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Kenneth Hsiang: Hello. I am Ken Hsiang, the Head of Investor Relations for ASE Technology Holdings. Welcome to our third quarter 2025 earnings release. I am joined today by Joseph Tung, our CFO. Thank you for attending our earnings release today. Please refer to the safe harbor notice on Page 2. All participants consent to having their voices and questions broadcast via participation in this event. If participants do not consent, please do not ask questions or you may leave the session at this time. I would like to remind everyone that the presentation that follows may contain forward-looking statements. These forward-looking statements are subject to a high degree of risk, and our actual results may differ materially. For the purposes of this presentation, dollar figures are generally stated in New Taiwan dollars unless otherwise indicated. As a Taiwan-based company, our financial information is presented in accordance with Taiwan IFRS. Results presented using Taiwan IFRS may differ materially from results using other accounting standards, including those presented by our subsidiary using Chinese GAAP. For today's presentation, I will go over the financial results, and Joseph will give the company's guidance. Afterwards, we will be available to take your questions during the Q&A session. With that, let's get started. During the third quarter, both our ATM and EMS businesses outperformed our original sales and profitability expectations. Packaging and testing utilization percentages were in the high 70s. Loading on LEAP and traditional advanced packaging lines were generally full. Our wire bond utilization also showed some improvement. Our test business continues to grow faster than our assembly business, with our chip probe testing leading the way. From a profitability perspective, with our factory loading being better than anticipated, we were able to extract higher operating leverage. However, the company's performance was still impacted significantly by foreign exchange. Despite the NT dollar's near-term decline in value against the U.S. dollar, for much of the third quarter, the NT dollar traded at a relatively appreciated level when compared with the second quarter. During the quarter, the NT dollar moved from an average exchange rate of TWD 31.2 to TWD 29.7 per U.S. dollar, strengthening by 4.6%. Simplistically, we estimate that for every percentage point appreciation of the NT dollar relative to the U.S. dollar, we see a corresponding 0.3 percentage point negative impact to margins at the holding company level and a 0.45 percentage point negative impact to margins at the ATM level. Using this simplified approach, foreign exchange had negative sequential impacts to our holding company and ATM margins of 1.4 and 2.1 percentage points, respectively. And annually, negative impacts to our holding company and ATM margins of 2.4 and 3.6 percentage points, respectively. Heading into the fourth quarter, we expect a more stable NT dollar environment with an average exchange rate of TWD 30.4 per U.S. dollar. Please turn to Page 3, where you will find our third quarter consolidated results. For the third quarter, we recorded fully diluted EPS of TWD 2.41 and basic EPS of TWD 2.50. Consolidated net revenues were TWD 168.6 billion, representing an increase of 12% sequentially and 5% year-over-year. On a U.S. dollar basis, our sales increased by 17% sequentially and 14% year-over-year. We had a gross profit of TWD 28.9 billion, with a gross margin of 17.1%. Our gross margin improved by 0.1 percentage points sequentially and 0.6 percentage points year-over-year. The sequential improvement in margin is primarily due to higher loading and our ATM business, offset in large part by foreign exchange. The annual improvement is primarily due to higher utilization and beneficial product mix, offset by foreign exchange. We estimate that foreign exchange had a negative 1.4 and 2.4 percentage point impact to our gross margins on a sequential and annual basis, respectively. Our operating expenses increased by TWD 0.2 billion sequentially and TWD 0.7 billion annually to TWD 15.7 billion. The sequential and annual increases in operating expenses are primarily due to higher R&D costs. Our operating expense percentage declined 1 percentage point sequentially to 9.3% and was flat annually. Operating profit was TWD 13.2 billion, up TWD 3 billion sequentially and TWD 1.7 billion year-over-year. Operating margin was 7.8%, up 1 percentage point sequentially and up 0.6 percentage points year-over-year. During the quarter, we had a net nonoperating gain of TWD 0.8 billion. Our nonoperating gain for the quarter primarily consists of net foreign exchange hedging activities, offset in part by net interest expense of TWD 1.4 billion. Tax expense for the quarter was TWD 2.6 billion. Our effective tax rate for the quarter was 19%. Net income for the quarter was TWD 10.9 billion, representing an increase of TWD 3.4 billion sequentially and TWD 1.2 billion annually. On the bottom of the page, we provide key P&L line items without the inclusion of PPA-related expenses. Consolidated gross profit, excluding PPA expenses, would be TWD 29.4 billion, with a 17.4% gross margin. Operating profit would be TWD 14 billion, with an operating margin of 8.3%. Net profit would be TWD 11.6 billion, with a net margin of 6.9%. Basic EPS, excluding PPA expenses, would be TWD 2.68. On Page 4 is a graphical presentation of our consolidated quarterly financial performance. On Page 5 is our ATM P&L. The ATM revenue reported here contains revenues eliminated at the holding company level related to intercompany transactions between our ATM and EMS businesses. For the third quarter of 2025, we had record revenues for our ATM business of TWD 100.3 billion, up TWD 7.7 billion from the previous quarter and up TWD 14.5 billion from the same period last year. This represents an increase of 8% sequentially and a 17% increase annually. On a U.S. dollar basis, our ATM revenues were up 13% sequentially and 27% annually. Our test businesses growth as a whole continues to outpace our assembly business as a whole, growing 11% sequentially and 30% annually. Gross profit for our ATM business was TWD 22.7 billion, up TWD 2.5 billion sequentially and up TWD 2.9 billion year-over-year. Gross profit margin for our ATM business was 22.6%, up 0.7 percentage points sequentially and down 0.5 percentage points year-over-year. The sequential gross margin increase was due to equipment utilization rate improvement, offset in large part by NT dollar appreciation. The annual gross margin decline was primarily due to NT dollar appreciation, and to a much lesser extent, higher electricity rates, offset in large part by higher loading. On a constant currency basis, relative to our first quarter, we estimate our gross margin would be roughly 4.2 percentage points higher during the quarter. This difference would have put our adjusted third quarter gross margin of 26.8% in the middle of our previously stated structural ATM gross margin range. During the third quarter, operating expenses were TWD 11.8 billion, up TWD 0.4 billion sequentially and TWD 1.2 billion year-over-year. The sequential increase in operating expenses was primarily related to higher overall R&D costs, including labor, equipment and factory supplies. The annual increase is primarily the result of R&D ramp-up and labor-related expenses. Our operating expense percentage for the quarter was 11.8%, decreasing 0.5 percentage points sequentially and down 0.5 percentage points annually. The decline was primarily the result of higher revenues during the quarter. As we previously have mentioned, we believe our spending in R&D, on an absolute dollar level, will continue to increase. But as the associated LEAP revenue syncs up with the R&D spending, our operating expense percentage should continue to moderate. During the third quarter, operating profit was TWD 10.9 billion, representing a sequential increase of TWD 2.1 billion and an annual increase of TWD 1.7 billion. Operating margin was 10.8%, up 1.3 percentage points sequentially and up 0.1 percentage points year-over-year. Without the impact of PPA-related depreciation and amortization, ATM gross profit margin would be 23.1% and an operating profit margin would be 11.6%. On Page 6, you'll find a graphical representation of our ATM P&L. Please note the generally upsloping revenue bars. Using the first quarter's foreign exchange rate, we estimate the gross margin percentages for the second and third quarters would be 24.1% and 26.8%. On Page 7 is our ATM revenue by the 3C market segments. You can see here that the Computing segment continues to become a relatively larger component of our business. This was largely driven by a higher percentage of LEAP based revenues. On Page 8, you will find our ATM revenue by service type. Here, you can see the 2 service types containing LEAP services, bump and flip-chip and testing. Both are becoming a larger component of our overall business. We expect continued momentum in these areas heading into 2026. On Page 9, you can see the third quarter results of our EMS business. The annual seasonality of our EMS business has been inconsistent over the last few years due to differing device ramp-up schedules. As such, we believe the annual comparability of our quarterly results may be impacted. During the quarter, EMS revenues were TWD 69 billion, increasing 17% sequentially, while down 8% year-over-year. The sequential increase in annual decline were both primarily the result of differing underlying device seasonality. Sequentially, our EMS business's gross margin declined 0.2 percentage points to 9.2%. This slight change was principally the result of product mix. Operating expenses within our EMS business decreased by TWD 0.2 billion sequentially and declined TWD 0.5 billion annually. The sequential decline is primarily the result of lower compensation and professional fees. While on an annual basis, the decline is primarily related to lower compensation expenses. Our third quarter EMS operating expense percentage of 5.6% was down 1.3 percentage points sequentially, while annually, our EMS operating expense percentage declined slightly by 0.1 percentage points on lower spending and revenues. Operating margin for the third quarter was 3.7%, up 1.1 percentage points sequentially and up 0.4 percentage points year-over-year. The improvements are primarily the results of higher loading rate and some one-time inventory-related adjustments. Our EMS third quarter operating profit was TWD 2.5 billion, up TWD 1 billion sequentially and TWD 0.1 billion annually. On the bottom of the page, you will find a graphical representation of our EMS revenue by application. The third quarter application mix shows the seasonal ramp-up of our customers' consumer products, with our consumer segment growing while all other segments declining in application share. We believe, at a strategic level, our EMS business faces similar technological manufacturing trends as our ATM business does. Trends such as power delivery and thermal control are core themes at the forefront in both our ATM and EMS businesses. Having the ability to address customer challenges at both the ATM and EMS level allows us to provide a broader set of technical solutions to our customers. On Page 10, you will find key line items from our balance sheet. At the end of the year, we had cash, cash equivalents and current financial assets of TWD 83.4 billion. Our total interest-bearing debt increased by TWD 55.6 billion to TWD 295.7 billion. This increase was primarily due to the completion of a TWD 50 billion syndicated loan to fund our CapEx. Total unused credit lines amounted to TWD 344.7 billion. Our EBITDA for the quarter was TWD 32.6 billion. Our net debt to equity this quarter was 63%. On Page 11, you will find our equipment capital expenditures relative to our EBITDA. Machinery and equipment capital expenditures for the third quarter in U.S. dollars totaled $779 million, of which $534 million was used in packaging operations, $199 million in testing operations, $40 million in EMS operations and $6 million in interconnect material operations and others. In addition to spending on machinery and equipment, during the quarter, we also spent $716 million on facilities, which includes land and buildings. The overall environment appears to be strengthening. For us, the upward seasonality during the third quarter has been the strongest since the COVID timeframe. From a customer sentiment perspective, the pendulum appears to be swinging from booking capacity on an as-needed basis to prebooking capacities and making sure raw materials are available. As a whole, our customers are now looking for more assurance and security in their supply chains. For the quarter, LEAP and test services continue to lead growth for the company. LEAP continues to be driven by AI. Although we are seeing more customers target their products for use within the AI super cycle, many new products are inferring AI capability or AI readiness. Products are expanding new and smart AI capabilities and features. Newer generations of products are becoming more robust electronically, while allowing streamlined access to certain aspects of GenAI capability, such as video and document creation. The key is whether the end consumers are enticed to integrate new generations of products into their lives. And to that end, AI does appear to be upping the basic standards of quality in various contexts, not just limited to the school, office and social media. And there does appear to be the not so subtle ominous angle of you need AI to be competitive. This is bringing an intelligence and capabilities arms race to everyone's front door. In such a context, understanding the seemingly insatiable need for more capable chips and hardware seems fairly straightforward. From the packaging and test perspective, the higher the AI computational capability, the stronger the chips packaging and testing needs are. Critical improvement paths in power delivery, processing bandwidth and thermal performance will continue to drive our LEAP services. With that, I'll hand the presentation over to Joseph to present the company's outlook. Joseph Tung: Thank you, Ken. Let me give you the fourth quarter guidance. Based on our current business outlook and the exchange rate assumption of USD 1 to TWD 30.4 versus in third quarter, we have TWD 29.7 exchange rate. Management projects overall performance for the fourth quarter of 2025 to be as follows. On a consolidated level, in NT dollar terms, our consolidated fourth quarter revenue should grow by 1% to 2% quarter-over-quarter. Our consolidated fourth quarter gross margin should increase by 70 to 100 basis points quarter-over-quarter. Our consolidated fourth quarter operating margin should increase by 70 to 100 basis points quarter-over-quarter. For ATM, in NT dollar terms, our ATM fourth quarter revenue should grow by 3% to 5% quarter-over-quarter. Our ATM fourth quarter gross margin should increase by 100 to 150 basis points quarter-over-quarter. For EMS, in NT dollar terms, our EMS fourth quarter revenue should stay flat or decline slightly quarter-over-quarter. Our EMS fourth quarter operating margin should be similar to fourth quarter 2024 level. With that, let me also give you some color for the full year. For ATM, we're seeing better-than-expected momentum of mainstream business, given the continuing recovery of the general market. While our leading-edge revenue, we are on track to reach the USD 1.6 billion mark as planned. Altogether, we expect ATM 2025 full year revenue to exceed our target and grow over 20% year-over-year in U.S. dollar terms. As for machinery CapEx, we expect to further increase our full year CapEx by another few hundred million U.S. dollars to meet customers' requests and to support continuing business momentum into 2026. The increase is largely for wafer probing for both AI and non-AI chips as well as for general capacity ramp and some new initiatives for year 2026. With that, let's give it back to Ken to open the floor for questions. Kenneth Hsiang: Thank you, Joseph. During the Q&A session that follows, we would appreciate if questions can be kept concise and asked one at a time. I will be receiving each question and repeating the asked question to Joseph. Again, we'll be limiting the number of questions asked to 2 questions per turn, but asked one at a time. Operator: The first question is from Gokul Hariharan of JPMorgan. Gokul? Gokul Hariharan: First question, obviously, on LEAP, could you give us a little bit more color about how the progress has been on LEAP revenues this year? I think you had the TWD 1.6 billion guidance or additional TWD 1 billion guidance. What are we tracking to compare to that guidance now? And any indications for what it could do next year? I think based on our own math, it looks like it could easily double next year. And you're also raising capacity and CapEx pretty much every quarter. And also, on LEAP, what is the margin contribution from LEAP-related business? Is it already accretive or it will turn accretive once you reach a certain kind of revenue run rate, and any indications on that? That's my first question. Joseph Tung: Gokul, you are looking for revenue progress and generally kind of what you're thinking for this year. Gokul Hariharan: Yes. Joseph Tung: Okay. Like I said, the -- we are on track in reaching our TWD 1.6 billion mark this year. Everything is progressing well. I think we have shown very strong momentum in the AI and HPC related part of the business. In terms of the revenue mix, I think, because of the geopolitical uncertainties, in terms of packaging, we are a little bit short from our original target, but that was sufficiently replenished by our more than expected growth in our test business. So we are very, very confident that we will reach our TWD 1.6 billion mark for this year. And going forward into 2026, we see -- we continue to see very strong momentum. And we are very, very confident that we will gain another -- over TWD 1 billion kind of revenue increase for 2026 in this space. CapEx-wise, we will continue to make heavy investments in our leading edge, I think, to support the strong momentum that we are seeing today. And I think AI or HPC is really -- the momentum is here to stay. We're not going to be shy on making the necessary investment to not just secure our dominant position in this space, also to expand that dominance against our competitors and to fully support our customers' needs. In terms of margin and return, I think the -- as steady state, as we mentioned before, the LEAP would definitely be both margin as well as return accretive. And we are quickly reaching that point at this point. Gokul Hariharan: Okay. That's very clear. Maybe one other question. Can you talk a little bit about pricing? I think, Ken mentioned in the opening remarks that you're pretty much running full on flip chip and bumping. You're pretty much running full on LEAP. I think last time around, I think Dr. Wu had discussed about potential price negotiations. Anything that you can report on what are we seeing on pricing for your overall offering? Should we expect that pricing should go up? I think OSAT pricing doesn't usually go up that much, but just wanted to understand how we should think about pricing going into next year. Kenneth Hsiang: Gokul, you're looking for commentary on overall just pricing environment for us for this year and next year. Gokul Hariharan: Yes. And maybe also specifically on LEAP as well as your flip chip and bumping kind of advance -- the mainstream advanced packaging business as well because the customer set is slightly different. LEAP, you're kind of largely partnering with the large foundry. Joseph Tung: Well, without giving -- without getting into specific, I think, in general, I think our pricing remains to be resilient. And I think it's very sensitive to talk about pricing. But as a whole, I think we will continue to set the -- our pricing, the most suitable pricing structure based on the current situation. I think there are a lot of moving parts, and there are a lot of uncertainties in front of us. But in general, I think we will continue to make our pricing a very, very resilient level. Gokul Hariharan: Maybe if I kind of tweak it a little bit, Joseph, like what is customer feedback? I think I'm sure that everybody is talking about this. We hear that from your fabless customers as well. But I just wanted to understand like what is customer feedback to pricing even in -- I wanted to think about a little bit more on the mainstream stuff, like flip-chip CSP or flip-chip BGA, where there is no super cycle of growth. Even in those areas, are you able to have some like value app programs coming through? Kenneth Hsiang: Are you asking for expansion on the original pricing question there? Gokul Hariharan: Yes, sir. Maybe talk a little bit more on the mainstream advanced packaging as well, yes. Joseph Tung: For mainstream, I think we are seeing the continuing recovery of the general market. And therefore, I think pricing wise, I think, it's right now at a very stable level. Operator: Next question is from Charlie Chan of Morgan Stanley. Charlie? Charlie Chan: Yes. I just unmuted myself. First of all, congratulations for very good results and outlook. My first question is really on sort of supply chain related discussion. For example, what's the update plan for you to do the U.S. operation? Because your major customers -- major foundry partners are all very active in the U.S., and there seems to be -- your competitor, Amkor, in that presence. So one is that your updated plan for the U.S. operation to enjoy that ASME kind of growth. And also, we are very concerned about the sort of T-Glass shortage. I think a lot of customers are going through with your fab to see if they can secure more substrates, right? So I'm not sure if they would be kind of a gating factor for your next year's growth. So this is the first question. Kenneth Hsiang: That's -- Charlie, that sounds like 2 questions. So let's start with question number one, the U.S. building out perspective. Joseph Tung: Okay. Thank you for your question, and thanks for coming to my concert. Charlie Chan: Yes, it was a great one. Joseph Tung: U.S., we don't have anything new to report except that -- let me reiterate what we mentioned last time that we were invited by our customers to look at the investment opportunities in the U.S. We are currently still engaging in discussion with our customers and we're evaluating different opportunities, but no decision is made at this point. But whatever decision we will eventually make, it will have to make economical sense for us. In terms of the competition, I think Amkor has its own mind. So I think I'm not going to answer for Amkor. But overall, we will continue to be watchful on the overall competition landscape and see how we can better position ourselves in terms of meeting this competition. Kenneth Hsiang: So Charlie, do you want your second question to be about your previous question on T-Glass and such? Charlie Chan: Yes, maybe we can save it for maybe second round. But my major second question is really the final test completion. So I know this one is a little bit controversial, but I wanted to get your updates or confidence level about your final test market share at major customers' next-generation GPU. Yes, and by the way, congratulations for a very strong share price. So I think your efforts were recognized by foreign shareholders. Yes, so second question is really about your final test business updates. Kenneth Hsiang: So you're looking for a more comprehensive explanation or update on our final test market share gains. Charlie Chan: Yes. Because your Taiwanese competitor seems to be very aggressive in the cashless purchase and capacity expansion as well. So I hope both can win. Yes, so I just wanted to get a little bit more color about your realistic assumption about your final test market share. Joseph Tung: I think, as we mentioned, we have been aggressive, and we have been pretty successful in terms of expanding our test business. I think for this year, our test business growth is going to be twice the packaging revenue growth. And we will continue to make large investment into our test capacity. But our resources are also limited. We don't have unlimited resources to try to cover everything in the market. So right now, the main focus for our investment in test is really on the wafer probing. And I think we will continue to on this effort for the time to come. And in terms of final test, I think we are making the investment -- necessary investment at this point to build up the capacity. And we're expecting to have meaningful revenue being generated in the later part of next year when we start serving the next-generation AI chips. Operator: Next question is from Bruce Lu of Goldman Sachs. Zheng Lu: Can you hear me? Kenneth Hsiang: Yes. Zheng Lu: Okay. My question is regarding to your revenue split for your incremental TWD 1 billion revenue in 2026 for your AI-related revenue. We understand that the revenue contribution is more geared to testing for this year. Are we able to see incremental more revenue contribution from packaging? And to be more specific, can we get more like packaging-related business from both outsourcing as well as your own packaging or AI packaging business? Kenneth Hsiang: Bruce, you're asking for the incremental revenue for this year, right? Zheng Lu: And next year, your -- because Joseph just said that we will see another additional TWD 1 billion revenue for next year, right? Kenneth Hsiang: He may have said that. So yes, okay. Joseph Tung: For the TWD 1 billion increase of our leading-edge revenue, I think the breakdown is TWD 650 million from packaging and about TWD 350 million from test for this year. For next year, well, we'll see how things go. I think the -- we'll kind of give you a ballpark number saying that we will be having maybe at least TWD 1 billion revenue growth. But in terms of the exact composition, I think that remains to be seen, and we'll base on the current situation to allocate our resources and to grow both of the business, but without -- right now, we don't have a set mind on what kind of breakdown it will be. But what I can say is that test seems to be -- continue to have stronger momentum at this point. Zheng Lu: I see. So the testing will grow faster than packaging next year within this TWD 1 billion? Joseph Tung: It has been growing faster than the packaging. But come next year when the new generation product comes on stream, the competition may have some changes. But what I'm saying is that we are seeing -- we're continuing to see strong momentum in test at this point. Zheng Lu: I see. Okay. The second question is for -- again, I want to drill down a little bit for the U.S. plan. I mean, TSMC has utilized asset plan to build some CoW process, and Amkor committed to build some substrate process. So it seems to me that they have -- your customer, your