 per share. This includes an ordinary dividend of JPY 72, up JPY 22 from our initial forecast and 100th anniversary commemorative dividend of JPY 75. Combined with the interim dividend of JPY 125, the total annual dividend will be JPY 272 per share. For 2026, consistent with our policy of targeting an average dividend payout ratio of 45% based on core EPS, we plan to increase the ordinary dividend by JPY 10 from 2025, bringing the forecast annual dividend to JPY 132 per share. Page 9. Moving on, I would like to review our 2025 management policies and priority items. Under strengthening RED functions and value creation, we successfully confirmed the proof of concept for NXT007. Furthermore, we accelerated our focus strategy by deciding to collectively discontinue 5 in-house development projects and making go/no-go decisions on 6 others. Open innovation also progressed steadily as evidenced by the conclusion of 12 new research and technical collaborations. We've seen maximizing value of life cycle management projects despite the delay in Elevidys launch, we achieved several key milestones. This includes the successful Phase III results and subsequent filings for orforglipron and continued growth of domestic mainstay and new products and strategic in-licensing of sparsentan from a third party. Regarding strengthening the foundation, while we faced some challenges in meeting our 2030 midterm environmental goals, overall progress is smooth. Key highlights include the rollout of our new HR system and the launch of a company-wide initiative to accelerate business transformation using AI. This slide details the progress of our R&D projects. In early in-house development, MINT91 and the midsized molecule of 001 transitioned to Phase I, while GYM329 for obesity moved into Phase II. Late-stage development also saw significant progress for products expected to drive future domestic growth, including the addition of sparsentan, the transition of trontinemab to Phase III and positive trial data for giredestrant. Additionally, we have successfully obtained regulatory approval for Elevidys. As our project portfolio expanded through the RED shift, we prioritized the selection and concentration of early-stage projects through collective discontinuations and rigorous go/no-go assessment. Consequently, the number of Phase I projects was reduced from 21 at the end of 2024 to 15, allowing us to focus our resources on high-priority candidates. With 9 projects in Phase II and 28 in Phase III, we continue to maintain a robust and healthy pipeline. 3 projects are currently under regulatory review with approvals expected within this year. Next, Page 11. We're going to review priority items. For strengthening the hemophilia franchise, development of Hemlibra auto-injector progressed, and we confirmed proof of concept for NXT007. For DONQ52, we confirmed biological proof of concept and are steadily progressing towards initiating Phase II studies. Regarding Elevidys, Chugai's first gene therapy product following a fatal case of acute liver failure in an overseas nonambulatory patient, we strengthened safety measures, while maintaining close coordination with relevant authorities. We aim for a prompt launch following reimbursement approval for ambulatory patients aged 3 to 7 years. Regarding the new HR system launched last January, over 20% of all employees volunteered and proportion of job postings in annual personnel transfers exceeded initial target, reaching over 60%. We'll continue to promote employee autonomy and career development. Page 12. We will explain progress in the first 5 years of our 10-year TOP I 2030 plan. Regarding the first pillar, realizing global first-class drug discovery, drug discovery projects and midsized molecule pharmaceuticals made steady progress. We also accelerated external partnerships and investments to drive further innovation, including CVF investments and introduction of RaniPill technologies. For the second pillar, building futuristic business model, we reorganized the value delivery functions of sales, medical and safety. On the production front, we successfully supplied products to meet rapid demand fluctuations and established our own production infrastructure for the future. Simultaneously, we advanced company-wide DX, including projects for the launch of ASPIRE. Page 13. Based on the progress over the past 5 years, we defined 5 targets for the latter half of TOP I 2030. To achieve annual launches of Chugai originated global products, we will enhance early-stage development capabilities, including pharmaceuticals, while collaborating with partnering functions in Japan, U.S., Europe and Singapore to pursue further drug discovery innovation. In production, we'll establish a stable supply system considering geopolitical risks to prepare for increased supply responsibilities accompanying the growth of in-house global products. Furthermore, in the newly entered CVM field and metabolism field, we will build systems and capabilities to enable advanced development, project management, safety, medical affairs and sales activities that respond to the distinct characteristics of this field and changes in the external environment, thereby maximizing the value delivered to patients. To achieve these goals, we will advance the utilization of AI across the entire value chain and drive business transformation. We present the management policies and priority items for 2026, the first year of [indiscernible] 5-year period. The management policies are enhancing RED functions and creating value, maximizing value of LCM projects and strengthening business foundations. The priority items are shown on the right. There are 4 of them. We'll continue to strengthen our hemophilia franchise by advancing development towards application for the Hemlibra auto-injector and initiating Phase II studies for NXT007. We also anticipate the highest number of domestic applications to date. These initiatives are expected to drive short- to medium-term growth in domestic sales. In particular, for Lunsumio, one of the products expected to achieve large-scale growth, we aim for early market penetration of combination therapy with Polivy. We also ensure the successful launch of our new ERP system, ASPIRE, and promote the company-wide utilization of AI. Now looking at the average annual trend in the number of Chugai originated global products launched since 2001, the number has steadily increased in the past. Particularly over the last 5 years, the number of launches of in-house global products have increased, and these products will drive profit growth in the short to medium term. Furthermore, we anticipate that achieving the annual launch of in-house global products target set in TOP I 2030 will lead to further profit growth thereafter. Moving forward, we'll continue to leverage Chugai's unique drug discovery approach to advance drug discovery, including midsized molecules and develop new modalities, thereby expanding the creation of innovative new drugs that only Chugai can deliver. Through these efforts, we'll achieve the TOP I 2030 goals and realize sustainable growth beyond them. The next slide, Page 16. Last but not least, regarding the opening of our U.S. partnering office. We opened the Chugai U.S. Partnering Office in South San Francisco, commencing operations this month. We will explore, identify, evaluate and promote collaborations with U.S. academia and venture companies. In addition to the U.S., we will strengthen our partnership network, connecting Tokyo, London and Singapore to advance global open innovation. Page 17, the last page. This shows the summary of what I said, and that concludes my presentation. Kae Miyata: We have the overview of development pipeline from Kusano. We apologize for the disturbance we had, and we will pause for a few moments at the very beginning of the session. I hope you will make use of that opportunity for a screen capture. Tsukasa Kusano: Thank you. I am Kusano. I am with Project and Lifecycle Management Unit. Please refer to Page 20 of the slides. This looks at our fourth quarter topics. I will go through these starting from first half. We secured 2 approvals. Tecentriq obtained an indication expansion for nresectable thymic carcinoma. Lunsumio was approved for a new subcutaneous injection formulation. On the filing side, there were also 2 key developments for our in-house product orforglipron. Eli Lilly has filed an application in the United States for its use as an obesity treatment. Regarding Tecentriq, we filed an application yesterday for its use as adjuvant therapy in MRD-positive bladder cancer. We also initiated 3 Phase III trials for Roche products; trontinemab for Alzheimer's disease; zilebesiran for hypertension and divarasib for first-line non-small cell lung cancer. Additionally, divarasib received orphan drug designation last December for KRAS G12C mutation-positive unresectable advanced or recurrent NSCLC. There were 2 pipeline divisions. Based on the data accumulated to date, we have decided to discontinue the development of BRY10 for chronic diseases. Furthermore, the development of Tecentriq for perioperative NSCLC was discontinued following the results of the IMpower030 trial. Details regarding recent publications, new contracts and investments by Chugai Ventures Fund are summarized on this slide. Moving on to the second page of topics. For our in-house product, PiaSky, we achieved positive results for Phase III trial for atypical hemolytic uremic syndrome. Orforglipron also met its primary endpoint in its switching trial following the administration of injectable incretins. Furthermore, I am pleased to announce that Enspryng met its primary endpoint in the Phase III trial for myelin oligodendrocyte glycoprotein antibody-associated disease. Based on recent trial data, we plan to file for Gazyva, giredestrant, ranibizumab and sparsentan within 2026. Regarding academic conferences, there were 3 presentations. I will provide a more detailed update on giredestrant later in this session. This is a summary of our major R&D events in 2025. The changes from the previous updates are underlined and shown in bold fonts. While a few items have been carried over to the next fiscal period, we consider these results to be generally highly satisfactory. In particular, looking back, the confirmation of POC for our in-house product, NXT007, a major milestone, and the decision to advance it to Phase III represents a significant progress. Next, I will discuss the major milestones for 2026. A key readout for our in-house portfolio is the Phase III trial of Enspryng for MOGAD, which, as recently announced, successfully met its primary endpoint. Regarding GYM329, we will now refer to it by its international nonproprietary name, INN, emugrobart. We plan to announce results for 3 Phase II trials for emugrobart this year. For SMA and FSHD trials, the data have already been collected, and we look forward to sharing the results with you soon. For Roche product, pivotal trial readouts are scheduled for divarasib, giredestrant, Lunsumio and sefaxersen. Regarding trial starts, we have listed those that have already been publicly disclosed. For NXT007, we have scheduled 3 Phase III trials, including head-to-head comparison with Hemlibra. We also plan to initiate a Phase II trial for DONQ52 in celiac disease. Now I will present the results from 2 trials for giredestrant. First is the evERA trial for hormone receptor-positive/HER2-negative breast cancer in patients previously treated with the CDK4/6 inhibitor. Although these results were presented at last year's ESMO Congress, I would like to review them with you today. Giredestrant is an oral selective estrogen receptor degrader or SERD designed to inhibit estrogen receptor signaling regardless of ESR1 mutation status. It is expected to show efficacy even in tumors that have developed resistance to conventional endocrine therapies, including previous generation SERDs. In, in vitro studies, it demonstrated higher cell proliferation inhibitory activity compared to other oral SERDs. Furthermore, the combination of giredestrant and mTOR inhibitor everolimus is expected to provide superior antitumor activity compared to monotherapy by simultaneously inhibiting 2 key signaling pathways involved in hormone receptor-positive breast cancer proliferation and endocrine resistance. In the evERA trial, this combination significantly improved investigator-assessed PFS, the primary endpoints in both the ESR1 mutation positive and ITT populations. The therapy reduced the risk of disease progression or death by 62% in ESR mutation positive group and 44% in the ITT population. These results suggest that giredestrant plus everolimus could become a valuable new oral treatment option for patients previously treated with CDK4/6 inhibitors, a segment with limited effective alternatives regardless of their ESR1 mutation status. [indiscernible]. Regarding the giredestrant, I would like to introduce lidERA study, which targeted adjuvant therapy for hormone receptor-positive/HER2 negative early-stage breast cancer. This data was also presented at last year's San Antonio Breast Cancer Symposium. Giredestrant demonstrates stronger growth inhibitory effects than estradiol E2 depletion or tamoxifen in ESR1 wild-type cell models with high estrogen receptor signaling activity and endocrine therapy sensitivity as shown by nonclinical data. Furthermore, in the Phase II study of non-adjuvant -- neoadjuvant therapy for early breast cancer, giredestrant demonstrated superior proliferation inhibiting effects compared to aromatase inhibitors or tamoxifen. Based on these results, an interim analysis of the lidERA comparing giredestrant monotherapy with standard endocrine therapy as adjuvant therapy for hormone receptor-positive/HER2-negative early breast cancer showed a significant improvement in the primary endpoint of invasive disease-free survival or IDFS, compared to standard endocrine therapy. In the interim analysis, this reduces the risk of recurrence or death by 30%. These results demonstrate that giredestrant offers the first benefit in approximately 20 years for a new endocrine therapy in early-stage breast cancer, demonstrating the potential to become the new standard of care for adjuvant therapy in hormone receptor-positive/HER2-negative early-stage breast cancer, which accounts for over 70% of early-stage breast cancer cases. Based on evERA and lidERA studies, we plan to file for approval for each this year and look forward to delivering new treatment options to patients. Next, we'll introduce 3 examples of our efforts to promote open innovation for expanding our drug discovery engine. The first is our collaboration with Gero. Gero excels at identifying targets for age-related diseases using a platform that combines physics-based machine learning models with human dataset analysis. By combining Gero's identified targets with our proprietary antibody engineering technologies, we aim to create first-in-class therapies for age-related diseases. The second is Araris. We have entered into a joint research and license option agreement with Araris. Their AraLinQ Technology features high stability in blood, preserves the inherent properties of antibodies, including pharmacokinetics and can carry 2 or 3 payloads. By combining this with our antibody technologies, we aim to create highly differentiated ADCs that achieve a broader therapeutic window and enhanced efficacy. The third is Rani Therapeutics. The company possesses technologies enabling oral administration of biological products featuring painless drug delivery within the intestinal tracts, high drug delivery efficacy and bioavailability comparable to subcutaneous injections. By combining this, again, with our various antibody technologies, we also aim to realize biological products with high convenience through weekly or monthly oral administration with efficacy comparable to intravenous, subcutaneous injections. We will accelerate innovation by collaborating with partners possessing target discoveries and modality technologies that synergizes with our own. Now this slide shows market sales for major projects. Global sales are based on guidance from Roche or Galderma. There are no updates from previously disclosed figures. Within the domestic sales, the upper range section represents our in-house products, while the lower blue section represents Roche products. This slide shows the status of our portfolio across each modality. We continue to hold a robust pipeline of in-house developed projects, all progressing steadily. We're also pleased to announce that we have named our drug discovery technologies for midsized molecules, our third pillar of focus, SnipeTide. Snipe embodies the characteristics of our midsized molecules, high precision binding to intracellular targets via oral administration. Tide evokes the peptides that form the basis of this technology, while also expressing our aspiration for it to become a new trend in peptide drug discovery. We'll continue to focus on the continuous creation and development of our proprietary products or in-house products, including midsized molecule drugs to address unmet medical needs. Last but not least, our projected submissions. Projects marked with light blue stars are newly added ones. Projects marked with green stars have changed since the previous update. Specifically, for giredestrant, we are advancing the application for adjuvant therapy based on the lidERA study that I mentioned to this year. The following slides are attached as reference materials. That concludes my presentation. Thank you. Kae Miyata: Next, we will have from Taniguchi, presentation on FY 2025 consolidated financial overview. We will pause at the very beginning of the presentation. So those of you who wish to take a capture, please use this opportunity to do so. Iwaaki Taniguchi: Hello. I'm Taniguchi. I look forward to working with you today. I would like to describe the full FY 2025 consolidated financial review. As was mentioned by Dr. Okuda, I am pleased to report that cumulative revenue through the fourth quarter reached JPY 1,257.9 billion, up 7.5% year-on-year. Core operating profit also grew to JPY 623.2 billion, a 12.1% increase. Now I will provide details of these results. First, on the revenue. The pharmaceutical product sales rose to JPY 1,077.8 billion, an 8.0% increase year-on-year. By region, domestic sales were JPY 472.4 billion, up 2.5%. We had strong performance from new and mainstay products, effectively offsetting the impact of generic penetration and NHI price revisions. Overseas sales reached JPY 605.4 billion, up 12.8%, continuing to benefit from robust exports of mainstay products through Roche. Those are for product sales. Other revenues, including royalties here, increased by JPY 7.4 billion year-on-year to JPY 180.1 billion. While milestone income from third party declined compared to previous year, this was offset by an increase in Hemlibra royalties from Roche, resulting in an overall year-on-year gain. Turning to expenses. Cost of sales was JPY 351.5 billion, up 4.0% year-on-year. But if you look at the cost ratio, Actemra was relatively high, ratio has dropped slightly from previous year. So negative -- cost of sales ratio for pharmaceutical products improved by 1.3 percentage points to 32.6%. Regarding SG&A expenses, we successfully maintained these at JPY 103.2 billion, flat more or less year-on-year by driving efficiency to offset rising prices and labor costs. R&D expenses rose by JPY 3.2 billion to JPY 180.1 billion, primarily reflecting the impact of yen's depreciation. Other operating income saw a modest JPY 2.7 billion decrease, mainly due to lower gains from product transfers. As a result, operating profit rose by JPY 67.1 billion to JPY 623.2 billion, but the operating profit margin expanded 2 percentage points to 49.5%. Net income after taxes reached JPY 451.0 billion, a 13.6% increase. Next, on the changes from last year in pharmaceutical sales. Starting with domestic at the very bottom, domestic oncology sales were JPY 246.5 billion, a marginal decrease of 0.5% compared to the previous year. Specifically, steady growth in the new product, Phesgo more than offset the decline in Perjeta sales. Additionally, while Lunsumio is off to a strong start, Avastin sales declined due to generic competition. Specialty sales grew by 5.8% to JPY 255.8 billion. There was, yes, NHI price revisions, but in addition to mainstream products, Hemlibra, Actemra and Enspryng and Vabysmo alongside new products PiaSky, all delivered steady growth. Overseas pharmaceutical sales grew 12.8% to JPY 68.6 billion, primarily driven by strong exports of Hemlibra and Actemra. Next summarizes full year export status to Roche of Hemlibra and Actemra. First, Hemlibra. Fourth quarter sales, the final quarter. If you look at that compared to last year, rose by JPY 35.3 billion year-on-year. If you look at the full year cumulative sales, that reached approximately JPY 20 billion above our initial JPY 318.6 billion forecast. Actemra, since biosimilar penetration has been slower than expected, if you look at just the fourth quarter, we have seen -- well, leading to JPY 8.6 billion year-on-year increase on the fourth quarter. Consequently, for the entire year, Actemra forecast of JPY 123 billion was exceeded by approximately JPY 30 billion. So this was increased by about JPY 30 billion. Next, on the changes, this is like a factor analysis and changes in the operating profit. Starting with the Domestic segment on the left. As noted, there has been an impact of NHI price revision to drive higher operating profit. In the Overseas segment, the more we have sales in the emerging markets, the unit price will become lower. So volume growth significantly outweighed the impact of lower export unit prices, combined with favorable foreign exchange movements, these factors will keep contributing to the growth of operating profit. The revenue also contributed to the profit increase, primarily through higher Hemlibra royalties. This is the breakdown of the increased profitability of JPY 672.1 billion. On a quarterly basis, we are comparing P&L trends. Because of the export timing, there will be more ups and downs. If you focus more on the sales, this is by quarter changes. As you can see, the export to overseas, again, because of timing of the product, disease timing, there will be ups and down. Next is the FY 2025, how the outcome actually landed. So how much of a gap there was to what we have expected. As you can see, both the sales and the profit. And for each segment, we have exceeded the projection. So it was greater than 100%. For the expenses, there were some pluses, but it's been slightly lower. So that led to overachieving the operating profit. This is the byproduct sales as compared to the forecast at the beginning of the year. And the inventory situations have changed and there was slight negative, but everything else, like Actemra overseas, Hemlibra overseas and domestic. Overall, compared to our forecast, there was a positive number. Next page is the impact of foreign exchange rate fluctuations and the performance. The actual rate was JPY 161.2, including the forward contracts, which is the basis for the sales recording and JPY 173.57, so JPY 12.50 depreciation. So there was an impact in terms of revenue, JPY 49.6 billion plus and JPY 44.2 billion operating profit on the positive side. And this is the actual rate of pricing compared to the forecast rate. So 80% of the contracts are hedged in the previous year. So 20% are unhedged and use the actual rate, and there's change in exchange rate. So as a result, in 2025, there was a further depreciation of yen. So JPY 5.6 billion in sales and JPY 3.6 billion in plus for operating profit was recorded. And the balance sheet, JPY 2,468.6 billion, which is JPY 260.2 billion increase. There was a working capital increase and also net asset increase because of investments. And net assets increased by JPY 124.2 billion. Compared to total assets, there was a slight lower increase, but there was some interim payment of dividends and 82.1%, which is shareholders' equity ratio, which is over 80%. And here, you're talking about cash status. And last year, at the end of 2024, JPY 996.3 billion, but now there was a decrease of JPY 160.6 billion. And operating cash flow, JPY 452.1 billion, there was further positive size by income tax payment and dividend payments and JPY 170 billion for special dividend was included. So cash increase was slightly suppressed. In total, this shows the trends in ROIC and ROE indicators of capital efficiency. We have been focusing on ROIC so far. But depending on the company, the definitions of ROIC may vary. So in our case, the denominator doesn't include cash. So ROIC has been at the higher level, 43.9% for this year, which is 1 percentage point increase from year-on-year. And as for ROE, which is attracting more attention and definitions are actually universal from company to company for denominator and numerator and 22.1%, which is an increase from the year before. So this is ROE that is way exceeds the capital cost. And this is -- this fiscal's earnings forecast. As Okuda said, as for revenues, 6.9% increase to JPY 1,345 billion. Core operating profit to increase by 7.5% to JPY 670 billion. That is our forecast. Domestic sales are expected to grow despite the headwinds from drug price revisions and generic penetration. We're expecting JPY 25.6 billion growth because of new products growth, so 2.2% growth, which is exceeding the last year's growth. As for overseas exports for products for Hemlibra and NEMLUVIO, they are expected to increase, but there will be further marked impact from the biosimilars in Actemra. So there is JPY 3.4 billion, slight decrease is expected. But for the other revenues, JPY 64.9 billion increase is expected from the previous year, but there will be some foreign exchange impact. The cost side is not going to change that much. So there is going to be a support for profit growth. And this is the slide for the pure product sales aside from the other revenues. And Actemra is significantly negative and Avastin, for various reasons, will remain in the negative territory. But Lunsumio on the other hand, which is a new product, is expected to grow significantly. And Hemlibra overseas will remain on the growth trajectory. And this -- also, this is a core and noncore adjustment. So previously, the intangible asset impairment and also restructuring costs and ERP business foundation system introduction and restructuring costs. These are actually items for core and noncore adjustment items. But in the third quarter, there was also discontinuation of 5 development products that will be recorded. And this is the capital investments currently approved internally. And last page is just for your reference. We have attached details regarding the status of our 5 Chugai-originated global products. That concludes my presentation. Thank you for your attention. Kae Miyata: We will now move on to a Q&A session. We will also have Hidaka, who heads the sales and [indiscernible] who is also representing marketing and the sales to join. [Operator Instructions]. The content of the Q&A session will be uploaded later together with the presentation materials. We would like to take questions first from those in the room, in the venue, and then we will take questions by Zoom webinar. [Operator Instructions]. Kazuaki Hashiguchi: I would like to, first of all, ask about the Hemlibra. And you said that on the core base, this grew by double digit. And based on foreign currency denomination, I think it has also increased. But for this term, if you use that, it is negative, what are your thoughts about the volume as well as unit price? How will this change from last year? And for volume, I would like to know what your forecasts are for end user sales and the fluctuations in inventory in Russia. Unknown Executive: Thank you very much for the questions. For FY '26 on a whole, you are correct. We expect a positive number. But if we do elemental breakdown analysis at the point in time -- as for volume and the foreign exchange impact, we are not disclosing this at the moment. Now at the JPMorgan conference, they talked about the single-digit growth, so positive growth, which means that we would like to replenish the inventory through our export on a whole. Hemlibra guidance number has been as disclosed. Kazuaki Hashiguchi: The second question, in Dr. Okuda's presentation, auto-injector filing for Hemlibra has been mentioned several times. I believe that this is a very important agent in terms of competitiveness. When do you expect this to become available? Is it very close? Or do you still have some issues that needs to be resolved before that can take place? I would like to know more about the progress of this product. Unknown Executive: Thank you very much for asking about Hemlibra AI. We are moving along very steadily in terms of development. We are not disclosing the dates, but we would like to provide the Hemlibra AI to the patients as quickly as possible. So we are doing everything possible to move things forward. Unknown Executive: The person next to him please. Unknown Analyst: [ Yokoyama ] from [ Nikkei Medical ]. Giredestrant is what I like to ask about. So many companies are developing oral SERD drugs, but how do you look at the differentiation from competitors? The inavolisib is going to be a set of those, and this is going to be significant with the combination with inavolisib in breast cancer, but there is no schedule for filing for inavolisib. How do you see this? Unknown Executive: So giredestrant question. Thank you very much for your question, Yokoyama-san. Other SERD products comparison with those, as I said in the slide, in the in vitro test -- trial, giredestrant compared to other SERD oral product, proliferation suppression inhibitory activities were shown. And in the lidERA study, giredestrant and everolimus combination therapy compared to the conventional standard of care, ESR1 positive patients in addition to that population, ESR1 non-mutant population, there was a PFS that is statistically significantly achieved. So ESR -- regardless of ESR1 mutation, there was efficacy that was proven in the SERD oral product. So the CKD inhibitor -- previously treated with CDK inhibitor patients had a bad prognosis. So there's high hopes on that. And giredestrant and everolimus combination therapy, if you look at this, they are both oral drugs. So there is no injection to be required. So there's high convenience and 2 different signal pathways can be inhibited simultaneously. So compared to monotherapy, there is a higher antitumor effect expected and also adjuvant -- compared to endocrine therapy, standard of care at the interim analysis, primary endpoint was achieved. And for early breast cancer as a new endocrine therapy, this is the first one in the last 20 years, new benefit was brought about. So this could become an adjuvant standard of care. So there's a high hope. And more than 70% of early breast cancer is the target for this study. So we are hoping that giredestrant can contribute to many patients. And as for inavolisib, there is one study with a combination with inavolisib by Roche. But at the moment, the combination of giredestrant and inavolisib, there's no plan for a study with that. Unknown Analyst: But with the study of giredestrant and everolimus, what sort of strategy can work out will be something that we work with Roche. So that's not my question. ESR can be covered, but CDK4 and 6 has to be suppressed. But -- there's studies overseas, but Japan has not participated, but Phase II study will be done in Japan, and there will be a bridging study. And then at that timing, the inavolisib can be used for the oral SERD study. So when will it be? Unknown Executive: As for inavolisib, as you said, Phase I study is now underway, and there will be bridging with overseas study data to file for approval. But at this moment, I'm sorry, but we're not in a position to disclose that timing. Unknown Analyst: So for the timing of filing has not been disclosed. And what you filed for yesterday, the bladder cancer, MRD-positive patients. So for all comers, nivo can be used and [indiscernible] has been presented as part of the data. And so to other -- compared to other products, what will be the superiority of this drug? Unknown Executive: I'm not sure who this is addressed to. So Tecentriq adjuvant, the muscular invasive bladder cancer. Thank you for your question. And compared to PFS, in OS, the primary and secondary endpoint, there was a statistically significant benefit that was proven. And in the CDR monitoring, the atezolizumab or we can identify patients that can benefit from atezolizumab. There could be avoidance of overtreatment or personalized medicine can be done with the CDR approach. So the patients with lower risk can avoid overtreatment. That will be the benefit. Unknown Executive: We now would like to invite questions who are joining us through Zoom webinar. [Operator Instructions]. From JPMorgan, Wakao-san, please. Seiji Wakao: Wakao with JPMorgan. The first question -- first of my questions is related to the royalty other than coming from Roche and also other revenues. Royalty from other than Roche is both for orforglipron and nemolizumab sales or increase thereof, I believe, am I right? If that is the case, orforglipron has not been approved. So I would like to know how you are incorporating that. And we also expect the sales to grow considerably. I would like to have you comment on this. Iwaaki Taniguchi: This is Taniguchi speaking. Thank you Wakao-san. Revenue stream from other than Roche, yes, is expanding in '26. And you are absolutely right in your understanding. Vast majority comes from those 2 product royalties. That's true. But other sales revenue, in general terms, this is like milestone payment. Seiji Wakao: Now as for the content, this still is not disclosed, including what we are filing today, we have introduced several assumptions and have reflected in what we are saying. I would like you to tell us about how you incorporate the orforglipron. I think because the product is not out there, you must be exercising conservatism? Unknown Executive: Yes, for anything that is uncertain, our basic thinking is to make sure that we will use reasonable assumptions. Seiji Wakao: Second question is about 45% dividend payout ratio. The operating profit in the mid- to long term will lead to greater profit and you are focused more on ROE, which means that at some point in time in the future, you will raise payout ratio. There are no reasons for you not to. Are you discussing this internally of raising the payout ratio to above 45%? And if you have decided no, why? Unknown Executive: Thank you Wakao-san for that question. We have provided last year at this timing, our capital allocation policies, and we wanted to target 40% stably. And so dividend payment included is based on that. For the time being, we have no plans of revising or reviewing this. And I'm sure you understand that. Now the question is, will we ever consider revisiting? Are we not going to revise this ever? Well, we cannot say anything definitive at this point in time. We'll be looking at the objectively our situation as well as our financial conditions. Now ROE, yes, we are looking at our cost of capital, and we have disclosed this, we consider to be about 7%, which means that our ROE is well above that. So it's not that we are going to make active adjustment of the capital. We don't think that we are at the situation where we need to boost ROE today. In any case, we should continue to maintain and try to strive for improvement of capital efficiency. Kae Miyata: Muraoka-san, MUFJ Securities. Mr. Muraoka, please. Shinichiro Muraoka: I'm Muraoka from Morgan Stanley. My question is also addressed to Taniguchi-san for the forecast or guidance for a more detailed way of interpretation. The Slide 7, the forecast by product. So overseas and others, there will be an increase of JPY 70 billion, which is significant. And NEMLUVIO export will probably the biggest contributor. And if that's the case, then the royalties from entities other than Roche, the increase of JPY 730 billion compared to NEMLUVIO also would be larger. That's our guess. Is that something that is valid? Iwaaki Taniguchi: Thank you very much for your question, Taniguchi speaking. For the breakdown of royalties for the portions that are not from Roche, those 2 that you mentioned is overwhelmingly important. That's what I can tell you. But as for the allocation between these 2, at the moment, we cannot answer that question. So also orforglipron, it has not been launched yet. And you have to look at the timing of launch, which is quite difficult discussion. So we remain undisclosed for the allocation. As for exports. As for NEMLUVIO exports, so this was recorded in the previous fiscal year. But for this fiscal year, we still continue to expect growth, and that has been incorporated in our guidance that we provided at this time. Does that answer your question? Shinichiro Muraoka: So overseas others, JPY 32.6 billion, JPY 17 billion year-on-year, it is mostly from NEMLUVIO. Iwaaki Taniguchi: Yes. Shinichiro Muraoka: And also the breakdown of this Page 7, the domestic and specialties and others sales, JPY 33.3 billion year-on-year growth of JPY 12 billion. Tamiflu is not going to grow. So what's included in this number? Earlier, you talked about P&L cost of goods -- cost of sales ratio that is assumed to increase. So maybe the products that are included here have higher cost of sales. So those that are not in the pipeline, but there is something that you are going to start to sell. That's my personal guess, but am I wrong? Iwaaki Taniguchi: For the cost of sales ratio, compared to '25, in 2026, there's a positive growth. The background, there is a lot of factors. But if you compare domestic and overseas sales, the cost of sales ratio is much higher in domestic products. So this is related to products. So overseas, there's JPY 3.4 billion decline, but JPY 20 billion increase for domestic sales. So domestic product ratio has increased, and that has brought up the cost of sales overall. As for more details, it is not disclosed, but you mentioned Tamiflu. There are various factors involved, products that are not mentioned and that are expected to grow this year that are included in others. Shinichiro Muraoka: So that those are expected to grow are not in the pipeline or the filing schedule on Page 39. Those are not included in those schedules? Iwaaki Taniguchi: No, no, no. That's not the case. There are some that are included. So -- but all that are expected to be filed are anticancer drugs. Shinji Hidaka: Well, Hidaka from sales speaking. As you said, there's still uncertainty, a lot of uncertainty. But Elevidys, gene therapy sales are incorporated to some extent. And maybe that would satisfy your question. Kae Miyata: Next, from Citigroup, Yamaguchi-san, please. Hidemaru Yamaguchi: Yes. At the very beginning about the update of midterm business plan. You talked about the production efficiency of blockbusters have improved from 0.3 to 0.6. My understanding, of course, is you are aiming for 1. Although there are different risks based on current pipeline, do you think that you are achieving what you can achieve? So what are your thoughts about this 0.6 vis-a-vis 2026 and 2030? Osamu Okuda: This is Okuda speaking. Thank you, Yamaguchi-san, for your questions. So you're looking at this slide, right? Looking back, in the 2000s, it was 0.1. So 1 per 20. In the 2010, it tripled. And in the 5 years since we began the Strategy 2030, we have actually launched 3. You talked about, Yamaguchi-san, blockbusters, but this is about global in-house original product being successfully developed and launched. We are focused on antibody plus a small molecule that we have achieved launch targets between 2026 through to 2030. So in the latter half of TOP I 2030, our strategy is to further increase this. As we talk about midsized molecule, middle molecule, the white will gradually become more purple. If we succeed beyond 2031, this could become like 1 every year or greater global launch that will further drive growth or even better than that. Hidemaru Yamaguchi: With increased modality, there's this growth will increase because of the midsized module. Unknown Executive: Yes, we will look at antibody, small molecule, mid-molecule and our imbalance. And we're talking about other modalities. We were discussing this in the TOP I 2030 strategy discussion. We hope to achieve multi-modalities. So we want to increase that. Hidemaru Yamaguchi: The other question is giredestrant, which you have explained in length, and we have high expectations. What is your peak sales forecast? Or is it too early? Unknown Executive: Well, thank you for that question. For giredestrant, we are not disclosing that. Hidemaru Yamaguchi: What would be the TAM in Japan? So the targeted market size. Number of patients or the existing market size is probably quite large, but I would like to know which segment you are targeting? If you don't have that information, if you could provide information later? Unknown Executive: Yes, we would like to confirm and get back to you. Kae Miyata: From Macquarie Capital, Mr. Tony Ren, please. Tony Ren: The first question I would like to ask is about your CapEx. You commented on the Araris partnership for ADCs, right? My understanding is that the CapEx can be very intensive for ADCs. In fact, one of your peer companies recently announced a very large CapEx project for their ADCs. So I just wanted to see how are you thinking about the CapEx related to the ADC drugs? Are you building the production capacity internally? Are you using CDMOs? Are you using facilities from Roche? Is this included in your CapEx budget for 2026? So that's my first question. Iwaaki Taniguchi: Thank you very much for your question, Mr. Tony Ren. As for the CapEx, for the current status, Araris and Chugai Pharmaceutical are now engaged in joint research. So we haven't discussed the CapEx. We just engaged in joint research. Therefore, as for the 2026 in the CapEx budget, this was not included. Tony Ren: Okay. Very good. My second question is on the development of your GYM329/emugrobart in obesity. So the [indiscernible] Phase II trial of emugrobart in obesity. If we look at the clinicaltrials.gov, the primary completion is August 2026. Can you confirm that you will be releasing Phase II results roughly around that time as well? Unknown Executive: GYM329 Phase II trial. Thank you very much for your question on that. So at the outset, as I said in the presentation, the result of the clinical study is going to be released by the end of this fiscal year. Kae Miyata: [indiscernible] from UBS Securities, we have [indiscernible]. Unknown Analyst: I'm [indiscernible] with UBS. We congratulate you on an excellent performance. In other revenues, this royalty or milestone is -- it includes something -- some items that are outside of Chugai's control. If the actual revenue, other revenue, does that meet your target? What are some avenues that will change or don't we need to worry about this because you are being very conservative? Iwaaki Taniguchi: Thank you very much [indiscernible], I am Taniguchi. The latter, we have exercised conservatism. But if it is so unexpected happen, we cannot negate the possibility that something will happen outside this. But how this will be absorbed within the entire portfolio? This is something that we will be communicating to you in the quarterly earnings call. So we will keep you appraised or updated within the project planning. Unknown Analyst: The second question has to do with biological POC of DONQ52. And I would like you to supplement my understanding. What does this mean? In Phase I study like PBMC, like peripheral blood monocytes? Or are you looking at that kind of response at the cellular level? Unknown Executive: Thank you very much for that question about the DONQ52. We have conducted what we call Phase IC study. This is celiac disease patients who are stable after administering DONQ52 in such patients for 3 days, we challenge them with [indiscernible]. And gluten-dependent immune response is what we are trying to induce. And then we give DONQ52 to see if gluten-dependent immune response can be suppressed. In this study, in addition to PK, we'll be looking at pharmacological action. T-cell activation suppression due to gluten ingestion is also looked into as well as other biomarkers. Unknown Analyst: What was the outcome of the 3-day challenge study? Unknown Executive: We are now in the process of analyzing this. And when we are ready to publish data, we would like to do so. Kae Miyata: Next, from SMBC Nikko Securities, Mr. Wada, please. Hiroshi Wada: Wada from SMBC Nikko Securities. So I'd like to also ask about DONQ52. So licensing out schedule, how do you look at that schedule and development. As you saw, Phase II study is going to be initiated. So as I heard, this is going to be licensed out to other companies. I think that is the main strategy. Maybe it would be the Phase II timing that you're going to do that. But this is going to be -- Phase II is going to be performed by your own company on your own. So what will be the timing of Phase II as you see it? Unknown Executive: So Wada-san, thank you very much for your question on DONQ52. For licensing out strategy and timing of individual products, we cannot answer those questions. But the Phase II study that we announced this time would be performed by Chugai Pharmaceutical. Just for clarification. So in the Roche pipeline, this is in Phase I. Hiroshi Wada: So you're not aligned with Roche on this particular product. Is that correct? Unknown Executive: Probably. This is not described in the Roche material or pipeline. We don't have the information that they have introduced this. So in the Roche pipeline, Chugai's projects are also described, but this is -- this doesn't show that they have licensed in our product. As Yamaguchi-san asked Page 15, TOP I 2030, 1 per year global product launch that is target. And I'd like to ask about the strategy of research and development. So from 2011 to 2020, 0.3 per year, but '21 to '25 0.6 per year, it has doubled. But R&D around 2015, JPY 80 billion was spent. And in '23, JPY 160 billion. So this was doubled as well. Hiroshi Wada: So that's why the number of launches has been increased. I understand that. But between now and 2030, if you are to launch 1 per year, then 1.5x R&D expenses will be required. So in order to achieve on 1 launch per year, what is your expectation on the R&D expenses or spending? Unknown Executive: Okuda will answer that question first. And then for the future R&D investments, I would like to ask Taniguchi to answer the question. Osamu Okuda: So the R&D expenses and number of launches, whether they are correlated or linked, it's not necessarily the case. So the number of launches, what would be the function of this? So R&D -- aside from R&D, but the cycle time of development, the speed of development and probability of success, those will be significant factors. So there is a time line between R&D activities and launch of the products. So there is not that simple correlation. So as a principle for R&D activities, high-quality products have to be developed. So this has been the case in the past, but with a higher probability of success, we came up with the molecule in the Phase III development. The first indication has achieved 100% success probability. So that quality principle has to be maintained or expanded while engaged in this drug development. So R&D expenses and number of launches are not directly related necessary. But on the other hand, if you look at R&D expenses, it includes the personnel cost, and this is a very important resources to drive research. So this R&D expenses have been increased in accordance with the profit increase. So I'd like to ask Taniguchi to add up. Iwaaki Taniguchi: Compared to 2025, 5.5% increase was recorded. That was a fact. But as Okuda said -- so the productivity increase is something that we give priority and that is also true for R&D by utilizing AI and go or no-go decision will be further refined. So we are hoping to enhance productivity. So it doesn't necessarily mean that R&D expenses are going to keep going up rapidly. And the target for percentage of R&D expenses, there is no such figure that we have in mind. But as the projects make progress, there could be increase in development expenses. That could be the one that we might end up with, but we're also keeping an eye on productivity and efficiency so that we can maximize our efforts. Kae Miyata: Next from Bernstein, Sogi-san, please. Miki Sogi: About Hemlibra. I have two questions. The first question is related to overseas sales. This time in 2026, the assumption on Swiss franc, I mean, you are expecting 6% depreciation of the yen. If that is your assumption, Hemlibra, I understand the plan is to decrease. Of course, sales in the international market, I mean, by Roche or by Hemlibra going up, you said will lead to lower unit price. Even if the volume increases, the lower unit price will have greater effect. So you're selling more, but is it possible that the yen amount exports come down? Is that possible? Iwaaki Taniguchi: Thank you very much, Sogi-san, this is Taniguchi speaking. Hemlibra forecast for this year, and you're asking about the breakdown, which, of course, is related to unit price, volume and foreign exchange factors. I would like to keep from giving you any responses in detail, but it is true that there has been a foreign exchange effect, positive. What about the net of that? Then we have the unit price multiple wide by volume. Unit price actually has to do with the weighted average in the market previous year applied. So we will be looking at market price and that sort of decides what the export price is going to be. Volume is something that's updated every term in emerging markets, not just the emerging markets, but it is possible that volume increase globally. This has happened in the past. So there's no reason to think that this will not happen in the future. And that multiplied by unit price will give us the results. Miki Sogi: Also about Hemlibra. And this is related to auto-injector. By launching this, what level of upside do you expect? Hemlibra, I believe, has penetrated the market. Uptake has been great. So who are the patients that have not been able to capture without the auto-injector? And I also would like to understand what Roche has in mind related to this. Unknown Executive: Well, I would like to respond. Auto-injector development for Hemlibra, we have been striving with the aim of raising convenience of our patients. If we have auto-injector of Hemlibra, we expect the uptake to increase, but [indiscernible] competition could come up with a very convenient device. So please do understand that we are being defensive -- we're taking a defensive approach to that, too. Kae Miyata: Because of time, we would like to take one last question from Goldman Sachs, we have Ueda-san. Akinori Ueda: Ueda from Goldman Sachs securities. The first question is about the U.S. partnering office that has been launched. So at the moment, in the previous activities, what were the challenges that you faced to trigger this? And what kind of effects that you're expecting out of this initiative? Unknown Executive: Thank you for the question. Well, as for U.S. partnering office, this is located in South San Francisco and the West Coast, and it just started operation. So in Silicon Valley, there are many bioventures and universities in the U.S. There are numerous universities located there. And of course, we can keep communication from Japan, but by physically locating in the area, bioventures and academia and venture capitals, we will have closer communication with those parties so that we can achieve open innovation. The drug discovery capabilities increase is the primary purpose, but there will be effective results that we can expect. So that's why we've decided to locate our office in West Coast or South San Francisco. But ahead of this, there was a corporate venture capital that was established in 2023 in Boston, and it's been already 2 years since the start of the operation. And we went into venture communities and from venture companies or start-up companies, there was a lot of information that we received. So as the technology reaches maturity, we could have a joint collaboration with those, and there's a link there as well. But it's not just in the U.S., but in Singapore, there is a similar function. And there's also a partnering function in London and Chugai headquarters, Tokyo headquarters, has this function. So by establishing a global partnering network, we are hoping to increase our drug discovery capabilities. That's our intention. Kae Miyata: Thank you very much. With that, we would like to conclude Chugai Pharmaceutical fiscal year 2025 financial results presentation. We apologize for the difficulty that you experienced at the first half of the presentation. We will provide backup information via web. If there are any questions that you were not able to ask, please do contact us at the corporate IR. The phone number as well as mail address is shown on the last page of the presentation material. Thank you very much once again for joining us, taking time out of your various schedules.
Henrik Høye: All right. Welcome to presentation of Protector's full year '25 results. We will focus on the full year. The quarter is volatile. We say that all the time, focus on the full year result that is more interesting and says more about the underlying realities of the business. And before I go into the results, I always spend a little bit of time on who we are. And what we did this morning was to continue on looking at what the challenger should be in the future. And one thing that we care about is that we -- even when we are 700 people, even when we grow in a number of countries that we still act as one team, which is a bit contradictory to a performance culture where we compete against each other and also that we want local decisions and also that we want each individual in the company to make decisions because they are where it happens and they should know what decisions to make. So that's what the challenger is. It is about making everything we do, focused and simplistic. But when it comes to culture, we need to complicate it in order to spend time and really understand. So that we're on the same platform and the same grounds for the future because I think that's extremely important in order to stay who we are, the challenger. And then to the highlights, other than that 84.7% combined ratio and a 14% growth with an investment result of a return of NOK 1.5 billion, leading to NOK 31.7 per share in earnings. We have had some other activities in the quarter, one being the placement of the Tier 1 debt where -- bond where the market was good, so with good terms on that. Maybe the biggest other than the growth for 1st of January, which I come back to. News is that we have now been relieved of the maybe biggest mistake that we've made in Protector workers' compensation in Denmark, where we took on board a portfolio knowing that we didn't have the exact data we needed to underwrite it, but we underestimated the downside of that portfolio. And we have now sold that. So the agreement with DARAG is completed, and we can now focus on the lines of business and the business that we know how to do in Denmark. So that's very good. I'll get back to the reinsurance side and the growth later on. And speaking about the growth, I think that it is important, in particular, following the 1st of January with high growth. It's important to remember how the portfolio is put together. And what we see here is a development. The development is driven by disciplined underwriting. So we underwrite in all these segments. And remember that the commercial segments, so if you look at the segment distribution on the left of the cake diagrams here. Commercial sector in all countries is bigger than the public and housing sectors. And -- but we have grown more in the public sector. That is due to mostly market conditions being -- it's been more rational pricing in the public and housing sectors than what it has been in the commercial sector. So that's why public sector and housing has grown a lot also in the past 5-year period. And property and motor, by far, our biggest product, short-tail products. And U.K. is now close to half the business or at least 42% of the business. But it's also important to remember that the 1st of January growth is related to the Scandinavian markets or the Nordic markets and France, not U.K. And the market conditions are different in those two geographies. So it's been easier to grow in the Nordics and France than what it has been in the U.K. in the past year. So it's just a support so that you see what the inception structure in our portfolio was in the years from '21 to '25. Obviously, we don't know exactly how that will look in '26, but at least you then see that distribution. And when it comes to '25, what you have seen throughout the year is that from the U.K., we've had a good 1st of April in public sector and housing, but we -- I've also said and we've also experienced that the market has been softening. So rates have been going down, especially on the product -- the property product in commercial sector. So it is slightly harder to achieve price increases. It's slightly harder to renew clients and also to get new sales. But the churn in the U.K. during 2025 has been good. So we've managed to keep the churn at a good level around slightly above 10% and been disciplined in the new sales side. And then we've had strong growth in the other territories or in Scandinavia. And that is supported by good renewals, renewal rate of 95% in total for the company, it's basically the same in the Nordics. And -- but we've also had some new sales. So the markets there are -- it's good on the Norwegian business, which has the highest growth out of the Scandinavian countries on 1st of January '26. So a similar situation to what you see here. Denmark is #2 1st of January '26, but Sweden has a lower growth in '26. So Sweden is a market where there is still more competition and more competition that we view as irrational. And then you have the French business, of course, where not a lot happens in quarter 4. So most of it is old news of the start there. However, 1st of January is an interesting date because we communicated an estimated number of what we thought we would quote for 1st of January following quarter 3. And -- that number was roughly right. So what we have seen in the market for 1st of Jan in France is that we have won approximately 10% of what we have quoted in the commercial sector space, motor. And that's a lower figure than what we are used to in Scandinavia. It's more in line with what we are used to on the motor side in the U.K. And then on the housing sector, where most of the property volume from '25 comes from, we have basically won nothing 1st of January '26. So one of the big competitors, AXA has come in and lowered prices a lot compared to what they did in '25. So it's not a hat trick in France. We have not won volume in all the segments we're in, but we've got some traction on the municipality side, the public sector side, where the market situation is very different from the housing sector. And the interesting thing is that the housing sector is quite similar to what we know in the U.K., where there is low deductibles, lots of escape of water claims and calculating the price is not very difficult. So when we may make a mistake and the competitors that price lower than us, they may know something we don't. Absolutely, it's new. We're new in France. But at the same time, it's difficult to see that it's very sustainable those levels that we see in the housing sector now. So at some point, we believe that we can have success there as well. Maybe not in the same way as '23 in the U.K., but at least it's not on the public sector side, which is more about large loss and risk selection. Unknown Analyst: There are a lot of questions along the presentation. Henrik Høye: Sorry, I forgot to say that. So please ask questions during the presentation. Unknown Analyst: [indiscernible] France, after quarter 3, you said that -- at that time -- have been seeing around EUR 300 million in potential volume. And that your effective quotation rate would be around 70 to 75 [indiscernible] So approximately where [indiscernible] Henrik Høye: So it continued to grow, not a lot from that, but the quotation rate went slightly down, both because of capacity -- our own capacity. So we prepared as well as we could, but we didn't have enough manpower to do that with quality. So the actual number is very similar to what you could derive out of the 370 to 375... Any more questions on volume side? And please ask questions in writing as well. Okay. Again, when we look at the full year, we also bring out the longer picture here, and there is volatility in not only the runoff and the large losses, but also on the loss ratio below those large losses and without the runoff. The large loss situation in 2025 is lower than what we had said is normalized. And the comment on the top here going from 7% to 8%, I'll get back to when I speak about the reinsurance, but that goes for '26, not for '25. So for '25, it's still a normalized level at 7% approximately. So we're slightly lower than a normalized level in '25 and had some run-off gains, even though it's best estimate, but I've also said previously that following a period with uncertain inflation, you should expect that we -- that there is a bit more uncertainty and then there could be some runoff gains from that situation if we have been on the conservative side. And then when it comes to claims, I think the important message here is to say that if we compare full year '25 to full year '24, and you normalize for runoff and large losses, all countries are slightly better on the loss ratio side. So it's an improvement coming from the price increases where we have unprofitable products or clients. And that's the simple way of seeing it. The only country that is slightly up, but very much the same is Sweden. And then there are some technicalities, one of which is on the -- or related to the transfer of the Danish Workers' Comp portfolio. So the risk margin is reduced. It's a one-off of approximately NOK 80 million for the quarter and the year due to lower risk in the remaining portfolio, have changed that model. And then there is a small -- between the countries, it has nothing to -- or no consequence on the total loss ratio. But between the countries, there is -- we've changed from a standard, very old model of calculating the future claims handling costs and that changes the distribution with slightly lower cost, which is claims handling cost is on a loss ratio for U.K. So U.K. is slightly higher and then Norway and Sweden have had a bit more of that cost, and that's a one-off again. So they're slightly lower. And with that information, it's -- the conclusion is that all countries compared to '24 are slightly better, normalized for all of that. Any questions on the loss development side? You have all the figures on large loss in order to normalize on all these levels. So I won't go through each of them, but that's the total picture. So we have cost and quality leadership leading to profitable growth as our targets. The cost side is very flat. There is no or very limited efficiency improvements in what you see here. There are some effects that make this look -- '25 look higher than '24. But if you correct for the fact that the share price has increased, we've talked about that before, more than what it did in '24, and that is connected to incentive-based share program for some employees and France, then you'll get slightly lower than what we had in '24 on the cost side. But there is no or very limited efficiency improvement. And we do that consciously. But of course, we do want to see the effects of that investment we make. I think it's more likely that we see that effect in new opportunities for growth that we spend it on developing the company in -- on the growth side to grow then that we cut and slim down departments very quickly in order to get the low cost. And that takes some time, as you understand. So I think that there is no -- nothing very special to comment on here other than those comments I've already had, unless you have any questions on specific countries or the totality on cost. Now continue to the quality leadership. And last time we brought this up, we had the U.K. survey with the brokers where we got very strong feedback. We've also had the Scandinavian or the Nordic surveys out and had very strong feedback. And it's especially good to see that we are increasing the distance to our competitors in all the Scandinavian countries. And we are also winning more prices, external prices from the brokers. So the largest broker in Scandinavia. We are #1 in Sweden and in Norway. And we've also won other external surveys that support our own survey. But at the same time, and as always, the most important thing about this survey is to understand that feedback, use it as a basis to discuss with the brokers who are our best and only friends, how we can improve, what we should prioritize to improve in the future. So this is good news. It doesn't automatically mean that we will get more business from the brokers, but it means that we can -- we're in a position to require more from our best and only friends. And I think that's the important part that the long-term gain from this is that we can require better data, more data, we can require that they invest together with us in competing against the direct channels and that we can do those larger projects because we -- you say that we are the best partner for you. So that's a good thing, but it doesn't mean that we win more clients tomorrow. Yes, there is basically nothing I haven't touched upon here since we've talked about the cost previously as well. So I'll move forward to the investment side. And -- yes, when you see this, it's per 31st of December and does not then include the reduction from the transfer of the workers' comp agreement, which is for '26, and it does not include new growth, of course. So that's a change. But the results on the investment side are strong in absolute terms and relative, especially on the equity side, but also on the bond side in a very strong market. And the yield is down due to the reference rate, if you compare it to last year. Other than that, on the bond side, it's very similar portfolio. We steer interest rate towards our liabilities, and we have a slightly shorter duration in our reserves. So that's down. And then you see the comment at the end that we have the assets under management are reduced by the transaction amount of the reserves that we had on the Danish workers' comp portfolio, approximately NOK 1 billion. And on the equity side, I think it's right to say that it's both absolute and relatively strong result. There is some changes in the portfolio. You see that the discount to intrinsic value has reduced significantly from last year. Some of it is obviously that we've had the gain that we had. So the share prices have gone up, but there are also some companies or some sectors that have performed worse than what we have expected. So there have been some changes in the intrinsic value. So we're open as a value. So -- and this year, it has been some disappointments on certain segments and companies and some changes in that portfolio. But even though it's the same number of holdings, there have been some changes in the portfolio during 2025. And you'll see that in the annual report what we had at year-end '25. Any questions to the investment side? Microphone? Unknown Analyst: You managed to earn an annual rate of return on investments of like 14% over the last 10 years, which you saw on the last slide. How did you do that? And are you going to keep on doing it? Or is it going to be another number in the next 10 years? Henrik Høye: So Dag Marius is here and he's in charge of that, but I can answer that question in at least a simple way, and that is that we believe in what we're doing, and we will continue believing in doing that. So investment is core business for Protector as insurance is. And we will continue to step-by-step have improvements in our processes. And -- but what the future will give, that's very difficult to say. Our ambition is to beat the market over time. And we think that those processes are set to do so. So unless Dag Marius has anything to add. On the income statement here, we have a couple of comments. And I've touched upon one of them before, the change in risk adjustment, it's an IFRS element. So it's on top of the best estimate reserves. There is a risk adjustment in IFRS. And when a long-tailed reserve portfolio is out of our portfolio, then the risk in total for the rest of the portfolio is lower. So that's why we've made that change. It's a one-off, and it should be a stable number or fairly stable number in the future, depending on where the growth comes from. And then it's the larger change that we've made on reinsurance. And it's a bit complicated just because there are no figures that will exactly clarify what has happened on the reinsurance side in the accounts. But to make it simple, we see it from two sides. So I said that we increased the large loss -- normalized large loss rates by 1 percentage point from 7% to approximately 8%. So we're taking a bit more risk ourselves, buying less reinsurance on certain programs. I'll get back to that. And then on the other side, we pay less for that reinsurance. And we wouldn't have done that if we didn't think it was a good idea. And we've done that on the areas where we have a lot of data, so where we think that we're actually able to predict what those large losses will be over time. So that's -- so one angle is that we have increased risk, and that's -- that will mean that -- so it's the very large losses. And as you've seen over the last 5 years, our large loss rate is lower than 7%. And so these are the very large losses. So it's not something that will happen every year. It's -- this is a volatile element. It's a volatile part. It's long -- far out on the tail that 1 percentage point that we're speaking about. And then the reduction in cost is then higher than what that increase is. On the capital development side, on the own funds, we have the Tier 1 that we issued. And then as we're growing, we utilize more of the Tier 2 capital that we have issued previously. And then that's basically the same amount as the dividends that will be paid. So that's stable. And then on the requirement side, it's on the insurance side that there is a change and it's related to reinsurance. And that's the other angle to that reinsurance exercise that we -- so it's increased approximately NOK 300 million on the requirement side. And when we do that, and we have a target or a requirement of 20% return on that capital we need to hold for NOK 300 million insurance risk, which is higher than NOK 300 million, of course. Then our view is that has to be that it's much higher or higher than 20% return on that equity. And our estimation is that it is much higher than that. If not, we wouldn't have done it. So what we have done is to say that on what we call risk -- the risk program, that's basically fires that can be that large on the risk program. We have increased from 100 million Scandinavian kroners or 10 million pounds or euros to NOK 330 (sic) [ 300 ] million. And that's because we have very solid data sets to document and to calculate losses between or up to NOK 300 million and the price is too high. So let's not buy it. We can take that volatility. But obviously, there will be slightly more volatility in our results. But the economic realities of it is that it's the right thing to do. The cat is different. So natural catastrophes, that's different. Just like predicting the interest rate, I don't think we should believe that we are best in the world at predicting what the weather will look like and what climate changes will do. So to increase too much on that side, obviously, we have a view of both how we select risks when it comes to natural catastrophes. We have processes and data that aim to avoid the worst ones where there will be the most flood or the most windstorm damage. But to predict the consequence of weather-related damage to our portfolio is difficult. So we have increased retention on the traditional program to the same level or actually higher since it is in Danish kroner as on the risk side, but that's only for the first loss, then we bought more reinsurance that reduces that to DKK 100 million on the second loss. And the reason is basically that we don't think we know exactly how to calculate that. On the U.K. liability, it's just a too high price. So we -- then we say that you pay this price or we take it ourselves to the reinsurers and some wanted to pay that price or take that price and some didn't. So then we took a higher share of the layer between GBP 10 million and GBP 25 million on U.K. liability. And we are much more comfortable with that portfolio today than what we were when we entered the U.K. So that's -- yes. Any questions on the reinsurance side? Unknown Analyst: Henrik, one, I think that what you're doing sounds reasonable, absolutely, so we like it. What's your estimated or guesstimated increase in retention rate after this one? Because when we do our calculation, we end up that you estimate a large loss ratio to go up from 7% to 8%. And our estimation is that the retention rate will increase with around 2.0 percentage points. Is that a fair assumption, would you say? Henrik Høye: Yes, I think that's a fair assumption. And obviously, it depends on how the portfolio develops. But with the '25 portfolio, it's a fair assumption. Distribution policy, it is very similar to what we have had previously. What you do see is for the one who has studied it next to each other is that it is -- the arrow is slightly taller. The green starts slightly higher up and the box -- the blue box above 200 is slightly higher than the one below. And that is to reflect the process that we have where it's not really about these numbers, 200% or 150% is important. That's the bottom and then there are activities. But it's about the risks that we look at and evaluate every quarter on the different areas, mainly the insurance side and the investment side, but all the underlying risks from them and then the stress scenarios and what we have in a stress situation because what we always want to be sure of is that we are ready to act on profitable growth and good investment opportunities in a crisis situation, but at the same time, not to get lazy, obviously, and make sure that we don't think that we can make a lot more than you if we don't see those opportunities right in front of us. But that's -- it's a quarterly process or a continuous process with a quarterly decision, and it is -- it happens after we know what the results are, not before. Our long-term financial targets, no change in them. And it may seem a bit conservative to say 91% combined ratio with the history of the past 5 years. And the underlying realities is, when I say that they look good and we deliver 85%, they still look good. So -- but it is something about the growth -- Protector as the growth company. We -- profitability is extremely important, but we also have to face the fact that in order to find new markets, there is a bit more uncertainty and we need -- price is the deciding factor. So 91% is long term, a very good return on equity and the same there, conservative relative to those numbers, but I think that it is a good steering to have. And then we're back to the summary and any questions on the totality or the last part? Unknown Analyst: My name is [indiscernible]. I have a question, if I remember correctly, at the last quarterly presentation, you talked about the possibility of entering a new market in the U.K. within real estate. Could you say something about -- are you quoting for the 1st of April already? Or is it too soon? And could you say something about your volume expectations in this market? Henrik Høye: Yes. Good question. I should probably have said something about it on the volume side. So it's -- we have quoted very selectively so far in the real estate market. We have won a handful of clients in that market. But the selectiveness is due to the fact that we basically only quote what looks like what we have from before, housing, for instance, in the real estate sector. And in that part of the real estate segment and especially for the large clients, it seems like the rates are a bit too low. So we haven't won many of the larger clients there yet. But we have quoted very little so far, so that it's a bit unsure if the market intelligence is significant. But we're building those databases with data from the brokers. We're actually getting large databases from the brokers. And when we have a more granular model that can separate the different types of risks within real estate, we are very ready to make that a quoting machine. So we have -- there, we have the model, the people and the setup. So we're feeding that with data. And then we've said that it's approximately GBP 1 billion in that market for what we have risk appetite for. And over time, and I don't know what that is. I'd say it could be 3 years. If things -- if it's a hard market and a rational market, it could be 7 years if it's a bit up and down. But we should have a large share of that market, meaning at least double-digit percent or higher than that is quite obvious because there is a lot of attritional losses and cost will matter in that segment. It's very similar to what we do. So nothing in the figures for now. No good understanding of the market situation, but we're preparing, still preparing. 1st of April is not necessarily a very large date. It's more spread out on the real estate sector. Thomas Svendsen: Thomas Svendsen from SEB. So a question to your U.K. business, just to help us to try to calculate sort of the trajectory of the combined ratio there. So the business you have today, that's the back book and then you have the front book. So how many years do you think it will take before you have replaced the favorable business with the new maybe softer business? Henrik Høye: So it's -- I've commented on this before, and we haven't changed the view on it other than that -- the parts of the portfolio that should be out in 1st of April '26 is going to be smaller than what we estimated. So it's not coming out for tender. But basically, what you can say is that for all the business we wrote in '23, which is the big inflow as 1st of April '23. It will be some clients with -- then 3 years, but I'm saying that that's a smaller share than what is the normal. And then some clients with a 4-year before they go to market. And then -- so let's say that it's approximately, I think I said that before, 40% on 4 years and 40% on 5 years and then 20% on 3 years. And then maybe it's 42% and [ 42% -- 16% ]. Thomas Svendsen: Okay. Good. And just on your -- if you look away from France, but just on your combined ratio. So are you thinking -- are you prepared to go materially above or somewhat above 91% in certain of your established markets if some are below and you think about the average on your existing business looking away from France? Henrik Høye: I think on existing business, we are prepared to write contracts over time that can be slightly above 91% on short-tailed business, if it makes sense. And that can mean first year not to do a price system, but that it is necessary to come in on a higher combined ratio than -- or significantly higher than 91% on the first year with mechanisms and risk management initiatives that make it profitable over time. And we -- but maybe more interesting, I think, is that we then -- we're more interested in looking at new segments or going into business that we find data for, but that are new to us, which there is a bit more uncertainty around, but we have a strong book in the bottom. Unknown Analyst: [indiscernible] A question regarding volume in Sweden going forward. You mentioned that it's still somewhat irrational pricing there and as such, a bit harder to gain volume. Should we expect the coming years '26, '27 to be at approximately '25 levels? Or do you expect that to decrease or increase based on the market situation? Henrik Høye: I think that it's very hard to predict what the competitors will do over the next 2, 3 years. But I -- what we see now is that it is still more difficult in Sweden, and that probably doesn't change tomorrow. But there are a couple of market movements in Sweden that can give us more opportunities. So one of the largest players in Sweden is not -- they haven't officially run out with it, but they are not very interested in brokers, and that can give some better opportunities, more opportunities. There are also some large initiatives on facilities in the Swedish market that goes for the whole Scandinavian market, where we have a very strong position with the brokers to do that cooperation. And then we're in a game where it's more about finding an efficient way of dealing with clients that are slightly smaller and give them a good product through a broker, and that can grow the broker market share -- brokers' market share. And that's -- since the largest Scandinavian broker is headquartered in Sweden, they are furthest ahead there. So there are some market opportunities that can be bigger, but the competitive landscape is a bit volatile in Sweden. Unknown Analyst: You've probably been asked this question many times before, but why did you really choose France? Henrik Høye: Yes. So the short version of that is that we looked at many countries on a high level. Is it -- do the brokers have a good market share? And is the market large enough that we -- that it is interesting to us? Is data available in that market. And public sector has been important for us. That is a market that is -- has the same dynamics as we used to with public procurement regulations and a similar type of insurance purchase. And then we -- through the high-level analysis we started in Spain, we didn't get data in Spain. When we went to France, which was #2. And then we met the brokers, got data in France, and then we can go to the table and at least have a similar starting point as competitors when it comes to competence and understanding of the history. No more questions. Thanks for meeting or listening in. I wish you a good day.