competitor seems to have at least one supply chain in U.S., which probably -- what's the strategy for ASE at the current stage? Obviously, you probably don't need a 2 supply chain in United States, right? So the potential -- losing some market share for TSMC Automotive business is definitely a threat for our future business, right? So can we elaborate more about like what's the strategy from ASE? Kenneth Hsiang: Bruce, you're looking for a reiteration on the U.S. plan on our behalf. Zheng Lu: Yes. . Joseph Tung: Well, we don't fight for market share just for market share's sake. We fight for the market share that makes sense or make profit for us. If we don't see return, if we don't see at least acceptable margin, then that's not the part of the business that we want to pursue. I think the -- like I said, regardless if it's U.S. or in any part of the world, for us to make an investment, it has to make economical sense. So that's -- if Amkor feels that with that kind of investment they can make a profit out of it, fine. But right now, we're not sure on that. Zheng Lu: So there's no way to pass on the incremental cost to the customer in order to make the investment like profitable? Joseph Tung: Well, it's not just about pricing, it's about the overall infrastructure, which -- that can support that kind of a business at a reasonable cost structure. And even with some premium pricing, whether that cost -- that can cover the costs associated with it remains to be seen. Right now, I think that's a very tall task actually. Operator: Next question is from Laura Chen of Citigroup. Chia Yi Chen: Can you hear me? Operator: Yes. Chia Yi Chen: I just want to consult, Joseph, your view on the gross margin outlook, and also, congratulations for the great result. Do you think we see quite full utilization rate like Ken just mentioned? At the same time, there is a stronger testing business. I recall, Joseph, you mentioned before that in the longer term, if the utilization rate get back to 80% plus, the gross margin could go back to high 20s. So just wondering how is the dynamic now. Are you also -- and also, you are increasing the CapEx for the future demand. So just wondering how should we think about the gross margin outlook into next year or longer term? Kenneth Hsiang: Laura, are you looking for commentary on the relationship between utilization and our margin structure? Chia Yi Chen: Yes. And also -- yes, and at the same time, we are also increasing CapEx. I believe that there's also some increasing in depreciation costs. So just wondering the dynamic right now, how should we think about the gross margin outlook? Joseph Tung: Well, if we exclude the foreign exchange impact, I think we have already come back to our structural margin. Like Ken mentioned in third quarter, if we were on the same ForEx level as quarter 1, our margin should be around 26.8%. And going into fourth quarter, there will be further margin improvement. And again, at the same currency level, we should be over 27%. So what we mentioned before, once our utilization reaches 70% and above, then we should go back to our structural margin range. But unfortunately, the foreign exchange does have a pretty big impact on our overall margin. But having said that, I think we will continue to -- I think right now, the foreign exchange seems to be stabilizing now. We will start our margin effort from this level. And we are very confident that with the continuing expansion of our leading-edge business, we're confident that we will continue to see -- as the capacity being ramped up, we are confident that we will continue to see margin improvement. And right now, we are very confident that in 2026, for the whole year, we should be -- we should have a gross profit margin for ATM at the structural margin range. Chia Yi Chen: We are looking for that. My second question is that -- about the leading-edge advanced packaging. ASE also developed your own focus technologies. Just wondering that how is the current progress in the customers' engagement. It's not just focused on the outflow opportunities on substrates. Also, how does ASE's -- your own focus progress? Kenneth Hsiang: Laura, you're looking for an update on our internal advanced packaging solutions, just as a focus. Chia Yi Chen: Yes. Right. Joseph Tung: Well, obviously, in terms of the overall capacity, I think for CoWoS or CoWoS like 2.5D, I think our foundry partner as well as ourselves is still scrambling to try to make the necessary investment for our capacity to catch up with the demand. And so given the tightness, I think, obviously, there will be customers -- other customers that would like to have other alternatives or solutions for -- to meet their demand, and that creates a very good business opportunity for us to try to sell our own solutions. And on that, we are making the necessary investment at this point. And we do have engagement with multiple customers. And -- but these things take time. I think the -- what we're expecting is that by latter part of next year, we will start to see meaningful full process revenue coming in serving multiple customers. Chia Yi Chen: Okay. So does this also included in your at least TWD 1 billion revenue increase into next year? Joseph Tung: Yes. Operator: Next question is from Sunny of UBS. Kenneth Hsiang: Sunny, are you there? Sunny Lin: Yes. Could you hear me okay? Operator: Yes. Sunny Lin: So congrats on the very good results and guidance. Glad to see LEAP business ramping up and gaining momentum going to 2026. So maybe a question on mainstream. Could you help us understand the recovery ahead? And so when you guide IC ATM sales to grow 3% to 5% sequentially, how is the growth by mainstream and LEAP? And how should we think about the cycle for mainstream going to 2026? Do you see the current utilization rate being a good base for critical recovery going to 2026? Kenneth Hsiang: Sunny, you're looking for basically our more trailing edge capacity or trailing edge plus traditional advanced packaging capacity. Sunny Lin: So mostly on the mainstream, so wire bonding, die bonding? Kenneth Hsiang: Okay. You're looking for commentary on more traditional packaging and then -- for this year and into next year? Sunny Lin: Yes. How should we think about the cycle from here? Joseph Tung: Well, as I mentioned, the mainstream business is -- we're seeing better-than-expected performances. And I think that's a result of the general market recovery. And also, in some part of the -- in different sectors, we are also seeing ourselves gaining shares, particularly -- if we look at different sectors, I think communication and -- communications, and of course, PC or computing is recovering better than the other, like automotive and industrial. But nonetheless, I think the recovery is very obvious at this point. Maybe in terms of automotive, it's kind of moving in a slower pace than the other 3 sectors. But on that, we actually posted a very, very good growth in our automotive business. I think for ATM this year, we're going to see over 20% growth in this part of the business. I think that's largely as a result of we continuing getting -- gaining market share in this space through our factory automation. In general, I think, in the beginning of the year, we were saying that we will have our leading-edge giving us 10% growth and mid- to high single-digit growth coming from the mainstream. Obviously, as I mentioned in the beginning of the session, I told everybody that we're going to exceed our revenue growth target to over 20%. So that means the mainstream performance is much better than what we were expecting in the beginning of the year. And we're not seeing anything negative at this point in terms of mainstream business. So without giving you any further guidance for next year, but we do think that we are in a very healthy space at this point for both in the general market, and we're still seeing very strong momentum in the leading edge as well. Sunny Lin: Maybe a very quick follow-up. So for Q4, is the utilization rate for mainstream continuing to recover a bit? Joseph Tung: Yes. I think in the -- like what Ken just mentioned, I think our bumping and flip chip are pretty full. Wire bonding is improving, although it's not entirely full, but it is steadily improving. Sunny Lin: Got it. My second question is on gross margin. So from here, one, with the improving measuring business, and then secondly, accelerating ramp probably for LEAP going to 2026 and a stabilizing FX, should we assume for IC ATM, the gross margin recovery should accelerate in the coming few quarters? Kenneth Hsiang: Sunny, you're looking for an update in terms of forward-looking commentary regarding our gross margin structure. Sunny Lin: Yes, especially on the pace of the improvement. Joseph Tung: Well, we're not in a perfect world, right? There's still a lot of moving parts and uncertainties in front of us, which includes foreign exchange movements. So yes, I think the general trend is very certain because as we continue to expand rapidly in our leading-edge, which is margin accretive, so that gives us a very good pace for our margin improvement going forward. But in terms of the pace, I think there's still -- I think right now, it's still too early to give you a clear path of what kind of pace we're going to have in terms of our margin expansion. Sunny Lin: Got it. Also, on LEAP, is there a margin difference between outsourcing and full-process CoWoS, meaning if you start to ramp more full process from second half of next year, will that further boost your gross margin for IC ATM? Joseph Tung: I think, in terms of full process, we're still at the early stage, so it's kind of difficult to make any meaningful comparison at this point. I think both needs to be at really a more stable level for us to make the comparison. I think theoretically, regardless it's our own full process or outsourced, leading edge does give us margin accretion. Operator: Our next question is from Felix Pan of KGI. Junhong Pan: Can you, guys, hear me okay? Operator: Yes. Junhong Pan: Yes. So my first question regarding to -- I have seen your foundry partner incremental CP test outsourcing demand. Just correct me if I was wrong, but I found it very difficult to quantify how big for the TAM is. Maybe for you, it's really hard to comment on the same, but maybe on the TAM side or even the percentage of the BOM, can you just give us some sense how can we quantify, how big for the CP test demand? Just any color will be grateful. That's my first question. Kenneth Hsiang: Felix, I think I'll take this one. In terms of the overall TAM, for something like that, I would say that that's not quantifiable, at least from our perspective. This is something that is probably known by our foundry partners. And you may want to address the amount of work that they want to outsource directly to them. We don't quantify that at this point. Junhong Pan: Okay. Yes. So my second question is, I think during the TSMC's latest earnings call, I think C.C. emphasized customers of customers engagement. We do see the incremental engagement. From your perspective, do you see the similar pattern, the engagement from customer to customer as well? Or -- I think there's a lot of thing happening this month, so I just want to -- if any color you can share, is any business model change or you have seen incremental customers' customer engagement as a TSMC as well? Yes. Kenneth Hsiang: Felix, you're asking for how we look at our overall market and whether we actually look into our customers' customers? Similar to... Junhong Pan: Actually, my question is there's any customer -- your customers' customer jump your customer to have the engagement with you guys, like to secure some critical capacity or something like that. Kenneth Hsiang: I don't know if we can talk about that. Joseph, if you want to take a step? Joseph Tung: Yes. I think we have a very, very close communication with both our direct customers as well as our foundry partners. Those dialogues are being conducted on a routine basis so that we can better prepare ourselves in terms of our capacity and also our technology roadmap. So in this regard, we do talk to them. And I think our information source is not just coming from our customer, but our customers will definitely keep us informed of what they're expecting from their own customers and how the overall market will shape up. So it's a constant dialogue among the industry players to make sure that the demand is sufficiently being supported by the supply. That's an ongoing process that has been going on for them, maybe forever. Operator: [Operator Instructions] Next question is from Gokul Hariharan of JPMorgan. Gokul Hariharan: First one, could you help us understand what is the progress on the full stack focus or CoWoS like kind of processes going into next year? When do we expect this to start becoming more meaningful contributor to revenues, to the LEAP total revenues? And are the applications still similar in terms of like AI accelerator? Or are the applications becoming more diverse in terms of networking or server CPU and other kind of stuff as well? Kenneth Hsiang: Gokul, you're looking for an update on our -- more on our full process type services, is that correct? Joseph Tung: I talked about this earlier. I think we are continuing our investment in full process, and we are currently engaging with multiple customers to plan for the capacity, and we expect that come later part of next year, we should start seeing some meaningful revenue coming from full process rather than just only from outsourced part of the business. In terms of the application, I think there will be AI accelerators. There will be other adoptions in different chips requiring such capability. But at this point, I think it's a little bit too early to say the exact revenue -- scale of the revenue or the composition of that -- of such revenue. We just have to continue to work very closely with our customers, multiple customers to better understand what their demands will be, and we'll prep ourselves for the necessary capacity for them. Gokul Hariharan: Got it. Maybe a slightly related question is on the CapEx. I think we are probably finishing this year above TWD 3 billion, well above TWD 3 billion in terms of machinery CapEx. How do we think about this investment cycle? Are we still going to be in this, like increased CapEx, likely to continue to increase CapEx over the next couple of years given the demand outlook that you're seeing from your customers and your customers' customers? Kenneth Hsiang: Gokul, you're looking for an update on our overall CapEx view. And also in the frame of the leading-edge advanced packaging, how it works? Gokul Hariharan: That's right. Yes. Joseph Tung: Like I said, we stay very close with our foundry partner, and they -- our foundry partner being the dominant player, they cover all the who's and who's in the -- whoever has any demand, they will be the one to supply. So they really have a very, very close connection with their customers and their customers' customers. Since we have a very close communication with them, so whatever information that they're gathering, we do have the benefit of sharing some of that information to better prepare ourselves for capacity expansion. And as I said earlier, again, we're not going to be shy of making the necessary investment for -- particularly for the leading edge, so as to secure and also to expand our dominance in this space. And as such, we believe, at least for next year, we will continue to see pretty heavy investments in our capacity as well as technology in this -- in the leading edge. Gokul Hariharan: So is it fair to say next year machinery CapEx is likely to be still higher than this year? Joseph Tung: We will give you better guidance once we complete our budget cycle, which is starting now. And we will reserve this question to next quarter. Operator: Next question is from Charlie Chan of Morgan Stanley. Charlie Chan: Yes, that question is about T-Glass resulting on the shortage of substrates. I'm not sure if you've heard, there would be kind of a risk factor for ASE Group to grow your revenue next year because we start to hear some customers' hard time to get the substrate sourced. And how would the ASE to help our customers to get a more sufficient supply? Kenneth Hsiang: Your -- Charlie, your second -- or your third question is regarding overall T-Glass supply and how it impacts our -- whether it would impact our overall supply chain going forward? Charlie Chan: Yes, yes. And how would the ASE manage or help your customers on this period of shortage? Joseph Tung: Like I said, there's a lot of uncertainties that's ahead of us, so -- like running any other business, there still is going to be ups and downs, there's going to be changes. But right now, I think whatever we're seeing today, maybe some of the materials or -- don't ask me what T-Glass is, but some of the materials may have a longer lead time. But at this time, we haven't seen any real disruptions on our service to our customers at this point. I think if anything else, being the dominant player, if there's any problem, we're the ones that our customers come to, and we certainly have the best leverage in trying to secure the needed materials or variable components that will be needed for the -- for serving them. Charlie Chan: Got you. So I would assume, for those materials or substrate, if there will be any cost or price increase, ASE would fully pass-through to customers? Is it right or you would charge some markup because those materials are getting harder to get? Joseph Tung: We will find the most suitable pricing for current situation. Operator: Next question is from Bruce Lu of Goldman Sachs. Zheng Lu: I think I asked this question last quarter, but I want to ask it again. What is the CapEx to revenue nowadays? Or is there any changes in terms of like how long does it take to see the revenue after you invest your CapEx? The reason I ask this is that you invest for TWD 1.8 billion CapEx last year and 3-point something billion this year, right? But you generate additional TWD 1 billion of revenue this year, but you also can only generate additional TWD 1 billion next year. Theoretically, should be able to generate a bit more than $1 billion next year, right? Is there any changes in terms of CapEx to revenue or trying to generate revenue? Kenneth Hsiang: Bruce, you're looking for the magic solution in terms of CapEx to revenue, right? Zheng Lu: Which Joseph used to give us. Joseph Tung: Well, first of all, the TWD 3 million plus CapEx is not entirely for leading-edge. I think -- for this year, I think 55% of that is for leading edge. And bear in mind that that's just a number. We don't make capacity expansion overnight. Equipment needs to be delivered. You don't have this equipment all delivered at once, right? Things move progressively. So just simple math, if it's TWD 1.8 billion worth of CapEx, that means now, on average, TWD 900 million worth of new capacity being put in. So this year, if it's a TWD 1 billion increase, that ratio seems to be still on track. Of course, the other half of the investment will start to generate revenue, but there is always a time gap between when the machineries -- or the CapEx being spent and when the revenue is being generated. I'm not saying that. I'm not giving you -- I'm not saying that we can only generate TWD 1 billion worth of new revenue coming in. I'm just saying that at this point, we are very, very confident that we can have at least TWD 1 billion worth leading edge revenue -- new revenue coming in next year. For the majority of the leading edge at this point, we're still in the earlier stage at this point, and we're still gathering data to come up with the more meaningful investment intensity on this kind of investment. But from the limited data that we've gathered so far, I think the traditional TWD 1 of investment creating TWD 1 of annual revenue seems still be the case for the main businesses that we are entering now, which is OS and test. Zheng Lu: So one to one. That's the major number. It still works. Joseph Tung: Still applies. But like I said, we are still in the process of gathering more data. And bear in mind that the -- our capacity is not in full ramp at this point. So it's going to take a little bit more time. Zheng Lu: My plan is simple, right? 45% of your TWD 3-point-something billion CapEx is USD 2 billion, right? I mean, you just mentioned that TWD 3.8-something billion, 55% is for matured technology. Let's say, 45% -- let's say, 50% of your TWD 3-point-something billion CapEx this year, that's close to TWD 2 billion for next year in terms of incremental new revenue from AI. That's how the math works. Kenneth Hsiang: No, that's not how the math works. We don't live on math. We live in the real world. Zheng Lu: Well, I only know math. Kenneth Hsiang: Well, if you're calling me conservative, well, call me conservative. Operator: There's no question on the floor. Kenneth Hsiang: Okay. I guess, time has pretty much run out. I would like to thank everyone for participating in the call. I look forward to seeing you all, either during the quarter or at the next earnings release. Joseph Tung: Okay. We are having a good run, and we'll continue to have a good run going into next year. And we're confident that we will continue to deliver good performances and good numbers for you. We'll see you next quarter. Thank you very much.
Operator: Ladies and gentlemen, welcome to the Befesa Third Quarter 2025 Results Conference Call. I am Jota, the Chorus Call operator. [Operator Instructions] The conference must not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to Rafael Perez, CFO of the company. Please go ahead. Rafael Perez: Good morning, and welcome to the Third Quarter 2025 Results Conference Call of Befesa. I am Rafael Perez, CFO of Befesa. This morning, I'm joined by our Group CEO, Asier Zarraonandia. Asier will start with an executive summary of the period, and then he will cover the business highlights of the Steel Dust as well as Aluminum Salt Slag Recycling businesses. I will then review the third quarter financials by business and we'll cover the evolution of commodity prices, our hedging program and finally, cash flow, net debt, leverage and capital allocation. Asier will close this presentation providing an update to the outlook of the rest of 2025 as well as an update on our growth plan. Finally, we will open the lines for the Q&A session. Before getting started, let me remind you that this conference call is being webcast live. You can find the link to the webcast of the third quarter 2025 results presentation on our website, www.befesa.com. Now let me turn the call over to our CEO. Asier, please. Asier Zarraonandia Ayo: Thank you, Rafa. Good morning. So moving to Page 5 of the business highlights. Befesa has delivered strong third quarter results, continuing the solid trend seen in the first half of the year. Our performance demonstrates once again the resilience of our business model and the benefits of our diversified operations. Adjusted EBITDA for the first 9 months of 2025 reached EUR 174 million, up 15% year-on-year. EBITDA margin improved significantly to 21.3% in Q3 2025 compared to 16.6% in the same quarter last year, reflecting a strong operational efficiency and disciplined cost management. Financial leverage was further reduced to 2.6x in September 2025 compared to [indiscernible] a year ago, highlighting our continued focus on deleveraging. Net income and earnings per share also increased sharply. EPS rose 143% year-on-year to EUR 1.52, reflecting strong profitability and improved financial performance. In our Steel Dust business, we achieved a strong recovery in Q3 volumes following the maintenance shutdowns carried out in the first half of the year. Performance was further supported by lower zinc treatment charges and favorable zinc prices. Our secondary aluminium business continues to be impacted by a persistently challenging environment, driven mainly by weak automotive market in Europe as well as the usual summer period maintenance activities in the auto industry. The Palmerton expansion project is developing as expected with the second kit successfully hot commissioned in July 2025. Looking ahead, we confirm our full year '25 EBITDA guidance in the lower part of the initial range of EUR 240 million to EUR 265 million, as we already commented in July. We expect a strong Q4 driven by higher EAF dust volumes across all markets. Our financial leverage is expected to fall below 2.5x by year-end, supported by solid cash generation and disciplined capital allocation. Growth CapEx will continue to focus on the Bernburg project following the substantial completion of the Palmerton expansion. I will comment on the outlook in more detail later. Going to the Page 6, Steel Dust business highlights. In Europe, steel production in the third quarter of 2025 remained depressed, down 4% year-on-year, mainly due to the weak manufacturing activity and soft demand in the automotive and construction sectors. Despite this, our steel dust deliveries from EAF steel customers continued to in line with the 2024 average and solid levels. Operationally, the European plants performed strongly, achieving a 94% load factor in the quarter. We expect strong volumes to continue into Q4, supported by healthy inventory levels and no major maintenance stoppage planned. In the U.S., steel production increased by 4% year-on-year in the third quarter, driven by infrastructure spending and tariffs supporting domestic steel demand. Our U.S. plants operated at an 80% load factor in Q3, the highest level since the acquisition and reflecting a gradual improvement. The 2 new kilns in Palmerton have been fully operational since July 2025 and new EAF steel supply contracts are ramping up progressively through the Q4 following some initial start-up delays. At the same time, cost reduction measures at the U.S. zinc refining plant continue to deliver the expected improvements in asset profitability. In Asia, volumes in Turkey increased by 40% year-on-year in Q3, recovering strongly after a weak second quarter affected by maintenance shutdowns. In Korea, the load factor reached 77% in the first 9 months of the year, up 11 percentage points year-on-year, driven by higher domestic deliveries and a strong operational evolution. In China, operation continued at low utilization levels with earnings around breakeven, reflecting ongoing market weakness. Moving on to Page 7, business highlights for the Aluminium Salt Slags Recycling business. In our aluminium business, performance has remained mixed in the third quarter, starting with the Salt Slag Recycling business, operations has continued to perform strongly, running in line with previous quarters. Utilization levels remained around 90% for the first 9 months, demonstrating the robustness and efficiency of our assets. As in the previous years, we carried out the scheduled maintenance stoppage during the summer months in Q3, and we expect a stronger operational performance in Q4, driven