Operator: Good morning, ladies and gentlemen, and welcome to Champion's Third Quarter Results of the Financial Year 2026 Conference Call. [Operator Instructions] I would now like to turn the conference call over to Michael Marcotte. Please go ahead. Michael Marcotte: Thank you, operator, and thank you, everyone, for joining us here to discuss our third quarter results. Before we get going, I'd like to highlight, we'll be using a presentation that's available on our website at championiron.com. I'd like to highlight that throughout this call, we'll be making forward-looking statements. If you want to read more about forward-looking statements, risks and assumptions, you can also visit our MD&A, which is also available on our website. Joining me here today includes many of our executives, including David Cataford, our CEO, who will be doing the formal portion of the presentation; and our COO, Alexandre Belleau. With that, I'll turn it over to David. David Cataford: Thanks, Michael. Thanks, everyone, for being on the call today. I'm very happy to be able to present the fiscal year 2026 third quarter results. In terms of the highlights, so we managed to produce roughly about 3.7 million tonnes during the quarter and sold just shy of 3.9 million tonnes also during the quarter. One of the big highlights as well is we've continued to improve on our cash costs. So our cash cost delivered in the vessel in Sept-Îles was just below $74 per tonne, which translated in the quarter when you look at the realized price of an EBITDA of $150 million, a little bit less than the previous quarter, but the main difference was essentially the provisional price adjustment. So we managed to have a pretty flat quarter-on-quarter. In terms of community governance and sustainability, continued working with local communities and also with the -- our First Nations partners of Uashat mak Mani-utenam. One of the big highlights is we managed to send roughly about 160 people to the community to do a full immersion to be able to work alongside with the community, again, strengthening our partnership and allowing us to view potentials for growth in the future alongside our partners in Uashat mak Mani-utenam. In terms of operational results, one of the highlights for the quarter is definitely the amount of tonnes that we were able to bring down from the stockpiles at Bloom Lake. A lot of those tonnes are now sitting at the port, but we much prefer having them closer to the vessels at the port than on stockpiles at the Bloom Lake site. So we managed to decrease our stockpile by about 1.1 million tonnes quarter-over-quarter, reducing the stockpile to about 600,000 tonnes at the mine. Our inventories increased at the port to roughly about 900,000 tonnes, and we'll be able to destock that over the next few quarters to be able to fill the vessels [ in this system ]. In terms of our operations, again, as we mentioned, quarterly concentrate production of about 3.7 million tonnes. What's important to note as well is that we continue to operate in a way that keeps the mine very healthy. So when you look at our strip ratio, the amount of tonnes of waste that we've moved during the quarter, again, making sure that ore is available and that we can continue working on our blending strategy to make sure that we can dilute down a portion of the harder iron ore that we've had in one of the small zones that we discovered that we disclosed to the market a few quarters ago. In terms of the industry overview, so a pretty flat quarter when you look at the P65, the freight and the premium for the P65 over the P62. So during the quarter, P65 averaged about $118 per tonne, a slight increase of about 1%. There was a very slight decrease in terms of the premium for the P65 over the P62 and a slight increase in C3 freight cost of about 2% during the quarter. But again, pretty flat in terms of quarter-on-quarter. What does that do on our provisional price adjustments? So when you look at this quarter, very uneventful provisional price adjustment, about USD 3.3 million over the quarter. When we account this over 3.9 million tonnes that were produced, it has an impact of about $0.80 per ton in terms of the tonnes sold. When we look at the tonnes that are still on the water now at the end of the 31st of December, we had about 2.5 million tonnes in transit, and we've expected a price of around USD 117 per tonne. If you look at our average realized selling price, pretty close to the P65 index. As you know, we have some tonnes that are still subject to slight discounts due to the fact that we're selling more on spot and not on long-term contracts. This is the year that we'll be able to start shifting that portion because as we deliver our new plant and we're able to sell 69% iron ore, we will now enter into longer-term contracts. But when you look at this quarter, when we account for the conversion of U.S. to CAD and discount the freight cost, we had a net realized price of about CAD 121 per tonne. In terms of our cash costs, so we've continued working on our cost at site, reducing again our cash cost during the quarter to just below $74 per tonne delivered in the vessel, pretty big decrease, and we're continuing to work on our costs. So as you know, the main factors for us is definitely when we have a good iron ore recovery and we have good production, that definitely reduces the cost per tonne at our site. Mind you, this quarter was a quarter that did not have a major shutdown, but still continuing our downward trend in terms of operating costs. What does that translate in terms of financial highlights? So as we mentioned, revenues of about $470 million, EBITDA of $150 million and a net income of $65 million for the quarter. In terms of our cash, so cash sits at roughly about $245 million on the 31st of December this year. Main impacts were obviously the cash flows from operations, where we invested, we invested mostly on the sustaining CapEx and also the DRPF CapEx, and we also paid out our semiannual dividend during the quarter. There was also a change of working capital, mainly due to receivables that have increased. So that should unwind in the next quarter. In terms of our balance sheet, very well positioned to be able to continue our growth initiatives, about $1.1 billion of cash, cash equivalents and working capital and also including the available liquidities that we have on our various facilities. So very well positioned to be able to finalize our growth initiatives. Talking about our growth initiatives. So if we look at our main project, the DRPF project, so we're coming close to completing the project now and being able to commission the first tonnes, still on target to reach our $500 million investment for the full project. Right now, all the equipment is installed. So it's just finalizing some tie-ins with the equipment, and we're now also starting the commissioning of certain equipment as we speak. So pretty excited about the next steps for this project. We're still on target to be able to deliver our first tonnes of DRPF and our first vessel in the first half of this year. When we look at the impacts of starting the plant, we just need to remind everyone that there are some impacts that will come with the interactions with the Phase 2 project. So there will be some interruptions in the plant as we commission the various equipment. We had forecasted in our feasibility study roughly about 20 days for the Phase 2. We'll try to make up a portion of that for -- in the Phase 1 plants, but there will be some interactions in the coming quarter to be able to fully commission this plant. But once that's done, we do expect a ramp-up of roughly about 12 months to be able to get the plant fully running and minimal impacts on the actual Phase 2 production once the tie-ins are completed. So very exciting because we're now finalizing all of the potential contracts with various clients. We do expect to sell most of those tonnes in markets that we had announced, so either Europe, North Africa or Middle East. So working with our partners to be able to finalize those contracts, and we'll be ready for when these tonnes come into the market in the first half of this year. One of the other highlights that we discussed also just a few days before Christmas was the potential acquisition of Rana Gruber. So we entered into a transaction agreement with Rana Gruber to acquire the company. The transaction is fully financed. So a portion of cash, roughly about USD 39 million. We have La Caisse de dépôt, one of our long-standing partners that is also supporting us for USD 100 million. And we also have a fully underwritten term loan with Scotiabank of USD 150 million that we'll start syndicating down to our bank syndicates. So as my understanding, all of our partners are very happy to support us with this transaction. Again, just to remind everyone why we're doing this transaction. Well, one, Rana Gruber is a robust operation that's operated for over 60 years, uninterrupted in all of the various cycles. They benefit from pretty interesting margins in terms of the material that they produce, and they're also on track to start producing higher-grade material, which is fully aligning with what we do at Bloom Lake. They're also very well positioned versus European clients. This is a client base that we want to increase in the future. And there are just a few days of sailing time from their various clients, making it a producer of choice for a lot of steel mills in Europe. We do think there are opportunities in the future with the asset to be able to potentially increase on the volume side, and we also benefit from an extraordinary team over there, fully aligned in terms of values and operation style. So we do think that this is very positive to be able to combine the 2 -- these 2 assets. In terms of our other projects, so as you know, we're also working on the feasibility study and the permitting of the Kami Project. So that's all going according to plan. We should be in a position by the end of this year to finalize the feasibility study and potentially obtain our construction permit for the project and also fully aligned with our partners, Nippon Steel and Sojitz to be able to continue on the next step. So we'll see once we finalize the feasibility study and the permitting process, where is the market for DR grade type material, and we'll then be able to look at the next steps for the project going forward. We also, just to remind everyone, have over 5 billion tonnes of resources just south of Bloom Lake. So we are doing a little bit of drilling just to make sure that we can refine our estimates in terms of the actual tonnes over there, but all very high-grade material that is -- I think will position us very well in the future. Short term, maybe no impact, but in the medium, long term, could definitely be very beneficial for our company. So with that being said, I'd like to thank all of our staff and everyone for making these results possible. I think, again, a very good quarter. We had a few hiccups last year and definitely had some quarters that were impacted by either forest fires or a bit of breakage on certain equipment at our site. But I think that's behind us, and we're now back in a very good operational position. And I think when you look at the results and the cash costs that are continuing to come down, it's a proven element that we're back on track in terms of operations. So with that being said, I'll turn it over for the Q&A portion of the call. Operator: [Operator Instructions] Your first question is from Julio Mondragon from BMO Capital Markets. Julio Mondragon: So I just got a couple of questions. But the first one I would like to ask is, well, you have seen the cost reducing significantly quarter-on-quarter, what are the key drivers of this cost reduction? And also, how sustainable this is in the near term? Like what would be your unit cost target for the next few quarters to understand a little bit more about your cost strategy here. David Cataford: Well, the cost strategy is always to produce at the lowest cost possible. When you look at the results, well, obviously, this was a quarter that didn't have a major shutdown. So quarter-on-quarter, that was one of the impacts in terms of the cost reduction. When you look at the amount of tonnes that were produced, definitely, when we produce more tonnes, well, we'll always have a lower cost per tonne. So that's definitely one of the elements that has improved. And as we come out of this whole stockpile history portion, well, that's definitely going to reduce our costs as well going forward. So those are the main elements. But our strategy is definitely to continue working on various elements that we can improve our costs. How do we do that? Well, we're improving the mining efficiency, also working on our shutdowns to be able to be more efficient. If we can get that plant up and running a little bit more often, well, that's going to allow us to produce more tonnes, it's going to dilute down a lot of our fixed costs. So those are definitely the strategies that we have shorter term to be able to continue on the trend to have good operating costs. Julio Mondragon: And if I could ask one more question. So currently, you are targeting commercial production in the first half of this year from the DRPF plan. So does it mean you are going to achieve nameplate capacity in this period? And also because we're talking about premiums, can you provide a quick outlook of the market and the premiums for this product? David Cataford: Yes. Thanks for the question. So once we get the plant up and running, we believe the ramp-up time is going to be roughly about 12 months to get the full nameplate capacity. So that's the time frame to be able to get the full nameplate capacity. If we can do it quicker, well, we'll definitely come back to the market, but that's what is in our plan right now. In terms of premiums, well, obviously, when you have a new product like ours, at 69%, we need to be able to prove to our various clients that we can hit that number and that it reacts well in their plans. So there's always some trial discounts to the DR grade premiums when you look at the first cargoes. But I think once we are able to demonstrate to our clients that we're hitting consistently the quality, well, then we'll be able to get out of that territory and start benefiting fully from the CR premiums. In the market today, the DR premiums have increased slightly compared to last year. So I do think we're in the right trend. But for us, you have to remember that, one, there's the premium that is interesting, but there's also the freight advantages by selling closer to home. So when you combine those, I do think we're going to have better margins for our material, hence, better returns for our shareholders. Operator: Your next question is from Orest Wowkodaw from Scotiabank. Orest Wowkodaw: Two things from my end. First of all, on the ship loader issue at the port of Sept-Îles, how -- is that rectified? Or how long was that down? I'm just wondering when normal shipments would have resumed post year-end? David Cataford: Yes. Thanks for the question. That was roughly about 4, 5 days. So it wasn't a -- well, I mean, we consider it major, but when you look in the yearly results, it's not necessarily major, just annoying for us because we would have sold probably an extra vessel during the quarter, which would have been nice. But realistically, the operations restarted about 5 days after the breakage. I don't think it's something that is necessarily recurrent, just an issue that happened, but unfortunately, happened right at the end of the quarter. Orest Wowkodaw: Okay. So should we expect that the 900,000 tons of inventory at the port to basically be cleared out here in the current quarter? David Cataford: Well, there's always going to be inventory at the port because as you know, vessels are roughly about 200,000 tons. So it's tough for us to clean out the inventory completely. So I'd say probably closer to 2 quarters to be able to get down to a level that is more in the range of having one vessel on the ground. So that's realistically about the time frame that we believe we can get those tonnes down. Orest Wowkodaw: Okay. And then just changing gears back to the DPRF. Should -- I realize you're not expecting commercial sales, I guess, until sometime in the second calendar quarter. But should we -- like as we're waiting for better visibility on what premiums may look like, should we start to anticipate that like we're going to see some increase in your blended realized price starting as early as Q2 and that ramps over future periods? Or should we just thought -- or is that not realistic? David Cataford: I think it's probably closer to Q3 where you're going to start seeing some results. Q2, definitely, we're going to have our first tonnes that are produced, first tonnes that are sold. But depending on how the actual integration goes and we're able to start up the plant when we look at the interruptions that we'll have to be able to tie in the actual plants together, I think in Q2, that's not when we're going to start seeing the results. It's more in Q3. Orest Wowkodaw: Okay. And when you mentioned earlier also the 20 days of tie-in, is that this current calendar quarter? Is that when that's expected? David Cataford: It's Q1 of fiscal year 2027. So sorry, I think I said on the call this quarter, but in my mind, we're already in April. Orest Wowkodaw: Okay. okay. So we're talking calendar Q2? David Cataford: Correct. Operator: [Operator Instructions] And your next question is from Fedor Shabalin from B. Riley Securities. Fedor Shabalin: David, so several quarters ago, you mentioned that Bloom Lake output could reach between 17 million and 18 million tons annually once all bottlenecks are resolved. The progress of debottlenecking in the fourth is clearly visible. And my question is, where are we now on the path to achieving this 17 million, 18 million tonne production target at Bloom Lake? And I would assume we're not far away. And what additional steps remain to get there? David Cataford: Yes. Thanks for the question. When we go back, the main target for us was definitely to make sure that if we do some investments, we'll be able to get those tonnes down. So the main focus was really to be able to work on the rail portion to make sure we can get the tonnes. When we look at the last quarter, we brought down quite a lot of tonnes from site. So that definitely gave us some good visibility. Now we're in a situation where we're back in the very, very cold winter months. It's actually a very cold winter up to now. So there are some elements that impact the rail portion. But when we take all that into account, I do think we're in a territory where we feel more confident that the logistics side will be able to bring down the tonnes. So now most of the work to be able to define what needs to be done to be able to increase the production is pretty well known. So we're going to start working on those projects to be able to look at the debottlenecking. But that was also one of the thought processes when we looked at acquiring a project like Rana Gruber. So initially, we thought those tonnes would come from Bloom Lake. I still think that Bloom Lake will get to the 17 million, 18 million tonnes. But in the interim, we will now have an asset that produces just shy of 2 million tonnes out of Norway, and that's definitely going to help as well in terms of the production increase. Fedor Shabalin: Yes. That's helpful. And my follow-up question is on DR grade market overall. What does the current landscape look like? And how large is demand now? And do you anticipate any changes to premium above 65% Ferrum from P65 that you outlined previously? And if I recall correctly, it was roughly in the ZIP code of $20 per metric ton. And are there plans to sell a portion of DR pellet feed output to third parties? David Cataford: Yes. Thanks for the question. So the thought process is not to sell those tons to third parties. So we want to sell directly to the steel mills that require this type of material. Again, when we look for potential clients, we want to make sure that they have the right ports so that they can take capesize vessels so that we can fully benefit from the closer to home tonnes. If there are some advantages by going with the smaller Panamax, but there's still some freight advantage for us, it's definitely something that we can look at. But when we combine the freight advantage and also the premiums for the DR, once we get out of the trial cargoes, I do think that the market is looking pretty good to be able to get a significant premium on our side. When you look at this year, well, the DR grade seems to be in a better position than it was last year. But again, there's quite a lot of noise with projects like Simandou coming on. So it doesn't impact the DR grade, but it did impact the view on the high-grade material, not necessarily ramping up to the level that was initially expected. So I think that's keeping the high-grade portion quite healthy. But we will see in the next quarters where that DR premium goes. But when we look at the fundamentals, there's quite a lot of plants getting delivered that need this type of material. There are some plants that have tried to also find ways to upgrade material that might not deliver the results that they thought. So that will definitely be some potential clients for us down the road. But when I look at the environment closer to the whole Sept-Îles port, I do think that we'll have the right clients to sell our material at the right premium there. Operator: Your next question is from Dalton Baretto from Canaccord Genuity. Dalton Baretto: David, I wanted to start by asking -- well, I've got 2 questions on Rana Gruber. I'll start with the first one. When you look at their client base, particularly in Europe, do you see any synergies there with you trying to place the DRPF material? Does that help you in any way? David Cataford: Thanks for the question. So definitely some advantages just in the fact that also they're so close to their clients. So when we sell to Europe, we're close, but we're not that close. They're about 3 days sailing time. I think there's some good potential combinations on that front. When I look at potential blending strategies, that's definitely something that's top of our mind as well. So is it possible to have some potentials in that front to be able to get a better premium for material. That is something that we will look at. I think the main focus now is definitely closing the transaction, making sure that the asset is under our control in the next few months. And then I definitely see some potential advantages and synergies with clients in Europe. Dalton Baretto: That's great. And then similar sort of question, but on the operations side, I was looking at their Capital Markets Day presentation from last year, and it looks like they're about to set off on the same trajectory that you guys just went through in terms of upgrading their material to DRPF. Given what you guys have just been through, do you think that you can accelerate that time line at all? David Cataford: There's various ways to look at it. If you remember, even at Bloom Lake, initially, we thought, do we want to build 1 or 2 flotation plants and get all of our tonnes to 69%, but we thought maybe it makes more sense to do one and maybe there'll be a blending strategy directly at Bloom Lake. So if we transpose that to Rana Gruber, is it the upgrade that is necessary because now we're only looking at 2 million tonnes? Or is it possible to take, let's say, 1 million of those tonnes, blend it with some 69% material and it becomes DR grade. So there's -- again, there's a lot of potential synergies between the 2 sites. Does it mean that we have to accelerate a DR transition at Rana Gruber? Or does it mean that we can work in a different space. We'll definitely look at what's the most accretive for our shareholders. Operator: There are no further questions at this time. I would now like to turn the call over to David Cataford for the closing remarks. David Cataford: Super. Thanks, everyone, for your support. Thanks for being on the call today and not looking at a gold analyst at this time. So yes, gold is definitely in favor, but I do think that the high-grade premium for our material is going to be extremely interesting in the coming years. When I look at our company, I mean, we're just coming out now of a 7-year CapEx cycle, roughly about $2.5 billion invested on time and on budget to create the foundation that we have now. And I do think that in the future, we'll be able to benefit from very good premiums and have a very interesting capital return strategy for our shareholders. So again, thanks, everyone, for your support and looking forward to speaking to you in the next quarter. Operator: Thank you. Ladies and gentlemen, the conference has now ended. Thank you all for joining. You may all disconnect your lines.
Operator: Hello, and welcome to the National Fuel Gas Company First Quarter Fiscal 2026 Earnings Call. My name is Harry, and I'll be coordinating your call today. [Operator Instructions] I will now hand the call over to Natalie Fischer, Director of Investor Relations. Please go ahead. Natalie Fischer: Thank you, Harry, and good morning. We appreciate you joining us on today's teleconference for a discussion of last evening's earnings release. With us on the call from National Fuel Gas Company are Dave Bauer, President and Chief Executive Officer; Tim Silverstein, Treasurer and Chief Financial Officer; and Justin Loweth, President of Seneca Resources and National Fuel Midstream. At the end of today's prepared remarks, we will open the discussion to questions. The first quarter fiscal 2026 earnings release and January investor presentation have been posted on our Investor Relations website. We may refer to these materials during today's call. We would like to remind you that today's teleconference will contain forward-looking statements. While National Fuel's expectations, beliefs and projections are made in good faith and are believed to have a reasonable basis, actual results may differ materially. These statements speak only as of the date on which they are made, and you may refer to last evening's earnings release for a listing of certain specific risk factors. With that, I'll turn it over to Dave Bauer. David Bauer: Thank you, Natalie. Good morning, everyone. I want to start by taking a moment to recognize the fantastic job by our operations team who are braving incredibly challenging winter weather conditions. As you'd expect, our systems are holding up extremely well with minimal operational disruptions at Seneca and no significant issues on our transmission and distribution systems. Thank you to everyone for your hard work. I really appreciate it. Moving to our results. The first quarter was a solid start to the fiscal year with adjusted earnings per share of $2.06, right in line with our expectations. Our integrated upstream and gathering business continues to perform well with higher production and natural gas prices driving a 29% increase in adjusted EBITDA compared to the prior year. Our regulated businesses also delivered strong results, driven in part by our 3-year rate settlement at our New York utility and our pipeline modernization tracker at our Pennsylvania utility. Overall, we're pleased with our first quarter results, which provide a great foundation for the balance of the year. Looking ahead, the outlook for natural gas is as strong as it's ever been with demand at all-time highs. On top of that, there's a growing need for LNG feed gas and new baseload power generation, most of which will be produced using natural gas. And from a policy perspective, there is a rising tide of bipartisan support for an all-of-the-above approach to energy. Against that positive backdrop, our focus remains on operational excellence and the continued growth of National Fuel. In our Integrated Upstream and Gathering segment, we continue to expand Seneca's inventory and significantly improve capital efficiency, which is on track for a 30% gain since 2023, far outpacing our peers. Well results from our Lower Utica program in Tioga County remain among the basin's best and success in delineating the Upper Utica over the last couple of years has essentially doubled our core Tioga inventory estimate. We'll remain disciplined in how we leverage our integrated operations as we develop this region over the coming decades. Our Upper and Lower Utica co-development tests will offer critical insights to guide our long-term strategy, and Justin will speak more to this later in the call. Switching to our pipeline business. Our near-term expansion projects are progressing well. The Tioga Pathway project is moving forward according to schedule. We received our notice to proceed from FERC earlier in the month, and we will begin tree clearing in the next few weeks. Additionally, our Shippingport Lateral Project has now received all its required permits, keeping it on track for a late calendar 2026 in-service date. Beyond these 2 projects, we're seeing increasing interest in other expansion opportunities across our systems, and I'm optimistic we'll have additional projects to talk about in the coming year. Before leaving the pipeline business, one quick comment on ratemaking. Supply Corporation expects to file a rate case later this year to recover costs related to our modernization program and general expense inflation since our last rate increase 2 years ago. I'll keep you up to date on our plans with respect to timing as we move through the fiscal year. Turning to the Utility business. Yesterday, our Pennsylvania division filed a new rate case that requests an approximately $20 million increase in rates. In addition to addressing general cost inflation, the case will reset our modernization tracking mechanism, which will allow us to maintain the cadence of that program. If approved, customer bills will go up by about 11%, which is below the rate of inflation we've seen over the 3 years since we last increased delivery rates. Customer affordability has been and always will be a top priority for us. We currently have the lowest rates in Pennsylvania and fully expect we'll maintain that position after this case. We're the lowest cost provider in New York as well. The utility is in year 2 of a 3-year rate settlement that extends through the end of fiscal 2027. Even with the increases approved as part of that settlement, our delivery rates are still the lowest in the state. In fact, over the last 20 years, the rate of increase in our customer bills is well below the rate of inflation. And with a cost that's 3.5x more affordable than electricity, natural gas is unquestionably the fuel of choice for space heating in Western New York. New York policymakers are increasingly in favor of an all-of-the-above approach to energy. The state's energy plan, the final version of which was published in December, acknowledges the difficulty in meeting the targets required by the Climate Act and emphasizes the need for continued investment in natural gas infrastructure to support New York energy demand. Further, the state has agreed to delay implementation of the All-electric Buildings Act pending resolution of ongoing litigation. The delay is expected to last at least 1 year and could be permanent if the court rules in the industry's favor. We've long advocated that an all-the-above approach to energy is the most effective way to both reduce emissions and maintain the affordability and reliability of energy supplies. I'm encouraged to see policymakers begin to move in that direction. Lastly, at the Utility, we're making great progress on our acquisition of CenterPoint's Ohio LDC, which remains on track to close in the fourth quarter of calendar '26. With respect to financing, in December, we completed a well-executed $350 million private placement of common stock, which satisfies our equity need for the transaction. With respect to regulatory approvals, both the HSR and Public Utility Commission of Ohio notice filings were made earlier this month. And the National Fuel and CenterPoint teams are working closely to ensure a smooth transition for customers and employees. We're really excited about this transaction and the value creation opportunity it offers. Tim will have more details on the acquisition and our financing plans later in the call. Bringing it all together, it's an exciting time to be in the natural gas industry. National Fuel has a unique set of integrated assets in the most prolific gas region of the country. Add to that a strong investment-grade balance sheet, and we are very well positioned to help develop the resource and build the infrastructure needed to serve the growing demand for natural gas. With that, I'll turn the call over to Tim. Timothy Silverstein: Thanks, Dave, and good morning, everyone. National Fuel had a great start to the fiscal year with adjusted EPS of $2.06, which keeps us on track to achieve our full year guidance. Since Dave hit on the high points for the quarter, I'll just briefly explain 2 items impacting comparability that result from our pending Ohio utility acquisition. The first relates to costs incurred ahead of the expected calendar fourth quarter closing. This is a combination of transaction-related costs, items such as legal fees and regulatory filings as well as integration readiness costs to prepare us for post-close operations. We expect that a fair amount of the integration costs can be recovered in the future, particularly those tied to the development of IT systems to replace those that will remain with CenterPoint after closing. The second item is related to financing costs. While raising permanent financing ahead of closing derisk the acquisition, there is an associated cost in the form of earlier dilution and incremental interest expense, both of which we plan to present as an item impacting comparability so investors can better see the results from current operations. Switching to the outlook for the remainder of the year, all of our previous assumptions remain unchanged. We are reaffirming our adjusted EPS guidance range of $7.60 to $8.10 or $7.85 at the midpoint. We are seeing some tailwinds that could favorably impact full year results, particularly on our integrated upstream and gathering cost structure and in-basin prices, which have improved with recent cold weather. Natural gas prices remain the biggest variable for our outlook. And if the past few months are any indication, we expect to see more near-term weather-driven impacts. For example, yesterday, the February contract settled at almost $7.50, a 140% increase from just 2 weeks ago. This was a record move in the 35-year history of a NYMEX natural gas contract. Over the same time period, we saw prices for the balance of the fiscal year as low as $3 and more recently in the $3.75 to $4.25 area. Given this dynamic, we decided to maintain our previous $3.75 assumption for the remainder of the fiscal year. Prices will likely keep moving around. And as a result, we will continue to provide earnings sensitivities at various levels. While pricing fluctuations will likely persist, our hedge book provides downside protection in 70% of our remaining production for the fiscal year, while allowing for us to capture upside to the extent higher prices persist. Within our 2026 portfolio, we have approximately 80 Bcf of collars with an average weighted floor of $3.60 and a cap of $4.75. These collars, along with our unhedged volumes provide us with exposure to higher prices on more than 50% of our expected remaining production. Looking beyond this fiscal year, we were opportunistic in the fall when the longer end of the curve moved up quickly. Across fiscal '27 and '28, we added swap layers between $4 and $4.25, and collars with weighted average floors in the high $3 area and caps well north of $5. At these prices, we are locking in strong cash flows and high returns. Switching to capital, the outlook is unchanged from our prior guidance. Collectively, with earnings, capital and cash flow in line with previous expectations, we are confident in the strength of our balance sheet, which we expect to approach 1.75x net debt to EBITDA as we exit fiscal '26. This outlook played into our decision to stay below the high end of the range of equity needed to fund our Ohio utility acquisition. As Dave mentioned, in December, we issued $350 million of common equity via a private placement. Coming out of the acquisition announcement, we had broad support for the transaction and its strategic merits. We received several unsolicited inbounds expressing interest in a transaction that could be executed in advance of our original public offering timeline. Given the strong demand, we were able to take equity risk off the table at a 2% to 3% discount to our market price at that time. This transaction took care of our expected equity needs for this acquisition. When combined with our current business outlook, we are confident that by the end of the first year post closing, we will be able to achieve the low end of our previously disclosed 2.5 to 3x net debt-to-EBITDA range. With our equity needs solved, our focus turns to debt financing. Between the remaining proceeds needed for the acquisition at closing as well as refinancing our term loan and October long-term debt maturity, we expect to issue approximately $1.5 billion in long-term debt. As a reminder, any public offering tied to acquisition financing of this size drives underwriters to require pro forma financial statements, which in turn are contingent on audited financials of the acquired asset. We expect to receive those audited financials in the next month or so, and we'll have the pro formas shortly thereafter, at which point we can begin evaluating the timing of our transaction. Sticking with CenterPoint, Dave gave a high-level update on the major work streams but I want to touch on a few more points. First, the Ohio Commission issued its final order in CenterPoint's rate case, where they modified a few key terms of the proposed settlement. First, they slightly lowered the agreed-upon ROE to 9.79%, a 6 basis point reduction from the proposed settlement. This will have a fairly small impact on near-term earnings, roughly $500,000 per year. The other action the commission took was to extend the amortization period of deferrals related to various modernization trackers from 15 to 25 years. In the near term, this has no impact on earnings but does modestly reduce cash flows. Longer term, this is actually a benefit as we will be able to earn on a larger rate base amount, which is a tailwind to our long-term earnings and cash flows. More broadly, the Ohio regulatory environment has further positive trends developing. Most notably, the Ohio Governor recently signed into law a bill that modernizes the natural gas ratemaking process. We were optimistic this would occur in the near term but didn't incorporate it into our overall valuation. The new construct significantly shortens the rate case timeline, which typically took 15 to 18 months but now is required to be completed in 360 days. It also moves from a historic test year to a 3-year fully projected test year with annual true-ups to authorized ROEs. These are nice improvements from the current approach as they minimize regulatory lag and provide greater certainty in achieving allowed returns. We remain excited about the Ohio utility acquisition. And as we spent more time with the employees that support this business, we've seen that we're not only acquiring a great asset but also a great team. Overall, the outlook for our business is as strong as ever. Fiscal '26 adjusted EPS is projected to grow 14% over last year, and the setup for 2027 is for even more growth across the organization. Our balance sheet remains strong, which provides flexibility to capitalize on further growth opportunities that may arise. Overlaying this with the broader tailwinds across the natural gas industry, and you can see why we are excited about our ability to continue to create significant long-term value for shareholders. With that, I'll turn the call over to Justin. Justin Loweth: Thank you, Tim, and good morning, everyone. I want to begin by echoing Dave's appreciation for our dedicated employees and contractors. Your planning, communication and teamwork throughout the recent storm and ongoing extreme cold weather has been exceptional. Thank you for keeping our gas flowing and doing so safely. Turning to the quarter. Our integrated upstream and Gathering business delivered a strong start to fiscal '26. driven by consistent execution across our operating teams. Net production was 109 Bcf, an increase of 12% over the first quarter of fiscal '25. This significant production growth paired with lower capital spending highlights the strength of our Tioga Utica program and our relentless focus on capital efficiency. As we continue testing to further optimize well designs, we expect additional productivity gains in the quarters to come. We are reaffirming fiscal '26 guidance with production of 440 to 455 Bcf and capital of $560 million to $610 million. We expect capital to be relatively steady throughout the year. Looking ahead, starting in the second half of the year, Seneca will maintain its plans to operate a single drilling rig and a full-time frac crew, and gathering will ramp up seasonal construction of pipelines and other infrastructure over the summer months. The only other item of note is the timing of activity for a joint development pad, which could pull forward about $10 million of capital into fiscal '26. On production cadence, we anticipate Q2 volumes will be slightly down from Q1, in part due to till timing and deferring some activity during the recent storm. Moving into Q3, we expect production to increase and then hold relatively steady through the end of the fiscal year as we bring online some large Tioga Utica pads during that time frame. Looking ahead, we have several important initiatives underway to optimize future development. First, we are advancing our Tioga Utica well design through Gen 4 testing. This spring, a 5-well lower Utica pad featuring wider inter-well spacing and larger completion designs is expected to come online, enabling us to assess productivity and cost impacts, what we refer to as bang for our buck. In the Upper Utica, we are piloting similar larger completions to evaluate whether the improved performance we have seen in the Lower Utica can be replicated. Above ground, we are enhancing facility designs to support higher initial rates up to 40 million per day on longer laterals while minimizing incremental capital. Second, we are just beginning to flow back our first full upper and lower Utica co-development pad and have more tests planned over the next 12 to 18 months. While the Lower Utica is our current operational plan based on slightly better economic performance, our testing program is designed to confirm that view over a broader set of results and well designs. As results come in, we will preserve flexibility across both development paths and remain focused on identifying the highest returning integrated development program. Turning to Gathering. Our focus remains on supporting Seneca's volumes while adding new third-party production in Tioga County. Our near-term plan leverages existing facilities with target additions of new pipelines and compression. We are also building for the future and recently completed pad construction for the Croft Hollow station, which is located in the northwestern section of our development area. The build-out of this large centralized station and its associated pipeline network is designed to meet expected growth in both Seneca and third-party volumes over many years. Turning to the natural gas markets. Winter Storm Fern has brought very cold weather to a large portion of the U.S. and with it natural gas price volatility. We believe this kind of price fluctuation is the new normal and will persist in the coming years. Strong structural demand from LNG exports and power generation, combined with limited new storage and pipeline infrastructure supports a price environment in the $3 to $5 range with potential for weather-driven deviations lasting weeks or months. Given this outlook, we will maintain disciplined risk management practices and an emphasis on retaining upside during periods of peak demand. Our increasing future production is supported by a diversified and growing portfolio of firm transportation and firm sales. Our total firm transportation capacity will grow from 1 Bcf a day to 1.5 Bcf a day over the next few years with recently announced interstate pipeline projects and capacity releases we have secured. However, we are not stopping there and are actively evaluating opportunities to further expand our marketing portfolio. More near term, we are tactically protecting our production with roughly 80% of our remaining volumes covered by physical firm sales that link our price realization to mostly NYMEX and premium out-of-basin markets. On the sustainability front, I want to highlight a significant achievement. We recently executed a first-of-its-kind 10-year agreement to provide 250,000 MMBtu per day of MiQ certified methane reduction certificates to a European utility. This agreement reinforces Seneca's leadership in responsibly sourced gas and provides a framework for similar transactions in the future. In closing, our integrated Upstream and Gathering business entered 2026 from a position of strength, and our momentum continues to build. Our focus on capital efficiency through well-designed testing, co-development pilots and ongoing operational optimization provides us -- positions us to further enhance long-term value. Combined with our Integrated gathering assets and diversified marketing portfolio, these efforts support best-in-class margins and growing free cash flow in the years ahead. With that, I'll ask the operator to open the line for questions. Operator: Our first question today will be from the line of Zach Parham with JPMorgan. Zachary Parham: First, I just wanted to ask on if you have any ability to take advantage of local prices that have spiked over the last week or so, we've seen some of the local basis points spike into the triple digits on some days given the cold weather and the freezeouts we've seen. Do you have any ability to flow incremental volumes and take advantage of that? Just curious if you were able to benefit at all there. Justin Loweth: Yes, Zach, it's been a remarkable time, hasn't it? The pricing has been historic highs. We've got a fantastic marketing portfolio. And so we do always keep open a little bit of gas daily, daily, including to markets like non-New York and Z5 on the Transco system, which saw some of those extremely high prices. So absolutely, it's not -- there's a good base of our gas that we really just tie back to NYMEX but we do keep a small portion open to try to take advantage of those prices when they happen. So it was a pretty interesting weekend and exciting time. We're still seeing fantastic in-basin pricing today, too. Zachary Parham: And then my follow-up, I just wanted to ask more broadly on the pipeline side. Could you talk about the potential for future growth projects in the pipeline business beyond Tioga Pathway and the Line N Lateral that you've announced. I know there's a lot of infrastructure development going on in the basin. Just curious what the opportunity set there could look like to drive further growth from the pipeline business. David Bauer: Yes. Zach, yes, I definitely think we'll have additional opportunities over time. You look at where our pipelines are located, I mean, they're in pretty much the best area in the country for doing projects, whether it's proximity to the resource itself or the infrastructure to deliver it. So we've had continued interest in projects in and around our Line N system. We tend to be pretty conservative when we announce projects but we are in active dialogue with other parties and fully believe we'll have additional opportunities down the road. Operator: The next question will be from the line of Noah Hungness with Bank of America. Noah Hungness: For my first question here, there is a few bills working their way through the Senate regarding federal permitting reform, a couple targeting changes to NEPA and the Clean Water Act. I was just wondering your all thoughts if those bills do end up passing, how would that change how you think of regulated pipeline projects and other projects that may be able to be greenlit? David Bauer: Yes. Well, I think it would be great if they were passed both for the pipeline industry and the renewal industry for that matter. I'm not sure that it would change our view on pipeline development, right? I mean we've got a great team that runs all the traps on getting these projects developed. And for us, the permitting reform issue has generally, at least in Pennsylvania, been a question of time as opposed to whether projects get built or not. So I think the net outcome of permitting reform would be projects would get built sooner. Noah Hungness: Great. And then for my second question, this is probably for you, Justin. How can we think about the D&C costs of the Seneca Gen 4 design? And how does that compare to some of the costs shown on Slide 50? And also, could you maybe talk about what D&C costs would look like for the larger upper Utica frac? Would that also be similar to a Gen 4 design? Justin Loweth: Yes. Sure, Noah. So there are several things going on with the Gen 4 design that we're looking at. But if I really boil it down to, I think, the 2 biggest factors, it's a little bit wider inter-well spacing and then obviously, the upsized proppant loading and completion design going to 3,000 pounds per foot more or less. So really, the main cost that you have when you do something like that, you're pumping a little bit more fluid, you're pumping a little bit more sand and you've got a little more pump time. And so ballpark, that adds probably $150 to $175 a foot, something like that. we see in the -- we've got a couple of tests in the ground now where we did this on a pad and had a single well where we kind of tested out the Gen 4 design. We're now moving to the place where we're testing these out where all the wells on a pad are going to be Gen 4 designs to kind of see it. But we think there's a pretty meaningful uplift that is significantly in excess of that incremental cost in terms of overall pad-based IRRs and ultimately, EUR that we would get out of these wells. And so right now, we're excited to kind of see that play out. I noted in my remarks, we've got this spring, our first well that will be -- our first pad, excuse me, that will be a true pad Gen 4 design. It will come online, we expect later in the spring. And so that will be a great opportunity to really see how these wells do. I will note we already rate constrained and rate restrict all of our wells. We kind of hold them flat at around that usually 25 million, 30 million a day. And the other element, though, on Gen 4 and just generally is we're looking at facilities where we would hold them flat at up to 40 million a day. So there's a lot of things playing into that. But holistically, what I'd tell you is we think there's a lot of opportunity here, and we're going to continually evaluate is this a better economic answer, kind of balancing the increased productivity, the EUR versus the costs. On the uppers, it's a similar amount, and we're earlier in that testing. We just have less wells but it will go through kind of a similar process where we test out moving to maybe a larger completion design. Noah Hungness: And I'm sorry, any early thoughts on the Gen 4 productivity uplift? Justin Loweth: Yes. I would say we haven't really put in like a detail on that but that will come. But I guess what I'm sharing with you is just expect that you would take a curve where it will be rate restricted for a period but would have probably a longer flat period and then ultimately a higher EUR. And so you would have pickup, say, after you exit that flat period 6 to 12 months out, you would just be holding flat longer. So you're getting back a lot of this value nearer term. And with an increased deliverability and productivity, we may rate restrict them at a higher rate during the initial flat period. Operator: The next question today will be from the line of Gretta Drefke with Goldman Sachs. Margaret Drefke: As you've noted, natural gas pricing has continued to be incredibly volatile. But as you think about the outlook for NFG on more of a through-cycle basis, what is the optimal production growth rate for the company over the next several years? Is mid-single-digit growth still a fair starting point? Or if we go into a less constructive gas price environment maybe over time, would you be inclined to maybe slow down some of that growth if we have to work through some periods of pricing weakness? Justin Loweth: Yes. Thanks, Gretta. A couple of things on that. One, I would say, we feel pretty good about our outlook on gas kind of being in that $3 to $5 range. And when it's in that $3 to $5 range, we earn fantastic returns, and that's kind of just a continue on go forward. If we saw prices outside of that range and not consistently and in a forward curve or frankly, even to the high end of that range, I think we would be looking for ways to go a little bit faster. But the real governor for us is interstate pipeline capacity. So we need more -- I've talked about this in the past. We either need to see a little bit more attrition from other operators, particularly in Northeast PA, where some of the inventory there is more mature. And so we think there's a market share opportunity for us or we need new pipes, either through modernizations, expansions or new builds, that's really going to be the governor. Certainly, if we saw sustained prices below that 3% to 5%, we would be looking at ways to maybe moderate on the margin. But overall, our base plan is to continue in that mid-digit range, kind of 3% to 7% per year on average. Margaret Drefke: Great. And then just for my next question, last quarter, you announced 220 location additions in the Upper Utica zone. As you spend a little bit more time with that geology, can you speak to if there are any plans for further delineation or testing that could unlock even more locations and expand that upper Utica inventory across the portfolio? Justin Loweth: Sure. So there's opportunity to further expand our inventory count, both in the upper, but also in the lower. And we're continuing to appraise and delineate. So we've got over 400 Utica locations between uppers and lowers that we feel really good about and have largely appraised and delineated. We think there probably is some opportunity to have upside to that as we go forward in potentially uppers and lowers. And so that's something we'll -- we will -- we've got a lot of inventory. So it's always a balance on how much money you want to put into, call it, a leading-edge appraisal well where you're moving into, say, a different fault block versus drilling the inventory you have that's very well delineated. But we're looking to kind of continue to expand our position here and grow to have as many future development locations as possible. And so I think we'll find ways to do that. We have a lot of lot of smart people in our subsurface teams that are working through this, and we'll be testing some areas that expand potentially the boundaries of our current well-delineated 400-count upper and lower locations today. Operator: The next question will be from the line of Tim Schneider with the Schneider Capital Group. Timm Schneider: So most of my questions have actually been answered. So I'll follow up on a comment that I think Justin made in terms of volatility expected to stay here in natural gas markets. So as you kind of look at that, what do you think going forward alleviates that issue? Is it more steel in the ground, either via pipelines or storage? Or is there something else that needs to happen as well? David Bauer: Yes. Tim, this is Dave. I think it's more steel on the ground, right? I mean you look at gas prices and electric prices in the Northeast are just incredible this past week. And the easiest way to get that down, whether it's gas or electricity is building more pipeline infrastructure. And we've got the resource without question. By using more of it, we can damp down a lot of that volatility. Timm Schneider: Got it. And obviously, putting in steel storage, whatever is a lot tougher in the Northeast than it is in other parts of the country. Have you guys looked at rates that it would cost that you would need in order to put new storage assets in the ground in the Northeast to the extent that is even possible? David Bauer: Yes. And we have looked at that. It is quite high. Our focus is on optimizing our existing storage facilities, right? So either drilling, say, horizontal wells or doing other things that can either increase the amount of gas we can get downhole or improve the deliverability rates that we see when we're bringing gas out. Timm Schneider: And then lastly for me, can you remind us what percentage of your storage is merchant versus kind of contracted? David Bauer: It's 100% contracted. Under straight variable rates. Operator: [Operator Instructions] The next question today will be from the line of John Freeman with Raymond James. John Freeman: Just following up on the Upper Utica topic. Justin, have you determined sort of like what's the appropriate sort of co-development type strategy going forward? I assume there's been some testing, maybe wine rack type, maybe there's some others. Just kind of where you are in that process. Justin Loweth: Yes, John, thanks for the question. So we think about it a lot. Right now, our base development plan, what we think about is to go with a lower Utica development first because it has a slightly better economic edge. That being said, we really want to challenge that thesis and that result. So what we're doing is literally here right now, we're going to begin flowback on a true co-development Upper, Lower Utica pad. We've got another one planned for later this year. And we're going to take that data and that information and really use it to assess the right development plan. And as I mentioned, our lean right now is towards go ahead and do the lowers initially and come back and do the uppers in time. But we don't want to just make that assumption. And so we're keeping our options open. We've got the ability to pivot to go one way or the other but we want to be led and informed by data and results. And so that's what we're in the process of doing, and we'll be doing so over the next kind of 12 to 18 months before making a conclusive decision. John Freeman: Got it. And then just kind of a bigger picture question. There's been a healthy amount of upstream sort of M&A by some of your peers over the last like 6 months. I'm curious if you all's M&A focus will remain on more of the regulated businesses or following CenterPoint closing, if we could see maybe a shift of M&A focus back toward whether it's upstream or just your unregulated businesses. David Bauer: Yes. John, I mean you're right. Going into CenterPoint, we were focused on the regulated side of the business, and we're able to do a great transaction. I'd still like us to be a bigger company. And I think the CenterPoint deal kind of rebalances the company a bit and it gives us the flexibility to look at transactions on both the regulated and nonregulated side of the business. I don't know that I'd say that I have a particular priority one way or the other, other than to invest capital in ways that get the best returns for our shareholders. Operator: The next question will be from the line of Jeff Bellman with Daniel Energy Partners. Jeff Bellman: I had 2 questions. First question, Justin, just on the frac barrier between the upper and the lower, how variable is that? Or is it not? And just kind of an assessment of how that frac barrier looks across your acreage? That's my first question. Justin Loweth: Yes. At a big picture level, what I would share with you is that this is a regionally unique feature that we have due to some series of or singular seismic event that happened several hundred million years ago. The thickness, we've got really good well control and understanding of the thickness of that seismic barrier across our acreage position. It does vary in the depth -- excuse me, in the size of it, but the overall characteristics of that largely impermeable barrier is consistent across our acreage from everything we've seen. So we think it's -- everything we've delineated in the uppers and you can see, and we've tried to provide a map in our latest IR deck, you can just get a sense of the areal extent of our testing. We feel like it's a very effective barrier across that position that we fully delineated. Jeff Bellman: Great. Second question, can you guys speak a little bit more broadly just in terms of -- you kind of touched on a little bit, just incremental takeaway industry-wide out of the basin. I hear some comments about kind of more gas that can move west out of Pennsylvania to Ohio, a lot of data center development there. Just broadly speaking, what's your sense on kind of brownfield takeaway out of the basin going west? And maybe if you have any view on volumes going south? Justin Loweth: Sure. Well, I'd say, I mean, for the first time in a while, there's actually projects that are kind of happening more, right? So there are -- within the basin, I would put it into a few categories. I mean the brownfield is happening. I mean that's this new capacity that Seneca has signed up for that will go in service in 2028 is a good example. The Tioga Pathway Project that supply -- National Fuel Gas Supply is building this year that will serve Seneca is another good example. So a combination of brownfield and quasi-greenfield kind of intra-basin or moving a bit out of basin but to more premium markets. That's great. I think the potential for really big greenfield pipe is still pretty challenged. We're really encouraged with the news out of both FERC and New York that seems to have greenlit NEE getting built. That's also a very important project for us specifically because we move a lot of our gas through our Atlantic Sunrise and Leidy South capacity. exactly into that market, and this will create a new significant pull on demand and should further support the pricing there. And then there is the in-basin demand. I mean there's been a number of significant power gen and/or power gen data center-related projects that have been announced and that are in various stages of construction. So that will keep growing the demand. So I think it's kind of all those things. And the last one I would put in there is that we think there's still a big opportunity, particularly for some of the very large interstate pipelines that have -- that move well out of the basin you can pick on different names, whether it's a Transco or Tennessee or others, where they likely have some real opportunities to further debottleneck their pipe by doing some minor modernizations or compression adds even beyond in the basin that could free up more gas to get out of Appalachia. And I think, as Dave said just a minute ago, what we need is more steel and more takeaway in order to help dampen some of this volatility. And so those are the very projects that could really help do that. And frankly, our position at Seneca and NFG Midstream is well interconnected to where that takeaway would start. So we're watching it closely. We're participating in it through the projects we're doing, and I'll call it, cautiously optimistic we'll see more of that. Operator: Thank you. This will conclude today's Q&A session. I will now hand the call back to Natalie Fischer for closing remarks. Natalie Fischer: Thank you, Harry. We'd like to thank everyone for taking the time to be with us today. A replay of this call will be available this afternoon on both our website and by telephone and will run through the close of business on Thursday, February 5. Please feel free to reach out if you have any follow-up questions. Otherwise, we look forward to speaking with you again next quarter. Thank you, and have a nice day. Operator: This concludes today's call. Thank you for joining the National Fuel Gas Company First Quarter Fiscal 2026 Earnings Call. You may now disconnect your lines.
Operator: Good afternoon, and thank you for joining the Fourth Quarter 2025 Earnings Conference Call for LPL Financial Holdings Inc. Joining the call today are Chief Executive Officer, Rich Steinmeier; and President and Chief Financial Officer, Matt Audette. Rich and Matt will offer introductory remarks, and then the call will be open for questions. [Operator Instructions] The company has posted its earnings press release and supplementary information on the Investor Relations section of the company's website, investor.lpl.com. Today's call will include forward-looking statements, including statements about LPL Financial's future financial and operating results, outlook, business strategies and plans as well as other opportunities and potential risks that management foresees. Such forward-looking statements reflect management's current estimates or beliefs and are subject to known and unknown risks and uncertainties that may cause actual results or the timing of events to differ materially from those expressed or implied in such forward-looking statements. For more information about such risks and uncertainties, the company refers listeners to the disclosures set forth under the caption Forward-Looking Statements in the earnings press release as well as the risk factors and other disclosures contained in the company's recent filings with the Securities and Exchange Commission. During the call, the company will also discuss certain non-GAAP financial measures. For a reconciliation of such non-GAAP financial measures to the comparable GAAP figures, please refer to the company's earnings release, which can be found at investor.lpl.com. With that, I'll turn the call over to Mr. Steinmeier. Richard Steinmeier: Thanks, operator, and thank you to everyone for joining our call. It's a pleasure to speak with you again. Before touching on our fourth quarter results, it was a milestone year for LPL as we significantly advanced our key strategic priorities. To reflect on a few of our key accomplishments, we delivered industry-leading organic asset growth of 8%, including the onboarding of the retail wealth management businesses of Wintrust Financial and First Horizon, which collectively support over 200 financial advisers managing roughly $34 billion in client assets. We completed the onboarding and integration of Atria Wealth Solutions, converting 7 distinct broker-dealers to the LPL platform. We signed and closed our acquisition of Commonwealth Financial Network, marking the largest deal in LPL history, welcoming their home office staff and approximately 3,000 advisers to the LPL family. We launched a national marketing campaign to elevate our brand with advisers and their clients. We significantly advanced our employee experience, resulting in our highest employee engagement scores in nearly a decade. We made meaningful progress driving improved operating leverage. And finally, our collective efforts resulted in record adjusted earnings per share of $20.09. Okay. Now let's turn to our Q4 results. In the quarter, total assets increased to a record $2.4 trillion, driven by organic growth and higher equity markets. We attracted organic net new assets of $23 billion, representing a 4% annualized growth rate. Our fourth quarter business results led to strong financial performance with record adjusted EPS of $5.23, an increase of 23% from a year ago. Next, let's turn to our strategic plan and progress across our organic and inorganic initiatives. Our vision is clear. We aspire to be the best firm in wealth management. To do that, we are focused on 3 key priorities: One, maintaining the client centricity the firm was built on; two, empowering our employees to deliver exceptionally for our advisers and their clients; and three, delivering improved operating leverage. Effectively executing on these focus areas will help us sustain our industry-leading growth while advancing the efficiency and effectiveness of our model. With that as context, let's review a few highlights of our business growth. In Q4, recruited assets were $14 billion, bringing our total for the year to $104 billion. Throughout the quarter, our pipelines continued to build and are near record levels. Recognizing that many opportunities are in the early and mid-stages, we expect the pull-through to improve over the course of the year as we reignite our industry-leading growth engine. In our traditional markets, we added approximately $13 billion in assets during Q4 as we maintained our industry-leading capture rates of advisers in motion. With respect to our expanded affiliation models, strategic wealth, independent employee and our enhanced RIA offering, we delivered another solid quarter, recruiting roughly $1 billion in assets. Turning to overall asset retention. It was 97% for Q4 and over the last 12 months. This is a testament to the continued efforts to enhance the adviser experience through the delivery of new capabilities and technology and the evolution of our service and operations functions. As for Commonwealth, we are thrilled to be working closely with our new colleagues to develop the target operating model and positioning for the Commonwealth value proposition within our suite of offerings. The work is well underway, and we remain on track to onboard the Commonwealth advisers in Q4. In parallel, in partnership with our Commonwealth colleagues, we remain focused on helping their advisers understand the benefits of staying with Commonwealth, ensuring each adviser has everything needed to complete their diligence and make an informed decision. We continue to expect roughly 90% retention of client assets. As we get closer to onboarding later this year, our estimate will continue to firm up. In closing, the fourth quarter was a capstone on an outstanding year. This is a result of the dedication of our team and their unwavering commitment to our advisers. So I want to thank everyone at LPL for their efforts. As we look ahead, we remain well positioned to serve as a critical partner to our advisers and institutions to continue delivering industry-leading organic growth and to maximize long-term value for shareholders. With that, I'll turn the call over to Matt. Matthew Audette: Thanks, Rich, and I'm glad to speak with everyone on today's call. As we reflect on 2025, it's been a year of meaningful progress for LPL as we continue to execute against some of our key strategic priorities, which include advancing our efforts to drive improved operating leverage through a combination of increased efficiency in our business and refinements to pricing to ensure it is aligned with the value we deliver and driving further improvements to the adviser experience by removing friction through investments in automation across our service, operations and supervision. As we look ahead, we're encouraged by the opportunities in front of us to better serve our advisers and continue strengthening our industry-leading value proposition. Now turning to a few highlights from our Q4 business results. Total advisory and brokerage assets were $2.4 trillion, up 2% from Q3 as continued organic growth was complemented by higher equity markets. Total organic net new assets were $23 billion, an approximately 4% annualized growth rate. For the full year, total organic net new assets were $147 billion or an approximately 8% growth rate. As for our Q4 financial results, the combination of organic growth and expense discipline led to adjusted pretax margin of approximately 36% and record adjusted EPS of $5.23. Gross profit was $1.542 billion, up $62 million sequentially. As for the key drivers, commission and advisory fees net of payout were $453 million, up $27 million from Q3. Our payout rate was 88%, up 53 basis points from Q3 due to the seasonal build in the production bonus. With respect to client cash revenue, it was $456 million, up $14 million from Q3 as the sequential growth in balances more than offset the impact of lower short-term interest rates. Overall client cash balances ended the quarter at $61 billion, up $5 billion sequentially, a strong outcome even when considering the typical Q4 seasonal build. Within our ICA portfolio, the mix of fixed rate balances ended the quarter at roughly 55%, within our target range of 50% to 75%. Looking more closely at our ICA yield, it was 341 basis points in Q4, down 10 basis points from Q3, driven by the impact of the October and December rate cuts. As we look ahead to Q1, we expect the full quarter impact of the Q4 rate cuts to lower our ICA yield by roughly 10 basis points. As for service and fee revenue, it was $181 million in Q4, up $6 million from Q3 as the full quarter of Commonwealth was partially offset by lower conference revenue and IRA fees. Looking ahead to Q1, we expect first quarter service and fee revenue to increase by approximately $25 million sequentially. This is driven by 2 factors: first, a seasonal decline in conference revenue of approximately $10 million. This is more than offset by the impact of the fee changes we announced last quarter, which will provide an ongoing quarterly benefit to service and fee revenue of roughly $35 million or $140 million annually. Moving on to Q4 transaction revenue. It was $75 million, up $8 million from Q3, driven by increased trading volumes. As we look ahead to Q1, trading activity levels remain roughly in line with Q4. However, I would note there are 3 fewer trading days in Q1, so we expect transaction revenue to decline by a few million sequentially. Now let's turn to our acquisition of Commonwealth. As Rich mentioned, the transaction is progressing well, and we remain on track to onboard in the fourth quarter. As for the financials, accounting for current client assets and cash balances as well as interest rates, we continue to estimate run rate EBITDA of approximately $425 million once fully integrated. Next, let's move on to expenses, starting with core G&A. It was $536 million in Q4, bringing our full year core G&A to $1.852 billion, below the low end of our outlook range, reflecting progress we've made driving greater efficiency and lowering our cost to serve. For the full year, prior to the impact of Prudential, Atria and Commonwealth, 2025 core G&A increased by approximately 4%, our lowest level of growth in several years. In 2026, we plan to continue to invest in the business to deliver greater efficiencies and drive operating leverage as we scale. Prior to Commonwealth, we expect core G&A growth of 4.5% to 7% or $1.775 billion to $1.820 billion. In addition, we'll have the full year impact of expenses related to Commonwealth, which adds roughly $380 million to $390 million. This brings our overall expectation for 2026 core G&A to be in a range of $2.155 billion to $2.210 billion. And to give you a sense of the near-term timing of the spend, as we look ahead to Q1, we expect core G&A to be in a range of $540 million to $560 million. Next, I want to highlight a minor update to our management P&L this quarter, where we separated TA loan amortization from promotional expense. While this is not a new disclosure, we hope the updated placement allows you to more easily analyze our results. So looking at TA loan amortization, it was $133 million in Q4, up $28 million sequentially, driven by Commonwealth-related transition assistance as well as our ongoing recruiting. As we look ahead to Q1, we expect TA loan amortization to increase by roughly $5 million, primarily driven by Commonwealth. Turning to promotional expense. It totaled $76 million in the fourth quarter, down $21 million sequentially, primarily driven by lower conference spend. Looking ahead to Q1, we expect promotional expense to be roughly flat sequentially. Turning to depreciation and amortization. It was $105 million in Q4, up $5 million sequentially. Looking ahead to Q1, we expect depreciation and amortization to increase by $5 million. As for interest expense, it was $106 million in Q4, roughly flat sequentially as increased usage of the revolver was offset by lower short-term interest rates. Regarding capital management, we ended Q4 with corporate cash of $470 million, down $99 million from Q3. As for our leverage ratio, it was 1.95x at the end of Q4, near the midpoint of our target range. Moving on to capital deployment. Our framework remains focused on allocating capital aligned with the returns we generate, investing in organic growth first and foremost, pursuing M&A where appropriate and returning excess capital to shareholders. In Q4, we continued to deploy capital in line with our priorities, investing primarily in organic growth and M&A, where we advanced the Commonwealth integration and continue to allocate capital to our Liquidity & Succession solution. Specific to share repurchases, a reminder that we paused buybacks following the announcement of the Commonwealth acquisition with a plan to revisit following the onboarding. As we look ahead, we are ahead of schedule with leverage already at the midpoint of our target range and the operational work to onboard Commonwealth well underway, there may be an opportunity to refine the timing of resuming share buybacks later this year. In closing, we delivered another quarter of strong business and financial results. As we look forward, we remain excited about the opportunities we have to continue to drive growth, deliver operating leverage and create long-term shareholder value. With that, operator, please open the call for questions. Operator: [Operator Instructions] Our first question comes from the line of Steven Chubak from Wolfe Research. Steven Chubak: Rich and Matt, thanks for taking my questions or one question. So I did want to ask on Commonwealth retention. There's been a fair amount of press coverage in recent weeks, suggesting the retention was running well below that 90% target. So certainly pleased to see the 90% target reaffirmed. I was hoping you could speak to what gives you confidence that you could still achieve that 90% asset retention figure. And just given the near record recruiting pipeline that you cited, just speak to some of the actions that you're planning on taking to get core recruiting ex Commonwealth back on track. Richard Steinmeier: I'll start or do you want to start? Matthew Audette: Yes, I'll start with the retention, Steven. I think when you look at retention, right, and it's based on assets, right? The assets we expect to land on our platform after the onboarding in Q4. And that's our methodology. We consistently do that on our acquisitions. So I think when you and others that are speaking here that are reading headlines about headcount departures, just to give you a little color on that, when you look at the advisers who have signed to stay with LPL so far, we're now just over 80%. And you look at those, on average, they are larger, they are faster growing, and they are higher producers than those that have decided to go elsewhere. So I think when you get some noise when you look at those headcount departures. But when you look at the advisers that have committed to stay with LPL, with Commonwealth, it is an impressive group, and we are really excited to welcome them on the platform as we onboard in the fourth quarter. Richard Steinmeier: So maybe just to augment that just briefly, as Matt, I think, made it very clear on the asset retention and that we're retaining the larger advisers. I think there are still advisers who are making their decisions over the course of the balance of the next couple of months and maybe even through the next couple of quarters. And we are deeply connected between Commonwealth and LPL to help educate them on the continuing of value proposition of Commonwealth. And we are very confident that by keeping the community intact, safeguarding their experience, their culture, their capabilities and their leadership, that will ultimately win the day. And quite honestly, those are the conversations that we're having as folks have gone through a very elongated due diligence process, they're coming back to having much more productive conversations now than we were even having at the beginning. And so maybe parting shot on that, Steven. Overall, we are thrilled with this transaction. We love the way the teams are coming together. We are excited about the prospects for our go-to-market strategy and the integrated firm. Now you mentioned -- and maybe one last thing, I will mention that, as Matt said, last quarter, we updated you that we had advisers representing nearly 80% of assets have signed their agreements to stay with Commonwealth. And as of today, that has improved to the low 80% range of advisers representing low 80% range of assets have signed agreements to stay with Commonwealth. As for achieving -- getting back on track in recruiting, I think it needs to be noted that many of our top recruiters have been focused on Commonwealth retention efforts. And as we approach the conversion, with more Commonwealth advisers completing their diligence signed, our recruiters are getting back to their organic recruiting efforts. So looking ahead, we should gradually return to more normalized recruiting outcomes driven by increased in -- increased win rates in traditional markets with our unmatched value proposition, further penetrating the wire and regional employee adviser space where there is growing awareness of our solution, and we continue to narrow the gap on capabilities. And of note there, over the last couple of years, we have grown our capture of wirehouse and regional employee advisers from 9% of all advisers in motion to now up above 11% of all advisers in motion. And augmenting that, our Liquidity & Succession solutions create an important part of the value proposition for new advisers to join, so they'll have an option when they're ready to transition their business. If you couple that with low attrition and steady contribution from same-store sales, it sets us up really well to sustain mid- to high single-digit growth over the long term. Operator: And our next question comes from the line of Alexander Blostein from Goldman Sachs. Alexander Blostein: Maybe building on that a little bit, Matt, I heard you reaffirm your EBITDA contribution of $425 million once everything is onboarded. Maybe help unpack that a little bit because given just the assets have grown due to market largely and you're still on track to $90 million, and you highlighted you're running, I guess, in the low $80s million now. Why isn't the $425 million higher? Are there other puts and takes we need to consider? Or you guys are just looking to revisit that once the -- once the assets are fully onboarded? I just want to kind of better understand the mark-to-market impact on all of that. Matthew Audette: Yes. There's just -- yes, you've got assets have gone up a bit, Alex, but you've also got another interest rate cut. And when you look at the cash sweep bet at Commonwealth that built up in December, that's already gone back into the marketplace. So those things kind of net offset each other, and that's why we're still at roughly $425 million. Operator: And our next question comes from the line of Dan Fannon from Jefferies. Daniel Fannon: So I wanted to follow up just on the growth outlook. And Rich, you had mentioned reigniting the growth engine at LPL. So is it just time and the timing of this in terms of getting back to regular recruiting? Or can you talk to the industry dynamics and advisers in motion and kind of the recruiting backlog today versus where it maybe was a year ago? And just kind of thinking more about the acceleration, whether that could be more of a first half dynamic or you think it's really closer towards that onboarding of the Commonwealth assets? Richard Steinmeier: Yes. I appreciate it, Dan. There's a lot in there. So maybe let's start with the recruiting environment first. I will tell you, we pay very close attention to the advisers in motion. And relative to historic norms, we still see that adviser movement remains tempered relative to historic levels. Now look, truth there is that there are events in the marketplace that can drive that churn to higher levels. And that one right now is probably the acquisition of Commonwealth. And so we're participating there, obviously, dedicating recruiters. A recruiting event where you're trying to educate 3,000 advisers is a very large event for us. And so we dedicated and ring-fenced a set of our most sophisticated and most senior recruiters and working against that. And as I alluded to and as you referenced, as we get more signs and you mentioned where we're at, those recruiters get the chance to pivot back to their organic recruiting pipeline. But as I noted earlier, when you start building those pipelines, you're going to build into the earlier stages as you think about a stage progression pipeline. And so while our pipelines continue to build through Q4 and they are near record levels, they're loaded towards that early and mid-stages. And so that takes time, and we've alluded to on calls in the past, you get different durations of how long a cycle time is for a recruiting event, and they vary from independent adviser 1099 direct to our supported models in strategic wealth and Linsco have longer lead times. And so when that will pull through is a function of the mix of those advisers and how they get through their diligence and decision-making. But we expect that pull-through to continue to improve over the course of the year. And maybe if we think about the environment that we're in, I think you've heard it on some of the other calls as well, it's a competitive environment right now. Competitors remain aggressive. We've seen TA levels spike up, most notably right after the Commonwealth announcement. And we see those TA levels staying elevated in the marketplace. And so typically, in the wake of several interest cuts, we would have expected some moderation in TA, and that really hasn't happened. Rates have remained high in absolute terms. And so from our perspective, nothing about our approach has changed. We stayed disciplined on returns with TA being a part of the conversation but really not the driver of decisions. And as a reminder, advisers in motion's priorities continue to be: One, capabilities, technology, service, culture; two, ongoing economics; and then third, upfront economics. So as you put that all together, I think as recruiting activity normalizes, we'd expect organic growth to pick up as those pipelines convert, positioning us to reignite and sustain industry-leading organic growth over time. Operator: And our next question comes from the line of Craig Siegenthaler from Bank of America. Craig Siegenthaler: My question is on footnote 15 from the historical file. You disclosed purchase money market funds there, and it looks like they might be finally at a ceiling. So I'm wondering, do you expect liquidity to start to run there with a few more Fed cuts? And where does that go? Is there an opportunity to generate more ROA on that, maybe in alts, insurance and probably eventually back in the cash sweep? Matthew Audette: Kudos, Craig, on the detailed historical file there. Richard Steinmeier: I thought he would have called on historical footnote 14, 15. Matthew Audette: Yes. We'll cover that. We'll cover that. But I think -- yes, there you go. I think -- so what you're hitting on is the kind of the cash equivalents and how much money they're in either purchase money markets or short-term bond funds and treasuries. And I think we saw those build throughout this cycle. Those balances collectively are in excess, so purchase money market plus those other categories, treasuries, short-term bond funds in excess of cash sweep balances overall. And I think as the rate environment comes down, as you see those things advisers get their clients back into the marketplace. I think it's very natural that those are the types of funds that will go back into play. So there's more than just purchase money markets in that category, but I think it gives you a good sentiment on where advisers are putting their clients as cash yields come down and the equity markets and other opportunities even on the brokerage side, like annuities and things are opportunistic. So I think that's what you see driving the movements there. Operator: And our next question comes from the line of Michael Cho from JPMorgan. Y. Cho: I just want to touch on Commonwealth as well, just more from an, I guess, an integration perspective. I mean you closed the deal maybe 4 or 5 months ago. I was just wondering, can you just talk through the progress of the integration and preparing for the onboarding ahead? Any key takeaways you'd highlight or anything that might influence priorities for the broader LTL organization looking ahead? Richard Steinmeier: Thanks, Michael. It's good to have you. So integration is going really well. And I would note here, one of the things that over the last 5 to 7 years, we have done a lot is major integration events. If you think through M&T, BMO, TruStage, Waddell & Reed, Atria. There is a number of large events that we have gone through and Prudential that have critical builds across in many of those instances, above $100 million in dev, sometimes above $200 million in dev. And so as we look into Commonwealth, we have scoped -- before we went into this transaction, we had scoped all of the capabilities that we needed to build that would benefit not only Commonwealth advisers as they come on to the platform, but all of our advisers and institutions. The scoping of that work is completed. We have our model build. We've begun dev already. And some of the complexity of the dev there is what actually drove an elongated time frame for the conversion. We're feeling really good about our ability to deliver against that capability development and for our advisers to experience it. And I think we've referenced some of this before but Commonwealth is exceptional in the delivery of their service experience. And some of that is -- a large part of that is informed by the way they receive feedback. That is a difference from the way our construction of our workstation was set up. And so we're building an incredibly robust feedback ingestion engine that allows us to actually get feedback from advisers, prioritize that, disposition it to folks to work on that, and then execute against that, making it a frictionless environment kind of one day at a time. One of the other things they have is a fantastic single relationship agreement across multiple account structures that we've had to go through a pretty significant build, and we're in the middle of that build to build that, which will be benefited by all of our advisers. And so there is a list, and that includes householding, repricing -- restructuring the pricing construct of some of our advisory platforms as well. So we have a good understanding of the build that's there. We have a great understanding of the capabilities that will be delivered. And now part of that is now moving into the definition of that target state operating model, which I alluded to earlier, we are in the middle of the articulation of that target state operating model, working deeply with Wayne Bloom and his team to make sure that we are keeping Commonwealth commonwealth, that we are keeping the folks who serve the Commonwealth advisers the same people and giving them the tools and capabilities to deliver the exceptional service that has resulted in 12 consecutive J.D. Power Awards for independent adviser satisfaction, a record in the industry. Thought is that we build those capabilities so that they can keep going to #13 and #14 and 15. And while they do that, we increase our ability to serve with distinction just like Commonwealth does today. So all of that taken together, we feel really good about our understanding of what needs to be done. We feel good about our ability to execute and deliver, and we feel great about the combined value proposition that will result from the 2 firms. Operator: And our next question comes from the line of Ben Budish from Barclays. Benjamin Budish: I think earlier in the Q&A, Rich, you were talking about an increased win rate of advisers in motion coming from the wires. Just curious if you could unpack a little bit more what's going on there. It seems like some of the -- both the media coverage and commentary from some of the bigger banks is that they're looking to get more aggressive, whether it's on recruiting TA packages, whatever it may be. So what do you attribute to sort of the recent success? How important do you see some of the pieces that are being built out, securities-backed lending and the alts platform, things like that, that are expected to be in place by the end of the year is improving that position? And again, you talked about competition broadly, but how would you describe the state of competition with that group of competitors specifically? Richard Steinmeier: Yes. Thanks, Ben. So if we go back, what underpins that movement of us improving our capture rates in that wire and regional employee channel. The first is that on balance, you've got a macro tailwind there for you. We have seen a crossover that as advisers move out of wires and W-2 channels more broadly, historically, had been that they move from W-2 channel to -- one W-2 firm to another W-2 firm. What you have seen is increasingly year in and year out, the percentage of advisers that are in a W-2 channel when they're making a move that has crossed the threshold of more than 50% of advisers that are in W-2 channels making a move actually move to an independent construct. For us, we are the leading player for folks who want to run their own independent business because we have multiple affiliation models. The second stage in our journey was that we introduced affiliation models several years ago that made it more attractive for folks who are in a W-2 construct to move to independents with support on their side. So that was the theory to the case in the construction of our strategic wealth offering that helps 1099 advisers set up, move and have a support mechanism around them with incredible support as well as our W-2 channel introduction Linsco. Now beyond that, what we had was, and we referenced this kind of pretty consistently in the quarters, is we still had some capability gaps relative to product set, lending and some high net worth capabilities. And we are steadily knocking those down one at a time, and our consideration rate continues to go up. So what we find is that advisers are increasingly willing to get into conversations with us. And they may be getting there because of the Linsco channel, they may be getting there because of Strategic Wealth. And ultimately, they'll land across the gamut of either establishing their own RIA, which we support in our own independent employee W-2 channel and a supported independence channel or in a direct 1099 affiliation on our corporate RIA. So we have more affiliation landing spots than any other firm. And maybe lastly, to leg into that, we have added a national brand campaign that highlights and makes more clear to end investors, and we've seen an improvement of aided and unaided brand awareness, both of our firm for both end investors as well as advisers. Lastly, Commonwealth is a very validating event to our position in the marketplace. They are a premium brand. They have premium capabilities, and they have the best advisers in the industry. The leadership of that firm chose us as the best firm to support those advisers, and that made more W-2 advisers stand up and take notice of this firm as a leading firm in wealth management. Operator: And our next question comes from the line of Brennan Hawken from BMO Capital Markets. Brennan Hawken: I had sort of a 2-parter here. So I know that Commonwealth is in focus. You've got -- you spoke to allocating your best recruiters to task. And of course, it takes time for net new asset pipelines to rebuild. So how long do you think it would take to start to see regular way net new assets revert to the rates that are more in line with your strong track record of growth? And then do you think it's possible we could get maybe a mark-to-market on how net new assets are progressing here to start out the year and maybe an update on cash balances. Matthew Audette: Yes. I'll start -- Brennan, I'll start with how January has gone so far. When you look at -- maybe start with organic growth. And I think as I mentioned in the prepared remarks, and I think you know well, January is usually one of the slowest months of organic growth for the year for 2 factors or 2 reasons. The year-end slowdown that you see in December -- second half of December, there's really no recruiting that could come on board. And then it takes a couple of weeks into January to ramp up both recruiting, same-store, et cetera. So January is usually pretty low. And then you get -- as you move into February and March, it builds. And then you also have advisory fees that hit primarily in the first month of the quarter. And as we're getting bigger and bigger on the advisory side, 58%, 59-ish percent advisory now, that's a bigger number that hits in the first quarter. You put all that together, and we're around 2.5% organic growth in January, again, with the expectation that then February and March builds. On the cash sweep side, I'd say there's a couple of days remaining, but I'd give you the headline that January is shaping up a bit better than you would typically see. You do have that same seasonal on advisory fees, which are around $2.5 billion. So that comes out of cash directly during the month. But outside of that, the Q4 buildup that we saw largely in December largely remains. So cash balances beyond fees are down roughly $1 billion. So you put all that together and balances are down around $3.5 billion, which would put overall cash sweep at roughly $57.5 billion. And just to give context, if you look at that Q4 build that largely happened or almost entirely happened in December, we're sitting right now $3 billion above November levels. So hopefully, that gives you a sense as to kind of how sticky the cash has been this year as opposed to prior years. Maybe, Rich, I'll give it back to you on the timing of organic growth question. Richard Steinmeier: Yes. So I think, Brennan, the way to think about this is, as we alluded to, we sit in the low 80s in terms of AUM assets that are committed to join. And that's not a complete proxy, as Matt had alluded to, for the actual number of advisers based on the fact that we have larger advisers joining. But what you'd see there is as we started in April, we had a real shift of our recruiters into that event. And we are now moving towards the tail end of that event. The issue that you have at hand is that the lead times for recruiting for an independent adviser going from one firm to the next usually sit between 3 to 6 months. And so once you enter pipeline, you can think about that as the time frame for most center of gravity decisions to make to move from firm to firm. But as you get into larger advisers, especially as they're considering supported models like Linsco, if they're establishing their own RIA as well or our strategic wealth, you're oftentimes with those larger teams looking at pipeline decision-making to conversion that sits center of gravity between 6 months to a year. So it really does depend on the mix makeup of what we have in pipeline. As we alluded, we've seen really nice pipeline build, especially into the first couple of stages of our pipeline. And what it takes is a little bit of time, especially with those seasoned recruiters to progress those through the pipeline. So as we alluded to, it's going to occur during the course of this year, and I'm probably giving an answer that is more precise than that at this moment in time, I probably can't do that. Operator: And our next question comes from the line of Devin Ryan from Citizens Bank. Devin Ryan: I want to shift to the enterprise channel and Prudential specifically now that we're a little bit over a year past that integration. And just would love to dig in a little bit more around some of the learnings. I'm sure you have a lot more data today on how that's going. So it would just be great if you could give any proof points to us on how it's going? What type of acceleration in growth are you are they seeing? And then just how it sets you up for maybe more in the insurance channel. I'm curious if you're seeing interest from other parties as these maybe positive anecdotes start to make their way to the market. Richard Steinmeier: Thanks, Devin. So just as a reminder, we brought on Pru 2024 in November, where they added about $67 billion in assets. And we knew as we were in discussions, Pru has a fantastic wealth franchise, and they were always bullish on their outlook for the wealth management business, and they were looking for ways to further advance the business. We got into that partnership, and we had quite a bit of build to build in terms of the capability sets. And as we built those capability sets, it positions us well to be able to work with other insurance firms and/or product manufacturers. But I actually do have the ability to be a little bit outspoken here, mostly because we would never break news for our partners. But in the fourth quarter, Prudential announced that their adviser headcount growth had accelerated 9% year-to-date, and they had roughly $3 billion in NNA. And that was in the fourth quarter and not the completion of the fourth quarter. And I can tell you, I was with them over the holidays. They are incredibly bullish on their franchise. They have a fantastic sales infrastructure. Their leadership structure is very strong. They develop new advisers really well and their backlog of other insurance-based advisers looking at Prudential continues to grow. We have had really great results as we partner with them in recruiting to their franchise. In terms of our pipeline, I think this is where you get -- I mentioned this a couple of times before, a signature event and a signature partnership, I would call this very akin to our M&T Bank, where M&T plowed and took a leap of faith with us to plow into new territory of a larger bank wealth outsourcing that really moved from why are you doing that to why aren't you doing that? And I think those are the discussions we're beginning to get into. But I think there just needs to be a recognition. We have a recognition that other firms, there's some trepidation to get into those conversations because Prudential really broke the mold in how they partnered with us. I think I can speak pretty clearly for them when we both are incredibly happy about the results and think that their franchise is very strong and positions them incredibly externally. I'm so proud of being able to be a partner of Pru. And we're looking forward to having further conversations with -- I think a number of firms have begun exploratory conversations but more progressed conversations. Operator: And our next question comes from the line of Bill Katz from TD Cowen. William Katz: And happy anniversary since no one else has said that. Just a couple of maybe interconnected questions. Matt, you alluded to possibility of accelerating the sort of capital deployment that you're running a little bit ahead in terms of operationally and your leverage ratios. Can you give us a sense of what mileposts we should be looking at to potentially think about maybe starting to reincorporate capital return? And then just on the interest rate management side of the equation, you're sort of running at the lower end of your fixed to float. How are you thinking about that shape as you look into the new year given the forward curves are relatively stable from here? Matthew Audette: Yes. What anniversary, Bill? Richard Steinmeier: I know what he's talking about. So first off, he's super generous. Like that's a very thoughtful person. We always knew that about Bill but I appreciate it, Bill. He's -- he thinks that this is 1-year anniversary of my first earnings call, I think but it was actually Q3, a couple of weeks after. Matthew Audette: Was that it, Bill? William Katz: It was. Matthew Audette: Look at you. Super thoughtful. Richard Steinmeier: My anniversary was in August. So my wife would... Matthew Audette: Well, very good, Bill. All right. So on your 2-part question. So I think on share repurchases, I think in -- just to level set on our expectations initially when we announced the acquisition of Commonwealth, it was about making sure that we got our leverage down -- back down to 2x. And at that point, we would revisit capital returns. And given the timing of Commonwealth onboarding in Q4 that implied we'd look at it in Q4. And I think as we've talked about today, being ahead of plans on the deleveraging side, which is good. And the Commonwealth onboarding, while the time line hasn't changed, the prep is going well. I think I would take this as we're looking at whether we can start those share repurchases earlier. I would range that and say maybe a quarter earlier is what we're thinking. But I would just underscore, we've still got some work to do to really refine that. And we'll give an update in a future quarter. But I think just given where leverage is, I wanted to at least give an indication as to where our thinking was. With respect to the second part of your question on fixed rate sweep, no change in plan and approach there. It really is about that year-end build that you see in Q4. That's really what drove that down. As the stability of those cash balances really lands in this quarter and as I talked about for January so far, it's being a little bit stickier than it has in prior years, then we'll kind of move into the fixed rate market, typically landing in that low to mid-60% where we typically are. So that would be the plans for Q1. That being in that 55% zone or mid- to upper 50% zone was really about just the year-end buildup in December. Operator: And our next question comes from the line of Michael Cyprys from Morgan Stanley. Michael Cyprys: Just wanted to ask around core G&A. I think that your guide implies underlying core G&A growth of 4.5% to 7%, which is a bit of an acceleration from the underlying 4% you put up in '25. So I was just hoping you could elaborate on what's driving that acceleration into '26. Maybe speak to some of the areas you're investing in across '26 here. And maybe if you could also just update us on some of the initiatives that you have across expanding technology capabilities, broadening out the platform for advisers. Just what are your priorities here in '26 around that? Matthew Audette: Yes, you bet. I mean I think just to build a little bit of context on -- or reflect a little bit on 2025 because our initial outlook for 2025 was 6% to 8%. And even that range would -- if you look back at the last 4, 5 years, would have been the lowest growth rate. And to the premise or the point of your question, we ended up landing much lower than that at 4%, which has that next year's guide, 4.5% to 7% be a little bit of an increase. But I'd underscore that, that is about what we're able to deliver in 2025. That is the lowest growth rate in quite some time. And it really was driven by the cost efficiency work that we were able to deploy and things that are recurring savings and structural improvements to how we operate. And I think getting to your question on 2026 and that 4.5% to 7%, I think we're focused on doing a lot of the same but I would say balancing making sure we're continuing to drive investments or make investments that really improve our offering and drive growth and at the same time, continuing to make additional investments that can really drive efficiency and scale in the business. I think we are in the early stages of the opportunity set we have to make investments that not only allow us to scale better but also improve the client experience. And I think what you see in that range, even if you look at the midpoint of the range, that still would be one of our lowest growth rates in quite some time. And I think what it reflects is the opportunities that we have to really drive that growth. And I think even when you look at the range, it is a little bit wider than we typically do, 4.5% to 7%, so 2.5 points versus 2. And that's also just reflective of the number of initiatives that we have from an automation standpoint, from an AI standpoint and the precision with which you can predict when those hit, right? Those things could shift out something that's going to come in Q2, maybe it comes in Q3. That could impact the current year a little bit. But I would just underscore our confidence from a run rate standpoint of the opportunity set we have in front of us to continue to drive efficiencies that improve the bottom line, but also improve our client experience. It's a long list. We're excited about it. And I think that's what you see reflected in that guide. Operator: And our next question comes from the line of Jeff Schmitt from William Blair. Jeffrey Schmitt: For the Liquidity & Succession solution, and I think you spent a little over $50 million in the quarter. How do the returns on that look compared to traditional M&A and recruiting? I mean, are the multiples a lot lower in M&A? I know recruiting, you've kind of pointed to that being maybe 3, maybe 4x in this environment. So where does that sort of shake out? Matthew Audette: Yes. Jeff, on L&S, like from our target M&A range that we typically operate in is that 6 to 8x. And L&S operates right in that range. But I think a couple of things that I think are a little bit different. When you think about L&S, not only the quality of earnings, right, the economics that you're acquiring for 6 to 8x in L&S is 100% recurring noncash sweep earnings. So there's a higher quality there. And then I think the strategic benefits of just really when you think about the life cycle of something that goes through L&S from acquiring it to helping transition to the next generation, helping them get to a place where they've grown and earn back the ability to buy back that practice, and during that entire time, working with them in our Linsco model to really position them to really use us as a leverage point on nearly everything except for focusing on their clients and being able to grow them. When you just think about the practice in any L&S opportunity, the practice we acquired versus once it is now fully in the hands of the next generation, they're set up to be more efficient, faster growing and a higher-quality adviser practice as well. So there's a lot of benefits that just go beyond the pure economics. But to underscore the economics, it's the same range, 6 to 8x but it's a higher quality earnings because there's -- that's 100% noncash sweep economics that you're acquiring. Operator: And our next question comes from the line of Wilma Burdis from Raymond James. Wilma Jackson Burdis: Do you think there's some level of short-term interest rates where we'll start to see more cash build? And if so, are we starting to approach that level? And maybe you could just talk a little bit about the rate cuts in 4Q '25 and how that may or may not have contributed to build in the quarter. Matthew Audette: Yes. I think when you look at cash balances, and I think we have been -- when you think about the operational nature of them, and we're just looking at the fourth quarter in that build that you typically see and you saw in December, kind of putting those dynamics aside, like when you look at the average balances per account, they've been quite stable for quite some time and rounding to about $5,000, which I think when you think about the cash necessary to manage an account, we've really reached those levels. And I think that's why you saw that bigger than typical build in the month of December. So to get to your point, I think when we look ahead, as rates come down and kind of where do we think cash sweep is going, I think there is a bias to being stable to up just given it's at the levels that are really necessary to manage the account. We've seen that stability for a few quarters. Last couple of quarters, that average balance per account has actually grown. So I think that's the dynamic there. The individual rate cut or 2 in the quarter, Wil, I don't think that typically would really drive that. I think what moved cash balances in the quarter is that seasonal build for rebalancing and tasks, loss harvesting and things like that. Operator: Thank you. This does conclude the question-and-answer session of today's program. I'd like to hand the program back to Rich Steinmeier for any further remarks. Richard Steinmeier: Thank you all for joining us. We look forward to speaking with you again in April. Have a good night. Operator: Thank you, ladies and gentlemen, for your participation in today's conference. This does conclude the program. You may now disconnect. Good day.
Operator: Good day, everyone, and welcome to the Credit Acceptance Corporation Fourth Quarter 2025 Earnings Call. A webcast recording and transcript of today's earnings call will be made available on Credit Acceptance's website. At this time, I would like to turn the call over to Credit Acceptance Chief Financial Officer, Jay Martin. Jay Martin: Thank you. Good afternoon, and welcome to the Credit Acceptance Corporation earnings call. As you read our news release posted on the Investor Relations section of our website at ir.creditacceptance.com and as you listen to this conference call, please recognize that both contain forward-looking statements within the meaning of federal securities law. These forward-looking statements are subject to a number of risks and uncertainties, many of which are beyond our control and which could cause actual results to differ materially from such statements. These risks and uncertainties include those spelled out in the cautionary statement regarding forward-looking information included in the news release. Consider all forward-looking statements in light of those and other risks and uncertainties. Additionally, to comply with the SEC's Regulation G, please refer to the Financial Results section of our news release, which provides tables showing how non-GAAP measures reconcile to GAAP measures. At this time, I'd like to introduce our Chief Executive Officer, Vinayak Hegde. Vinayak Hegde: Good afternoon, everyone. I'm honored to join you today for my first quarterly earnings call as CEO. While I have only recently stepped into this role, it has been my privilege to serve as Credit Acceptance's Board of Directors for nearly 5 years. That experience gave me a front row seat to the tremendous passion, talent and resilience that define our organization. Prior to joining Credit Acceptance, I led teams at founder-led companies where success came down to 3 things: a clear mission and purpose, an owner's mindset and an obsession with the front line, staying close to customers and those who execute the work every day. Those same attributes drew me to Credit Acceptance. They were instilled by our founder, Don Foss, who led the company from our founding in 1972 until 2017 when he retired as the Chairman of the Board. Let me share a quick reminder of his story and our enduring mission. Don, a car dealer himself started Credit Acceptance based on a simple but powerful belief. Many hard-working individuals were being unfairly denied the opportunity to finance a vehicle they needed simply because of their past credit challenges or limited credit history. Don believed traditional lenders too often misjudged people with less than prime credit, assuming they weren't worthy of a second chance. He built Credit Acceptance to change that by empowering dealers to serve those individuals through access to financing. These individuals in turn gained reliable transportation and the ability to build or rebuild their credit, a path forward in life. I intend to lead Credit Acceptance in exactly that spirit, embracing the owner's mindset, being driven by the bold mission to help every American buy a car through dealers and obsessing over the front line, understanding dealers' needs intimately and empowering them to serve credit-challenged and credit-invisible consumers. If we serve our dealers and consumers well, I believe our business will thrive. Since assuming the role of CEO nearly 90 days ago, I focused on listening, learning and charting a purposeful path forward. First, I connected with team members throughout the company to better understand the dealer and consumer experience. I also met the dealers to learn firsthand how our services and products support their businesses and consumers and potential points of friction. Next, I developed a growth plan with clear priorities and established highly disciplined operating rhythms. These operating rhythms include weekly business reviews to track performance and address issues in real time and a quarterly game plan with a consolidated road map across all functions of the company to stay tightly aligned with our annual objectives. I believe this type of structured approach creates accountability, agility and consistent progress towards goals. As I move forward, my leadership will be guided by several core operating principles, be obsessed with and remove friction for our customers, both the dealer and the consumer, make data-driven decisions, explore ways to enhance our servicing and processing capabilities through artificial intelligence, prioritize a digital-first approach in our initiatives and continue to provide a culture that attracts and retains talented people and enables them to excel. Consistent with those core operating principles, I believe we can position Credit Acceptance for growth. We're continuing to prioritize 3 strategic objectives: one, generating dealer and consumer demand by deepening relationships within our dealer network, support dealers in acquiring new consumers and leveraging data-driven insights to better understand and serve our markets; two, empowering dealers to fulfill their demand through preferred channels such as our proprietary origination system or through aggregators like RouteOne and Dealertrack; three, delivering world-class servicing and processing. We are continuing to invest in artificial intelligence, which is already supporting our customer service calls and helping to improve efficiency. It also includes making ongoing enhancements to our app, prioritizing customer experience and nurturing long-term loyalty among dealers and consumers. I've been impressed by the strong foundation and dedication across our teams to execute on these priorities. For example, in the fourth quarter, we rolled out a new contract origination experience specifically built for the way franchise and large independent dealers operate in today's market. Increasingly, these dealers originate contracts through aggregator platforms and integrated dealer systems rather than stand-alone lender portals. Our experience meets them where they are. It includes seamless RouteOne e-contracting integration, enhanced deal structuring and optimization tools and expanded support for financial and insurance products, all designed to eliminate friction and make working with Credit Acceptance faster and more intuitive inside the systems dealers already use every day. This launch is particularly timely. The percentage declines in loan unit volume we have seen were most significant among franchise dealers. Notably, we have observed that Consumer Loans originated through franchise dealers also continue to exhibit slightly better credit performance than those from independent dealers. We expect to continue to expand the number of dealers using the new contract origination experience in the first quarter of 2026. I'm encouraged by real dealer stories that show our mission in action, like the one from Town & Country Ford, a family-owned franchise dealership in Alabama. The community in which Town & Country Ford is located faced economic headwinds, including factory closures that left retired steel and iron workers with credit challenges. When the new general sales manager joined, bringing prior positive experience with Credit Acceptance, she recognized an opportunity to empower her team to serve this credit challenge buyers. She led the dealership to enroll with us, which boosted repeat and referral business while strengthening their local reputation in tough times. This collaboration echoes the very reason Credit Acceptance was founded. Our company was built to provide second chances, help individuals finance reliable transportation, rebuild credit and move their lives forward. At Town & Country, we are seeing that mission come alive. Consumers gain access to vehicles that change their daily lives, while the dealership staff finds renewed purpose in making a difference in their community. When we enable franchise and independent dealers to serve a wider market, everyone wins. Consumers get opportunities, dealers build sustainable businesses and communities benefit from greater economic mobility. Importantly, we delivered our mission while maintaining a great workplace. During the quarter, we were named one of America's Top 100 Most Loved Workplaces for the second consecutive year. with a #6 ranking. I'm deeply impressed by the culture and the excitement to execute our mission and drive Credit Acceptance forward. A special thank you to Ken Booth, who helped build a strong foundation through his leadership and continues to serve our Board. Before I hand it to Jay to provide an overview of our Q4 performance, I want to leave you with one final message. I'm a builder by trade. In my past leadership roles, I have built and scaled innovative customer-centric businesses that transformed how people shop, travel and connect. I believe Credit Acceptance has a very strong foundation, one built on purpose and performance. I'll strive to layer technology, a deeply data-informed approach and a highly structured operating rhythm on top of that foundation to create a dynamic, durable and even more customer-obsessed company. You can expect me to report progress on our initiatives, be transparent about our challenges and be disciplined with capital allocation. We'll maintain our focus on maximizing economic profit and the company's long-term intrinsic value. I'm genuinely excited to partner with all of you, our team, our dealers, our consumers and our investors as we build this next phase together. Jay Martin: Thank you. As to the fourth quarter results, we were pleased to announce growth in adjusted earnings per share despite declines in loan performance and loan volume. We financed nearly 72,000 contracts for our dealers and consumers and collected $1.3 billion overall and paid $48 million in dealer holdback and accelerated dealer holdback. Additionally, we enrolled over 1,200 new dealers and had over 9,800 active dealers during the quarter. Loan performance measured by variances in forecasted collection rates from the last quarter moderately declined. More specifically, our 2023 and 2024 vintages declined 0.4% and 0.2%, respectively, while our other vintages were stable during the quarter. Importantly, the underperformance of our '24 vintage was primarily related to loans originated prior to the scorecard change during the third quarter of 2024. We believe the underperformance was largely the result of the continued impact of high inflation on the subprime consumer. Changes to our forecast of future net cash flow sequentially improved this quarter with the rate of decline narrowing from a decrease of $58.6 million or 0.5% during the third quarter of 2025 to a decrease of $34.2 million or 0.3% during the fourth quarter of '25. Loan volumes also sequentially improved this quarter with year-over-year declines narrowing. Loan unit volume improved to a decline of 9.1% this quarter versus a decline of 16.5% last quarter. Likewise, loan dollar volume improved to a decline of 11.3% this quarter versus a decline of 19.4% last quarter. Our market share in our core segment in used vehicles financed by subprime consumers was 4.5% for the first 2 months of the fourth quarter, down from 5.4% for the same period in 2024. The number of active dealers declined 2.8% year-over-year, and the average unit volume per active dealer declined 6.4% year-over-year. Our loan portfolio, however, increased 1% year-over-year on an adjusted basis. At this time, Vinayak and I will take your questions along with Jay Brinkley, our Senior Vice President and Treasurer; and Jeff Soutar, our Vice President and Assistant Treasurer. Operator: [Operator Instructions] Our first question comes from Robert Wildhack with Autonomous Research. Robert Wildhack: Vinayak, welcome. Nice to have you on the call here. A question for you. You spent several years on the Board, so certainly not new to the company, but your background definitely much more from the marketing growth technology areas than it is from maybe more traditional financial services. I thought the opportunities you outlined sound very interesting, but I would love to get your thoughts on how you plan to manage the credit lending, underwriting, more financial aspects of the business. And if you see any opportunities for improvement or change in any of those areas specifically? Vinayak Hegde: Robert, thank you for your question. Yes, I mean, look, I mean, we tend to take a long-term view on this, and we want to be conservative in our approach towards lending, do the right thing, improve the customer experience. But we always take a long-term view on this, not just a short-term view on this. We obviously see opportunities to constantly improve the credit scoring models, improving the models, which we'll constantly continue to do. But the approach towards lending and credit scoring is going to be conservative and long-term focused. Robert Wildhack: Okay. And then maybe one for Jay. The provision, I wanted to ask about specifically the $73 million for new originations. On a per unit basis, that's roughly $1,000 per unit. But for the last 2 quarters, provision per new unit had been more like $700 or $800. So wondering what the driver of the increase is there? And then do you think that, that number should revert more to $800? Or should it run more like $1,000 per unit going forward? Jay Martin: Yes. The provision for new advances, it's a function of how much we're advancing the dealer and then also the mix between our portfolio and purchase program. In general, the purchase -- the initial provision on the purchase program is about 3x what it is on the portfolio program. So as far as projecting that for the future, it all depends on the mix of business between purchase and portfolio and just also the amount that we're advancing to the dealer. Robert Wildhack: Okay. And is the mix the driver of the increase in this -- in the fourth quarter specifically? Jay Martin: Yes. Operator: Our next question comes from Moshe Orenbuch with TD Cowen. Moshe Orenbuch: And maybe could you talk a little bit about the competitive environment? Because it's interesting that the market share you talked about 3 months ago kind of for the first 8 months of the year was over 5%, and now it's at 4.5%. So is there some -- I mean, is there something -- is it more dramatic? Like what's the changes? And maybe you could just talk about that a little bit. Vinayak Hegde: Moshe, thank you for your question. Yes, look, I mean, the competitive environment is always competitive and evolving. We actually want to be more customer-focused and not competitive focused and we'll continue to be customer focused, not competitive focused. With respect to the share in the used vehicle subprime market, as of November, it was 4.5%, which is kind of flat quarter-on-quarter since what we reported last quarter. As I said in my remarks, the decline that we are seeing is mostly in the large independent dealers and franchise dealers. And that is where we are focused on actually building solutions for that, right, our new experience where we include seamless RouteOne e-contracting that has launched, enhanced deal structuring and optimization and support for F&I tools because that helps these large independent dealers and franchise dealers use us in the workflow that they are already used to, like we kind of are meeting them where they are. And we expect to continue to expand on this to help those large independent dealers, and that's something that we are doing. One thing I want to tell you is like this removing friction in this is like a very interesting thing here, right? Like if you think about it, we have a feature in our system, which allows the dealer and the customer to basically optimize the deal. That's kind of the moment of truth, if you think about it. Imagine you're trying to book an airline or search on Google or buy something on Amazon, it would take 3 minutes. The investments we have done in technology now allows that to be done in less than 2 seconds. And it becomes even more important when you think about this integration with things like RouteOne because we are in competition with others and speed is actually incredibly important. And that's how I think about it. Moshe Orenbuch: Got it. Okay. And maybe talk a little bit about where your leverage is. It looks like it's a little over 2.8 at this point and how you think about that in terms of what you're likely to do from the standpoint of capital distributions going forward. Unknown Executive: Moshe, yes, I mean, our leverage continues to be within an acceptable range, albeit at the higher end. But when we think about capital allocation, we haven't changed that strategy. And leverage, obviously, is one of the points that we look at, we always want to ensure that we have the capital needed to fund new originations. After that, we look at a variety of factors, which includes leverage. And then obviously, we look and estimate the intrinsic value of our stock and compare that to the market price to decide if we want to repurchase. And in Q4, obviously, very active, we felt like that was the case. So no overall, no change in strategy there. Operator: [Operator Instructions] Our next question comes from John Hecht with Jefferies. John Hecht: Actually, Moshe just asked most of the -- my questions were kind of about the volumes and the competitive framework. So you touched on that. Maybe something that's along those lines is it's been a challenging cycle because, I think, largely because of affordability issues and high used car prices and the related. What's your guys -- what's your perspective on how that fluctuates in the coming periods? And does lower interest rates alleviate some of that? And are there any other factors to think about in that regard? Vinayak Hegde: Well, we believe we are well positioned to serve the needs of the subprime customer. We work on cycles which are good for us and bad economic cycles, right? So our product is built to serve customers in all sorts of environments. And we will continue to kind of be focused on making the experience much more frictionless, partnering with the dealers and still take a very conservative approach, right? Like I mean, there are companies which take more short-term approach. What we are thinking about is irrespective of the cycle, be conservative, maximize intrinsic value and take a very conservative approach towards it. John Hecht: Okay. And then any -- just -- Moshe also asked about the balance sheet leverage, but did you -- in terms of capital returns, in terms of accessing the capital markets, things of that nature, and when I mean capital returns, I guess I'm mostly talking about buybacks. [indiscernible], do you think there'll be any change in the strategy under your leadership or kind of stay the course? Vinayak Hegde: We are going to stay the course. I don't think there's going to be any change in that. John Hecht: And then final question. After a period of time where the spread -- the initial spread has been declining. I think we've got a couple of quarters now or a couple of periods of time where we're starting to see the spread expand. Do you think you'll -- is that trend going to persist for a while? And is that related to better pricing or just better overall operating metrics within the business? Jay Martin: Yes. If you're focused on the initial spread, that relates to pricing. So we don't provide any guidance on what our future pricing will be. You can look at the table in the press release that will show historically how we've been pricing. Operator: Our next question comes from Moshe Orenbuch with TD Cowen. Moshe Orenbuch: Just as a follow-up for Vinayak, it's kind of interesting. We've been thinking over the last few quarters. It's been a little -- I'd say, a little bit unusual that the volumes and market share were under some pressure, but prepayments in the portfolio also were under pressure. And I'm just wondering, does that tell you anything kind of different about the way either your consumer is behaving or the way kind of the industry is behaving and perhaps maybe the market share issues would be more persistent. Jay Martin: You're correct on the prepayments, we did see a decline there with our cash flow timing. If you just look at historical prepayments, they have increased year-over-year, but they're below our historical norms. Unknown Executive: It's tough, Moshe. I mean all you can really read into that, and it's pure conjecture is perhaps the customers are staying in their vehicles longer because if you follow historical trends, as we've talked about before, typically, you see prepays tick up as sort of a lag to a competitive environment, and we've been in a competitive environment for almost a year, yet we haven't seen that uptick. So it's tough to really see how this will play out. But I'll leave it at that. Operator: With no further questions in the queue, I would like to turn the conference back over to Mr. Martin for any additional or closing remarks. Jay Martin: We'd like to thank everyone for their support and for joining us on our conference call today. If you have any additional follow-up questions, please direct them to our Investor Relations mailbox at ir@creditacceptance.com. We look forward to talking to you again next quarter. Thank you. Operator: Thank you. Once again, this does conclude today's conference. We thank you for your participation.
Operator: Welcome to Cullen/Frost Bankers, Inc. Second Quarter 2025 Earnings Conference Call. At this time, participants are in a listen-only mode. A question and answer session will follow the formal presentation. As a reminder, this conference is being recorded. It is now my pleasure to introduce A.B. Mendez, Senior Vice President and Director of Investor Relations. Thank you. You may begin. A.B. Mendez: Thanks, Sherry. Afternoon's conference call will be led by Phillip D. Green, Chairman and CEO, and Daniel J. Geddes, Group Executive Vice President and CFO. Before I turn the call over to Phillip D. Green and Daniel J. Geddes, I need to take a moment to address the Safe Harbor provisions. Some of the remarks made today will constitute forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995 as amended. We intend such statements to be covered by the Safe Harbor provisions for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995 as amended. Please see the last page of text in this morning's earnings release for additional information about the risk factors associated with these forward-looking statements. If needed, a copy of the release is available on our website or by calling the Investor Relations department at (210) 220-5234. At this time, I'll turn the call over to Phillip D. Green. Phillip D. Green: Thanks, A.B. Good afternoon, everyone, and thanks for joining us. Today, we'll review second quarter 2025 results for Cullen/Frost Bankers, Inc. Our Chief Financial Officer, Daniel J. Geddes, will provide additional commentary and guidance before we take your questions. In 2025, Cullen/Frost Bankers, Inc. earned $155.3 million or $2.39 a share, and that compared with earnings of $143.8 million or $2.21 a share reported in the second quarter last year. Our return on average assets and average common equity in the second quarter were 1.22% and 15.64%, and that compares with 1.18% and 17.08% the same quarter last year. Average deposits in the second quarter were $41.8 billion, an increase of 3.1% over the $40.5 billion in the second quarter of last year. Average loans grew to $21.1 billion in the second quarter, an increase of 7.2% compared with $19.7 billion in the second quarter of last year. We continue to see solid results, and it's been driven by the hard work of our Frost bankers and the extension of our organic growth strategy. During the second quarter, we achieved a milestone of opening our 200th location, the Pflugerville Financial Center in the Austin region. At the time that we started this strategy in late 2018, we had around 130 financial centers, which means that we've increased that number by more than 50% since that time. We continue to identify more locations around the state to extend our value proposition to more customers. At the end of the second quarter, our overall expansion efforts had generated $2.76 billion in deposits, $2.003 billion in loans, and almost 69,000 new households. Looking at year-over-year growth, expansion average loans and deposits increased $521 million and $544 million, respectively, representing growth of 35.25%. Phillip D. Green: The expansion now represents 9.6% of company loans and 6.6% of company deposits using average June month-to-date balances. As we've mentioned, the successes of our earlier expansion locations are now funding the current expansion effort, and we expect the overall effort will be accretive to earnings in 2026. And as I've said many times, this strategy is both durable and scalable. Average consumer deposits make up about 46% of our total deposit base, and we continue to see consistently high organic growth. Checking household growth, which is our bellwether measure of customer growth, increased what we believe to be an industry-leading rate of 5.4%. Consumer deposits continue to strengthen, with 3.7% year-over-year growth. And it's encouraging to see a return to steady checking balance growth after a post-pandemic period where growth was weighted towards CDs. Our consumer real estate loan portfolio, which stands at $3.3 billion in outstandings, has been seeing strong growth from both our second lien home equity products as well as our newer mortgage product. In total, the portfolio grew outstandings by $600 million year-over-year, which is a 22% growth rate. All in all, this balanced organic growth is only possible because of our success in expanding into some of the most dynamic markets in the country, and our unwavering institutional commitment to an excellent customer experience. And that commitment hasn't just been in place the past few years. It's been a key part of our culture for our 157-year history. Looking at our commercial business, average loan balances grew by $817 million or 4.9% year-over-year. CRE balances grew by 6.8%, energy balances increased 22%, and C&I balances decreased by about 1%. The second quarter represented an all-time record for calls, following our prior record in Q1 of this year. Year-to-date, there's been a 7% increase in calls, putting us on track for the strongest year for calls ever. Booked opportunities for the quarter increased 36%, following a strong ninety-day weighted pipeline in Q1. Booked opportunities increased for both customers and prospects, in both large and core opportunities and across all loan categories. Losses to pricing decreased 28%, while losses to structure continued to increase, reaching the second highest quarter ever for losses due to structure. And I think this represents the level of competition developing in the market. At the end of the day, we added just under $2 billion in new loan commitments for the second quarter, which was 56% more than Q1. And as was said before, the increase was seen across large and core as well as all loan categories. Finally, we recorded 1,060 new commercial relationships in the second quarter, our second highest quarterly total ever and a 9% increase over the first quarter. About half of our new commercial relationships in the second quarter continue to come from the too-big-to-fail banks. Our overall credit quality remains good by historical standards, with net charge-offs and nonaccrual loans both at healthy levels. Nonperforming assets declined to $64 million at the end of the second quarter compared with $85 million at year-end. Most of this decrease came from a paydown on a C&I revolving line of credit, which is currently classified as a nonaccrual. The quarter-end figure represents 30 basis points of period-end loans and 12 basis points of total assets. Net charge-offs for the second quarter were $11.2 million compared to $9.7 million last quarter and $9.7 million a year ago. Annualized net charge-offs for the second quarter represent 21 basis points of average loans. Total problem loans, which we define as risk grade 10, some people call that OAEM, or higher, totaled $989 million at the end of the second quarter, up from $889 million at the end of the year. Virtually all the increase was related to multifamily loans in the criticized risk grade 10 category, for which we expect resolutions to occur in 2025. With the exception of the risk grade migration that I just mentioned, the multifamily CRE portfolio, which we expected. Our overall commercial real estate lending portfolio remains stable, with steady operating performance across all asset types and acceptable debt service coverage ratios. Our loan-to-value levels are similar to what we reported in prior quarters. With that, I'll turn it over to Dan. Daniel J. Geddes: Thank you, Phil. Let me start off by giving some additional color on our expansion results. As Phil mentioned, we continue to be pleased with the volumes we've been able to achieve. On a year-over-year basis, the expansion represented 37% of total loan growth and 44% of total deposit growth. Looking at calls for the quarter, the Frost commercial bankers and expansion branch represented 17% of total calls, 11% of customer calls, and 28% of prospect calls. For new commercial relationships, 24% of all new commercial relationships were brought in from the expansion. And when looking at just the expansion regions of Houston, Dallas, and Austin, new commercial relationships represented 37% of the total for those combined regions. Regarding booked loans in the second quarter, 9.4% of total booked loans, or $183 million, were from the expansion, with about 53% of those being core loans. Additionally, loans booked by our bankers at expansion branches this quarter increased 58% on a linked quarter basis. Now moving to second quarter financial performance for the company. Regarding net interest margin, our net interest margin percentage was up seven basis points to 3.67% from the 3.6% reported last quarter. Our net interest margin percentage was positively impacted primarily by a mix shift from balances held at the Fed into higher-yielding loans and securities, both taxable and nontaxable. Looking at our investment portfolio, the total investment portfolio averaged $20.4 billion during the second quarter, up $1 billion from the previous quarter. Investment purchases during the quarter totaled $857 million, consisting of $475 million in agency MBS securities yielding 5.72% and $378 million in municipal securities, which had a taxable equivalent yield of 5.98%. During the quarter, $675 million of treasuries matured yielding 3.06% and $76 million of municipals rolled off at an average taxable equivalent yield of 4.05%. The net unrealized loss on the available-for-sale portfolio at the end of the quarter was $1.42 billion compared to $1.4 billion reported at the end of the first quarter. The taxable equivalent yield on the total investment portfolio during the quarter was 3.79%, up 16 basis points from the previous quarter. The taxable portfolio averaged $13.8 billion, up approximately $877 million from the prior quarter, and had a yield of 3.48%, up 19 basis points from the prior quarter. Our tax-exempt municipal portfolio averaged $6.6 billion during the second quarter, up $140 million from the first quarter, and had a taxable equivalent yield of 4.48%, up 10 basis points from the prior quarter. At the end of the second quarter, approximately 69% of the municipal portfolio was pre-refunded or PSF insured. The duration of the investment portfolio at the end of the second quarter was 5.5 years, flat with the first quarter. Looking at funding sources, on a linked quarter basis, average total deposits of $41.76 billion were up $102 million from the previous quarter. The linked quarter increase was primarily driven by interest-bearing accounts. The cost of interest-bearing deposits in the second quarter was 1.93%, down one basis point from 1.94% in the first quarter. As a reminder, we tend to see weaker deposit flows in the first half of the year and stronger flows in the back half of the year, and the majority of that seasonality is driven by commercial non-interest-bearing deposits. Customer repos for the second quarter averaged $4.25 billion, up $103 million from the first quarter. The cost of customer repos for the quarter was 3.23%, up 10 basis points from the first quarter. Looking at noninterest income and expense, I'll point out a couple of seasonal items impacting the linked quarter results. Noninterest income insurance commissions and fees were down $7.2 million. Remember, the first quarter is typically our strongest quarter for group benefit renewals and annual bonus payments received. On the expense side, employee benefits were down $9.3 million. The first quarter was impacted primarily by increased payroll taxes and 401(k) matching expense related to our annual incentive payments that are paid during the quarter. Other expenses were up $5.9 million and were primarily impacted by higher planned advertising and marketing expense during the quarter of $4.2 million. Regarding our guidance for full year 2025, our current outlook includes two 25-point cuts for the Fed funds rate in 2025, with cuts in September and October. Despite the revised rate cuts expectations, we expect net interest income growth for the full year to fall in the range of 6% to 7% compared to our prior guidance of 5% to 7% growth. For net interest margin, we still expect an improvement of about 12 to 15 basis points over our net interest margin of 3.53% for 2024. This is consistent with our prior guidance. Looking at loans and deposits, we continue to expect full year average loan growth to be in the mid to high single digits and expect full year average deposits to be up between 2% to 3%. Our updated projection for full year noninterest income is growth in the range of 3.5% to 4.5%, which is an increase from our prior guidance range of 2% to 3% growth. And we expect noninterest expense growth to be in the high single digits. Regarding net charge-offs, we expect full year 2025 to be similar to 2024 and in the range of 20 to 25 basis points of average loans. Our effective tax rate expectation for full year 2025 remains unchanged from last quarter at 16% to 17%. And with that, I'll turn the call back over to Phil for questions. Phillip D. Green: Thank you, Dan. Okay. We'll open up for questions now. Operator: Thank you. If you would like to ask a question, you may press 2 if you would like to remove your question from the queue. Before pressing the star keys. Our first question is from Jared David Shaw with Barclays. Please proceed. Jared David Shaw: Good afternoon, everybody. Maybe starting on the loan growth side. You talked a little bit about losses due to pricing down, but losses due to structure up from new production. What are you seeing in terms of pricing? Is there spread compression continuing, or what are you seeing in terms of pricing there? Phillip D. Green: I think it's more competitive than it was. It depends on the asset class. In corporate real estate, commercial real estate, there are a lot of people that have put pencils down and were out. And I think we're seeing price compression there for sure. And it's just getting more competitive, I think, as the outlook improves. So I think you're seeing it across the board. I think the structure is the more important thing to me, though, because that just to me represents how aggressive banks are out there. And usually, it results, you know, in guarantees, burn-offs, equity levels, those kinds of things. And we're in a position where we're competing on price. We want to compete on price. We don't want to lose good business to that. And as you've heard Dan talk about our funding costs, I believe we're a low-cost producer in the market. So there's really no reason for us not to be aggressive competitively on price. But as it relates to structure, where you can get in trouble, and our culture is one that we want to make sure that we're protecting the balance sheet, protecting the portfolio, depositors, shareholders, etcetera. So it's what we're seeing there. Jared David Shaw: Okay. Alright. Then if I could follow-up, capital continues to grow. You're almost at nearly 14% CET1. Certainly plenty to fund the growth expectation there. How should we think about your thoughts around capital growth from here and capital utilization? Daniel J. Geddes: Jared, this is Dan. I think we want to continue to build our capital. Our priority is going to be the dividend, protect the dividend as Jerry left as his parting words. I won't forget that. But I think for right now, I think we're looking at just building that capital base. So I think that's our focus. We don't have any plans. We certainly have a repurchase program that we could utilize if the opportunity presented itself. But, you know, right now, the stock price is holding up, and I don't see us at this level utilizing it. Phil, if you want to add anything. Phillip D. Green: No. Thank you, Ryan. I think our capital focus is, you know, number one, the dividend is important to protect. I think it's a distinction of our company. I think our shareholders like and expect it. I know this one does. And we've got good growth. I don't think the economy is growing as fast as it will be growing. I think that we're keeping powder dry and we'll wait on developments. I don't think we're at a point right now where we have to do something dramatic on cap. Jared David Shaw: Okay. When you're looking at capital, are you primarily focusing on TCE growing from here? Is that what you would like to see higher? Phillip D. Green: Yes, I think so. I think the risk base because of our balance sheet the way it is with so much in low capital cost securities, I mean, I don't really look at, I don't think Dan looks as much at the total capital numbers. It's more of those overall ones. Okay. Thanks. Operator: Our next question is from Ebrahim Poonawala with Bank of America. Please proceed. Ebrahim Poonawala: Hey, good afternoon, Phil, Dan, how are you? I had a question. So I've been supportive, we and we've been very fans of your growth strategy over the last few years. I think the question you're getting from investors is, like, if I go back and look at 2022, earnings have flatlined, expense growth has significantly outpaced revenue growth. Just talk to us that from a shareholder perspective, when do we start seeing the benefits of all the investments that you made when we think about this bottom line results around earnings growth, and, hopefully, that will then translate into a better stock price. Would love your perspective on how you think about it and how shareholders should think about it. Given the last three years? Thanks. Phillip D. Green: Yeah. That's a good question, Ebrahim. And what I'd say is that, you know, and Dan has said before that we expect that we'll have some nice accretion to this program in 2026. And it's not just going to be one time. It's not like an acquisition where you get some accretion and it kind of stays at that level. It should increase over time. It will increase over time. But what I'd say about expense levels in the last three years or so, certainly, we've been investing in our expansion effort, and I think to the great benefit of shareholders, there have been other things, too, that we've had to deal with. We've looked at the cost level of demand deposits, what interest rates have done. And just pressure on that. So there are factors there. We've been investing in our people. And we've, I think, to great effect, our turnover levels are half really what the industry is now. If you look at the investments we've made in technology, we talked about some generational investments we made a couple of years ago. We continue to make investments to keep our company at a very high competitive level. That's really what's happening. It's not just the expansion effort that's going on. And so I think Dan has talked about, we think the rate of growth in expenses will be headed down over time because of some of these investments really pay off some technical debt, in some cases, in technology. Just the rate of growth and expenses on expansion is an expansion effort gets bigger and bigger, the marginal investment is less. So I'm not concerned about seeing returns from this. I think that the numbers that we that I just reported in my comments, we're over $2 billion in loans now. With us when I saw that, I mean, it kind of gets your attention. And deposits about $2.7 billion. I think that I think we're going to see and Dan can talk about the expansion and what we expect there. What I'm hopeful of is that the legacy part of the business, you know, as the economy picks up, and I believe that it is, I think it's poised to really pick up. That's where I think that you and you get some of the legacy operation operating and moving forward along with the expansion, that's where I think we can see some really nice returns. Daniel J. Geddes: Ebrahim, I'll just kind of add to that. Kind of a little bit of a longer-term approach here is when we go back and look at the expansion markets versus our more legacy markets. If I go back into 2018, you know, we had just a 2% market share in Houston and a 2.4% branch share. Now looking back where we are in June 2024 with and I'm using June '24 because that's FDIC data. And we have a 2.5% market share and a 4.8% market share, almost 5%. So that's about 50% when you compare branch share to market share. If I look at some of our legacy markets like San Antonio, we have about a 10% branch share, but about a 27% market share. And if I look even at Austin, we have a 5% branch share and a 7.3% market share. So we have and then Dallas where we just getting started, in the and kind of halfway through in '24, we have a 3.6% branch share, and that's up from 1.4 back in 2018, but only a 1% market share. So we have just tremendous room for growth in Houston and Dallas. To get to even par on our branch share which in markets that we've been established in, you know, that we far exceed. So I think there's just this optimism that we can continue to grow deposits, especially if we are entering in a lower interest rate market where deposit growth would has typically accelerated for us. Ebrahim Poonawala: Got it. Thanks for that response. And just as a quick follow-up on deposit growth, you think we are at a point where non-interest-bearing or DDA balances should begin to stabilize and we start seeing growth, or is it still unclear whether or not the DDA levels of around this $13 to $14 billion level? Daniel J. Geddes: So I think we're kind of bumping near the bottom. I don't know if it's for quite at there, but I'm encouraged by just what I've seen in the last couple weeks in terms of deposit flows that you're starting to see the DDA balances grow. So I'm encouraged that typically in the second half of the year, again, our commercial customers will build up their DDA balances towards the end of the year and into the kind of end of this third quarter and into the fourth quarter. So I would expect it to, but you know, to be determined. Phillip D. Green: Yeah. I think that the, you know, we mentioned the consumer. We sort of returned to seasonal trends along with the growth in consumer, and we've seen checking account growth. I think that is as I mentioned, I think it's more in line with what we've typically seen. We're hopeful that and I think we've seen sort of return to seasonal trends in commercial DDA, but there's so many other factors that businesses deal with that you're dealing with such large amounts of money. It's hard to say definitively that we are on that seasonal track and we're going to see that growth through the end of the year. I don't know of a reason why we wouldn't, but it's what we're waiting on now is seeing those seasonal trends manifest themselves as they typically would in the last half of the year. Ebrahim Poonawala: Got it. Thank you. Operator: Our next question is from Casey Haire with Autonomous Research. Please proceed. Casey Haire: Thanks. Good afternoon, everyone. Follow-up on the NII guide. It seems just a little conservative. With day count, you're going to get a little bit of natural help in the third quarter. And the guide doesn't assume much growth. Just wondering what like, like, are loan pipelines slowing down? Like, what's driving or what's the main factor in what appears to be a pretty flat run rate in the back half of 2025 here. Daniel J. Geddes: Casey, the net interest margin will improve. But since it's a full-year guidance, it doesn't rate cut towards the back of the year is it going to impact the full year. And again, I think we're seeing consistent loan volume. We should have some back half of the year payoffs in real estate, some in energy as well. But it's yeah. If we see higher volumes in deposits, you know, maybe you see to the upside of that guidance. Casey Haire: Okay. And apologies if I missed this. The pipeline did you guys quantify that up or down? Daniel J. Geddes: Yeah. It was only down 1%. Yeah. It's pretty consistent. I was looking five five six thirty? Considering, I think, you reported the commitments in the second quarter being around $2 billion. So to see the pipeline, you know, with us close out a lot of those opportunities and essentially replace them and to only see it down 1% is encouraging as we look at kind of the ninety-day pipeline into this third quarter and start of the fourth. Phillip D. Green: And the relationship numbers were strong as well. So you know, I don't see a slowdown in that. You know, we've seen draws under commitments be weaker. You know, just the outstanding line utilization was probably down 1% from a quarter ago, maybe, Dan. And then maybe add another 1.5% if you're looking versus a year ago, maybe another percent. So I think businesses have had some uncertainty. They've had to deal with. And so I think they're waiting around for more clarity. We've heard that clearly from our loan officers in the marketplace. And I think as more clarity is developing around trade policy. I really believe there's just my feeling based on what we hear from our customers, I think that we're going to see some activity in projects that were on hold right now or were on hold, say, three months ago beginning to move forward if they still think the economics are good. And they're not really just waiting on trade policy. One of the things I think we heard clearly from them is that they're going to see if there'd be a recession, right? Nobody's going to want to expand into a recession. And so I think there's a general feeling that that's less likely. And so I think that's going to clear up some uncertainty from some customers. So I'm looking forward to seeing some movement in the next in the back half of the year. Casey Haire: Great. Thank you. Operator: Our next question is from Peter J. Winter with D.A. Davidson. Please proceed. Peter J. Winter: Good afternoon. I wanted to follow-up on the net interest income question because I also thought it would be the higher end. I thought you would have increased that upper end of the range just because originally, you were assuming four rate cuts, and there's a negative impact, I think, about $1.7 million per quarter. And now it's only two rate cuts. And so with fewer rate cuts, why not see an increase to the upper end of the net interest income? Daniel J. Geddes: Peter, some of that is just where those deposits are going. Some you're seeing are CD balances, which are higher cost. You know, those had kind of flattened in the first quarter, but we actually saw them increase, and we're seeing some good volumes there. So that's probably just the disintermediation and where the deposit mix is. I would say, is the biggest driver of just where that NIM would end up. Peter J. Winter: Okay. Daniel J. Geddes: So if we continue to see it going into higher-cost deposits, that would put pressure on the guidance on that NIM. Peter J. Winter: Got it. And just with this branch expansion strategy, Phil, in your opening remarks, you talked about you've identified some more locations. Just I'm just wondering as you're getting closer to completing the projects, do you is the focus to continue to expand in Houston, Dallas, Austin, or is there some consideration maybe to shift this de novo strategy outside of Texas into other high-growth markets? Phillip D. Green: Yeah, Peter. Not outside of Texas. I think the thing that we're, you know, we've been doing is we were making sure that we've got locations which we have lined up the pipeline so that as we're bringing in these some of these announced expansions in these markets, like Dallas, Austin, which remain. We've got the ability to move into other markets without fighting to find a location and going through all that, going through the negotiation set. That go along with that. I've been talking to our team over the last year. Let's look where the puck's going and let's make sure that we're where we're going to be. And because some of these markets I've described it this way. When we get through with Austin, you know, Dallas will be through with the next twelve months. Say Austin, say the next year and a half. That strategy that began in Houston will be eight years old. From the first branch that we opened. Well, Houston's grown a ton in eight years. And I don't want to say what markets that we're not in that we'd consider because I don't want to tip my hand. But you look at some of the markets around there, they have had explosive growth. And over that eight-year period. And so I think there's plenty of places that we can go both in Houston and Dallas and frankly, probably there's more in Austin, that we can expand into. But it's a different deal. We're not filling these gaping holes in the that we used to have. It's going to be finding these really high-growth areas and sort of going along with the growth. And then I'll say at the same time, it won't just be in the places where we've had expansion, Houston, Dallas, and Austin. It's going to be some other markets where we're filling in in some more legacy markets. We just opened one in the Fort Worth area that was a long way by the growth that we've had in the Alliance area. So, you know, there are plenty of great locations. We've got them lined up. We've acquired many. And these are all in Texas. We're going to be focused on the best high-growth locations that we can identify. And I'm very optimistic about what we're going to be able to do there. We don't want to stop growing that. We as Dan said, we're it's great to have $2 billion that we didn't have to pay a premium for in an acquisition that we now have to acquisition, but 69,000 relationships that have selected for us to do business, for example. I mean, it's great to have that, but and there's we're still at a small market share in Dallas. We're at a small market relatively small market share in Houston. There's so much work for us to do and so much there's so much ore for us to mine out of these great markets. That's where our focus is gonna be. Daniel J. Geddes: I want to say the markets of Dallas and Houston deposit markets are larger than the states of Colorado and Arizona. Right. And so you think about just the opportunities in just those two markets. Where what we started eight years ago in Houston, we would look at a trade area, and we had just huge huge holes in the market. Really nothing north on if you're familiar with Houston on the Interstate 59, nothing northwest on 249 and really nothing West of the Beltway on I-10. And so we filled in kind of some large gaps in Houston to where now we could come back and maybe more with a rifle approach, you know, really identify maybe some markets that we feel like with our customer service, our consumer lending that has really surprised us in Dallas how well it's gone. They might be markets that we would consider now. Peter J. Winter: Got it. Thanks. Very helpful. Appreciate it. Operator: Our next question is from Manan Gosalia with Morgan Stanley. Please proceed. Manan Gosalia: Hi, good afternoon. Hello. Phil, you spoke about lending getting a little bit more competitive. Are you seeing that on the deposit side as well, given many other banks are talking about C&I loan growth accelerating. Are you seeing some pressure on the deposit side as well? Phillip D. Green: I don't think we've seen that to this point. In fact, I'll tell you that there are cases where we might lose a deal. The structure is probably what the way that works. We'll keep the depository relationship. That happens a lot. We really hate to lose a relationship, which we, by the way, define as having the primary deposit account. So we haven't seen it. I think our rates are solid in the marketplace. So it's not really a competitive rate thing. And I think the service proposition that we bring to the table, I mean, you can look at the Greenwich awards, the J.D. Power awards. I mean, it's hard or you can't buy that any other place. So haven't seen that same thing on the deposit side to this point. Manan Gosalia: Got it. And then maybe to get your thoughts on your interest in bank M&A. Clearly, M&A is picking up in Texas. We've seen a few deals announced over the past few weeks. You guys have the currency to do bank M&A. So any thoughts on inorganic growth here? Phillip D. Green: Yes. You're doing your job to ask the question. And so that's, you know, that's a good question. But and yes, our currency is strong relative to others. But we are not interested in inorganic growth. There are so many reasons around it, but you know, with what we're doing today, and the focus that we're able to bring on customer service focused on being in the right markets that we choose to be in hiring the right people to staff and be leaders in these markets. I mean, it's very there's so much clarity there for our company and our staff and we're not worried about the aspects. We're not worried about converting old systems. We're not worried about closing old locations. And rebranding. There's so much cost associated with it. And go back to one other thing, too, that I've said before is if you look at the cost route we have all in for this organic growth for $1 billion, it's about half what you're seeing paid in the markets for acquisitions. So if you're able to pull it off and you got a value proposition that will sell in the marketplace. And an organic strategy, I think, for our shareholders is just so superior. And there's really no need for us to give large pieces of this company that's been heavily curated with regard to brand and customer base and markets, etcetera. To others that might have cobbled together a franchise of sorts. I just don't see that as a value for our shareholders. And I think they're best served by allowing our shareholders who gave us the ability to create a company that can grow organically, let them have the benefit of that growth and those returns as we continue to prosecute this strategy. That's the way I'm seeing it. I'm convinced of it. And so I'm not really interested in participating in the M&A activity. And I'll tell you just one other thing. And it's just the reality. Is that when we see expansion not expansion when we see acquisition activity occurring in our marketplace. It really is to our benefit. Because it creates dislocation, it creates dissatisfaction, it just creates noise in the marketplace and really provides us opportunities to pick up business. And we've seen that I won't name names, but we've seen some really great examples of that over the last few years. And I'm kind of looking forward, frankly, to some of this acquisition activity that we have. Manan Gosalia: And that gives you the ability to pick up both customers as well as bankers? Phillip D. Green: Absolutely. Manan Gosalia: Alright. Thank you. Operator: Our next question is from Matthew Covington Olney with Stephens Inc. Please proceed. Matthew Covington Olney: Thanks for taking the question, guys. Just a few follow-ups here. On the deposit competition, it looks like the deposit betas so far have been around 50% so far in this cycle, which I think is a little bit better. Thank you. A little bit better than you were assuming previously. Dan, are you assuming similar betas from here on the remaining Fed cuts? Daniel J. Geddes: Yes. I think you should see as the Fed funds go down that, you know, so far, we've been able to kind of keep the similar betas. You know, we'll always kind of check the competition. Especially likely on that CD. Just to make sure that we're offering a fair a square deal to our customers that's competitive in the marketplace. And, again, we have the deposit base to do that. Matthew Covington Olney: Okay. Thanks for the color, Dan. And then as far as the updated guidance on the noninterest income, positive revision there, any more specific you can provide on the improved outlook versus a few months ago? Daniel J. Geddes: On the noninterest income, Yeah. So I think a couple of things. One, the stock market has been healthier. And, you know, we weren't exactly sure, when we issued our guidance, where the market would go. There wasn't a lot of clarity. Seems like we've gotten some tariff clarity, and then the markets responded, accordingly. So that's probably one. Your others are mainly, I would say, just volume related. You think about interchange and service charges, that's just that that's us growing customers. And so, we're continuing to add new customers. Initially, you know, at the beginning of the year, we were looking at some interchange in the back half of the year. Regulation that didn't that we've pushed out. We don't know when that'll be addressed. And so we've kind of taken it out of 2026. And that's and then probably on the only other thing I'll add on the back half of the year is we had a really strong 2024 capital markets, and so, so far in 2025, we're certainly behind in '24. We may have a this third quarter, you're seeing some opportunities. With some school districts, in their bond underwriting. So I would expect, third quarter to be a little stronger there, but likely, that'll go away in the fourth quarter. So would be kind of just some things that you could expect. Matthew Covington Olney: Thank you. Operator: Our next question is from Catherine Mealor with KBW. Please proceed. Catherine Mealor: Thanks. Good afternoon. Hey, Catherine. So just to follow-up on that service charge comment. So we should kind of keep service charges at these current levels or maybe even growing a little bit. Versus taking some I think we were modeling a little bit of a change from the you know, from the lower interchange. But your point was just basically take that out and continue to grow service charges from here. Is that fair? Daniel J. Geddes: That's fair. I think what we're seeing is it is truly just a volume. It's not like we're increasing fees on consumers. It's really truly, we just have a lot more customers, and we're opening up locations and bringing in new accounts. Catherine Mealor: Great. Okay. Perfect. And then I wanted to follow-up on the deposit piece. Where are your new deposits coming in today relative to where maybe that $1.29 cost of deposits are today? Daniel J. Geddes: It's broad-based and I'm looking at kind of some information on just where it's coming on recently. And we've seen it recently. Like, I'm talking about July, coming in, you know, broad-based. You know, we're seeing CD growth, but we're also seeing some good DDA growth. So I don't think it's overly weighted one way or the other. So it is it's kind of more back to seasonal trends that we've had in the past. Catherine Mealor: Got it. But would it be fair to think if we were in a higher for longer environment, so we did not get cuts, that deposit cost would actually start to come up a little bit from here. Just given higher competition. Daniel J. Geddes: If I think if you yeah. Maybe if you would see I wouldn't I wouldn't expect it necessarily in the back half of the year just because typically our commercial customers and our consumer trends are looking like they're returning to seasonal trends where interest on checking and DDA would increase. You might see it just you might see a shift if there's more movement into CDs or our money market, funds or our repo account that, funding costs would go up. Catherine Mealor: But I don't think, materially, you'll see it change much. Phillip D. Green: So that would be more of a mix a mix of factors? More of a mix versus it's we're below in some way, and we'd have to catch up with the market. Catherine Mealor: Got it. Okay. Great. Appreciate that. Thank you. Operator: Our next question is from Jon Arfstrom with RBC Capital Markets. Please proceed. Jon Arfstrom: Hey, thanks. Good afternoon. Just a few follow-ups here. On lending, where's the competition coming from? Is it too big to fail banks, or is it regionals or community banks or all of the above? Phillip D. Green: I think it's all of the above. Although, I will say, I've seen to feel like there's a little bit more pressure coming from smaller, you know, maybe banks a little smaller than us. You know, they're sort of waking up to, you know, having some money, I guess, to go into some of these asset classes. And they typically will be a little bit more aggressive on underwriting. So it doesn't seem like I've seen that. But it's really everywhere. Jon Arfstrom: Yes. Okay. Yes. That's been larger loan opportunities is where we really see the competition larger high quality mean, that's there's not a lot of them. And so when they come around, it can get pretty competitive on both pricing and structure. Jon Arfstrom: Okay. On the margin and NII outlook and rates, how much does that change without cuts? I'm not thinking between now and the end of the year. You mentioned that, Dan, but how impactful is it 25 basis point cut to the to the margin in NII? Just in general? Daniel J. Geddes: Yeah. So we it's for the year impact, it's like you said, it's not gonna make it a big dent in the full year net interest margin. You know, on one cut, again, it's around that $1.8 million per month. And so you know, you could see if we don't get any cuts for a full year, you know, that, I'm gonna just kind of give you a range that could be, depending on a lot of factors. It could you could see it bump up for a full year. You know, more in the kind of two to four basis points. Jon Arfstrom: Okay. Good. That's helpful. And then I'm just looking at your numbers. You have a 1.2% ROA and a 16% almost 16% ROE. And I think you're saying 30 of your branches are at breakeven. In aggregate. How long does it take for the I hate to use the word project, but for the project, expansion project to reach something like the average returns of your legacy branches and any guidelines on how much the branch expansion can contribute to earnings over the next year or two? Daniel J. Geddes: We'll probably hold off until really we give 2026 guidance on the just what it would impact on the kind of earnings per share. But I can just kind of talk in generalities. Again, kind of years one through four, you know, you're really kind of in that breakeven stage of the expansion, and then you start to see in years five and beyond, really where there's accretion. And so what, and you have a good point. I think we've got, like, 14 of our locations in Houston that are now over five years. Well, Houston, as we've said, has kind of been paying for the expansions in Dallas and in Austin. And so as Dallas matures, you're gonna see Dallas become breakeven, you know, in the next, you know, year to eighteen months. And so it doesn't drag on Houston. And then, really, Houston ends up covering Austin, which at that time in '26, you won't have you'll have some you'll have accretion at that point. It's just right now, you have Houston covering some of Dallas because the average age of a Dallas branch is right at two years. Whereas the average age of Houston one point o is around five years. So it just as it matures, and you start to see more branches go beyond the four years and then five years and beyond, is when you'll see kind of that shift mix of more branches in years five and beyond than you have in years one through four. So we're probably I would say, three or four years to where you're gonna see again, it's just kind of math. If we're building 10 to 12 branches, basically, one a month, for the last, six years. Well, you're not gonna have, as many in years five through ten. But in another four or five years, you're gonna see more branches in those years five through ten. Jon Arfstrom: Okay. But it and you're still saying it's basically breakeven in aggregate at this point? Or near breakeven? Is that right? Daniel J. Geddes: Through the first two quarters, we're breaking even. Yep. Jon Arfstrom: Okay. Alright. You, guys. There are no further questions at this time. I would like to hand the conference back over to management for closing remarks. Phillip D. Green: Okay. Well, I appreciate everybody's interest as always, and you all have a good day. Thank you. We adjourn. Operator: Thank you. This will conclude today's conference. You may disconnect at this time and thank you for your participation.