by higher volumes. In our secondary Aluminium segment, the market environment continues to be very challenged. The European secondary aluminium industry remains under pressure with tight metal margins and limited production activity, largely as a consequence of the ongoing weakness in the automotive sector. Q3 is typically a softer period due to seasonal maintenance shutdowns in the industry and this year was not exception. Despite these headwinds, we continue to focus on operational discipline, cost efficiency and customer diversification to preserve profitability and position the business for recovery once market conditions improve. Now Rafael will explain the financials in more detail. Rafael Perez: Thank you, Asier. Moving on to Page 9, the financial results for the Steel Dust segment. Steel Dust delivered EUR 154 million of adjusted EBITDA in the first 9 months of the year, which represents a 27% year-on-year improvement compared to the 9 months of the previous year. EBITDA margin improved from 20% to 26% in the period, mainly driven by better pricing environment on treatment charges and zinc hedging. The EUR 33 million EBITDA improvement has been driven by the following factors: the year-on-year impact from volume has practically no impact with similar plant utilization at a good level of around 69%. As we already highlighted, there are no major maintenance stoppages in the second part of the year in large assets. We enjoy high EAF gas inventory levels across all our assets, and we expect an increase in customers deliveries in the U.S.A. for new contracts that are gradually starting in this quarter. On price, strong positive EBITDA year-on-year impact of around EUR 28 million, with the 2 main price components being around EUR 15 million of positive impact from higher zinc hedging prices, 5% higher year-on-year; and secondly, EUR 13 million positive impact from the lower treatment charges, which was set at $80 per ton for the year 2025. On costs and others, a net EUR 4 million positive impact is largely driven by the lower operating cost in the zinc smelter in the U.S. as well as lower average coke price in the period. These 2 positive effects have been partially offset by higher inflation costs in the recycling business, as well as unfavorable FX. Moving on to Page 10, financial results of our Aluminum segment. Aluminum Salt Slag delivered EUR 23 million of EBITDA in the first 9 months of the year, which represents 26% year-on-year decrease compared to the EUR 30 million in the same period of the previous year. The year-on-year EUR 7 million negative EBITDA development was mainly due to the lower aluminum metal margin as well as slightly higher operating costs and energy prices. On volumes, overall marginally negative EBITDA year-on-year impact during the 9 months with a decrease of EUR 1 million. Our recycled volumes of salt slag remained pretty much in line with the previous year. With these volumes, we operated our plants at a strong capacity utilization rates of about 89% in salt slag and 77% in secondary aluminum. With regard to prices, negative EBITDA year-on-year impact of about EUR 4 million, as explained mainly driven by the pressure aluminum metal margins versus the previous year. This compression in the aluminum metal margin is caused by 2 factors. On the one hand, there is a scarcity of aluminum scrap in the European market, driven by lower overall industrial activity as well as higher exports of alu scrap away from Europe. And secondly, a very weak automotive industry in Europe, which impacts demand of secondary aluminum from automakers. However, this was partially offset by higher aluminum F&B price with an increase of 2%, averaging EUR 2,372 per tonne. On cost and others, increased pressure from higher operating energy-related expenses, mainly through the higher energy prices of electricity as well as natural gas. Moving to Page 11, zinc prices and treatment charges. Regarding zinc price during the 9 months of 2025, zinc has been trading in the range of $2,520 to $3,020 per tonne, showing particularly positive trend in the last months of 2025. The average of 9 months zinc LME prices have been $2,768 per tonne, which is 3% above the same period of the last year average, [ being ] the average of the Q3 $2,825 per tonne compared to $2,640 per tonne in Q2. On the right-hand side of the slide on treatment charges. In 2025, treatment charges for zinc was set in April at $80 per tonne for the full year 2025 compared to the $165 of the last year, marking an all-time low record level. This deduction is driving earnings significantly in 2025. Turning to Page 12 on hedging. Our hedging book covers until the first quarter of 2027, close to 15 months of hedges in our books at increasing hedging average prices of EUR 2,640 in 2025 and EUR 2,655 per tonne in 2026. This level of hedging represents an all-time high level of hedging for Befesa, providing stability and visibility over the coming quarters. We are taking the opportunity of the recent rally on the zinc price to close volumes for the first quarter of 2027, and we continue to monitor the market to close volumes for the remainder of 2027. Turning to Page 13, Befesa energy prices. The page shows the evolution of the 3 energy sources that we have in Befesa, coke, natural gas and electricity. With regard to coke price, which today represents around 60% of the total energy bill, the normalization that started in the second quarter of 2023 continues throughout the first 9 months of 2025. Average coke price in the third quarter was about EUR 153 per tonne, consolidating its downward trend compared to the previous quarters. Regarding electricity, which today accounts for around 30% of the total energy expense, prices have rebounded to EUR 103 per megawatt hour in the third quarter of 2025. after a significant correction in the second quarter of 2025. And gas prices continued their normalization in the third quarter of 2025 to EUR 46 per megawatt hour, reversing the upward trend observed in the last year. Now turning to Page 14, the cash flow results. Operating cash flow in the 9 months of the year has reached EUR 115 million, which represents a decrease of 3% compared to the same period of last year due to a positive tax effect that we enjoyed last year. On the EBITDA to cash flow bridge, starting with EUR 174 million of adjusted EBITDA and walking to the left. Working capital consumption amounted to EUR 42 million in the first 9 months of the year, mainly driven by the usual first quarter working capital consumption as well as the usual Q3 impact on secondary aluminum, driven by the slowdown in the auto industry. As in previous years, most of this working capital will [ revert ] into the fourth quarter. Taxes paid in the 9-month period came in at EUR 17 million as a result of the final tax assessment of previous year in comparison with the EUR 4 million collected in the period of last year, resulting in an operating cash flow of EUR 115 million in the first 9 months of the year. On CapEx, during the period, we have invested EUR 30 million in regular maintenance CapEx across the company, EUR 23 million of growth CapEx related to the refurbishment of Palmerton plant in Pennsylvania, which is now practically completed and [ Bencpur ] (sic) [ Bernburg ] expansion project in Germany. In summary, CapEx of EUR 53 million in the quarter. For the full year, we expect total CapEx to be around EUR 80 million, which is in the lower part of the range of EUR 80 million to EUR 90 million. Total interest paid amounted to EUR 26 million and the total borrowing amounted to EUR 22 million in the first 9 months of the year. For 2025, the EGM has approved in June to pay a dividend of EUR 26 million in July, equivalent to EUR 0.63 per share or 50% of the net income. In summary, final cash flow amounted to minus EUR 13 million in the first 9 months of the year. Cash on hand stood at EUR 90 million, which together with our EUR 100 million undrawn revolving credit line provides Befesa with almost EUR 200 million of liquidity. Gross debt at the end of September stood at EUR 700 million. Net debt stood at EUR 610 million compared to EUR 662 million in the same quarter of last period -- last year, resulting in a net leverage of 2.59x at closing of the quarter, a strong improvement compared to the 3.36x at September 2024. Turning to Page 15, debt structure and leverage. Following the refinancing back in July 2024 and the repricing in March this year, Befesa today has a long-term capital structure with optimized financial cost. We will continue reducing the leverage throughout 2025 to keep it between 2x and 2.5x by the end of the year and going forward. We expect net leverage to be below our target of 2.5x by the end of the year. To do so, we are prioritizing growth CapEx in those projects that are delivering immediate cash flow upon completion like the approved projects of [ Bernburg ] and other market opportunities that could appear. Also, we will keep the annual regular maintenance CapEx around EUR 40 million to EUR 45 million in the coming years. On dividend, we are committed to maintain our dividend policy to pay between 40% to 50% of the net income to shareholders. Now back to Asier on outlook and growth. Asier Zarraonandia Ayo: Thank you, Rafa. Looking at the full year, we confirm our EBITDA guidance in the lower part of the range of EUR 240 million to EUR 265 million, as we previously communicated and in line with the current market consensus. This will be achieved through increased utilization driven by a strong volume in EAF across all markets, along with currently favorable market conditions, low treatment charges, supportive hedging price, declining coal prices. Total CapEx in the year will be between EUR 80 million to EUR 90 million with around EUR 45 million on regular maintenance and the remaining on growth. Net leverage will be below 2.5x by the end of the year, and EPS is expected to be higher than 2, representing an increase of at least 57% in the year. Moving on to Page 18 on Palmerton. In the United States, our Palmerton plant has been successfully refurbished, marking a key milestone in our strategic growth road map. Both kilns are now fully operational, positioning Befesa to capture the significant growth expected in the U.S. EAF steel dust market over the coming years. U.S. electric arc furnace steel capacity is projected to increase by more than 20% by 2028, equivalent to around 18 million tons of new steelmaking capacity. This expansion translates into over 300,000 tons of additional steel dust, creating a substantial opportunity for Befesa's recycling operations. With a total installed capacity of [ 643,000 ] tons across our U.S. plants, we are now well positioned to leverage this growth. Our goal is to progressively ramp up utilization from below 70% today to around 90% by 2027, as new electric arc furnace capacity comes online. The combination of our [ modernized ] Palmerton facility, long-term customer relationships and strategic geographic footprint [ near key steel procedures ] ensures that Befesa is ready to capture this next phase of growth in the U.S. market. Bernburg, moving to Page 19. This is another important milestone in Befesa's growth journey, as we continue to strengthen our aluminium business and expand our recycling capacity in Europe. From a timing perspective, all permits have now been obtained and construction officially started in August 2025. We expect a 12-month construction period followed by a 6-month ramp-up phase in the second half of 2026. On the commercial side, we have already secured strong customer support. Overall, the Bernburg expansion is progressing fully in line with plan. Thank you very much. Rafael Perez: Thank you, Asier. We will now open the line for your questions. Operator: [Operator Instructions] The first question comes from the line of Shashi Shekhar with Citi. Shashi Shekhar: I have a couple of questions. My first question is on capital expenditure. Could you please guide us which project or projects are you planning to undertake post the Bernburg expansion project? And what is the total CapEx guidance for 2026? My second question is on China. Can we expect any improvement in the utilization rate in 2026? Rafael Perez: Thank you, Shashi. I will take the question on CapEx and Asier will explain you the China market environment. But on CapEx, as I said, Palmerton is almost completed or completed and the focus at the moment is on Bernburg. Bernburg is a EUR 30 million total CapEx. I would say probably 40% this year, 60% next year. On top of that, you have to consider the regular maintenance CapEx of EUR 40 million to EUR 45 million, okay? Still early to say a guidance for next year, but with these numbers, you can figure it out. Beyond that, there are 2 projects in Europe. One is the expansion of Recytech to capture the growth of the EAF market in Europe. And the other one is a brand-new salt slag plant in Poland. Those 2 projects, we still haven't got a time line. These are market opportunities that we are envisaging the market, but they still haven't been approved by the Board, and we still haven't got a time line for those. And Asier will comment on China. Asier Zarraonandia Ayo: Yes. Thank you for the question, Shashi. Yes, the question for China is always there. And well, we have to say that basically, the '25 year is coming basically the same than '24. The utilization level of the mini mills, the electric arc furnace at the areas are very, very low, and we are at a breakeven point. Question for '26. Again, it's early, as Rafa said, with the CapEx, but I think that it's not final, that is going to change a lot. But well, the year is long and probably we need a little bit more time to see if the real estate of the construction business start to grow a little and that means more volume. So it's still early, but I cannot say that it's going to be a change -- a very significant change in '26 right today. We will update further later. Operator: The next question comes from the line of Lasse Stueben with Berenberg. Lasse Stueben: Just a question on the secondary aluminum business, just to get a feeling for kind of the near-term outlook. It seems to have sort of rolled over in the third quarter. So I'm just wondering if -- is there going to be somewhat of an improvement in Q4 or also generally into '26 I guess, structurally, there's some problems with European automotive at the moment. So just wondering, want to get some comfort on the outlook also for '26 and beyond. And then also on Bernburg, following on from the weakness in sector aluminum, what are thoughts -- clearly, you're pressing ahead here, but I'm just wondering, given the issues in European automotive, can you give us some comfort here that that's kind of the right move and you're not investing into something which is going to struggle for years to come? Asier Zarraonandia Ayo: Thank you, Lasse. Fair question. Well, obviously, this year, the secondary aluminum business is a very challenged for us and is obviously affecting to our results. The fact is that the automotive sector in Europe is foreseeing this situation in the secondary aluminum because pressing the volumes, pressing the margins down and it's a difficult situation. It's not something new, has happened in the past as well. And well, finally, the market start to absorb this level and be back on better margins. And so starting for the 2 themes. Fourth quarter, well, we don't see a very strong quarter in terms of results, but I do think that probably it's going to be better than the Q3 because the volume even in the Q3 is lower because the maintenance stoppage and now we are going to have more volumes and the last part of the year normally for inventories and other matters is going to be better than the Q3, probably in line with the Q2 or something like that. I mean it's like we don't hope a big recovery. '26 is a different history. I think that '26 the situation is going to be definitely better, not like a very good year, but probably some recovery in the normal activity of the automotive. But linking with the question of Bernburg, which is a logical question is like the Bernburg project, the increase of capacity is linked to not automotive demand. It's linked to the food demand, cans and other with a customer, with a tooling contract with a new customer. So this is going to deliver positive results for sure, because the volumes are there. So all in all, Bernburg new contribution, even if it's going to be half year and some recovery. We do think that in the '26 year it's going to be clearly a better year than '25 in the secondary aluminum, not at the best of the series for sure, but it's going to help us to keep -- keeping with the good results in the global Befesa EBITDA and rest of the other matters. Rafael Perez: Just, Lasse just one additional comment on what Asier said regarding Bernburg, which is a logical question to have. Let's not forget that the demand for secondary aluminum in the long term is very positive and everybody agrees that there's going to be more than 50% growth demand of secondary aluminum over the next 10 years. This is a structural trend. And what we want to do with Bernburg is to capture on that trend. And Asier said very well, it's about diversification from the auto industry into the beverage cans industry, which is also a good thing to have in the company. Lasse Stueben: Understood. And if I may, just a follow-up on CapEx. I mean, based on your comments, I mean, could it be that CapEx next year is well below EUR 80 million just based on your comments? Or is there something potentially that could come through, which kind of pushes you up to that kind of EUR 80 million that you mentioned? Rafael Perez: Fully agree, Lasse. I think CapEx next year will definitely be lower than this year. We still are in the middle of the budgeting process for the next year, which we do bottom up, but clearly below this year. And I think, yes, EUR 80 million will be a cap on the CapEx for next year, definitely. Operator: The next question comes from the line of Olivier Calvet with UBS. Olivier Calvet: Hope you can hear me well. I have a couple of follow-ups. Firstly, on the CapEx budget from 2026. Can you help us think about your pecking order of projects for growth? Are we -- are you rather looking more to EAF expansion in Europe or salt slag expansion in Europe? Or are you rather looking at potentially using your cash flow for further deleveraging or returns to shareholders? That would be the first question. Rafael Perez: Thank you, Olivier. I think I have already tried to answer that. But yes, basically, the focus at the moment is on free cash flow generation and deleveraging and those growth projects that we have clear visibility, like Palmerton is almost completed and Bernburg, as we have been commenting before. On top of that, you have to consider the recurring maintenance CapEx. We don't envisage any investment in the expansion of EAF in France or in the salt slag plant in Europe in 2026, okay? So that's what we can say. That will definitely help deleveraging within our target of between 2 and 2.5x, and maybe we will get closer to 2x rather than 2.5x. Olivier Calvet: Okay. And then the second question would be on the EBITDA guidance for this year. I guess mostly on the high end of the EBITDA guidance. What would you need to see basically to get to that level? Asier Zarraonandia Ayo: Well, definitely the high end is really not realistic for today, I want to say like that. The question here is that we are going to be in the range of EUR 240 million to the midpoint depending on the final production, which are coming very strong in October. Of course, the pricing, I mean, you have seen the zinc prices in October. So depending on how they develop could help us to get more. And again, the recovery of aluminum that for sure, in the salt slag, which is another important business is coming for sure, better because they are not the maintenance stoppage. So well, we have to determine what is the final EBITDA level in this range. What is true is that you think in the very high part of the range, what we explained there is that at the beginning of the year when we do the guidance, well, depending on basically those things, how the aluminum business will perform, zinc prices during the year and other matters that are not happening. So at the end of the day, I think that that's why we are confirming the guidance and the guidance is the reference, but probably among the low part, between the low -- sorry, the low part and the medium part. This is the idea. Rafael Perez: Which is Olivier in line with the market consensus at the moment, as you know very well. There are 3 main elements that will make, as Asier explained, be on the higher part secondary aluminum is weaker than what we expected. Also, FX is unfavorable. And then obviously, in the higher part, we always consider a much higher zinc price environment, okay? Olivier Calvet: Makes sense. Okay, cool. And just the last one. Could you give us an update on the operating issues of one of your competitors in Mexico? Have you seen additional steel dust contracts as a result of their issues or --. Asier Zarraonandia Ayo: Well, yes, we listen about that and we cannot comment about the problems of those guys, but more than what we can treat the same than you. It's not a big effect at the beginning. They are more or less operating well and there are no changes in the market. If it is going to come more change because the problems persist or no, we will see. But in this moment, it's not a big issue and not affecting us in a positive way, obviously, not in the negative because it's not our task. Operator: The next question comes from the line of Fabian Piasta with Jefferies. Fabian Piasta: Just got a question on the treatment charge going forward. I mean, on the chart, you were showing zinc price is increasing or very favorable this year that points towards like more stable, stable treatment charge, but spot treatment charges have increased rapidly. Do you have any visibility on where we might move? So what would be the swing factor? Are we thinking about the 10% increase, 20% increase? What are you seeing in the zinc market? Second question would be, given the inventory levels, do you expect any spillover effects into the first quarter of 2026? That would be it for now. Asier Zarraonandia Ayo: Thank you for the question, Fabian. Treatment charge, well, I would like to know exactly what is going to be the figure for next year. What the rumors, salt, everything is commenting in the LME Week in London and so on is that, obviously, nobody knows what happens. But based on, as you say, in the spot and everything, perhaps levels of $120, $130, $150 max could be on the place there. We will see. I mean, our steel very good treatment charge for us for the miners position because obviously we are one of the lowest, but probably definitely are going to be higher than this year because it's the lowest ever, right? And probably to keep $80 will be very, very difficult. So we'll see. I mean, probably, as you say, 20%, 10%, 20%, more 20% of increase over this year probably is a headwind that we are going to have next year. And... Rafael Perez: Can you remind Fabian, the second question, please? Fabian Piasta: Yes. The second one was basically on your steel dust inventories, whether you're expecting some spillover effects into 1Q 2026? Because I mean, when I'm looking at consensus numbers on full year sales, that would imply a revenue increase of 27% in the fourth quarter. So is there still like some dry powder for 1Q, even if you get these volumes through in the fourth quarter? Asier Zarraonandia Ayo: Well, once again, we will see how we finish the year. But I think that the production of the steelmakers is still under pressure but depending on the geographies starting to be a little bit more positiveness for the next year in terms of orders and so. And the inventories are now normalized because we increased the level in the second quarter because the maintenance stoppage now are normalized. So I don't think the first quarter is going to be affected, but nothing very strange. So well, again, '26 is -- we were expecting question about '26 because we are in October that is logical. But at the end of '26, we need a little bit more time to develop, but no reasons to believe that there's going to be a big change over the normal production out of, we have to start to include some maintenance stoppages because yearly basis for those are normally affecting. So all in all, we will see what is the level, but nothing very, very crazy or very, very strong. Operator: The next question comes from the line of Jorge González with Hauck & Aufhaeuser Investment Banking. Jorge González Sadornil: I have a couple of questions. And the first one, Asier, on regards of the expectation for Q4, I think you have just mentioned that the stocks that you have are now normalized after the strong Q3. This means that we should not expect a Q4 above Q3 in terms of the works sold or the steel dust process for the quarter or Q4 could still be above Q3? That would be my first question, please. Asier Zarraonandia Ayo: Thank you, Jorge. Now clearly, it's going to be above Q3. I mean the fact the inventory history was affected more than the Q3 because normally, over the years, we have some maintenance stoppage. And you see the series, Q4 always is the strongest of Befesa, we hope the same. I mean now with the deliveries and the normal inventories, we are willing to run very strong in Q4. And the reason is as always because there are no maintenance stoppage. So the Q3 has been very strong. And I think that we think that the Q4 is going to be even more, not a lot because we are running at very high utilization rates. But no, no, definitely, it's going to be higher than the Q3 in steel dust. And as well, we have to consider that the maintenance stoppage in the salt slag, which is our other strong and profitable business is going to come higher, which is a different for the Q3 because it was some maintenance stoppage that are not going to happen in Q4. So you put together, it's going to be definitely the Q4. As usual, it's going to be our strongest EBITDA, our strongest activity period, and we can confirm that. That's why we expect a strong Q4 and to be where we are going to end in the range, but definitely a strong and higher utilization rate than the Q3. Jorge González Sadornil: Okay. And then my last question is on regard the secondary aluminum profitability. Can you help us to understand where the profitability could be for next year? Do you have any targeted range for the profitability, taking into account some stabilization in the auto industry and the new assets starting to contribute? That will be very helpful. Asier Zarraonandia Ayo: For me too. Now seriously, Jorge, it's a good question. Well, I think that probably you have in front of you the last years, getting an average could be a good reference. Other is to be back for the '24 level and then again, because it's a kind of cyclicity in the business. So