Monika Schaller: Good morning, and thank you very much for joining us today for our Q4 and full year results press conference. A warm welcome to everyone here in the room, and of course, a warm welcome to everyone joining us virtually. As always, Christian, our CEO; and Dominik, our CFO, will share some brief remarks, and we will then move into the Q&A session. Everyone joining online, please feel free to submit questions at any time. Maybe one disclaimer, as always, unless stated otherwise, all numbers on these calls are non-IFRS and growth rates and percentage point changes are non-IFRS year-on-year at constant currencies. And with this, let's not waste any time. Over to you, Christian. Christian Klein: Yes. Thank you, Monika, and welcome, everyone, here at our headquarter in Walldorf and of course, also to those who are joining us virtually from all over the world. I have actually, from my remarks, I have 2 rather big points. First, 2025, you have seen the numbers. Let me share also some more background on these numbers and then, of course, also the outlook for 2026 and the years to come. And of course, there, I will also double down on the topic of AI. Now talking about 2025. I mean, first, when you look at the set of numbers, I would say I'm very happy with how SAP once again delivered a very successful year. You can look at cloud and software. We achieved our outlook. And please also remember, in the half year 1, we had a rough start. There were some geopolitical tensions. We -- especially in the public sector, we actually had our challenges to actually do deals. And still, we achieved our outlook for the year. We overachieved and beat our outlook for operating profit and cash flow. It's not only about cost discipline. It's also the way how we transform SAP, how we make the internal processes more efficient, how we're also now applying AI in all parts of the company. I will come later to that when it comes to 2026. Also in 2025 in Q4, we actually had our best bookings result of the year. So I know there's still some discussions out there on CCB. I will touch base on that in a moment. But actually, Q4 was our best quarter with regard to bookings. We had lower churn than expected and also the discounts we have given actually were pretty stable. So actually, net-net, a very good Q4. Now again, we started our transformation 5 years back. And we were sitting here, I was sitting here, made a pretty bold commitment about the 2025 ambition we have as a company. There were many doubts out there, but we delivered. The company delivered. I'm super thankful to our 100,000 colleagues worldwide to the customers for the trust because with RISE and GROW, we made a big bet, not only on lifting and shifting our customers to the cloud, but really helping them to transform. And what came out of that is one of the biggest success stories and definitely the biggest transformation in SAP's history. Now when you deep dive a bit on GROW, I mean, SAP, I know, is known for running large enterprises in the world. And yes, we are very proud about that. But what we also managed over the last years is that actually several thousand net new customers joined from the mid-market. Then the mid-market is actually by far now the fastest-growing market within our customer base. We are expanding our ecosystem because a lot of that will be also covered by our partners. And in 2025, and that is also -- shows the success of our cloud transformation. Actually, our public cloud business was growing 5x faster than our private cloud business. And also look at the resilience, what actually SAP in the meantime gained. We have a large recurring revenue share. We actually tripled our cloud revenue over the last year. So definitely, I would say, a huge success story. But we are living in a fast-moving industry. I would say this is probably the fastest-moving industry in the world. And so we can't rest. Now what we also did when you look at this half moon is actually we put a lot of clarity into our product strategy. I mean we said, hey, all lines of businesses have to come together on one platform. The PDP is now in the meantime the platform for integration and extensibility. We put a BTM business transformation portfolio together, again, helping our customers to do the process transformation to be world-class in enterprise architecture and also just help them to transform on the business side. We launched a lot of new innovations around sustainability, the business network and all these businesses contributing to the overall growth of SAP. Very important, obviously, is also what we did in the last years around AI and the Business Data Cloud. The Business Data Cloud now produced, in the meantime, over EUR 2 billion of order entry since its launch in January, shows the success, but even more important, shows the strategic relevance because when we talk about AI, we talk a lot about data quality. And for the customers, it's super important to have this semantic layer of bringing SAP and non-SAP data together, and that is also then resulting in the huge success of BDC within the first 12 months. But of course, we are not stopping here. I mean you have seen our total cloud backlog increased by 30% to EUR 77 billion. I mean, what a number. And that also shows why we are so confident on our guidance to accelerate total revenue growth in the years to come. I mean, with this backlog and the contract duration is around about 4 years. So you can see there is already a lot in the books, which will help us to say with confidence that SAP will be a growth company. The cloud business, when you compare this revenue growth numbers here of 26% in 2025, these are on an average, 10 percentage points faster than our peers, than our competitors, just shows how also SAP is gaining market share. So net-net, also operating profit, free cash flow, Dominik will talk about that. So no need for me to dig deeper. But also there, we beat our outlook, and that speaks for itself. On -- in Q4, we closed a lot of business, best bookings quarter. Now I can tell you -- share with you a story about all of them. I want to pick 2. And I picked those 2 just to show the relevance of SAP AI in the world going forward. H&M, we all know them, a great retailer. And they came to us and said, "Hey, our business will change a lot as a retailer." And then we prototyped together over the complete year, and we closed the deal in Q4. They wanted to see, "Okay, we are happy with your commerce platform. But in the future, our consumers expect a more personalized shopping experience." So we custom coded for them a prototype on how shopping experience will change. We brought this back into the standard. And they said, "Wow, this is exactly what we need to really address our consumer needs, the consumer trends right in the store online." Second, we talked about certain things about returns claims management, people ordering stuff, sending it back. How can we make this more efficient? How we can improve the consumer experience? Can we actually propose to the consumer a different good if they are not happy with the one thing? What if a certain good is not available in one store? Can an AI agent help to find the right store to deliver next day or even in the same evening? So -- and we showed them this was the SAP transactional application in the old world. And this is what you get with AI in the new world. And it was tremendous what they have found out on to really personalize the consumer experience to make the supply chain more dynamic, more agile with regard to also delivering the stuff faster to the consumers. And then finally, of course, they saw all the agents working together also into the back office into finance. And that is what made this deal happen. It was not only the cloud move and get rid of the legacy. It was really the AI embedded in the different parts of our apps, which made this happen. Fresenius, we did a press release already, super happy about that. We got a lot of feedback, especially in Germany, hey, you were great in patient management, but why do you not deliver the next generation. Together with Fresenius and Avelios, we are now coding on our platform a new patient management solution. And we started to do that. Avelios is our main partner here, and it will revolutionize how much more efficient we can make the doctors and the nurses to spend more time with the people in the hospital, making them more efficient, making more efficient decisions and just also make the whole operations in a hospital way more efficient than it is today. And again, AI agents taking a lot of manual work over what the nurses and the doctors had to do in the past. And we showed this to many other health care customers and they said, wow, this is it. We definitely want to join SAP in delivering the next-generation patient management. Now talking about the future of AI, talking about the future of SAP. And I know there is a general concern out there in the market about, oh, how will software sustain in the world of AI? Cannot everyone code software? I would say clearly no. Because what we are already seeing with many customers is, of course, they are doing certain -- building certain customer agents for cash flow collection, et cetera, with those LLM providers. But what you always see as a roadblock, and this is now what customers see more and more, and that's why it also explains why we sold 2/3 of our deals with AI. They, first of all, see, oh, an LLM can read when I build a cash flow agent, can read a support ticket. It could be that because of the support of an issue of the customer, customer is not paying. You can read mails, okay. But what about the P&L data? What about certain sales negotiations, deals in the pipeline? What about certain payment information, which are also necessary for the agent to understand why is this customer not paying? So it always goes together. The LLMs are super good in the unstructured data, but you need the business data and which company has petabytes of data, which we are using to which we are using to fine-tune our AI foundation, this is SAP, and we are using the world's best LLMs for the different use cases, bring this together, have a so-called knowledge graph to correlate the unstructured data with the structured data. And of course, BDC helps to bring the semantical data together for the structured data in the company. And that is the winning formula. And then the second piece is when you want to change a retailer like H&M, you cannot just go there and said, the IT embed a certain agent in my operations. You have to fundamentally rethink like we do in SAP how will I run a certain industry going forward? How will cash collection work? How will recruiting work? How will workforce management work? So our product managers are just sitting there using the rich information, knowledge what we have about industries and business processes to really redefine how these agents have to work. An inventory agent as a matter of fact, you can do an inventory. But if the inventory agent has no clue what is happening on the demand side, the inventory agent is not so intelligent, I can tell you. And then, of course, there are a lot of things that, what kind of information can I actually feed into an agent. There are certain security authorization requirements, which all sits in our beloved apps. Now super important for us is business data, business process, security and trust and, of course, completely rethink how we run those companies, our customers going forward. And so when I think about the future of AI and SAP, I'm super happy that I have our ERP. I'm super happy that I have our apps because without those apps, I wouldn't have the data. And without the data, I wouldn't have an AI. So I know there is a lot of talk about, oh, what can the LLMs take over. The LLMs can take over coding of software, for sure. I mean, because this is unstructured information code. They understand the patterns, how our developers code in the past. But everything related to business data is actually something what SAP can offer, which is pretty unique to us. So when you think about how will SAP grow its business going forward? And I find it pretty remarkable that we -- on an already heavily growing business, we said we're going to further accelerate our total revenue. Five pillars where we have a clear right to win. We cannot win everywhere, but we have 5 pillars, which are very important for our customers. When you think about SAP and UX in the past, this was not a big success story. I mean we know that Joule cannot take over today every skill of an end user, but we are getting there. And we will not only take over manual work. We will take over analytical requests. We will train Joule also with correlations to understand, not only do analytical reporting, but also give smart recommendations, how to source the best for this good, what I'm looking for, how to actually do inventory planning the best, looking into what is happening on the demand side, what is happening on the market side. So Joule will not only be connected to an LLM like GPT, Joule will be connected to our AI foundation to get the 2 worlds together. And what it will does is when you think about how often did I sit in front of my desktop or mobile typing into data into SAPs, this will completely change the design, the user experience, the simplicity. And at the end, the productivity of every end user will change. Second, I mean, this is logic. We are running business processes today, transactions, workflows, complex. We are now embedding not further features into these apps. We are embedding agents. So the agents will take over the features. And the agent will talk to each other. So we are actually infusing across the most mission-critical business process in the world, our agents, and we will train them, again, to also contextualize information because no agent can work in isolation. Otherwise, you are not running businesses. Very important in that space, in the second space, AI assistant. Not every AI assistant will look the same, for example, the cash flow example. So extensibility is key. So you're getting access in our agent builder to, first of all, understand the process better. And then you can also enhance those agents based on individual needs of a treasurer, of a person in supply chain training and so on. And we have both. We have the tool set for the developers, and we have the low-code tool set for the business users. Third, industry-specific capabilities already today, super important. I mentioned Fresenius. We had another large deal in Q4 where we could show the customer, oh, you're doing last-mile delivery with SAP. Now we're going to show you how your trucks arrive faster at your stores with AI in the future, how you can improve load optimization of your trucks with AI. So these things are super, super important because here is the value of a customer. This is how customers can differentiate in their industry. These are the main, main capabilities, for example, trade promotion for a retailer, personalized shopping experience, supply chain resiliency in manufacturing, asset management for the navies of the world. These are the things which SAP knows how we run it in the past. And now we were reimagining those capabilities with AI. Fourth, business data cloud. I mean, again, the biggest road blocker for business AI is today, data, data harmonization, data silos. This is actually what constrains our customers the most. And this is what you have seen in the numbers. BDC is a big success because SAP said, "Hey, we are not a closed shop anymore and really bringing our data together with non-SAP data, BDC and it's only in BDC, we are going to allow you to harmonize SAP data with whatever other business data you have in your company sitting in non-SAP apps. And then fifth, obviously, this is what is close to our heart for many SAP customers said, Christian, I just do the RISE journey. But guess what? We are paying $1 to SAP. I mean, not exactly $1, but we are paying them $10 more to DSI. I said that is not good. So what we are doing is, I mean, why can AI not take over certain parts of the ERP migration. Think about data migration, think about configuration of the system, think about test automation. So these things are super important. We are doing this together with our partners because they understand as well, hey, in the world of AI, it's not only about putting a consultant to work. This work can be done way easier, way faster and way more efficient. And obviously, when we talk about ERP migrations, I think about SAP, and this is definitely a big focus area for us. Then coming to our -- I mean, to be credible in AI, we need to use Joule. We need to use our own AI. And yes, does everything already work to perfection? No. But even more important is that we are a role model underpinning our great cash flow results and profit results with the use of AI. And you can ask all of our people, we are pushing this really heavily. So we mean it. So in R&D, code-generation tools, tool for developer, [ APA. ] We have thousands of developers who already see, oh, now I have much more time on developing those agents and making the agent orchestration work and less about my time producing code. In sales, already in Q4, we did a lot with AI on quoting, on pricing, on packaging, help me to find the best deal for my customer. Help me now to find in the pipeline, the best opportunities for me to close out the year. In HR, recruiting, we made the acquisition with SmartRecruiters, but also on skills, a lot will be handled, and we will work smarter with infused AI into our SuccessFactors solutions and then, of course, into our own HR operations. So in tech, innovations come at a very fast pace. The most important thing is next to having the right strategy is our people. So AI is, first of all, not only a technology who can run a company smarter, it's also about the skills of the people. So reskilling is a big topic within SAP, and we will double down on that because AI will affect every job, and we need to prepare our people for that. That doesn't mean that we need less people. I want to say this very clearly, but we need different skills. And honestly, there will be a change of the mix of the job profiles going forward. But as long as we post such great top line results, we are not thinking about restructuring, we're rather thinking about how we can reskill our existing employee base to make them fit for the next chapter of our transformation. Now when we then look forward, and in a second, I will hand over to Dominik, let me just share some geopolitical observations. I mean, SAP is, I guess, by far, the biggest tech company in Europe. But what will be very important for the future of SAP and for Europe is clearly, first of all, talent. So we really need to make sure that we are changing our education system and really our universities give us access to the best talent. That's actually working quite well. But when you think into every job the next generation has to do, it will change. And then super important, and I'm talking about this since quite a while, especially here in Germany, I see a lot of movement now, the willingness to digitize Germany. But when I think about our home market and compare this to the U.S., oh my God, the regulation, I mean, layers of layers. And that is, of course, something when we are closing deals in Q4 in the U.S., it's FedRAMP, you have clear -- we are not even talking with customers about regulation. They are clear. And here, you -- on the state level, you have regulation, everyone reads a little bit different. The [indiscernible]. Then on the federal level, you find other people who have other ideas on regulations on sovereignty. And then you come to the European layer and then you have layer and layer and layer. And now that is not good for SAP, but think about all of our start-ups where you find the same startup like an NNN in China and the U.S. And so this digital union to come together and harmonize that is of such an essential importance because it's not only about funding and access to capital, it's really about speed and the speed is especially super important for all of the great start-ups we are having. So with that, I said enough. I'm super confident about our outlook for 2026. Strategy is the right one, and we will also -- you're going to see SAP clearly as a winner in AI. And with that, Dominik, over to you. Dominik Asam: Thank you, Christian, and thank you all for joining us this morning. I'd also like to wish you all a happy and healthy year 2026. SAP's strong close to the year reflects steady execution against our priorities. As we navigated a rapidly shifting macroeconomic backdrop at the beginning of the year, we remain focused throughout the year on operational discipline and driving value for our customers in times of unprecedented technological change. Our ability to drive top line growth while consistently exceeding our profitability and cash flow expectations reflects the consistent execution against the outlook we provided at the beginning of the year. While challenges persisted, we took deliberate steps to reinforce our foundation and align the business for durable, sustainable performance. As a result, we closed the year in a position of strength and the progress we've made has set the stage for continued advancement towards our financial and strategic priorities in the years ahead. RISE and GROW with SAP, both remain core pillars of our transformation strategy, serving as go-to solutions for large-scale enterprises and high-growth midsized companies undergoing complex end-to-end transformations and modernization efforts. And as Christian just highlighted, AI and the Business Data Cloud are beginning to show real commercial impact emerging as meaningful contributors to customer decisions and deal activity. The combined momentum continues to materialize in large cloud transactions with deal volumes greater than EUR 5 million, contributing a record 71% to our cloud order entry in the fourth quarter. These results validate our role as a partner of choice, trusted by world-class organizations navigating high-stakes transformations and speed at scale. Now let me provide more details around the financial highlights. The current cloud backlog reached EUR 21 billion, up 25%. Quite frankly, this is a more pronounced slowdown than we had anticipated and more than the slight deceleration we guided at the beginning of last year. Echoing Christian's remark, the outcome reflects a deal mix weighted towards larger transformations, many of which include longer ramp periods or flexible structuring, reducing the near-term CCB contribution. Also further mounting geopolitical tensions have led to many customers putting even more emphasis on exploring sovereign Software-as-a-Service solution options. While SAP is extremely well positioned in this segment, and we have a significant pipeline of opportunities due to the trust Germany and SAP continue to enjoy on a global scale, it takes longer to negotiate these more complex transactions and also longer to deploy and ramp as compared to plain vanilla offerings done by U.S. infrastructure service vendors. This is particularly true for any state-owned and related entities as well as defense, but starts to also affect commercial customers in certain particularly sensitive geographies and industries. Total cloud backlog for the year grew 30% to a record EUR 77 billion, again, significantly exceeding our current cloud backlog and cloud revenue growth. Cloud revenue actually grew 26% year-on-year in 2025, again, primarily driven by the strong performance of cloud ERP suite. Cloud ERP suite had another notable year, reinforcing its position as a key engine of growth with an increase of 32% in 2025. By the way, if you want to make that comparable to our U.S. competitor, at a couple of percentage points, if you make this constant currency number, U.S. dollar number, then it would have been 34%. This performance is especially meaningful given the expansion of its revenue base over time, highlighting its ability to scale at a sustainable growth rate, now accounting for 86% of total cloud revenue for the year. Software licenses revenue decreased by 27%. Finally, total revenue for the full year approached EUR 37 billion, up 11%. Now down the income statement. Our non-IFRS cloud gross margin for the full year continued its upward trend from last year and expanded by another 1.6 percentage points to 75%, driving cloud gross profit up by 29%. In the fourth quarter, IFRS operating profit increased 27% to EUR 2.6 billion. Non-IFRS operating profit was up 21%. Both IFRS and non-IFRS operating profit were growing negative -- negatively impacted by approximately EUR 100 million related to a 2025 workforce transformation. In addition, IFRS operating profit growth was negatively impacted by USD 200 million related to Teradata litigation expenses. For the full year, IFRS operating profit increased to EUR 9.8 billion and non-IFRS operating profit to EUR 10.4 billion. The IFRS effective tax rate for the full year was 28.5%. The non-IFRS tax rate was 30.4%, which is below the outlook of approximately 32%, mainly resulting from an increased ability to offset foreign withholding taxes in Germany. Looking forward, we expect the midterm non-IFRS effective tax rate to be in a range of 28% to 30%, which is the lower half of the previously communicated range of 28% to 32%. Free cash flow for the full year was around down EUR 8.2 billion, i.e., at the very high end of our revised outlook range of EUR 8 billion to EUR 8.2 billion. The increase was mainly attributable to higher profitability and to lower payments for restructuring and share-based compensation. This result reflects our continued emphasis on disciplined cash management and operating efficiency building on the progress we've made in strengthening the quality and consistency of our cash flow over time. We are very proud of the progress we've made this year and the business momentum that contributed to our strong net cash position. As a result, SAP has decided to further step up its capital returns with a new 2-year share repurchase program of up to EUR 10 billion scheduled to start in February. This decision reflects our confidence in sustainable strength of the business and our continued commitment to returning capital to shareholders in a disciplined and balanced way. Finally, non-IFRS basic earnings per share in fiscal year 2025 increased by 36% to EUR 6.15. Now on to the outlook. As you've likely all seen in the quarterly statement published earlier today, we have provided this year's outlook. We expect CCB growth to moderate slightly over the course of 2026. While some deceleration is anticipated, it is expected to be meaningfully less than what we saw in 2025. At the same time, we see a path for total revenue growth to accelerate, supported by the foundation we've built and the continued strength of our business. And our operating profit outlook reflects sustained operating discipline, driving expense to revenue growth ratio towards the lower end of our long-term operating leverage objectives of 80% to 90%, lower end being good, giving us the opportunity to continue to drive non-IFRS operating profit growth significantly above revenue growth. In addition, in 2026, we expect to generate record free cash flow of approximately EUR 10 billion, supported by continued efficiency improvements and operational rigor. Overall, our guidance reflects a balanced view of the opportunity ahead grounded in disciplined execution and an ongoing commitment to long-term value creation. With now 2025 behind us, we move into 2026 focused on consistency, clarity and execution. The groundwork we've laid across both transformation initiatives and commercial performance puts us in a strong position to deliver against the guidance we outlined today. While geopolitical and trade tensions have taken a certain toll on our top line performance in 2025, the growing need for sovereignty and resilience also offers unique opportunities for those vendors that could offer technologies and tools to reduce dependencies from dominant offerings. As the largest non-U.S. software SaaS and PaaS vendor, there is no company better positioned than SAP to satisfy this rapidly growing demand. Our strategy to design a stack, which is not locked into any particular Infrastructure as a Service vendor is a particular asset in that respect. And our decision to keep developing our powerful SAP sovereign cloud infrastructure, SCI, thereby preserving capability to run Infrastructure as a Service efficiently in our own data centers brought us with another now even more valuable option to deploy our SaaS and PaaS offerings. Despite an unpredictable macro and geopolitical environment, our strategy remains clear and our execution is already driving meaningful progress across the business. Customers are choosing us as their North Star to lead mission-critical change, and we remain committed to helping them move faster scale smarter, become more resilient and modernize with confidence. Thank you. Monika Schaller: Thank you very much, Christian. Thank you, Dominik. We have 30 minutes left, and we are going to move to the Q&A session now. Could you please at the beginning, limit your input to one question only. I have a couple of questions here in the tool already, but I want to kick it off here in the room, of course. Heidi? Unknown Analyst: I have a question related to the topic you mentioned last. You mentioned the better environment in the U.S. as to regulation. And you mentioned your opportunities here given the demand as to more sovereign and resilient infrastructure and solutions offering. But are you facing hurdles there in the U.S., like kind of against the backdrop of growing tensions between the 2 countries and maybe there are some hurdles your competitors are facing here. So they might backfire. Are there any indications for that? Christian Klein: No, actually, the U.S. public sector was one of the best-performing businesses in Q4, and that has completely changed. And those customers are actually less concerned around is the software coded in Europe or somewhere else. They have a clear regulatory framework, obviously, and it has high standards for very mission critical parts of the U.S. government, for example, and still standards for other businesses in regulated industries. So there is not a debate about are you from Europe, are you from the U.S., it's really about adhering to those standards. And that, of course, when you imagine now applying AI to these parts of the world and to their companies, it's very important because now you can really focus on the business value, you can focus on the technological questions. Here, you can find in Europe customers from the same country, asking you for very, very different regulatory standards because, again, there is really this many layers of regulation and that is something where when we really want to leverage the power of Europe, and I'm all in favor for you. We need Europe more than ever. But then at a certain point, someone has to give up power and say, okay, in order to come to one Europe. We can't regulate everywhere. And I guess that is the biggest difference. Also what we have seen, by the way, in Q4, it was very visible also in all the deal closing activities we had. Monika Schaller: Thank you. Let me build on that one. We have one question from writers here in the tools to the same topic. Are your solutions intended to diversify? Or are they intended to replace offerings from non-European providers in the long term? Christian Klein: I don't see it. I mean, Phil sometimes in Germany, we are discussing forever since years now, what does sovereignty mean? And then we are getting very theoretic in, okay, does it need to be a European provider, a U.S. provider. At the end, every little piece of hardware will come at some point of time, either from the U.S. or China, if you like it or don't like it. At the end, it's really about the competitiveness. SAP needs to be more competitive. Our AI needs to be stronger than the ones from our competitors. And then the customers, no matter where in the world will buy that. Obviously, they will also tell us what the sovereignty standards are. I mean, in India, we are also now going to build a new sovereignty standard with some local partners. We do the same in France. We do -- I mean, that is becoming different. But it's still also for SAP, absolutely manageable because when you think about what did we do in the past, there was less regulatory requirements on data and cloud because cloud was -- 30 years ago was not there. But we always localized our software for over 100 countries in the world, and that's now becoming more, especially with cloud and AI. But we have done that in the past. And now we are doing the same thing, obviously, with other requirements coming towards SAP on the cloud and the AI side. Monika Schaller: [indiscernible] Unknown Analyst: You've mentioned a couple of times how the geopolitical tensions impact the business. So how do you expect these tensions to impact the business going forward? I mean, I know there is an outlook, but what impact do you see in this outlook? Do you plan for a scenario in which the tensions might even escalate and maybe a very special question, I've heard that the next SAP leadership meeting is supposed to take place in Washington, D.C. So is there a reason why you have chosen this location? And do you consider changing it against the political backdrop? Christian Klein: I can take the leadership summit question because it came to my table, I didn't think about the geopolitical tensions when we are making these decisions. But obviously, we should probably, I don't know. Look, the leadership summit, it took place in beautiful road over the last 3 years, and we are a global company. And we love to spend our time here, but I also have to support our customers worldwide. And so we made a simple decision, but a long time ago, let's just make sure that everyone lives in peace, so we do it once in the U.S. We are coming back to Europe and then we go to [ ABJ. ] That is the only thing. And sorry to say, we are still a company who has to support global customers. So we cannot make these decisions depending on what is just happening in the world. I mean, obviously, if there would be a war and otherwise, of course. But at the end, we are a global company, and we have people everywhere in the world, and they want to feel part of SAP. And if I would say to my 30,000 people in the U.S., oh, sorry, I don't come anymore. I mean, what kind of signal would we send? I mean, sorry, but this is how we do it, and I feel we are doing it in the right way. Dominik? Dominik Asam: Maybe on the outlook, first of all, I want to emphasize that 2025 was not necessarily an easy year to put it mildly in terms of trade issues, geopolitical tensions. And I find it quite remarkable that on cloud revenues, despite all these adversities, I would call it, we have been able to be really within spitting distance to the midpoint of our cloud revenue guidance. That shows you how predictable that number is by now by virtue of the high share of more predictable revenues. So for the way we now scale the guidance for next year, we have basically assumed the 2025 environment to be the new normal. So I think '25 shows that we have a resilience even if some unexpected events hit us. But of course, we're not embarking any meltdown catastrophe scenarios here in that guidance. But it's, I'd say, a good base to build on because let's all hope that it's not getting worse than what we have seen in 2025. Monika Schaller: Okay. Let me continue with questions from the tool because we have a lot of questions with regards to our share price dropped today by 10% for a short time this morning. What is the market not understanding about the company? Christian Klein: So I'm doing this job now since 6 years. I have seen a lot of ups and downs. And I -- when we were meeting here a year ago and the share price looked really great. I mean we had a great one for 2 years. It's not a reason for me to lean back and say, hey, this is now -- this is it. And so we need to make our strategy and we need to drive our execution independent of what the capital market is right now telling us. And obviously, it's not only SAP when you have followed the market in the last 6 months. I mean, they are all our competitors in the SaaS space. I mean, Alexandra, our Head of IR tells me we are in the penalty box. We are in this penalty box because there are questions around, okay, what is the future of software in times where everyone maybe can generate and code apps. I mean I already alluded to that. When you look back into all of the technological innovations over the last 10 to 20 years, it always starts with -- I mean, these phones here became so powerful because there were better chips, better hardware. And the same is with the LLMs. It always starts with the chips, with the hardware. But I'm 100% sure in order to create value on the business side, you need to move up the stack, and it always happen like that. And what I explained before that these agents need to understand business data. They need to understand business processes in order to deliver the value for our customers. This is very true. And so while there is, of course, a lot of money now going into the chip and semiconductor space, which I totally get, I'm 100% sure that we are uniquely positioned to win the ways on business AI, and we're going to prove that. And so that's why such a share price today is not nice. But at the end, it's super important that we understand our strategy, that we hear from our customers that the strategy is the right one and that we now are laser-focused on the execution of that. And then I'm going to -- and then we will also see again different times. Dominik Asam: And maybe to add some numbers around it. I mean, it's almost like a philosophical war around where the value is created. Is it on the infrastructure layer, which is currently the flavor of the month where everybody is investing. By the way, that's actually good for SAP because we are agnostic and the more money flowing into that, the more competitive that infrastructure will be to run our PaaS and SaaS services on top. We are actually deemphasizing that business. Maybe that will stabilize at some point in time because of the sovereign debate we just had before. On the other side, if I look at the SaaS and the PaaS layer, which we continue to believe for the reasons Christian mentioned, will be a key layer, we are doing actually great, especially in comparison to competitors. You have seen results of some competitors like Dynamics and ServiceNow over the night. There's others to follow. And if you then adjust to an apples-to-apples dollar comparison, we are actually far ahead of the pack in terms of growth rates. So just to give you some data on SaaS, PaaS. In 2025, we had 30% growth in U.S. dollar terms. So that's what you need to compare our competitors to. And I'd say there are some hovering around 20%. There are some hovering around 10%, some in the mid-teens, but nobody is anywhere close there. So we have a strong degree of confidence. Right now, that kind of SaaS, PaaS layer is not super appreciated by capital markets. But I think the jury is still out what ultimately will happen. And by the way, we had a similar bifurcation, I'd say, in the last big tech bubble in 2000, where telecoms and fiber optics were going through the roof, infrastructure again because that's kind of rising tide lifts all boats. And I wonder how much dark fiber today is still in the ground, which has never been lit since then. And on the other hand, by the way, the dark fiber, you can still light today, whereas the GPUs you buy will not hold for 20 years. So jury is still out on that topic, I guess. Monika Schaller: Thank you. Before I move to my M&A question here from the tool, any questions in the room? [indiscernible] Unknown Analyst: Can you hear me? Yes. I have a question about the tariffs. How are the U.S. tariffs affecting your business, both directly and indirectly via delayed spending decisions by your customers? Christian Klein: I mean there are no tariffs on software or software services, which is good. So there is no direct impact, and we hope it stays like that because we have, again, customers everywhere in the world and tariffs -- digital tariffs would immediately fire back no matter where are you in the world. And then on the indirect impact, again, we saw in half year 1 2025, that was not great on the public sector. A lot of new requirements came up. We needed new certifications. But we overcome that. And Q4 was actually really good in the U.S. public sector. And yes, so no, today, there is no actually direct or indirect impact. Let's hope it stays like that. You never know. Let's see what's happening tomorrow morning. Monika Schaller: So back to my tool. The company plans to start a share buyback program. Is there really no other idea to invest for future revenue? Christian Klein: I mean yes, I knew that the question will come. And look, it's a fair question. But look, I mean, first of all, these share buybacks, what we are also doing with these shares, we have employees, and they -- actually, we are also paying them via our shares. So we have actually employee stock programs, and that resonates really well. And so I mean, there is a mean to it. It's not just about financially buying back shares. The second piece, obviously, I mean, we didn't do larger M&A over the last years. We didn't need to. I mean, still here, look at the quotes, we are posting the accelerated total revenue will come organically. No many tech companies can say this. And so -- but going forward, obviously, would I now rule out M&A? No. We will at some point, do M&A, but then more for technological reasons, especially in the data and AI space, whenever we're going to see there is a technology out there which can help to accelerate our AI and the data platform, we have enough financial flexibility to do that. So SAP is now after that share buyback not short of money. We have the flexibility to react. And we will react, but not from a financial standpoint, we will react if we find the right technology and the right company we are believing in. Dominik Asam: May I add on the financial aspects of that, Christian. First, I want to highlight that SAP today has an extremely strong credit profile. So we have a very good rating, much better than some of our competitors. And I dare say we have managed to base that rating more and more on recurring cash generation. Think about the EUR 10 billion guidance we have put out, EUR 8.2 billion that we delivered in '25. So we don't need to hoard an excess cash pile to sustain that extremely strong creditworthiness. So that's the philosophy. And frankly, we always benchmark investments like M&A against investing in our own shares. I always say, why should we do an M&A if investing in our own shares would give us more value. So this is why we think it's part of the mix. And I think it also is evidence to the success we have in really coming up on the free cash generation massively. Monika Schaller: Thank you. [indiscernible]. Unknown Analyst: You said you won't need less people. Does this apply to Germany as well? Christian Klein: That applies especially to Germany because there are -- people here in this part of the world are super well protected, and we are also super happy with these people. We are also investing in Munich, in Berlin, and there are major hubs now in the meantime, Munich more supply chain AI, Berlin, it's a lot about data. And so yes, just still -- I mean, I mentioned some of the headwinds we are having here. We can only always share with our government. Just look at what's happening in China and the U.S. and we can always agree or disagree with certain things. And if it adheres to our values, I will stay out of that. But what happens on the economical side is they are moving super fast. And when it comes to hiring new people, you have them on board in 2 weeks, matters. If you have to reskill your workforce, there's no one you need to ask on, can I apply now these code generation tools to my workforce. There are way less regulations. And all of that is a result when we are asking ourselves, why is there not another SAP here in Europe? I mean, you probably can find some of the reasons. Not everything is related to that. You need also great entrepreneurs. You need CEOs who need to make the right decisions. But of course, also the regulatory environment is very, very important, especially for a tech company because this industry moves much faster than any other industry in the world. Monika Schaller: So we'll talk about AI in a second here on the tool. Any other questions in the room? [indiscernible]? Unknown Analyst: How important are deals with the military for your company? Christian Klein: I mean they are as important as every other deal we are closing. I mean we are running a lot of military defense companies all over the world. I mean we are super proud. We have a project going on with the Japanese Navy. We're doing a lot with Australia and so on. So they are part of our customer base as every other customer. And of course, with AI, what we are doing oftentimes there, it's not about war. It's about things how we can make them more flexible, how can we help with AI on asset management, on the maintenance of their fleets, et cetera. So that is actually what SAP is doing. It's pretty similar to what we are also doing for other industries. So yes, they are part of our customer base, yes. And I mean, maybe just from the size of the industry, the public sector is ranked #5 when you -- and we are dealing with 22 industries round about, and it's ranked #5 from a revenue perspective. Monika Schaller: So 2 questions from the tool, AI first or current cloud backlog first? Let's start with current cloud backlog. Christian Klein: Yes. I mean the one doesn't come without the other. So the AI is actually part of the backlog. And AI is -- because oftentimes numbers -- people ask, what is your AI revenue? The AI sits within our apps. So the AI brings us the apps. The AI help us to win deals in SaaS. The AI helps us to bring more developers on our platform. So it's a natural part of everything what we do. And with that, obviously, it's also part of CCB. Dominik Asam: So what's the question? What's the question on CCB? Monika Schaller: Again, explain CCB. Dominik Asam: Yes. I presume the question might refer to the fact that we have come in at 25% in actual terms and that we had anticipated post Q3 to come in at 26%. You have to understand that when we forecast CCB, it's about also the granularity of all these contracts. And if you look at -- into the specific composition of the contracts we signed, it was slightly different. So the biggest impact we've seen, and we mentioned that in the introductory remarks is that we had a lot of very large deals, 71% of deals being EUR 5 million or higher. And in these large deals, it just takes longer to ramp because the customers start to start with smaller instances in the company and then tackle the really challenging big elephant, so to speak, in the room later. And so there's a little bit of a kind of back-end loading of the ramps there. Second point is that Christian mentioned the very strong traction we had on the defense side also on the other side of the pond. And there are sometimes procurement laws in certain jurisdictions where we have very mighty procurement departments that can impose a termination for convenience on the vendor. And then we cannot put it into the current cloud backlog because that backlog needs to be contractually committed and that option to walk is there. Now in reality, that option is, of course, sometimes theoretical because these are deeply embedded systems, which are extremely sticky. So we're very confident that the revenues out of this will come. But technically, we cannot put it into current cloud backlog. And the last point is what we discussed that there is more and more customers who say, can I really afford to have an off-the-shelf standard plain vanilla U.S. hyperscaler Infrastructure as a Service? Is there a risk that, that might go away quickly for whatever political reasons and look for alternatives? And these alternatives are just about to emerge. Some of them are already up and running. Some are just certified. The certification process takes some time. They also sometimes need to be built. So also from the signing of the contract till the deployment at the customer, it takes time. So these were the 3 factors that actually explain the delta. Each of them not super big, but if they compound together, we talk about that roundabout 1 percentage point. Monika Schaller: Thank you. Any other questions in the room? No. Okay. IDC. You are saying that connecting SAP AI to industry-specific processes is critical to winning customers such as H&M. How can SAP move into AI -- move AI into the industry-specific process at scale. What is your vision for that? After all, these processes vary greatly by industry. Christian Klein: Now I have to be careful that I'm not deep -- diving too deep in our industry technological layer. I mean, first of all, there was a certain reason why always customers lean towards SAP to build industry extensions. A lot of data which sits in an ERP needs to be then also flowing through an industry capability. I mean when you do return claims management, it would be good to have the order data from the ERP. If you talk about supply chain resiliency, you need to also understand how do you produce, how to transport and so on. So you always come back to the core. So then to extend that with industry capabilities makes total sense. And that's why a lot of customers also turning to SAP. So we have the knowledge, we have the people also here in Germany, by the way, a lot, who understand these industries extremely well. Now with AI, we can, of course, completely reimagine how these certain industry capabilities will be done. I mean a machine who needs maintenance, we can actually predict this now way better than with our former asset management solution of SAP because we have agents who are getting demand signals. We have agents which can read out by an LLM then in that case, the machine instruction when something is happening, how to put the machine up faster. We're, of course, getting -- we have the data in our ERP, where are the technical people who can fix the machine. And all of these agents are orchestrating all of that to improve the uptime of the assets of the company. And these are these industry capabilities, which we know very well from the past. And now we have to make sure that we also then co-innovate with our customers the next generation of AI industry capabilities they need. And so -- and technological-wise, I mean, it's the same like in the LOBs, we need the data scientists now. We need the people who can develop the AI, but we have those people. So now it's about going into this together. And I'm sure, especially this industry AI will be a big growth driver for SAP. Can you standardize this 100%? No. I mean, such an agent will look different even within one industry. One mining company will not exactly do asset management like another mining company or the Deutsche Bahn. And this is where we, of course, have to have the extensibility layer so that customers can go into our agent builder and can see, okay, I want to actually automate that process piece on top of what SAP provided. So this fine-tuning of agents, this extension of agents is a super critical capability as part of our solutions. Monika Schaller: If we don't have any other questions in the room, I'll take the final one from the tool combing 2. AI investments. Your peers are struggling to show real AI value. What is SAP's value on AI. And how do you define sales goals in terms of AI for salespeople, if you do not measure AI revenues? Christian Klein: Yes. I mean, first on the value. I mean, I described H&M, I described Fresenius, Avelios. We are doing for other large companies in the world, last mile delivery. So we are doing it already. Now is some of that still to be developed? Yes. But I can say, I speak for everyone in this industry that these things further need to mature. The very important part is of it, do you have the AI foundation? Do you have the data? Do you have the business process understanding? And I can tick like all of that. Now do we need some time and further investments to make that happen? Absolutely. But we are on a very good track and customers are already seeing the first AI agents, and they are believing in it. Just here in Germany, we had a big health care company, they just removed all of their 120 modules they had for cash flow because our AI foundation came in together with an LLM and showed, hey, we can do this way smarter. And then last but not least, how do we measure that? I mean when we are going into now the year, I mean, obviously, we review in how many deals is AI part of that. When you sell supply chain, when you sell HR, don't go to the customer and sell it in the old way, sell them the new capabilities with AI and how we can help to transform the customers' business. That's what we are looking at. We are looking at the value proposition and then obviously connecting it to our product road map so that what we are selling can also be adopted later on. And this is how we're going to steer AI inside SAP. Monika Schaller: Sales target. Christian Klein: Yes. I mean sales targets, again, we -- the people get incentives, if they're selling value to our customers, we see high adoption and AI is part of the solution. It's not like here is a piece of AI and here is the piece of supply chain software. It needs to come together. And only when it comes together, you're going to see that you also get higher incentives because we want to, of course, sell our customers the future, and that's how we steer it and how we incentivize our people. Monika Schaller: Perfect. We're running out of time now. Thank you, Christian. Thank you, Dominik. Thank you, everyone, for joining us today virtually. Of course, also here in the room.
Alexander Bergendorf: Good morning. This is the Axfood Year-End Report 2025 Telephone Conference. And with me today are Simone Margulies, President and CEO; and Anders Lexmon, CFO. In the Investors section of our axfood.com website, you will find the presentation material for today's call. We encourage you to have that presentation at hand as you listen to our prepared commentary. After the presentation, we will be taking questions. A recording of this call will be made available on our website. So with that, I will now hand over the words to Simone. So please go to 2. Go ahead, Simone. Simone Margulies: Thank you, Alex, and good morning, everyone. We report another quarter of above market growth and stronger market positions for all our retail sales. By leveraging the strength of our business concept, we are also preparing for the future and investing in strategically important areas to continue attracting more customers, become even more efficient and strengthen our competitiveness. On this slide, you see some highlights for the quarter, highlights which we will cover during the course of this presentation. Turning to Page 3. So now as usual, I will start with a brief market overview and the review of the quarterly development. Let's go to Page 4. Market conditions in Swedish food retail continued to be characterized by a high activity level in the quarter with intense competition and continued high price awareness among consumers. Overall market growth amounted to 4.5%. Statistics Sweden reported that the annualized rate for food price inflation was 3.5%. This level was somewhat lower on a sequential basis and in absolute terms, the overall price level was quite stable. Growth in Axfood's retail sales amounted to 8.7% and 5.3% excluding City Gross. Our growth was thereby once again above the rate of the market, both including and excluding City Gross. Volume growth from increased customer traffic, strong customer loyalty and new store establishments contributed to the development. We have a long history of market share gains. With the Q4 performance, we have outperformed the market every quarter this year and are reporting our 11th consecutive year of market share gains. We are now on Page 5. Consolidated net sales for Axfood grew 4.4% in the quarter with higher volumes and positive trend in like-for-like sales in all our retail chains. We acquired City Gross in November 2024. So during the fourth quarter, we started annualizing their performance. However, only 2 months of the quarter, which is clear when you took -- look at their comparison figures. So please go to the next page, #6. Group operating profit increased to SEK 860 million, and the operating margin was higher at 3.8%. Operating profit included items affecting comparability of minus SEK 13 million related to City Gross. Last year, items affecting comparability pertained to a reevaluation of our previous minority stake in City Gross. Operating profit and margin on an adjusted basis, which excluded items affecting comparability, also increased. Adjusted operating profit was SEK 873 million and the adjusted operating margin amounted to 3.8%. The improved profitability was primarily driven by high sales volumes and good growth in both total and like-for-like sales, a stable gross margin trend and effective cost control. In 2025, we increased our focus on productivity and costs and implemented measures to improve efficiency within and between the group support functions. In the fourth quarter, we saw some effects from these measures through cost savings, not only in the various businesses, but also in joint group functions, which partly explains the positive profit development there. Let's now turn to Willys and Page 7. Willys continued to outperform the market in the fourth quarter. Growth primarily came from higher volumes as a result of an increased number of customer visits and new store establishments. Willys continues to attract new members into its customer loyalty program, Willys Plus, and see strong loyalty among its customers. Earnings grew to SEK 467 million, which corresponded to a stable operating margin of 3.7%. The increase in operating profit was primarily driven by the increased sales volumes, a stable gross margin development and good cost control. Moving on to Hemkop and Page 8. Hemkop's retail sales growth in the quarter exceeded that of the market. Hemkop saw volume growth driven by increase in customer traffic and in addition, a higher average ticket value impacted the sales development positively. Operating profit was higher at SEK 78 million, and the operating margin also increased to 3.5%. The increase in operating profit was mainly driven by the increased sales, a somewhat high gross margin and solid cost control. Earnings in the prior year was impacted by new store establishments. Turning to Page 9. City Gross demonstrated a positive performance during the fourth quarter. The financial comparison figures here obviously refer to the 2 months period November to December 2024. However, to give you a better understanding of City Gross' underlying sales performance, sales growth numbers are calculated with the full October to December period 2024 in the comparison base. While total growth was impacted by store closures, like-for-like growth was solid and amounted to 3%. City Gross reported a profit for the quarter of SEK 28 million on an adjusted basis, corresponding to an operating margin of 1.2% with positive contribution from its like-for-like growth. In addition, structure measures and efforts to streamline operations contributed to the development. As a reminder, the fourth quarter is generally a strong quarter for hypermarkets. On a reported basis, operating profit amounted to SEK 14 million, which corresponds to an operating margin of 0.6%. This included the items affecting comparability I just mentioned, which refers to structural measures, including discontinuation costs for stores and sales clearance within the nonfood assortment. Turning to Slide 10. Our restaurant wholesaler, Snabbgross delivered growth of 6% in the quarter on both a total and like-for-like basis. Higher volumes through increased customer traffic had a positive impact on sales in addition to higher ticket -- average ticket value. In terms of profitability, the quarterly development was weak. Operating profit amounted to SEK 35 million, corresponding to an operating margin of 2.5%. A lower gross margin associated with temporary market investment was not fully offset by volume growth, which had a negative impact on the earnings development in a very competitive market. Next, Page #11. During the year, Dagab has developed the group's assortment of affordable, good and sustainable food with a continued focus in the fourth quarter on ensuring that our chains can provide Swedish customers with a competitive offering. Dagab's fourth quarter net sales increased by almost 5%, driven by sales to Axfood's own concepts. Operating profit amounted to SEK 314 million and the operating margin was 1.5%. Operating profit was negatively impacted by a lower gross margin due to market investments and negative mix effects. The logistics center in Balsta, along with the high-bay warehouse in Backa and automation of fruit and vegetable warehouse in Landskrona has significantly increased Dagab's capacity and efficiency in logistics. Work continues to optimizing our new logistics structure. And later on in the presentation, I will come back to the next significant investment in our logistics structure, the facility in Kungsbacka that we plan to establish to increase capacity and efficiency also in the southern parts of Sweden. But before that, it's time for our CFO, Anders, to take you through the financials. We are now on Page 12, but please let's go to the next page, #13. And Anders, please go ahead. Anders Lexmon: Thank you, Simone. Net sales for the group increased by 6.1% to approximately SEK 89 billion. Including City Gross, retail sales increased by 16.4%. And excluding City Gross, the increase was 5.9%, which was higher than the food retail market in total, where growth amounted to 4.5%. Operating profit, excluding items affecting comparability, increased 7.4% to almost SEK 3.7 billion. The operating margin, excluding items affecting comparability, remains unchanged at 4.1%, where the City Gross acquisition impacted the margin with minus 0.2%. Then please turn to Page #14. During 2025, the cash flow was SEK 345 million, which was almost SEK 300 million higher compared to last year. We saw strong underlying operating cash flow from both for the fourth quarter and the full year, mainly due to a strong operational performance boosted by positive working capital changes. Last year was impacted by negative calendar effects in working capital. The negative cash flow from investment activities of SEK 1.7 billion was substantially lower than last year as last year was impacted by the City Gross acquisition. Excluding the City Gross effect, we have a higher pace in investments in our retail operations and a lower pace in automation investments compared to last year since we now are through with our investment in the Balsta logistics center. By year-end, Axfood utilized approximately SEK 2.7 billion of our credit facilities compared to SEK 3.1 billion by the end of Q3 and SEK 2.9 billion at year-end 2024. We are now on Page 15. During the last couple of quarters, we have seen a positive trend in the net debt development. The net debt increased with the acquisition of City Gross in Q4 last year and the dividend paid in March, but is now below 2 and excluding IFRS 16, just below 0.5. The equity ratio amounted to 21.2%, which was higher than last year and above the year-end target of 20%. Total investments, excluding leasehold and acquisition amounted to SEK 1.7 billion. In 2025, during the year, we established 9 new group-owned stores, 3 fewer stores compared to the previous year. Our investments in store modernizations have increased compared to last year. Please then turn to next page, Page #16. When we look at the capital efficiency, we had a negative development of our rolling 12-month net working capital. The impact of the City Gross acquisition has increased the KPI with approximately 0.3 percentage points on a rolling 12-month basis, which implies a positive underlying development. Capital employed has increased over the last years, mainly due to the acquisitions of Bergendahls Food and City Gross as well as the investments in Balsta. The level of capital employed increased slightly during 2025, mainly as a result of increased leasehold debt and equity. Due to the increase in capital employed, the return on capital employed decreased to 15.5% compared to last year despite an improved operating profit. And thereby, I have come to the end of my presentation and hand over to you again, Simone. Simone Margulies: Thank you, Anders. We are now on Page 17, and it's time for me to give you an update on our strategic agenda and priorities. So let's turn to Page 18. We have a clear house of brand strategy in our group, and it makes us unique in the Swedish food retail. We aim to deliver the strongest customer experiences, and we are present in all market segments with our different concepts. Our largest brands, Willys, Hemkop and City Gross made significant progress during the past year. With a clear focus on always delivering Sweden's cheapest bag of groceries, Willys once again took market share, increased its earnings and continue to expand with new store establishments. Willys has had a strong momentum for a long time and has excellent potential to reach even more customers. The aim is to open at least 10 new stores for Willys annually in the coming years by also continuously creating an even better customer experience in stores through continuous upgrades to its new store concept, Willys point 0 -- 5.0, sorry. Hemkop also gained market share during the year while improving its profitability. This was achieved through a high pace of store modernization and continuous development, focused on price value, sustainability, fresh products and meal solutions. For City Gross, it was a year of transformation with a series of improvement initiatives in many areas. Important steps forward were made, resulting in improved like-for-like sales growth, a lower cost level and positive earnings trend. We continue to work according to plan to strengthen the chain for the future to become a truly competitive player in the hypermarket segment with the aim to achieve profitability at some point during the second half of 2026. We are now on Page 19. To create the right conditions for our retail concepts to be able to succeed on the market, we leverage our strength as a group and focus on 6 strategic development areas. We elaborated these during the Capital Markets Day in September, and I would now like to go through some of our most important strategic priorities within these going forward. So please turn to Page 20. We strive to offer the market's most attractive assortment, a highly relevant offering that makes affordable, good and sustainable food available to everyone. This works includes both branded products and private labels, but now I will focus more on the latter. Because our extensive range, including the Garant and Eldorado brands, is a significant competitive edge. These products contribute to profitable growth by creating an attractive and distinctive assortment that strengthens the offerings within our various concepts. Our products represent quality and innovation, and we focus a lot on sustainability and health with a wide selection of sustainability label and organic products. In addition, we have a large selection of products with Swedish origin with more than 400 products under the Garant brand. During 2025, we continue to develop our private label offering and launched approximately 270 new products. Our total private label share of sales was diluted by City Gross and that has a lower private label share than Willys and Hemkop. The private label share continued to increase in each chain, a trend that we've seen for a long time. And in particular, now we see a strong growth also in City Gross. We are now on Page 21. We have an attractive store network, a network that we will continue to develop in the coming years by accelerating the pace of expansion while maintaining a high rate of modernization of existing stores. During 2025, we established 9 new group-owned stores. On a net basis, we have thereby expanded our network of group-owned stores with more than 100 in the last 10 years. And we aim to continue on this path also going forward. In addition to store establishments, we have continued to modernize and refurbish existing stores in a high pace. This is really about creating inspiring store environments and great experiences to drive customer traffic and profitable growth. Looking at major refurbishments from 2021, sales from these stores increased significantly more than the market and operating profit also increased. I also want to elaborate on how our house of brand strategy creates flexibility and opportunities in terms of our store presence. We can maximize the opportunity on each local marketplace by having the right concept in the right place. Last year, we converted 2 City Gross stores to Willys because we saw a better opportunity for Willys to be successful in those areas. These conversions have proven to be highly successful as both stores have experienced a substantial sales increase following the conversion. Adjusted for inflation, sales in the Bromma Blocks store in Stockholm was more than 50% higher during the September to December period last year compared to the same period the year earlier when the store was operating under the City Gross brand. And the corresponding increase for the Borlange store was more than 70% during the November to December. This really highlights the strength of our house of brand strategy and how we can leverage our strong portfolio of concepts. Next page, #22. Last year, we communicated that we are planning to establish a new highly automated logistics center in Kungsbacka to strengthen our supply chain in Southern Sweden. During the fourth quarter, we signed the agreement for the automation equipment with Witron, a market-leading dynamic warehouse and order picking systems. We have collaborated with Witron for several years as they have been our supplier of the automation solution in Balsta. The total contracted investment will amount to EUR 265 million during the period 2026 to 2031. On this slide, you can see how the investment undertaking is spread out in the next couple of years, which we communicated just over a month ago. The amount for 2026 is included in our CapEx guidance that I will provide you with shortly. We are continuing to build for the future, and this new logistics structure will create capacity for us to continue to grow and become even more competitive. We are now on Page 23. At Axfood, we have a highly ambitious agenda when it comes to sustainability and health. These are integral parts of our operations, and our scope is the entire food supply chain. During the fourth quarter, we reached a significant milestone as we completed our transition to fossil-free transports, both in our own operations and in procured transports. This is truly a great achievement, and I'm proud that we, as a group, have chosen to take a lead this way to reduce emissions. We now exclusively use renewable fuels or electricity, and we also have target to electrify 50% of our own transport fleet by 2030. Now while the impact on emissions from transition is not fully reflected in our numbers for the year, emissions from transports nevertheless went down substantially in 2025. And looking at the last 5 years period, transport emissions have decreased with approximately 70%. Another highlight during the quarter was that we applied to have 3 climate targets validated by the science-based target initiatives, and we are now on Page 24 in the presentation. We have been working on this for some time now, as you may know. For us, it is, of course, important that goals and ambitions are worked thoroughly through thoroughly. And during the process, we identified a need to develop and improve our existing climate reporting, mostly regarding Scope 3. This work now enable us to better establish a transition plan to show how we will reduce emissions in the long term. We commit to reduce emissions in our operations by at least 70% by 2030 compared to 2024, to have at least 70% of our suppliers set science-based climate targets by 2030, the latest, and to reduce flag emissions by at least 30% by 2030 compared with the base year 2024. Our application will now be revised by the SBTi, and we will come back to you when we have our targets validated. Please turn to the next page, #25. Today, we're issuing the outlook for 2026. We are continuing to invest in our business to strengthen competitiveness and create value for all our stakeholders. Investments are expected to amount to SEK 2.2 billion to SEK 2.3 billion, excluding acquisitions and right-of-use assets. The largest part of this is related to recurring investments in our operations and it also covers expansion through new stores. However, the amount also includes SEK 470 million automation investments for our future logistics center in Kungsbacka, as I just mentioned. To encourage even more customers to shop with us, we will continue to maintain a high rate of new store establishments in 2026 and beyond. Our ambition this year is to expand the store network by 10 to 15 new group-owned stores in 2026. In addition, we want to continue attracting franchisees and add new retailer-owned stores to expand our total store base. To further strengthen City Gross, we will incur SEK 50 million in structural costs in that business in 2026, which will be classified as items affecting comparability. These costs are mainly related to its store base. Moving on to the dividend on Page 26. Axfood has a strong financial position, and the Board of Directors will propose to the Annual General Meeting an increased dividend of SEK 9 per share. The dividend will be split into 2 payments, SEK 4.50 per share in March and SEK 4.50 per share in September. The dividend proposal corresponds to 83% of profit after tax, well in line with our dividend policy. Now turning to the final page of this presentation, Page 27. So let me sum up. We are summarizing a quarter and year in which we attracted growing numbers of customers with increased loyalty and strong positions in all our market segments. We are well positioned to remain a challenger and feel confident about the year ahead. We operate in dynamic markets that continue to be dominated by a strong focus on price value, and our aim is to continue to grow more than the market. That is because we have a strong business model and structure that create opportunities and competitive advantages. For us, the key to drive long-term growth and profitability is based on customer traffic, loyalty and volume growth. We have seen a strong development in all these areas over a long period also in 2025. Based on our great commitment and passion for food throughout the organization, we are leveraging the strength of our business model. And that was all for today. So now please turn to Page 28, and I hand over to the operator to open up the line for questions. Thank you. Operator: [Operator Instructions] The next question comes from Magnus Raman from SB1 Markets. Magnus Raman: I think I would like to start asking about City Gross, where we now see, if you look at the second half of '25 in total, it's a rather clear profitability that you reach H2 '25 on an adjusted EBIT basis. Could you elaborate a little bit on this in comparison to the target you set out to reach breakeven H2 '26. Should we view it that you have already achieved this target now 1 year earlier? Or is it a very big seasonality difference here that lead us to -- that you want to highlight when we look at H1 '26? Simone Margulies: Yes. Thank you very much. Within City Gross, we are in a transition, as you know. We are doing -- we're in the middle of our transformation plan and to do the turnaround. And our aim is to create a really strong core and to create a strong and competitive player within the hypermarket segment. And this is -- it comprises a lot of different initiatives, everything from the operating model to the store concept to the customer offering. We also made things -- restructuring the organization, et cetera. We're also investing in price. And within the fourth quarter, there are seasonal effects for the hypermarket segment that are in general stronger in the fourth quarter. However, we are taking really, really good steps within City Gross. But as you understand, we are in the middle of a journey, and it can go up and it can go down. And we are reiterating that in the second half of this year, we will create an attractive and profitable player within the hypermarket segment. So we are reiterating that goal. Magnus Raman: All right. Just another thing here on the like-for-like sales growth for City Gross. And forgive me if you've already mentioned this earlier in the presentation, I came in a bit later here, but you state in the table 1.5% like-for-like sales growth. And I assume that, that relates only to the November to December period. Can you say if that is correct? And then in the text, you write October to December, 3.1% like-for-like growth. Do I interpret this correctly? And so in that case, September sales, I assume must have been much stronger? Simone Margulies: To start with, yes, you have interpreted correctly. So 3% in the quarter and 1.5% for the November, December period. And that's actually -- as we talked a lot before, that's actually where it all starts. We have to have a positive growth in like-for-like, and that's why we're really, really happy to see that during the quarter. Magnus Raman: But considering that, I guess, that in the mix of these months in the normal quarter, I guess, that the last quarters, i.e., November and December must be -- should be larger. Nevertheless, October, I think I said September, I mean, of course, October, October must have been very strong for the full quarter figures to reach 3-plus percent, while the November to December was only 1.5%. Is that correct? Simone Margulies: We don't actually guide you monthly, but -- and it's also about how you say what kind of comparison figures you have, of course. I would say that we're really happy that we see the positive like-for-like growth that we've seen now for some time for City Gross. And as I told you, it's a journey, and that's why we're reiterating profitability somewhat in the second half of this year because it's -- and we're doing and taking large measures and initiatives to really create and building this strong core. And that's why we have to -- you have to look at the trend here because it can -- some months, it can go up and some months it can go down when we're doing so much changes as we do. So for us, it's about looking at the trend and it starts with the like-for-like growth, but we also made a lot of initiatives regarding cost and organizational changes and also operating model and now we're also developing the store concept. So I think it's important to see the trends. And also I think your 2 questions maybe are linked. We're on a journey, it can go up, it can go down since we're doing so much changes in the field. Magnus Raman: Right. But the trend, if we look at 2 figures, then the trend in like-for-like sales growth has been very stable because you've been delivering now on full quarters, 3 quarters in a row with above 3% positive like-for-like growth and you delivered 3 quarters on sort of adjusted operating profit level. You delivered 3 quarters in a row with sort of improving results then flat in Q3 and now a clear profit in Q4. So -- but all right thank you for the remarks. And then I'd like to ask on Dagab. You mentioned here as one explanatory factor to the weaker margin price investments from Dagab in the quarter. And I guess maybe it's been a special quarter to a certain extent, for example, with the PRO survey taking place in this quarter. Can you elaborate if you think or see that there were some temporary factors as it relates to price investments that weighed on Dagab's margin in Q4? Simone Margulies: To start with, the PRO doesn't have anything to do with this. And we do, as we always do, to deliver for Willys the cheapest bag grocers in the market and also for Hemkop and City Gross it's important to be highly competitive. So I say PRO doesn't -- we don't take that much measures about PRO. But to start -- but to go to Dagab, in Dagab, we see really good effects of the investments in -- we made in the logistics, both in Balsta, but also the fruit and vegetable in Landskrona and the new high-bay warehouse that we have automated in Backa. However, as we said, we have a negative effect in the margin, and that is due to both market investments, but also mix effects. And to elaborate a little bit more about mix effects, when we have changes in customer behaviors and also volatility commodity pricing and then that can vary from month-to-month and quarter-by-quarter. And for instance, we have very -- which we are happy to, we have good volume growth within fruit and vegetables, where we also have had deflation, and that has a negative effect in the earnings in Dagab. So I think it's important to see -- look on our result as a group, how we actually play our business model in the most efficient way. And by that, we're once again gaining market shares, the 11th year in a row and also improving our profitability as a group. Magnus Raman: Right. But do I interpret you rightly that when you then mention investments, you speak about capital investments that have been capitalized and then leading to a higher depreciation impacting results. Is that what you mean? Simone Margulies: No, it's market investment. Dagab is a supporting company for all our customers and their role is to help all the customers to be really competitive in the market and to have the right conditions to take the market development, and that is what we mean with the market investments. Magnus Raman: Exactly. That was my feeling. And then that means, of course, market investment means investment into reduced price, I guess, on certain merchandise for the retailers? Simone Margulies: Yes, it's to increase the competition. Magnus Raman: Yes, yes. And I mean -- so I mean, the quite aggressive price cuts that you took on several items in conjunction with PRO survey must have been impacting profitability somewhere in the chain, either in Willys or in Dagab or both. Isn't that correct? Simone Margulies: I have to start -- I mean, I don't like to talk about the PRO. I think Willys has handled those questions. I mean, Willys -- there are so many methodological errors in that survey. So we don't actually take that much action about that. For us, I think it's important to put our performance in the perspective of a high competition in the market from all the players. And I think that we are navigating that quite successfully since we're gaining market share. We have a high competition in the market, and we also have a consumer that is very conscious with a high focus on price and price awareness. And that's the market that we are navigating quite well, I would say, since we're gaining market share and strengthen our positions with all our brands, our strong brands. Magnus Raman: Great. Then on Snabbgross, you had a material setback in profitability in Snabbgross here in the quarter. And you mentioned temporary market investments here. So can you elaborate a little bit on that if perhaps you already did when you ran it through in the presentation, but for a reminder here on Snabbgross. Simone Margulies: Yes. Snabbgross made some marketing investment that they didn't really get the ROI on in volumes. They had a good growth with 6%, but it didn't actually -- it wasn't enough to cover the negative effects in the margin and in the profitability. So they made a weak performance for the quarter. Magnus Raman: So we should interpret that these will not be repeated, these type of investments then? Simone Margulies: As you know, I don't give any forecasts on the segments, but... Magnus Raman: No, no, without forecast but speak for itself. Simone Margulies: It was not the exact fit. So that way. Magnus Raman: Right. Okay. Okay. Great. And then on -- just looking forward then instead or not forward-looking statements, but looking at what we all know about the halving of the food VAT from 1st April. Do you think that this could -- I mean, we've had a period now where we had very high inflationary pressure where we've seen consumers trading down, so to speak, in the mix of what they consume. Do you think that the relief from the half food VAT might impact the mix in the other direction in any way? Simone Margulies: To start with, we look -- we are very positive -- we look very positive on the reduction of the VAT. I think we have a consumer that has been very cautious, and we still think that the consumer is cautious, and it's very difficult to make any forecast on how the consumer will act. They are -- I would say they're a little bit scared from the price shocks that we have experienced the last years. And also, we have a pretty high unemployment in Sweden. So we think the customer is still cautious and focus on price value and value for money. However, we hope that we will get some positive mix effect in the way that we see -- that we're hoping to see more increased, I would say, purchases within sustainability and sustainable label food, but that's what we're hoping for. We think it's difficult to give you a forecast. The customer is still very price conscious, and there is a high competition in the market. So it's difficult to give you any forecast on this. Magnus Raman: Right. And just a final one here on the falling international food commodity prices seen now for 4 months straight and also topped by the strengthening Swedish krona a bit, have you seen so far any effect as it related to your sort of dollar purchasing from this? Simone Margulies: If you look upon the commodity, we see, as you said, we had higher inflation in the beginning of the year due to dairy, meat and also to coffee, and that was stabilized in the second half of the year. And also with the strengthening of the Swedish currency, of course, it's positive, but more on a longer-term perspective for the consumers, since there's so many things that are affecting the prices. But of course, in the long-term perspective, it's positive for the consumers when we see a more stable development in the commodity pricing and also a strengthening in the Swedish currency. Operator: The next question comes from Rob Joyce from BNP Paribas. Robert Joyce: I'll go one by one as well. Just following on from the last one. So in terms of inflation you're seeing in the market, you mentioned deflation in fruit and veg. Are we seeing slowing inflation further as we start 2026? Simone Margulies: It's difficult to give any forecast on the pricing since there are so many things that are affecting. We also have a geopolitical situation. We have also, how do you say, the climate changes -- sorry, climate changes is also affecting, but we have had more stable pricing since the summer, I would say. How it will end up in the future, it's very difficult for me to give any forecast on. Robert Joyce: But in terms of the first month you've seen, are we seeing prices sort of stable versus December or will they falling slightly further? Simone Margulies: I can't give you any forecast on the pricing since there are so many things that are affecting the pricing. Robert Joyce: Okay. And then maybe you mentioned competitive intensity of the market. Are you seeing any changes in the more recent months? Has that competitive intensity stepped up any players you'd flag? Simone Margulies: I would say we have experienced a very competitive market for the last couple of years, I would say. And there has been a competition from all the competitors, I would say. So we're still in a market with high competition and also a consumer that is very price sensitive and cautious. Robert Joyce: Okay. But no real changes? Simone Margulies: No, we're pretty much in the same market as we've seen for the couple of years now. Robert Joyce: Okay. And then in terms of the VAT cut, is your expectation that, that will be immediately fully passed to consumers? Simone Margulies: Yes, definitely. The VAT is the tax, as you know, that the state put on the food. So I mean that is digitally transferred to the consumers. Robert Joyce: Okay. Okay. And in terms of historical price elasticities, I mean, I guess we don't have much data on when prices actually fall. But do you have any sort of data which suggests how consumers might react to a 6% fall in prices or 4% -- sorry, 5% probably works out? Simone Margulies: No. It's really difficult to know what the customers will do actually since we think it's very positive because the consumer have decreased their economy in the last years and by the lower VAT on food that will increase the buying power for the consumers. How they will act is difficult to forecast since they -- as I told a little bit before, they scarred from the years of high, the cost shock they've had high employment. So if they will save the money or they will buy other things than food or if they will place more money for, it's really difficult to forecast. So we actually don't do any forecast. And it's difficult also if you analyze different markets because it's been different situation in also in these markets. Robert Joyce: Okay. Understood. And just looking at the sort of the Dagab numbers now and how that -- I guess you're sharing the savings more broadly across the group. Do you think as we look to the next investment in the supply chain, we should think about that more as a kind of just cost of doing business. You need to make this investment to maintain competitiveness rather than thinking about this as a sort of SEK 300 million, SEK 400 million boost to EBIT, potentially the people that we were thinking about before from the last project? Simone Margulies: We will -- we are still negotiating regarding the building, the facility. And when we have everything set, of course, we will come back to you with the full scenario. But for us, it's important both to secure capacity for the southern part of Sweden from 2030 going forward. But also it's about strengthening our competitiveness. And when we will open the warehouse, we will have the same cost level as we have today, of course. But then, of course, we will improve our competitiveness over time. Robert Joyce: Okay. And just one more broadly, just thinking about the environment. I know over here in the U.K., when there have been certain cuts on sort of business rates, for example, the grocers in the U.K. didn't really take those to the bottom line. Is there -- what's the political environment about -- if there is a volume increase in grocery, is there room for profitability to improve? Or is it very much focused on driving that consumer experience? Simone Margulies: Could you rephrase the question? Robert Joyce: Just I guess, with the VAT cut, I mean the sort of the overall environment, when these cuts are given to grocers, the expectation is generally the consumer sees the benefit. And I've said in certain markets we cover as well, we've seen those benefits largely just passed to the consumer. But in terms of the potential volumes increasing on the back of lower prices in food, do we think that gets further invested in the consumer? Or can that drive the bottom line? Simone Margulies: Now, I understand. So first of all, as I said, we do not -- it's difficult to make forecast how the consumer will act. But the other part, we have a long-term goal -- target growth for our group set to 4.5%. And that will come from us to continue growing, attracting more customers and also improve our efficiencies within the entire group. So I mean, we're aiming and that's a long-term goal for us to strive towards. But also, I think it's important, if you look upon our figures last year and if you exclude City Gross, we're actually having a margin of 4.3%. So we're heading towards our goal, but it's set on the long term. Operator: [Operator Instructions] There are no more questions at this time. So I hand the conference back to the speakers for any closing comments. Simone Margulies: So that was all for today. Thank you all for your good questions, and see you in the next quarter.
Operator: Thank you for standing by, and welcome to the IGO December 2025 Quarterly Activities Report. [Operator Instructions] I would now like to hand the conference over to Mr. Ivan Vella, Managing Director and CEO. Please go ahead. Ivan Vella: Great. Thank you. Good morning, good afternoon, everyone. Thanks for joining us. I know it's a super busy day, lots and lots of quarterlies for the market, so you're running around. So I appreciate you dialing in, taking the time to catch up with our results. I won't spend too long as usual, just trying to hit the highlights. Kath will pick up the financials as we get further through, and then we can dive into some Q&A. Just to sort of touch the headlines first before I run through a few areas in more depth. I think safety, again, continued improvement. I've talked about this since I started the role 2 years ago, and I'm really pleased that we're making steady improvement every quarter. Team is working really hard at it. They absolutely treat this as their first priority, and the results are flowing through, which we're really pleased about. Naturally, it's never done that focus on a good mature culture is something that we'll keep working at. But I think it ties back into performance in the mine as well. And obviously, these results are largely focused around Nova. And you'll see the results from -- no, really, really strong through the last quarter, production cost. The team is doing a great job, and I've reinforced obviously, a few quarterly now. How difficult it is when you get to the end of an ore body like this or you're approaching the end of mine life? It is challenging, team is dealing with that extremely well. And we start to see where focus on good safety, good productivity, good discipline in our operations all tie together, and we're also driving great cost outcomes as well. I do recognize, of course, the benefit of the byproduct credits from copper, which is nice. It's another piece of the pie. And obviously, lithium, nickel market is fantastic for the last 12 months of this mine. But as you can see, it starts with what we control and the basics are running well. For Greenbushes, look, obviously a better quarter than the first quarter of this financial year, which was impacted by rain and grades. We've seen that grade improve. That's continuing to flow through, and we'll see that lift through the second half of this financial year. But some improved production, sales of which is just a shipment, which, to be honest, is with a very rapidly rising market, not the world that we end up seeing some improved financials on the back of that. And a lot of work is happening to get CGP up and going, CGP3 at least. That's, as we've announced already, hit first ore and produced first concentrate this month a huge focus on that ramp-up, and I'll talk more to that in due course. Kwinana, look another quarter that's sort of in line with prior quarters. I think really to call out was impacted by a shutdown that took out some of the available days of production. The team did finish the last month at about 50%, which is sort of the best that we've seen from the refinery for any sustained period. And I guess we -- as much as the lithium prices up, we continue to take the view that this has got a very challenged future. So that's I think the quick highlights. Our financials, capital further as you can see that we generated positive free cash and continue to maintain a very strong balance sheet. If I drop down a little bit further into Nova, and I touched on these points, I mean a really good operational quarter, delivering cash to the business. I talked about a stope this fire in Q1, which has been addressed and mitigated. And again, that's the sort of thing that the team naturally doesn't want to happen, had to work really hard to deal with it safely. They've done that, and it's now in the revision [ mirror ] looking forward. With the mine at this point so close to closure, we don't have the ability to flex that schedule. And so we have to deal with these things very effectively. Sales is a bit lower, just in line with shipping plan. So one less shipment for the quarter that will roll through. There's nothing really material in that. And overall, tracking really well against our end-of-life mine guidance. As I said, the performance from production was really good, and they continue to live through this quarter. So we've got some strong confidence there right through to the end of this calendar year. And of course, costs are a function of that performance. All that said, the team are working really hard to manage our costs as this line ramps down. We're certainly not looking to carry anything that we don't need to as we move towards closure in 2027. Kwinana next, just to touch on it quickly because then we can talk a bit more on Greenbushes. As I said, 35% nameplate for the quarter, 2.1 kilotonnes. We're tracking pretty much in line with our guidance as we set out for the financial year. The costs are up, and that's a function of the production through the quarter, we did take a bit out with the maintenance shut that was done and some other modifications that were done to the plant. The next slide, into Greenbushes. So look, it's a good quarter, lift on Q1 in production. Costs are still running high relative, and that's obviously largely production related. As the tonnes ramp up, we'll see that come back in. The realized price lifted to $850, which I think reflects this very close connection with the PRAs or the spot price in the market, and I'll talk more to that on the next slide. I think it's something that's very favorable, particularly in this lifting market, very buoyant market now. And the big news was obviously getting first ore through CGP3 late last year, just before Christmas. The team did find some issues as they started to run it up, stopped, fix those early in January and then got back into it. As I said, we've just seen first concentrate starting to come through. So look, the asset is working. I think they took the time, and it was down to -- go and check a few more things, hopefully avoid any more surprises, and the work in front of them now is to ramp that up, hopefully smoothly. We're going to know more by our half year results in a few weeks' time or 3 weeks away. So I think that will be a place where I can give you a more substantive update at this point, it's a bit early really to say too much until we see a few more results. I have a couple of extra slides on Greenbushes and wanted to start, as we've talked about in the last quarter, to just feeding more information to the extent I can about both the life-of-mine optimization or the strategic review that we're doing and the focus on productivity. The first thing I did want to touch on first was just on the price growth, which I'm sure everybody is following closely in the market. It's certainly moving very, very quickly. I would say, relative to the expectations that I had, fine is what it is. I'm sure we're going to have some ups and downs. We saw overnight that there was a bit of downshift with FX and others. And I think we certainly expect to see some of the curtailed supply out there start to be reintroduced. And I think this morning mentioned they were looking at that. I see more of that, which might pay for it. But really, the takeaway from this slide is the way that, that translates for Greenbushes. And as you know, when we take the average of the PRAs 1 month price trails, but it's pretty much a very close connection to the spot price that's out there, does give us a very good realized price that flows through. We don't have any of that lag or impact from contracts that might carry discounts or other frictions from a lower [ end-of-life ] in the cycle. So I expect we're going to see obviously some very attractive lifts in our realized price over the coming months. The next slide then I guess brings to life how that translates into margin, which is one of the things, again, I've called out before, I think Greenbushes is one of those few mines of any point in the world that generates extremely high margins. I think we said 64% EBITDA for the last quarter. And I think the low end was just shy of 60% at the absolute bottom of the cycle. But the thing that's really unique is it also drives fantastic cash conversion and translates into returns that flow out of the business. They don't have to be reinvested to maintain production. And this chart brings to life what that looks like if you take 1.5 million tonnes, so current production level roughly at 2,000 tonnes. And then with the lift in production that's coming through CGP3, the sort of amount of cash that's generated through that step-up just help to visualize that. The next slide talks a bit to the optimization work that's ongoing. It's a slide that I have referred to before. Just to reorient everyone, we've got an overall review of the entire mine, which is, I guess, life-of-mine optimization, I'm going to talk to one example of the kind of work that's happening there in a minute. That is significant. It's got a lot of expertise -- external expertise helping us with it. It basically goes right back to the ore body, assesses the characterization, the design of the mine, how we manage waste, tailings, grades, et cetera, top to tail. And reset that [ optimum ] mine in doing so obviously unlocks a lot of value. In parallel with that, we were also focused heavily productivity. Now these things are naturally linked. Productivity work is happening now anyway, and that's focused across a number of different streams. All of that together brings us to, I guess, our goal, which is achieving the full potential of Greenbushes. And Rob, the CEO there at Talison, is doing a great job. He has got a lot to work through and as the team he's put together are working through it. They are finding a whole range of issues, challenges and changes they need to meet. And that's part of the shift. But I mean, we've seen Nova in the short space of time, make this shift in this steady focus on production stability and safety. I don't share the safety results of Talison, but there is some challenges there as well. I think these teams are linked. And Rob's got a really good set of programs and changes in place step by step to support the team to shift that culture and focus on safety, on production reliability, stability and ultimately productivity, it will drive out more tonnes and obviously less costs as well. The example I want to refer to for the overall asset review really looks at the pit wall -- steepening pit walls is something that naturally has risk or threat and opportunity both ways. On the upside, it means a lot lower strip ratio. And in this case, you can see and I'll talk to the line in a minute, it starts to expose more metal or more material -- valuable material that otherwise might not have been accessible. On the downside, if we get it wrong, you have a geotech issue or a failure in the wall that can sterilize more. So it needs a lot of careful work and thought. The team have brought in experts to help them with that. They are maturing their geotechnical management processes and activities. They're doing all the right work to make sure that we control those risks, but ultimately unlock a lot of value. And if you look through this chart, you'll see some little dotted lines that run out into the gray patch on the right-hand side. And so that sort of pit shell, the 2023 resource shell and the '21 resource shell shows what the overall resource would be. And you can imagine if you actually did all that strip, it's a huge amount of work. The other point to note though is on top of that gray-shaded area there on the left side of that slide [indiscernible] our plants. So it will require us moving a lot of infrastructure and assets, which is extremely costly. It's not to say you can't do it. I mean that's the kind of work that other mines in the world have had to go through, but it's not very desirable. So the other way to tackle this is if you take those lines that run into the gray and you draw them straight up to the edge of the gray and you steepen that wall significantly, you can start to access that high-grade core, you can lower your strip ratio significantly, so you expose more metal, lower strip, much lower cost and ultimately drive an enormous amount of extra value out of the mine. That's the kind of example of work that's happening at the moment, wanted to do this to try and just illustrate it. So when you start to see more of the results and the information coming through as we get through the decisions, finalize our plans and we can present that back to the market; you'll understand where that's come from and just helps to give you a sense of the work that's happening. Equally, the care that we're taking to make sure that this is done properly, as many of you know, this mine is 135 years old, even we're working in is quite mature. And any change to that, we need to make sure we're done with due care and attention. The last slide then on Greenbushes just speak to the productivity stream that I mentioned earlier. We put in the sort of major areas of focus, mining being naturally a big one early. And I've put a couple of little charts in there that just illustrate the lift in productivity from the mining fleet. And that takes us to what we believe is industry average. So we're not outperforming yet, but I want to give credit to the team to [ Rob, Adam ] and the mining team, they've made a lot of focus on this. The -- a lot of issues they are working through different challenges, but I think they're really starting to see some results come through now, and that will play out in our costs, obviously, our waste movement. And the second area I want to talk about was then just production and plant performance. And that's a mix of utilization through better asset management and reliability so we get that throughput, but also recovery. So more stability will drive recoveries and then work to optimize recoveries. As part of that, we're also looking at value and use, which means what is the grade that we're selling to our customers? Is that optimum for them? What level of impurities? How much are we throttling the assets to the processing plants to achieve that? And what's the cost or value trade-offs? So we're asking those kind of questions as part of this to make sure that we really optimize this, recognizing the customers' interest and their costs, but equally, what's the best we can do with the plant. The business has run, producing SC6 and a fixed grade on impurities for a very long time, and we haven't really asked the question. And so we are at least testing it, and we'll see what makes sense. No decisions yet, but it again shows you the kind of work that's happening. And the impact on productivity from these different streams is quite significant. So that's a quick round up on the operations, a bit more on Greenbushes. I turn it over to Kath and touch on the highlights on the financials, and then we can get into some Q&A. Kathleen Bozanic: Thanks, Ivan. Hi, everybody. Sales revenue was AUD 82 million. And as Ivan indicated, it was lower due to shipment timing from Nova. Nova EBITDA was up AUD 42 million, which included some value adjustments with the inventory adjustment in the month of December. The share of net profit from TLEA rounded to zero. Positive profit at Greenbush is being offset by losses at Kwinana, and this includes our share of capital expenditures we impaired that asset to zero. I also wanted to call out again that we're pricing [indiscernible] of spodumene. So next quarter, we'll see the benefit of the [indiscernible] higher. Underlying EBITDA improved to AUD 30 million, supported by [indiscernible] and some mark-to-market movements on investments that we have. We remain laser focused on cost control, but you'll note that -- or I'd like to note that this [indiscernible] had a one-off payment for our insurance in [indiscernible] quarter. Free cash flow was positive at AUD 13 million, and our balance sheet continues to strengthen with net cash increasing to AUD 299 million. I think that summarizes [ the results ]. Ivan Vella: Thanks, Kath. Well, look, we'll turn it over to Q&A. I'm throwing a different mic. Hopefully, the sound quality is better for you. But yes, we can open up and start taking some questions. Operator: [Operator Instructions] Your first question comes from Rahul Anand from Morgan Stanley. Rahul Anand: Just the first one for me is related to CGP3. Obviously, you've started commissioning and ramp up there. What is the rough time line of you achieving that nameplate, please, just so that we can test our numbers going forward on that one? And I'll come back with a second. Ivan Vella: Yes, in simple terms, 12 months, so the end of the calendar year. Rahul Anand: Got it. Okay. Perfect. And then just on the pricing, we basically had you achieved the price during this quarter for, I guess, the months of September, October and November. And even if I apply about a 5% discount, I'm still getting to a higher price. Now obviously, I acknowledge that the shipment timings might have been a key impact here. But is that the right way to think about pricing, September, October, November? And then based on when the ships basically are loaded and leave the port, basically, you're selling -- the timing is FOB basis. Is that right? Ivan Vella: Yes, it is. We can double check it and clarify. Yes, that's -- your understanding is absolutely correct. Rahul Anand: Yes, yes. Just because looking at our numbers for the price and also for consensus, the pricing was a tad bit weaker. So I just wanted to understand if we're kind of modeling that correctly. Ivan Vella: We'll double check. I mean we obviously do reconcile that, but we'll just make sure if there's something that's in there. Whether it's tied to the shipment possibly, I'm not sure, but we'll get back to you to make sure we've got the right inputs for your model. Rahul Anand: Excellent. And if I can just slip in one more, just around sort of Greenbushes going forward. Obviously, a strong lithium price environment, and you've got a downstream partner there at the mine as well. You've talked about the age of the mine and then also you're ramping up CGP3. And if I look at your sensitivity chart in terms of the sales volumes, you've obviously got about 2 million tonnes, which is what your current plans are. Have any conversations started as yet in terms of any future expansions at the mine and how they might look like in terms of underground, above ground? What type of hurdles you guys need to cross in terms of thinking about further expansions? Anything related to growth, I guess, in the Greenbushes space? Ivan Vella: Yes. Look, there's a lot going on there, but that's included in that broader life-of-mine optimization. The existing assets, so CGP1 and 2, we believe, can offer up a lot more productivity and throughput and production. So optimizing them naturally bringing CGP3 up to its full potential as well, so that's using the existing suite of capital that we've deployed. The tailings retreatment facility, we're working through that study presently. So we know what to do there as well. So there is a lot happening in that space to recognize and drive growth from the existing capital base and make sure we've got the best from it. CGP4 is in the mix. It's one of those things that sits in the schedule, and we've got to find where the optimum place for that is. We don't have that answer yet. There's a lot of moving parts in the review that we're doing. It's very significant. But as I get more detail step by step, we will feed it out. I guess I'm just as eager as you are, of course, to have that finished because it gives us a really clear new baseline to work against. And Rob and the team are working really hard. I think we'll see some of that come through in the reserve and resource update we do later in February. And you mentioned underground. So we're certainly looking at where that fits. And as we think about the overall resource, I've talked about pit wall as one lever that obviously drives a lot of value, but equally understanding which part of the resource we want to target through the open pit versus underground and then what the schedule and sequence of that is, again, work that's underway currently. Operator: Your next question comes from Levi Spry from UBS. Levi Spry: So do we have an updated expected date for the life-of-mine optimization? Ivan Vella: No. No. Sorry, Levi. I would love that, too. I'm pressing regularly. Rob's probably getting annoyed with me. But look, they're working hard. They're making progress. I think there are some areas where they dig in, they find things that they just have to do more work on technically to make sure that we're going to make the right decisions. So I will share a clear plan or at least target once we have one, but I just don't have that to offer up. Levi Spry: Okay. So in the absence of that, so can you -- maybe you need a big second half as CGP3 ramps up. Can you just remind us of its operating parameters, maybe tonnes grade recovery, so full speed by the end of the year? What does that actually mean? Ivan Vella: Yes. I mean you're talking about the whole grade curve and so on. I mean, we've given you the nominal tonnes, 0.5 million tonnes. It will run at, I guess, design feed grade is the same as CGP2, which is about 1.8%. And it will run to, I guess, test recoveries, we are targeting higher than that. So you've seen the results of CGP2 starting to rise, the team do more work on it. I guess our goal naturally from the ramp-up is that we don't have to go through that process that we actually are hitting our grade curve from the outset and then beating it. But I'm not going to promise that at this point. It's where the team is focused. I don't know -- is that what you're looking for? I mean all those numbers we've shared previously, I'm just not sure there's nothing new at this stage that's going to change things until we get further into the ramp-up. Levi Spry: Yes. Okay. So just pushing you further on that. So just confirming on Page 7 of the preso, the 2 million tonne rate. So do we take that as being the calendar year '27 run rate? Ivan Vella: No. That was an indication of margin of that volume. It's a capacity. It's not a mine plan that we've issued as guidance yet. Levi Spry: Yes. Okay. And so the next round of meetings with TLEA and the Tianqi for guidance. So when is the '26 budgets expected to be set? Ivan Vella: We've been through that now. They're getting signed off as we speak. So that's a '26 calendar year for TLEA too. And we'll then take that and build our guidance for the '27 financial year, obviously a bit closer to the time. Operator: Your next question comes from Hugo Nicolaci from Goldman Sachs. Hugo Nicolaci: First one on your comments around Greenbushes guidance, production is sort of tracking slightly below, CapEx also below. If I try and triangulate those 2 comments, is that just in terms of stripping at the mine, is that running a little bit behind, and that's why your strip ratio has sort of fallen in the last quarter and why both production and CapEx might be lower for the year? Ivan Vella: No, they're not all linked. So stripping will come down, and we talked about this example on it, I mean we'll see a material reduction we expect in our strip ratios through that, and that will trend down. Quarterly variations is more about weather impact through Q1, obviously have less of the pit access and availability. They're now fully open, so that will look different. But the team are looking at where they keep waste, how they manage waste, the grade and sweeping of those waste stockpiles. There is a lot of changes that they're working through presently. So I don't want to try and characterize these things as just one caused the change. In terms of the production, look, it's partly grade related, which was a bit better than we saw in Q1, of course, a little bit worse than we had in our plan, and that's just a normal reconciliation we're working through. Team are getting there. And the other bigger factor is, of course, just the way that CGP3 ramps up. That's really the key unknown. Hence, what we anticipated in our guidance in terms of that start-up, we're behind. Is it not recoverable? No, not at this point, but that's what we're going to need to see in the coming weeks or months, how that goes. That will give us a gauge to how the rest of this year looks and then obviously into the rest of the calendar year. So there's a few different moving parts, but certainly wouldn't tie them all together in terms of the production outcome for Q2. Hugo Nicolaci: Got it. In terms of the CapEx timing piece, then I presume those are all works that will still need to happen. So maybe that's more of a shuffling some of the CapEx into FY '27 rather than things no longer? Ivan Vella: Yes. I mean, as I've talked about in prior quarters, I mean, Rob has got a very tight handle on CapEx. He's been very prudent, and he is pushing back on it, which is good. But we're not in a place where we're ready to down Street guidance on it yet. We'll see how -- again, how that pans out now as they run up to CGP3. Obviously, some of those costs are capitalized until we get to commercial production. So there's a bit more to come, but I don't think you should read into that, that there's a major issue that's impacting production. Hugo Nicolaci: Got it. And then just sort of second one, I think dovetailing off Rahul's question earlier around the realized pricing piece. Can you just remind us what sort of volumes are going out on the technical grade piece at the moment? And if that's also a bit of a delta there in terms of that realized pricing? Ivan Vella: Look, it's very small. It wouldn't be material enough to realized pricing. And we're talking 50,000, 80,000 tonnes in a year. So it's pretty small, right. Hugo Nicolaci: Yes. Got it. Great. And then just last one if I can, sort of back on the IGO level, and you've highlighted, obviously, the step change in potential cash generation for Greenbushes at current spodumene pricing. We're 2 months through your current quarter, basically pricing setting. Does that then enable you to start thinking about dividends back out to IGO shareholders given you have that line of sight to cash flow when you're sort of at or above your threshold for excess returns already? Or is that maybe a little bit too early for February still? Ivan Vella: Yes, too early. I mean I think we've got a very clear capital framework at Windfield, which we use to manage dividends and obviously, the debt there, obviously there were some movements in the debt. We'll work through that. We'll pay dividends out of Windfield to the shareholders of TLEA in due course, and that will be done. But again, based on that framework, very well managed and controlled. And then the key discussion will be the TLEA as to what we want to maintain there in liquidity and what shareholders might then paid out. So certainly no discussions or decisions on that at this point. The first step is to see that cash really starting to flow through Windfield. Operator: Your next question comes from Kaan Peker from RBC. Kaan Peker: Ivan, just on that framework that you talked about with Windfield, $150 million of debt paid this quarter, but no cash distribution to IGO. What's the priority now further degearing versus distribution? And as CGP3 ramps up, is there a set level or cash buffer that's required before distributions resume? I'll circle back with the second. Ivan Vella: Yes, I pick up the last part first. So we've got -- I mean, there is a cash buffer we will hold. That's not tied to CGP3 or any specific part of the asset. It's just a part of our own capital framework, and that's being managed. Naturally, we'll look at then dividends versus the debt and the balance on that, and we'll take into account things like the U.S. dollar and forward views on cash generation and so on. So all those decisions go through a pretty structured process with the Board and the shareholders. And out of that, we'll let you know how that translates. Obviously, the way this market behaves is going to be relevant. Obviously, it's very buoyant right now. And certainly, all the signals are for a very strong Europe demand. But equally, we expect to see more supply come online [indiscernible] but other production as well. So I think before we get ahead of ourselves too far, we just want to sort of see how that washes through and take a view then on how best to allocate that cash to drive maximum value for the business. Kaan Peker: So just to confirm, it's degearing currently the focus? Ivan Vella: No. Yes, no, it's not a focus. That was -- this is part of CFOs managing in a day-to-day sense. We will naturally want to pay dividends and think about our debt. So they're both important priorities. Kaan Peker: Sure. Okay. Maybe secondly, on Kwinana. Conversion costs spiked materially this quarter. How much of that reverses with utilization versus how much reflects embedded cost issues? Ivan Vella: No, it's been largely impacted by the maintenance because remember, we don't capitalize anything. Everything is expensed. And obviously, the production volume is impacted through that period. So you've got a compounding set of elements there. I think the team are working to drive out cost. And as we're looking at and we're working through '26 budget for Kwinana. There is a lot of pressure on that as to depreciate and CapEx as well. So the team naturally are trying to find ways to drive better reliability and better performance, but do that with less costs as well. And I would not take Q2 as a market that says it's trending up or that's the run rate [ look out for ]. Operator: Next question comes from Matthew Frydman from MSG Financial. Matthew Frydman: Can I ask another one on the ramp-up of CGP3, which I guess you called out as the biggest factor in the softer guidance commentary you've given? Can you give us any more information on the specific issues that have been, I guess, based and dealt with so far that you mentioned earlier on the call, was there anything specific related to equipment or fee or people or anything? And then in your view, are there any sort of key risks or checkpoints now looking forward? Or is it just a sort of steady improvement over the course of the year? Ivan Vella: Yes. I'll share what I can, Matt. It's a good question. It's equipment related. So one of the mills needed some realignment. It's not an unusual problem. Australians you kind of go, well, how that not get dealt with earlier, but it happens. I've been through a few of those. We needed some resealing, again not fantastic because it's painful to do it. It's not a big issue. It's just logistically to get back in and fix some of these things just takes a bit of time. The good news was the team used some of that downtime when they were working through some of these issues to then just go back over motors, pumps, et cetera, and pump test and check and just really get confidence. I think they changed out previous pieces so that we can get a -- hopefully be more cleaner in next phase of the commissioning and ramp up. But for anyone who's been through these things before, there's plenty of unknowns. So you have to be very careful not to get too excited one way or the other. It's still pretty early in the process to sort of see how it behaves. I think the good news is you talk about the other things that could be a factor. So fee is fine. That's all good. People and capability, we've got a great team there, lined that up well. [ Paul ] who's the project director, got an integrated team for commissioning. Strong team in place. So we feel comfortable with that. We've got great support from the vendors. We've got access to all the support equipment that we need. So there's no big risk there that we're sitting here deeply worried about. But I just think it's way too early to call or to get a real sense. I think by the time we can get to our half, I'll get a better read on how things are going. at this point, I'm pleased we've got better half, they're starting to basically run the plant and actually start to see what the recoveries are, how it's behaving and obviously look at the tuning in the reagents and all of the long steps you take in that first month or so from start. Matthew Frydman: Okay. That's helpful. Then secondly, you -- as you called out, put some additional numbers in the presentation there around some of the recent productivity improvements at Greenbushes, improved truck utilization, improved material movement. And you suggested that, that will flow through into the cost line over time. Obviously, there's a lot of moving parts that go into the final cash cost number. But I guess I'm wondering, in isolation, are you able to maybe put some dollars around some of those mining productivity improvements? I mean what's the goal for where you think you can get the cost of material movement with some of this productivity improvement? Is it $10 a tonne? Is it $7 a tonne or whatever the number is from a ballpark perspective, what's the team working towards? I suspect you'll tell me that some of that will come out in the life of mine optimization piece. But yes, just wondering if there's any sort of high-level thoughts around that at the moment. Ivan Vella: Yes, it will. I mean I don't want to give you a number yet. I mean, that is a conversation, of course, when we go through budgets and we're pressing the team. They're a bit gun shy to offer up in the first year because it's still a work in progress. But we're starting to see a profile through '26, '27, which really does show some substantive improvements in unit costs on those underlying activities, and I think that will naturally flow through. We're also, as every mine does volume [ rate ] decline. So some of it is eroded indirectly through that or offset. But the goal is net-net, we're actually beating that and both through increased throughput or production and also then the just more efficient work through less stripping and so on that we're actually continuing to strengthen our position as the lowest cost lithium rock producer in the world by a long shot and just keep on consolidating. So Rob's -- I think I've mentioned before, sort of put that broader goal out there to be the lowest cost lithium units in the world, and there's still a gap to the very best brains out there, but it's intruding range. So I think it's a good target and a good challenge for the team and the team can say, how could you run this mine differently and what needs to be true for us to start the overall cost performance and that's not going to come in a quarter or 2 of course. I guess what I'm trying to do is to the extent I can share information as we do, [ beat it ] out step by step to give you a greater insight and picture on improvements and then also give you some of those underlying productivity and performance numbers so that you can update your view of the asset. Matthew Frydman: Waiting for the study outcomes with [indiscernible]. Operator: Your next question comes from Austin Yun from Macquarie. Austin Yun: Just one quick question. Yes, most of the questions have been asked already. So just one on the base metal strategies. I think previously, you were talking about outside of lithium, you are looking at other early-stage opportunities. Just conscious that given this EPS, seems like a windfall of cash coming from the strong lithium market, how does that change your thinking of the exploration of the other opportunities? Could we see some capital being allocated to that part in addition to shareholder returns and debt repayment? Ivan Vella: Look, Austin, it's a great question. No, it really doesn't change. I mean the criteria that we've applied since I started 2 years ago, a lot of discipline, has been a big part of this real clarity around kind of returns that we're looking for from any growth needs to be in that ballpark around Greenbushes, we don't want to heavily dilute our business and trying to hit Greenbushes, as you can imagine, that's a very high bar. And so we can allocate capital first there and actually that's going to be the most accretive and most sensible thing to do, which we're focused on dealing with things that are a drag on our returns, i.e., Kwinana, which we're working through, we've been clear about that. And then to add something to it. I mean, it's difficult, hence, why we've been continue to be very disciplined. If we saw something that we felt would deliver appropriate returns, sure. The lithium price, to be honest, or having said, and the translation of that into cash doesn't really change that decision. Because we have much more cash available to us, we're not going to be more eager to make a decision there. It will be on the same criteria regard. Arguably, the best time to be doing things if you saw it was 12 months ago or 8 months ago. So it comes back to our [ own ] value, and we've got a very high bar, and that's good and bad. It's an absolute privilege to be part of the custodian of Greenbushes and it just means that our growth has to be very, very focused. That's probably all I can say at this point, Austin, but it's more of the same. Operator: Your next question comes from Daniel Morgan from Barrenjoey. Daniel Morgan: Just a simple one really. Grades at Greenbushes, I think if I'm hearing correctly, they're back above 2%. And so therefore, the implication is like just putting CGP3 to the side, not stripping that out from this question. We should expect a material lift in production for the next couple of quarters from the existing business, not CGP3, correct? Ivan Vella: Yes. Well, you'll get a lift, yes. I think it's -- I mean, not a best rate clearly equally interruption. We had a pretty good quarter, weather-wise, some rain, later than expected through Q2, but Q1 is always going to be a challenge. So there's naturally some of those impacts, [ freighted ] impact. And then the productivity is the other piece, which I know Adam and his team are working very hard on. I'm pushing and expecting to see them to deliver results through all of that hard work as well. Operator: There are no further questions at this time. I'll now hand back to Mr. Vella for closing remarks. Ivan Vella: All right. Thank you. Look, it's nice to speak with you guys. Hopefully a break before the next one. I won't say too much. I mean just to recap, I think Nova was really pleased, as I said, safety, production cost is hitting the mark. This is an operation that we focus on. It's relatively small and simple, but it's a signpost of how we want to bring our capability to operating a mine. And I think all credit to the team, they've done a great job there and set this year up very well. So that's great. Unfortunately, it's only a year to go, not another 10 is what it is, so I'll manage that through. Greenbushes, a better quarter. The big focus is CGP3. Naturally, we're very pleased to be ramping that up into a lifting and buoyant market. It's fantastic, and there's a huge amount of focus to make sure that smooth. And ideally, we meet all of our plans. That's always going to be the target. But at this stage, it's early, you just need to back the team and support them as they get through that work. All that said, I mean, this is the time when Greenbushes really shines. This is the period of lifting price, a buoyant market when you see the very best hard-rock lithium asset in the world, turn it on more production and a whole lot more margin. So we're pleased to be part of that and continue to work with the team to improve this performance. Thanks for everyone's attention and support, and we look forward to talking to you soon at the half year results. Operator: That does conclude our conference for today. Thank you for participating. You may now disconnect.