you can take other probably the reference of the '24 or an average or something like that. That's what we see now. Probably we need a little bit more color as well on the market in the last months, but I think that is a good reference getting in the '24 or something like that, that is what we expect in '26 because it's difficult to see a full recovery because we know all of us read about the automotive sector with the problems and production levels that are showing European carmakers, especially. So not a full recovery, but some recovery and the levels of '24 or average of the last year probably could be a reference. Jorge González Sadornil: Are you expecting any adjustment of capacity in the sector that could help the margins to go up at some point or there is not any noise in this? Asier Zarraonandia Ayo: This is basically the point. This is basically the point. There are starting to be some players under troubles, financial troubles and probably the capacity is going to be, as always in the crisis periods adapted. It's not the case, obviously, of Befesa because we have this business, as always explained, that is for us is supporting the salt slag. Financially, we have no problems to survive there, but there are guys that probably they can get out of the market or reduce some capacity and everything is going to be more balanced. That's why the logic of the market that has to be organized as well and that's why we understand that it's going to happen better '26 outlook for the aluminum business. The level, early to say. But again, I think that probably a recovery '24 levels or average of the last 2, 3 years, probably would be a good level. Operator: [Operator Instructions] The next question comes from the line of Anis Zgaya with ODDO. Anis Zgaya: I have only 2. First one is on hedging. When we see the current zinc LME '27 forward prices, which are at $2,900 per tonne or slightly above. That's not bad. Why don't you accelerate hedging for the whole '27 year at this level? And my second question is on treatment charges. The current spot prices in China increased to around $120 per tonne after a very low level in the beginning of the year. Does this seem to you to be a good indicator for the future benchmark level of treatment charge to be set next March? Rafael Perez: Thank you, Anis. I will take the question on hedging. Obviously, we are doing that. Actually, this week, we have closed a very interesting volume of hedging for the first quarter of 2027. You cannot go at once all the way through to the entire year because the curve is in backwardation, which means that the forward prices are lower than the spot prices. So yes, you see the spot prices, but when you want to lock in prices 12 months, 1.5 years, 2 years ahead, the prices are decreasing, okay? And we have internally certain targets that we don't want to miss, okay? So -- but yes, we are taking the opportunity, and we are moving forward with the hedging in the first quarter. So we will take one quarter at a time. And Asier will be taking the question on treatment charges. Asier Zarraonandia Ayo: Yes. Thank you, Anis. Yes, I think it's a good reference, the spot normally in China because it's basically the only part of the world which runs on a spot basis in a massive way. Yes, it's a reference definitely, but always we can talk about reference. They have been periods where there is strictly the same of the spot TCs or the others is similar or not. As I said before in the previous question, yes, this is the $120, $130 is the level that now they are considering. So well, the reference and the trend, the spot is a good light to see what is going to come. But still, again, early to say. Operator: The next question comes from the line of Adahna Ekoku with Morgan Stanley. Adahna Ekoku: I've just got one follow-up on the 2026 EBITDA, especially for steel dust. And maybe could you help us with what utilization you're targeting in the U.S.? I think you've got 90% for 2027. And in Europe, would you expect any upside from the recently announced steel safeguard measures? Or is it still too soon to say on this front? Asier Zarraonandia Ayo: Thank you for the question. Yes, I think the answer is yes to both. I mean we have in pipeline for the U.S. more tonnages than this year, definitely. And one of the reasons, again, that we are not moving in the low part of the range as the volume in U.S. that we have already contracted because there are some delays in the ramp-up are coming later than we expected, but definitely are starting to come and we hope that next year are going to be on our facilities during the whole year. So yes, I think it's an intermediate year to capture the 90% utilization probably in '27, but next year it's going to be higher than this year and probably in the range of 80% or we will see exactly, but U.S. is one -- it's going to be the more volumes in U.S. is one of the boxes that we have in mind for '26, the headwind of the treatment charges probably is going to be compensated by higher volumes in U.S. and probably in other geographies like in Europe. In the case of Europe, the answer is yes, we are starting to capture some projects that are going to come into picture in '26, not many, but there are some in, one in Spain and others that we have under the contracting period now. And we -- that's going to help to be a little bit less pressure to keep the 90%. I think here in Europe to grow from the current levels is difficult because basically you have full capacity. And the only thing which is pressing is that probably transportation cost for the dust and other are going to be benefit. So if all those projects starting to see that are coming really, then we will start the increase of capacity in Europe probably in '27. So '26 is going to be a good year in Europe to see how the projects are delivering. But definitely, it's going to help and we are continuing with that to have more dust in 2026. Operator: Ladies and gentlemen, that was the last question. I would now like to turn the conference back over to Rafael Pérez for any closing remarks. Rafael Perez: Thank you all for your questions. You can also contact the Investor Relations team of Befesa for any further clarification. We will now conclude the conference call and the Q&A session. Let me remind you that you can find the webcast and the dial-in details to access the recording of this conference call in our website. Thank you very much and have a good day.
Operator: Good day, and welcome to the Jerónimo Martins First 9 Months 2025 Results Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Ms. Ana Luisa Virginia , Chief Financial Officer of Jerónimo Martins Group. Please go ahead, madam. Ana Virgínia: Thank you, Sharon. Good morning, ladies and gentlemen, and thank you for joining this call dedicated to our first 9 months results. As usual, in our corporate website, you can find the results release, a slide presentation and a fact sheet for the period. The first 9 months of 2025 continue to be defined by the ongoing global geopolitical uncertainty that is also shaping consumer sentiment and fostering a more cautious value-driven approach among shoppers. Against this challenging context, price remains at the heart of our strategy across all banners. Every team worked hard to uphold our promise of price leadership and to create an attractive quality assortment, securing customer preference and driving sales growth. The reinforced commitment to cost discipline, operational efficiency and productivity paid off and ensure that EBITDA margins remained robust despite the tough combination of low basket inflation with high cost inflation in extremely competitive backdrops. Meanwhile, our ambitious CapEx program is being executed as planned, reaching EUR 816 million in the period with the opening of 274 new stores and the renovation of 170 locations. The balance sheet kept its robustness, closing September with a net cash position, excluding capitalized leases of EUR 467 million. All in all, our 9 months results are solid and show that our banners' business models are agile and prepared to adjust and respond to the current circumstances. Looking now at the P&L, I'm going to focus on the 9 months figures and flag a couple of things. On sales, our banners delivered well overall, driving the group's top line to grow by 7.1% or 6.6% at constant exchange rates to EUR 26.5 billion. EBITDA reached EUR 1.8 billion, 10.9% up on the same period of the previous year or a 9.9% growth at constant exchange rates. EBITDA margin was 23 basis points up versus the 9 months of 2024, reaching 6.8%. This performance is the result of good sales delivery combined with cost management and productivity measures, which more than compensated for price investment and cost inflation. The execution of the investment program is reflected in the evolution of both depreciation and net financial costs as the later also includes the interest expense of capitalized leases. The other profit and losses heading incorporates indemnities, write-offs and provisions as well as the allocation of EUR 40 million from the 2024 results to the Jerónimo Martins Foundation. Cash flow for the period, excluding the dividends paid in May, was at EUR 128 million. The 2 most important things to highlight here are the improved funds from operations following the solid sales and EBITDA delivery and enhanced working capital flows, which reflect the different growth dynamics compared with the same period of prior year and stricter stock management. As already mentioned, by the end of these first 9 months, thanks to the good sales performance and despite the execution of our ambitious CapEx plan, the balance sheet remains solid, including a positive cash position of EUR 467 million. Looking now into the detail of the performance, I will start with the top line. Group sales grew by 7.1%, 6.6% at constant exchange rates to EUR 26.5 billion, including a like-for-like of 2.4% and a solid contribution from expansion. All banners did well with Biedronka in particular, adding EUR 1 billion of sales at constant exchange rate in the 9-month period. In Poland, the market context continued to be highly competitive and consumer behavior remained cautious, focusing on low prices and promotional offers. Throughout its 30 years history in the country and in a meaningful way also this year, Biedronka has kept Polish families' needs and expectations at the heart of its offering. The banner maintained its price leadership and continue to offer the best savings opportunities while working to constantly evolve its assortment and improve its store network, having opened 111 new stores and remodeled 110 in the 9 months. Sales grew by 7.4% to EUR 18.8 billion, or 5.8% in local currency, with like-for-like at 1.8% despite the challenging comps. The like-for-like growth and the expansion of the store network resulted once again in market share gains. HeBe operated in a context that became increasingly price competitive, which combined with muted consumer demand strongly pressured like-for-like growth. Sales increased by 6.9% or 5.3% in local currency to reach EUR 451 million. Over the period, HeBe opened 13 stores in Poland, net -- 10 net additions and 2 in the Czech Republic. The banner is focused on reinforcing its offer differentiation and competitiveness while protecting its price positioning in the current context. In Portugal, consumers remain promotion oriented. Pingo Doce kept its intense commercial strategy, guaranteeing its leading price positioning. This dynamic, together with the contribution from the All About Food stores drove solid like-for-like growth. The banner opened 5 stores and steadily advanced in its remodeling program, having renovated 38 stores throughout the 9 months. The renewed store concept enhances the differentiation and uniqueness of the assortment, particularly in perishables and ready-to-eat meals. Sales grew by 5.4% to EUR 3.9 billion and like-for-like, excluding fuel, was up 4.1%. Recheio enlarged its client base and benefited from the competitiveness of the offer designed for the HoReCa channel, which combines price with quality of the assortment and a special emphasis on fresh and on the service provided to clients, particularly the Amanhecer partners. Against the difficult comparison with the same period in the prior years, our wholesale banner grew sales by 2.6% to reach EUR 1 billion with like-for-like at 2.4%. In Colombia, despite some improvement in consumer demand, Ara continued to face a difficult backdrop and maintained an intense commercial dynamic, offering the best saving opportunities for the Colombian families. With like-for-like growth at a solid 5.6% and a strong contribution from store network expansion, sales in local currency increased by 16.9%. In euros, sales reached EUR 2.3 billion, 9.6% up on the 9 months of 2024. This performance reflects our Colombian company's strong focus on growth that fueled its top line through intense promotional dynamics on one hand and the delivery on its expansion ambition on the other. This expansion included the opening of 135 stores over the period, of which 70 resulted from the integration of stores previously operated by Colsubsidio. Consolidated EBITDA grew by 10.9% or 9.9% at constant exchange rates to reach EUR 1.8 billion. This solid performance was driven by increased sales and effective cost and productivity management. All companies managed extremely well the challenging combination of price investment and cost inflation, particularly in wages. Never losing sight of our growth ambition and working efficiently and productively, all banners delivered good margin performance despite the muted consumer context, particularly in Poland. Group EBITDA margin was at 6.8%, up from the 6.6% registered in the 9 months of 2024. At Biedronka, EBITDA margin performance was driven by an assertive combination of sales growth, cost control and efficiency gains. At HeBe, while like-for-like was impacted by the market context, the focus on tightening cost discipline and working to shield product mix allowed for EBITDA margin protection. In Portugal, an effective promotional strategy drove sales growth, which together with reinforced productivity measures also preserved EBITDA margin. In Colombia, Ara's good performance benefited both from sales growth and the work initiated in 2024 to protect gross margin and mitigate the impact of inflation on costs. Wrapping up, amidst a backdrop of global geopolitical uncertainty, consumer behavior remains somehow restrained and predominantly price focused, contributing to intense competitiveness in food retail. During this period, we also continued to face cost inflation, particularly in wages. Despite these challenging conditions, we achieved solid sales growth. On top of the positive contribution of like-for-like, a recognition of our unwavering commitment to offer leading prices, the strategic expansion of our store network also played a decisive role. The combination of robust sales, cost discipline and operational efficiency translated into strong EBITDA delivery. With the Christmas and New Year season approaching, we will stay focused on offering the best saving opportunities and ensuring an agile responsiveness to the needs and wants of our customers so that they keep choosing our stores every time. Thank you for your attention. Operator, I am now ready to take questions. Operator: [Operator Instructions] And your first question today comes from the line of William Woods from Bernstein. William Woods: When we look shorter term, why do you think you can't pass on basket inflation in a normalized way just yet? And I suppose, have you seen any improvement in that basket inflation over the last few months? And also, when you look at your market share gains, are you able to give us any idea in Poland, how much market share you've been gaining either over the last year or 2 or something like that? And then when you look longer term in Poland, in particular, how confident are you that you can see margin recovery in that midterm view? Is there any reason why you don't think you could get back to 8.5%, 9% like you were achieving a couple of years ago? Ana Virgínia: So on basket inflation, of course, we are not alone in the market. The Polish market continues to be very, very competitive. And this -- it's true that this comes a long way but we know that considering the context and the fact that we are and we keep operating in a low basket inflation versus a still high cost inflation. This means that all players are more pressured, and this tends to intensify really the competition in the market. So I think that's what Biedronka intends to do is to keep its price leadership, as we said. This is really relevant in the current context. So currently, what we have to work for really is to make sure that we are and we continue to be the leaders in price. This being said, of course, it's a different situation, as I've been saying this year, it's a completely different situation to work even with low inflation than to work in deflation, which was the case last year. And of course, this really drives the performance, not only on the margins but particularly and also on the balance sheet, considering our business model, the way that it is crafted. So I think that we are not so keen in passing the whole inflation. The idea here is to really become or continue to be the most competitive to maintain the preference of consumers to make sure that through sales, we are able to dilute the costs and of course, to protect our profitability because growth is also important, as I said, for the return on invested capital as a whole. On market share gains, according to JFK, so it's the base and the source that we have, we continue to gain market share. Up to August, we gained 0.2 percentage points of market share. And I believe that in September, we even gained a little bit more than that but the numbers are not still out. So I think this -- and I have to say, it's an incredible performance by Biedronka's team, considering that we are growing on top of growth. And it's true that EUR 1 billion is not the same percentage when you are delivering EUR 25 billion in sales than when you were delivering billion EUR 20 million but it's really a terrific performance by our Polish banner. On the margin recovery, of course, this, as I said, I think that we are -- we know that we are becoming more leveraged from the P&L point of view when we work with lower margins. But the fact is that we had to prepare to work with high cost inflation and of course, still being in a collection move considering the low inflation of 2022 and 2023. So what -- if it's possible, this will really depend on the whole market. And what we are seeing, as I flagged, is still a consumer that is cautious, a consumer that doesn't see reasons to trade up in food. And of course, it's possible, but I don't think at this point will be our main priority. The main priority is really to protect profitability considering the whole business model and the -- as I said, the return on invested capital more than just the EBITDA margin or EBIT margin. Operator: And the next question comes from the line of Jose Rito from CaixaBank. José Rito: Sorry if I didn't get if you comment anything related with weather. We had some other players calling attention to the weather impact in Q3. Can you quantify how much was this impact for Jerónimo in Poland, please? That will be the first question. And then the second question I have is related to this OpEx evolution. OpEx as percentage of sales has been evolving well. What has been the main contributors to this? So what has been the cost lines that have been evolving below sales? Ana Virgínia: Thank you, Jose. So on the weather, we do not quantify, of course, the impact as we also don't quantify when the weather is good. So it's a circumstances that affects all players. And of course, we have to deal with that. It's true that affects some categories that usually are margin driven. But this being said, we don't isolate the effect in our performance. It's something that we have to deal with. On OpEx, so this has 2 main reasons, of course. One was all the measures in terms of cost control that were taken. And this a little bit in anticipation of what we were seeing in the market. So as you know, and having as a proxy, the minimum wage increase that has happened in our main markets, which was basically a very high single digits and knowing that it would be almost impossible to grow at that pace, all the banners started to implement a series of different initiatives to increase productivity and to make sure that regardless of the sales growth, they would somehow protect the profitability without losing, as I said, the competitiveness and losing the consumers' preference. And of course, the fact that we performed, in my opinion, well at the top line also helped to dilute and this was across, in fact, all banners, even in HeBe that had a more difficult context and is still operating with a high deflation, in fact, even -- he took some measures but that were already being prepared because of the context that we knew we would face this year. José Rito: Okay. Understood. So on the weather and I understand your answer on -- there is always positives and negatives. But can you at least say if now what we are seeing is more neutral relative to the weather in October? That will be the first. And the second one as a follow-up on the efficiency gains and be remind how much was the minimum wage increase this year. So the minimum wages next year will be much lower than this year if the efficiencies are there. So I would say that if top line momentum remains, so operating leverage could be even more in 2026, right? Ana Virgínia: Okay, Jose. So still on the weather. So what I know is that it continues to be challenging but it's now the season of bad weather. So I think that we should not depend very much on the weather to assess our full year results, to be honest. On the -- still on the OpEx. So it's true that the announcement, at least in Poland, because in Portugal, it's a little bit higher than that. And probably in Colombia, where there will be elections, we will see also an increase in salaries that is higher than the 3%. But this being said, we have to notice that it's not just a question of the increase in the minimum wage. We are facing very tight labor markets. We know that the immigration is also a question to see how we will deal with some constraints or some restraints in the different countries. So I think that we face still a very challenging backdrop in terms of wage increases or not. So if it's going to be 3%, this will also depend on the market dynamic and on making sure that we have the proper teams in place to continue to deliver our value propositions to our customers. The rest, of course, growing -- even growing in Poland at 3%, which would be -- and usually, you do that relation with the increase in costs. The question is that this will depend a lot as we are -- first of all, we have a very challenging base to grow from. And on the other hand, this will also depend on the consumer background and on how things evolved. And we continue to see a lot of volatility and still a lot of, let's say, muted consumer demand all across. So I wouldn't say that, yes, we are facing a more or less challenging context because the minimum wage increase or just because the minimum wage increase is lower this year than it was last year. In fact, we are growing from a much higher base than it used to be. Operator: [Operator Instructions] We will now take the next question and your next question today comes from the line of António Seladas from A|S Independent Research. António Seladas: Just a quick question in terms of working capital. It seems that figures are now stabilizing. So should we expect a more normal pattern from now on in terms of working capital? Or do you think that pressure that we saw in the recent quarters will continue? Ana Virgínia: Thank you, António. So on working capital, of course, as I mentioned, we are highly leveraged from the operational point of view. It is the nature of our business model. And of course, when we have growth and particularly when there is no deflation, the working capital goes or works in favor of us as a tailwind. And so I think that the correction move that there was in the market last year was penalized the working capital. At this point, what we are seeing, of course, is a different situation. So as I said, the growth dynamic is different and the working capital is better in this sense. This being said, I have to say that there was also a very significant work, particularly by the teams in Portugal and in Poland at the stock levels to make sure that overall, our profitability model works also on the working capital. So I think that's we can consider stabilized but it will depend again on the level of growth to continue to have the working capital being positive. And at this point, I wouldn't see that there wouldn't be working for us in the last quarter of the year. Operator: [Operator Instructions] There are currently no further questions. I will hand the call back to Anna Luisa. Please go ahead. Ana Virgínia: These 9 months results translate our banner's commitment and hard work to deliver against a very volatile geopolitical context whose impacts on the economic agents, including consumers are still far from being totally visible. Entering now the last quarter of the year and the crucial Christmas and New Year's period, we remain focused in responding to our customers' needs while continuing the key investment projects that are still to be concluded before the year-end. Thank you for your questions and for attending this conference call. I wish you all a nice day. Operator: Thank you. This concludes today's conference call. Thank you for participating. You may now disconnect.
Operator: Thank you for standing by, and welcome to the IGO Limited First Quarter FY '26 Results Call. [Operator Instructions] I would now like to hand the conference over to Mr. Ivan Vella, Managing Director and CEO. Please go ahead. Ivan Vella: Thanks, Darcy. Good morning, everyone. Thanks for joining, and thanks for those of accommodating our time change. We just wanted to avoid a clash. I'm sure you've all got a busy morning of calls lined up. Kath's with me again this morning, our CFO. She will cover some of the financials. I'll jump in and just run through a bit of a summary, and then we can get into some Q&A. First of all, on safety, look, we signposted last quarter that the results of the hard work we did through 2024 are starting to flow through, and we saw that again through the last quarter. We're delighted to see a period of over 90 days without an injury, and that for IGO is a record as far as I can see back in the history and an indication of that steady improvement in the way that we're managing safety and the maturity for our operation. The TRIFR has started to trend down, which we'd expect and that should continue as we keep the focus up. Still lots to do. There's no question you don't turn safety around and build a strong, mature set of systems and culture overnight, but I'm pleased to see that steady progress. In terms of the operations, I'll start on Greenbushes and what's very clear, obviously, is the production was well down from prior quarters, and that was a function predominantly of grade, and you'll see that in the fine details in the quarterly report. There was quite a step down from previous quarters. And that's a function of where we are in the mine plan. I'll come back and talk more to that in a minute, but a big impact from that. Of course, that was then compounded by weather. Many of you will know that Southwestern Australia had one of its wettest years in a very long time and particularly down in the Southwest, that's very impactful, both in terms of impacting ore movement or material movement, but also covering -- standing water covering parts of the ore body and the ability for us to access that was limited. So that flowed through into sales, obviously, unit costs, still great to see through the cycle. Right at the bottom here, we're generating nearly 60% EBITDA margins despite some of those challenges. On Nova, look, we -- tracking to plan, really, it's getting to the end of the ore body. We signposted that and said we've got a tight plan. And I think we had a couple of strong quarters to finish late last financial year, this first quarter. I'll talk to the misfire in a minute. But aside from that, actually tracked really well. The team is doing a good job managing the challenges. It is complex and more difficult as they have less options. And obviously, the ability for them to flex their schedules are much more limited, but they've managed through that well, and Nova is continuing to perform as expected. On Kwinana, look, a lift in performance there, and that's been a long time coming that step from what was done in the shutdown late last year. Naturally, that flows through into conversion costs and other factors. And for us, every bit of improvement is a real positive and something that does reduce the cash burn. So that's, I guess, how I look at it, the good work the team is doing, and I've been nothing but supportive and given them credit. They try extremely hard to work on the asset to try and get it stable to try and get it to perform, and that does reduce the cash impact. Ultimately, it doesn't change the long-term economics in our view, but it is nice to see those improvements. They're also being very frugal with cost and CapEx and so on. There's certainly no waste there. It's just a very challenged asset with a very difficult pathway to full production. More broadly, look, I won't get into the financials. Kath will cover those. But I mean, other key highlights to take away. I think the Forrestania transaction is progressing, and we expect that will close as sort of signposted later this year. And Cosmos, a big milestone, which is a sad moment, but we took the decision to stop dewatering the Odysseus mine, the underground nickel there after a pretty extensive technical economic assessment, hard call, but that's a function of where the nickel market is at and the challenges of extracting that ore economically. So those are some of the highlights. Let me just dig into Greenbushes in a bit more depth, cover a few things there. I mentioned the grade being obviously a primary driver of performance there. And there is a big pushback underway, which I've talked about in previous quarters. That's progressing. At the end of the day, that opens up that high-grade core, which is where all that critical value is. And that's still a work in progress, hence, why we're seeing this sort of step down in grade. Naturally, as we finish the work on that life of mine optimization and open up the mine plan, we'll try and look to stabilize grade. But ultimately, you want to drive value first and foremost. And the grade isn't consistent across the ore body. And so we'll work through that and determine what's the best schedule and sequence to get through that. The Talison team are doing some great work there. Speaking of that work, the life of mine optimization work is continuing, and we'll naturally see some real benefits from that as they get into that more deeply, understand what part of the ore body will be accessed through the surface mine, what part might come through underground and ultimately, how we get the best value from the ore body. In parallel to that, and I think you can almost consider it as 2 separate pieces of work is a broad productivity program. Adam Mallerspiener is up and running and doing a stellar job there as COO, working with Rob, and he got a deep pedigree in this kind of productivity program, got that stood up, looking at asset management, looking at throughput and recoveries, all of the different aspects that you'd expect. And again, we've talked about broadly in context in the previous quarters, he's getting those programs moving. And obviously, that will start delivering results quarter-on-quarter. So that's, I guess, the kind of the key headlines for Greenbushes. I mentioned that sales was lower quarter-on-quarter, which is a flow-through from production. And the last point to note is probably just pricing, and there was quite a lot of volatility through the quarter. And we, as you know, have a 1-month lag on our pricing, so as that washes through, we'll see the pricing play out. Overall, what we have seen though is the realized pricing that Greenbushes is achieving is actually really strong if we look back through the trend and compare it with our peers in the industry. So a very simple model. There's no big sales and marketing effort. It really is just a 1-month lag on the PRAs, and that actually delivers a pretty good outcome. On Nova, not too much more to add there, really. I think just to talk to the misfire, there was one stope there that had a misfire, which, I guess, first and foremost, didn't result in any safety concerns. And then in terms of recovering it, that's where the safety starts and the team did an extremely good job risk assessing that and working through how they'd recover it. They've done an outstanding job and effectively there's not going to be any long-term impact in our mine plan. There may be a small amount of tonnes that we don't recover, which we're assessing at the moment. But ultimately, the teams worked through that very effectively. The other point to note there is the closure planning. That's progressing well. We've got a very strong team on that. And as again, we've signposted our intent is to have the study work done, the approvals in place so that we can move directly to closure at the end of production late next year once the ore bodies run out. On the lithium production at Kwinana, I think I've covered the key points, step-up in production related step down in the unit conversion costs. CapEx was pretty modest. The team is into a shutdown this month, and there's obviously more projects focused around that. But overall, the team has continued to work extremely hard to try and get the asset to perform to lift production rates to continue to deliver high levels of battery-grade product, and I give them full credit for that. As I said, though, it doesn't change the degree of challenge on the economics for the asset as we look into the industry. I'm sure everyone on the call knows that the Chinese refineries are extremely competitive, running at about USD 3,000 a tonne, some actually below that, but that's kind of the benchmark of the industry. And it's very difficult to see Australian or to be honest, Western refineries getting anywhere near that level of performance, not dissimilar to other processes like copper or aluminum where China continues to demonstrate extremely capable downstream processing in the way that they operate. I might -- I'll hand off to Kath in a second. But maybe just a couple of other quick points on exploration. We put in a small update in the quarterly. I didn't put a slide in on it, but there's a number of lithium targets that we've been working through testing and will continue through this field season and probably some run into next year. Nothing more to report at that point, continuing to rationalize the ground and clean up the portfolio across our exploration team, the tenements. We've gone through the fine tooth and we're managing that quite well. There is some generative work going on around copper, again, which I've mentioned previously. Nothing material to report at this point, but the team has got some interesting things they're working through. And I've already covered Cosmos and Forrestania in terms of the key news there. So look, I might hand off to Kath to just run through some of the key highlights in the financials. Kathleen Bozanic: Good morning, everybody. Stepping through the financials this quarter, revenue was down with Nova having one less copper shipment and also realized prices being lower. The Nova EBITDA was lower on the back of lower revenues and underlying share of net profit from TLEA was also down from the lower sales at Greenbushes. It's important to note that we are expensing capital at Kwinana, having impaired the asset to 0. Underlying EBITDA was higher as it includes the movement in the mark-to-market listed investments with the prior quarter impacted by the expensing of rehabilitation provision, which increased last period. We remain laser-focused on cost noting that corporate costs continue to trend down, and you will see in the cash flow that it is a higher number. That's a timing issue around payment of short-term incentives only. There's a reduction in costs at our care and maintenance sites, including the decision to cease the dewatering at Cosmos and heading towards the completion of the sale of Forrestania, as Ivan noted. And we've got reduced capital spend at Nova, where we expect the run rate to continue to reduce as we head towards closure. Free cash flow was positive at $15 million, and this included $12 million of spend on care and maintenance at Cosmos and Forrestania sites. Finally, our balance sheet was further strengthened with net cash increasing to $287 million. I'll hand back to Ivan now to give a summary. Ivan Vella: Thanks, Kath. Well, let's -- I think let's jump into some Q&A from here. Operator: [Operator Instructions] Your first question comes from Hugo Nicolaci from Goldman Sachs. Hugo Nicolaci: I just wanted to dig into the grade and weather piece more at Greenbushes, particularly given the simplified disclosure, no longer has the mine physicals in it. Are you able to just give us some color on those physicals and whether this was more a mine or processing plant impact around weather and grade, just given, I think at last quarter, you had the better part of 5 months of ROM stocks there. So I presume it would be more of a mine and grade impact. So just any color there would be helpful. Ivan Vella: Yes. Thanks, Hugo. It is. Look, it's mine related. The processing plants are fine. I mean there's work to do on them in terms of maintenance and just asset performance, but the driver here is from the mine. The weather impacts, as I said, in 2 parts. One, just material movements. Trucks are moving slower, cycle times are longer. There's just more impacts because you lose productivity with all of the wet impact. The second is just standing water through the pit and access to that high-grade core, which means that we're drawing off either lower-grade stockpiles, in some case, oxidized material and, of course, some of the lower-grade material in the pit. So it's a confluence of events that affects us. But the core of this is that pushback on that western side of the main pit, which exposes that high-grade core as that's completed, and that's work that goes -- is ongoing through into early next calendar year. Once that opens up, of course, we have a nice runway looking forward. I know Rob is working to try and as you get through the life of mine optimization to just think through the pit sequence, the mining sequence and try and stabilize this as much as possible, value first, but equally just trying to get the very best out of the plants. We don't want to have to adjust those dramatically because that affects recoveries and overall throughput performance. Hugo Nicolaci: So then if I can just -- in terms of how you expect the rest of FY '26 to look, I appreciate that the calendar year is still going to be budgeted for the JV, but you've called this roughly in line with plan. So I guess relative to FY '26 guidance, should we expect production to pick up quarter-on-quarter from here? Or is December likely to still see some impacts and it's more of a second half story? Ivan Vella: Yes, it's more a second half story, Hugo. This quarter will be similar. Obviously, we have less of the wet weather. All that said, it's been raining again today. I don't know when we're supposed to be in this beautiful period of just 200 days of sunshine in WA and it keeps raining. But no, I think, the weather is less of an issue now. It's really just more about where they are in the mine sequence, and that will impact this quarter. So we're going to see that the second half of the financial year, i.e., the first part of 2026 is where we'll see that lift. We don't see any cause to change guidance. I mean we saw the mine plan. We saw what was coming and put that forward. I know everyone thought that, that was conservative. We don't know where CGP3, how quickly that will ramp up. That's probably still the wild card. We put in a view based on what we expect on the plan. But at this point, that guidance really looks quite sound. Hugo Nicolaci: Got it. And then just if I could just put some numbers around the mine piece in the quarter. Last quarter, you did 1.4 million tonnes at $1.86, I think where did that sit this quarter? Ivan Vella: Sorry, we just got a bit of background noise as you came through. Can you just repeat that? Hugo Nicolaci: Sorry, just on the mine physicals, just in terms of ore tonnage and grade, just able to give a little bit of color there? Ivan Vella: You mean just general material movements and so on. Hugo Nicolaci: Yes. Ivan Vella: Look, yes, it's down through this period just because of the weather. As I said, you're naturally not getting the same truck movements and productivity. But overall, Rob and Adam have been stepping that up on material movement. So I think as they get through winter, that productivity will improve. They're far from what you would call good, and that's -- I think I've been quite open and candid that the contractor performance there has not been at what I would call industry average or standard, and they're working on it. I think there's a great program. It's trying hard. Rob's had very intense focus on it, and they are making improvements. But look, it's -- in terms of progress to plan, I think we're comfortable in making the headway through the strip. Operator: Your next question comes from Daniel Morgan from Barrenjoey. Daniel Morgan: Just a question about market communication, I guess. So I mean, the grade in the mine sequence, obviously, you've outlined today, that's a big driver of the mining physicals that we've seen at Greenbushes in addition to weather, which can be unpredictable. But when you communicated with the market and gave guidance, why not just simply flag market, don't forget or just FYI, there's going to be a grade that's going to be a bit lower in Q1, Q2? Ivan Vella: Sure, sure, Dan. I mean we can do our best there. It's a function of what we can share through our JV. We'll keep that in mind and do our best to keep you guys informed so you can see the variability through the year. Daniel Morgan: And I guess the question is -- the second question I've got is just the intention with CGP3 and the collective JV mood on how you're going to ramp that up? And is that going to be very much subject to the speed of that ramp-up? Is that going to be subject to market conditions and the improvement there? Or -- and I guess, if the market is not sufficiently strong to run everything, might there be a decision to take down and do a big maintenance program at some of the other concentrators to have a look and go, well, let's see if we can improve, do recovery improvements or whatever it is to make them best-in-class so that when the market improves, you're running well? Ivan Vella: No. Look, we've got a clear plan as I sort of signposted last quarter as well. The plan is to ramp it up as quickly as possible. There's no change to that. The 2 customers who are also owners are very keen to see those tonnes flowing. That's the plan, and that's what we're working towards. So we're pushing the team on construction to hurry up and get finished and hand it off. The ops team are ready. They've already commissioned the dry plant. There's a bunch of material already crushed and waiting as a stockpile to start feeding the wet plant. As soon as that's finished, they can start commissioning and get on with it. Operator: Your next question comes from Jon Sharp from CLSA. Jonathon Sharp: Just a question regarding the dividend. So Windfield, they paid a $50 million dividend to JV partners in September. Just what -- when do you expect TLEA to pass these distributions on to IGO? Ivan Vella: Look, Jon, yes, with a relatively modest dividend from Greenbushes or Winfield. That said, nice to see that such a strong cash conversion at the site even through the bottom of the cycle. It's generating cash, and we're covering all of that growth CapEx and so on. The distribution to TLEA, obviously, we need to make sure we can fund the work at Kwinana, while there have been improvements there, it's still every tonne that's produced effectively cost us money. And I don't expect any of that money to flow back out to the shareholders of TLEA, i.e., TLC and IGO at this point. Jonathon Sharp: Okay. And just interested in your thoughts on there's been recent commentary about a floor price for lithium producers. another producer talked about the unintended consequences of such a policy. Just interested in your view, how you see this? Would it be good? Would it be bad? What your thoughts on unintended consequences are? Ivan Vella: Yes. Look, Jon, I mean, I'm not going to comment more broadly on the market positioning. I think the takeaway is that the Australian government, the U.S. government and the Western governments are recognizing the criticality of critical minerals and the need to support diversified production there. They're trying to find the best pathways to do that. And I think that's something we should all thank them for and recognize. It's great to see a little bit of sunlight and interest in our industry. There are various mechanisms, how they do it. I mean, I think there's a good consultation process they're going through to manage and come up with the best pathways and I support the work they're doing. Operator: Your next question comes from Matthew Frydman from MST Financial. Matthew Frydman: Ivan, maybe a bit of a high-level one for me. It's coming up on 2 years in the job for you. Clearly, a lot has changed in the business. But over that time, IGO has underperformed all the other Australian lithium producers. Compared to your peers, you haven't had a major governance crisis. You haven't had to raise capital. You've got the best asset, you're actually growing production. You've got a strong balance sheet. But clearly, the market is choosing not to value these attributes. Talking to investors, they might point to a lack of clarity over the life of mine plan and the value that's inherent in Greenbushes or maybe they might point to the poor performance at Kwinana which I guess, in my mind, both link back to the more fundamental issue, which is really a perceived lack of influence in the JV. So I know that's a lot of words, but really, the question is now 2 years into the role, the business had a strategy refresh a year ago. Looking forward now, what's the time line now for shareholders to expect a resolution to these issues? Ivan Vella: Okay. Thanks, Matt. And I think it's a good roundup of the key issues. And I've been, I think, quite open about that. Naturally, the ability to look through into, I guess, a full perspective on Greenbushes, its potential, its performance and so on, we're feeding it out more backward looking. And I know as Rob -- and he's only just a year in the job now, as he gets through that optimization work and he lays it out his ability to share that with us and inform the market, I think, is very important. So I think that will be a key factor. Secondly, I guess, is then just the overhang that Kwinana presents as a drag on those -- on the cash generation and the benefit that flows out of Greenbushes. I guess, 2 years ago or so when I started, there was probably still some optimism in the market around the refinery and the potential there, something that we spent time studying pretty hard and trying to deeply understand the economics and the potential there, and we came to a conclusion that both the asset itself and the positioning in the Australian context was pretty challenged, hence the view that we took on it. And that obviously then translates into some conversations that are ongoing with Tianqi about the JV and the structure there, which is not complete. I can't give you a time frame or a date for that. It's work that we're working through. And we expect that as that's resolved, that will unlock some of the discount or some of the anxiety that probably sits around the potential of Greenbushes. That said, I think also in a low point of the cycle, and no one's got a crystal ball to see how the lithium world plays out, but to expect that it continues at this level forever is probably not realistic. Naturally, when you're in that low end, those negatives are amplified. I can imagine that the price moves, the cash is flowing, things look very different because this is a very highly leveraged asset. And you can imagine with the extra production coming online from CGP3, when you flow that through, that's going to have a significant impact on the cash generation for all of the joint venture partners. So you've summarized the issues. We're working very hard on them. I think we've been quite transparent about that -- the work and the issues. And I see that as critical outcomes to unlock some of the discount on our equity. Matthew Frydman: Yes. I appreciate that. Maybe not so much a follow-up as a general comment. But I mean, myself and other analysts have asked repeatedly for, I guess, some more specifics around these ongoing optimization studies. I think your share price would tell you that, that's a little bit too general for the most material assets and the market is telling you that they want more clarity on the assets. So -- and additionally, arguably, you've got an obligation there to your shareholders, I guess, despite the commerciality elements of the JV. So I know you said you're not able to give it currently, but certainly, any specific time line of what you're wanting to capture in those studies and the timing of when you'd like to release them to the market would, I think, be very, very welcome. So thanks for that. Ivan Vella: Yes. I completely understand Matt, and we're working hard on that. So your point is well made. Operator: Your next question comes from Tim Hoff from Canaccord. Timothy Hoff: I was largely looking similar questioning to Matt's line of questioning. But just wanted to confirm that, that optimization study will come out to the market in some form. Like I know, obviously, it's not going to be as comprehensive as what you see, but we will get to see that and I presume this year. Ivan Vella: Well, yes, look, Tim, once the team has done their work and they're ready to share that, we'll work through that with the joint venture and then determine exactly what and how we share that. So I mean, naturally, everyone's got an interest in telling that story about Greenbushes. But I think letting the team work through and make sure they've got a comprehensive answer, and they've worked through all of the different questions is important. So I don't have a date for you. Naturally, we're eager, we're pushing. And Rob is, he's driving this really hard, but there's a bit more complexity than 100% owned asset, obviously, to work through that. Timothy Hoff: Yes, for sure. And then perhaps just around pricing. Obviously, that 1-month lag has impacted you guys picking up with the worst of the pricing in June. As you're looking at the profile now and as we're seeing pricing improve, I guess there's been some mixed commentary on pricing forecast, but we are seeing an improvement here. Is that translating to the shipments as you're watching them go out? Ivan Vella: Yes, for sure. I mean I think we took a bit of time to look at realized pricing over the last 18 months or 2 years. And to be honest, without a sales and marketing team, we're getting great outcomes. So I'm very comfortable that the model that we've got in place gives us equal best value, certainly better than a number of our peers in the market. So it's certainly delivering good outcomes for us. Timothy Hoff: Look forward to December quarter numbers. Operator: Your next question comes from Kaan Peker from RBC. Kaan Peker: Just on Greenbushes and Kwinana, it looks like CapEx spend is running below guidance rate. Could you maybe add some detail around that? And I'll with a second. Ivan Vella: Yes. Look, I mean, it's just starting to taper now, Kaan. I don't want to get into a debate on guidance. We've put that out. We think that still stands. Naturally, as I've signposted in previous quarters, Rob and the team are being very, very focused on CapEx spend, and there's a lot of scrutiny on the dollars that are being applied across the business. We don't want to obviously compromise the assets. So they'll put the investment into asset health and to asset performance. But all of the extras, all of the other nice to have, they're challenging. They're also challenging CapEx intensity to make sure that we're getting the best value for every dollar that is spent. So look, to be honest, if we get later into this financial year and we have a down step in guidance, that would be fabulous. But right now, we're saying, look, that's our guidance. We stick with it. We're just pleased to see that continued tension on capital spend. And again, I know back to Matt and Tim's comments, you'd love to have -- and I had this question 20 times, what is the sort of medium-term dollars per tonne of capacity and CapEx that we can guide on. And I'm chasing it, we'll get to it. That's the kind of thing that's helpful for you to do your modeling and see what that full value of Greenbushes will be. Kaan Peker: Sure. Maybe I'll ask another way in your words, the nice-to-have component of capital spend for both Kwinana and Greenbushes, what percentage of capital spend does that make up for this year? Ivan Vella: I'm not sure I can answer that. I mean, the point is we're -- every individual project is stress tested and challenged. I'll give you an example. I know in the plan, it's an anecdote, right? They had some