Operator: Hello, everyone, and welcome to the Samsung Electronics 2025 Fourth Quarter Financial Results Conference Call. I will be your coordinator. [Operator Instructions] As a reminder, this call is being recorded. I would now like to turn the conference over to the Investor Relations team. Please go ahead. Daniel Oh: Good morning, everyone. Thank you for joining us this morning in Seoul time. I'm Daniel Oh, Head of Investor Relations at Samsung Electronics. I'm grateful to have you with us today for our earnings call for the fourth quarter of 2025. Before we proceed, allow me to address several key administrative and legal points. For your convenience, today's webcast and slide deck are accessible via our IR website at www.samsung.com/global/ir. I would like to note that this call is being recorded, and it will remain available on our website for future reference. We appreciate your engagement and focus as we move through the results as today's session aims to deliver comprehensive insights into our financial performance and outlook. Please be aware that today's discussion may contain forward-looking statements reflecting our present, expectations of our future developments. Such statements should not be viewed as guarantees of future outcomes. Actual results may vary significantly from these projections due to numerous factors including, but not limited to, market dynamics, regulatory changes and operational environment. We respectfully seek your understanding of these important considerations as we seek to uphold transparency and accuracy. I will begin the discussion today with the highlights of our fourth quarter financial performance, followed by EVP Soon-Cheol Park, our Head of Corporate Management operations and Chief Financial Officer, with details on our business outlook and shareholder returns. I will then share a brief update on capital expenditures and sustainability initiatives. At that point, our executives will provide in-depth comments on their respective business areas. Following their presentations, we open the call to analyst questions. This call is expected to last about 1 hour, and we appreciate your time and attention throughout. Several key executives have joined us on today's call. In addition to myself and our CFO, we have with us EVP Jaejune Kim, representing Memory; joining the call for the first time, EVP Jason Shin for System LSI; For Foundry, EVP, Sukchae Kang; and returning the call, EVP Charles Hur for Samsung Display Corporation; also both joining the call for the first time, EVP Seong [ Hyuk ] Cho for Mobile eXperience; and EVP Hun Lee for Visual Display. Now let's begin with our consolidated financial performance for the fourth quarter of 2025. We delivered our highest quarterly revenue ever at KRW 93.8 trillion, up by 9% quarter-on-quarter. In the DX division, revenue declined 8% sequentially due to the fading impact of new smartphone launches and softness in home appliances in the wake of U.S. tariffs. On the other hand, the DS division showed strength with a sales increase of 33% quarter-on-quarter, driven by expanded sales of HBM and other high value-added products, thanks to stronger market prices. And Memory recorded another new all-time high for quarterly revenue, surpassing the level set 1 quarter ago. SG&A expenses were KRW 24.2 trillion, up by KRW 2.9 trillion quarter-on-quarter. And SG&A as a percentage of sales was up by 1 percentage point sequentially to 25.8%. R&D investments totaled KRW 10.9 trillion, up by KRW 2 trillion quarter-on-quarter and set a full year record of KRW 37.7 trillion, a testament to our commitment to investing for the future. Operating profit also set a new quarterly high of KRW 20.1 trillion, up KRW 7.9 trillion from the previous quarter. Operating margin also increased, rising 7.3 percentage points sequentially to 21.4%. While operating profit in the DX division declined due to the slowdown in the MX and home appliance businesses, the DS division more than compensated with its significantly stronger quarter-on-quarter performance driven by robust improvements in Memory profitability. Currency movements also worked in our favor. The sharp appreciation of the U.S. dollar and other currency had positive effect of adding approximately KRW 1.6 trillion to company-wide operating profit centered on the component businesses. More detailed fourth quarter results of each business will be presented by executives shortly. Before that, I would like to pass the conference call over to our CFO, Soon-Cheol Park, who will discuss our outlook and shareholder return. Soon-Cheol Park: Thank you, Daniel, and good morning, everyone. I am Soon-Cheol Park, CFO of Samsung Electronics. I am pleased to continue our update. We entered 2025 under difficult conditions, both at home and abroad, and the first half of the year post many challenges. Yet, thanks to the trust and support of our shareholders, the second half unfolded as we promised and marked the clear turnaround for the company. We achieved the highest annual revenue in our history. Profit in the fourth quarter also set an all-time high, and our stock price increased sharply. I am deeply grateful to our shareholders for standing with us through the challenges and this turnaround. The DS division introduced globally competitive products, including HBM4 and GDDR7, and some customers summed up our achievement with the idea, Samsung is back, sending a clear signal of the strength behind our differentiated performance. The Foundry business is primed for a major leap forward supported by its technology and the trust it has earned through recent deals with leading global clients. The DX division added to our technology leadership with TriFold smartphone and Micro RGB TVs while delivering distinct customer experiences powered by advanced AI technology across the Galaxy ecosystem. We also secured new growth drivers through strategic acquisitions, including FläktGroup in HVAC, ZF in ADAS, Xealth in digital health care and Masimo's audio business. Looking ahead to 2026, we expect several risks to persist, including continued global trade barriers and geopolitical uncertainties. To address this, we remain proactive and stay ahead of external shifts. The DS division will continually secure leadership in the AI semiconductor market by drawing on our unique position as the one semiconductor company in the world capable to delivering a true one-stop solution including logic, memory, foundry and advanced packaging. In Memory, we'll regain our core technology leadership; and in Foundry, we'll turn our expanded order opportunities secured through advanced process maturity into tangible results. For System LSI, we aim to transform the business by reinforcing our core strengths. We also drive innovation by applying AI solutions optimized for semiconductors and capture new opportunities with enhanced customer-centric products. The DX division will expand AI-driven products and constantly integrated our AI technologies across all of the DX division's device features and service ecosystem while providing the best AI experience to our customers. Through this, we aim to become the leader in the era of AI transformation. To maintain our competitive advantage, we'll secure our position by leveraging our distinctive products, diversifying our supply chain and optimizing global operations to address the issues such as compound costs and global tariff risks. Furthermore, we will continue to invest in future growth engines including HVAC, automotive electronics, medical technology and robotics to secure technology leadership in the years ahead. Company-wide, we'll strengthen our processes and improve cost efficiency by promoting AI-driven innovation and adopting digital twin technologies. Also, we'll strive to make this a year in which we deliver tangible progress in our humanoid robotics business as part of our preparations for the future. Next, our outlook for the first quarter of 2026. In semiconductor industry, we expect structural growth opportunities to increase driven by AI and server demand. In response, we will maintain our focus on profitability while monitoring macro uncertainties, including tariff impacts. For the DS division, in Memory, we believe market conditions will remain favorable, driven by AI demand and the industry-wide supply constraints. And we expect to sustain our strong performance by focusing sales on server DRAM, eSSD and other high value-added products supported by our technology leadership. In Foundry, although results may decline somewhat due to seasonal effects, we will preserve our growth momentum by advancing process maturity and securing new orders from major customers. In System LSI, while there are concerns regarding customers' cost burdens, we'll seek to maximize sales of new and high value-added products. For the DX division, the MS business will reinforce its leadership in the AI smartphone market by delivering AI experiences that enhance everyday life supported by the launch of new models. While headwind from rising component costs are expected to persist across the industry, we aim to secure profitability through improved supply stability and resource efficiency initiatives. In the VD and home appliance businesses, amid continued challenges such as intensified competition and tariffs, we expanded our presence in the high value-added product market by delivering high personalized customer experiences powered by enhanced AI technology. Moving on to the shareholder returns. The Board of Directors today approved a year-end per share dividend of KRW 566 for common stock and KRW 567 for preferred stock. On our shareholder return policy for 2024 to 2026, we committed to regular quarterly dividends of KRW 2.45 trillion from annual payout of KRW 9.8 trillion. Last year, the government introduced the separated taxation scheme for dividend income from high-dividend companies aiming to increase dividends and vitalize the capital market. To meet the requirement for 2025, the Board resolved to declare an additional dividend of KRW 1.3 trillion. The fourth quarter distribution is scheduled for payment in April following final approval at the AGM in March. Thank you. Daniel Oh: Thank you, CFO. This is Daniel again. Now I'll provide a brief update on capital expenditures. In the fourth quarter of 2025, CapEx rose by KRW 11.2 trillion from the previous quarter to KRW 20.4 trillion, with KRW 19 trillion allocated to the DS division and KRW 0.7 trillion to the display business. For the full year, total CapEx was KRW 52.7 trillion, down KRW 1 trillion from a year earlier. Of the total, the DS division accounted for KRW 47.5 trillion, while the display business represented KRW 2.8 trillion. In the Memory business, investments increased both quarter-on-quarter and year-on-year as we transition to advanced process to expand sales of high value-added products such as HBM. In the Foundry business, CapEx was up from the previous quarter driven by increased investments in the U.S. Taylor fab. For the full year, CapEx declined as we maintain our conservative investment approach overall. In Display business, CapEx decreased both in the fourth quarter and on a full year basis following the completion of 8.6 generation line. For 2026, although detailed investment plans are still being finalized, we expect Memory CapEx to increase considering the market outlook. Now I would like to highlight our sustainability performance. We are proud to be the first in the industry to develop and deploy a helium reuse system for semiconductor manufacturing. Helium is essential to the manufacturing process, and this system, which has been applied to selected production lines, enables us to recover and purify helium for redeployment, cutting annual consumption by approximately 4.7 tons and achieving a reuse rate of around 19%. This initiative not only helps stabilize the procurements of helium, which has a high import dependency, but also enhances our resource circularity in our semiconductor manufacturing process. In addition, to verify the energy-saving impacts of the SmartThings AI Energy saving mode, we partnered with Carbon Trust, a global carbon footprint verification organization, to conduct a yearlong measurement of actual energy savings -- sorry, actual energy consumption across approximately 187,000 high-efficiency washing machines in 126 countries. The results confirmed energy savings of around 5.02 gigawatt hours, equivalent to around 30% of the total energy consumption. To put that in perspective, this is enough electricity to power 14,000 households in Seoul during the hot summer season. We remain committed to strengthening our sustainability practices and delivering measurable impacts. Now let's hear from the executives for detailed commentary on their respective business unit's fourth quarter performance and outlook. First up is Jaejune Kim, EVP of the Memory business. Jaejune Kim: Good morning. This is Jaejune Kim from Memory Global Sales and Marketing. In the memory market, in the fourth quarter, demand for servers increased continuously and significantly exceeded industry supply, driven by hyperscalers' expanded CapEx in the race to establish early dominance in the AI market. In addition, for mobile and PC, the supply-demand situation remained tight as the industry supply response focused on server combined with seasonal demand effects. Under the low inventory levels and supply constraints, we expanded HBM sales and concentrated on improving profitability by addressing the demand for high value-added products for servers such as high-density DDR5, LPDDR5X and server SSDs. As result, in the fourth quarter, our sales for both DRAM and NAND matched the initial bit growth guidance. And combined with the overall market price increases, our Q-o-Q performance improved by more than it did in the previous quarter. Now let's move on to the outlook for the first quarter. In the first quarter, we expect the market will remain robust following the previous quarter as AI applications continue to drive the overall market. Thus, we plan to keep our product mix focused on high value-added products for AI. However, considering the significantly low inventory levels, we expect that Q-o-Q DRAM bit shipment growth will be limited to the low single digit. For NAND, we expect the shipment to increase by mid-single-digit percentages due to the base effect from the low bit shipment in the last quarter. Lastly, let me talk about the outlook for 2026. We anticipate that the demand for AI applications will remain strong this year. In particular, the high-performance HBM4 market should dramatically rise and the high-density trends for server DRAM is likely to keep expanding. For NAND, we expect demand growth for high-performance test products to accelerate with the introduction of PCI Gen 6 SSD, which is Key-Value SSD for AI inference. However, in the case of mobile and PC applications, we need to monitor potential decline in such shipments resulting from increased end product prices and reduced content per box driven by BOM cost pressure from rising memory market price. In an environment of rapidly growing our demand focus on AI, we aim to lead the AI era with our product competitiveness in 2026. For DRAM, targeting on GPU and ASIC that will be newly introduced in the AI market, we will proactively address customer demand by expanding supply of our HBM4 with competitive performance in a timely manner. In the meantime, we play -- we plan to continue increasing the portion of AI-related products such as high-density DDR5, SOCAMM 2, GDDR7 and so on. For NAND, we plan to focus on our demand expansion for high-density TLC-based Gen 5 SSDs in conjunction with the strong demand for Key-Value SSD for AI. In addition, while PCI Gen 6 server market is projected to rapidly expand in the second half, with the introduction of new GPU platforms, we will lead the market from the initial stage with our V9-based high-performance products. Thank you. Jason Shin: This is Jason Shin from the System LSI business. In the fourth quarter, the smartphone market continued a gradual recovery despite ongoing U.S.-China trade uncertainties and persistent regional geopolitical tensions. While demand in the premium segment remained resilient, shipment volume in the mid- to low-end segment declined, resulting in a different pace of recovery across segments. Our earnings declined quarter-over-quarter due to seasonal demand fluctuation among major customers and adjustments to new product launch schedules. However, image sensor revenue grew on the back of expanding sales of the 200 megapixels and 50-megapixel products launched in the second half of last year. In particular, we strengthened our technology leadership through the industry's first 200-megapixel image sensors, featuring 0.5 micrometer pixels. In the first quarter, external uncertainties are expected to persist while rising prices of key components are increasing cost burden for smartphone OEMs. As a result, shipments are likely to slow, particularly in the mid- to low-end segment. However, demand for high-value components is expected to remain relatively solid, supported by the launch of new premium smartphones. We plan to focus on improving earnings by ramping up supply of new SoC products and expanding our lineup of 200-megapixel image sensors while further strengthening our portfolio of high-value products. Looking ahead to 2026. Overall smartphone demand is expected to soften, while growth opportunities should continue to be concentrated in the premium segment. With the expansion of on-device AI, performance enhancements and differentiated user experience are becoming key competitive factors across devices, and demand for related semiconductors is expected to continue to increase. In SoC, we will focus on improving earnings by expanding sales based on differentiated performance and stable yields while also exploring new opportunities in the custom SoC business. In image sensors, we will continue to strengthen our competitiveness in fine pixel technology and sustain our leadership through Nanoprism technology, which enhances light sensitivity. Thank you. Sukchae Kang: Hello, everyone. This is Sukchae Kang from the Foundry business. In the fourth quarter, strong demand from AI and HPC applications continue to drive growth in advanced nodes. Meanwhile, virtual nodes sustained growth supported by demand stemming from China's localization strategy, even as non-AI and consumer segments remained stagnant and price competition intensified. We began ramping up mass production of our first generation 2 nano products and initiated shipments of 4 nano HBM-based die products. Revenue increased quarter-on-quarter, driven mainly by strong demand from U.S. and Chinese customers. However, earnings improvement was limited due to the recognition of provisions. For the 2 nano GAA process, we focused on process stabilization while developing next-generation processes on schedule. In packaging, we continue to strengthen our advanced packaging competitiveness by establishing 3D hybrid copper bonding technology for advanced nodes. Looking ahead to the first quarter. Seasonal demand softening is expected. However, the overall market is projected to continue growing, supported by price increases in advanced nodes. We expect our revenue to decline quarter-on-quarter due to seasonally weaker customer demand. For 2 nano, we expect our first generation mass production to further stabilize, and we are working to secure manufacturability and develop design infrastructure for the second generation process, targeting its mass production in the second half of the year. In addition, we are focusing on expanding specialty processes, including 4 nano RF, 8 nano eMRAM for automotive applications and 14 nano RF millimeter to enhance our technological competitiveness. On the other front, we will continue to expand orders, focusing on HPC and mobile customers. For 2026, as policy support for the global semiconductor industry continues to expand, we expect ongoing supply chain restructuring driven by increased domestic production and persistent geopolitical risks. With the full-scale entry into mass production of 3 nano and 2 nano processes, demand for the advanced nodes is expected to remain robust, led in particular by AI and HPC applications. In contrast, mature nodes are projected to face intensifying competition due to continued capacity expansion, especially in China. Based on solid demand from AI and HPC applications, we plan to broaden our customer base and target double-digit year-on-year revenue growth centered on advanced nodes along with continued improvement in earnings. In the second half, we will begin mass production of new products based on second-generation 2 nano process and prepare performance and power optimized 4 nano process for mass production. Through this effort, we will continue to stabilize advanced node and strengthen our technological competitiveness. In addition, Taylor fab in the U.S. is under construction as planned, aiming for a timely commencement of operation this year. Finally, to meet the high performance, low power and high bandwidth requirements of advanced nodes, we will continuously strengthen our business competitiveness by delivering optimized solutions that integrate logic, memory and advanced packaging technologies. Thank you. Charles Hur: Good morning, everyone. This is Charles Hur from Samsung Display. I will now brief you on our results for the fourth quarter of 2025. For the Mobile Display business, we achieved a solid result thanks to sales increase of high-end smartphones and our stable supply capability. In addition, IT and automotive performance increased quarter-on-quarter which contributed to earnings growth. For the large display business, revenue increased compared to the previous quarter, supported by market demand during the year end peak season and the improvements in productivity and product mix. Next, let me share the outlook for the first quarter of 2026. For the Mobile Display business, even though overall smartphone demand is likely to be weak due to seasonality and the memory supply and price impacts, we'll increase sales through the timely development and supply to support our major customers' new flagship smartphones. For the large display business, while overall market demand is expected to decrease, QD-OLED is likely to be relatively stable. we'll Actively respond to new product launches and keep expanding sales. Next, I'll share the outlook for 2026. In 2026, price pressure on nonmemory components is expected to intensify due to memory supply and price issues. We'll maintain profitability by expanding high value-added products and retaining our leadership in smartphone market with differentiated technologies. Also, we'll drive revenue growth through mass production of a brand-new 8.6-generation IT OLED line while expanding sales of nonsmartphone products, too. For large display, demand for high-performance products is expected to keep rising in premium TV and monitor market. We'll maintain our premium market leadership by focusing on high brightness products for TV market and continue to expand monitor sales based on QD performance advantages. Thank you. Seong H. Cho: Hi, everyone. This is Seong [ Hyuk ] Cho from the MX Strategy Marketing. Let me share our Q4 results as well as our future outlook. The smartphone market rebounded in Q4, driven by the year-end peak season effect with global demand increasing, particularly for premium products compared to the previous quarter. For the MX business, Q4 saw smartphone shipments of 60 million units, tablet shipments of 6 million units and a smartphone ASP of USD 244. Due to the fading effect of the new model launches and then lower flagship smartphone sales, both revenue and profit declined compared to the prior quarter. However, year-on-year, quarterly smartphone sales increased, resulting in revenue growth. On an annual basis, we achieved steady growth in both unit volume and sales for flagship smartphones. Notably, the strong growth of our foldable series combined with the stable sales performance of the A Series and the ecosystem products enable us to deliver double-digit profitability for the full year. Next, let me share the outlook for Q1. Overall, smartphone demand will decrease quarter-on-quarter due to seasonality trends. In the MX business, we expect to see an increase in smartphone shipments and ASP due to the launch of the new models, while tablet shipments should stay similar sequentially. We plan to drive sales growth focused on flagship models with the launch of the Galaxy S26. We will actively promote agentic AI experiences and enhance competitiveness of our products while strengthening collaboration with partners to continue leading the AI smartphone market. However, as cost pressure of the key components increases across the industry, we'll ensure stable supply through strategic partnership with major suppliers and continue to drive resource efficiencies to minimize profit erosion risks. Next, I'll share our outlook for the 2026. The smartphone market is projected to experience modest revenue growth, while volumes are expected to remain flat. However, given the heightened volatility in industry conditions, including fluctuation in memory supply, market forecast may be subject to further adjustment. For ecosystem products, while tablets are experiencing a slowdown in replacement demand, the notebook PC segment is expected to expand due to growth of the AI PCs and Windows 10 replacement demand. Additionally, the watch and TWS market are projected to grow as interest in health and fitness rises, together with the expansion of the AI features. MX will maintain our strategy focused on expanding flagship sales by delivering AI experiences that provide real benefits in daily life from the customers' perspective, along with the innovations in slimmer form factors and lightweight design. The S26 Series scheduled for release in the first half of 2026 will revolutionize the user experience with user-centric next-generation AI experience and second-generation custom AP and stronger performance, including new camera sensors. Leveraging these strengths, we will innovate the user experience and drive sales expansion. For foldable devices, we plan to strengthen our product lineup and continue form factor innovations, such as TriFold launched in December 2025, to deliver new user experiences in order to expand our customer base. Additionally, we plan to drive growth across all segments, expanding into new regions and channels as well as upselling based on stronger products to solidify our leadership in volume. In ecosystem products, we aim to increase premium product sales with superior products and more advanced and intuitive Galaxy AI features. In particular, we'll continue to enhance health AI experiences in our watches and further expand our TWS lineup in order to create new demand. For XR, we plan to deliver rich, immersive, multimodal AI experiences through diverse form factors such as next-generation AR glasses. 2026 is expected to be a challenging year due to the rising cost pressure across the industry. Nevertheless, we will maintain our focus on expanding flagship sales powered by AI leadership and pursue cost efficiency initiatives across all processes to secure profitability. Thank you. Hun Lee: Hello, everyone. I'm Hun Lee, Head of the Global Sales and Marketing team of Visual Display. I will briefly explain the market situations and share our results in the first quarter of 2025. In the first quarter, TV market demand increased compared to the previous quarter, mainly due to year-end peak seasonality, but it decreased modestly year-on-year because of continuous stagnant global TV markets. We improved the results compared to the previous quarter by expanding volume and sales during the year-end season, which was driven by strong sales of premium Neo QLED and OLED products as well as diversifying the volume-generating lineup of QLED and 75 inches above big TVs to counter competitors' aggressive pricing strategies. Next, I will review the outlook for 2026. As for TV market demand, in the first quarter of this year, it is expected to remain flat versus last year due to slowing down demand after year-end peak season and growing internal and external uncertainties. Nevertheless, demand for high value-added products such as Super Big TVs, QLED and OLED models is expected to show decent growth. In line with this, we will focus on promoting differentiated value of our AI TVs by strengthening communication of Vision AI Companion, which was introduced at CES, while focusing on enhancing sales and securing profitability by launching new models in 2026, including Super Big Micro RGB TV and maximizing marketing buzz. The TV market in 2026 is forecasted to record a modest growth in the first half, thanks to impact of global sports events like Winter Olympics and World Cup. Moreover, QLED, OLED and 75 inches above big TVs will be the key drivers of continuous growth, which will also contribute to increasing our sales portion of premium products. Especially, we will drive sales growth by targeting replacement demand driven by this global sports event and leveraging our 2026 new lineup, including Micro RGB and OLED. At the same time, we will continuously strengthen growth momentum and improve profitability by further expanding advertising service business supported by enhanced OS competitiveness. More specifically, we will improve targeting advertising together with performance-based advertising. This is end of my speech, and thank you for your undivided attention. Daniel Oh: Thank you, everyone. This is Daniel again. So that completes our presentation on the fourth quarter performance of 2025. And now we will move on to the Q&A session, which will be conducted in Korean. Questions regarding company-wide matters will be addressed by our CFO, Soon-Cheol Park, and questions for the other business segments will be answered by relevant business representatives. Please, operator. Operator: [Operator Instructions] The first question will be made by Sung Kyu Kim from Daiwa. S. K. Kim: [Interpreted] Congratulations for your good performance. I have 2 questions. First for Memory, regarding fourth quarter performance, it seems, yes, Memory has achieved very solid performance in the fourth quarter. Could you provide more color on DRAM and NAND bit growth and also the rise in ASP? I would appreciate more details. Second question has to do with MX. Could you also elaborate on your smartphone sales performance for Samsung Electronics overall for full year 2025. Also, as we expect changes to the business environment going forward, could you take us through some key strategic initiatives for 2026? Jaejune Kim: [Interpreted] Yes. Let me take your question regarding fourth quarter performance for Memory. In the fourth quarter, AI-related demand, particularly from hyperscalers, came through even stronger. And with the spread of agentic AI, inference workloads expanded significantly, leading to a significant surge in demand not only for AI servers but for conventional server applications as well. As a result, DRAM demand was strong and robust, driven by HBM and high-density, DDR5, LPDDR5X for server. Meanwhile, in NAND, we saw a rapid rise in demand for SSDs optimized for AI inference workloads, especially for key value data processing. Also as supply conditions worsen for nearline HDDs, we also saw rising replacement demand for QLC SSDs. For mobile and PC applications with the industry continuing to prioritize server shipments, supply constraints have become even tighter, prompting concerns among customers about possible memory shortage, leading to a disruption in their end products, and they are now actively securing supply. With AI server applications driving the overall market, in Q4, we responded proactively to HBM demand while directing supply primarily to the higher margining segment. As a result, bit shipments achieved a new record high consistent with our bit growth guidance from the previous quarter. And driven by higher overall market pricing and our product mix centered toward high value-added server products, DRAM ASP increased by about 40% quarter-on-quarter. For NAND bit growth, well, due to the high base effect from strong bit shipments in the third quarter, low inventory levels and also bit loss from migration of legacy processes to advanced nodes, including the discontinuation of planar NAND products, NAND bit growth inevitably declined quarter-on-quarter. But this was already factored into our bit growth guidance from the previous quarter. That being said, working within the limits of our available capacity, we focus on expanding higher-margining server SSD sales, and the server sales mix as a percentage of total sales increased by about 10 percentage points Q-on-Q, in line with our guidance. For NAND ASP, certain factors made the increase in blended ASP per bit appear somewhat muted, including a higher mix of QLC sales and phaseout of planar NAND. However, driven by a server-focused product mix, overall rise in market pricing, net ASP increased by mid-20% quarter-on-quarter. In conclusion, amid a favorable market environment driven by driven by AI, Memory delivered a record-high quarterly performance in Q4. In 2026, as we address unprecedented AI-driven demand, we intend to continue to deliver results that meet market expectations. Unknown Executive: [Interpreted] The company has consistently maintained strong leadership in smartphone volume. And for the fourth quarter of 2025 as well as for the full year, smartphone shipments increased year-over-year and outperformed the market. Furthermore, at this inflection point driven by AI, what matters most is providing better experiences to consumers and leading the direction of the market. In 2026, amid significant industry changes due to rising component prices, we will leverage our AI technology leadership and stable supply chain to expand sales of new flagship models. In the first quarter, following the successful launch of the S26 Series, we will drive revenue growth through sustained sales of foldables, which are showing strong sales momentum as well as previous [ NFE ] models. In the second half, we plan to launch new foldable products with enhanced competitiveness to pursue further growth. As for the A Series, we will accelerate efforts to discover new business opportunities in growth markets and also create conditions where consumers can purchase our devices more easily and through the broader application of competitive AI features and Knox security solutions, will drive volume expansion. Operator: The next question will be by Mr. Sei Cheol Lee from Citi Securities. Sei Cheol Lee: [Interpreted] Yes. This is Sei Cheol Lee from Citigroup. I'd like to first congratulate you on a record-high quarterly performance. Congratulations. I have some questions about HBM. It seems that we've been hearing quite a lot of good news recently about HBM4 performance from Samsung. Could you provide us an update on the status of your customer qualifications for HBM4 and your development plans for HBM4E, also an update on advanced packaging technology, also your outlook for expected HBM sales for 2026 as well? Unknown Executive: [Interpreted] Yes. Let me comment on our HBM business first. First, for HBM4, with the goal of strengthening the fundamental competitiveness of our technology, we have set our performance target high, above JEDEC standards from the outset of development. And even as major customers have been raising their performance requirements, we supplied sample shipments last year with no redesign required and have now entered the final phase of qualifications. Everything is proceeding smoothly. We are receiving positive customer feedback on the competitive performance of HBM4. Based on this input, we've already commenced production, and HBM4 is now in stable full-scale production as schedule, including HBM4 at 11.7 gigabit products, the highest performance [ bin ] pursuant to customer requirements and shipments will start in February as well. Next for HBM4E, we are planning to start sampling of standard products for customers sometime around the middle part of this year, whereas custom HBM products based on HBM4E core dies will follow in the second half of the year as we plan to roll out first wafer runs using a cross project, horizontal rollout approach to meet customer time lines. Regarding your question on HBM packaging and technology, I am aware that there is a lot of market interest toward our 16-high stacking or HCB, hybrid copper bonding technology. For the HBM3 or HBM4 16-stack product, customer demand is quite limited at this time. And since we'll be doing sampling of HBM4E 12-high product of equivalent density around midyear, we have concluded that it will not be necessary to do mass level commercialization of previous generation HBM3E or HBM4 16-high products. That being said, because we've already secured technology for TC-NCF-based 16-layer HBM packaging at mass production-ready level, even if there are changes to customer requirements, we do not foresee any issues in terms of providing a timely response. For HCB, the next-generation of advanced packaging technology, we have shipped samples based on HBM4 last quarter and have begun technical discussions, and we'll be proceeding with partial commercialization of select products at the HBM4E stage. We will continue to reinforce the competitiveness of our products, focusing on the high-end part of the HBM market where supply shortage is expected for differentiation for HBM4E and custom HBM. Building on the stability of our established 1c nanometer process, we'll continue to maintain our position as a technology leader. Next, regarding our 2026 HBM sales outlook, all production-ready capacity is currently fully booked with customer POs, and we expect 2026 HBM sales to improve substantially, increasing by more than threefold year-on-year. One thing of note is that despite our efforts to ramp up supply, major customer demand for HBM in 2026 still exceeds available supply from us. So for volumes in 2027 and beyond, major customers, are seeking to finalize supply discussions as soon as possible to secure supply. And so in the short term, we'll be focusing on expanding capacity to respond to increased demand for HBM3E while also carrying out proactive investments to secure 1c nano capacity for HBM4 and 4E at the same time and so that we can continue to scale up our HBM supply capabilities amid the surge in AI demand. Operator: The next question will be by Mr. Jay Kwon from JPMorgan. H. Kwon: [Interpreted] I will also ask 2 questions, 1 on memory and then display in this order. It seems, first for memory, AI demand has been growing faster than the pace of capacity expansions by memory suppliers and market supply shortages appear to be worsening. So if you could explain more about your business operations and directions for 2026, including your plans for portfolio mix. For display in 2026, how do you think the rise in memory prices will be impacting displays overall? And what are your expectations for full year performance as well. Jaejune Kim: [Interpreted] So let me take the first question on our 2026 business operations for Memory. Yes. So demand has been rising sharply across AI applications, whereas expansion of supply capacity remain constrained within the memory sector. we expect a significant shortage of supply relative to demand to continue across all product categories, whether it is HBMs, conventional DRAM or NAND with tight undersupply conditions expected for the time being. We've already been receiving requests from large customers, including GPU or ASIC developers and hyperscalers projected to experience a steep rise in demand for multiyear supply contracts. Given these market demand trends driven by AI servers, we believe that for DRAM, the product portfolio will have to be adjusted with a greater focus around HBM and server DDR for AI application. Also, when considering the price increases have varied across the products used in AI server applications, we may need to focus our product mix more on server DDR over HBM in the short term from a profitability perspective. However, to support the long-term health and sustainable growth of AI demand, we intend to maintain flexibility and provide a more balanced product mix between HBMs and server DDRs rather than disproportionately favoring any single product category. Also in the nonserver segment, with profitability in mind, we'll focus supply on high-performance, high-capacity products in each segment to serve the high value-add high-end market. For NAND, similar to DRAM, we continue to see strong demand from AI servers. We expect a particularly sharp rise in demand for TLC-based PCIe Gen 6 SSDs, especially for Key-Value SSD application. So our market strategy will focus on TLC product category, which provides differentiated performance expected to deliver higher margins to solidify our leadership in the server SSD market and steadily grow server SSDs as a share of total NAND revenue. Now due to limited clean room availability, supply growth is expected to be constrained in 2026 and 2027, and we expect supply shortages to continue. From the -- we have been receiving requests from customers for multiyear supply commitments, which we intend to respond to selectively to hedge investment risk while internally leveraging clean room space that we have already secured through preemptive investments to expand supply. Unknown Executive: [Interpreted] Amidst stagnation in the smartphone market and rising competition among panel makers along with other challenging business conditions, we are strengthening our leadership while delivering robust performance. In 2026, due to demand uncertainty in the smartphone market stemming from rising memory prices and increased pricing pressure on panels, we expect the year to be more challenging than any previous year. Thus, we'll significantly boost cost competitiveness through measures such as productivity improvements and we'll continually develop differentiated technologies to reinforce product competitiveness, thereby maintaining a stable revenue. Also, through the mass production at the 8.6-generation IT OLED line slated to commence this year, we expect to lead the expansion of OLED adoption in the IT market and contribute to revenue growth. Despite changes in the external environment, we'll maintain a stable profit structure to further solidify the foundation for continuous revenue growth. Operator: The next question will be by Mr. Sun Woo Kim from Meritz Securities. Sunwoo Kim: [Interpreted] This is Sun Woo Kim from Meritz. I would like to ask about your CapEx for 2026. So like you have said, there is a supply shortage and you're expecting strong AI-related demand to persist in the long term. So then what is the direction for your CapEx investments for memory this year? Unknown Executive: [Interpreted] Yes. So let me cover the Memory CapEx question. Yes, we do expect AI-related demand to continue. And as we explained last quarter, we are planning a meaningful increase in our CapEx versus last year. Up to now, we have been making preemptive investments over time and have secured new fabs and clean room space in advance, and the additional CapEx will go towards supporting utilization of the available space. This can help us build up more supply in the short term, help us build a more competitive position within the industry. Going forward, we will continue the strategy of preemptive investments. In particular, as we position ourselves for a potential long-term rise in AI-driven demand, our basic approach is to continue to invest, make advanced investments in new fab space and clean rooms. As we monitor demand trends, we may determine that capacity expansion is needed at some point, at which we'll be able to probably execute the investment quickly. The increased CapEx amount budgeted for this year, like I said, will go toward preemptively securing new fab space and clean rooms. This will help strengthen our future supply capacity while allowing us to hedge against market volatility risk. In addition, we have also been investing in our next-gen semiconductor R&D complex, NRD-K. NRD-K will be an independent, self-sustaining research complex where foundational technological research and product development can be carried out in one place, offering access to advanced infrastructure. NRD-K Phase 1 opened starting in Q2 of last year, and we'll continue to expand the complex to solidify our development capabilities in advanced processes. Thanks to our efforts over the past year to regain technology leadership, we believe we have largely been able to secure product competitiveness. Now building on this, we're actively expanding our advanced node mix. In the rapidly growing AI application market, securing high-performance, high-density products is critical, and to meet the market demands, advanced processes will become increasingly important for both DRAM and NAND. So in response this year, we'll focus on accelerating the buildup of advanced process capacity, the 1c nanometer process for DRAM and V9 for NAND. Operator: The next question will be made by Mr. Nicolas Gaudois from UBS. Nicolas Gaudois: [Interpreted] So first one is on Foundry. Could you update us on the progresses for 2 nanometer and 1.4 nanometer nodes in particular and whether you expect further major customer wins after the Tesla order last summer? And if so, in which segment will it be between mobile and HPC-AI? Also, could you comment on your process for your memory, foundry, advanced packaging turnkey strategy? And then the second question relates to Consumer Electronics, similar to what you discussed in mobile earlier. This Consumer Electronics and TV business is facing intense competition, top line margin pressure perhaps component going forward by memory shortages limiting potentially of sets -- units. How do you see demand in the year ahead? And what could actually Samsung do to overcome those challenges? Sukchae Kang: [Interpreted] Yes, let me answer your question on Foundry. First, regarding the 2 nano process, second generation, well, development is proceeding smoothly. We've been hitting our yield and performance targets and are on track to start 2 nano mass production in the second half of the year. We're working closely with key customers on PPA assessments and test chip collaboration in parallel for product designs. So technology validation is moving along as planned ahead of mass production. The 1.4 nano process is also under development, where we're hitting major milestones as planned with the goal of starting mass production in 2029. We're planning to distribute the PDK version 1.0 in the second half of next year. And with the release, we plan to initiate customer designs and ramp up early ecosystem development. Based on the progress achieved on our advanced node development, we are now in talks with mobile and HPC customers about product or commercial business collaborations. And since the Tesla award, we have been engaged in active discussions with large-scale customers from the U.S. and China. And most notably, we are expecting this year's 2 nano project awards to increase by 130% year-on-year, driven by HPC and AI applications. We are the only company in the world offering a fully integrated one-stop solution, spanning semiconductor, design, foundry, memory and advanced packaging altogether. We are actively developing and working with partners on the mass production of a range of HBM products, leveraging our one-stop solutions for 3D stacking of base dies built on logic process technology and core dies built on memory process technology. We are in talks with numerous customers seeking our one-stop solution for both product and commercialization opportunities. And so we expect this kind of turnkey business model to deliver tangible results in the mid- to long term. Unknown Executive: [Interpreted] I'll take the question on VD. Amid a challenging environment marked by prolonged stagnation in the TV market and intensifying competition, we will secure new growth drivers through next-gen devices and expand our service business, which is expected to keep growing fast. Based on our premium technological capabilities, we will continue to strengthen differentiated product competitiveness to maintain brand advantages in the premium markets. We plan to introduce new Micro RGB models ranging from 55 to 130 inches to preempt customer demand and establish a new mainstream category. Also through the introduction of a differentiated Vision AI Companion, we plan to expand AI experiences that consumers realize in their daily lives. Furthermore, we will enhance lineup efficiency, strengthen purchasing competitiveness and improve process efficiency using AI to lift overall profitability. Second, we will proactively address the market trend towards service businesses. And the global ad-based free streaming service market, Samsung TV Plus is garnering the most attention and Samsung Art Store has solidified its position in the TV art market. We will further sophisticate these services and strengthen partnerships with diverse content companies to differentiate our offerings and drive revenue growth. Operator: The next question will be by Simon Woo from Bank of America. Simon Woo: [Interpreted] I am Woo Dong-je from Bank of America I have 2 questions. First, when will the company cancel the treasury shares it currently holds? And could you please explain the scale of shareholder return resources generated in 2025? And the second question is that what impact does rising semiconductor costs have on the mobile business. And what are your corresponding strategies? Soon-Cheol Park: [Interpreted] I will take the question on the shareholder return policy. First, with respect to the treasury shares, the Board will decide the cancellation schedule and make a public disclosure in the first quarter of 2026. In addition, with the 2025 results in the books, the company's free cash flow was approximately KRW 36.5 trillion, and 50% of free cash flow, which is the basis for shareholder returns, is around KRW 18.3 trillion. Based on this, the company plans to provide KRW 9.8 trillion in regular dividends for 2025 and KRW 1.3 trillion in additional dividends. In addition, out of the KRW 8.2 trillion worth of shares acquired in 2025, excluding those reserved for employees, KRW 6.6 trillion worth will be canceled to faithfully implement the shareholder return policy. Seong H. Cho: [Interpreted] We'll move on to the MX question, and I will answer this. As memory demand for AI server has expanded, memory supply shortages for mobile devices and sharp price increases started materializing in the fourth quarter of 2025. Therefore, we expect a challenging business environment in 2026. However, since this is an industry-wide issue, our competitors will also face the same environment. Based on a stable component supply through strategic partnerships with key suppliers, we plan to respond proactively and flexibly to changes in the market and competition landscape while promoting resource efficiency activities across the entire process, thus minimizing risks of profit decrease through strategic measures. Operator: The final question will be by Mr. Young Ho Ryu from NH Investment Securities. Young Ho Ryu: [Interpreted] This is a Young Ho Ryu from NH Investment Securities. Congratulations on the good performance. I have a question on System LSI and then on your shareholder return. So for System LSI, I think it was mentioned that the rise in memory prices are placing added cost pressure for device makers in mobile and PC. So what is the impact from System LSI's perspective? And how will you respond? And 2026 is the final year of your 2024 to 2026 shareholder return policy cycle. So I know this is still early on in the new year, but have you been examining the new direction for your next cycle? And can you explain more about the additional dividend payout that was mentioned earlier? Jason Shin: [Interpreted] Yes. Let me answer your question on System LSI. So as you've noted, rising memory chip prices have been weighing on mobile set makers driving up BOM costs. Based on our analysis of the smartphone market, while the mid- to low-tier segments are experiencing significant pressure on costs, in contrast, flagship and premium segments, the device makers are expected to differentiate through on-device AI and camera performance. And as a result, we anticipate sustained demand for high-performance SoCs and sensors to continue. We will leverage our new flagship SoC and 200-megapixel image sensor products to support our customers' differentiation strategies and plan on expanding supply to flagship and premium segments. Soon-Cheol Park: [Interpreted] I'll answer the question on the company-wide matters. First of all, we are faithfully implementing the current 3-year shareholder return policy. And when it comes to a new shareholder policy, management and the Board believe enhancing shareholder value is a top priority and are actively reviewing a new active shareholder return policy based on sustainable growth. We will provide updates when the direction of the new policy is finalized. The regular dividend is KRW 371 per common share and KRW 371 per preferred share, and the additional dividend is KRW 196 per share for both common and preferred shares. In order to increase dividends and vitalize the capital markets, the government introduced a separate taxation scheme for dividend income from high dividend companies. To meet the requirements, our company must maintain a dividend payout ratio of at least 25% and increase its total dividend amount by at least 10% compared to the previous year. The company decided to join the government initiative aimed at promoting cash dividends and stimulating both the domestic stock market and real economy while meeting market expectations and offering potential tax benefits for shareholders and accordingly, resolve to pay additional dividends. Unknown Executive: [Interpreted] Thank you for the answer. I'd like to thank everybody who shared their valuable opinion. That completes our conference call for this quarter. We wish all of you and those close to you stay strong and in good health. We thank everyone for your participation today. Thank you. [Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]
Operator: Hello, everyone, and welcome to the Samsung Electronics 2025 Fourth Quarter Financial Results Conference Call. I will be your coordinator. [Operator Instructions] As a reminder, this call is being recorded. I would now like to turn the conference over to the Investor Relations team. Please go ahead. Daniel Oh: Good morning, everyone. Thank you for joining us this morning in Seoul time. I'm Daniel Oh, Head of Investor Relations at Samsung Electronics. I'm grateful to have you with us today for our earnings call for the fourth quarter of 2025. Before we proceed, allow me to address several key administrative and legal points. For your convenience, today's webcast and slide deck are accessible via our IR website at www.samsung.com/global/ir. I would like to note that this call is being recorded, and it will remain available on our website for future reference. We appreciate your engagement and focus as we move through the results as today's session aims to deliver comprehensive insights into our financial performance and outlook. Please be aware that today's discussion may contain forward-looking statements reflecting our present, expectations of our future developments. Such statements should not be viewed as guarantees of future outcomes. Actual results may vary significantly from these projections due to numerous factors including, but not limited to, market dynamics, regulatory changes and operational environment. We respectfully seek your understanding of these important considerations as we seek to uphold transparency and accuracy. I will begin the discussion today with the highlights of our fourth quarter financial performance, followed by EVP Soon-Cheol Park, our Head of Corporate Management operations and Chief Financial Officer, with details on our business outlook and shareholder returns. I will then share a brief update on capital expenditures and sustainability initiatives. At that point, our executives will provide in-depth comments on their respective business areas. Following their presentations, we open the call to analyst questions. This call is expected to last about 1 hour, and we appreciate your time and attention throughout. Several key executives have joined us on today's call. In addition to myself and our CFO, we have with us EVP Jaejune Kim, representing Memory; joining the call for the first time, EVP Jason Shin for System LSI; For Foundry, EVP, Sukchae Kang; and returning the call, EVP Charles Hur for Samsung Display Corporation; also both joining the call for the first time, EVP Seong [ Hyuk ] Cho for Mobile eXperience; and EVP Hun Lee for Visual Display. Now let's begin with our consolidated financial performance for the fourth quarter of 2025. We delivered our highest quarterly revenue ever at KRW 93.8 trillion, up by 9% quarter-on-quarter. In the DX division, revenue declined 8% sequentially due to the fading impact of new smartphone launches and softness in home appliances in the wake of U.S. tariffs. On the other hand, the DS division showed strength with a sales increase of 33% quarter-on-quarter, driven by expanded sales of HBM and other high value-added products, thanks to stronger market prices. And Memory recorded another new all-time high for quarterly revenue, surpassing the level set 1 quarter ago. SG&A expenses were KRW 24.2 trillion, up by KRW 2.9 trillion quarter-on-quarter. And SG&A as a percentage of sales was up by 1 percentage point sequentially to 25.8%. R&D investments totaled KRW 10.9 trillion, up by KRW 2 trillion quarter-on-quarter and set a full year record of KRW 37.7 trillion, a testament to our commitment to investing for the future. Operating profit also set a new quarterly high of KRW 20.1 trillion, up KRW 7.9 trillion from the previous quarter. Operating margin also increased, rising 7.3 percentage points sequentially to 21.4%. While operating profit in the DX division declined due to the slowdown in the MX and home appliance businesses, the DS division more than compensated with its significantly stronger quarter-on-quarter performance driven by robust improvements in Memory profitability. Currency movements also worked in our favor. The sharp appreciation of the U.S. dollar and other currency had positive effect of adding approximately KRW 1.6 trillion to company-wide operating profit centered on the component businesses. More detailed fourth quarter results of each business will be presented by executives shortly. Before that, I would like to pass the conference call over to our CFO, Soon-Cheol Park, who will discuss our outlook and shareholder return. Soon-Cheol Park: Thank you, Daniel, and good morning, everyone. I am Soon-Cheol Park, CFO of Samsung Electronics. I am pleased to continue our update. We entered 2025 under difficult conditions, both at home and abroad, and the first half of the year post many challenges. Yet, thanks to the trust and support of our shareholders, the second half unfolded as we promised and marked the clear turnaround for the company. We achieved the highest annual revenue in our history. Profit in the fourth quarter also set an all-time high, and our stock price increased sharply. I am deeply grateful to our shareholders for standing with us through the challenges and this turnaround. The DS division introduced globally competitive products, including HBM4 and GDDR7, and some customers summed up our achievement with the idea, Samsung is back, sending a clear signal of the strength behind our differentiated performance. The Foundry business is primed for a major leap forward supported by its technology and the trust it has earned through recent deals with leading global clients. The DX division added to our technology leadership with TriFold smartphone and Micro RGB TVs while delivering distinct customer experiences powered by advanced AI technology across the Galaxy ecosystem. We also secured new growth drivers through strategic acquisitions, including FläktGroup in HVAC, ZF in ADAS, Xealth in digital health care and Masimo's audio business. Looking ahead to 2026, we expect several risks to persist, including continued global trade barriers and geopolitical uncertainties. To address this, we remain proactive and stay ahead of external shifts. The DS division will continually secure leadership in the AI semiconductor market by drawing on our unique position as the one semiconductor company in the world capable to delivering a true one-stop solution including logic, memory, foundry and advanced packaging. In Memory, we'll regain our core technology leadership; and in Foundry, we'll turn our expanded order opportunities secured through advanced process maturity into tangible results. For System LSI, we aim to transform the business by reinforcing our core strengths. We also drive innovation by applying AI solutions optimized for semiconductors and capture new opportunities with enhanced customer-centric products. The DX division will expand AI-driven products and constantly integrated our AI technologies across all of the DX division's device features and service ecosystem while providing the best AI experience to our customers. Through this, we aim to become the leader in the era of AI transformation. To maintain our competitive advantage, we'll secure our position by leveraging our distinctive products, diversifying our supply chain and optimizing global operations to address the issues such as compound costs and global tariff risks. Furthermore, we will continue to invest in future growth engines including HVAC, automotive electronics, medical technology and robotics to secure technology leadership in the years ahead. Company-wide, we'll strengthen our processes and improve cost efficiency by promoting AI-driven innovation and adopting digital twin technologies. Also, we'll strive to make this a year in which we deliver tangible progress in our humanoid robotics business as part of our preparations for the future. Next, our outlook for the first quarter of 2026. In semiconductor industry, we expect structural growth opportunities to increase driven by AI and server demand. In response, we will maintain our focus on profitability while monitoring macro uncertainties, including tariff impacts. For the DS division, in Memory, we believe market conditions will remain favorable, driven by AI demand and the industry-wide supply constraints. And we expect to sustain our strong performance by focusing sales on server DRAM, eSSD and other high value-added products supported by our technology leadership. In Foundry, although results may decline somewhat due to seasonal effects, we will preserve our growth momentum by advancing process maturity and securing new orders from major customers. In System LSI, while there are concerns regarding customers' cost burdens, we'll seek to maximize sales of new and high value-added products. For the DX division, the MS business will reinforce its leadership in the AI smartphone market by delivering AI experiences that enhance everyday life supported by the launch of new models. While headwind from rising component costs are expected to persist across the industry, we aim to secure profitability through improved supply stability and resource efficiency initiatives. In the VD and home appliance businesses, amid continued challenges such as intensified competition and tariffs, we expanded our presence in the high value-added product market by delivering high personalized customer experiences powered by enhanced AI technology. Moving on to the shareholder returns. The Board of Directors today approved a year-end per share dividend of KRW 566 for common stock and KRW 567 for preferred stock. On our shareholder return policy for 2024 to 2026, we committed to regular quarterly dividends of KRW 2.45 trillion from annual payout of KRW 9.8 trillion. Last year, the government introduced the separated taxation scheme for dividend income from high-dividend companies aiming to increase dividends and vitalize the capital market. To meet the requirement for 2025, the Board resolved to declare an additional dividend of KRW 1.3 trillion. The fourth quarter distribution is scheduled for payment in April following final approval at the AGM in March. Thank you. Daniel Oh: Thank you, CFO. This is Daniel again. Now I'll provide a brief update on capital expenditures. In the fourth quarter of 2025, CapEx rose by KRW 11.2 trillion from the previous quarter to KRW 20.4 trillion, with KRW 19 trillion allocated to the DS division and KRW 0.7 trillion to the display business. For the full year, total CapEx was KRW 52.7 trillion, down KRW 1 trillion from a year earlier. Of the total, the DS division accounted for KRW 47.5 trillion, while the display business represented KRW 2.8 trillion. In the Memory business, investments increased both quarter-on-quarter and year-on-year as we transition to advanced process to expand sales of high value-added products such as HBM. In the Foundry business, CapEx was up from the previous quarter driven by increased investments in the U.S. Taylor fab. For the full year, CapEx declined as we maintain our conservative investment approach overall. In Display business, CapEx decreased both in the fourth quarter and on a full year basis following the completion of 8.6 generation line. For 2026, although detailed investment plans are still being finalized, we expect Memory CapEx to increase considering the market outlook. Now I would like to highlight our sustainability performance. We are proud to be the first in the industry to develop and deploy a helium reuse system for semiconductor manufacturing. Helium is essential to the manufacturing process, and this system, which has been applied to selected production lines, enables us to recover and purify helium for redeployment, cutting annual consumption by approximately 4.7 tons and achieving a reuse rate of around 19%. This initiative not only helps stabilize the procurements of helium, which has a high import dependency, but also enhances our resource circularity in our semiconductor manufacturing process. In addition, to verify the energy-saving impacts of the SmartThings AI Energy saving mode, we partnered with Carbon Trust, a global carbon footprint verification organization, to conduct a yearlong measurement of actual energy savings -- sorry, actual energy consumption across approximately 187,000 high-efficiency washing machines in 126 countries. The results confirmed energy savings of around 5.02 gigawatt hours, equivalent to around 30% of the total energy consumption. To put that in perspective, this is enough electricity to power 14,000 households in Seoul during the hot summer season. We remain committed to strengthening our sustainability practices and delivering measurable impacts. Now let's hear from the executives for detailed commentary on their respective business unit's fourth quarter performance and outlook. First up is Jaejune Kim, EVP of the Memory business. Jaejune Kim: Good morning. This is Jaejune Kim from Memory Global Sales and Marketing. In the memory market, in the fourth quarter, demand for servers increased continuously and significantly exceeded industry supply, driven by hyperscalers' expanded CapEx in the race to establish early dominance in the AI market. In addition, for mobile and PC, the supply-demand situation remained tight as the industry supply response focused on server combined with seasonal demand effects. Under the low inventory levels and supply constraints, we expanded HBM sales and concentrated on improving profitability by addressing the demand for high value-added products for servers such as high-density DDR5, LPDDR5X and server SSDs. As result, in the fourth quarter, our sales for both DRAM and NAND matched the initial bit growth guidance. And combined with the overall market price increases, our Q-o-Q performance improved by more than it did in the previous quarter. Now let's move on to the outlook for the first quarter. In the first quarter, we expect the market will remain robust following the previous quarter as AI applications continue to drive the overall market. Thus, we plan to keep our product mix focused on high value-added products for AI. However, considering the significantly low inventory levels, we expect that Q-o-Q DRAM bit shipment growth will be limited to the low single digit. For NAND, we expect the shipment to increase by mid-single-digit percentages due to the base effect from the low bit shipment in the last quarter. Lastly, let me talk about the outlook for 2026. We anticipate that the demand for AI applications will remain strong this year. In particular, the high-performance HBM4 market should dramatically rise and the high-density trends for server DRAM is likely to keep expanding. For NAND, we expect demand growth for high-performance test products to accelerate with the introduction of PCI Gen 6 SSD, which is Key-Value SSD for AI inference. However, in the case of mobile and PC applications, we need to monitor potential decline in such shipments resulting from increased end product prices and reduced content per box driven by BOM cost pressure from rising memory market price. In an environment of rapidly growing our demand focus on AI, we aim to lead the AI era with our product competitiveness in 2026. For DRAM, targeting on GPU and ASIC that will be newly introduced in the AI market, we will proactively address customer demand by expanding supply of our HBM4 with competitive performance in a timely manner. In the meantime, we play -- we plan to continue increasing the portion of AI-related products such as high-density DDR5, SOCAMM 2, GDDR7 and so on. For NAND, we plan to focus on our demand expansion for high-density TLC-based Gen 5 SSDs in conjunction with the strong demand for Key-Value SSD for AI. In addition, while PCI Gen 6 server market is projected to rapidly expand in the second half, with the introduction of new GPU platforms, we will lead the market from the initial stage with our V9-based high-performance products. Thank you. Jason Shin: This is Jason Shin from the System LSI business. In the fourth quarter, the smartphone market continued a gradual recovery despite ongoing U.S.-China trade uncertainties and persistent regional geopolitical tensions. While demand in the premium segment remained resilient, shipment volume in the mid- to low-end segment declined, resulting in a different pace of recovery across segments. Our earnings declined quarter-over-quarter due to seasonal demand fluctuation among major customers and adjustments to new product launch schedules. However, image sensor revenue grew on the back of expanding sales of the 200 megapixels and 50-megapixel products launched in the second half of last year. In particular, we strengthened our technology leadership through the industry's first 200-megapixel image sensors, featuring 0.5 micrometer pixels. In the first quarter, external uncertainties are expected to persist while rising prices of key components are increasing cost burden for smartphone OEMs. As a result, shipments are likely to slow, particularly in the mid- to low-end segment. However, demand for high-value components is expected to remain relatively solid, supported by the launch of new premium smartphones. We plan to focus on improving earnings by ramping up supply of new SoC products and expanding our lineup of 200-megapixel image sensors while further strengthening our portfolio of high-value products. Looking ahead to 2026. Overall smartphone demand is expected to soften, while growth opportunities should continue to be concentrated in the premium segment. With the expansion of on-device AI, performance enhancements and differentiated user experience are becoming key competitive factors across devices, and demand for related semiconductors is expected to continue to increase. In SoC, we will focus on improving earnings by expanding sales based on differentiated performance and stable yields while also exploring new opportunities in the custom SoC business. In image sensors, we will continue to strengthen our competitiveness in fine pixel technology and sustain our leadership through Nanoprism technology, which enhances light sensitivity. Thank you. Sukchae Kang: Hello, everyone. This is Sukchae Kang from the Foundry business. In the fourth quarter, strong demand from AI and HPC applications continue to drive growth in advanced nodes. Meanwhile, virtual nodes sustained growth supported by demand stemming from China's localization strategy, even as non-AI and consumer segments remained stagnant and price competition intensified. We began ramping up mass production of our first generation 2 nano products and initiated shipments of 4 nano HBM-based die products. Revenue increased quarter-on-quarter, driven mainly by strong demand from U.S. and Chinese customers. However, earnings improvement was limited due to the recognition of provisions. For the 2 nano GAA process, we focused on process stabilization while developing next-generation processes on schedule. In packaging, we continue to strengthen our advanced packaging competitiveness by establishing 3D hybrid copper bonding technology for advanced nodes. Looking ahead to the first quarter. Seasonal demand softening is expected. However, the overall market is projected to continue growing, supported by price increases in advanced nodes. We expect our revenue to decline quarter-on-quarter due to seasonally weaker customer demand. For 2 nano, we expect our first generation mass production to further stabilize, and we are working to secure manufacturability and develop design infrastructure for the second generation process, targeting its mass production in the second half of the year. In addition, we are focusing on expanding specialty processes, including 4 nano RF, 8 nano eMRAM for automotive applications and 14 nano RF millimeter to enhance our technological competitiveness. On the other front, we will continue to expand orders, focusing on HPC and mobile customers. For 2026, as policy support for the global semiconductor industry continues to expand, we expect ongoing supply chain restructuring driven by increased domestic production and persistent geopolitical risks. With the full-scale entry into mass production of 3 nano and 2 nano processes, demand for the advanced nodes is expected to remain robust, led in particular by AI and HPC applications. In contrast, mature nodes are projected to face intensifying competition due to continued capacity expansion, especially in China. Based on solid demand from AI and HPC applications, we plan to broaden our customer base and target double-digit year-on-year revenue growth centered on advanced nodes along with continued improvement in earnings. In the second half, we will begin mass production of new products based on second-generation 2 nano process and prepare performance and power optimized 4 nano process for mass production. Through this effort, we will continue to stabilize advanced node and strengthen our technological competitiveness. In addition, Taylor fab in the U.S. is under construction as planned, aiming for a timely commencement of operation this year. Finally, to meet the high performance, low power and high bandwidth requirements of advanced nodes, we will continuously strengthen our business competitiveness by delivering optimized solutions that integrate logic, memory and advanced packaging technologies. Thank you. Charles Hur: Good morning, everyone. This is Charles Hur from Samsung Display. I will now brief you on our results for the fourth quarter of 2025. For the Mobile Display business, we achieved a solid result thanks to sales increase of high-end smartphones and our stable supply capability. In addition, IT and automotive performance increased quarter-on-quarter which contributed to earnings growth. For the large display business, revenue increased compared to the previous quarter, supported by market demand during the year end peak season and the improvements in productivity and product mix. Next, let me share the outlook for the first quarter of 2026. For the Mobile Display business, even though overall smartphone demand is likely to be weak due to seasonality and the memory supply and price impacts, we'll increase sales through the timely development and supply to support our major customers' new flagship smartphones. For the large display business, while overall market demand is expected to decrease, QD-OLED is likely to be relatively stable. we'll Actively respond to new product launches and keep expanding sales. Next, I'll share the outlook for 2026. In 2026, price pressure on nonmemory components is expected to intensify due to memory supply and price issues. We'll maintain profitability by expanding high value-added products and retaining our leadership in smartphone market with differentiated technologies. Also, we'll drive revenue growth through mass production of a brand-new 8.6-generation IT OLED line while expanding sales of nonsmartphone products, too. For large display, demand for high-performance products is expected to keep rising in premium TV and monitor market. We'll maintain our premium market leadership by focusing on high brightness products for TV market and continue to expand monitor sales based on QD performance advantages. Thank you. Seong H. Cho: Hi, everyone. This is Seong [ Hyuk ] Cho from the MX Strategy Marketing. Let me share our Q4 results as well as our future outlook. The smartphone market rebounded in Q4, driven by the year-end peak season effect with global demand increasing, particularly for premium products compared to the previous quarter. For the MX business, Q4 saw smartphone shipments of 60 million units, tablet shipments of 6 million units and a smartphone ASP of USD 244. Due to the fading effect of the new model launches and then lower flagship smartphone sales, both revenue and profit declined compared to the prior quarter. However, year-on-year, quarterly smartphone sales increased, resulting in revenue growth. On an annual basis, we achieved steady growth in both unit volume and sales for flagship smartphones. Notably, the strong growth of our foldable series combined with the stable sales performance of the A Series and the ecosystem products enable us to deliver double-digit profitability for the full year. Next, let me share the outlook for Q1. Overall, smartphone demand will decrease quarter-on-quarter due to seasonality trends. In the MX business, we expect to see an increase in smartphone shipments and ASP due to the launch of the new models, while tablet shipments should stay similar sequentially. We plan to drive sales growth focused on flagship models with the launch of the Galaxy S26. We will actively promote agentic AI experiences and enhance competitiveness of our products while strengthening collaboration with partners to continue leading the AI smartphone market. However, as cost pressure of the key components increases across the industry, we'll ensure stable supply through strategic partnership with major suppliers and continue to drive resource efficiencies to minimize profit erosion risks. Next, I'll share our outlook for the 2026. The smartphone market is projected to experience modest revenue growth, while volumes are expected to remain flat. However, given the heightened volatility in industry conditions, including fluctuation in memory supply, market forecast may be subject to further adjustment. For ecosystem products, while tablets are experiencing a slowdown in replacement demand, the notebook PC segment is expected to expand due to growth of the AI PCs and Windows 10 replacement demand. Additionally, the watch and TWS market are projected to grow as interest in health and fitness rises, together with the expansion of the AI features. MX will maintain our strategy focused on expanding flagship sales by delivering AI experiences that provide real benefits in daily life from the customers' perspective, along with the innovations in slimmer form factors and lightweight design. The S26 Series scheduled for release in the first half of 2026 will revolutionize the user experience with user-centric next-generation AI experience and second-generation custom AP and stronger performance, including new camera sensors. Leveraging these strengths, we will innovate the user experience and drive sales expansion. For foldable devices, we plan to strengthen our product lineup and continue form factor innovations, such as TriFold launched in December 2025, to deliver new user experiences in order to expand our customer base. Additionally, we plan to drive growth across all segments, expanding into new regions and channels as well as upselling based on stronger products to solidify our leadership in volume. In ecosystem products, we aim to increase premium product sales with superior products and more advanced and intuitive Galaxy AI features. In particular, we'll continue to enhance health AI experiences in our watches and further expand our TWS lineup in order to create new demand. For XR, we plan to deliver rich, immersive, multimodal AI experiences through diverse form factors such as next-generation AR glasses. 2026 is expected to be a challenging year due to the rising cost pressure across the industry. Nevertheless, we will maintain our focus on expanding flagship sales powered by AI leadership and pursue cost efficiency initiatives across all processes to secure profitability. Thank you. Hun Lee: Hello, everyone. I'm Hun Lee, Head of the Global Sales and Marketing team of Visual Display. I will briefly explain the market situations and share our results in the first quarter of 2025. In the first quarter, TV market demand increased compared to the previous quarter, mainly due to year-end peak seasonality, but it decreased modestly year-on-year because of continuous stagnant global TV markets. We improved the results compared to the previous quarter by expanding volume and sales during the year-end season, which was driven by strong sales of premium Neo QLED and OLED products as well as diversifying the volume-generating lineup of QLED and 75 inches above big TVs to counter competitors' aggressive pricing strategies. Next, I will review the outlook for 2026. As for TV market demand, in the first quarter of this year, it is expected to remain flat versus last year due to slowing down demand after year-end peak season and growing internal and external uncertainties. Nevertheless, demand for high value-added products such as Super Big TVs, QLED and OLED models is expected to show decent growth. In line with this, we will focus on promoting differentiated value of our AI TVs by strengthening communication of Vision AI Companion, which was introduced at CES, while focusing on enhancing sales and securing profitability by launching new models in 2026, including Super Big Micro RGB TV and maximizing marketing buzz. The TV market in 2026 is forecasted to record a modest growth in the first half, thanks to impact of global sports events like Winter Olympics and World Cup. Moreover, QLED, OLED and 75 inches above big TVs will be the key drivers of continuous growth, which will also contribute to increasing our sales portion of premium products. Especially, we will drive sales growth by targeting replacement demand driven by this global sports event and leveraging our 2026 new lineup, including Micro RGB and OLED. At the same time, we will continuously strengthen growth momentum and improve profitability by further expanding advertising service business supported by enhanced OS competitiveness. More specifically, we will improve targeting advertising together with performance-based advertising. This is end of my speech, and thank you for your undivided attention. Daniel Oh: Thank you, everyone. This is Daniel again. So that completes our presentation on the fourth quarter performance of 2025. And now we will move on to the Q&A session, which will be conducted in Korean. Questions regarding company-wide matters will be addressed by our CFO, Soon-Cheol Park, and questions for the other business segments will be answered by relevant business representatives. Please, operator. Operator: [Operator Instructions] The first question will be made by Sung Kyu Kim from Daiwa. S. K. Kim: [Interpreted] Congratulations for your good performance. I have 2 questions. First for Memory, regarding fourth quarter performance, it seems, yes, Memory has achieved very solid performance in the fourth quarter. Could you provide more color on DRAM and NAND bit growth and also the rise in ASP? I would appreciate more details. Second question has to do with MX. Could you also elaborate on your smartphone sales performance for Samsung Electronics overall for full year 2025. Also, as we expect changes to the business environment going forward, could you take us through some key strategic initiatives for 2026? Jaejune Kim: [Interpreted] Yes. Let me take your question regarding fourth quarter performance for Memory. In the fourth quarter, AI-related demand, particularly from hyperscalers, came through even stronger. And with the spread of agentic AI, inference workloads expanded significantly, leading to a significant surge in demand not only for AI servers but for conventional server applications as well. As a result, DRAM demand was strong and robust, driven by HBM and high-density, DDR5, LPDDR5X for server. Meanwhile, in NAND, we saw a rapid rise in demand for SSDs optimized for AI inference workloads, especially for key value data processing. Also as supply conditions worsen for nearline HDDs, we also saw rising replacement demand for QLC SSDs. For mobile and PC applications with the industry continuing to prioritize server shipments, supply constraints have become even tighter, prompting concerns among customers about possible memory shortage, leading to a disruption in their end products, and they are now actively securing supply. With AI server applications driving the overall market, in Q4, we responded proactively to HBM demand while directing supply primarily to the higher margining segment. As a result, bit shipments achieved a new record high consistent with our bit growth guidance from the previous quarter. And driven by higher overall market pricing and our product mix centered toward high value-added server products, DRAM ASP increased by about 40% quarter-on-quarter. For NAND bit growth, well, due to the high base effect from strong bit shipments in the third quarter, low inventory levels and also bit loss from migration of legacy processes to advanced nodes, including the discontinuation of planar NAND products, NAND bit growth inevitably declined quarter-on-quarter. But this was already factored into our bit growth guidance from the previous quarter. That being said, working within the limits of our available capacity, we focus on expanding higher-margining server SSD sales, and the server sales mix as a percentage of total sales increased by about 10 percentage points Q-on-Q, in line with our guidance. For NAND ASP, certain factors made the increase in blended ASP per bit appear somewhat muted, including a higher mix of QLC sales and phaseout of planar NAND. However, driven by a server-focused product mix, overall rise in market pricing, net ASP increased by mid-20% quarter-on-quarter. In conclusion, amid a favorable market environment driven by driven by AI, Memory delivered a record-high quarterly performance in Q4. In 2026, as we address unprecedented AI-driven demand, we intend to continue to deliver results that meet market expectations. Unknown Executive: [Interpreted] The company has consistently maintained strong leadership in smartphone volume. And for the fourth quarter of 2025 as well as for the full year, smartphone shipments increased year-over-year and outperformed the market. Furthermore, at this inflection point driven by AI, what matters most is providing better experiences to consumers and leading the direction of the market. In 2026, amid significant industry changes due to rising component prices, we will leverage our AI technology leadership and stable supply chain to expand sales of new flagship models. In the first quarter, following the successful launch of the S26 Series, we will drive revenue growth through sustained sales of foldables, which are showing strong sales momentum as well as previous [ NFE ] models. In the second half, we plan to launch new foldable products with enhanced competitiveness to pursue further growth. As for the A Series, we will accelerate efforts to discover new business opportunities in growth markets and also create conditions where consumers can purchase our devices more easily and through the broader application of competitive AI features and Knox security solutions, will drive volume expansion. Operator: The next question will be by Mr. Sei Cheol Lee from Citi Securities. Sei Cheol Lee: [Interpreted] Yes. This is Sei Cheol Lee from Citigroup. I'd like to first congratulate you on a record-high quarterly performance. Congratulations. I have some questions about HBM. It seems that we've been hearing quite a lot of good news recently about HBM4 performance from Samsung. Could you provide us an update on the status of your customer qualifications for HBM4 and your development plans for HBM4E, also an update on advanced packaging technology, also your outlook for expected HBM sales for 2026 as well? Unknown Executive: [Interpreted] Yes. Let me comment on our HBM business first. First, for HBM4, with the goal of strengthening the fundamental competitiveness of our technology, we have set our performance target high, above JEDEC standards from the outset of development. And even as major customers have been raising their performance requirements, we supplied sample shipments last year with no redesign required and have now entered the final phase of qualifications. Everything is proceeding smoothly. We are receiving positive customer feedback on the competitive performance of HBM4. Based on this input, we've already commenced production, and HBM4 is now in stable full-scale production as schedule, including HBM4 at 11.7 gigabit products, the highest performance [ bin ] pursuant to customer requirements and shipments will start in February as well. Next for HBM4E, we are planning to start sampling of standard products for customers sometime around the middle part of this year, whereas custom HBM products based on HBM4E core dies will follow in the second half of the year as we plan to roll out first wafer runs using a cross project, horizontal rollout approach to meet customer time lines. Regarding your question on HBM packaging and technology, I am aware that there is a lot of market interest toward our 16-high stacking or HCB, hybrid copper bonding technology. For the HBM3 or HBM4 16-stack product, customer demand is quite limited at this time. And since we'll be doing sampling of HBM4E 12-high product of equivalent density around midyear, we have concluded that it will not be necessary to do mass level commercialization of previous generation HBM3E or HBM4 16-high products. That being said, because we've already secured technology for TC-NCF-based 16-layer HBM packaging at mass production-ready level, even if there are changes to customer requirements, we do not foresee any issues in terms of providing a timely response. For HCB, the next-generation of advanced packaging technology, we have shipped samples based on HBM4 last quarter and have begun technical discussions, and we'll be proceeding with partial commercialization of select products at the HBM4E stage. We will continue to reinforce the competitiveness of our products, focusing on the high-end part of the HBM market where supply shortage is expected for differentiation for HBM4E and custom HBM. Building on the stability of our established 1c nanometer process, we'll continue to maintain our position as a technology leader. Next, regarding our 2026 HBM sales outlook, all production-ready capacity is currently fully booked with customer POs, and we expect 2026 HBM sales to improve substantially, increasing by more than threefold year-on-year. One thing of note is that despite our efforts to ramp up supply, major customer demand for HBM in 2026 still exceeds available supply from us. So for volumes in 2027 and beyond, major customers, are seeking to finalize supply discussions as soon as possible to secure supply. And so in the short term, we'll be focusing on expanding capacity to respond to increased demand for HBM3E while also carrying out proactive investments to secure 1c nano capacity for HBM4 and 4E at the same time and so that we can continue to scale up our HBM supply capabilities amid the surge in AI demand. Operator: The next question will be by Mr. Jay Kwon from JPMorgan. H. Kwon: [Interpreted] I will also ask 2 questions, 1 on memory and then display in this order. It seems, first for memory, AI demand has been growing faster than the pace of capacity expansions by memory suppliers and market supply shortages appear to be worsening. So if you could explain more about your business operations and directions for 2026, including your plans for portfolio mix. For display in 2026, how do you think the rise in memory prices will be impacting displays overall? And what are your expectations for full year performance as well. Jaejune Kim: [Interpreted] So let me take the first question on our 2026 business operations for Memory. Yes. So demand has been rising sharply across AI applications, whereas expansion of supply capacity remain constrained within the memory sector. we expect a significant shortage of supply relative to demand to continue across all product categories, whether it is HBMs, conventional DRAM or NAND with tight undersupply conditions expected for the time being. We've already been receiving requests from large customers, including GPU or ASIC developers and hyperscalers projected to experience a steep rise in demand for multiyear supply contracts. Given these market demand trends driven by AI servers, we believe that for DRAM, the product portfolio will have to be adjusted with a greater focus around HBM and server DDR for AI application. Also, when considering the price increases have varied across the products used in AI server applications, we may need to focus our product mix more on server DDR over HBM in the short term from a profitability perspective. However, to support the long-term health and sustainable growth of AI demand, we intend to maintain flexibility and provide a more balanced product mix between HBMs and server DDRs rather than disproportionately favoring any single product category. Also in the nonserver segment, with profitability in mind, we'll focus supply on high-performance, high-capacity products in each segment to serve the high value-add high-end market. For NAND, similar to DRAM, we continue to see strong demand from AI servers. We expect a particularly sharp rise in demand for TLC-based PCIe Gen 6 SSDs, especially for Key-Value SSD application. So our market strategy will focus on TLC product category, which provides differentiated performance expected to deliver higher margins to solidify our leadership in the server SSD market and steadily grow server SSDs as a share of total NAND revenue. Now due to limited clean room availability, supply growth is expected to be constrained in 2026 and 2027, and we expect supply shortages to continue. From the -- we have been receiving requests from customers for multiyear supply commitments, which we intend to respond to selectively to hedge investment risk while internally leveraging clean room space that we have already secured through preemptive investments to expand supply. Unknown Executive: [Interpreted] Amidst stagnation in the smartphone market and rising competition among panel makers along with other challenging business conditions, we are strengthening our leadership while delivering robust performance. In 2026, due to demand uncertainty in the smartphone market stemming from rising memory prices and increased pricing pressure on panels, we expect the year to be more challenging than any previous year. Thus, we'll significantly boost cost competitiveness through measures such as productivity improvements and we'll continually develop differentiated technologies to reinforce product competitiveness, thereby maintaining a stable revenue. Also, through the mass production at the 8.6-generation IT OLED line slated to commence this year, we expect to lead the expansion of OLED adoption in the IT market and contribute to revenue growth. Despite changes in the external environment, we'll maintain a stable profit structure to further solidify the foundation for continuous revenue growth. Operator: The next question will be by Mr. Sun Woo Kim from Meritz Securities. Sunwoo Kim: [Interpreted] This is Sun Woo Kim from Meritz. I would like to ask about your CapEx for 2026. So like you have said, there is a supply shortage and you're expecting strong AI-related demand to persist in the long term. So then what is the direction for your CapEx investments for memory this year? Unknown Executive: [Interpreted] Yes. So let me cover the Memory CapEx question. Yes, we do expect AI-related demand to continue. And as we explained last quarter, we are planning a meaningful increase in our CapEx versus last year. Up to now, we have been making preemptive investments over time and have secured new fabs and clean room space in advance, and the additional CapEx will go towards supporting utilization of the available space. This can help us build up more supply in the short term, help us build a more competitive position within the industry. Going forward, we will continue the strategy of preemptive investments. In particular, as we position ourselves for a potential long-term rise in AI-driven demand, our basic approach is to continue to invest, make advanced investments in new fab space and clean rooms. As we monitor demand trends, we may determine that capacity expansion is needed at some point, at which we'll be able to probably execute the investment quickly. The increased CapEx amount budgeted for this year, like I said, will go toward preemptively securing new fab space and clean rooms. This will help strengthen our future supply capacity while allowing us to hedge against market volatility risk. In addition, we have also been investing in our next-gen semiconductor R&D complex, NRD-K. NRD-K will be an independent, self-sustaining research complex where foundational technological research and product development can be carried out in one place, offering access to advanced infrastructure. NRD-K Phase 1 opened starting in Q2 of last year, and we'll continue to expand the complex to solidify our development capabilities in advanced processes. Thanks to our efforts over the past year to regain technology leadership, we believe we have largely been able to secure product competitiveness. Now building on this, we're actively expanding our advanced node mix. In the rapidly growing AI application market, securing high-performance, high-density products is critical, and to meet the market demands, advanced processes will become increasingly important for both DRAM and NAND. So in response this year, we'll focus on accelerating the buildup of advanced process capacity, the 1c nanometer process for DRAM and V9 for NAND. Operator: The next question will be made by Mr. Nicolas Gaudois from UBS. Nicolas Gaudois: [Interpreted] So first one is on Foundry. Could you update us on the progresses for 2 nanometer and 1.4 nanometer nodes in particular and whether you expect further major customer wins after the Tesla order last summer? And if so, in which segment will it be between mobile and HPC-AI? Also, could you comment on your process for your memory, foundry, advanced packaging turnkey strategy? And then the second question relates to Consumer Electronics, similar to what you discussed in mobile earlier. This Consumer Electronics and TV business is facing intense competition, top line margin pressure perhaps component going forward by memory shortages limiting potentially of sets -- units. How do you see demand in the year ahead? And what could actually Samsung do to overcome those challenges? Sukchae Kang: [Interpreted] Yes, let me answer your question on Foundry. First, regarding the 2 nano process, second generation, well, development is proceeding smoothly. We've been hitting our yield and performance targets and are on track to start 2 nano mass production in the second half of the year. We're working closely with key customers on PPA assessments and test chip collaboration in parallel for product designs. So technology validation is moving along as planned ahead of mass production. The 1.4 nano process is also under development, where we're hitting major milestones as planned with the goal of starting mass production in 2029. We're planning to distribute the PDK version 1.0 in the second half of next year. And with the release, we plan to initiate customer designs and ramp up early ecosystem development. Based on the progress achieved on our advanced node development, we are now in talks with mobile and HPC customers about product or commercial business collaborations. And since the Tesla award, we have been engaged in active discussions with large-scale customers from the U.S. and China. And most notably, we are expecting this year's 2 nano project awards to increase by 130% year-on-year, driven by HPC and AI applications. We are the only company in the world offering a fully integrated one-stop solution, spanning semiconductor, design, foundry, memory and advanced packaging altogether. We are actively developing and working with partners on the mass production of a range of HBM products, leveraging our one-stop solutions for 3D stacking of base dies built on logic process technology and core dies built on memory process technology. We are in talks with numerous customers seeking our one-stop solution for both product and commercialization opportunities. And so we expect this kind of turnkey business model to deliver tangible results in the mid- to long term. Unknown Executive: [Interpreted] I'll take the question on VD. Amid a challenging environment marked by prolonged stagnation in the TV market and intensifying competition, we will secure new growth drivers through next-gen devices and expand our service business, which is expected to keep growing fast. Based on our premium technological capabilities, we will continue to strengthen differentiated product competitiveness to maintain brand advantages in the premium markets. We plan to introduce new Micro RGB models ranging from 55 to 130 inches to preempt customer demand and establish a new mainstream category. Also through the introduction of a differentiated Vision AI Companion, we plan to expand AI experiences that consumers realize in their daily lives. Furthermore, we will enhance lineup efficiency, strengthen purchasing competitiveness and improve process efficiency using AI to lift overall profitability. Second, we will proactively address the market trend towards service businesses. And the global ad-based free streaming service market, Samsung TV Plus is garnering the most attention and Samsung Art Store has solidified its position in the TV art market. We will further sophisticate these services and strengthen partnerships with diverse content companies to differentiate our offerings and drive revenue growth. Operator: The next question will be by Simon Woo from Bank of America. Simon Woo: [Interpreted] I am Woo Dong-je from Bank of America I have 2 questions. First, when will the company cancel the treasury shares it currently holds? And could you please explain the scale of shareholder return resources generated in 2025? And the second question is that what impact does rising semiconductor costs have on the mobile business. And what are your corresponding strategies? Soon-Cheol Park: [Interpreted] I will take the question on the shareholder return policy. First, with respect to the treasury shares, the Board will decide the cancellation schedule and make a public disclosure in the first quarter of 2026. In addition, with the 2025 results in the books, the company's free cash flow was approximately KRW 36.5 trillion, and 50% of free cash flow, which is the basis for shareholder returns, is around KRW 18.3 trillion. Based on this, the company plans to provide KRW 9.8 trillion in regular dividends for 2025 and KRW 1.3 trillion in additional dividends. In addition, out of the KRW 8.2 trillion worth of shares acquired in 2025, excluding those reserved for employees, KRW 6.6 trillion worth will be canceled to faithfully implement the shareholder return policy. Seong H. Cho: [Interpreted] We'll move on to the MX question, and I will answer this. As memory demand for AI server has expanded, memory supply shortages for mobile devices and sharp price increases started materializing in the fourth quarter of 2025. Therefore, we expect a challenging business environment in 2026. However, since this is an industry-wide issue, our competitors will also face the same environment. Based on a stable component supply through strategic partnerships with key suppliers, we plan to respond proactively and flexibly to changes in the market and competition landscape while promoting resource efficiency activities across the entire process, thus minimizing risks of profit decrease through strategic measures. Operator: The final question will be by Mr. Young Ho Ryu from NH Investment Securities. Young Ho Ryu: [Interpreted] This is a Young Ho Ryu from NH Investment Securities. Congratulations on the good performance. I have a question on System LSI and then on your shareholder return. So for System LSI, I think it was mentioned that the rise in memory prices are placing added cost pressure for device makers in mobile and PC. So what is the impact from System LSI's perspective? And how will you respond? And 2026 is the final year of your 2024 to 2026 shareholder return policy cycle. So I know this is still early on in the new year, but have you been examining the new direction for your next cycle? And can you explain more about the additional dividend payout that was mentioned earlier? Jason Shin: [Interpreted] Yes. Let me answer your question on System LSI. So as you've noted, rising memory chip prices have been weighing on mobile set makers driving up BOM costs. Based on our analysis of the smartphone market, while the mid- to low-tier segments are experiencing significant pressure on costs, in contrast, flagship and premium segments, the device makers are expected to differentiate through on-device AI and camera performance. And as a result, we anticipate sustained demand for high-performance SoCs and sensors to continue. We will leverage our new flagship SoC and 200-megapixel image sensor products to support our customers' differentiation strategies and plan on expanding supply to flagship and premium segments. Soon-Cheol Park: [Interpreted] I'll answer the question on the company-wide matters. First of all, we are faithfully implementing the current 3-year shareholder return policy. And when it comes to a new shareholder policy, management and the Board believe enhancing shareholder value is a top priority and are actively reviewing a new active shareholder return policy based on sustainable growth. We will provide updates when the direction of the new policy is finalized. The regular dividend is KRW 371 per common share and KRW 371 per preferred share, and the additional dividend is KRW 196 per share for both common and preferred shares. In order to increase dividends and vitalize the capital markets, the government introduced a separate taxation scheme for dividend income from high dividend companies. To meet the requirements, our company must maintain a dividend payout ratio of at least 25% and increase its total dividend amount by at least 10% compared to the previous year. The company decided to join the government initiative aimed at promoting cash dividends and stimulating both the domestic stock market and real economy while meeting market expectations and offering potential tax benefits for shareholders and accordingly, resolve to pay additional dividends. Unknown Executive: [Interpreted] Thank you for the answer. I'd like to thank everybody who shared their valuable opinion. That completes our conference call for this quarter. We wish all of you and those close to you stay strong and in good health. We thank everyone for your participation today. Thank you. [Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]
Line Dovarn: Good morning, and welcome to today's presentation of Munters Q4 and 2025 Full Year Results. My name is Line Dovarn, and I'm Head of Investor Relations, joined by our CEO, Klas Forsstrom; and our CFO, Katharina Fischer. So Klas and Katharina will begin with presenting the results, and then we will have a Q&A session after that. Please go ahead. Klas Forsström: Thank you, Line, and good morning, everyone. Let me start with a few sentences to summarize the quarter and the year and then dig into the details then. The year 2025 ended up with a quarter showing the strength of our leading offer across our prioritized end markets. All in all, then resulting in more than 3x organic growth, I mean, over 200%, a book-to-bill of 1.6, I have to say, an exceptional achievement by our teams. Earnings weakened to 10%, primarily driven by dual site costs and underutilization in AirTech, as well as temporary tariffs and transition cost when it comes to moving different products in and out of the DCT system. I'm not pleased with the result, but very confident that most of this will diminish after quarter 1. All in all, 2025 was a year to be proud of, delivering record order intake, solid profit and strong cash flow. It was also a year building industry-leading capabilities to produce, to show stellar innovation and offer buildup paired with improved efficiencies. All this while balancing in a fast-changing world of trade conflicts and wars. I enter 2026 with a positive view on our end markets, strong or slightly improving market demands across our segments. Even better is the momentum across Munters. Innovation is the core of a company, an innovation drive that is reaching a vitality index of more than 50%. Production capacity built for current and future growth, we are able to handle 50% more growth, a modern and forward-leaning digital FoodTech, operational improvements in AirTech and accelerating this into 2026 and an order backlog that sets us up for a record 2026 and beyond. After Q1, when short-term holdbacks will diminish, we are set to deliver a 2026 with historically high turnover and strong margins in H2. In a nutshell, 2026, a year to look forward to. So let's dig in a little bit into the details then. And as I said, exceptional demand while earnings weakened. Order intake, plus 191%, organically 200%. Very pleasing, AirTech also delivered growth with a book-to-bill over 1. Data Center Technology, significant increase. Of the orders received, about SEK 5.7 billion was announced in orders before the quarter report. FoodTech organically declined, some lower software orders, partly offset by controllers, but we also met a very, very strong quarter here. Order backlog all in all, increased with 53%, currency adjusted with 80%. It's mainly DCT and orders to be delivered in 2026 and 2027. And as I said, a book-to-bill of 1.6. Net sales declined. AirTech declined, lower sales in EMEA. As you know, EMEA had a few working days less, but it was a weaker backlog that we had to eat from. DCT increased successful execution on order backlog, but also here in DCT, I mean, we closed for a couple of days, as always, during Christmas. FoodTech increased driven by strong growth in controllers, and that was partly offset by lower software. All in all, for the full year, net sales increased with 8% organically above that. Adjusted EBITA margin, 10% in the quarter. It's the tariffs that represents about 4% in DCT. When it comes to AirTech, lower volumes and underutilization due to weaker battery market that accounts for about 2% units and an adjusted EBITA margin in the year of close to 13%, 12.7%. When it comes to regions, significant variations in between the regions. Americas stands for 86% of our orders in the quarter. EMEA, about 11%; and APAC, 4%. Of course, it is DCT that stands out with 95% orders in Americas. But also very good to see 5% of the total orders in the quarter came in Europe. So we start to see a European data center market that is starting to grow, and we are taking our share in that. And then when it comes to FoodTech, a more, call it, normal balanced quarter. All in all, we look upon the quarter, AirTech, soft with pockets of growth pretty much in all the different regions, but clear signs of especially the base business, 95% of our business starting to show some growth moving forward. Data Center continue to rapidly expand in Americas. It is a smaller market in Europe, but we start to win here in a good way. And then when it comes to APAC, a good market outlook, especially in Southeast Asia and the Oceanic region. And FoodTech, very much a continued positive market as such. Moving into AirTech, a book-to-bill of 1.1. Order backlog stable. Pleasing to see that the order backlog did increase. And as you can see now, when it comes to the orders, about 90% of the -- in the year is outside battery. So it is a sign that we now are moving into capturing orders in a stronger market that is outside of battery. And here, I think it's very clear. This quarter is order intake-wise, one of the best, I would say, the best quarter in the last 8 quarters with one exception. And if I take a look upon outside battery, it's for sure, the best quarter in the last couple of years. Also important to see here, as you can see, there is an up picking trend the last couple of quarters. And so that is the reason why we are saying it is a market that seems to become stronger and stronger. When it came to net sales, a lower outcome due to -- and that resulted in a lower profitability. All in all then, something that was very good to see that is the share of service, 23%. And when it comes to components, 19%. Here, we have a shift in components then. So we have more evaporative pads than what we have then desiccant wheels. When I look upon our innovation pipeline, and you have heard me say that we have a vitality index of more than 50% now. I think this is an important slide to talk about. When it comes to AirTech, AirTech is exposed to many different end user segments. You drive energy efficiency and customer value to primarily 2 different components here. It is material science and technology leadership when it comes to the media. And then it is how you use and how you control your equipment. And if I take a look upon this, I mean, what I see that is the material science and the new media gives opportunities for customers to increase -- improve their energy efficiency in between 10% to 20% compared to old versions. And if we take the connectivity and using artificial intelligence and better controlling the setup, it is a similar value, 10% to 20% more improvements. And if you combine this, I mean, then you can have up to 40% energy efficiency. What is also clear that is that in some of the underlying segments there as pharma, defense, and service, I mean, we see a continued upgrade and higher demand coming forward. Also important to see that is when it comes to what we call clean technology, air quality and pollution control, we also see a strong underlying market as such. Moving over to Data Center, an exceptional order intake in the quarter. Demands across both colocators, hyperscalers, very much driven by artificial intelligence-related investments, but really across the full type of board. We announced orders of SEK 5.7 billion, and we reached SEK 9.2 billion in total orders. The order backlog increased. And here, we talk about deliveries into 2026 and then carry into 2027. The book-to-bill in the quarter was impressive of 7%. Also, what I think is important if you take a look upon the circles there, I think that exemplify the product transition that is taking place. The 38% where we have the split system that is represented in the past, very much by cycle in the future, very much of split system based on, as an example, on chillers. Now we are building up chiller capability. And when chiller capability are then increasing that we can produce it more in an industrial way, the chiller profitability will increase in the same way as we showed with cycle. The main effect of the margins in this quarter came from tariffs. And here, we deliberately decided that it's better to take market share, establish ourselves in U.S. even before we have full-fledged production of chillers in U.S. If I would bring that back, I mean, we would be in a range of around 18%. And if I then add also the changes in the product mix, et cetera, I mean, we would be in the 19% range. But all in all, I mean, I'm very confident moving forward that we will continue over a period, over a year to be in the high teens range. But this and also next quarter will be affected by tariffs. We are filling up the order backlog, and we are building up capacity. And capacity you build up by building factories, driving efficiencies, driving the way you produce, but also how you interact with the customer, how you preplan, how you actively secure critical components and so on. And if I take all that then on the right side here on the slide, that we have now capacity to be able to take 50% more orders moving forward, and that gives me very good confidence. Of course, it varies in between the different factories. In some factories, we have not much more to gain. In other factories, substantially more to gain. This is also why I say that with this backlog, I mean, I'm extremely confident that we will have a strong invoicing year in Data Center. And what type of products are we then bringing in? I think the best way to describe it, that is across the board. Some cases, it is more dedicated CRAHs, custom-designed CRAHs that have high efficiency. In other cases, it is chillers, and yet other examples, it is more what I would call it hybrids where you combine chillers, custom-designed CDUs and CRAHs. And for me, that is the strong point of Munters today. We can cater all different type of product demands and all different types of cooling demands there is in the market. Also very pleasing that we took a sizable order in EMEA that includes Geoclima chillers and CRAHs. And this puts us in a very good position also for a strong fill rate in our EMEA factories. On and off, I and we get questions about, I mean, what is driving then the success in Data Center and how -- what about the market. You've heard me talk very much about, I mean, we have evolved from being a niche specialist to now having a comprehensive, very wide cooling portfolio that can expand into many different type of data centers. That has been driven by the innovation engine, innovation through own innovation and combining with acquisitions that we then have brought into the system. We accelerated the time to market for next-generation cooling systems. And I think that we have at current and a world-leading time to market when it comes to new systems. We have also in parallel, strengthened the service setup. I mean, with own personnel, but also contractors and partners. So gradually, we are expanding the service coverage also. Capacity. We have built up capacity, and we never take and accept orders that we cannot deliver on promise. We have been building capacity ahead of the plan, i.e., that generates some cost in the beginning, but we have also proven that when we have a scalable footprint, we can also generate the bottom line. And then the discussion about what type of cooling solutions are there and what is then affected cooling. I think you have to come from 2 perspectives. First, you have to have very dedicated type of data center cooling setups, but then you also have hybrid readiness. In the very best liquid cooling data center, there is still need for in between 20% to 25% air cooling. So you need to have the [ width ] on this. So all in all, I think we have an extremely strong platform for continued growth and profitable growth moving forward. If I go back to FoodTech, the first thing I think is important to recognize here that is we have completely shifted what FoodTech is now compared to a year ago. Now it is 100% digital and software-driven. There is when we have increased the number of controllers or the sales of controllers still a seasonal effect that the controllers are sitting in the farms, et cetera, et cetera. So in quarter 4 and quarter 1, there is a weaker controller demand. But all in all, it is a more stable business area compared to the past, a strong market outlook moving forward. Margin remains strong. What affected margins was our continued investments to support growth, a shift in products that we have more controllers this quarter than we had software. And then on the positive side, price increases and efficiency initiatives. But all in all, a strong underlying margin. I predict that we will continue to grow over years in between 20% to 30% when it comes to the ARR this quarter, slightly lower, but that is very much due to the comparables of last year. For me, this is one of the most important pictures of the future in FoodTech. It is about the full value chain, a data-driven connected supply chain. Our products and solutions are very much focused on the growth segment, where chickens, the swines, the animals, the plants are growing. But it is also handling data and help the customer manage the full value chain. And this is something that is extremely sought after. Of course, it takes some time. If you start in the middle, you have a unique offer there, combining controllers with software, it takes some time to sort of expand out in the full value chain. But what I see that is that our customers are very attracted to this. And if we talk about the software side, churn, low churn is important, and we have a very low churn, about 2% and below. And then, as I said, the ARR then expected to be in between 20% to 30% year-by-year. This quarter, a little bit lower due to very strong comparables last year. With that then, I leave it over to Katharina. Katharina Fischer: Thank you, Klas. So starting with the fourth quarter, net sales declined 8% or remained flat currency adjusted, primarily reflecting the lower volumes in AirTech. The adjusted EBITA margin declined, and this was mainly due to the temporary tariff effect in Data Center and the lower volumes and underutilization in AirTech. Net income declined, and this was due to the lower operating earnings, but also due to the increased items affecting comparability in the fourth quarter. They amounted to SEK 174 million. The driver of this was a contingent consideration of SEK 98 million due to recent acquisitions. So this was mainly related to the 20% holdback of the transaction price for the acquisition of the remaining shares in the MTech Systems, and that was closed in March. 2025. And this amount then has been paid in full now in January this year and was fully accrued at year-end then. Looking at cash flow was very strong. I will come back to that later on. Sorry, I should also say on the items affecting comparability, we also have restructuring charges of SEK 77 million. They related to AirTech. And here, we are progressing according to plan on the cost measure activities that we announced in Q3. If you recall, we announced then that we will take a charge of SEK 150 million in total over Q4 and Q1. We also had a very strong operating working capital to net sales ratio in the quarter. It improved further. So that reflects our strong discipline in this area. Looking at the full year, net sales increased 8% or 15% currency adjusted. And this was then driven by the continued strong growth in Data Center and FoodTech and partly offset by a weaker development in AirTech. And the adjusted EBITA margin declined due to lower volumes and the continued dual site cost and underutilization in AirTech as well as the tariffs then in Data Center. And also for the full year, the net income declined then for the full year due to the lower operating earnings and the increased items affecting comparability. And this continued considerations effect was then almost SEK 200 million for the year then. And also, as I said, very strong operating working capital. Then looking at the margin, the margin declined in the quarter. While this was below our ambitions then, it was due to temporary effects such as the tariff impacts and the lower volumes and utilization in AirTech. The volume then had a negative impact, but mainly due to AirTech in EMEA, partly offset then by DCT and FoodTech. I'm very glad to see that we continue to have a positive net price impact, both in DCT and FoodTech. However, the margin was negatively impacted then by the temporary tariff headwinds in DCT and also a negative product mix across all business areas and also an adverse regional mix in AirTech. From the operational excellence perspective, the under-absorption in AirTech weighed on the margin and also the transition to new products in Data Center had a negative effect on the margin. We continue to invest in our business, of course, to scale the business and also to digitalize further and automate and also do more investments in the footprint. If we compare to the Q3 margin of 13.5%, the margin then declined, and this was the -- primarily drivers for that was the increased tariff headwinds, but also lower volumes and changes in the product mix. In addition to this, we also had currency headwinds, which impacted the quarterly results then negatively. Looking at the cash flow. We had a strong cash flow from operating activities in the quarter. So even though the operating earnings were lower, we were able to offset this with positive contributions in -- from operating working capital, and this was mainly driven by advances in DCT. In the investment activities, we had an impact from business acquisitions. So these were then retention payments or holdbacks related to acquisitions of Geoclima and AEI, which were closed during 2024. So there were some remaining payments for those 2. And then we have also bought the remaining shares, 40% in the Brazilian company, InoBram. Looking at year-to-date, we have a stable cash flow from operating activities, a little bit lower, but due to the operating earnings and also a less favorable development in working capital for the full year. Looking at cash flow from investing activities, it was impacted by lower CapEx and also lower cash flow from the business acquisitions during the full year. Looking at investments then, our capital allocation principles remain disciplined and selective. So we continue to focus our investments where they create sustainable growth and also create long-term value creation. And in the quarter, the ratio was 7%. So this reflects a higher level of activity then where we continue to invest in competencies, upgrading operations, doing more digitalization and optimization in our business. For the full year, this number was 5.8%. Looking into 2026, we continue to invest in DCT footprint and the Virginia production facility, including the test lab will be up and running in the second quarter of this year. And efficiency improvements and volume ramp-up will take place gradually, of course, and with the main improvements to be seen in the second half of the year. Looking at CapEx for the full year, we expect it to be -- remain broadly in line with the full year number for 2025. Operating working capital, then as I mentioned before, very strong number if you look at the chart there, so at 7.3%, right now. If we look at leverage, the leverage ratio remained stable at 2.9 compared to Q3, slightly up, reflecting lower operating earnings. However, we had this very strong cash flow, which then enabled us to manage this acquisition-related payments during the quarter. And if you compare to the leverage at the end of Q4 last year, the increase is driven by increased lease liabilities. While we do not have a fixed leverage target, we do have an ambition to be within 1.5 and 2.5 over time. And we are not worried by temporary deviations above this level as they are then related to strategic investments that support our future growth and also increase our competitive position. Diversification of financing and strengthening our funding base is, of course, also important. During the quarter, we have issued a bond of SEK 400 million, and we have also increased our outstanding commercial papers. Also want to highlight then that during the first quarter now this year, we have then paid the remaining -- the holdback 20% for MTech, USD 18.5 million. So that payment was done in January this year. Turning to sustainability then. We continue to have a very focused agenda that we execute diligently on, that spans across climate, social aspects and responsible business practices. And if we start with climate, we -- during 2025 inaugurated our new flagship factory then in Amesbury in the U.S. And if we look at our ambitions for 2030, our Scope 1 and 2 for the year increased 3%. And if we look at Scope 3 emission intensity, it increased with 19%. And this increase in Scope 3 was related then to higher activity in regions where the emission intensity is higher and also a different product mix. But of course, this highlights that we, as many others, need to continue to focus on delivering on our decarbonization road map. And in parallel, we also continue to develop products that are more energy-efficient products and services, and we also work with our customers to find renewable energy solutions. Looking at gender equity, here, our ambition is very clear. We want to achieve the 30% of women leaders and women in workforce, and we drive many different initiatives linked to this, where we have and support inclusive employee networks. We also drive initiatives to promote interest in technology-related fields and so on. And we also aim to broaden the talent base through very focused training programs and defined goals. On the responsible business side, we are aligning with the CSRD, and we are, of course, also preparing for the upcoming CSDDD. This is then underpinned by us continuously upscaling our workforce, where we have many different trainings in human rights, anticorruption and related topics. And of course, this is very important with this training programs because we really want to make sure that we have consistent standards in our day-to-day decision-making across operations and our supply chain. And then finally, you know that we have the service and components ambition to be above 1/3 of net sales. And during the full year, this net sales grew organically, and we achieved a percentage of 25%. And with that, I would like to thank you and hand it back to you, Klas. Klas Forsström: Thank you, Katharina. Here and also take a look into the future before we open up for Q&As. The year, we ended up on a growth of 15% on an EBITA margin of 12.7%, on an operating working capital through net sales of 7.3%. In the quarter then, not much growth adjusted currency and an EBITA margin of 10%. And of course, it is the same number when it comes to operating working capital. The Board is proposing a dividend of SEK 1.6 per share moving into the general meeting then. From this quarter, we have started to give outlooks. If we start then with a status, where are we in the different business areas. First of all, I mean, the efficiency programs that has started and are driven in AirTech delivers plus SEK 100 million in this year. The second program that we announced mid this year is aimed to delivering between SEK 250 million to SEK 300 million run rate by end of this year, and both programs are operated according to the plans. We have also improved the capacity utilization step-by-step by reallocating our sales force to what I prefer to call the base business, i.e., all the business that is less project-driven, less battery driven. And here, you can see that we are gradually then increasing that type of business. When it comes to DCT then, you have heard me talk about our success in broadening our portfolio by own developed and acquired type of portfolio components. We have invested and increased our global footprint, both when it comes to production capacity, but also when it comes to sales capacity. And we have then delivered a record order intake that takes us for sure through 2026, well into 2025 and actually also are touching already now 2028. When it comes to FoodTech, we have completely transformed this. It's now a fully digital offer. It is an offer that no one else in the market has, and it generates a lot of attractions from customers. We have entered new regions, and we have been growing the share of recurring revenue step by step. If I then move to the market then, and this is how we look upon the market for the full year 2026. In AirTech, with all the different segments, it is flat to a positive market. And the positive sign that is, of course, in everything outside battery. And today, everything outside battery represents pretty much close to 90% of what we sell. So flat to positive. In Data Center Technology, we predict a continued positive market demand for the year. But of course, and I highlight this, it is extremely difficult to predict how much order intake will come quarter-by-quarter, but we see still a very, very strong underlying market. No changes there. And when it comes to FoodTech, continued a positive market outlook. Business then outlook for the year. First of all, it is clear that our net sales growth is expected to develop positively. And I said, I expect it to be a record year on invoicing. And how to substantiate that? If we take the backlog in Data Center, at least 30% more invoicing will come. With the right customer demand, it could be as high as 40% increase in invoicing. And then a slightly increase also moving into AirTech supported by a better order intake. When it comes to adjusted EBITDA margin, after Q1, we expect that it will diminish the tariff impact in Data Center and the margin improvements in AirTech will start to pay off. So you can look upon this year, a little bit reverse to last year, i.e., a substantially better H2 than H1 when it comes to adjusted EBITDA margin. All in all, I mean, this sets us up for a very, very exciting 2026. With that, Line, I hand it over to you and everyone on the call for Q&As. Line Dovarn: Thank you, Klas and Katharina, for presenting. [Operator Instructions] So we'll begin with a caller from the telephone conference. Operator: [Operator Instructions] The next question comes from Adela Dashian from Jefferies. Adela Dashian: Two questions from me then. The first one, obviously, you had very, very strong order intake in the DCT segment, and it would be great to try to understand whether or not this is timing-related lumpiness or if you expect this to be a sustainably higher run rate given all the AI deployment. We'll start there. Klas Forsström: Thank you, Adela, for the question. I think it's fair to say, as I said many times, I mean, by nature, Data Center order intake is lumpy. This quarter, I think everyone understands that this was an extraordinary quarter. With that said, what we have done over the last couple of years, that is we have expanded our product portfolio, and we have expanded our capabilities to sell in many different regions. So from that perspective, we have more opportunities to gain customers, to gain attractiveness. But I think you should look upon this as an extraordinary quarter. Don't expect this to be the new baseline, so to speak. But with that said, I see, we see a strong underlying market in data center. Adela Dashian: That's really helpful. And then if I stay on the DCT track, but move to margins, you're outlining here a path to get back to mid-teen DCT margins as the tariff headwinds ease and also volumes ramp up from the second half and onwards. But does that margin trajectory fully reflect the incremental investments that you might need given the elevated backlog? Klas Forsström: Yes, it does. I can very confidently say that we -- when it comes to production capacity, we have constantly been investing ahead of the curve, so to speak. And this we have done also this year. And we could have taken a decision not to take orders and sell and deliver, call it, chillers in North America and thereby avoided the tariff hit. We deliberately decided that it's so important that customers are exposed to our fantastic chillers and thereby then securing the orders that will be delivered after we have the production setup here. So if I take a look upon, I mean, the, call it, the margin development and just ballparking it out, I mean, we have a 4% when it comes to the tariffs. That will diminish after Q1. And then we also have the very logical setup when you start to produce something new, in this case, chillers in North America, I mean, you will gradually then move the margins up on that. So from that perspective, if I take a look on the full year, that is why I say that when it comes to DCT, it is, of course, a very strong delivery of top line and also a restored profitability in DCT for the second half of the year. And when it comes to AirTech, the easiest way to describe it is by adding some volumes that we are at current and by cutting out the costs of the SEK 250 million to SEK 300 million, we will step-by-step restore that margin as well. Adela Dashian: Just to clarify quickly, I guess the question -- I appreciate all the color on the near-term outlook or the 2026 outlook. But I guess my question is also more related to medium term or long term. Do you feel like high teens is still sustainable even as your backlog grows. Okay. Klas Forsström: Yes. And also here, I think I said it loud and clear that we have the operational footprint of handling 50% more order intake. What we need to then, of course, adjust that is man hours that is -- but that is in the larger scheme just adjustments, if I put it like that. Adela Dashian: Great. That's the number I was looking for. I'll get back in the queue. Line Dovarn: We can take another caller. Operator: The next question comes from Karl Bokvist from ABG Sundal Collier. Karl Bokvist: A follow-up here a bit on what you've already talked about. But would just like to understand the time line of events that hold back the margins here. So one thing that we've talked about, of course, were the tariffs in DCT. But the dual side factory situation. You said it was complete by year-end '25, i.e., this is something you have alluded to how much it has impacted margins. But should this be now entirely out of the margins from Q1 '26? Klas Forsström: I mean, as I said, I mean, we have completed that. And then, of course, when you start it up, it will have small impacts also in the startup process. But the majority of that has disappeared, yes. Karl Bokvist: All right. Understood. And then also on the just general industrial improvement here, is there anything in particular that you would highlight here within AirTech, I'm talking about now, whether or not it's just about hesitancy becoming -- with customers seeing a bit more clarity on their investment decisions? Or is there any particular -- any other kind of trigger that you see would really make this area start to improve again? Klas Forsström: But it's a very good question. And if I sort of then take it region by region, you can see a openness, improved, call it, market across all the different segments. In Europe, we see in, call it, the base business and improvements in the outlooks, and I give you a couple of examples there. We can talk about restoration. We can talk about defense, et cetera. There, we see a stronger order intake. Here, we talk about, of course, many smaller projects, not the large projects. And in North America, what we see there, that is still a hesitancy, but the order backlog in all 3 regions are moving up -- or sorry, not order backlog, the pipeline of orders are moving up. So normally, when you see that at a certain given time, then you start to open up. So that's the reason why I'm positive. I don't see, yes, now it is substantially better, but it's a stronger market in the non-battery market across all regions. Line Dovarn: And we will take another caller from the telephone conference. Operator: The next question comes from Carl Deijenberg from DNB Carnegie. Carl Deijenberg: So a couple of questions from my side. I just wanted to maybe start on the phasing on the invoicing. Of course, I heard your comments sort of on the full year for '26 expectation and also the ramp-up towards the latter part of H2. But when we go now into Q1 is just from a sort of revenue standpoint, is that what you're seeing now a similar level to what we saw in Q4? Because, yes, it sounds like you're going to have -- facing the sort of similar issues now very near term. So is that a... Klas Forsström: If I put it like this, I mean, we will have the chiller production fully up and running in U.S. after Q1. So the big increase of deliveries in U.S. will, of course, start to come from Q2 and forward. And then during the year, that will then quarter-by-quarter increase in progression. The first quarter, we had pretty much the same setup as now. So then it's more driven out what type of demands, when would customers like to have certain deliveries, so to speak. But the best, call it, guidance that is we will have a full-fledged production in U.S. from Q2, and then we will definitely increase the deliveries. Carl Deijenberg: Great. Then I wanted to also follow up a little bit on the large orders you have announced here in Q4 '25. I know that some of them have been announced in Swedish krona, whereas a couple of other ones have been announced in U.S. dollars. So just wanted to understand a little bit sort of currency structure you're taking on, let's say, currency risk in between those 2. I know that you have a very local cost base in the U.S. But how does that work with the orders that you've announced in Swedish krona now given the currency movements? Klas Forsström: I can start, and then I can also hand it over to Katharina. But if you take the current currency exposure is on and about depending on the different business areas in between 7% to 11% and the highest then is in Data Center. Then if you take a look upon the order intake situation, we have an extremely high then currency effect, but that is pure mathematics. I mean, you have a low comparison and then you add an humongous large order quantity on top of that, and then it becomes, I mean, 11% on a very high number becomes a large percentage on the lower number, if I put it like that then. But if I then summarize it, you can say, as long as we deliver from Europe to U.S., then we will have a currency effect. But when we start to deliver from U.S. production, I mean, U.S. dollar is the U.S. dollar. So then the exposure in U.S. dollar will disappear because then we balance it off, if that made sense. Katharina, any more favors on this then. Katharina Fischer: No, but the U.S. contracts are in U.S. dollars. And yes, we have most of our cost base in U.S. dollars as well. Carl Deijenberg: Yes. No, the reason for asking was just that I noted that some of the large orders were announced in Swedish krona. Katharina Fischer: Yes. It's just the way that we announced it in the press release, Carl, so the order is taken in U.S. dollars, but it's just the way we have chosen to announce the results. It's taken in U.S. dollars. Carl Deijenberg: Perfect. Then finally, I also wanted to ask on AirTech. I heard your comments what you're talking about sort of the mix change that you've seen this year measured in battery becoming a smaller part. And of course, you've taken quite a few sort of measures now on production and utilization and so forth. And I just wanted to understand, we've seen in the past that this battery contract that you took back in '22, in particular, were quite profitable for the division, whereas now you're sort of entering '26-'27 with a little bit of a different, let's say, end market mix. And on the back of the changes you've done here on the production and utilization side, is it still a material margin difference in battery relative to other segments? Or is that more balanced now, you would say? Klas Forsström: I have to give you a little bit lengthy answer, and then I will sum it up. Generally speaking, the non-battery side has always had a slightly better margin than the large batteries orders. With that said, when you have a very large battery orders and you take another large battery order, then you set up a production system, so you have, call it, volume effects, so you can bring out a higher margin on that side. So if I then go back to service, components and base business, in general, product margins have a higher margin than the larger projects. But then, of course, if you can fill a factory and deliver like we do in Data Center, then you have volume benefits on that then, if it makes sense. So moving forward, I see that if we have a couple of quarters in the range of the SEK 2 billion that we have now, I mean, then we will have a good load of factories and a good way forward. And that will most probably be filled more of what I referred to general base business than battery projects. Line Dovarn: And we will take another caller. Klas Forsström: Yes. Yes. Yes. Operator: The next question comes from Gustav Berneblad from Nordea. Gustav Berneblad: It's Gustav here from Nordea. Just coming back a bit to the tariff situation there of 400 bps. How much -- I mean, how much would you say that you're able to offset with the new production line of chillers in Virginia, meaning sort of looking at H2 2026, if we say sort of ballpark, is it fair to assume closer to 1 percentage point tariff headwind? Or is it less? Or if you can just comment a bit. Klas Forsström: And now I think when it comes to tariffs, let's start with a little bit of a joke and then I will come. Tariffs have a tendency to change depending on the President's mood. But if we take as an assumption, nothing is changing. If we take that as an assumption. I mean, the tariffs are built up by 2 components. One is if we deliver a full-fledged system to U.S., which we are when it comes to chillers, I mean, then what we have, that is, first of all, we have the general, the 15% tariff. Then there are other tariff components that is steel as an example. And then you have to add another tariff ingredients on that then on the steel part in what you have. When we start to produce in U.S., I mean, the first component is gone. Then the second component will be more or less gone due to the fact that if we can then supply with U.S. steel, et cetera, I mean, then we will have no effect. But if we need to supply as all other U.S. companies have to supply then steel outside U.S., I mean, then we have a tariff component. But if I sort of summarize it, everything will not disappear after Q2 because there is a little bit of residual. But if we follow our plans, the very large majority of this will disappear in H2. Am I fair to say that, Katharina? Katharina Fischer: You're exactly right. Gustav Berneblad: Perfect. That's very clear. And then coming back to the cost savings program in AirTech there. I mean, can you just give us a bit more nuance on how we should interpret this in terms of what you're actually doing? Is it mainly personnel and we will see a sort of a front heavy or more front-end loaded cost savings? Or how should we think this progressing in 2026? Klas Forsström: No, I've been talking so much. Maybe I hand this over to Katharina here. Katharina Fischer: For the program that we announced then in Q3, the one that to deliver SEK 250 million to SEK 300 million in savings, that will start to come into play already in the first quarter. So that program is progressing well to plan. Then there is a second part of that program that will come into play more in the second half. Gustav Berneblad: But is it possible to say anything if it's the weight of the cost program is more tilted towards Q1 here or H1 or? Katharina Fischer: Yes. I mean, towards the end of the year, it will be the full run rate, so to say, but it will start to build already from now. Klas Forsström: So you can put it a little bit like this. I mean, everything that has been executed by end of this year, I mean, that will month by month add up. And then you will have a second go, put it like that, that will start to add up from mid end of Q2. And then those 2 streams will then accumulate up to the total of SEK 250 million to SEK 300 million. Line Dovarn: We can take another caller. Operator: The next question comes from Anders Roslund from Pareto Securities. Anders Roslund: Yes. I have just one question regarding the margin in DCT in the fourth quarter. If adding back the 4% for tariff, is this relatively well reflecting the new product assortment? Or is it parts coming from the high-margin cycle and less? Or what sort of... Klas Forsström: I mean it's a very good question. And so the easy thing to deduct, if I call it like that, I mean, that is the 4%. That is just the way it is. Then we have other minor components, and that is, as you referred Anders, we have the shift in the product portfolio, the mix. That then brings down its slightly, let's say, 1 bp, 1% more or just to take a number there. Moving forward, if you keep the 4% then at the end of next year, that is gone basically then. Then what -- the way you should look upon this, that is when we then are ramping up the chillers, then that will gradually then improve a positive product mix by the end the second half or starting, I mean, mid-quarter 2. So you will have a little bit of cycle effect, but then let's call it the chiller effect then when that is gradually then moving up in margins. So in the beginning, now we have a negative product mix. And at the end of next year, you can sell relatively said, you have a positive product mix. Line Dovarn: But there's no cycle left in Q4 in the deliveries. Those have been completed. Anders Roslund: Okay. Excellent. And how do you see in general, you only talk about chiller production, how is the production ramping up for the other product categories? And how will that affect margins? Klas Forsström: That is -- if we take a CRAH as an example, there are some variations in between the CRAHs in margins. I mean, when you have a high density, high capacity CRAH, you have slightly higher margin. But CRAHs, as you know, look upon them as, call it, slightly lower margins, but a stable margin. A CRAH is CRAH, and we are good in producing that. So that is just adding up. And then, of course, if you produce 100 and then 200, you are a little bit better. But call it, not that much efficiency, more in between an efficient or, call it more a me-too type of CRAH. But there, I mean, there, as I referred to earlier, there you can say that has been the negative product mix at current that we are selling more CRAHs than versus cycles. Moving forward, I mean the CRAHs will be at a stable level, and then it will be a larger mix of chillers then. I hope that was -- well enough described. Anders Roslund: Excellent. No, that's okay for me. Line Dovarn: And I think we have another caller. Operator: The next question comes from Mats Liss from Kepler. Mats Liss: Well, looking at chiller production there in Italy, and I guess you will sort of move part of that sourcing to the U.S. gradually during the year. But what will happen in Italy? Will that capacity come down until you get sufficient amount of demand in the European market? Or could you sort of -- say something about... Klas Forsström: But It's a very good question, Mats. We are also gaining traction in Europe of chillers. We are actually also at current and there, we have no tariff effects. We are, to some extent, supplying Asia, from Europe. So without being -- because I cannot be too specific, but I don't see any, call it, overcapacity or worries that we will have not good enough coverage in our factories in Europe. When we have production up and running in U.S., I mean, not from day 1, but in a quarter, everything after a quarter that is sold in U.S. will be produced in U.S. if there is not a specific, call it, emergency that we need to supply it in between. So we will have a strong base capacity in Europe for Europe, but also towards Middle East and towards Asia. Mats Liss: Great. And I guess it sounds like you experience this very good demand in Data Center segment going into 2026 as well. And I just want to -- well, get a feel for, do you see customers maybe placing dual orders here to secure supply? Or is it sort of not possible for them to do that? Or could you say something in... Klas Forsström: I mean when you take a look upon the extraordinary order size we had in Q4 then and then take that into when will that be delivered, so to speak, will be delivered during 2026. I've said like this, I expect a turnover of plus 30% and maybe a turnover increase of plus 40% depending on customer preferences of deliveries in Data Center during the year. But then a large part of this SEK 9 billion order is also moved into 2027. And actually a few of those are moved into 2028. So I have never been this comfortable when it comes to the load situation in data center. '26 done. We can take some more. We have availability. But as you know, I mean, after Q1, it's not very much you can fill there. And then we have a good situation already now for '27. And there, we have at least 5, 6 quarters more to go when it comes to fill that up. And we have already started to fill 2028. We had a book-to-bill of 7x in the quarter. Is that prebooking? Or is it, call it, just customers that would like to have a relaxed situation when it comes to will they have it or not? I cannot say that. But that is how it is. We are well covered into 2027 and actually also into '28 to some extent. Line Dovarn: Thank you. I think we have Karl back on the line. We can take one question for you and then we have to finish off. Operator: The next question comes from Karl Bokvist from ABG Sundal Collier. Karl Bokvist: All right. So just a comment there on what you see ahead on the growth there. I assume this is talking about current prevailing currency rates, i.e., organic or assuming existing currencies, on the sales growth from the backlog to 30% to 40%? Klas Forsström: Yes. I mean what we reported, that is in, call it, year-end currency rate. And then currency move up and down, but you can say that the majority of what is currency neutral in a way that it is sold in U.S. and the majority after -- or pretty much all that will be produced after Q1 sort of everything that will be delivered after Q1 will also be produced in. So you may have a top line effect there, but you will not have a bottom line effect. Line Dovarn: Thank you very much. I think, we will finish off there. Thank you, Klas and Katharina for presenting today. Klas Forsström: Thank you. Thank you very much. Line Dovarn: Thank you, everyone, for listening in. And please feel free to reach out to us at Investor Relations if you have further questions or if you would like to meet up with us during the quarter. So thank you for listening and see you next time. Katharina Fischer: Thank you. Klas Forsström: Thank you.