car parks they wanted to pay with bitumen and they said, but we're not going to do that, and we're just going to leave it as crushed rock, was that nice to have or whatever. But the point is we're going to challenge and say safety, asset health, asset performance, these are the kind of things that need CapEx. Have we got a strong business case? Can we see what the NPV IRR on that particular project is? Can we see what the time for payback is? Can we see that we're getting good value for money? They're all the questions that the team are now asking in a consistent capital process. That was not the case just 2 years ago when I started. I can assure you it was a very different approach. And Rob's brought with his commercial team, a lot of discipline and focus there. And I don't sit there and go through and try and differentiate within those projects, they're making wise decisions. We have a committee that each of the JV partners have reps on that sits and works through that on a routine basis. And I think they're making good decisions to drive very careful capital allocation across the business. Kaan Peker: And then the second one, again, on Greenbushes is maybe around what specific actions could be included in that mining optimization program besides opening up the ore body. Any sort of detail around there, blending, tighter feed control, anything that you could sort of add to that conversation? Ivan Vella: Yes. And we go back to the last couple of quarters, we've had slides on this. There's kind of a list of the programs that are underway. And certainly, there's the -- looking at the ore body itself, or characterization, block model, the schedule, et cetera, which is the big picture. Then you do get into the different head grades and how we do blending and the run of mine feed into the plants. The asset health and asset performance of those plants and making sure you're getting lots of uptime that drives recoveries and throughput, product grades, the recoveries. I mean, it's a pretty full program. I don't think there's anything I've worked through in my experience in other mines that we're not tackling as a lever here. Rob's got a lot of fronts open he's working on to drive that uplift and improvement -- uplift and improvement in performance. So if you went through that list from prior quarters, and we can drop it in and maybe try and add a bit more color for next time, that's all in play. Operator: Your next question comes from Levi Spry from UBS. Levi Spry: I just come back to a couple of questions at the start. So just in terms of guidance, can you talk through what's embedded in your guidance for the ramp-up of CPG3? I think previously, you said a 12-month ramp-up, and this quarter is going to be the same as last quarter. So can you just walk us through that for the second half? Ivan Vella: Yes. I haven't -- we're not breaking that out specifically, Levi. We've got obviously the plan that the team has put together. We're not going to overpromise on a ramp-up because you never know how those things start. It should be a rapid ramp-up front-end loaded, but you don't want to bank that. We don't provide a breakout of the guidance or that detail at this point. So I can't give you any more detailed clarity. Once we start, we can probably give you an update and indicate how we're seeing that against what we anticipated. But at this stage, I guess the key takeaway is that we expected that the first half of this financial year would be softer given grades. And obviously, we'd have a stronger production rate through the second half of this financial year. Levi Spry: Okay. And then in terms of finished inventory, can you give us a feel for where that sits today, I guess, at the end of October, you built a bit during the quarter. Ivan Vella: I'm not sure what's the question? You're asking about inventories. Levi Spry: How much concentrate inventory you've got flowing around? Ivan Vella: I don't have the number on top of mind. I don't know if you do Kath. No. No, I don't have that, unfortunately, Levi. I think you saw through the last 2 quarters, I mean, sometimes timing of shipments can move and we'll get a build and then a drawdown. There was a big run out in July. I don't have the sort of at hand inventory number in front of me now. I mean I'd say, look, there's not much to see there. I mean the team they ship it as we produce it. So yes, I think it's pretty stable. Levi Spry: Okay. You built 20,000 tonnes for the quarter. Yes. All right. And then just in terms of conversion costs at Kwinana, just confirming that there's no cost for spot in there? Ivan Vella: No. That's just the product conversion costs. Operator: Your next question comes from Mitch Ryan from Jefferies. Mitch Ryan: Just one question for me. Can you just quantify the financial impact of the lithium support program at Kwinana, please? Ivan Vella: Yes, we don't break out the specifics there. That's just a function of those agreements. I would say we are receiving benefits. They're very welcome that the West Australian government is contributing, but we don't actually carve out the quantum of that, and that's just a function of the agreement. Mitch Ryan: But that would be offsetting the conversion costs or helping to keep them. Ivan Vella: Yes. Sorry, yes, it does offset the conversion costs naturally. So things like our energy costs and other consumables, there's obviously a benefit there. Kathleen Bozanic: And just to add to that, it is not lumpy anymore. We had a catch-up in the last couple of quarters. So it's stabilizing now. Mitch Ryan: Okay. So does that mean you're receiving it on a monthly basis or similar? Kathleen Bozanic: Yes, or similar, balance through the quarter. Operator: Your next question comes from Ben Lyons from Jarden Securities. Ben Lyons: Just one question from me, a similar line of questioning to Frydman and Holf, I guess. Just noting the exploration costs of $10 million and the corporate and other costs of $20 million for the quarter, if I include the share purchases there. I mean, Kath called out short-term incentives as being a significant part of that. So what was the extent of those incentives given the sustained underperformance of this business? And when can we expect to see a meaningful reduction in the level of corporate costs given the relative lack of operated assets in the business? Ivan Vella: Well, Ben, we don't -- we didn't provide any detailed guidance on the breakout. I mean you can go through the rem report and you can sort of see that in the annual report has got all that background and detail in it. The corporate costs, I mean, if you -- and we've looked at the numbers, if you do the comparison, and we aggregate our corporate costs, we don't allocate a lot back to Nova. I think we've continued to trend those down. We've explained the work that's been delivered around Forrestania and Cosmos. So we've sort of addressed those assets. I feel like the team has made great progress reducing those costs quarter-on-quarter since I've been here. And they've been very frugal and focused on it. We've benchmarked that we feel like that work is -- where we're sitting is in good shape and a function of where we're at with Nova. Naturally, as Nova winds down, then we'll look at obviously what that needs to be in the context of the rest of the business. But I don't think that's out of step. The exploration spend, we've obviously made a massive change from where we were when I started in the business and signposted that, the work that's going on, targets we're pursuing, everything there is going through a lot more rigor in terms of the financial and economic assessments before we commit to it. And we'll continue to keep that challenge up, but we feel like that's an important part of our business and where we're investing for value. Operator: Your next question comes from Austin Yun from Macquarie. Austin Yun: First question on Kwinana. Just I note that your JV partner commissioned a new hydroxide plant in China in September and the commissioning and ramp-up seems to be working all right. Just wondering if there has been any discussions post that from the JV side for learning for Kwinana? Or would that serve as a wake-up call for them to really be more ready to work away on Kwinana. Circle back with the second one. Ivan Vella: Okay. Thanks, Austin. Look, you'd have to ask Tianqi for more on their views on Kwinana. But yes, certainly, we follow from a distance, probably don't have any more than you do. They've done an extremely good job ramping up their new asset in China, very good construction, commissioning ramp-up. It's been a great story. And it's parallel of what we see on many other refinery assets in this space in China. I think it just points to the nature of the challenge at Kwinana. It's fundamental to the design and construction and engineering of the asset here. The team are not doing their best. They're trying hard every day, but they are fundamentally challenged with the reliability and the underlying engineering and performance of the assets they're faced with, which is a pretty high bar to get over. Austin Yun: Second one, just on the Greenbushes, quite clear on the production profile, which will be second half weighted. Keen to understand the shipping profile if there is any flexibility for you to pump out a bit more in the second quarter. Just noting that the market is tightening now. We can see visible lithium carbonate inventory going down, the futures price is going up. So can you take any opportunity to sell more product? Ivan Vella: Well, I think, look, we basically work on a model of just selling and shipping whatever is produced. There at some points will be some congestion and challenges, just normal port operations. But you've seen in prior quarters, the team's ability to ship and sell materially higher volumes than this quarter, for example. So I don't think that's a big issue. I know Rob has been working through the plans for the ramp-up with CGP3, recognizing the extra volume they need to deal with. They've got a good plan in place. So I think we'll basically just continue to target a place -- a situation where our sales and shipping matches or broadly matches production quarter-to-quarter. Austin Yun: Okay. So the second quarter will still be production matching the sales number? Ivan Vella: Correct. Operator: There are no further questions at this time. I'll now hand back to Mr. Vella for closing remarks. Ivan Vella: Okay. Thanks, Darcy. Look, thanks for the questions. And I guess I'd just reflect on the drive or the pull for more information. I hear you, and we're doing our best. We will share what we can. Naturally, that's within the context of the joint venture. And I appreciate how important that is for you to get more visibility and more confidence in what is the best hard rock lithium asset in the world. Rob and the team are doing really, really good work improving that. They're working through a bunch of issues and challenges as they look at that long-term plan and really optimizing it. And naturally, that's a big part of what I know will also help build your understanding of where their focus is and what sort of improvements you can expect. To summarize key messages, look, first on safety, I'm really pleased to see the continued improvement there, and that's something that we'll keep focused on right to the end of Nova's life. Naturally, the lessons and the maturity that we build through our business will carry with us. Nova had an in-line quarter and delivered well against what we expected from our mine plan. We're tracking well for the life of mine nickel tonnes that we've indicated. And I think the last point was just I take your questions, Ben, but the team are managing costs very thoughtfully. We continue to challenge every dollar we spend, and we've generated positive cash flow through this quarter, which I was really pleased to see. We're very conscious that we don't want to spend beyond our means and ultimately protect the strong balance sheet that IGO has and prepare ourselves for the future on that basis. Thanks, everyone, for joining and listening in and covering some good questions. Operator: Thank you. That does conclude our conference for today. Thank you for participating. You may now disconnect.
Ann-Sofi Jönsson: Welcome to the presentation of Electrolux Q3 report. I'm Ann-Sofi Jönsson, Head of Investor Relations and Sustainability Reporting. I'm here with our CEO, Yannick Fierling and our CFO, Therese Friberg. We will run through the presentation. And after that, we will open up for the Q&A session. If you are viewing on the web, do feel free to put your questions in the chat throughout the presentation. And with that, I hand over to Yannick. Yannick Fierling: Thank you very much, Ann-Sofi. Good morning, and good day to all of you. Very happy to be with you for this third quarter report. I will start with very general comments. I mean, growth is 1 of our strategic pillar, and I'm very glad to say that we have been growing once again in the third quarter. We have been increasing our net sales by 4.6%, mainly driven by North America. I'm also very glad to share that we have been growing our market share in the 3 regions here with our main brands, Electrolux, AEG, and Frigidaire. We have been taking our operating margin to 2.8%, with a good progress on cost reduction. We have been adding to the SEK 2 billion we achieved in the first half of the year, an additional SEK 800 million. And afterwards, I've been sharing with you in the last quarters, the aim we have to get faster and more agile moving forward, and I'm very glad to announce some organizational changes, which would be putting us closer to the end consumer. Moving to the results. As I said, I mean, we have been growing our net sales by 4.6%, mainly driven by North America, where we have been gaining in terms of shop floor spaces, and we have been expanding in key channels like the contract channels. In Europe, Asia Pacific, Middle East and Africa, we have been growing slightly in a subdued market with quite a lot of price pressure. In Latin America, strong results once again here, stable net sales on the back of a very strong and hot 2024. In terms of operating margin in the EBIT bridge, we had 2 positives, which were volume and mix and these 2 positives were slightly offset by a price -- negative price development. In terms of external factors, as you can expect, we were hit mainly by tariff and currency. We are very glad to say that we made progress once again in terms of cost reduction by adding SEK 800 million on the SEK 2 billion we achieved in the first half of the year. Moving now to Europe, Asia Pacific, Middle East and Africa. Again, we had a slight organic growth in this quarter. We have been gaining market share with our 2 main brands, Electrolux and AEG, more than offsetting the ramp down we have on the Zanussi brand. Zanussi was an entry price point brand, and we are focusing today on core and premium brands. Quite a lot of pressure, again, in prices, and we saw a negative price development. On the operating income side of the equation, positive in terms of volume and mix, but these positives were slightly offset by a negative price development. The region has been benefiting by a good effect on the cost reduction side of the equation, and we kept on investing in the marketing side of the equation. And that's pretty important because we launched major innovations, especially in the kitchen area under AEG and Electrolux, and we are glad to be able to fuel these major innovations through marketing money. In terms of external factors, we had a negative impact of currency, mainly driven by a weak Australian dollar. Again, in terms of market development, this picture is very similar to the one I've been showing in the last quarters. We had a positive development in Western Europe of 1%. Western Europe represents 80% of the total volume for the region and a minus 1% for Eastern Europe, flat. And here, once again, we had minus 11% versus the third quarter 2019 back to levels we had in 2014. The construction market remains very subdued. I mean we are hoping it to rebound in the coming months due to the lower interest rate, but we don't -- we have not seen any sign of that in the third quarter. On the positive side of the equation, I just want to underline that we saw some sign of recovery in the region, in the month of September. We have been working very hard in the last months to really improve the brand image we have, defining more precisely the consumer targets we have and clearly define an identity card for our 3 brands, Electrolux, AEG and Frigidaire. And I'm very glad to share with you one of the latest campaign. You have seen some just before we have live. This campaign is called the Wash Life Balance, and it's featuring the product leadership we do have in care and garment care. We have been also very proud to announce the launch of our new dishwasher, the AEG FAVORIT dishwasher here, which has been focusing on fit, fill and finishing. It has leadership in terms of perceived quality. And we're also leading in terms of energy consumption, noise level and water consumption here. Let me share with you a short video. [Presentation] Yannick Fierling: Moving now to North America. And we're glad to say that we have been growing significantly in North America. We're announcing a double-digit growth in the third quarter here, thanks to, again, a higher penetration in terms of shop floor space and an enhanced presence in some of the channels we do have like the contract channel here. We're not buying market share. We're increasing the presence we do have in the different channels. We had a positive price impact. We were actually positive on the 3 dimensions, volume, mix and price in North America. As you all know, I mean, we are building our appliances in North America. We're one of the North American constructor. And the last tariff structure should certainly benefit the North American producers. Unfortunately, we have to say that we have not seen the expected price increase for our imported goods coming from basically Asia in this third quarter. We have been leading price increase, and that's very important. I'm very proud to say that we have been covering the vast majority of the tariff impact for the price increase. So it's a competitive situation we have in front of us, with in front of as well a pretty promotional time which would be a Black November in North America. However, I want to repeat that, I mean, the last tariff structure should be benefiting for North American producers. Negative impact as well from a currency side of the equation with a weak dollar in this quarter. The pressure about the picture about the market is very much unchanged versus last year. The market has been pretty resilient to the inflation we have seen in the market. Moving to Latin America here. Almost flat organic growth in the region on the back of a very strong 2024 where we had a heat wave, and where we're selling a significant level of air conditioning and refrigerator. Unfortunately, the summer is not very hot in 2025 here, which has been increasing slightly the stock level we have in products like air conditioning. The competitive pressure in the regions remains pretty high. However, we're delivering, once again, 5.7% in terms of EBIT. We had a bad impact in terms of currency because of the Argentinian pesos and the Brazilian real. The Argentinian market is opening up, which means that we have a high level of import products -- our imported products out of Asia. Cost reduction, we're glad to say that, I mean, we're delivering once again SEK 800 million in the third quarter, which is taking the total amount of SEK 2.8 billion for year-to-date here, and we're still confident to reach between SEK 3.5 billion and SEK 4 billion cost reduction for the full year. This cost reduction is mainly driven by product redesign, a better sourcing in terms of components and suppliers, a higher level of efficiency in our factories and a full leverage of our global scale as Electrolux. Next slide is a slide we're very proud about. In 2016, Electrolux has been funding the Food Foundation here. And the aim of this Food Foundation is twice. The first one is to educate children and adults to eat in the most sustainable manner, but we're also helping adults needs here by giving them cooking lessons given by chef in the different regions. Year-to-date, we have been educating more than 300,000 children and adults through the Food Foundation. And the aim, the target we do have by 2030 is to have more than 1 million people benefiting from this foundation. With that, I'm passing it to Therese. Therese Friberg: Thank you, Yannick. The organic sales growth that we had in the quarter of 4.6% generated a positive impact to earnings of SEK 384 million. This was mainly derived from volume, but we also had a positive mix contribution in the quarter. And this was, of course, offsetting the slight reduction that we did see in price. We are continuing to invest in innovation and marketing, as mentioned by Yannick to really support the strong product portfolio we have in the market. Cost efficiency was a saving of SEK 760 million in the quarter. And I would also like to mention here that in the quarter, we had the group common cost of SEK 50 million, which was SEK 84 million below last year. And this is a result of cost containment, but also a result of some timing between the quarters. We have very significant negative external factors. Of course, as you all know, the negative impact from tariffs, but also quite significant negative impact from currency in the quarter, mainly related to the weakening of the Argentinian piece, but also the strengthening of the Thai baht versus the U.S. dollar and the Australian dollar. And the negative effect we have in acquisitions and divestments is related to the divestment of the water heater business in South Africa that we did last year. The operating cash flow was positive SEK 600 million in the quarter, which was somewhat below last year. This is mainly a result of a negative impact -- a larger negative impact in working capital compared to last year. This -- and this is attributed to one seasonal effect related to receivables that are usually increasing in the third quarter, but this year increased even more substantially than a normal seasonality related to higher sales growth, but also quite a strong September month, as Yannick also touched upon earlier. As you also know, we came into the third quarter with quite high inventory levels from the second quarter from volatile market during the first half and also from that the Brazilian retailers were destocking during the first half or specifically in the second quarter. And this, in combination with weak or cooler weather in Latin America means that we're still sitting on some of that stock. As you know, we usually have a strong reduction of inventory in the fourth quarter according to our normal seasonality, and this is what we are looking for as well this year. CapEx, we are having slightly lower than last year. And then looking at our balance sheet and liquidity. We have a solid liquidity and a well-balanced maturity profile. In the quarter, we amortized long-term debt of around SEK 1 billion, and we issued 3 new bonds of a total of SEK 2.6 billion under our EMTN program. And this will mature in 2029. And for the remainder of 2025, we have borrowings maturing of approximately SEK 1.9 billion, which we will finance from our existing liquidity. We increased the financial net debt slightly in the quarter, but we still have a solid liquidity of SEK 29.4 billion by the end of September, including revolving credit facilities. And of course, we don't have any financial covenants and our target to maintain a solid investment-grade rating remains. And with that, I hand back over to Yannick. Yannick Fierling: Thank you very much, Therese. I will now move to the outlook and the summary. During the quarter, the market demand in Europe increased slightly. Consumer demand continued to be predominantly replacement driven. In Asia Pacific, consumer demand is estimated to have decreased slightly year-over-year. Promotional activity and competitive pressure increased across market. Geopolitical uncertainty negatively impacted consumer sentiment in Europe. This contributed to consumers continuing to shift lower price points and postponing discretionary purchases. Demand for built-in kitchen products in Europe remains subdued. In a longer perspective, it is important to remember that the European market is on a 10-year low. For full year 2025, we reiterate our neutral market outlook for core appliances in Europe and Asia Pacific. During the quarter, consumer demand in North America remained resilient. Industry market price adjustments did not reflect the implemented U.S. tariff structure and competitive pressure and promotional activity remain high. Demand continued to be mainly replacement-driven and consumers continue to prefer lower price points. For the full year demand outlook, economic uncertainties and inflation concerns risk having a dampened effect on consumer demand. Consequently, we maintain our outlook of neutral to negative market demand. Consumer demand is estimated to have increased in Latin America in the third quarter. Competitive pressure increased in the region, most notably in Argentina, where the strong growth was driven mainly by imported goods. Consumer demand grew in Brazil, although at a slower pace than in the third quarter 2024, mainly due to inflationary pressure and higher interest rates affecting consumer spending. These factors contributed to retail continuing to reduce inventories. For the full year, we reiterate our outlook of neutral market demand for core appliances in the region. Moving now to the outlook. We still expect the impact from volume, price and mix to be positive for the year. Previously, price was estimated to be a main positive driver. Now the main driver is estimated to be growth in focused category because of the market dynamics in the third quarter and especially the challenging prices environment in North America. We reiterate that we expect investments, innovation and marketing for full year 2025 to increase. New product launches provide us with a great platform to continue driving growth in our focused categories. Our focus on reducing costs remain high, and we stick to the outlook of SEK 3.5 billion to SEK 4 billion in earning contribution from cost efficiency in the full year 2025, with product cost out being the main driver for the cost reduction. External factors are expected to be significantly negative for the full year. The cost inflation related to increased tariff is included an external factor in our EBIT bridge. Currency remains a headwind and the impact from raw material costs expected to be slightly positive for the year. For the full year, we are lowering our outlook for capital expenditure from SEK 4 billion to SEK 5 billion to approximately SEK 3.5 billion to SEK 4 billion. Investments to strengthen our competitiveness