Operator: Welcome to the Indutrade Q4 presentation for 2025. [Operator Instructions] Now I will hand the conference over to CEO, Bo Annvik; and CFO, Patrik Johnson. Please go ahead. Bo Annvik: Welcome, and good morning on our behalf as well. Let's start with a summary of the year 2025. It was a year with market uncertainty and continued dampened demand, although conditions improved throughout the year. We improved operationally and financially gradually during the year, and we also further strengthened our long-term strategic capability as our new segment structure now is fully established. In terms of financial numbers, 2% total growth in order intake, organically also plus 2%. Net sales decreased by 1% in total, of which minus 2% organically, driven mainly by backlog reductions during 2023 and 2024. The EBITA margin of 13.8%. Excluding extraordinary one-offs in the year, the EBITA margin came in at 14.1%. The cash flow was continued on a high level and the financial position of the group is very strong. In terms of acquisitions, we acquired 13 well-positioned and profitable companies during the year with a total annual turnover of SEK 1.3 billion. The Board proposes a dividend of SEK 3.1 per share. Looking at the Q4 highlights, organic order growth of plus 3% with positive development in many companies and all larger customer segments. Three out of 5 business areas grew organically and the remaining 2 were stable from last year. More than half of the companies had organic order growth. The strongest demand from customer was within Energy, Water & Wastewater and Infrastructure and Construction. Net sales decreased by 1% in total. Organically, it was unchanged. The reported EBITA margin came in at 13.3% compared to 14.6% the same period last year. However, underlying EBITA margin was strong at 14.9%, excluding the extraordinary one-offs in the quarter. And this we will comment more on later in the presentation. Underlying EBITA margin last year was 14.3%. Cash flow from operating activities amounted to SEK 1.6 billion, in line with the high level last year, and there were continued inventory reductions from our companies. The acquisition pace was good in Q4 with 4 announced acquisitions, and the pipeline also remains good, both short and long term. Moving into order intake and sales trends. Demand continued to improve and was stronger than last year with positive development in many companies, customer segments and geographies. Development was generally positive in all larger customer segments, and the strongest performance was seen in the Energy sector, Water & Wastewater and for companies with customers within Infrastructure and Construction. Order intake improved in the majority of the companies and was up 3% organically. Order intake was in line with sales, which is good as book-to-bill is seasonally weaker during the second half of the year. As you can see on the slide, currency has a large impact of minus 4%, which together with a minus 1% from divestments impacts total growth on orders and sales materially. Adjusted for currency and divestments, the underlying situation is clearly better with plus 7% growth in orders and plus 4% in sales. Organic sales development was strongest in the Industrial & Engineering business area and also Infrastructure & Construction grew organically, while it was weakest in Technology & System Solutions. Looking more specifically at the sales per geographical market. Sales to Sweden was flat from last year and down in Denmark due to the high comparables from last year when we still had some deliveries to Novo Nordisk from the large order we received 2 years ago. Finland was stable from last year and Norway stronger. Development in Norway is mainly connected to flow technology products for water and wastewater, aquaculture and marine applications as well as other products for infrastructure customers. For the rest of Europe, sales growth was strong in Benelux, mainly due to good development within valves for power generation and also single-use products for pharma production. U.K., Ireland and Germany was down as a result of the generally weaker business climate in those areas. Sales growth in Switzerland and Austria was strong with good developments for companies with customers within Infrastructure & Construction and MedTech & Pharmaceuticals. Sales development in North America and Asia is normally slightly volatile but was down compared to last year and, among other things, related to companies within business area Technology & System Solutions having a weaker demand on the back of the tariff situation. Total EBITA decreased 10% from the same period last year to SEK 1.1 billion, corresponding to an EBITA margin of 13.3%. However, this quarter was strongly affected by extraordinary one-offs, primarily connected to 2 companies in the U.K. within business area Technology & System Solutions. Patrik will elaborate a bit more on this later in the presentation, but I want to highlight that they are non-recurring and extraordinary and you shouldn't expect these type of items from Indutrade. Adjusted for the one-offs, the underlying EBITA margin was strong at 14.9% compared to the underlying EBITA margin of 14.3% last year. The gross margin was continued at a high level of 35.4% and even stronger than last year if you exclude these 2 U.K. companies I talked about. Organic expenses is under control. As mentioned earlier, organic sales growth was strongest in the business area Industrial & Engineering with positive development in many companies, for instance, infrastructure machinery and railway rolling stock. Infrastructure & Construction also had a slightly positive development, however, from low levels as the demand has been dampened for many quarters. We saw, for instance, strong development in the Water Distribution segment. In Life Science, there was a strong development in several areas, for example, single-use companies and broadly in the MedTech segment, but was offset by references connected to sales to Novo Nordisk last year, as I mentioned earlier. Also, Process, Energy & Water had tough references in many companies. And the main reason for negative development in business area Technology & System Solutions relates to project revenue recognition adjustments linked to the U.K. situation I spoke about earlier. Without those adjustments, the organic development was minus 2%, partly connected to the lower sales to the U.S. Moving into EBITA margin development per business area. As mentioned, the total gross margin was strong, which is driven by multiple factors like mix and currency, but it's also a sign of quality in our product offerings and strong pricing power. Industrial & Engineering improved EBITA margin as a result of the strength in gross margin, but also leverage on the organic sales growth. Infrastructure & Construction was close to last year's level, but was negatively affected by a lower gross margin in a few companies. Life Science also improved EBITA margin despite strong sales references from last year, mainly due to positive product mix with good sales development from some high-margin companies. Process, Energy & Water and Technology & Systems Solutions had a weaker EBITA margin compared to last year as a result of the organic sales development and slightly higher expense levels. The one-offs in Technology & Systems Solutions I mentioned earlier is recognized as group items outside the business area, so no impact on the EBITA margin from that in the BA. In 2025, we welcomed 13 profitable and well-positioned companies to the group with a total annual turnover of SEK 1.3 billion. The acquisition pace was lower during the first half of the year, but increased significantly during the second half with 10 acquisitions completed in the second half. In the fourth quarter, we announced 4 acquisitions where the acquisition of ATM Group marked our first acquisition in Spain. ATM is a technical trading company specialized in single-use components for Life Science applications. We have many similar companies in the single-use area in other geographies in Europe. So this acquisition is a good example of our ability to expand into new markets in a controlled yet opportunistic way. We have gradually strengthened our acquisition resources and our business areas work independently with different projects. This together with business segment leaders being more proactive in the acquisition work and internal pipeline generation is a strong platform to use in gradually increasing our acquisition pace going forward. The pipeline is good, both short and long term, and I look forward to announce the first acquisition in 2026 very soon. Looking at the longer trend, we are stepwise increasing number of acquisitions, although number of acquisitions per year can be a bit volatile. Looking at the bridge effect from acquisitions over the last 12 months, we have added over SEK 190 million to the group's EBITA in 2025. Furthermore, we can also see that the acquisitions are margin accretive with an accumulated EBITA margin of 16% for the quarter and 16.4% rolling 12 months. Good to note that this includes transaction costs, so the underlying margin is even higher. By that, I leave the word over to Patrik to comment more on the financial situation. Patrik Johnson: Thanks, Bo. So let's dive a little bit deeper into the data. Total growth for orders and sales in both the quarter and for the full year was plus 2% and minus 1%, respectively. Positively, book-to-bill is at 1 in quarter 4 and above 1 for the full year. And as mentioned earlier, there is a seasonality in the book-to-bill, where the first half of the year is normally stronger than the second. In quarter 4, the gross margin was at 35.4% versus 35.7% last year, but impacted by the one-offs in the quarter. Excluding the one-offs, it was higher than last year. And for the full year, the gross margin remains ahead of last year, even including the one-offs actually. Expenses, not in the table, but they are, as said, under control and increased organically only marginally with around 0.5 percentage point, excluding one-offs. EBITA decreased with 10% in the quarter and 5% for the full year as a result of the one-offs in the quarter. And talking about the one-offs then. First, we had the non-operational one-offs connected to earnout and goodwill write-downs as we have from time to time, and then the net effect of those was small, minus SEK 3 million. But then in addition, we had an extraordinary one-off items of, in total, SEK 125 million from 2 U.K.-based companies in the business area Technology & System Solutions where we identified the need to reassess projects in terms of cost estimates and also degree of completion, particularly related actually to a few large projects with long lead times that have both new complex technology and customer application areas. Excluding these one-offs in the quarter, the underlying EBITA margin improved to 14.9% versus 14.3% last year. Moving further down into the P&L. Finance net decreased by 5% in the quarter and 14% year-to-date because of both lower interest rates and lower debt level. Tax costs decreased 10% in the quarter and 1% year-to-date. Earnings per share was also impacted by the one-offs in the quarter amounting to SEK 1.72 in the quarter and SEK 7.03 for the full year. Return on capital employed declined slightly to 18%. Also that's mainly due to the one-offs in the quarter. Operational cash flow was unchanged from the very high levels last year, and I will elaborate some more on that on the coming slides. Net debt-to-EBITDA end of the quarter -- end of the year is at 1.4x, a low level, same as last year. So let's move on to the cash flow. And that is, as I said, in line with the record high levels of last year, amounting to SEK 1.6 billion in the quarter. Improvements versus last year relates to the strong underlying results in combination with continued good working capital reductions. I think it's good to note that the one-offs in the quarter had no impact on the cash flow. It's a bit of sort of proof that they are truly one-off costs. The organic inventory levels continued to decline sequentially and in relation to sales, and the ratio is now at a very good level, almost historically low levels. As we mentioned before, our companies are relatively capital light, and there is a continuous strong underlying cash flow reflected in a good cash conversion, as you can see also from the slide. And it continues to trend on a rolling 4-quarter basis on above 130%, which is the ninth -- actually ninth consecutive quarter with a cash conversion on that high level. The working capital efficiency also continued to improve. Moving on to looking at the earnings per share development over time. And for the quarter, it decreased 14% to SEK 1.72 mainly due to the one-offs we have spoken about. For the full year, it amounts to SEK 7.03, which is a decrease of 7% versus last year. And we are obviously not satisfied with the EPS development. Besides the one-offs, it is, of course, related to a weaker demand and result development in the last 2 years. Full focus is now to come back on good growth levels, and momentum, I think, is good, growth levels in line with our targets, and also with that then deliver earnings per share growth. And lastly, commenting on the financial position. The interest-bearing net debt decreased both sequentially and versus last year from SEK 8.2 billion to SEK 7.6 billion, driven by the strong operational cash flow. Our net debt ratios are stable and low from a longer historical perspective. Net debt/equity was 44% versus 49% last year. Net debt/EBITDA was, as I said, then 1.4, in line with last year. And if you exclude earn-outs, they were at 1.2 compared to 1.3 last year. And if you look at the financial net debt, which is the part of the debt that relates to borrowing that needs to be refinanced, that is historically low at 0.9. And in the quarter, we issued a new 5-year bond loan of in total SEK 1.3 billion at a margin of 1.13% against 3 months STIBOR, which I think shows our strong position in the credit markets. So in conclusion, our financial position is very strong, creating a good room and opportunity for value-accretive acquisitions and also organic growth initiatives going forward. So thanks from my side, and I leave over back to you, Bo. Bo Annvik: Good. And we summarize the key takeaways. Continued organic order growth of plus 3% and stable organic sales, growth of plus 7% and plus 4%, respectively, if you adjust for currency movements and divestments. We had a strong gross margin in the quarter and the expenses are under control, which resulted in an improved underlying EBITA margin of 14.9%. I also would like to comment -- I also would like to make one additional comment on the projects with the one-off effect we spoke about earlier. The projects are in the absolute final phases of completion. Based on the current information and analysis of the projects, all costs have now been accounted for in a prudent way. The 2 companies are independent from each other, but they have shared a couple of senior managers. There are also indications that they should have realized these deviations and accounted for them earlier. These persons have left the companies during last year. Again, this is an extraordinary situation, which would not be expected in the Indutrade group. Going forward, the market uncertainty remains. However, a slightly larger order book, higher acquisition pace and lower references provide some comfort about the earnings trend. 13 companies were acquired in 2025, and all business areas operate independently with acquisition projects and with a strong focus on internal pipeline generation. This provides good conditions for a gradually increasing acquisition pace. We are now fully focused on delivering annual growth of at least 10% per year over a business cycle and a stable EBITA margin of at least 14%. We have made deliberate strategic investments in our platform. Now it's time to harvest. By that, we close the presentation and open up for potential questions. Operator: [Operator Instructions] The next question comes from Zino Engdalen Ricciuti from Handelsbanken. Zino Engdalen Ricciuti: Just quickly on the projects. The comments you made now, Bo, it sounds like it was maybe a bit related to these individuals. So my question is how you ensure that anything similar does not happen in the rest of the group, so to say? Bo Annvik: Yes. I feel certain that this is non-reoccurring. I've been in this role now for almost 9 years and we have had nothing at all similar to this and, as far as I know, Indutrade has never reported anything like this before my time either. We obviously have internal control functions. We have Boards in all companies. We have our external auditors. We have business control functions on business area level, on group level. We have an internal bank. We have a lot of professional sort of control both processes and standards, which eventually will catch up with wrongdoings in different ways, which is also did this time. But if you have persons who deliberately hide things and they are in responsible positions and they cooperate, it can take some time, which it did. Zino Engdalen Ricciuti: Very clear. And just lastly, is it then, I would say, the very extraordinary circumstance that you put it in the group items and not the business area? Patrik Johnson: Yes, exactly, they are reported -- the result effect of this is reported then on group items, and that's correct. But it impacts the gross margins since they are -- it's related to these projects. Zino Engdalen Ricciuti: Understood. And a question on the Industrial & Engineering, which saw a strong margin. I think you commented that it was from lower levels as well given the business environment they occurred [indiscernible], that they have the ability to deliver on this level going forward as well. Bo Annvik: Generally, I'm quite optimistic that all business areas have opportunities to improve organically 2026 versus 2025. So even if there is not a dramatic business cycle improvement around the corner, there is slightly -- I would say, slightly better environment and more optimistic perspectives when we talk to our companies. So I expect a gradual improvement during the year. And we have now seen 2 quarters in a row with organic order intake improvements, so I think we are trending step-by-step in the right direction, and hopefully this will continue in 2026. Zino Engdalen Ricciuti: And just a last question for me that's M&A related. You previously made some comments about possibly looking into some larger acquisitions and when you maybe also more prioritize the organic growth possibilities of what you acquire. Relating to the average size of the companies acquired in '25, do you make any particular reflection about it? Bo Annvik: I would say that they were generally smaller on average than we usually acquire, and it would perhaps be surprising if that would also happen in 2026. So I think it was not a common average size for -- in a full year perspective on Indutrade. Our primary focus is to buy companies around, I would say, EUR 15 million in size, and that will be the intention also going forward. But sometimes, we find companies which are a bit larger. And if we feel that they still are managed by good entrepreneurs who are engaged in their business in the same way as in our general size scope of companies, we are also interested in them. If we are finding really much larger companies where the owner is not really too engaged and it's more like an externally recruited management team without large financial ownership in the companies, we are, I would say, less interested because that's not the typical type of individuals we would like to have engaged in the companies we buy. So that's a bit of a divide in terms of our interest. But -- so you will probably see mostly, hopefully, the EUR 15 million type of size, but sometimes a bit larger, and then it should be where management has been very engaged in the company also on the ownership side. Operator: The next question comes from Carl Ragnerstam from Nordea. Carl Ragnerstam: It's Carl from Nordea. A couple of questions from my side. Looking into the organic pace, the sales pace, you grew orders 3% above sales organically. On the other hand, Q4 is a bit of a small order quarter, book-to-bill is still at 1. So could you help me a bit understand the backlog dynamics and how comfortable you are in the organic sales trending up here, I guess, from Q1 and onwards? Bo Annvik: Quite confident that, that will happen. So there is a better order backlog, as you say yourself, and we see an organic momentum which is positive and has been positive for the autumn and fall here now. And I think the -- also governments in a lot of Western European countries are step-by-step increasing their infrastructure investments, defense investments. So it's not going to be a super significant step-up in Q1, but this trend -- I assume this trend will continue and at some point order intake will also be realized in sales. And yes, so I'm having an optimistic outlook for 2026 in that perspective. Carl Ragnerstam: That is very clear. And on the gross margin, looking at the underlying gross margin, I assume that it's around 36.5%. You mentioned divestitures, you mentioned acquisitions, you mentioned mix effect. So could you help me unpack a bit on an adjusted basis these levers? And I would also assume that Life Science was an important gross margin driver. You mentioned single-use coming back strongly. So how do you look at the sustainability of this quite good gross margin as you have on an adjusted basis in the quarter? Bo Annvik: Do you want to start, Patrik, from your side, and then I can finalize with some comments... Patrik Johnson: Yes. Yes. I mean we don't have a sort of a full detailed bridge on that, but sort of the gross margin improvement is sort of driven by multiple factors, and you mentioned a few of them. And we are –- I mean, our companies -- as we've talked about for a long time, our companies are good with pricing in general. So I think that's sort of the starting point. But then you have on top of that, I think you have favorable mix effects. And I think Life Science is a good example with the single-use area growing with good margins, and also many of our MedTech companies have good margins. So that's also increasing the underlying margin. And then actually currency then, because we have a lot of trading companies in Sweden benefiting from the stronger SEK. So those are the drivers. I can't give you sort of a breakup of that. Is it sustainable? I think it is. And also, you mentioned also acquisitions and divestments, those impacting. So I think it is sustainable. But of course, it will be difficult sort of to push it dramatically more up, I would say. Bo Annvik: Yes, I agree with Patrik. And I think that's been one of the key trademarks of Indutrade for a very, very long time that we have had stable gross margins. And I've spoken about this in a lot of other calls also that the DNA of an Indutrade Managing Director is really to protect gross margin, and I think they do that in a really good way. The risk factor at some point is maybe the currency. Otherwise, I think we are handling things really well. But I think we will handle that also well. But if that swings against us in this perspective with several percentage points, that will be maybe demanding in some situations. But no, I think this will continue at a good and stable level. Patrik Johnson: And if I sort of -- only one additional input. I think the currency is, of course, one if you talk about risks in the gross margin. Maybe also there is still a dampened -- we don't have a super strong business cycle and it's a little sort of dampened market still and fewer larger deals projects in the market than you would see in a higher growth environment. And when you have more daily business rather than bigger deals projects, the margins are slightly better. So good business cycle with more projects is maybe slightly dampening gross margins. Carl Ragnerstam: Very clear. Coming back to SG&A, you touched upon it a bit. It seems to have flattened out quite nicely. So if organic growth comes back, as you alluded to before here, how much could you hold back on cost? Is it more low performers you're working with perhaps fully offsetting the needs of hiring in some other growing companies? Bo Annvik: Yes. We have worked with SG&A and expenses quite actively, as you know, over the last 2 years, and we have had our ups and downs. And the culture within the group is the glass is half full and they are opportunity driven. I think we collectively have learned to watch certain parameters, and, not least, headcount I think is even higher on the agenda than it perhaps was before. So I think there's going to be a resistance in the system somehow to add headcount, which is going to be more obvious now than perhaps it was before. So some learnings from what we have experienced and some benefits from that going forward. So there, we will keep track on cost versus sales ratios and things like that in a good way. Carl Ragnerstam: Very good. And the final very quick one, sorry for that. Organic growth -- sales growth minus 1% in Life Science. What is it adjusted for the Novo Nordisk comps roughly? Bo Annvik: In the quarter, I think, roughly 3% almost, I think, or something. Patrik Johnson: Yes, almost. I think you have to correct it with around 3%, and so plus 2%. Operator: The next question comes from Opeyemi Otaniyi from GS. Opeyemi Otaniyi: Do you mind just talking through sort of outlook for margins from here? Performance in Q4 was quite strong. And so do you mind just talking through what's driving that? But also are you done with the cost, are you done here today, as we've talked through for most of last year? Bo Annvik: I must apologize, but I didn't exactly hear your question. Which business area did you refer to? Opeyemi Otaniyi: No, sorry, it was just on margin for group. So Q4 was quite strong. And so should we extrapolate that as we look forward into 2026? And so were there any key things driving margin? Was it sort of just the strong gross margin? Or was it the M&A accretion as well? Bo Annvik: Yes. I think you have picked it up yourself in a good way in that sense. It was a good gross margin and M&A is also accretive and costs are under control. So I would say that all those factors have implications on that, obviously. Patrik Johnson: And if you -- I mean, if you look ahead into quarter 1, I think in general you have a seasonality during the year, which is good to understand that quarter 1 is normally slightly weaker. And then margin normally comes back a bit in quarter 2 and is the strongest in quarter 3. And then quarter 4 is maybe sort of an average in line with quarter 2. So that's the normal seasonality. Then you could, of course, have things affecting that. But you start there, I think, then. So normally slightly lower in quarter 1 than quarter 4. Then, of course, it depends on -- organic development is sort of one key driver. And here, we have a slightly higher backlog supporting us going into the year, but still no sort of super strong cycle yet. So -- but again, slightly higher backlog. Opeyemi Otaniyi: Great. Understood. And maybe just switching gears and talking about M&A. Could you give any updates on the phasing of deal activity through the year? So is it kind of coming down from the pace you saw in Q3 and Q4? And could you also just give an update on divestment activity? I know it's a few minor transactions, maybe largely related to construction, but any updates on divestments would be appreciated. Bo Annvik: Yes. If you look at Q3, Q4, we are basically adding around SEK 0.5 billion or EUR 50 million on sales values in those quarters and approximately 5 acquisitions per quarter there. And I definitely think that pace will continue in Q1 and onwards in 2026, and medium term will even increase versus this. But short term, that this pace will continue into the next coming quarters. Divestments, should not really expect any divestments. It can happen. It probably will happen, but it's not very common. And I think we have done those we wanted to do relating to this business cycle situation and so on. So not a very active divestment sort of agenda going forward. Opeyemi Otaniyi: Great. And maybe just lastly, Technology & Systems Solutions organic growth there minus 6%. Do you mind just talking to the drivers there? Was that related to the situation in those 2 businesses you've talked about? Or were there other trends driving that? Bo Annvik: Yes. So if you exclude that U.K. situation, they were at minus 2%. And they -- that's our most international business area. So they have sales into North America and, not least, the U.S., and also to China, Asia. And there has been some weaker sales short term into the U.S. linked to the tariff situation. There has also been some impact in China. They have had more of a buy local policy since a couple of years, as you probably know. But I think most of our companies have realigned, yes, replaced some of that in -- and found other geographies and opportunities. So I think step-by-step, also TSS will improve in terms of both order intake and sales, and that will happen during 2026. Operator: There are no more questions at this time. So I hand the conference back to the speakers for any closing comments. Bo Annvik: Well, then we thank you for participating and asking good questions and wish you a good continued day.
Maria Caneman: Thank you for dialing in this morning. I am Maria Caneman, Head of Investor Relations here at Swedbank. Welcome to our fourth quarter 2025 results presentation. I'm joined today by our CEO, Jens Henriksson; and our CFO, Jon Lidefelt. Jens and Jon will start with their presentation, and then there will be an opportunity to ask questions. With that, I would like to hand it over to Jens. Jens Henriksson: Thank you, Maria. 2025 was a successful year for Swedbank. The target of a sustainable return on equity of 15% was achieved. During 2025, the global economy was, despite tariffs and geopolitical uncertainty, more resilient than expected. A few weeks ago, the International Monetary Fund released an update to its world economic outlook. It revised the world growth forecast slightly upwards for this year against the backdrop of a steady and resilient economy. However, with renewed global tensions and strained public finances, global growth could be curbed. In our home markets, the economic situation continues to brighten, thanks to large investments and strong private consumption. In Sweden, the recovery began in the second half of 2025 and our economist expects growth of more than 2.5% in 2026. Lithuania had a strong development in 2025, and growth is expected to pick up further this year. In Estonia and Latvia growth also is likely to rise in 2026. In these times, Swedbank has once again delivered a strong result. For the fourth quarter, we saw a return of equity of 14.7%, and the return on equity for the full year was 15.2%. Costs developed as planned and the cost-to-income ratio was 0.36, both during the quarter and for the full year. Cost control is strategically important issue and is reflected in all parts of the Bank. Credit quality is solid. Earnings per share for 2025 amounted to SEK 28.98. The Board of Directors is proposing to the Annual General Meeting, a total dividend of SEK 29.80 per share of which SEK 9.35 is a special dividend on the basis of the bank's strong capital position. Our CET1 capital buffer then amounts to 3 percentage points. Swedbank has a strong capital and liquidity position. During the past few years, we have by strengthening governance and internal controls, improved work methods and investments in new technology created a stable foundation for the bank. Now we are looking ahead with increased focus on our customers. At our Investor Day in June last year, we presented our direction, Swedbank 15/27 and it has a clear customer focus. We will strengthen our customer interactions, grow our volumes and increase our efficiency. Availability and efficiency are fundamental. Succeeding in these areas will enable us to be even more proactive, meet more customers and do more business. And in these areas, we've already made significant progress. Our availability in Sweden increased significantly last year. In 2025, we had over 30% more calls with our customers than a year before. At the end of 2024, we answered 29% of incoming calls in Sweden under 3 minutes. At the end of 2025, that figure has improved to more than 80%. We're also constantly working to increase our efficiency. Digitalization and newly developed AI tools are simplifying our work and reducing administration, and we see continued great opportunities in this area. We are now taking the next step. Our business areas will gain more influence and control in developing their businesses. To sharpen our focus on customers, business and productivity, the work of developing services and solutions should be closer to those responsible for our customers. By refining and moving roles and responsibilities and working more efficiently, we can better meet customer expectations and develop our offerings. The acquisition of Stabelo and Entercard have been completed. This will also provide us with new business opportunities and I've had the privilege of welcoming all our new colleagues to the bank. These acquisitions and the changes we are now implementing are all contributing to our 15/27 plan. We are now working to update our strategies and plans for Entercard and in connection with our next quarterly report, we will present what this entails for the bank going forward. During the year, Swedbank's lending increased by SEK 108 billion, excluding FX effects. Of these SEK 47 billion was lending to corporates. Entercard and Stabelo contributed with SEK 44 billion, and private loans increased organically by SEK 17 billion. Our mortgage portfolio is growing and during the quarter, lending and mortgages increased by SEK 23 billion, excluding currency effects in Sweden -- sorry, currency effects. Of this amount, SEK 17 billion came from the acquisition of Stabelo. Lending volumes in our own channels in Sweden increased by just over SEK 4 billion. And that means we have doubled our market share of new mortgages sold in our own channels in 2025 compared to 2024, but that is not enough. We want to grow at least in line with the market. Savings continued the positive development and net inflows to Swedbank Robur amounted to SEK 11 billion during the quarter. At the beginning of 2026, Premium and Private Banking will celebrate 2 years as its own business area. We are expanding our customer base and we strengthened our premium offering during the quarter. The corporate business is developing strongly, both in Sweden and in the Baltics. In Sweden, our market share increased by 0.5 percentage points to 15.2% at the end of November. We have a competitive offering and a strong customer focus. By building sector teams in defense, food production, and forestry and agriculture, we strengthen our capacity to advise customers in these sectors. At the same time, we continue to focus on local business relationships with small- and medium-sized companies by strengthening our local presence. On September 1, our partnership with the new investment bank SB1 Markets was officially launched. They have had a good start in Sweden and have completed several deals. And as you know, Swedbank owns 20% of the SB1 Markets. Given the geopolitical tensions, we continue to strengthen our resilience. Swedbank has a good ability and preparedness to manage the associated risks. After the end of the quarter, Swedbank was informed that the U.S. Department of Justice had closed its investigation into the bank without enforcement. That leaves us with one American investigation ongoing evolving the Department of Financial Services in New York. We cannot assess when it will be concluded, whether we will get any fines. And if we do get fines, the size of such a potential fine. Finally, let me say a few words about the bank's social commitment. In 2025, we met more than 100,000 children and young people in Sweden and educated them in personal finance. And at the end of last year, Swedbank donated EUR 10 million to the Vilnius University Foundation to support growth and prosperity in Lithuania. These are just a few examples of our efforts to create financial health and economic stability in our home markets. With that, let me hand over to our CFO, Jon, who will deep dive into the numbers. Jon Lidefelt: Thank you, Jens. Let me now walk you through the fourth quarter. We delivered a strong result with volume growth across markets and increasing income. We have continued our focus on long-term shareholder value through business growth and cost efficiency. Cost-to-income ratio in the fourth quarter was 0.36 and return on equity 14.7%. As you know, this quarter, we have consolidated both Entercard and Stabelo into our numbers. However, keep in mind that they did not add a full quarter effect. Entercard was incorporated as of December 1 and added SEK 27 billion of lending. Stabelo was incorporated as of November 4 and added SEK 17 billion of mortgages. The CET1 effect was in total 50 basis points in the quarter. As communicated earlier, we will de-risk Entercard's consumer finance business as the risk level is too high. The risk level for new lending has been adjusted. Our intention is also to divest Entercard's back book of consumer finance loans. And going forward, we will report it as held for sale. We have worked with strengthening our organization, and it will be effective as of March 1. The strategic review of Entercard is aligned with this and we will, hence, come back in conjunction with the Q1 report with more details and how this supports our 15/27 plan. Lending volumes grew by 3% in the quarter. Mortgage volumes in Sweden sold through our own channels increased by SEK 4.1 billion, while the savings banks reduced their mortgage volumes on our balance sheet by SEK 1.9 billion. Our Swedish mortgage front book market share in November sold through own channels was 11%, still below the back book market share of 18%. In total, with savings banks volumes on our balance sheet, we have a market share of 22%, the largest actor on the Swedish mortgage market. Stabelo's growth has picked up as Swedbank's strong balance sheet enables lending up to 85% in loan-to-value. In the corporate business in Sweden, the positive development continued with increasing volumes, mainly within the property management and public sector. In Baltic Banking, corporate loan demand continued to be strong across sectors, leading to a loan growth of SEK 5 billion in the quarter. Customer deposits increased in the quarter, driven by Baltic Banking, where we had a good growth in both private and corporate deposits. In Lithuania, deposits increased in the end of the year following the usual pattern due to the annual 1 month extra salary. In Sweden, private deposits decreased slightly as consumption is picking up. Corporate deposits in Sweden were impacted by end of year effects, mainly driven by the larger institutions as normal. Net interest income was unchanged compared to the previous quarter. We saw continued impact from lower rates. However, organic growth and acquisitions partly mitigated this. Higher business volumes had a positive impact of SEK 72 million in the quarter. With lower policy rates, our cash with central banks generate less income, but this is partly offset by lower wholesale funding cost. The Swedish Central Bank cut the policy rate effective as of first of October and ECB's latest rate cut was in June. By the end of the year, these policy rate changes were fully priced in. Hence, we should see the full quarterly NII effect of the rate cuts in the first quarter of 2026. Net commission income increased in the quarter, driven mainly by securities and corporate finance where the annual market maker fees contributed positively. We also had a one-off effect relating to the closure of some retail products, which were phased out several years ago. Asset management commissions benefited from strong net inflows of SEK 11 billion and positive stock market development, measured by assets under management, Robur is the largest player in the fund market in Sweden and the Baltics. Card commissions were lower in the quarter, in line with normal patterns. Net gains and losses increased from an already high level and amounted to SEK 982 million. Income was strong, driven by client trading. The treasury result was impacted by unrealized valuation effects in derivatives and equity holdings. The business activity remained high despite some seasonal slowdown towards the end of the year. Other income increased by 1%. Net insurance decreased, mainly driven by revaluation effects. A reminder of 2 things here, in the result from associated companies we now report the ownership stake of SB1 Markets and Entercard is fully consolidated since December 1. So in the fourth quarter, only 2 months are included under other income. As usual, also a reminder here that our collaboration with the savings banks include cost sharing, for IT development and administrative services. The savings banks share of the cost is included in Swedbank's total cost. And you can see the corresponding income under other income. We delivered on the 2025 cost guidance of SEK 25.3 million, which gives an underlying cost growth of around 3% adjusted for the VAT recoveries and the acquisitions. Costs in the fourth quarter were 4% higher compared to the previous quarter. But as you know, we had a number of moving parts this time. We have, during the fourth quarter, received VAT recoveries of SEK 963 million for the years 2019 to 2023. This including SEK 125 million for the year 2021. Our 2 acquisitions added SEK 180 million to the fourth quarter cost. So what does this mean for 2026? Our full year expenses for 2025 were SEK 24.5 billion. However, our underlying expenses were somewhat higher in total SEK 25.1 billion. This is due to the one-off VAT recoveries of SEK 1.5 billion, the temporary high investments of SEK 800 million and fourth quarter costs related to Entercard and Stabelo of SEK 180 million. Going into 2026, we also need to include the current run rate for our 2 acquisitions in order to have the correct starting point. These add SEK 1.6 billion, which together with our underlying expenses of SEK 25.1 billion gives a new starting point of SEK 26.7 billion. We expect costs to grow by approximately 3% in 2026, meaning costs of around SEK 27.5 billion. This is net of efficiencies, headwinds as well as investments and based on current FX rates. Strict cost control and focus on efficiency is key. Asset quality is solid. Total impairments for the fourth quarter amounted to SEK 355 million. The macroeconomic outlook has continued to improve and led to a release of SEK 186 million. Rating and stage migrations led to credit impairments of SEK 433 million mainly due to downgrades of a few corporate customers. This is partly offset by the continued release of the post-model adjustment, which now stands at SEK 131 million. The quarter also included effects from Entercard that in some increased credit impairments by SEK 415 million, mainly due to the SEK 354 million day 1 accounting effect for Stage 1 exposures. The estimated overall impact from Entercard going forward on the credit impairment ratio is an increase of 1 to 2 basis points. I feel comfortable with our strict credit origination standards and the solid collaterals that secure our lending. Our CET1 capital ratio was 17.8%. REA increased in the quarter due to lending growth and the annual revision of operational risks, which led to an increase due to the uptake of the rolling 3-year average income. Furthermore, as previously communicated, the acquisition of Stabelo and Entercard led to reduction of the CET1 capital ratio of around 50 basis points. The Board proposed a total dividend of SEK 29.8 per share of which SEK 20.45 is ordinary dividend and SEK 9.35 a special dividend. This reduces the buffer above requirement to around 300 basis points. Our capital target remains unchanged with a buffer range of 100 to 300 basis points above the requirement and over time we're targeting the midpoint, 200 basis points. To conclude, we continue to focus on growth and efficiency. We delivered strong profitability while maintaining prudent underwriting standards, strong liquidity and capital positions. With that, back to you, Jens. Jens Henriksson: Let me now summarize. Swedbank has had a successful 2025. We delivered a strong result with a return on equity of 15.2%. The Board of Directors is therefore proposing to the Annual General Meeting, a total dividend of SEK 29.80 per share of which SEK 9.35 is a special dividend on the basis of the bank's strong capital position. Swedbank is well positioned for sustainable growth and profitability. We will strengthen our customer interactions, grow our volumes and continue to increase our efficiency. The future of our customers is our focus. And with that, I give the word back to you, Maria. Maria Caneman: And we will now begin the Q&A session. I'd like to start with a kind reminder to please limit yourselves to 2 questions per turn. Operator, please go ahead. Operator: We will now begin the question and answer session. [Operator Instructions] The first question comes from the line of Andreas Hakansson from SEB. Andreas Hakansson: So first question on your net interest income. We saw some, of course, negative headwind in the fourth quarter from falling interest rates and you say that that's going to spill over into Q1. But what we've been a bit disappointed about over the last year when interest rates have been coming down is all the big -- all the banks' inability to improve mortgage margins that are now continue to be at a very, very low level. I mean the profitability of the mortgage product is today quite unsatisfactory. So my first question is, how do you see that mortgage margins could be developing over this year? Jens Henriksson: Well, I think, thank you for that question. I think it's my time to answer that. And I would say that we do not forecast on that. But as you rightly said, it is a tough competition out there. We've seen that our market share was around 5% of new loans in our own channels in 2024. It was up to around 10% in 2025. And then we have ambitions to reach at least our back book market share, which is 18%. But the competition is tough. [Audio Gap] Hello, I think I've given abrupt answer, but the answer is that the competition is tough. Andreas Hakansson: Yes. That's fine. I mean you have, of course, discounts. That's how the Swedish mortgage market work. Are you currently working with the discounts in order to improve the margins in that way? Jens Henriksson: Well, it is a competitive market, and I'm not going to talk about exactly how we meet our customers. But I think our offering, the key point is that we come as a full service bank. That means that we have attractive prices, we are much faster and we're available. And those who seek total digital solutions, they can go to Stabelo. And we've seen that they have gained market share as well. Andreas Hakansson: Right. And then my second question, on capital. And Jon, you mentioned already that it's still a 200 bps midpoint that you're targeting over time. Can I just ask you, is the timing of moving towards 200 related to the final investigation that's going on in the U.S.? Jens Henriksson: Well, I think I'd answer that in a little bit overall perspective, and that is to say that we have the capital buffer range, which is between 100 and 300 basis points and as Jon said, in our 15/27 plan, we target the middle of it, i.e. 200 basis points. And then talking about the dividend, we have a dividend policy of 60% to 70% with an earnings per share of SEK 29 gives us an ordinary dividend of, what is it, SEK 20.45. And on top of this, the Board has proposed an extra dividend in SEK 9.35. That means that we have a total dividend of SEK 29.8. And with this proposal to the AGM, Swedbank is within the capital buffer range. Further capital release continues to be a judgment call depending on several uncertainties such as the long-running U.S. investigation. Timing of IRB approvals and the uncertain world we live in, and we have no intention of holding more capital than necessary. Operator: The next question comes from the line of Gulnara Saitkulova from Morgan Stanley. Gulnara Saitkulova: Just a follow-up on the prior question. You mentioned the competitive nature of the Swedish market. And given that, could you remind us how you are approaching the defense of your back book market share? Are you prepared to be more flexible on the repricing to retain the existing customers or margin protection is a primary focus? Jens Henriksson: Well, of course, as Jon and I usually say, it's always a balance between market share and profitability. We've said that we want to increase the market share and when we work with our customers, always have individual price setting. And I think the main problem for us has been that we have not been fast enough or not available enough. And I boosted about that in my introduction because that's something we're very proud of. With fewer people working in -- with this, we've managed to reach above 80% of the calls that answer within 3 minutes. And we have had 30% more calls with our customers. And last time I checked, I think we had a waiting time of 14 or 13 seconds, I don't remember. But the key point is, we want to be available, we want to be fast, and we want to grow. Gulnara Saitkulova: And the second question on the volumes in Sweden and the Baltics. How are you thinking about the loan growth into this year? And in particular, given the fiscal stimulus in Sweden and a more constructive outlook for consumer sentiment and confidence where do you expect the loan growth in Sweden to settle? Would mid-single-digit loan growth be a fair estimate for Sweden in 2026? And how the trends differ between households and corporate lending? Jens Henriksson: Well, let me take that as well. And let me take a sort of a broader perspective in the sense that -- as I said in my introduction, the global economy has been a little bit more resilient than expected. And you saw this slightly upward revision by the IMF, but that was then closed before the trade tensions flared up again, which, of course, increased headwinds. And the good thing about Swedbank is that we operate in a region with very healthy fundamentals, strong public finances, low government debt, real wage growth, innovative companies, profitable banks and low interest rates means that our home markets remain well prepared for the future, and I mentioned the growth figures. Overall, loan demand from both corporates and private customers is still somewhat muted. In the Baltic, demand is stronger. And in terms of trade policies impacting our region, we are, as always, very close to our customers, and we can see only limited effects on companies directly exposed to increased tariffs. And the key point is that we expect growth to come from strong public investments and strong consumption. We do not go out and forecast what loan growth is what we expect for this year. But looking back at 2025, Jon talked about, we increased our loan book with SEK 108 billion with -- excluding FX effects. Operator: We now have a question from the line of Martin Ekstedt from Handelsbanken. Martin Ekstedt: So first, congratulations on the closure of the Department of Justice investigation. So just quickly, the outstanding DFS, New York investigation, how does this differ in scope from the one undertaken by the Department of Justice? That's my first question. Jens Henriksson: Well, I don't want to get into the scope. But as I said, after -- we've closed now the U.S. Department of Justice without any further action. That is, of course, a relief. But we are still on investigation by the Department of Financial Services in New York. I still do not know the timetable. We -- I still don't know whether we will get any fines and if we do get the fines, I cannot estimate the size of those. And we've been as transparent as possible during this long-running process. And when something material happens, we'll continue to adhere to that principle. Martin Ekstedt: And then secondly, we have some long-end yield curves deepening behind us now, and we've seen some upward movements on your longer-term mortgage rates as a result. But as Andreas alluded to in his question earlier, it's not really translated into mortgage margin improvement so much yet. So what is your experience currently on customers electing longer term fixed rate mortgages instead of the 3-month floating ones? That would clearly help our margins. We can see limited movement in Statistics Sweden data on a systemic level, but what is your own experience from your customer base? Jon Lidefelt: We see the interest for floating rate mortgages is still high. So we see no major movements towards fixed rates rather the opposite. Operator: The next question comes from the line of Magnus Andersson from ABG. Magnus Andersson: First of all, on lending, we saw that your loan growth in the Baltics was 10% year-on-year in local currencies. If you can tell us what you think about the sustainability of the re-leveraging that seems to take place currently? And secondly, if you could just give us some outlook about what -- if anything has changed on the bank tax front there? And secondly, just on your cost target, if you can give us some color on what is embedded there in terms of headcount development and net IT investments, please? Jens Henriksson: Well, don't get me going about bank taxes because then I need to sort of give the whole landscape. I do that, and then, Jon, you can follow up here. First, as I've done now for many quarters, let me remind you, we -- banks are an important part of our societies. We channel our customers hard earned deposits to lending thus empowering people and businesses to create a sustainable future. And to do that, we need to be profitable. And a sustainable bank is a profitable bank. We are proud taxpayers that contribute to the financing of welfare and security in our home markets. What we do not like are sector-specific taxes, retroactive measures and an unpredictable regulatory environment. What we do like is equal treatment, a rule-based system and an investment climate that fosters growth, financial stability and sustainable transformation. With that said, let me do a quick tour across our 4 home markets. In Estonia, corporate taxes are increasing. In Lithuania, corporate taxes are also up. And on top of this, since 2020, there is a 5% extra tax on banks. In Latvia, we are into the second year of 3 years with an investor tax on NII. That is bad for the investment climate and thus, the Latvian economy. During 2025, our Latvian loan portfolio increased enough to give us a deduction of 1 quarter on the investor tax. In Sweden, the government has decided on a base deduction to the bank tax while delivering the same tax revenues. The tax rate is therefore raised from 6 to 7 basis points in 2026, and the government inquiry will investigate the future design of bank tax further. Another defect of tax on the banking system is that since the end of October last year, we know we have been obliged to place an interest-free deposit of SEK 6 billion with the Riksbank. Jon? Jon Lidefelt: Thank you. If I just add the numbers on the bank tax then, in Sweden, the risk tax due to the base deduction that Jens talked about was increased to 6 basis points. That had an impact of us of SEK 50 million, around SEK 50 million. Then you have the SEK 6 billion in the Riksbank's reserve requirement that we do not get an interest rate for. The cost for that until June and then for 2026, which is the period is SEK 71 million. And we are reporting that under bank tax, and we have taken the full cost upfront in this quarter. So the total SEK 71 million is accounted for in this quarter. If I then move back to your question on cost target FTE and IT. I mean our cost target of SEK 27.5 million is inclusive of the fact that we know that we need to continue to invest quite a lot in order to make sure that we are relevant for our customers also going forward. So that is included in that. Then we do not forecast on FTEs. We have a strict hiring policy. We know that we need to continue to work heavily on efficiencies. Otherwise, we will not be able to meet our long-term objective that we set out when we presented 15/27, namely to over time in a stable [ rate environment ] to increase profit over time. In order to do so, we need to improve efficiencies. And of course, if you extrapolate that in the long run, then it will be very restrictive on FTEs and rather downwards and upwards, but we don't forecast that in the short-term. Magnus Andersson: Two follow-ups. First of all, my question regarding taxes was really, if there is anything new on the horizon in the Baltics, but it doesn't sound like it? And secondly, if you could comment on volume growth in the Baltics and the re-leverage, that's ongoing sustainability there, what do you see? Jon Lidefelt: Sorry, I forgot that one. But no, there is nothing new. The Lithuanian bank tax is falling off this year or has been falling off. Remember, though, that there is a 5% extra corporate income tax that is permanent for banks in Lithuania. The Latvia, as Jens alluded to, we have no news or any -- on any changes. Estonia, there is no bank tax, and they also withdraw the increased corporate income tax. It's not a bank tax, but they changed there. So short answer, no. When it comes to the sustainability of the growth in the Baltics, keep in mind that the loan to GDP, especially in Latvia and Lithuania, is very low, around 20% in Lithuania, both for corporate and private. So there is room to have a good and high continued increase without creating balances in that sense. The worry from our side would then rather be on the quite high salary inflation. If that is not met over time by productivity improvements and that in the longer run risk leading to some imbalances. But otherwise, the lending growth is not. In Latvia, even so that, I mean if you go back to the financial crisis, it's been a continuous de-leveraging in the society. Estonia has leveled out a bit. So I think it is sustainable as long as other things in the economy is sort of sustainable as well and then not at least then that the wage growth is in line over time with productivity. Operator: We now have a question from the line of Sofie Peterzens from Goldman Sachs. Sofie Caroline Peterzens: This is Sofie from Goldman Sachs. So my first question would be on Entercard. You mentioned a few times that you plan to de-risk and cost of risk will only be 1 to 2 basis points higher. If you look at the 2025 numbers, cost of risk would have been kind of 6 basis points roughly. How should we think about the net interest income impact from the deal -- de-risking and also the fact that you're selling some of the back book of Entercard? And then the second question would be on the VAT refunds. You had SEK 1.5 billion of VAT refunds in 2025. How should we think about VAT refunds in '26? Jon Lidefelt: Thank you, Sofie. Yes, you're right. We've put up, and I guess your question around NII and Entercard is then referring to the fact that I said that we will -- from going forward, we will report the back book of consumer finance as held for sale. It means that in the longer run, we would want to sell it. The new inflow has been adjusted. It will take some time. It's not going to happen in the near future, but over time, that will go out. I also said that we will implement a strengthening of our organization in the -- as of March 1, and that we look at the Entercard strategy in conjunction with that. So when we present the Q1 report, we will come back with more details on both those matters, how they are linked together and how they support 15/27. But there's no changes in the short-term when it comes to the back book. When it comes to the VAT, we have then 2024 that we could get something back for. The amounts are gradually shrinking a bit. And as the interest rate has come down and going forward, we have included this in our ordinary business unless something unexpected is coming in. And from this year -- from last year when we started to get the VAT back, we have also adjusted sort of how much VAT that we account for in our business. So I don't expect the same type of amounts going forward as we have had presented for 2025, it's going to be on a different level. Sofie Caroline Peterzens: Okay. And just to be clear, after 2026, we shouldn't see any more VAT refunds? Jon Lidefelt: No major ones. As I said, we have 2024 that could be up for something. We haven't applied for anything there. But compared to the amounts that we have seen now historically, it's much, much smaller amounts. Then there is always sort of small adjustments in the tax paid since -- but that's not on these major levels that we've seen. So nothing major going forward is what I expect. Operator: The next question comes from the line of Nicolas McBeath from DNB Carnegie. Nicolas McBeath: So I had a question on the implications from the DoJ investigations. So now that it's settled or closed actually without any penalties, and we are approaching the end of this investigation. Can you comment and help us understand if you have any substantial excess resources in the bank working with these investigations or with AML that you think you can reduce? There seems to be some expectations among some investors and parts of the market that there is significant potential here. So it would be helpful if you could help us kind of clarify this. Jens Henriksson: Well, when we started this work, it costs a lot of money, but we've seen that, that costs have decreased substantially. I think the last time we sort of gave it out as a special part of our cost was like more than a year ago. And I mean, we do not have -- it's very small costs associated with this. Nicolas McBeath: So that's for the investigations. Could you comment on how many employees you have in the bank working with AML and what you think is kind of the long-term level that you should be as to be compliant and be well resourced from a AML perspective? Jens Henriksson: I would say we have around 17,000 people in the bank working fighting money laundering, because that's everybody in the bank. And I think that everybody's role to do that. Then we have something called economic crime prevention, which is a group within the bank. And they always continue to adjust whether they can use new technology. And we always search for efficiencies there. The key point is this is an integral part of the bank's work and it will keep on being that way. So we don't get into the same position we were a few years ago. Nicolas McBeath: All right. And then my second question, just a question on the cost guidance. For the 2026 cost guidance, do you have any implementation costs for Entercard included? And have costs related to the consumer finance back book being excluded. So you're basing that cost guidance on some costs falling off from that business being divested? Jon Lidefelt: No, we have not adjusted the Entercard cost going forward. We have assumed sort of some efficiency gains from Entercard just as we generally do for the bank as a whole in the SEK 27.5 billion. But then you're right that in the longer run, there might be other synergies that we have on a very high level, talked about before. But when we present both the adjustments of the organization and the strategy for Entercard going forward, we will allude more on those. Operator: We now have a question from the line of Jacob Kruse from Autonomous Research. Jacob Kruse: [Technical Difficulty] Operator: The connection with the questioner has been lost. We will proceed by taking the next question, which comes from the line of Riccardo Rovere from Mediobanca. Riccardo Rovere: Just one, it's not 100% clear to me whether you think your managerial buffer for common equity Tier 1 [ purposes ] in the foreseeable future is going to be 300 or maybe the middle of the range, 200 basis points and somehow related to that. I just wanted to have an idea if you have been active in SRT or you think you could be active or something that you're looking at in the foreseeable future to optimize your capital absorption? Jon Lidefelt: Thank you, Riccardo. Yes, as Jens said, we are now in our buffer range of 100 to 300. Then the long-term target of 200 still stands. And when we will get in there, as Jens said, it's a judgment call based on the various uncertainties. I think if you look into the future that SRTs will be a tool, we have not used it now, but we're definitely not ruling it out in the future. Riccardo Rovere: Okay. And just a very, very quick follow-up. But in the foreseeable future, given maybe geopolitical tensions, do you think it's more appropriate at least for the moment to stay at 300? Jens Henriksson: Well, I think Jon answered that direct and that is that further capital release continues to be a judgment call depending on the several uncertainties such as the long-running U.S. investigation, the timing of the IRB approvals and the uncertain world we live in. And as I've said, we have no intention of holding more capital than necessary. Operator: The next question comes from the line of Markus Sandgren from Kepler Cheuvreux. Markus Sandgren: I was just going to come back to the capital question. The 100 bps you got in add-on in P2R for IRB noncompliance, is the best guess of the net effect of that and reinflation still 50 bps lower requirement net-net? Jon Lidefelt: Thank you, Markus. If you go back, if I take some time back, then we said that when we are through the IRB approvals, we expected at least 50 basis points positive impact, which then mainly was related to the fact that we have this Pillar 2 add-on in Sweden, and the fact that, that is also related to mortgages, which is under the mortgage floor. Then when we presented reports last year when we had the SREP in Q3 last year, then we concluded that they had adjusted that due to the new capital adequacy rules for standardized. So we back then got to 20 bps release. So of the 50, we had gotten 20. So in that sense, that would be 30 basis points left of that. Operator: [Operator Instructions] We now have a question from the line of Jacob Kruse from Autonomous Research. Jacob Kruse: I hope you can hear me this time. I just wanted to ask, firstly, on your AI -- where your thinking is on AI. Do you see at this point near-term opportunities to reduce staff by the deployment of AI? Or is it still more of an exploration mode? And then my second question is just on commission income. How do you think about the -- I think in the quarter, you had about SEK 100 million of one-offs? And I think it was a relatively solid quarter across most product lines. How do you think about the outlook here? Is this in line that can continue to grow? Or do you need to see a meaningful pickup in the domestic economies? Jens Henriksson: Well, first, a few words on AI and then Jon will follow up. And we've used AI for a long time. We used that in anomaly detection and we're using it more now. And one cool thing that me and the full Board was doing a few months ago was listening in on calls and you see call summarization by AI. This is a very cool feature. And that, of course, is an instrument that our customer representatives can use to be more available because they don't have to spend that much time on writing summaries. They can be there for our customers. And that's one of the reasons we're seeing that our availability has increased so much, and we have so many more calls with our customers. And we see continued use of AI within the bank. That said, we steered the bank on cost and not on FTEs. And we want -- which we're very clear for this, we want to do more business and we want to meet more customers. So that is my point on that. Jon? Jon Lidefelt: And if I then go into the NCI, yes, you're right, we had a one-off of roughly SEK 100 million part from the -- on this, which was then related to retail product that we decided to close several years ago, but that has now been running off. If you look at NCI, then -- and remember what I've said before is that we are the biggest when it comes to bank [indiscernible] and payment processing in Sweden. [ Bank Europe ] increased the commission expense for our customers by 30% in the beginning of this year. This is due to the big investments needed to transform the Swedish payment system. That is more visible. It's the same for everyone, but it's more visible for us since we are the biggest. What they also did in the fourth quarter, they added a one-off commission cost, which in our case, was around SEK 35 million that, of course, is weighing on this result. And I think this will be there as long as this is in the investment phase that the cost -- commission costs will be higher on that row and hence, weigh on the net. Card commissions are seasonally a bit lower in the quarter compared to the third quarter where you have the summer months and with people traveling and so forth. But then you also have, over time, a big movement between rows here because we are working more with concepts, both in the Baltics and Sweden, which means that some income has moved from the card line to service concepts. Over time, this is something that we believe is good both for our customers and for us. Asset Management is long-term growing. What you think you need to remember here is that we have around 40% of our fund capital denominated in U.S. dollars. And of course, the strengthening of the Swedish krona is, to some extent, and hence, counterbalancing the strong stock markets in U.S. But this is definitely over time, a good and growing income for us. And if you look at 15/27, this is an important area, and Jens also talked about now celebrating 2 years with the Premium and Private Banking business area, which is also a testament to that this is an area where we see long-term growth, and it is important and it's in our DNA. Operator: Ladies and gentlemen, that was the last question. I would now like to turn the conference back over to Maria Caneman, for any closing remarks. Jens Henriksson: Well, I'll steal the word then I say thank you for calling in. And I think as Jon and I have talked about today is that Swedbank is well positioned for sustainable growth and profitability by strengthening our customer tractions, grow our volumes and continue to increase efficiency and the future of our customers, our focus. Looking forward, meeting you either on the road, on teams or next time in April. Until then, take care, and thank you for calling in.
Operator: Thank you for standing by, and welcome to the Arafura Rare Earths Limited December 2025 Quarterly Report Investor Call. [Operator Instructions] I would now like to hand the conference over to Mr. Darryl Cuzzubbo, Managing Director and CEO. Please go ahead. Darryl Cuzzubbo: Thank you, Kylie, and good morning, ladies and gentlemen, and thank you again for joining us for our quarterly update. I'm sure we've engaged with many of you already, but for anyone new my name is Darryl Cuzzubbo, your Managing Director. Again, with me today is Peter Sherrington, our CFO, who again, most of you would be very familiar with. But also joining us today is Tommie van der Walt. Tommie joined us about 12 months ago. He is our Chief Project Officer, and he'll become a regular attendee as we move through FID and into construction. Similar to previous updates, what I'd like to do is just talk a little bit about the macroeconomic developments that we see that are shaping the future direction of the rare earth sector. I'll then talk to how we are going in finalizing the last 10% of the funding with our cornerstone investors that will enable us to call FID. I'll then hand over to Peter, and Peter is going to take us through where we sit from an overall funding perspective. So you can see just how close we are. And then we're going to wrap up with Tommie, who will provide a brief update on our readiness to execute the project soon after calling FID. And then we'll open up to Q&A. So let me first talk about the macroeconomic dynamics that we see at play. So whilst the situation is dynamic, there are a couple of underlying fundamentals that will continue to shape that -- to shape what we see playing out. If I just take you back in time, last April, China introduced export control constraints where China could control who got what rare earths into what region and for what use. These controls remain in place today and provide China the ability to control with precision who does and does not get access to rare earths. They have set themselves up to control rare earths supply in a very targeted manner. China subsequently introduced further export constraints last October, but these will wound back to just those constraints that were introduced in April last year when a 12-month truce was agreed to between the U.S. and China. Now whilst this truce resulted in reduced speculation as to what is at stake should rare earths not be available, the reality is that nothing has structurally changed with respect to an ex-China supply of rare earths. China still controls today nearly 90% of the world supply and will use this bargaining chip as and when they need to until the world diversifies the rare earths supply chain, which is going to take a number of years. You just can't unravel quickly what took the Chinese 3 decades to establish. In this period, we have seen rare earths pricing continue to firm to where just last weekend, the NdPr pricing pushed through the $100 a kilo barrier on the Asian Metals Index. This represents greater than an 80% increase in the last 12 months. It is also worth noting that the world's first ex-China pricing by BMI is consistently higher than the Asian Metals Index, most recently by a further $10 a kilo. This shift has occurred post the announcement of the Mountain Pass deal where the U.S. government introduced a floor pricing of $110 a kilo and post the supply disruptions with Mountain Pass FEED no longer going to China to be processed. The recent event where China stopped exporting dual-use rare earths to Japan further highlights China's readiness to use this bargaining chip as they need, and you would expect China to prioritize their domestic consumption of rare earths over exports should there be a structural NdPr supply deficit, which a number of forecasters are predicting in the medium term. During all of this, we've also observed in our dealings directly with customers that they recognize the need to move away from the Asian Metals Index pricing as this has been the mechanism by which China has prevented a rest of world rare earth supply chain being developed. We note that S&P, a highly regarded global forecaster are, in addition to BMI, now looking to introduce their own ex-China rare earths pricing index. We've seen our own Australian government play a key role here through the U.S. Australia Critical Minerals Framework and the Critical Minerals Strategic Reserve, not only supporting the rare earth sector in Australia and their trading partners, but also potentially introducing a different pricing mechanism, which helped us move to a global functioning market price index. Independent forecasters anticipate that a functioning market index will be in the $140 to $160 a kilo range, reflecting the true fundamentals of medium-term supply scarcity and the strategic value of having a reliable rare earth supply chain. You can see that as time goes on, the establishment of an independent and transparent NdPr index is looking increasingly likely. Now I call these developments out because whilst exactly how geopolitics will unfold is uncertain, there are a couple of things that we can be confident of. Firstly, China will continue to use their tremendous bargaining chip of rare earth supply as and when they need to and have set themselves up to do precisely this. This is going to continue for some time, knowing that it will take years to structurally address the lack of diversification in the rare earth supply chain. As geopolitical tensions inevitably resurface, we can expect elevated investor attention to return to the rare earth sector. So in other words, there is still much to play out in the rare earth sector. Secondly, what I want to emphasize the most is that pricing dynamics are improving, and I am confident that with the right and continued geopolitical support, we will ultimately see a market functioning price index established. Critically, we believe rare earths pricing will move to a higher level that reflects the underlying fundamentals. This is something that is important to us, as you can imagine, because it really is the biggest value driver for your company and something that we are acutely conscious of as we look to lock in the remaining cornerstone offtake agreements. So let me now turn to providing you with our funding update. We have made significant progress with cornerstone investors where due diligence and documentation is in an advanced phase for EFA, the National Reconstruction Fund and the German Raw Materials Fund for an initial EUR 50 million, noting that with the German Raw Materials Fund, a potential second EUR 50 million is subject to a separate decision post locking in a further 500 tonnes of offtake. This has taken a little longer than we had anticipated, but we need to recognize that we are one of the first projects to progress through these newly established government seeded processes. You can be assured that we are progressing this as quickly as possible as demonstrated by the fact that we are either the first or the second project in a long list of projects to progress through these three newly established funding mechanisms. As we round out the funding offtakes, we want to essentially achieve two outcomes. We want to secure the remaining equity with long-term cornerstone investors as fast as possible so we can call FID and get moving into construction. The second outcome is we want to secure as favorable pricing terms as we can for the remaining offtakes, knowing that customer preparedness to move away from the Asian Metal Index is growing with time. The pricing terms that we get today is better than the pricing terms we could have got just a few months ago. And the reality is that this trend is likely to continue. What I'm saying here is that whilst calling FID will be the most significant catalyst for the company in its history. The value of the company will, to a large degree, be defined for the next decade or so by the 7-year contract pricing terms that we are negotiating now. We literally have half a dozen pathways to close out funding. With 90% funding locked in, the question is no longer about whether we will achieve FID or not, but rather are we getting the best possible terms for our offtakes in securing the remaining equity. Faced between closing out funding and offtake agreements quickly versus negotiating hard for a couple of months longer to secure best pricing terms, we will choose the latter given the long-term benefit for the company. Now with that said, we are targeting the end of this quarter to finalize the necessary agreement, which will then enable us to seek shareholder approval next quarter and call FID. I can assure you that we are doing everything we can to secure the best possible terms as quickly as we can, so we could all move on to why we joined the company, which was to build and operate what will be a truly Australian iconic project. With that, now I'll hand over to you, Peter. Thank you. Peter Sherrington: Thanks, Darryl. So Darryl has already set out that it's been a pretty significant period for the geopolitical focus and the impact on rare earths. And there's also been a lot of rare earth corporate activity. So this has been an incredibly busy period for the Arafura team. And we've been successful in making substantial progress in executing the Nolans funding strategy, which I'll cover off in this session. To frame the discussion, I'll refer back to Figure 2 in the quarterly, which is the Nolans Funding Bridge. The Figure 2 graphic sets out the funding strategy for Nolans Project. If you refer to the stacked column on the right-hand side, you can see the company has a total funding requirement of USD 1.6 billion. This cost is substantially made up of the capital cost for construction, but also includes working capital, the financing costs during ramp-up and also the equity-backed component of the cost overrun account. In addition to the total funding requirement of USD 1.6 billion, we have in place completion support facilities of USD 280 million. These remain undrawn under our base case scenario, but it does provide us with total funding sources of USD 1.9 billion. If you've followed the Nolans funding strategy from previous presentations and quarterlies, you'll see that we have now made material progress and addressed specifically the public markets component of the funding solution, which I'll touch on shortly, and have during the quarter, substantially progressed the due diligence and final documentation with our cornerstone investors as already set out by Darryl. This included the announcement by the Australian Prime Minister of conditional approval of up to USD 100 million of equity investment by equity -- by EFA. Indicatively, these sources of cornerstone funding that Darryl has set out leave approximately USD 134 million outstanding, and we're working with multiple pathways being progressed to close out the remaining equity requirement in the near term. As already set out, one pathway includes additional investment by the German Raw Materials Fund. We are seeking to capitalize on favorable magnet FEED market conditions as outlined by Darryl. We've seen an increase in our engagement with European and German partners, in particular, as we look to secure an additional 500 tonnes per annum of NdPr offtake to support a potential further investment by the German Raw Materials Fund. Noting that any further investment from the German Raw Materials Fund would be conditional on securing that 500 tonnes of offtake, it would also require approval by the Interministerial Council. With respect to the debt facilities, excluding ING, all credit approvals are current with EDC refreshing their credit approval during the December quarter. ING have provided a letter of support and are working to finalize their credit approval in conjunction with contractual close of the debt facilities and FID. Those activities are underway now with ING. We saw positive share price momentum through October for Arafura and for a number of rare earths companies in general, following a number of key announcements, including further export restrictions by China in early October and the U.S. Australian Critical Material Minerals Framework in late October as well. Against the backdrop of these activities, we successfully launched and completed a AUD 475 million two-tranche placement in October. This was followed with an associated SPP and Tranche 2 of that raising closing in December alongside the SPP. Again, we're pleased to see the strong participation from existing shareholders, including our substantial shareholder, Hancock Prospecting as well as welcoming a number of new shareholders to our register. We ended the period with cash on hand of AUD 570 million, up from AUD 90 million the previous quarter. The increase included proceeds from the October placement, including the Tranche 2 proceeds and the SPP. And this also included Tranche 2 and SPP funds from an earlier August placement with the settlement occurring in the quarter just completed. The important component here is the increased cash position significantly strengthens the balance sheet and demonstrates the company's ability to move into project execution when strategic equity is secured. Completion of the private placement has significantly derisked the project funding requirement and has provided us with the opportunity to make significant progress with cornerstone investors, offtake groups and final documentation with lenders, knowing that the private placement component of the funding has now been completed. I'll just briefly refer back to the Appendix 5B cash flow. You can see expenditure during the period included AUD 3.4 million in project development activities to support execution readiness as we ensure we can hit the ground running post FID, which is obviously a segue into handing my session over to Tommie, our Chief Projects Officer, who will provide you with a brief update for the project. Thanks, Tommie. Tommie Van der Walt: Thank you, Peter. I'll now provide a short summary of project activities and focus areas at the moment. The appointment of Hatch towards the end of last year was a major milestone in the development of the Nolans Project. Whilst this is a change to our earlier integrated project management team model, Hatch brings a significant depth of engineering and execution experience to our project, particularly in managing the delivery of complex projects, including hydrometallurgical processing infrastructure. Hatch has been involved in the early engineering and design which enables them to transition immediately into execution planning, recognizing that execution readiness is a catalyst to announcing our investment decision. Now Hatch will report directly into the Arafura owners team under the direction of Ed Matthews as the Nolan's Project Director. Ed joins us with more than 30 years of demonstrated capability in the development and delivery of major projects and capital programs, managing major greenfields and brownfields resource and infrastructure projects across Australia, Asia and Africa. We've been actively identifying and recruiting the other critical roles within the owners team with a number of these personnel due to commence in the coming months. Over the last 6 months, we've invested the time in establishing robust procurement processes and developing key relationship with potential suppliers. On the back of an FID announcement, we will launch a competitive process to ensure we deliver the best commercial outcome for the business without compromising on supply certainty, quality or schedule. So that's just a couple of updates as it stands at the moment. I'll now hand back to Darryl to close. Darryl Cuzzubbo: Thank you, Tommie. Thank you, Peter. So as you can see, we're making strong progress on rounding out the last less than 10% of funding and offtakes on the best possible commercial terms whilst making sure that we are ready to execute the project safely, on time and on budget. I'd like to thank the team for their effort to date, the extra time that they have dedicated working across multiple time zones to get us to where we are today and very grateful for their commitment and that of our partners here and abroad. It is all coming together. And on that note, I might just pause and just open up for any Q&A. Operator: [Operator Instructions] We are showing no questions from the phone. We will now move to the company for webcast questions. Penelope Stonier: Thank you, Kylie. The first question we have is from an anonymous shareholder. So the question, Darryl, Lynas has raised just over $1 billion in cash late last year and has a market cap of around $16 billion. They're a proven developer and producer of NdPr mines and has made it known to its shareholders and market that they are looking to increase their exposure and NdPr production. Arafura, one could say, has now moved to a development growth company, which offers a high-quality, long mine life of NdPr production. History shows that most major resource producers in acquisition phase look for companies with high-quality mine life opportunities. Once they target the company have completed all the hard work and derisk the project and are close to development stage, normally leaving long-suffering shareholders who have supported the company for years, not getting to see the full potential upside of the share price. If an opportunistic bid was made whilst the share price is still languishing in the high $0.20 to low $0.30 range, what is the Board doing to prevent a company like Lynas who also has Hancock Investment Group as a major shareholder, making an opportunistic takeover bid for Arafura? Darryl Cuzzubbo: Yes. So thank you, Pen, for that question. Look, I mean, Lynas has mentioned that this is something that we, as a Board, have been very mindful of, right? So we've got our defense strategy in place. We have a defense adviser. Actually, not that long ago with the subcommittee of the Board, we actually went through a number of [ MOCs ] situations. So I feel like from a defense perspective, we're very well prepared for that. As we did our most recent capital raisings, we deliberately targeted long-only investors that obviously helps getting them on our register. And also, obviously, there's things that we can control and can't control around share price. I mean share price is the ultimate defense. And I'm saying the obvious here, right? So the next catalyst is FID, which for us is just around the corner. So I think we're well prepared should there be an opportunistic bid. Penelope Stonier: Thank you, Darryl. The next question comes from Heck Middleton. Why should the shareholders believe and trust the decisions of the company and the Board on this new FID approval when we originally said it would be announced during the first quarter of 2025. Why not start it in November, get the development to production. And I'm sure the balance of funds and cornerstone investors will come in very quickly as they don't want to miss the opportunity at such a discount. And at the same time, we know the future funders and shareholder support. I assume now you've had around 90-plus percent of the total development funds that you are seeking. And if you have a 20% contingency on the total development budget, doesn't that mean you already have full funding in place with just the 10% contingency? Darryl Cuzzubbo: Yes, a good question. So just probably there's a couple of things there, right? So firstly, it has taken us a bit longer to round this out. As I mentioned in the introduction, we are at the front of the queue in a long list of projects with the new government seeded funds. So that demonstrates we're doing something right. If you look at EFA, we were the first from an equity perspective. If you look at National Reconstruction Fund, we were the second and the largest. And you look at the German Raw Materials Fund, we were the second with the first project being a German project. And there's -- as you can imagine, there are many projects that have applied. So for us to be at the front of the queue says something and gives me confidence we're doing everything we can to progress as quickly as we can. Now on your second point about should we go call FID now, we could, right? But we don't think it's prudent. We think the most prudent thing, particularly given we've got less than 10% is to secure that equity so we can go to our shareholders. So we're fully funded. Secondly, we use the tension around securing offtakes to help bring in that equity. And as I mentioned, the pricing dynamics are improving in our favor. So let's ride that wave. When we lock in offtake agreements for the lenders, they have to be essentially a 5- plus 2 or 7-year term. So think about that, you've got a 3-year construction period and then you've got a 7-year offtake. So for the next decade, sure, calling FID is an important catalyst. But the value of your company for the next decade will be determined by the pricing terms that we negotiate in the current offtake. So we think it's prudent. We think it's in the long-term interest of the company to lock in the remaining funding and the offtakes on the best pricing terms. And it's -- as you can see, we're not far from completing that. Penelope Stonier: Thanks, Darryl. I've got a question from Bernard just in regards to that remaining 10% equity on the best possible terms. Is there a risk that this will further dilute the shareholding? Darryl Cuzzubbo: So the 10% -- it's a good question, Bernard. So Peter mentioned that there's USD 134 million left to secure. As we bring those cornerstone investors in for the USD 134 million, they will come on to our register. Penelope Stonier: Okay. I'm going to touch on a couple of -- a general question here. It's just coming through a number of shareholders. Is FID imminent? And do you expect any further delays? And what confidence can you give the shareholders that FID will come within the coming months? Darryl Cuzzubbo: Yes, sure. So look, we're being as transparent as we can. So as I mentioned, we're expecting to round out the agreements by the end of March that would then allow us to call a shareholders' meeting to vote for the last cornerstones coming in. That is our best guidance. If -- but it can go either way. So for example, if there was another geopolitical event, that time frame could come forward. Also, it could be a little bit later if we're not getting the pricing terms that we think we should be getting on the offtake. So there is a level of uncertainty around the time frame. I can assure you what we're pursuing is what will drive the long-term value of the company. We're doing it as quickly as we possibly can as evidenced by our progress compared to other rare earth projects, but there is some uncertainty to the timing because we're not in control of the third parties that we're dependent on. And we're being as transparent as we can on that time line. But in any case, we think that the most plausible outcome is to get these sorts of agreements in place by the end of March. So you can see it close. Penelope Stonier: And just following on from that. So John Hebenton, apologies, John, if I've incorrectly [ pronunciated ] that. Is the German Raw Materials Fund the only thing remaining for FID to be announced? Can you please elaborate? Darryl Cuzzubbo: Yes. Thanks, John. No, it's not. So as Peter mentioned, the USD 134 million, that could include the EUR 50 million from the German Raw Materials Fund, but there are other parties that we're engaging with. There's literally half a dozen options that we're pursuing to land the remaining USD 134 million. And we're doing that, one, make sure we land as quickly as possible. But secondly, so that there's some competitive tension so we can get the best outcome. So John, there are more parties involved. I cannot -- these are commercial and confidence discussions. But as soon as we can say something more on those discussions, we will. Penelope Stonier: Thank you. And just in terms of -- I've got a question here from both Lee Burt and also from John Parkinson. Just providing an update on the joint venture. There's been little disclosure in regards to the talks in the joint venture. Can you advise if this is still something that is possible? Darryl Cuzzubbo: Yes. So thank you, Lee, and thank you, John. So on the JV, it's very much the same as what I said last time. If you go back, I think it was about 6 months ago, I said there was a two-horse race here. And we would close out with the one that was the quickest with a line of sight as to where we're going to get the best return for our shareholders. The JV pathway is not moving fast enough. So all of our attention is on securing the last 10%, so we can call FID. The JV pathway is somewhere in the future. So we're not focused on that. We're focused on landing at the last 10% and calling FID. Penelope Stonier: Thank you. This might be one best directed towards Peter. Is there any contingent on the funding or loans we have with needing the German offtake agreement getting signed? Peter Sherrington: Yes. So we have some volume requirements that we need to meet with our German lenders and Siemens Gamesa covers a substantial proportion of that. We would like some additional volume to provide us with some buffer over their requirements as well. So as we're not just reliant on the existing contracts. So that is a requirement. But probably the major focus is also tying it in with investment from the German Raw Materials Fund as well. So there's two key things that are driving our focus on those German market opportunities. Penelope Stonier: Thanks, Peter. I have a second question from John Hebenton. How do you expect to reassure shareholders that this project will succeed given constant delays? And more importantly, the shareholder value has been destroyed through massive dilution and price -- and share price that is down over 60% from its highs as well as the current price of $0.28 or slightly down today. Can you give a bit more color on that share price movement, please and reassurance from the shareholders? Darryl Cuzzubbo: No worries, John. So just a couple of things right. So the question is around whether we're going to get to FID or not. We're 90% there. So there is no question we're not going to get to FID. The question is, are we going to get to FID on the best possible offtake pricing terms. And as I said, we're close. Now in terms of share market performance, if you compare us to our peers, excluding Mountain Pass and Lynas producers, we've actually done very well. So our share price over the last 12 months is up nearly 110%. You talk about coming off lows. We've moved with the rare earth sector, right? So when there was different geopolitical events, we all -- the rare earth sector rode those waves. But if you take a 12-month view and compare us to our competitors, we've actually done pretty well. And we're going to continue to do that. Now on the dilution front, if you look at Peter talked to the total funding ask, we have maximized out on debt. We have done that deliberately to minimize dilution to our shareholders. So I feel like we're doing everything we can to pull off a capital-intensive project in a way that protects shareholders' value. And like I said, we're not just taking the short-term view here. We're taking a long-term view. We want to get to that FID catalyst, but we're also making sure that we lock in the best pricing terms that will actually more than anything else, define the value of your company for the next decade or so. Penelope Stonier: Thanks, Darryl. I'm going to group two questions together here. In hindsight, would it be a faster path to secure equity funding and offtake with the U.S. rather than relying on the AU market? And then can you provide some thoughts on the U.S.A. floor pricing, its potential to be pulled and how that political move may ripple across into Australia and what the critical minerals reserve. Darryl Cuzzubbo: Yes. It's a very good question. Sorry, who asked that question? Penelope Stonier: Bernard as well as [ Patrick Losav ]. Darryl Cuzzubbo: Okay. So Bernard, Patrick, very good question. So look, with the benefit of hindsight, there's actually nothing I would think we should be doing differently. So just remember, so the U.S. is pushing hard now with the recent administration, but that wasn't the case 18 months ago. So I think we have adapted to reflect what's happening in the different regions. I'm hoping that if you look at the global manufacturing powerhouses, a great outcome for us is to have offtake agreements in different regions on pricing terms that allows us to move to an independent index. I would say if we can pull that off, we will be better positioned than anyone else. So you look at Lynas locked in with Japan, Mountain Pass locked in with the U.S. We've actually -- if we land our intent, we will actually have the most globally diverse offtakes with end customers, and we're trying to negotiate terms where we can move to an independent date. This will position us very well. So in terms of would we do something different? I mean, at the micro level, of course. But at the macro strategic level, no. No, I think this is playing out well for us. And time will prove that. Penelope Stonier: And then just another question related to the U.S. from Thomas Morris. With the U.S. interest in Greenland rare earth supply, does this diminish the prospects for Arafura? Darryl Cuzzubbo: So -- and I just realized I didn't answer Bernard and Patrick's question around the U.S. floor price. So just with the -- let me answer that, then I'll come to the Greenland question. So on the floor price, with Mountain Pass, we actually saw that as a one-off. What's most important to us is that we can move to an independent functioning market index, where we believe the pricing will be well above that floor price. With that said, the -- as you know, the Australian government has been talking about this strategic reserve for critical minerals, including rare earths, and they're talking about a floor price. So if we can secure a floor price, we obviously will. But our priority is to get ultimately better pricing, and that will be on an independent functioning price index. Remember, the Mountain Pass deal, whilst they got a floor price, they had to share any upside with the U.S. government. We prefer to keep the full upside. Now with the Greenland, this is -- and I think I might have mentioned this previously. So the Greenland's resources on rare earths are not well defined. So it typically takes 18 years to find a resource and take it into commercial production. Greenland is probably not even at the start of that 18-year tenure. So any Greenland prospects, if they work out to be economic is many, many years away. Penelope Stonier: Okay. Thank you. Another question from Bernard. What participation will Arafura make with regards to the Australian government's $1.2 billion critical mineral strategic reserve? Darryl Cuzzubbo: Yes. So we -- I think we've taken a proactive and leading position in that. AMEC pulled together the sector, the rare earth sector and put a proposal forward to the government, and it's similar to -- as I was saying before, similar to the Mountain Pass type agreement, where there's a floor where you're sharing some upside above a certain price. And the Australian government is considering that, noting that pretty much not all, but most of the rare earth sector were behind that sort of arrangement. Minister King did make announcement earlier this month on that to progress that concept. It will be administered by the EFA, which are very -- who are very familiar with our project and looking to pass legislation sometime later this year. So we're very engaged with the government on that. We're very engaged with the broader sector on that, and we've been engaged with AMEC and the proposal that was submitted to the government just before Christmas. Penelope Stonier: I've got a question from [ Sapien Nath ]. One of my observations about mining businesses is they're inward-looking mentally, which means focusing just on their business. Technology companies try to develop the ecosystem to improve the sustainability and future prospects. What is Arafura and to make sure that we are a major player and also to make sure to establish the importance of NdPr for the world? Darryl Cuzzubbo: Yes. So it's a very good question. So there's a number of aspects to your question. So firstly, I think if you look at just the rare earths plays, I'd like to think we've been the one that's been advocating for this non-China index the most. Because we see that as the ultimate thing that will open up the rare earth sector across the globe as well as getting good returns for our shareholders. I'd like to think we're taking a bit of a leadership position on that. But we're also mindful that this project has many stakeholders. So we've got a clear pathway to net zero. The power supply, and we'll be able to say a bit more about that in coming months, enables renewables to come in. We're very focused that building up this project just north of Alice Springs. It will bring jobs and prosperity to the local community. So I'd like to think we're taking a very broad look across our stakeholder base, doing what we can to provide that support, but we also need that support in return. We're talking today about Phase 1. But as soon as we post FID, we want to start progressing approvals and engineering for Phase 2. So I'd like to think we're taking a long-term holistic view and taking a global leadership position in getting the sector to move to a non-China controlled index. Penelope Stonier: Okay. I think I've got another question here from Heath Milton. Just want to understand how the Board looks at the volume of shares currently on issue, edging to just under 5 billion shares on issue. Has the Board considered a share consolidation? Or is this something that they will look at believing that it would potentially help in reducing short traders in the stock and help prevent opportunistic takeover? Darryl Cuzzubbo: Yes. So Heath, look, just in the short term, our focus is on just closing out the last 10%, right, so we can get going. However, we are looking at the share consolidation. There's pros and cons, right? So the con is you reduce liquidity. So if we want to become the rare earths stock that's in construction, then investors need to have sufficient liquidity. So that's a bit of a downside with share consolidation. But the other big factor in all this that we're looking at and testing is it may help bring in U.S. investors, and we're actually testing that with the market. So in short, we're looking at it, and we're assessing the pros and the cons. It's not something that I see us doing in the short term as we just focus on rounding out the funding and moving into construction. Penelope Stonier: And just touching on share price movements today. Can you please -- this is from Craig Fishman. Can you please provide any thoughts on why the share price movement has moved to 6%? Darryl Cuzzubbo: Yes. Good question. So let me -- so this is obviously a very dynamic situation. Let me make a couple of comments and I might hand over to you, Peter, for anything to add. So there's probably a couple of things, right, that have been announced or been talked about in the media. So one is around the Mountain Pass floor pricing and whether that's applied to other projects or not. And as I've already said, we have not expected that. We've been pushing for something that we think is better, which is an independent pricing index. But I think that may be impacting the market. And then the second thing is just the Australian exchange rate where the Australian dollar has strengthened against the U.S. dollar given our bank -- there's a better chance of maybe increasing interest rates whilst the U.S. maintaining or reducing. Peter, do you have anything to add to that? Peter Sherrington: No, I would have said the exact same thing. I suppose the Reuters article, which has probably been picked up on today by a number of groups seems to be maybe impacting the share prices of the sector. But as Darryl mentioned, our understanding was the floor price for MP was a one-off. I thought that was pretty clear from some time ago, but perhaps that wasn't so clear to the market. And then probably the major thing, I think, which is driving the share price and the sector and other miners as well today, I think it's sort of not just a rare earth thing is uncertainty over the U.S. dollar exchange rate and how that impacts earnings moving forward and perhaps also interest rates where you've got a capital-intensive project where there's uncertainty over interest rates, that is also a potential impact on earnings. So I think they are probably the key drivers. But in markets, we don't know everything until often after the fact sometimes, but they're our best guess. Darryl Cuzzubbo: Thanks, Peter. Penelope Stonier: Thanks, Peter. So a question from Fredrick Richmond. So far, compared to other rare earth companies, the share price has reacted only slightly to increasing market momentum. Arafura is clearly not seen on the stock market as a serious project that generates sustainable shareholder value. How do you intend to change this and ensure that long-term shareholders in particular, benefit from these developments? Darryl Cuzzubbo: So Fredrick, again, like I just said earlier, like if you look at the last 12 months, we've actually -- our share price has done pretty well. And if you compare us to other projects, you'll see that, right? So our share price has risen 110% in the last 12 months. But you know what, there's always more to do. And like I've said a couple of times, what's in our control is obviously getting to FID and locking in offtake agreements on favorable pricing terms. So the two things that we can do right now that drive shareholder value. We pulled Tommie in. The next phase, construction phase will be tougher, tougher again. And the best way to make sure that we're successful there and deliver shareholder value through that phase is good people and good planning, and that's exactly what we're doing right now. Penelope Stonier: Thank you, Darryl. And in terms of -- I've got a question from Heath Milton as well. Just in terms of coverage and understanding the Arafura story, how does the company propose to be able to develop those relationships and gain greater coverage and then obviously, a greater understanding throughout the sector of where the company is at. Darryl Cuzzubbo: Yes, that's a good question. So I might make a couple of comments. So Penny here has done a lot of work in this space since joining us. So let me make a couple of comments. So the rare earth sector up until recently actually has not been that well understood. Actually isn't that well understood. It's quite a niche sector. So we have spent a lot of time educating research as well as investors on the sector. And obviously, as our profile has grown, as our market cap has grown, we've got increasing interest from researchers. And I think that will happen, that will go to another level again post FID. But we focused heavily on educating researchers on the sector and our project in preparation to encourage them to cover us. Penny? Penelope Stonier: I think you've hit the nail on the head, Darryl. What we are seeing Fredrick as well, in particular and for Heath -- we do have a lot of the investment houses, research analysts that do look to the sector, and they have openly come to us and spoken to us recently and that where part of their challenges is particularly around the price bifurcation, the dominance of China and seeing some traction in terms of having alternative suppliers of NdPr and other rare earths coming to market so then they can actually validate their assessments and their work going forward. So there is -- as Darryl said, we are engaging with the analysts. We're engaging with the research desk. We are doing a lot of work. And I think in terms of that validity of our project, the deal that's being done from EFA, from KfW, from all of our lender group is probably a really good signal that this is a genuine project. We are just that so close that 10% away from securing it, that I think in coming months, you will really see the value in terms of what is coming out of Arafura, particularly as the most advanced project pre-feasibility, preconstruction, we've done our feasibility studies. We are the most advanced and construction ready. It is just that 10%. So I think we're getting good traction in the market on that perspective. Darryl Cuzzubbo: I think as the sector understands the importance of ore to oxide and how that truly differentiates us as well, I think that's going to play in our favor. Penelope Stonier: And one last question from Fredrick. As we look to the parallel pricing systems established outside of China and further full price guarantees potentially by government, what effect will this have on any existing offtake agreements already in place? And do those need to be renegotiated? Darryl Cuzzubbo: Yes. Look, so we did anticipate a change in the pricing environment as we did different offtakes. It's happened sooner than we expected, thanks to the U.S. So we do have provisions to enable a transition. But ultimately, they still need to be negotiated. But this goes to my point earlier, now is the time to negotiate these better pricing terms. Penelope Stonier: Okay. I think another question probably turning more towards the project. Can you please from [ Aman Malik ], how much of the 10% in dollars? How much is this 10% in dollar value and the number of shares that will be added? Darryl Cuzzubbo: Yes. So as Peter mentioned, it's USD 134 million out of a total funding bracket of USD 1.9 billion. So it's actually less than -- is less than 10%. Peter, I don't know if you've got an idea of the shares for that USD 134 million. Peter Sherrington: It will depend on what deal is struck with those particular investors, Darryl. So I think our objective will be to minimize the number of shares and maximize the price that we issue those at. I mean that's always going to be the case. But I think to sort of speculate what that will be now is probably a little bit difficult. Darryl Cuzzubbo: Thanks, Peter. Penelope Stonier: Thanks, Peter. And in terms of -- just to clarify one question from Robert William. Where will the processing plant be built? And what are the processes that are being utilized? Darryl Cuzzubbo: Yes. So Robert, so the process plant will be built at the project site. So that's 135 kilometers north of Alice Springs. One of the differentiators for us is that all of the processing happens on the one site. So if you look at other projects will have the mine separate to part of the process plant and that has a couple of things. It means you've got transportation costs. But the other thing is with rare earths, when you find rare earths, it's found with radionuclides and by having the whole process plant on site, everything that leaves site is clean from a radiation perspective. So this is super important when you're looking at other rare earth projects, this is a differentiator by us going to an oxide, which removes the radionuclides and having it all done on the one site. In terms of -- you asked the question, what is the exact process? It is a complex process, right? So 90% of the CapEx, 90% of the OpEx is tied up with the process plant. But broadly, there are four components. So you've got the mine that makes up 10% of the CapEx. You've got the concentrator that really concentrates the rare earths. And that's pretty low process complexity. So you've got concentrators in copper, gold, et cetera. Then you've got a hydromet circuit, and that's a chemical process that uses different assets to start to pull the rare earths out. That is the most complicated and capital-intensive part of the project. And then the back end, you've got what's called separation. which is where you -- it's the last step where you pull the light rare earths, pull the light rare earths out into an oxide for sale. So if you look at -- you compare us to Lynas, Lynas is, those steps the mine, the content of the mine, obviously, Mt Weld, you've got the concentrator at Mt Weld. You've got the hydromet circuit, which is at Kalgoorlie and then you've got the separation process in Malaysia. We do all of that at the one site. Penelope Stonier: And talking about the CapEx there from Bernard. In terms of CapEx denomination, do you -- are you able to provide a breakdown on U.S. versus AUD on proportion? Darryl Cuzzubbo: I don't have that at hand. Most of it is Aussie dollar, by the way, but there is a U.S. denomination. I'm not sure, Peter or Tommie, you've got any more definitive insight into that. Peter Sherrington: I haven't got the exact figure on me, but the U.S. dollar and euro component of the CapEx is not significant. Our most significant FX exposure is in actual fact on converting the U.S. dollar loans back to Aussie dollars so as we can spend them on the project. So in terms of FX exposure, that's probably our most significant focus. Penelope Stonier: Okay. And one more project-related question on procurement supply. Can Arafura avoid electricity supply problems that Lynas Rare Earths has had? Thank you from [ Jeffrey Propel ] in Miami Beach. Darryl Cuzzubbo: The simple answer to that, Jeffrey, is yes. So Lynas are moving to an off-grid solution. Our solution is already off grid. So we have a gas pipeline that runs through our tenements. We will be tapping into that with an independent power supply. So we will not be reliant on the grid. Penelope Stonier: Conscious of time, I'll probably just wrap up with two more questions. Darryl, prior to the last capital raise last year, the Board said that the cash burn rate was around $1 million to $1.2 million per month. Excluding capital costs -- excluding the capital raising costs, what has been and are now the estimated cash burn rate per month, has that changed materially? Darryl Cuzzubbo: Yes. So as you said, excluding the one-off funding-related costs, our cash burn is a bit over $2 million a month. However, as we get close to FID, we are going to be ramping up our project team and execution readiness so that soon after calling FID, we can release contracts and start construction. So right now, it's a bit over $2 million a month. Penelope Stonier: Okay. All right. Scott McCullough, just thanks team doing a great job. So we appreciate that support, Scott. And just to wind up, Darryl, I'm going to collectively pull in half a dozen questions here, and I think they're all burning to know. Can you please provide updated guidance? What -- when do we anticipate FID now? And what are those key steps that will be required, the catalysts you've spoken about them in the -- at the AGM. What are those catalysts now to be able to call FID and move forward into construction? Darryl Cuzzubbo: So the main catalyst is securing the last 10% of funding but it's linked to the offtake. So we'll be basically using the remaining offtake to pull in equity. And as I mentioned, we want to get as favorable pricing terms as we can on that offtake. And it's like any negotiation, right? So if you're doing a purchase agreement or buying a house, you can always do a quick deal. A better deal always takes a bit more time. So we've been quite tough and deliberate about that. We've been very deliberate in having multiple strategies to create that competitive tension, right? So I would argue we're looking at closing that FID, but we want to get the best possible pricing terms as we can. Now the reality is with the offtakes, we don't need to have -- we want to have all the offtakes in place, but we actually don't need to have them all in place from a lender perspective until debt drawdown, which is about 12 months after we start construction. In terms of finalizing that time line, our best guidance at this point is to finalize those agreements by the end of March, which would then enable us to take that final equity piece to shareholders, which will enable FID in Q2. So we want to by the end of this quarter, get the agreements in place that then enables us to call a shareholder vote in Q2. But I need to stress, right, we're not in control of the time line. We can influence it, but we're not in control of the time line. Penelope Stonier: Thank you. There are just a couple of minor questions here that I will revert directly back to the people who posed those questions. But Darryl, there's no other questions on the phone line. So I might hand back to you to close. Darryl Cuzzubbo: Okay. No worries. Thanks, Pen. So again, thank you, everyone, for joining us today. Please always feel free to send through any questions that you have to the company. Don't need to wait for the quarterly updates. I hope you can see that the pieces are coming together. We are focused on the key items that will deliver the most value that is rounding out the funding, getting the best pricing terms for our offtakes and making sure that we're ready to execute. I look forward to providing you an update again on these activities next quarterly, and we would like to thank you for your continued support. Thank you for dialing in today. Operator: That does conclude our conference. Thank you for participating. You may now disconnect.