through innovation and manufacturing efficiency are essential to support growth and improve efficiency. But also, we are looking at being as efficient as possible we can and are scrutinizing our priorities. This resulted in a lower CapEx outlook. Moving now to the strategy. And I think we have been hammering. That's our 5 strategic pillar, and we're improving on all of them here. In terms of North America, we have been increasing our market share. We have been increasing the penetration level we have in key channels. We have been increasing the number of shop floor spaces we have, thanks to innovation like the stone-baked pizza feature we presented last month. In terms of growth, we are growing in a challenging market. We are growing in core and premium segments with our brands like Electrolux and in AEG. We keep a very strong position in Latin America. The organic growth has been at the same level as last year, but again, it was on the back of a very strong 2024. We have been launching very strong innovations in kitchen in Europe. In North America with a big kitchen bake oven, and we have product leadership in Latin America. We made progress in terms of cost reduction, adding again, SEK 800 million on the SEK 2 billion we have been achieving in the first half of the year. And last, but not least, the environment is changing. We are in a very unstable market right now where we need to react very fast. We need to be better in terms of speed and agility. And that's why we're driving organizational changes, increasing customer centricity. The first announcement we're making today is we will be splitting Europe, Middle East and Africa and APAC in 2 different regions, 2 commercial regions. One, we'll be focusing on Europe, Middle East and Africa and the other one, we'll be focusing on APAC. As a result, Anna Ohlsson will be leaving the company. Leandro Jasiocha, who is currently in the LatAm region will be moving to Europe, and he will be heading the region. Patrick Minogue will be replacing Ricardo Cons who decided to retire from the company pursuing a family journey he has been starting. And Eduardo Mello will be replacing Leandro Jasiocha as the Head of Latin America. We are sure that with these organizational changes, we will be increasing speed agility and be more consumer-centric moving forward. That's concluding this presentation, and we'll be happy to take any questions. Ann-Sofi Jönsson: Great. Thank you, Yannick and Therese. With that, we will move over to the participants on the telephone conference. So Sarah, you could please go ahead and open up for questions. Operator: [Operator Instructions] We will now take our first question from the phone lines. And this is from Gustav Hagéus from SEB. Gustav Sandström: Congrats on a good result. If I may start on the comment on the U.S. market share gains. And as you mentioned, you take shelf space in the quarter. It appears as if you've had now 4 quarters in a row with some market share gains in the U.S., obviously, superseding a period where you've lost some market share. So interesting to hear now that you're starting to meet a little bit tougher comps in terms of market shares in the U.S. if you see this trend potentially continuing into Q4 and into next year? And if you could shed some light on who you're taking shelf space from, maybe not the name, but if it's domestic or nondomestic players or if it's private label or how you view that dynamic in the trade, that would be interesting to hear. Yannick Fierling: Thanks for the question, Gustav. I think we're taking share, I would say, across. And I think it's mainly due to -- and thanks to the innovation we have been launching mainly in kitchen. Let's not forget as well that we have been ramping up Springfield in the last months here. We have been launching through this ramp up, a new series of cooking products, for instance, which are feeding brands like Frigidaire Gallery. We have been launching the great innovation, which is the pizza stone-baked oven in North America here, which has been getting an excellent reception in the market. We have some new products as well in the food preservation side of the equation. So it is really across market share here. We have been entering, and I want to make sure everybody understands we are not buying market share, but we have been entering into new channels like the contract channels here, and we have been really gaining shop floor spaces in -- with our main customers. I mean Lowe's, Home Depot and Best Buy and others here in the last months. So it's not one specific competitor we're taking share from, but it's a wide range of competitors. Gustav Sandström: And the second part of that question, as you look into -- it appears as if comps on the market share gains in U.S. is a little bit tougher to meet now as you enter Q4 into 2026. Should we expect this trend to continue with some recovery of the market shares also as you enter 2026? Yannick Fierling: Yes. I think I would like to make 2 points going into the volume side of the equation. First, I want to insist on that. I mean that was our commitment. We have been leading price increase in North America in the last month, and that has certainly not been easy. And I think we were very fortunate to have all these innovations in order to compensate basically for this price increase because we are producing, as you know, in North America, we're among the 3 producers in North America. And the last tariff structure introduced at the beginning of the summer was certainly privileging or benefiting North American producers. So we were expecting a higher level of price increase for imported goods, especially coming out of Asia. Unfortunately, I have to say today that we did not see that happening. And I think we're entering into a promotional season in North America now with Black November. However, what I want to underline as well is that, I mean midterm, there is absolutely no doubt that, I mean, North American producers will be benefiting from the current tariff structure here and that import products will be handicapped significantly, and we'll have to increase prices. So we did not see that in the third quarter. We're entering into, of course, a promotional period, which is Black November here, but there is also no doubt in our mind that, I mean, the current tariff structure should be benefiting basically North American producers amongst who we are. We're not giving up on prices, not at all. Here, we're just expecting the market to be rational in North America as well. Therese Friberg: And I guess, a little bit more overall, of course, some of the effects that Yannick talked about with gaining additional shop floor and gaining traction within the contract channel, of course, this is not something that is just happening on and off. But we believe that those types of changes are structural changes that has come gradually during this year, which, of course, also should continue to be a positive going forward. Gustav Sandström: And if I may ask one question on Europe, too. It's interesting to hear that you see some improvement in September in terms of market volumes, if I understood you correctly. Companies tend not to raise these type of monthly data towards the end of the quarter if they haven't seen a similar pattern going into the month that we're in now. Is there any reason to assume that, that logic would not apply to you that October would not follow the September trends? Appreciate it... Yannick Fierling: Yes, I think that's a great question. Unfortunately, in all fairness, I mean, if you look at full 2025, I mean, we have not been going through normal type of patterns in most of the regions, but especially in Europe. Indeed, I mean -- and I think we're happy to say that. I mean, September, we have been mentioning has been a positive month here for us. And I think all we wish is that it will be continuing in the fourth quarter, but I mean the level of unpredictability and uncertainty we do have in the market today in Europe is pretty high. So it's -- I would say it's difficult to say. Certainly, I mean, we're entering as well into a Black November type of market in Europe. But we are confident that with the product we have been introducing, the innovation we have been introducing, with the plan we have in place. And I think the quality of the people we have facing the end consumer, I mean, we will be doing the right thing for what we can control. But unfortunately, I mean, the level of uncertainty is pretty high in the market. Gustav Sandström: I appreciate that. But the question was specifically on October. Is there any reason to assume that the trend reversed again in October? Yannick Fierling: I think I cannot give you any trend, of course, for October right now. But certainly, I mean, the fact that, I mean, September was a positive month is certainly a good indication for us. Therese Friberg: And this is also an important point when thinking about cash flow because as you've seen, we had a weaker cash flow this quarter compared to last year where a large part of this is really related to that we are tying up quite a lot more in receivables this year compared to last year. And this is really driven by that the September month was the very strong month in sales. And hence, we are tying up larger amount in receivables. So we don't see any changes in terms either in receivables or in payables. So it's important to understand, yes, that effect from a cash flow perspective. Operator: We'll now take the next question from the phone lines. And this is from John Kim from Deutsche Bank. John-B Kim: Two questions, if I may. Can you comment on what you're seeing in North America in terms of any potential inventory overhangs? My understanding is that some of your foreign competitors put extra inventory into the market ahead of anticipated tariff increases. I'm just wondering how that's absorbing. Yannick Fierling: John, thanks for your question here. And I would just be repeating the answer I gave last quarter, which is -- again, a very transparent answer. I mean, the fact that, I mean, we may have some of our competitors preloading in order to avoid tariff seems to be logical. However, we did not observe this phenomenon ourselves here. And I think this phenomenon was not reporting to us by our team basically in North America. So unfortunately, I mean, again, logical, but I mean it is something we cannot confirm. John-B Kim: Okay. And I was wondering if you could give us a little bit more color on the reorganization, particularly on the split on what looks like EMEA, Asia Pac and the different regions? Yannick Fierling: Yes, absolutely. I think again, we -- the aim we have in terms of organizational setup is really to get closer to the end consumer from the top to about to reverse basically the organizational pyramid here, and I have the entire organization supporting what we'll be delivering to the market. Having the Asian organization below the European region, I mean, has been adding one layer. What we want to do here is to be able to respond in a faster manner, in a more agile manner to the needs our customers do have as well in the Asia Pacific region. And that's why we have been carving out this commercial region. We will have the head of this commercial region, which we will be reporting directly to myself, the CEO here. And I think with this setup, we are convinced that, I mean, we would be able to support again the region in a better manner. Therese Friberg: Maybe one clarification from an external reporting. We will still hold it together from a back-end perspective across Europe, Middle East, Africa and Asia Pacific. So it will really be a commercial region. So externally, we will continue to have the same segment reporting as today. Operator: Next question today is from Akash Gupta, JPMorgan. Akash Gupta: I have a few as well. The first 1 is on -- again, going back on North America. One of your North American competitor mentioned earlier this week that they produce about 80% of their appliances in the region. And if I may ask, if what's the share of your local production in North America? And how does that compare with industry average if you have that figure? Yannick Fierling: Okay. Thanks, Akash, for the question. We're not giving any precise number here. What I can tell you, however, is that we have 5 factories in North America, 3 in the U.S. and 2 in Mexico, who are USMCA here. So the vast majority of our products are produced in North America today. And again, USMCA compliant. So we are among the 3 major North American producers for appliances here. And certainly, as I said previously, long term, and if the industry is behaving rationally, we should be benefiting from the latest tariff structure here. Unfortunately, that's not what we saw in the third quarter here because we did not see a price increase from import finished goods. Now in all fairness, I mean, the full tariff structure would be implemented beginning of October. So it would be interesting to witness what will be the movements in the coming quarter knowing again that we have Black November in front of us. Therese Friberg: And I think what we have said is that with the competitor you are referring to, we have a relatively similar footprint. So that we have been clear. Akash Gupta: And my second 1 is on the cost savings. You had SEK 2.8 billion in the first 9 months, SEK 800 million in third quarter. Your target is SEK 3.5 billion to SEK 4 billion. That would imply SEK 700 million to SEK 1.2 billion in Q4. But I think in Q4, you have a very tough comp because last year, half of the savings came in Q4 alone. So any indication like where are we trending towards this -- in this SEK 3.5 billion to SEK 4 billion range for cost savings this year? Yannick Fierling: Yes. A couple of stuff, Akash. The first one, I mean, we explained that. I mean it's very difficult to compare the SEK 4 billion we delivered last year with SEK 3.5 billion to SEK 4 billion we're delivering this year because last year, I mean, the saving was for a big part coming from restructuring we have been doing in the past. The SEK 3.5 billion to SEK 4 billion we're delivering in 2025 are much more coming from product redesign, better component sourcing, higher efficiency in terms of factory and better leverage of our global scale here. All what I can tell you today is that we are confident to deliver between SEK 3.5 billion and SEK 4 billion for 2025. Akash Gupta: And my last one is on free cash flow. So again, I mean, you don't provide bridge like your -- some of your competitors, but -- when we look at this change in CapEx outlook, which you have cut today, would that change your internal assumptions for full year free cash flow? Or are there any other element like working capital or something else that might offset? So any commentary on your own expectations for free cash flow? Does that change after CapEx outlook a bit? Therese Friberg: No, I would say that those are disconnected. So with the CapEx refocus that we've done, of course, we continuously do prioritization and reprioritization. And with the focus that we have on cost reduction, actually, that is also spilling over on the CapEx reduction. So of course, when we're looking at costs, we're also looking at how we buy equipment and so forth. So we're not doing the CapEx reduction really to offset other negatives in our cash flow. Those are disconnected. Yannick Fierling: That's very important to underline, and Therese said it. I mean, we are not delaying any launches. We're not delaying any programs. We're not delaying any footprint or whatever here. What we have been doing is, I mean we have been using our CapEx in a better manner in 2025 here. And as you know, we have been hiring about a year ago now, a new CPO, and I think we have been really focusing on buying better, cheaper from best cost countries in 2025. And that's reflected in the cost saving we're having, but also on how we are purchasing equipment and tooling. Akash Gupta: I mean that's fair. But I mean, in theory, like if your CapEx is going down and keeping everything else equal, your free cash flow should be better than before. So my question was that, is this the case that now we should expect keeping everything else equally better free cash flow? Or is there anything that might be offset this benefit that you may get from lower CapEx? Therese Friberg: I guess it depends on the time frame you are looking at. Of course, as we have been transparent about we are not having a strong cash flow this quarter as we did last year. And of course, also year-to-date, we have a weaker cash flow than last year. But the reductions we're doing in CapEx are not to compensate for the negative effects that we have been seeing in working capital. Of course, as we also said earlier, one part of that is really temporary or seasonal that we had a strong September with receivables being negative then in the quarter, more negative than last year and more negative than the usual seasonality. Of course, inventory, we have also been clear with that it is on a higher level already when we came in to the second quarter. And we are usually having a seasonality where we have large inventory reductions towards the end of the year, and this is what we are expecting as well this year. Maybe one additional point that we didn't touch upon. Again, this is not related to the CapEx, but if you look at the full free cash flow for the year, we have talked about earlier in the second quarter that the impact of tariffs is also impacting the working capital level since the terms of when you are having to pay for tariffs compared to when you're able to then reclaim them from price increases from the retailers, there is a time gap. So of course, we've been clear with that. Structurally, we have had a negative impact from that in our cash flow in the year. Operator: [Operator Instructions] We will now move to the next question. And this is from Johan Eliason from SB 1 Markets. Johan Eliason: I was wondering once again, North America. You say you are taking market share there. The brand you have in North America, Frigidaire is typically a mass market brand, which historically has sort of gained share when the consumers become more price conscious. Is that part of what we've seen over there? And could you also update me on how the progress is developing, moving your price points on the brand towards the higher price points like the Frigidaire Gallery issue that you have been focused on over the past few years. Would you say that you have been able, in general to move up the brand a bit on the pricing ladder? Yannick Fierling: Johan, thank you very much for your question. And yes, absolutely, I mean, for the first question, we are not targeting opening price point with Frigidaire, and that's exactly how we have been mixing up with Gallery and Pro. And in all fairness, the entire strategy developed over the last years as well with factories like Springfield or Anderson have been to mix up and have a higher offer in terms of products for Gallery and Pro. I just want to give you very concrete examples. I mean, back command on oven ranges are usually low end. I mean the -- most of the products we do have now, a big part of it out of Springfield has front command here, which is more mid- to high-end segments here. I could give you a similar example on the Anderson side of the equation. The pizza stone-baked oven is, again, a feature which is a big innovation, and we're pricing for this innovation as well in North America. So no, I mean, we're not fighting really for opening price points on Frigidaire. We're not buying market share. What we're really doing is, I mean we're occupying new shop floor spaces by entering new retailers by expanding in channels like the contract channels here, and we are mixing up actually our products here. We should not forget about the Electrolux brand as well in North America, which is a strong brand for front loader for instance, here, and it is a premium brand. So not at all. I mean, we certainly have a philosophy in North America, which is to mix up our product by offering better product and innovations moving forward. Therese Friberg: And I guess important to mention, as Yannick also said earlier, we are improving volume, price and mix in this quarter. And with the combination we're seeing of where we are taking share with what retailers and with what products, we don't really see that it's a -- that we are gaining share is not really a result of, as you're saying, what we have seen before, historically, Johan, that when the market is kind of trading down that we are absorbing that type of volume. That's not what we see in the quarter. Yannick Fierling: And clearly, I mean I want to repeat it. We have been leading price increase in a price pressure market in North America in Q3. Johan Eliason: Excellent. And on the -- can you say anything about the product category where you are sort of gaining more or less? I think historically, the hot products were your most profitable products in North America, but you've lost out on that segment because of the sales issue. But can you say that is the hot product gaining more share? Or is it sort of a broader range over your different categories? Yannick Fierling: I think we are gaining market share almost in every single product category. We're not going into detail. There is -- I mean, there are a couple, of course, where we're losing market share here and where we need to act here, and we have plans in place in order to increase it. But I mean, on the vast majority of the product ranges, we are gaining market share here. So I don't think we should be pointing out 1 specific range or whatever. It is an overboard market share gain. Johan Eliason: Excellent. And then just 1 final minor in the cash flow to Therese. Other noncash items had a negative delta of around SEK 500 million. What's that related to? It was positive SEK 399 million last year's Q3, and now it's negative SEK 104 million. I was just wondering what that cost related to... Therese Friberg: Yes, yes, yes. We -- I mean, with the LTI program that is included in the EBIT, we usually have a negative -- small negative every quarter as long as we continue to, of course, increase the provision of the long-term incentive program. Last year, it's related to the divestment of South Africa, where technically, that's where the change of the goodwill was booked in last year's cash flow. Operator: We'll now take the next question. This is from Martin Wilkie at Citi. Martin Wilkie: Thank you, Martin. I just want to come back to North America. So it sounds like you are making good progress there relative to the market, but obviously, the absolute level of profit is still quite subdued. When we think going forward about the levers to get that higher, is it a market volume question? Or is this all around price cost? I mean is it effectively that the sort of price increases linked to the tariffs and so forth has not yet come through? And I guess related to that, is there any sort of self-help story? I mean a lot of what you've done. at Anderson and other facilities, I guess, are already completed, but is there a self-help element also to getting that margin higher? Yannick Fierling: Yes. Thanks, Martin, for the question. I mean the first thing I would like to underline if you allow me is that, I mean, we are plotting in black for the second quarter in a row in North America in a market, again, which has been pretty price pressured. I mean North America is the first priority. The turnaround of North America is our first priority. And I think we have been making progress throughout the last quarters. Certainly, I mean, we have short-term actions, midterm actions and longer-term actions to take the regions where we believe it should be belonging 6% EBIT longer term. I think the big challenge, the main challenge we had in the third quarter is the one I've been mentioning. We have been making progress in terms of volume, mix and price. However, we were not able to price to extent, we wished simply because, I mean, the tariff structure did not impact the imported goods at the logical or rational level. Now for -- I mean, moving forward, certainly, I mean, we're entering into a Black November, where price pressure will certainly not go down. So the tariff structure would be entirely implemented started 1st of October. So if there is some rational in North America in terms of pricing, we should be benefiting. We should be benefiting mid- to long term out of the current tariff structure here as being a North American producer. So I think, again, I mean, we did not see, unfortunately, a level of rational we would have expected in terms of price increase for importing goods in Q3. I mean challenging month of November with the promotional pressure we'll have. But logically, I mean, moving forward, we should be benefiting from the current tariff structures in North America producing in North America. Operator: And your next question is from Uma Samlin, Bank of America. Uma Samlin: I have a follow-up on North America, if I may. So if we look at the AHAM data on the units for North America, it seems to be flat for the quarter. And you are gaining some share, and it seems like your domestic competitor have that similar things. So who is losing share there? So is there anything you can comment on that? Because given the -- you said like the imports have sort of similar pricing point, they have not been increasing prices. So what is the reason that it seems like the domestic -- you and the domestic peers are gaining share. So is there any comment you can give there? Yannick Fierling: Thanks. Tough question you're asking. I mean, first of all, we are very proud to have gained, to have increased our net sales by a double-digit amount in the third quarter. And again, I want to repeat it is not -- we have not been buying market share. We have been gaining market share here. And indeed, I mean, one of your local producer has been saying the same thing. Unfortunately, we don't buy competitive data in North America. I wish I could answer to what you're asking, but we have the same level of information you do have. So we have AHAM data, and we have our data relative to AHAM. So it's very difficult for us to comment beyond what you just have been mentioning with competitors reporting out as well their Q3 reports in North America. So I'm unfortunately not able to give you more details about who is losing in which product category. Uma Samlin: That's very helpful. So my second question is on Europe. It seems like the competitive pressure in Europe is still fairly strong. And -- but you are seeing some improvement in sentiment. Do you see any increased competition from your Asian peers here in Europe? Do you expect the pricing to bottom out potentially towards the end of the year or into next year? Yannick Fierling: Thanks for the question. Great question here. In all fairness, I mean, Asian penetration in Europe is not something new. I mean, Asian had been entering into Europe now several years ago. Certainly, I mean what I said