Operator: Thank you for standing by, and welcome to the Genesis Minerals Limited Quarterly Activities Report December 2025 Conference Call. [Operator Instructions] I would now like to hand the conference over to Troy Irvin, Corporate Development Officer. Please go ahead. William T. Irvin: Good morning, and thanks for dialing in to Genesis teleconference. In Perth, presenting today, we have Raleigh Finlayson, Executive Chair; Matt Nixon, CEO; and Morgan Ball, CFO. Fair to say, these are unprecedented times in gold. At the current gold price, gold companies from every corner are generating soaring cash flows and have soaring share prices. So how to stand out? The team will cover all the key numbers shortly, but the pulse of these 2 attributes Genesis will continue to strive for in 2026. Firstly, reliability, that is consistently hitting production guidance; and secondly, growth, that is selling more gold into a buoyant gold price. From the investor engagement perspective, today's ASX announcements mark the start of a busy period. In the coming weeks, we will release an updated corporate presentation plus half year financials with 1 or even 2 drilling updates also brewing. I will now hand over to our Executive Chair. When it comes to the Q&A session, can all questions please be directed to Raleigh in the first instance. Thanks again. Raleigh Finlayson: Thanks, Troy. I'd like to start with providing some additional color on the important announcement we made today, namely the promotion of Matt Nixon into the role of CEO and me stepping into Executive Chair role. Now is a perfect time for this realignment of roles and responsibilities for the following reasons. We recently completed the underground mining tender and contract award to Byrnecut, a 6-month process that Duncan Coutt has diligently led. With that body of work behind us, Duncan now has capacity to take on operational oversight in his role of Executive Director of Operations. Duncan is a mining engineer with over 30 years' experience, providing invaluable leadership and mentoring to the high-caliber leadership team we have assembled at Genesis, many of whom I'm confident will become future industry leaders. Duncan was previously COO at Ramelius Resources for 9 years, managing Ramelius' operating mines during a period of significant growth. With Duncan taking on operational oversight of Genesis, not only will our results' core value remain in very good hands. But importantly, this provides Matt capacity to take on a broader role in the organization by expanding to the running of the company on a day-to-day basis and delivering our strategic plan, which is due to be published to the market in the current half. Personally, with the rail tripartite agreement, Tower Hill approvals and native tile agreements now all in place, this affords me the opportunity to look to the future and proactively focus on strategy and kickstart important strategic initiatives like a strategic review on our Bardoc project, and unlocking the potential of the recently acquired focus assets within the Laverton operations, but at the same time, retaining ultimate executive oversight. Importantly, our previous Chair, Tony Kiernan, will assume the role of Lead Independent Director, which will ensure the high standards of corporate governance are maintained. This is very much a case of business as usual, Same people, same strategy with a clear delineation of roles and responsibilities. The priorities and key objectives remain the same. And very importantly, the culture is completely maintained, noting Matt's key role in development of our 5-year strategic plan and core values in March 2024. Matt's promotion aligns strongly with our strategic plan, which includes people first as one of our core values. In that plan, we promised to empower key talents with development pathways and provide a one-stop shop for our people. This is recognition and reward for Matt's performance, meeting or exceeding guidance since Matt started with us in August 2023. Our team is totally fit for purpose with the right people in the right roles. This will ensure we fully capitalize on the outstanding growth pipeline we have established while maintaining our track record of meeting or exceeding our commitments to the market. Personally, I remain heavily invested and committed to Genesis and its ongoing success. This transition will facilitate further outperformance and aligns us with our commitments to develop our people from within. This in turn, ideally attracts similar like-minded people that are seeking career development and progression to join Genesis. Troy and I will be conducting a global roadshow starting in Sydney and Melbourne next week and then on to the BMO conference in late February, where we'll be happy to discuss Genesis' exciting future. With regards to the quarter report, it was another one where we met or exceeded all operational targets whilst making strong progress on our growth agenda. Importantly, our record production was accompanied by tight cost control, which was a significant achievement given the cost pressures faced across the industry. This led to an underlying cash build of more than $200 million, ending the quarter with cash and equivalents of more than $400 million and nil bank debt, with $100 million of debt drawn to fund the Focus acquisition now fully repaid only 7 months post acquisition. Pleasing living results has us at the upper end of production guidance, the lower end of all-in sustaining cost guidance at the halfway mark with our FY '26 full year guidance maintained at 260,000 to 290,000 ounces at between $2,500 and $2,700 all-in sustaining cost range. We will continue to lay the foundation to deliver our ASPIRE 400's accelerated growth strategy, including a milestone December quarter at Tower Hill. Matt will provide an update on this outstanding progress on this flagship asset in a second. We look forward to unveiling details of our longer-term plan later in the current half, including the mill expansion strategy and a refresh of our strategic pillars following significant growth since our inaugural plan was published in March 2024. I'll now pass you on to Matt to run you through the operations. Matthew Nixon: Thanks, Raleigh, and good morning, all. I'm pleased to highlight another consecutive quarter of record gold production for Genesis with just over 74,000 ounces produced at an all-in sustaining cost of $2,635 an ounce, generating $231 million of mine operating cash flow and net mine cash flow of $167 million after investing $64 million into our growth assets, including Tower Hill, Ulysses Underground and Jupiter open pit. Importantly, this was underpinned by strong safety performance with 0 LTIs sustained during the quarter and an improved serious injury frequency rate to 4.2. This consistent delivery has the company well placed to meet our FY '26 guidance, as Rael reiterated, with just over 147,000 ounces at an all-in sustaining cost of $2,578 an ounce produced during the first half. In parallel with the strong production performance across the Leonora and Laverton operations, multiple significant development milestones for the Tower Hill project were achieved during the December quarter, which paved the way for operational readiness activities to be advancing ahead of schedule and site establishment works to be able to commence in the current March quarter. These milestones included receipt of Stage 1 mine development and closure plan approval and native vegetation clearing permit, agreement reached with the PTA, Arc Infrastructure and Aurizon to enable shortening of the Leonora rail line and execution of a mining agreement with the Darlot people. Also noting, we're very pleased to execute a second mining agreement late in the quarter with the [ Nyalpa Pirniku ] people, ensuring that development pathways for all Genesis tenure in the Leonora and Laverton operational centers is now formalized through these mining agreements. To facilitate acceleration of this world-class asset, capital investment into Tower Hill has been brought forward into FY '26, resulting in a revised full year Genesis growth capital outlook of $220 million to $240 million, previously $150 million to $170 million. I look forward to articulating further details in our updated long-term plan later in the June half. The Leonora underground mines delivered 289,000 tonnes of ore at a grade of 4.6 grams per tonne for 42,783 ounces, a 24% improvement in tonnes and 34% improvement in ounces quarter-on-quarter. Gwalia mine's just over 32,000 ounces at a grade of 5.6 grams per tonne from 178,000 tonnes as stoping continues through the Heart of Gold. As development and ramp-up continued positively with a record 1.6 kilometers of lateral advance and 10,500 ounces mined at 2.9 grams per tonne from 111,000 ore tonnes, which was a 46% improvement on the September quarter. As announced earlier this month, we completed a competitive tender process for provision of underground mining services at our Leonora operations that attracted several Tier 1 contractors and culminated in issuance of a letter of intent to Byrnecut Australia, who plan to mobilize in early May following completion of the current contract term by Macmahon, to whom I would like to express our appreciation for the dedication and contribution of their people to Gwalia, Ulysses and the Genesis business. The Leonora open pit mines delivered 330,000 tonnes of ore at a grade of 1 gram per tonne for 11,000 ounces as focus continued on cutback activities for recently identified shallow lateral extensions at Admiral and pre-stripping works for Stage 2 at Hub, with ore volumes to increase significantly during H2, particularly in the June quarter. Impressive total material movement was achieved at both open pits for a total of just over 6 million tonnes hauled during the quarter. Over at Laverton operations, the Jupiter open pit continued to ramp up well following commencement earlier in FY '26, with mining productivities across our new Genesis Mining Services fleet improving as more floor space was opened up in the central subtle section of the pit. And just shy of 3,000 ounces were mined at a grade of 0.7 grams per tonne from 133,000 tonnes of ore and total material movement of 3.5 million tonnes. At both the Leonora and Laverton mills, throughput performance was excellent, with 365,000 tonnes processed at Leonora at 4 grams per tonne and 92.8% recovery for just over 43,000 ounces recovered and 759,000 tonnes processed at Laverton at 1.5 grams per tonne and 83.8% recovery for just over 31,000 ounces. 38% of that Laverton mill feed during the quarter was third-party ore at a recovery of 79.2%, noting Genesis ore recovery remained consistent at 91.2% as we close out the FY '26 ore purchase agreements with one final campaign to complete during the March quarter. Pleasingly, and aligned with our consistent future-proofing strategy as well as supporting current mill expansion studies at both Leonora and Laverton, we closed the quarter with group stockpiles of 1.4 million tonnes at 1.2 grams per tonne for 53,000 ounces. To round out the excellent quarter, $11.9 million invested into exploration activities continue to yield encouraging opportunities across the portfolio, including testing the upper 1,000 meters of Gwalia that hosts the historic workings and commencing the maiden Genesis drilling program at Beasley Creek, testing for ore body extensions as well as infill for inferred resource conversion. We look forward to providing a geological results update in the coming months. I'll now hand over to Morgan to talk through financial performance. Morgan Ball: Thanks, Matt, and morning all. Further to this morning's release, I'm pleased to comment on some of the key financial outcomes for the quarter. As you heard from Matt, we maintained our run of increasing gold production quarter-on-quarter. And in the December quarter, we sold 71,000 ounces at an average gold price of AUD 6,057 an ounce, up 20% Q-on-Q, generating $430 million in sales. Cash and investments increased by $41 million to $404 million. This is after the company fully repaid the $100 million in corporate debt that we drew down just 7 months ago as part of the Focus laverton acquisition funding. It's really pleasing to have had the liquidity and balance sheet flexibility to optimize our capital management approach this way. Matt and Raleigh have referenced our cost performance, tracking to the lower half of guidance year-to-date. Despite ongoing cost pressures, it has been very encouraging to see the way that the whole Genesis workforce has embraced and contributed to our internal cost reduction initiatives under the Project TALO banner, TALO being an acronym for Think and Act Like Owners. Support for the TALO Project has been across the entire business from the shop floor upwards, and this is particularly pleasing given the strong macro backdrop and rhetoric, potentially resulting in people not chasing those centers. Despite this backdrop, our view is that now is the exact time that we should be focusing on these initiatives, and we are practicing what we preach. We set an ambitious internal cost-out target under Project TALO, and we are on track to achieve this. A few additional corporate matters. We have finalized the stamp duty position in relation to the Focus Laverton acquisition, and we will make this $13 million payment in the June quarter. Given the company's growth performance and profit generation, we will utilize our remaining tax losses during FY '26. And therefore, it is likely that we will start paying income tax installments in the coming months. You will note that we have estimated our unaudited NPAT for the half year at $235 million to $245 million. Not surprisingly, given our growth and with some help from the gold price, this compares favorably to the corresponding period last year, up 300% and in fact, is above our full year FY '25 NPAT of $221 million. We anticipate releasing our half year accounts on the 19th of February. I'll now pass you back to Travis for Q&A. Operator: [Operator Instructions] The first question today comes from David Radclyffe from Global Mining Research. David Radclyffe: A couple of questions from me. First off, I appreciate the long-term plan is still in the works, but maybe could you talk to what, if any, the potential impact is on the Tower Hill timetable from bringing forward the capital that you announced today, especially if we think about the Stage 1 pit and the opportunities here. Raleigh Finlayson: Yes. Thanks, David. Yes, look, as you articulated, 5-year plan in this current half. Obviously, all the final details coming together. You would have read in the quarterly activities underway there. Obviously, the original plan was first ore in FY '28, there is scope to bring that forward, but that will be fully articulated in the plan, which is just around the corner. So long to wait now. David Radclyffe: All right. And again, maybe pushing that a little bit, too. In terms of the potential expansion studies that are going through now, have you started to think about the long lead items there and maybe committing to some of them given that the market could tighten again? Just coming from the thought here that hopefully, that doesn't become a bottleneck to actually delivering the expansion plans when you announce them? Raleigh Finlayson: Yes, 100%. Look, we're obviously in the final throes of the expansion works at Leonora as well. So that's a couple of items on the radar. We're very good tabs about what those long lead time items are. So again, that will be updated in the full plan, but there's a couple of things that we will move on reasonably quickly. So again, watch out for that in due course. David Radclyffe: All right. And look, if I could squeeze just one last one in. In terms of the Ulysses underground, it's still ramping up, but I noticed that the grade is still running reasonably below reserve grade. So any color you could provide here maybe on the current thoughts about the volume and grade profile for the US' underground? Matthew Nixon: Yes, David, Matthew, just to, I guess, summarize where U is at as we ramp up, as you highlighted, when I look at the split between development ore and stoping ore, particularly underpinned by the 1.6 kilometers through the quarter, development ore is still a heavy percentage of that feed. As more levels open up and stoping starts to become the dominant production feed, that's where we see the grade increase towards that reserve grade. David Radclyffe: Okay. Cool. And then so the ramp-up is still effectively a 12-month process from here or less? Matthew Nixon: Improving quarter-on-quarter, David. Obviously, we want to be pretty aggressive with this piece, 111,000 ore tonnes for the quarter. Ulysses, in the longer-term, Leonora strategy looks to provide 500,000 to 600,000 tonnes per annum. So you can see we're well on track for that 150,000 tonne run rate. Operator: The next question comes from Levi Spry from UBS. Levi Spry: I know it's cheeky, but the milling strategy, as you get closer, maybe you can just help us talk about how maybe some of the inputs have been refined on the Tower Hill tying on gold price, on Laverton on the focus ground, just as we get closer to the unveiling of it, is there anything you want to point out in terms of refining the goalpost? Raleigh Finlayson: Yes. Thanks, Levi, and noted cheeky. Yes, look, at the end of the day, we've got plan around the horizon. If I think about Tower Hill, as far as the plan that we're going in with as far as the cutback, million ounces at 2 grams, there's no change there. We're not chasing a gold price changing cutoff grade, any of those sorts of things. It's purely the potential timing. Obviously, we're lining up the rail agreements and obviously getting the approvals to Stage 1 in the last quarter has enabled us to potentially fast track some of that. So that's obviously the one change. As far as across the portfolio, drilling has commenced at Beasley Creek. So obviously, very early days on the Focus ground, which we acquired in June, but really only upside to the plan on that front. So you'll see parts of that feed into the plan when we unveil it this half, but there's still a lot more scope ahead. And as around the mill goes, I think as we've articulated in the corporate presentation, if you have a good look at the reserve ounces and ore tonnes by area. So overlay button and Leonora gives you a bit of a guide to what type of sizing of milling we're chasing, which heavily ends up that sort of 400,000 ounce run rate, which is not a massive surprise considering our ASPIRE 400 target we've had in the market for a while. So all very close. I appreciate people very keen to know what that looks like, but we're in the final throes of getting that pulled together and obviously articulating to the market. Operator: The next question comes from Daniel Morgan from Barrenjoey. Daniel Morgan: Just looking at Gwalia and the contractor change to Byrnecut. I'm just wondering if you can articulate what are the key benefits from making this change that you are seeking or expecting to get? And just what are the expectations of managing disruption from this change? Raleigh Finlayson: Yes. Look, I'll kick start, and I'll throw it to Matt to add some more color to that. But this has been a process. I'll just go back a step. Obviously, when we made the Focus announcement, we also announced Duncan Coutt's appointment to the Board as Director at that time. Obviously, this was with the planned announcement we did today on the succession of Matt as CEO in mind. Over that period of time, since then to now, Duncan has been solely focused on the tender process. It's a competitive process with a range of Tier 1 contractors. That's run its course all the way through to announcement which we made a couple of weeks ago. Byrnecut is certainly familiar to myself, familiar to Matt, familiar to Duncan in previous mines and previous companies, certainly a Tier 1 contractor moving forward. So we won't dive into much more detail about the final outputs of that tender. But as I said, we're talking about a sort of early May transition. So I'll throw it to Matt to give you a bit more color on the tender and the outcome with Byrnecut Matthew Nixon: Yes. Thanks, Raleigh. Thanks, Dan. Ultimately, yes, just to emphasize, really strong proposals from all Tier 1 contractors received. And ultimately, the proposal from Bernhart received through that competitive tender process highlighted Byrnecut as the optimal selection for Gwalia and Ulysses ore bodies ultimately to take us forward following completion of the existing contract term. We maintain our production and cost guidance for FY '26, as we've highlighted as we work through that transition in the June quarter. From an opportunity point of view, I look at productivity, both at Ulysses as a new shallow unconstrained mine and also at Gwalia with Genesis' rightsized schedule approach versus previous strategy, particularly late in the piece for Byrnecut operated at Gwalia in the 10 years prior. So for high fixed cost type operations, productivity is a game changer both on output and cost profile. Daniel Morgan: And then maybe just a question to the team just on the broader months ahead on the fresh ore outlook and grade across the various operations, maybe trying to put together all the levers from the various sites and big changes coming ahead, tonnes and grades? Raleigh Finlayson: Yes. So obviously, some disclosure just around the corner, as I've mentioned. Just a couple of, I suppose, things that you can look out for. Obviously, Tower Hill timing I've talked about on previous questions. So to look out for the timing around that one. Some other ones that have been pleasing, just on the Admiral area, that should have been completed by now. We're having ongoing drill success, drill being operative word, not gold price. So we're not changing our assumptions on gold price. It's purely the drilling success we're having there, which is extending the life there. Bruno Lewis sits in the wings. There will most likely be some drilling that will come out in due course on that, had a very successful campaign of drilling over there over the last 12 months. So that's continued to get bigger. So we're excited about Bruno coming into the production profile. And the obvious other one is Jupiter just ramping up early days at the moment, but team doing an outstanding job there on production rates and the grade continues to climb. Strip ratio continues to fall on that asset as we go forward. So there are a couple of sort of important levers. Obviously, Ulysses ramping up, as Matt alluded to before. And even at Gwalia, obviously, contract change out short term, but a bit of a sneak peek on some of the -- talking about some of the upper drilling that we're doing at Gwalia, potential step change there with some more ounces higher up in the mining sequence. So they're all little snippets. I might give much more detail there because we are so close to unveiling that 10-year plan shortly. Operator: [Operator Instructions] The next question comes from Hugo Nicolaci from Goldman Sachs. Hugo Nicolaci: Congrats, Matt and Raleigh on the role transitions. Apologies if I missed this earlier in the discussion. Just first one, looking at the recovery piece at Laverton. Are you able to just elaborate a little bit more on some of the third-party ore impacts around the recovery? And then just give us an update in terms of the expected timing and volume of third-party ore purchases into the second half? Matthew Nixon: Yes, absolutely, Hugo, Matt here. Ultimately, the recovery piece, different ore types from the 2 OPA partners coming through in the December quarter campaigns, where that's some refractory element or some of the gold locked up in, I guess, their rock types. Summary would be no impact either during the December quarter or moving forward on Genesis ore recovery, highlighted by that 91%. And to your point on the second question. Sorry, just remind me, Hugo, on the second question. Yes. Hugo, thank you. Just to close out in the March quarter, forecasting one final campaign from Brightstar, looking at 130,000 to 140,000 tonnes to complete at the end of March quarter, which closes out both OPA third-party ore commitments. Hugo Nicolaci: Great. That's helpful. And then touched on a little bit to maybe picking up on the refractory ore piece. Just if I look at the resource base, you had about 4 million ounces or close to 20% of the resource is that refractory ore type. Just want to get an update whether we should think about that starting to factor into that sort of next 5-, 10-year outlook? Or maybe are there opportunities to monetize deposits like Aphrodite and some of those others if that's not in the sort of medium to longer-term thinking? Raleigh Finlayson: Yes. Thanks, Hugo. Perfect segue. Thank you. And really, I'm going to sort of use that question to partly answer the timing around the succession today. Obviously, Matt being promoted to CEO, gives me absolute scope to start thinking, forward-looking, thinking about the strategy and a couple of strategic initiatives that I talked about in the opening around obviously reviewing the Focus acquisition ground and how that dovetails into Laverton. It's obviously a fresh in the portfolio only acquired in June. The other part of that is a strategic review of the Bardoc project. And all options are on the table. The first thing, obviously, is refreshing the DFS numbers, which haven't looked at for a couple of years. It hasn't been obviously a core focus for us to date, but a refresh of that plan and obviously look at all the options, some of which you tabled will be something that I'll be starting to focus on, obviously, with Matt stepping up and Duncan taking on an operational oversight role. So yes, more to come, and there'll be more color provided on that in the strategic plan when we release it. Hugo Nicolaci: That's helpful. And then one more, if I can. Just in terms of just clarifying the timing of that updated outlook, it sounds like you're in the final throes here. Is that something we should expect sort of by the April quarterly or possibly a little bit earlier than if you're in that final process? Raleigh Finlayson: I love your work. Current half, I think is what we've said. So it will be around there, somewhere in that period, but we've obviously got resource reserves update, finalizing of the milling strategy, which is obviously a key component of that and obviously dovetailing in some of the work we're doing on the Focus grant plus the timing of Tower Hill, other key components, but current half is what we'll stick to for now. Operator: At this time, we're showing no further questions. I'll hand the conference back to Raleigh Finlayson for closing remarks. Raleigh Finlayson: Thanks for joining us on the December quarterly call. A quarter highlighted with safe record production and free cash flow generation. I appreciate a very busy morning, so we'll leave it there, and thank you very much.
Operator: Good day, and thank you for standing by. Welcome to the SEB Financial Results Q4 2025 Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker to Johan Torgeby, CEO. Please go ahead. Johan Torgeby: Good morning, everyone, and welcome to SEB's financial results presentation for the full year of 2025 and Q4. I'll take this opportunity before we go into the material just to mention a few highlights of 2025 that we are particularly proud about. First, it is the very strong position in customer satisfaction surveys, not at least within financial institutions and corporate and investment banking. Even though we're not at the very top of private banking, we still made a meaningful improvement. Secondly, the employee engagement hit a new all-time high compared to our peers. We are now solidly placed in the top decile of happy employees within the financial industry. Also very constructive is to see our market position within CIB when it comes to league tables that we record a top level, particularly now as we've seen an activity pickup within this area. A meaningful symbolic event is that we've also established and opened our Amsterdam office. And lastly, after more than 10 years in the making, we achieved an upgrade by S&P to a weak AA rating, and we now join a very small group of banks in the world that has this formidable position when it comes to credit quality. Now flicking to Page 2 and the highlights for Q4. First, we saw a pickup in fees and commission across all divisions, offsetting the continuation of net interest income headwinds. As I mentioned, we got an upgrade by S&P. We are meeting our annual cost target and AirPlus is in line with plan. We have set the new cost target for 2026 to SEK 33.4 billion plus/minus SEK 250 million, particularly to take some -- have some room for variable compensation and other unforeseen events. The Board has proposed an ordinary dividend for 2025 of SEK 8.50 per share, plus a special dividend of SEK 2.50 per share. In addition to this, the Board has proposed a SEK 1.25 billion share buyback program for the first quarter of 2026. Flicking to Page 3, we have now received the full suite of the major customer satisfaction surveys. And we can conclude that we have maintained our position on large corporates as #1. In the Institutional Banking segment, we were #1 in Sweden, Finland, Norway, #3 in Denmark and #2 just like last year in total, and we achieved a first position in syndicated loans. Private banking improved from position 6 to 4, and we also got an award for the best Swedish equity fund of the year. On the next page, we'll go through the loan and exposure development, and we continue to see a predominantly sideline movement during the fourth quarter with some signs of improvement. Corporate lending on an FX-adjusted basis increased 3% year-on-year, and the total lending for the group increased by 2% compared to last year. Flicking to Page 5, just a very short update that we can now conclude '25 that we have adjusted or excluding all restructuring costs, a positive contribution from AirPlus, and therefore, this is EPS accretive. We are also now very well placed to grow our fee income from European payments industry given our exposure that we get with AirPlus. We're also on track to be EPS accretive, including implementation cost in 2026. Flicking to Page 6, our business plan update for 2026. We divide it in 3 simple areas: Wealth and Asset Management, Corporates and financial institutions and retail banking. And here is a selection of particular focus areas for the next year. In WAM, we want to improve our digital capabilities, and we have formed investment and Trading Solutions unit to faster develop these capabilities. We want to have more international distribution capabilities and improve our position within the pension market. For Corporates and Financial Institutions, we will continue to maintain our position, which is very strong in the Nordics and continue to selectively carefully grow outside the Nordics. We will have targeted efforts around the private capital markets. And as I previously mentioned, we expect AirPlus to contribute a bit more meaningfully during the year for the corporate payment area. In Retail Banking, it's focused on digital transformation, use data to increase sales and also go back to basics and have a simplified way of working. Flicking to Page 7. We just double-click on technology where we divide it into 2 areas. One is to work with what we have. We call that modernization of the tech stack. We have several core infrastructure transforming projects this year. And together with efficiency initiatives, we also need to increase speed of development and technological capabilities build-out. We also want to embrace new technologies and particularly, they're going to be around AI tools, both for the people that works in the bank, but also to try to get AI capabilities in front of our customers. And 2 particular projects we will focus on in the years to come. One is Sferical AI, which is the NVIDIA consortium. The other one is Qivalis, which is the stablecoin consortium with other European banks. Next page is just to say that whatever we design now in this business plan and for the future, we aim to come back to a medium- to long-term positive jaws. The last 2 years after the extreme uplift of profits coming from the sharp rate increases, we now see that we will have a different future. And whatever we do in the planning period right now, it is to at least have cost control in order to achieve positive jaws, but we do not dictate income, albeit we see some tentative signs of improvement in the year to come. With that, I'd like to hand over to Christoffer. Christoffer Malmer: Thank you, Johan. I'd now like to turn to the financials on the next slide. Before we look closer at the results for the fourth quarter, I'd like to comment briefly on the full year performance 2025. I think the year is a good example of how our diversified revenue mix provides stability over a business cycle. Lower rates continue to weigh on net interest income and net fee and commission income increased both organically and as a result of the consolidation of AirPlus. The impact from the stronger krona on our operating income has been meaningful during the year, and the stronger krona has had an impact on our operating income of about SEK 1 billion, affecting negatively both net interest income and fees and commissions. As a result of the stronger krona, the 2025 cost target has also been adjusted downwards by around SEK 500 million during the course of the year, and the final FX adjusted cost target came to SEK 32.5 billion plus/minus SEK 300 million. The reported operating expenses for the full year of SEK 32.6 billion is hence, in line with our FX adjusted cost target, and this includes the impact from the accelerated implementation program of AirPlus, which we mentioned as a potential action already in the previous quarter. This acceleration has added around SEK 100 million compared to our initial implementation cost guidance and took the total charges to around SEK 800 million for the full year. We'll come back to the annual cost target for '26 in a moment. The return on equity for the full year, adjusting for those items affecting comparability came to 14% with a cost-income ratio of 42%. Turning to the next slide and the results for the fourth quarter. The operating income of SEK 18.9 billion increased somewhat from the previous quarter despite lower interest rates continuing to weigh on our net interest income as fees and commissions increased by 8% or around SEK 500 million quarter-on-quarter. Compared to the same quarter of last year, the increase in fees and commission was 5% and 8% in constant FX. Net financial income in the quarter of SEK 2 billion is somewhat below our historical quarterly average. Operating expenses for the fourth quarter came in at SEK 8.5 billion, taking the full year cost base to SEK 32.6 billion inside our FX adjusted cost target, as I just mentioned. We can see that our efforts to continue consolidating the cost base, as stated earlier in the year, are having effects. The total number of FTEs declined during 2025 for the first time since 2018, and we will maintain the external hiring pause to continue challenge our need for external replacement hiring across the bank with continued exceptions for business-critical roles. So as such, our strategy to make room for investments in prioritized areas through consolidating prior investments remains intact. This means that even though we expect to see higher FTEs in a number of focus areas in 2026, the total FTEs in the group should remain stable. Net expected credit losses of just under SEK 400 million corresponds to 5 basis points, and overall asset quality remains stable. And the development in the quarter follows the pattern from earlier in the year with a handful of counterparties requiring provisions in specific portfolios. Imposed levies at SEK 812 million, just under our full year guidance of around SEK 3.5 billion for the year. And for 2026, we expect levies to decline slightly to around SEK 3.4 billion. So under items affecting comparability that I mentioned previously, we report a negative SEK 400 million attributable to the outcome of our annual impairment test of intangible assets. More specifically, this write-down relates to an acquisition within the Norwegian consumer card business back in 2002. And it is continued pressure on returns that has triggered a revaluation of the assets. The goodwill is written off in full, and we do not see any other intangible assets at the risk of impairment at this point. This particular asset was highlighted in our annual disclosure last year as an asset at the risk of impairment. The tax rate for the fourth quarter at 17.2%. This is, as you noticed, below our normal tax rate of around 21%, and it reflects a positive tax effect that occurred in connection with the full year closing. And going forward, we expect that the tax rate should revert to around 21%. ROE for the quarter in isolation at 13.6%, excluding those items affecting comparability, i.e., the goodwill write-down. On the next slide, we take a closer look at the development of our net interest income for the quarter. Average STIBOR rates declined by around 20 basis points over the period, which impacted our rate-sensitive deposits, particularly in Corporate & Investment Banking and in Business & Retail Banking. And as Johan mentioned, FX-adjusted lending volumes in these 2 divisions were moving largely sideways in the quarter, the results of the lower STIBOR impacted those divisions by between SEK 150 million to SEK 200 million, respectively. This delta also reflects the impact from FX headwinds. Within CIB, the net interest income in our markets business performed well and benefited from favorable market conditions, partly mitigating the negative effects from the lower rates and FX. In the Baltics, average euro rates remained largely unchanged during the quarter and net interest income in local currency increased slightly from Q3. So this represents the first quarter-on-quarter increase in net interest income in the Baltic division since 2023. Now due to the stronger krona versus the euro, the NII for the quarter in krona was largely flat. The NII in the Baltics was supported by continued strong volume growth, offsetting some of the lagging headwinds on deposit margins that has been triggered by rate cuts earlier in the year. And the volume growth in division is broad-based across all 3 countries and spans both retail, mortgages and corporates. Mortgage sales, in particular, continued to be strong, up 43% from the same quarter of last year in local FX. The contribution from our treasury operations, including some of the benefits that we enjoyed from short-term funding during Q3 remained largely unchanged and supported NII in Q4 as well. Looking forward, we continue to expect the impact from lower rates on our NII to bottom out some 3 to 6 months after the last rate cut, which then based on current rate expectations, should occur sometime in the first half of this year. Also bear in mind that the first quarter has some technical headwinds, for example, a 2-day lower day count. And we also expect a slight increase in our cost of the deposit insurance guarantee for seasonality. And of course, the FX effects we'll continue to monitor. Turning to the next slide and fee and commission income. The fourth quarter saw an increase of just over SEK 500 million compared to Q3, and this increase is broad-based with all operating divisions reporting a positive development. Within CIB, the increase was notably driven by corporate finance, equities and debt capital markets. Within BRB, the Business & Retail Banking, card fees, in particular, represented the strongest increase quarter-on-quarter, partly seasonality, but also a pickup both in the SEB Kort's traditional markets as well as in the markets of AirPlus, which, of course, has an emphasis on Continental Europe and Germany. In Wealth and Asset Management, there was higher asset values and also performance fees, which drove the increase quarter-on-quarter. Net new money for the quarter came in at SEK 6 billion with a largely even distribution from Wealth Management, Retail and the Baltic divisions. Fee and commission income in the Baltics continued to develop positively and remains on a positive trajectory supported by a number of different savings initiatives. Turning to the next slide. We'll look at the net financial income. The income came at SEK 2 billion for the quarter, which is, as I mentioned, below our 16-quarter average, but still inside the sort of standard deviation that we have seen movements around in the past. During the final quarter, we saw good performance from both FX and commodities and fixed income was more in line with its seasonal pattern of a stronger first half and a lower second half. We also had some lower market volatility impacting income in NFI. On the next slide, before we go on to the cost target for '26, just coming back to some of the AI developments and priorities that Johan mentioned briefly in the business plan presentation. In the last quarter, we introduced the SEB AI triangle that we use more as a framework as to how we engage with AI in a couple of different dimensions. We're talking about building AI into our offering; secondly, to build it into our business and running our operations more effectively; and thirdly, importantly, also supporting the AI community and growing together with AI-related companies in our part of the world. During '25, we did scale up some of our early use cases from pilots to production tools. And at the same time, we continue to roll out general purpose AI tools, so Github for Developers and the Microsoft 365 Copilot for nondevelopers to help our employees integrate AI into their everyday workflows. As we now head into '26, we'll put emphasis on a few areas where then building on the experience that we had from last year, we'll look to implement at larger scale and get AI-powered automation as a result. It's early days, but it is looking encouraging. And the areas in particular are the process-heavy parts of our value chain and on the other hand, customer-facing capabilities and ideally looking to apply AI where we get a combination of productivity gains and enhanced customer experience. Some examples include some of the customer service processes, onboarding, KYC and also parts of the mortgage process. And then finally, we'll continue to support the AI community through offering both scale-up products and services like venture debt in CIB, everyday banking and also supporting both founders and entrepreneurs in the WAM division. On the next slide, we'll look through the cost targets for 2026. And when we arrive at the number for the year, we take a couple of factors into consideration. First, we expect inflation to add around SEK 1 billion to the cost base. We expect part of this increase to be offset by efficiency gains of around SEK 700 million. This is a combination of the effects from our continued external hiring pause, efficiency gains that we've achieved through increased degree of automation as well as improved ways of working through closer integration between operating divisions, technology and business support. Now turning to investments. We make here a distinction between the ongoing investments in the business. They include the continuous work on our technology road maps, the regular system upgrades, selected hiring, incremental product development, et cetera, and this is expected to amount to about SEK 400 million. So if you add these factors together, the increase from inflation, the efficiency gains and those investments will come to an underlying cost increase of around 2%. And this is then also excluding the positive effects we're going to get from lower implementation charges at AirPlus. Now in addition to those ongoing operations, we plan to take a couple of dedicated investments in AI, regulatory and technological resilience and also building out our digital asset capabilities. So this is expected to around SEK 500 million for the year. And some of these investments we've already communicated. And a couple of them include, first of all, our initiative to secure access to sovereign compute, as Johan also mentioned, this Sferical initiative that we're expecting to ramp up during the year. Secondly, we're also investing in AI-specific tools for specific initiatives that I mentioned previously, where we're looking to scale up our activities. Thirdly, also ramping up our IRB road map initiative and here to obtain regulatory approval from relevant authorities as swiftly as possible, addressing the capital add-ons that we currently carry. Fourthly, we're also looking to invest in our operational contingency considering the geopolitical uncertainty and the backdrop we're operating in. And finally, also the build-out of the digital asset capabilities and notably our initiative that Johan also alluded to, to launch a euro-denominated stablecoin in a European banking consortium. So these are the prioritized investments, which we have wanted to make room for through our ongoing cost consolidation and the restrictive external hiring. And this, we expect will allow us to enhance operational efficiency over time. So in total, it takes the full year cost target to SEK 33.4 million plus/minus SEK 250 million for the reasons Johan mentioned. And we expect some of these additional investments to have a peak year in 2026. So the cost trajectory for the coming 3-year period should taper out. On the next slide, we turn to the development of our capital position. We closed the third quarter at the end of September with a CET1 buffer above the regulatory minimum of 360 basis points on a reported level. We also showed that we are at 290 basis points on a pro forma level, taking into account the announced but not yet fully phased in impact from our Baltic IRB models. During the quarter, we then added around 20 basis points from our retained earnings and FX contributed positively by roughly the same amount. While going the other way, the continued phase-in in the Baltics had a negative impact of around 20 as well and other REA movements had a total impact of negative 15 basis points. Now that includes the operational risk REA that we flagged in Q3, which actually in the end came in at 7 basis points, so lower than our initial estimate. So to finish the year back at our target capital range of 100 to 300, we deduct the approved buyback program of SEK 1.25 billion, which corresponds to 13 basis points and then the dividend -- the special dividend of SEK 2.50, which is another 50 basis points. So that takes us to the 300 basis points above the minimum and implying a buffer of 250 basis points on a pro forma level adjusting for the remaining phase-in in the Baltics. On the next slide, we are looking at our financial targets. And this is a familiar picture and the targets remain unchanged. So from left to right, the payout ratio with an ordinary dividend of SEK 8.50, the ratio comes out at around 54%, so in line with our target of around 50%. Secondly, the 100 to 300 basis point management buffer. We remain committed to operate within this range and as we've said, to take action if the buffer exceeds 300 basis points. And therefore, just like this year, we use a combination of continued buybacks and a special dividend to ensure that we arrive at the management buffer in line with our targets. From an ROE perspective, our ROE came to 14% underlying, which is below our 15% ROE target, and we are committed to enhancing our returns going forward, including some of the actions that Johan presented as part of the upcoming business plan. In the context of our ROE development, it is worth noting that the surplus capital in our defined benefit pension plan has continued to expand. And at the end of the year, that surplus was substantial, and there is some SEK 24 billion deducted from our CET1 capital, but included in shareholders' funds. So we have for 2025 increased the upstreaming of capital from the pension fund to the bank to around SEK 2 billion, and this compares to between SEK 1 billion and SEK 1.5 billion over the last couple of years. This additional contribution will become visible in our capital base gradually during 2026 and will be adding around 10 basis points. Nonetheless, the impact on our ROE from the pension fund surplus, which is, as I mentioned, part of our shareholders' equity is around 1.2 percentage points on our stated ROE. So bearing in mind, this impact was effectively negligible up until 2021 when the surplus was considerably smaller. So therefore, for comparability of the development of our underlying profitability, we quantify this effect. So with that, we're concluding our prepared remarks, and we are happy to take your questions, and I'll hand over to the operator. Operator: [Operator Instructions] We will now take the first question from the line of Namita Samtani from Barclays. Namita Samtani: The first one, what percentage of the workforce do you think AI will take the place of? And secondly, just on the risk-weighted assets, when you're writing new business on the lending side, particularly on the corporate side, what type of risk densities are these at? Are they lower than the average risk weighting of the corporate lending book? Christoffer Malmer: Thanks for your questions. On the percentage of the workforce impacted by AI, I think we come back to our previous comments on this topic. I think it's a bit early to conclude. As we mentioned, we have, during last year, rolled out a number of AI initiatives, both for developers and nondevelopers with very encouraging developments. We have, as part of our hiring force, external hiring force, also made sure that in the conversations we're having about replacing in the event of an exit that we have the conversation around the possibility to introduce more efficiency gains or productivity enhancements through the use of technology, including AI. But to put a number on this at this point, we do think it's a bit early, but the outlook remains encouraging for broader productivity gains. And then, of course, Namita, we also have to take the question whether we want to see more productivity from our existing resources or if there are areas where we do think that we could do the same amount of work with less. On your second question, it will very much depend on the type of business that we are adding. So the risk weight on our corporate business will then depend on the type of counterpart, the risk class, et cetera, that dictates the risk weighting. On our mortgages, as you know, that's another very transparent risk weight, which, of course, is based on our risk weight floors. And across the book, it's the risk weight of the business that we're growing into that decides. As we've highlighted in this particular quarter, it has been a relatively stable development, particularly within CIB. So you'll see that there is no meaningful impact from any REA density deviating from the average of the book. Operator: We will now take the next question from the line of Magnus Andersson from ABGSC. Magnus Andersson: Yes. I just had a question on volumes as corporate lending remains rather sluggish quarter-on-quarter. And it looks -- I know you don't want to talk about the statistics, but if they -- if the numbers tell us anything, it looks like you've been losing market share in Sweden for a while as well. So just if you can tell us anything about what you see here, if there are any signs of a potential pickup in bread and butter corporate lending during '26 or how you expect to grow back into your previous market shares. Secondly, on volumes, just in the only area that actually seems to be growing, which is the Baltics where you're growing by 10%, 11% in Latvia, Lithuania year-on-year, local currencies, 8% in Estonia, how you see the sustainability of the releveraging process that seems to be ongoing. Christoffer Malmer: Thank you, Magnus. So if I start with the first question on the CIB, I think you're right to say that it is hard looking at the numbers from [ SCB ], I guess, is what you're referring to. And we are trying to find better data to follow this more numerically to be able to conclude exactly on your question, what is our actual market share and how is it developing? Now since we have seen in the SCB data, the same trend that you have seen, we're also, of course, in discussions with CIB, whether there are any such developments. And I think a couple of things to highlight. We have a sense that we're doing the business that we like to do. So we don't get the feeling that there's a lot of business going around that we would have liked to do that we're not in. So I think that's from our perspective of our activity level. And I think the second thing could be worth highlighting is that we have had towards the back end of the year, very high activity levels. It has now, as you see in the numbers, translated into a pickup in fees and commissions in the advisory and the markets-related business, but not yet in the balance sheet-related business. So I think our best conclusion is that we are in the areas where we want to be. We are active in the dialogues where we want to be. And as the volumes start to pick up, this should materialize in increases in our balance as well. But we're monitoring this closely and would love to get better detailed numbers on exact the market share rather than relying on the SCB data. Your second question on the Baltics, you're right, that's the standout performer in terms of volume growth. And it has been a stable pickup and, of course, partly reflecting the strong macroeconomic backdrop. And I think our sense right now is that there continues to be a constructive outlook for Baltic growth with a broader momentum and the sentiment in the -- all of the 3 countries. And in areas that you're referring to in terms of leveraging and homeownership, there are indications there from a structural perspective that suggests that there's room to grow. Operator: We will now take the next question from the line of Nicolas McBeath from DNB Carnegie. Nicolas McBeath: First a question on the capital distributions here in the quarter. So why the decision to make the extra dividend combined with the slowdown in buybacks? If I annualize now the buyback pace that you're running with your latest buyback program, it's around SEK 5 billion annualized, which is SEK 5 billion less than last year. But if you wouldn't have done the extra dividend, I guess it couldn't have continued at a similar pace. So yes, why that decision to shift more to dividends from buybacks in terms of your capital distributions? Christoffer Malmer: Thank you, Nicolas. Yes. So the main point here is to solve for our 300 basis point management buffer. And with the ordinary, we're at a payout of 54%. So we're sort of in the upper end of our around 50% guidance. And then the blend of the other 2. If you look historically, we have had buybacks between SEK 5 billion, SEK 7 billion and SEK 10 billion annual pace. And we're conscious to maintain ongoing buyback track record. And as you know, we're also one of the banks in Europe that have had the longest suite of consecutive buybacks. So we want to maintain that. At the same time, we want to ensure that we maintain maximum capital flexibility. And in that context, we propose to the Board a mix of a special dividend, buybacks and ordinary. And we've also taken impact, of course, and conscious from the conversation we had around this last year that there are preferences in some camps for buybacks over dividends and in some comps, there are preferences the other way around. So we're trying to put together a balanced mix of capital distribution. And in this quarter, we wanted to -- for this year, we want to maintain buybacks, but also put a blend and a mix to get us to the 300 basis points. Nicolas McBeath: All right. Then I had a question on your NFI line, which has been now below SEK 2 billion for a couple of quarters, which is closer to the levels we saw prior to the 2022 rate hikes. And any reason to update your kind of guidance of normal NFI. And is the NFI level impacted by interest rate levels or the slope of the yield curve? If so, how? Christoffer Malmer: Yes. So on the NFI, you're right that we have been fluctuating between the -- around that SEK 2.5 billion. And this is, as you know, by definition, a difficult line to predict. And looking at some of the structural elements that you referred to, the tightening of credit spreads, the way that rates have moved, of course, there has been, for some time, a favorable development that has supported the level of NFI. But also bearing in mind that the fourth quarter, particularly in fixed income, is the seasonally weakest quarter of the year. And if you look at fixed income in isolation, it's not that different from where it was in Q4 of last year and in Q4 the year before. So I think we need to see a little bit how the seasonality plays out as we go into next year to see if there's a reason for us to revisit the level and the range that we are within at the moment. Operator: We will now take the next question from the line of Sofie Peterzens from Goldman Sachs. Sofie Caroline Peterzens: This is Sofie from Goldman Sachs. So my first question would be around the Baltic risk models. You note that the impact will be around 50 basis points, but there were some headlines a few weeks ago that the ECB had identified some deficiencies in the Baltics. Are these fully captured by the current models? Or do you need to do any additional work on that? And then my second question would be on the share buyback. So just a follow-up. So is it fair to assume that the share buyback will be SEK 125 billion quarterly run rate throughout 2026? And why didn't you kind of ask for the full year share buyback with Q4 similar to what you did last year? Christoffer Malmer: Thank you, Sofie. So for the Baltic development, we maintain our guidance, there are expectations of the impact on capital for phasing in of the IRB impact in the Baltics. So no change to that. And we also provide those pro forma numbers in the slide. On your second question, I'll come back a little bit to what I said to Nicolas. This is a -- for us, together with the board, of course, to come up with a mix of getting us down to 300 basis points. And in coming up with that mix, we take into account, of course, the dividend component, the special and the size of the buyback. And of course, last year, we were at a point where we're a much more elevated buffer level. I think we were at 460 basis points prior to distribution. And there, you remember, we took a sizable one-off deduction to a full year buyback program. And this year, we are around 360 basis points prior to distribution and then solving for the 300 together with the Board, this is the mix that we suggest and that we came up with. So I think that's the color that we can give you on that. Sofie Caroline Peterzens: But basically, it's fair to assume that you will continue with a quarterly share buyback. Christoffer Malmer: Well, as always, we take a quarter at a time and it's subject to both Board and regulatory approval as we go along. But yes, you're right, it implies a 5-year run rate for the full year -- SEK 5 billion, sorry. Operator: We will now take the next question from the line of Martin Ekstedt from Handelsbanken, please go ahead. Martin Ekstedt: So first, I just wanted to ask one on dividends. So you do a reversal back to annual dividends from previous announcement of semiannual dividends. I'm sorry if I missed part of this answer before I was a bit late on to the call. But you do this as a result of what you call in the report feedback from market participants. Could you just share a little bit more of that feedback with us and what in the end made you reverse this decision? Christoffer Malmer: Yes. So that's right. What we opened the conversation at this point last year was to look into the possibility of semiannual dividends. And the market participants, of course, it's a lot to do with listening to our shareholders and having discussions around the process within which this could be done. And one option is, of course, to have a dividend approved at the AGM and then distributed in 2 installments. But the feedback from our shareholders was that this is effectively just waiting a little bit longer for the dividend to be handed out. So the feedback on that model would also deviate a little bit from what we see in the rest of Europe, where distributions are made from current year's rolling earnings. This, however, in our jurisdiction requires an extra general meeting of shareholders. So it immediately creates a slightly bigger process and a procedure around this in order to get this into place in a shareholder-friendly way, which would then be to do the forward-leaning semiannual dividends. And this, of course, has been a conversation with primarily investors. And I think this -- the model that we would then have to introduce in Sweden would be less appreciated. Now we're not entirely ruling this out to if there is a way that we could put this in place in a shareholder-friendly way, then something we could revisit. But for now, the proposal is that we continue with 1 annual distribution. Martin Ekstedt: Okay. And then for my second question, just quickly taking a step back and focusing on your return on equity, which was 12.9% in the quarter, i.e., well below a 16% long-term target and below some of your Swedish peers as well. So I mean, we talked a bit about the costs on this call, right? But recognizing that a lot of the macro factors impacting your revenues are outside of your control. What do you think would need to happen in Sweden macroeconomically for you to close that gap to target 15% and to peers? And when do you see the timing of this, i.e., kind of a wish list macroeconomically from you guys? Johan Torgeby: I can elaborate a bit on that. Thank you. First, I'll just let us establish the baseline. So first, we have a significant surplus in our pension fund. Historically, we haven't really been talking about it because it has not been meaningful. But right now, it's actually very significant. So if you say that the SEK 24 billion of surplus, which is not available to do business, but it's included in the return on equity calculation. We don't adjust for it. It equates to 110 basis points pickup. On top of that, it is, of course, the capital that we have on -- or capital add-ons that we have, which is also outside the normal course of business as we are approving the IRB models over time. And that's another almost 200 basis points equivalent or so of a drag. So that's the baseline. So the thing that is comparable with others are, of course, without these 2, which is not a comparable number when you want to see what's the underlying profitability. So that equates to quite a lot in totality. Now what is required for top line because you're so right, you don't dictate income, I would love to, but we dictate cost and there we have a more modest trajectory going forward, as you can see from today's announcement, and we started already last year. And of course, we also now have a little bit of pause on increasing the number of FTEs in order to address efficiency and make sure shaking the tree that we have maximum optimal capital allocation also in the operational side of things that we have the right cost base. But what we do need in my book is consumption. So the -- all things look pretty promising, but it's on leading indicators. It's not really happening to the full extent. And if I look at the relative weakness for investments to really come along for that to be debt financed or equity financed, which is, of course, where we come into the picture. It is for both households and corporates to take that last step. And for me, it is consumption, and consumption is weak. I just consumed our own macroeconomics Nordic outlook the other day. And it's a pretty constructive view, and I don't think they are far off consensus. There's a strong group of consensus around a 3% growth of GDP in Sweden next year, which would have been a fairly significant acceleration. If it happens or not, we will know next year, but it's definitely the one that I'm on the watchout for income to come up, both for transactional banking, payments banking and balance sheet banking. All 3 areas will benefit from that. Operator: We will now take the next question from the line of Markus Sandgren from Kepler Cheuvreux. Markus Sandgren: So I just had 2 questions coming back to what some others have asked about. But if we're starting with the buybacks. So last year, you did SEK 10 billion for the next year, and now you're doing SEK 125 billion and then you can annualize that, of course, I guess. But Nevertheless, it seems like you really want to defend the 300 bps. So your target to be within 100 to 300, is that kind of obsolete is more like 300 plus/minus something. Is that what we should expect going forward? So that's the first one. Christoffer Malmer: Yes. I think at this point in time, considering the broader geopolitical uncertainty, the outlook that we have to Johan's previous answer, hoping, of course, that balance sheet growth should come back again. We've had tremendous tailwinds from the FX. And of course, that could go the other way. So I think at this point in time, we feel it's appropriate to be at the upper end. Just to mention also, we are on a pro forma basis, taking into account the remaining phase-in of the IRB effect in the Baltics down to 250. So to some extent, you could argue that, that's sort of moving and dipping into the buffer. But all things taken into account, I think it's cautious. And as you know, we are a cautious and a conservative bank to operate at the upper end of the range. Markus Sandgren: Okay. And then coming back to costs, as Namita was alluding to what AI can do and so on and so forth. But I mean, you were saying that you expect cost to taper off after '26. So I mean, in terms of numbers, one of your competitors has said they expect cost to grow by 2% annually until 2030. Is there something similar you're expecting? Or what should we read into this tapering off? Christoffer Malmer: Yes. So as you know, we provide annual cost targets and not the longer-term cost guidance. But what we're trying to elaborate a little bit around in the slide there is to show what that underlying cost growth is at the moment and also to highlight that some of these incremental investments we're undertaking in 2026 should peak in 2026 and then fade thereafter. And I think that the -- when it comes to the productivity gains and the efficiency gains that we're starting to see, if you look at our underlying cost growth, adjusting for the consolidation of AirPlus and the implementation charges, you'll see that it's gradually come down during the course of the year. And underlying in the fourth quarter, it is actually in that range or even a little bit below. So of course, to the extent that we can continue to enhance productivity going forward, working with the churn and the efficiency gains that we have lined up, there is, of course, a possibility to continuously improve on that cost growth. But the main message with the tapering is really to say that the current growth trajectory that we're on should taper from here going forward. Operator: We will now take the next question from the line of Riccardo Rovere from Mediobanca. Riccardo Rovere: A couple, if I may. The first one is on -- sorry to get back to loan growth, but accounting rules are the same for everyone in the loan book, corporate and retail, so forget governments, repos, collateral margin, all that stuff. The book is flat quarter-on-quarter and it's flat, kind of flat year-on-year. So the NII, considering you give the margins in your fact book and the margins are stable quarter-on-quarter and actually up versus Q2. It looks to be more a problem of absence of growth in general terms, also in retail, while the rest of the rest of Scandinavia is somehow responsive to the easing in monetary policy. So I was wondering why you don't seem to be responsive to that. And what you're planning, if you are planning anything to start resuming growth in 2026. This is the first question. The second question I had is if there is any room maybe on SRTs or something like that to keep RWA under control and eventually and so to keep the capital return as it is. And on this topic, SEK 10 billion buyback on SEK 986 billion risk-weighted assets would throw 100 basis points of capital into the fireplace to cancel at SEK 203 per share to cancel less than 2.5% of your share count. So reducing the buyback to me is the most sensible thing you could have done. So that's to be clear because the share price can move by 2.5% any minute of an hour. So canceling -- I would have canceled it personally, but reducing it and giving cash to shareholders is the best thing you can do in my view. But again, on risk-weighted assets, is there anything you can do to keep it under control on the SRTs and stuff like that? Johan Torgeby: Riccardo, Johan here. I can start with growth. So one is a constant disappointment on growth, as you are pointing out correctly in your question that the transmission mechanism, rates are going down from the central bank, banks are lowering rates and you see economic activity go up has been very disappointing. There are some signs in the retail market that things are picking up, but it's been remarkably slow to act. This is actually quite normal and very frustrating as you probably have 4- to 5-year cycles when you look at loan growth. You can just take a graph on SCB's corporate lending exposure, and you see that it moves slowly and it has not picked up. My potential explanation because I don't know why, is the capacity utilization in the industrial side on the corporate side has been fairly low. And therefore, any demand that they have met in this slightly more stabilized environment, they've been able to cover with cash at hand or existing loans and therefore, not used more capital to increase capacity. That's back to my original point on consumption. So we are looking at that, and it's one potential explanation, and it looks promising if things pan out as economists say that there will be a catch-up effect for that going forward. I also say that the leading indicators, which is typically having a 12-month lag to actual lending is the industrial sentiment indices, and they all point more than modestly. They are upwards, but not particularly impressive yet. On the retail side, there is signs of things waking up. There's clearly -- we do one, which is the house price expectations, which is a leading indicator, and that has clearly recovered. However, then you have the specifics for SEB to our earlier question around market share. So we do see that we are not performing to the best of our ability in the mortgage market, which is also partly explaining where we have some work to do there in the coming year or 2. Christoffer Malmer: On your question, Riccardo, about the SRTs, yes, I mean, as you know, we have not been active in that space historically, but it is a space that we are looking into. It is, as you also know, something that is top of the regulatory agenda in Europe, and there seems to be a lot of initiatives providing more favorable conditions for such transactions to take place. So it is something that we are looking into. Also, the pricing environment has changed there. So from an attractiveness financially speaking, it has also become increasingly attractive. So it is something that we are evaluating. And then just on your final comment, thank you for the comment on the dividend. We'll pass that also to the Board. Riccardo Rovere: Christoffer, if I may follow up very, very briefly. Have you identified in SEK billions, the maximum amount of portfolio that eventually could be part of SRT's program because that instrument -- I mean there are banks that are very active on that, and they are keeping risk-weighted assets kind of flattish or eventually down. So I was wondering what is the theoretical maximum capacity that you could have there? Christoffer Malmer: Riccardo, there is -- it's too early to share any numbers on sizes of portfolios. But one thing that we need to take into account is the regulatory environment in Sweden, which has some impact on the amount of capital release that could be achieved from an SRT. So that is one aspect into this, which then, of course, will dictate the attractiveness of the type of transaction and volume, et cetera. But no volumes to share at this point, Riccardo. Johan Torgeby: We have a hard -- thank you, Riccardo. We have a hard deadline, so we'll try to be a little bit quick. So please go ahead. Operator: We will now take the last question from the line of Shrey Srivastava from Citi. Shrey Srivastava: My first one centers around the SEK 500 million uplift from sort of AI regulatory and resilience. If you were to break this down between sort of regulatory and resilience and actual sort of AI initiatives or put another way, investments and revenue synergies versus cost synergies, where would you -- sort of would you where would you land on this, if we could just have some more color? Christoffer Malmer: Thank you. We don't break that down any further. But given that we're mentioning these 3, they all 3 have a meaningful contribution to the total number. But we don't provide an additional breakdown to that number. Shrey Srivastava: And just a second brief one. If I was look to look at your comment on the sort of uptick in investment banking activity, could we just have a little bit of color on that, specifically around if you're seeing an increase in demand from corporates operating in broader Europe around any REA initiatives. Johan Torgeby: Yes, I can take that. So generally speaking, it's a quite unusual world where the financial markets depending business lines are doing very well. It's really say that share prices are good, rates are low. It's been quite a lot of activity, very resilient financial market given the risks that we see. However, the real economy has not really performed, which is more linked to the actual funding, actual loans, house buying, factory openings. So it's a quite divided world. This seems to be -- continue. I have no reason to believe that this recent more uptick in investment banking in capital markets supported by resilient financial markets will continue until we have another, call it, situation in the market. And now we're hoping that the other part of the real economy, where you actually need new funds will come and help us. On Europe, I would say no, there are -- this is again the position where leading indicators are pointing to a better future. But I couldn't say that we have really seen it materialize yet to the point where you see -- because half of the book, of course, in corporate lending is outside Sweden. And it's quite muted still. Operator: Thank you. I would now like to turn the conference back to Johan Torgeby for closing remarks. Johan Torgeby: Yes. Thank you. And usually, we ask you to close early. Thank you for helping us with that because I know there's a lot of other calls we have today from your side. Thank you for participating. I wish you a good day. Operator: This concludes today's conference call. Thank you for participating. You may now disconnect.