previously is that, I mean, the cost difference to manufacture a product in Asia or to manufacture a product in North America and Europe has never been as big because of commodity prices, because of energy cost. So cost difference is really, really big. We opted very courageously in Europe a few years ago to step out of entry price points as Electrolux. So we have been ramping down the Zanussi brand, and we have been focusing on Electrolux and AEG. And we're proud to say today that we're winning more market share on Electrolux and AEG core and premium than we're losing on the Zanussi side of the equation here. So we are not exposed to the entrants on entry price point. However, what I need to underline is that, I mean, you're partly right. We see the market moving down into lower price points in Europe. We see cost pressure being more and more intense here, I think we feel slightly protected from that because of the consumer segments we are targeting in Europe. But I mean there is no doubt about that. The market has been moving to lower price points recently, and we see a significant level of price pressure. Operator: And the next question is from Björn Enarson from Danske Bank. Björn Enarson: First question on the U.S. again. And if you can give us some color on the factory load in the plants and what kind of absorption you have of fixed cost now when you gain some volumes, but still volumes are, I assume, quite low. And second question is a little bit on Europe. If you can give some regional comments within Europe where you're seeing this slightly positive trends? Yannick Fierling: Thank you very much for your question. I mean the -- as I mentioned previously, I mean, the most subdued market versus, I mean, the past years, I mean, I mentioned 2019, is certainly Europe. I mean, we are back at the level of 2014. And as I said in the previous call, I mean, usually, this industry in Europe had an organic growth of 2% to 3% a year. So if you put 2014, 2025, we're really missing 20% to 30%. The market is missing 20% to 30% of the volume, we should have expected logically out of the region here. And as a consequence here, the factories overall, which are suffering the most from underutilization are the European factories. That's where everybody is suffering today in terms of factory loading. I would say North America, I mean, a few good news. First, I mean, the Springfield factory, we were suffering end of last year in terms of ramp-up and additional cost. The ramp-up was basically inducing. I mean, Springfield has been reaching what I would be calling a cruising altitude. So the factory is there. And I think we don't have the same factory capacity or utilization issues we do see in Europe. I think certainly, we still have space because we just built this factory. So I think we have space in front of us here. But I mean, factory utilization rate is not the main handicap we may have in North America or the major challenge we do have in North America. Björn Enarson: And are there actions to deal with plant load in Europe? Or how are you dealing with that? What you have done by some divestments et cetera? Yannick Fierling: Absolutely. I mean, first, I mean, we're gaining market share in the core and premium segment. So we are fighting for volume. And I think in the EBIT bridge, as I said during the presentation, I mean we have been positive in volume and mix. And unfortunately, I mean, this advantage was slightly offset by the price pressure we see on the market. So we are really fighting. We're fighting on daily days. Our team is fighting is doing a great job on the market basically to win versus our competitors in Europe. I mean what would be helping us the most is simply to get back to a normal type of growth in Europe. And I think when I say a normal type of growth, I'm not speaking about the 20% to 30% we were expecting a few years ago, but I mean, getting back to 2% to 3% growth in this region here. And what will be helping Electrolux the most because of the strength we do have in kitchen channels is basically that the construction market will bounce back. And we believe it has been reaching bottom here. We're observing that interest rates are lower. So we're really hoping that I mean this market will be bouncing back, I mean, in the coming months. But I mean, right now, we don't have a clear sign it. Therese Friberg: And as you know, with the cost efficiency that we're having this year, it's mainly related to product cost efficiency, but we have 2 years behind us where, of course, we have taken down our staff and our workers in the factories drastically over the last 2 years prior to this one to cope with the factory utilization. Operator: We will now take the next question. This is from Timothy Lee from Barclays. Timothy Lee: Can you hear me clearly? Therese Friberg: Yes. Yannick Fierling: Yes. Absolutely. Timothy Lee: So I have 2 questions on Europe. So the first one is regarding the trend that you have seen in September, which is some improvement. Can I ask about the historical pattern within the first quarter, whether September is usually a strong month in the quarter or not? And so the pickup in September this time is more like a seasonal pattern? Or is really some improvement in terms of your overall business? That's the first question. And the second question is about the margin improvement in Europe on a quarter-on-quarter basis. What's the key driver for that? Is this just from -- mainly from the cost efficiency program or there's something -- some factors that drive the quarter-on-quarter improvement and how sustainable the improvement will be? These are the 2 questions. Yannick Fierling: Thanks for your question. The communication was not very good. So I hope I would be answering your questions correctly. About the month of September, first of all, I mean, we cannot speak about a pattern because, I mean, that was basically a month, and we have seen really quite a lot of unstability in Europe in the past month. And I think in all fairness, unexpected moves as well. So I think I've been in this business for 25 years in all fairness. I mean, it has been in the last years and months, a pretty unstable situation and a situation which is very difficult to predict. However, again, as Therese and myself stated, I mean, we had some positive signals in the month of September. And I think the only wish we have is to get back to a certain level of normality moving forward in this region. In terms of... Therese Friberg: And I guess if the question was more the historical pattern. I think what we can say, historically, of course, we had September, October, November are really the high season month in our industry. Then, of course, as you know, the last few years or quite many years now has been very volatile and not really following a normal seasonal pattern. And also, of course, with a very, very subdued kitchen retail channel in Europe, which is usually the boost as well in these 3 months. That's not really what we have been seeing being strong in the market in the last few years. So that's why we have not really had a normal seasonality. So of course, is September strong because we're coming back to that more positive momentum? I guess it's too early to say because it has been going up and down. But historically, of course, September, October, November are the high-season months. Yannick Fierling: In terms of sales. In terms of margin, if I can just take your question on margin here. As I mentioned previously, I mean, we are not targeting entry price points. Our war, our objective is not cost. I mean we want to introduce consumer-relevant innovations here, and we're extremely proud to have a high consumer 3-star rating across the 3 regions here to win awards like 7 Stevie Awards in Germany in laundry, which never anybody has been reaching before. So we're really trying to get and extract margin out of innovation and the quality of the products we do have over there, trying to escape the price pressure and cost pressure you may find in the enterprise point. However, I mean price pressure is big. Price pressure is big in every single quartile here. And certainly, I mean, reducing cost is one of our strategic pillar, and it is of prime importance to be cost conscious in every single line of our P&L, and that's what we are driving with a lot of intensity. Ann-Sofi Jönsson: Okay. Great. We will take one question from the webinar, which is from Swedbank from Timothy Becker. And that is if we can elaborate on the goal of maintaining a solid investment rating, and if we are okay with the rating or how -- if we have a goal to improve that, and if you could elaborate on that. Therese Friberg: Yes. Of course, I mean, as we stated in the call, our aim is really to maintain a solid investment-grade rating quarter-over-quarter. I mean compared to last year, we are improving on our net debt to EBITDA ratio. And quarter-over-quarter compared to the second quarter, we are stable. And of course, we're doing everything we can to remain a solid investment-grade rated. Yannick Fierling: Our focus remains delivering the year-end results on the profit side of the equation. Ann-Sofi Jönsson: Great. We have one more question on the call that I think we will try to take after we -- or before we close off. Operator: Final question is from John Kim from Deutsche Bank. John-B Kim: Follow up. I'm just wondering if you could comment a bit on wage inflation, sort of percentages are you experiencing? What's the cadence to it? Are there large upcoming negotiations with any unionized union organizations? Therese Friberg: No, I would say nothing extraordinary that we can mention. John-B Kim: Okay. And while I have the floor, is there anything you'd call out in the August developments around U.S. tariffs that are particularly, we should be mindful of, whether it's the metal content or the reciprocal? Yannick Fierling: You want to answer this one? Do you want me to take it? Nothing special on the -- of course, I mean, as I mentioned previously, John, I mean, tariff -- the latest tariff structure is certainly -- should certainly be benefiting the local producers here. The full tariff structure is implemented, I mean, starting beginning of October. And again, all what we're hoping as a North American producer is to see a rational price increase from -- for imported goods starting as soon as possible. That's what I would say. Ann-Sofi Jönsson: Thank you, John. And thank you, everyone, who has listened. With that, we will end this call. And I would like to remind you that we will have a capital market update on the 4th of December that will also be live webcasted. So thank you for viewing and listening in today. Yannick Fierling: Thank you very much.
Operator: Good morning, ladies and gentlemen, and welcome to the HelloFresh SE Q3 2025 Results Call. [Operator Instructions] Let me now turn the floor over to your host, Dominik Richter. Dominik Richter: Good morning, everyone, and thank you all for joining our Q3 earnings call. At HelloFresh, we follow a powerful mission to change the way people eat forever. We've built the only scaled global player in both meal kits and ready-to-eat meals over the past 14 and 5 years, respectively. Our customers benefit from great tasting, healthy meals our wide-ranging variety of seasonal ingredients and global cuisines and the significant reduction of food waste, leading to a superior sustainability profile and lower CO2 emissions versus alternatives. The business is powered by our just-in-time supply chain, the largest of its kind in the world, and a data-driven marketing engine that allows us to reach and engage customers worldwide week in, week out. Over the past 12 months, we've enacted quite drastic changes, emphasizing unit economics improvement, profitability and a much improved customer experience over revenue growth in the short term. Those changes are resonating with customers and multiple customer satisfaction metrics are trending at record highs, indicating that we're both deeply embedded in customers' lives and successful with regard to our mission to change the way they eat. While we're still squarely in our efficiency reset phase with more underlying cost savings making their way through the P&L in the coming quarters, we're now starting the path to unlock even more favorable changes to the customer experience to eventually return to growth. Before I share more on this, let me start by introducing and welcoming our new CFO, Fabien Simon, who joined us about 6 weeks ago. Fabien has had an impressive career to date, most recently serving as the CEO of JDE Peet's, a leading CPG coffee and tea player. Prior to this, he was instrumental in building the JDE Peet's Group from the ground up as their CFO and partner of the investment holding JAB behind it, taking JDE Peet's public at the Amsterdam Stock Exchange. Earlier in his career, he spent 14 years at Mars, where he served in multiple finance leadership roles around the globe, among others, as the CFO of their pet care division. We really couldn't be more excited for Fabien to join us and help us write the next chapter for HelloFresh. At this stage, I also want to extend my gratitude and appreciation to Christian, who served as HelloFresh CFO for the past 10 years and has been instrumental in the growth of the company from about EUR 300 million in revenues when he joined to just shy of EUR 7 billion in revenues in 2025, while turning the business sustainably profitable. Christian's last day will be tomorrow. All the best, Christian, for your future endeavors. With that, let's turn to the highlights for our most recent Q3 quarter now. We observed a stable revenue trend in Q3 versus prior quarters, a decline of about 9% in constant currency, driven by a double-digit decline in orders, somewhat offset by a 4% increase in AOV. In meal kits, we saw a continuation of the trends previously seen, a sequential deceleration of revenue decline for the third quarter in a row with September exit rates showing further momentum. A similarly encouraging trend in RTE, where we saw September exit rates at better levels than in July and August, and we expect both of these trends to continue into Q4. Q3 adjusted EBITDA came in at EUR 40.3 million with the typical seasonality driven by marketing investment and ramp-up costs for our product launches in meal kits and RTE. Despite headwinds from FX rates and mix, we maintained a double-digit adjusted EBITDA margin in our seasonally weakest quarter in meal kits with both North America and also now International improving year-over-year. While Q3 net revenue performance in RTE suffered from lower order rates and customer retention seen in our H1 cohorts, we have turned a corner on many leading indicators, which are up sharply versus the lows seen in H1 this year. Similarly, we continue to be on track with our EUR 300 million efficiency program with about 70% of initiatives implemented, up from about 50% by the end of Q2. Free cash flow before leases has also been on a strong upward trajectory. Year-to-date, we have improved this metric by over EUR 140 million with 9-month year-to-date free cash flow at EUR 170.4 million. In previous interactions, we emphasized two priorities for 2025, delivering our EUR 300 million efficiency program and reinvesting into the product to materially improve the customer experience. These two priorities, efficiency and product reinvestment are not isolated efforts, they are interconnected and deliberately sequenced. Let me give you an update where we stand on both of them. With regard to our efficiency program, we continue to make meaningful progress. By the end of September, we had implemented about 70% of the entire program with the remainder to come in the next quarters. As a result, we are on track to implement about 80% of our efficiency program projects by year-end. Based on current run rate and the tight governance we have wrapped around the program, we feel confident that we will achieve the original EUR 300 million cost savings target or outperform it. The majority of these tailwinds will still work their full effect through the P&L and balance sheet in the coming quarters, given the lagged P&L effect of things like site closures, notice periods or software renewals. Crucially, though, the majority of these actions are permanent. They structurally lower our fixed cost base and improve margins on every order shipped in 2026 and beyond. Despite lower order volumes and significant product reinvestment undertakings year-to-date, these efforts resulted in structurally improved profit contribution margins, lower indirect costs and a leaner, faster organization already. The results are clearly visible. Free cash flow year-to-date is up 4x year-over-year and free cash flow per share is up over 5x year-over-year due to the additional reduction of shares outstanding given the ongoing share buyback program. We are now starting to put that foundation to work via the ReFresh strategy that I introduced in the last call. The flywheel is clear. Cost discipline funds product innovation, a great product drives retention and lifetime value, and improved retention unlocks profitable growth at scale. In Q3, we embarked on our most significant investments to date in the U.S.; in August for HelloFresh and in September for Factor. In meal kits specifically, we expanded to over 100 weekly options on the menu, up from about 60 at the beginning of the year and focused our menu expansion primarily on featuring new cuisines, additional ingredient varieties and many new never-before featured SKUs. We also invested in larger portion sizes and have upgraded the quality and aesthetics of our packaging, keeping our ingredients fresher for longer. The response has been really positive, especially among our most loyal and also lapsed customers who are typically at the highest risk of becoming bored or feeling too much sameness week-over-week in a limited options menu. Sentiment on both social media and across our internal customer satisfaction metrics has been great, and gives us confidence that this is the way to improve long-term customer happiness, retention and ultimately customer lifetime values. Our efforts to acquire fewer but higher-quality customers, combined with the recently launched ReFresh strategy have shown encouraging results across our active customer base year-to-date. Since embarking on our strategic pivot 12 months ago, we have improved average order rates materially versus 2023 and also in 2025 over the 2024 average. And we expect additional improvements on the back of the product investments we have launched in August going forward. This now starts to translate into a recovery of meal kit revenue, which we improved for the third quarter in a row in Q3, as you can see on the right-hand side of the page but even more forcefully when looking at September only, that's the very right-hand bar chart on that right-hand chart. We expect this trend to continue into Q4. Now let's turn to our RTE product group. As indicated in the last earnings call for Q2, we've been hard at work to overcome the temporary operational setbacks we had seen earlier in the year. I'm happy to report that we've made strong progress on many dimensions. We have reworked a lot of our food manufacturing process path. And as a result, we've been able to revert the majority of our meal catalog back to optimal reheat times. We will continue to work through the remainder of the catalog in Q4. We have also instituted and operationalized strict lab testing protocols for all of the new meals coming to our meal catalog. Consequently, we've been able to restore the week-over-week meal variety and menu retention in the earlier parts of Q3 as a first step. Based on this much better customer experience and more robust food manufacturing processes in place, we have then started to improve our meals and menus considerably from September onwards. This is what we call the Factor ReFresh. Since early September, Factor U.S. customers now have over 100 weekly meal options on the menu, up from 40 options in the start of the year. We dedicated additional meals to increase the depth of our GLP-1 range, and we now feature more than 3x the number of seafood meals versus prior periods. The menu expansion is supported by quality investments such as overall larger portion sizes and vegetable quantities as well as higher chicken quality and beef SKUs. We've also opened up additional regional zones for weekend deliveries, giving customers more choice around preferred delivery days and shortening the time from order to delivery of their meals. We've also launched a 4-meal plan to customers. This has been one of the most requested features and directly addresses the customer feedback that they feel overwhelmed by the minimum quantity of six meals per week that we previously had. We won't stop here though. In Q4, we will further continue to expand our menu by an additional 20% with a focus on a new salad range that we developed with a partner, introducing a new ready-to-eat format that does not require reheating per se. For the remainder of Q4, we have also slotted the launch of a number of new, never-before featured premium proteins such as veal sausage and short rib, which have tested really well in customer panels to date. Within the much expanded menu, we will make it easier for customers to navigate the whole menu by rolling out an AI meal recommendation engine that continuously learns which meals customers like best and are most suited to their preferences. With all these things we have implemented on those which are just around the corner, we continue to make big progress on step changing the customer experience. These efforts to date have already shown strong improvements in all of the leading indicators we track. The Net Promoter Score of new customers has trended up sharply since we fixed a lot of the operational issues in Q2 and early Q3. You can really see the sharp drop in Q1 and early Q2 and the continuous climb up since then on the left-hand chart on this page. In September, Net Promoter Score of new customers has been up by 18 points compared to the low point of the year observed in April. The predicted average order rate for new customers has similarly trended up by 12% in September since the lows observed in April and is now back above the historical averages. Finally, projected customer lifetime value has also improved in line with the improvements in AOR, although at a slightly smaller pace than AOR, given the associated extra costs we have absorbed in our margin while fixing all the operational issues throughout Q2 and Q3. While we are confident that we've taken decisive action and can see the success of these actions across all leading indicators, the Q3 output metrics such as revenue and our EBITDA were still heavily impacted by the performance of customer groups we had acquired in H1. You can see the lower order rates of these cohorts in the chart in the middle of this page and extrapolate how those lower order rates from 6 months ago had a compounding negative effect on Q3 orders. The trends for both revenue and margin did, however, improve over the course of the quarter with September marking the best month on revenue, and we feel confident that we can sustain the overarching trend into Q4 now. In summary, we fixed a lot of the customer-facing problems and the customer experience is back in a place where we feel confident starting to invest behind the brand again. Let's now take a look at our KPIs for the last quarter one by one, starting with orders. We've seen group orders at the same rate as we had in H1, down by about 13% year-over-year. In terms of product category, meal kits improved sequentially for the third quarter in a row. RTE worsened sequentially. As explained moments ago, this was primarily due to the low average order rate of new customers acquired during the first half of the year when we faced headwinds from all the food manufacturing-related changes, which drove down the customer satisfaction and early customer retention. Group AOV continued to increase year-over-year by about 4%, driven by our loyal customer base in meal kits who make up a larger portion of the customer base and the strong improvement to the value proposition we have delivered. Both geographic segments actually increased by about 5% like-for-like, but mix effects and adverse FX rates led to a 4% group AOV increase. Specifically, we benefited from customers taking larger baskets in Q3 versus the same period last year, lower incentives given the maturing customer base and selected price increases towards the end of the quarter. Taken together, the decline in orders and the increase in AOV drove a 9% year-over-year revenue decline in Q3, a marginal sequential improvement for the group. Geographically, North America revenues declined by 13% year-over-year, while International net revenues saw a 1.5% year-over-year decline. More interestingly, by product group, net revenues decelerated to a decline of 12% year-over-year, a third straight quarter of improvement. And again, we expect this trend to show up even more forcefully in Q4 for meal kits. For RTE, we saw revenue decline by about 5% year-over-year in constant currency, a result of the lower order numbers from the customers acquired 6 months ago. This was worse sequentially versus Q2. But as our leading indicators have improved sharply versus the lows in H1, we expect a clear reversal of that trend for Q4. Finally, we continue to grow our other segment by 44% year-over-year, while containing the adjusted EBITDA losses for that segment to the same level year-to-date than what we saw in 2024 and despite lapping much larger comparables. With that, I'd like to hand over to Fabien to go through the cost side of the business and update you on our free cash flow, share buyback program and guidance. Thank you. Fabien Simon: Thank you, Dominik. I'm very pleased to be here today presenting our Q3 results for the first time since joining HelloFresh a little over a month ago. We are at a pivoting time for HelloFresh. So I'm looking forward to joining Dominik and the rest of the team and to leveraging my previous experience to help HelloFresh successfully navigate this reset phase and beyond. Over the last month, I have already met some of you in the analyst and investor community, but I will, of course, be available after this quarter to discuss HelloFresh further. Let's now turn to Page 15 to discuss our contribution margin for the quarter. In Q3, the contribution margin came out at 24.5% of revenue, excluding impairments and share-based compensation. This is a touch better as a percentage of revenue than the same quarter last year. Although down in absolute terms, I would qualify it as encouraging, especially in the context of the volume decline, product reinvestment, residual operational issues in ready-to-eat and finally, some increasing complexity that comes from the step-up in our menu choice and personalization. The slight increase as a percentage of revenue had been possible, thanks to the efficiency program, which had been initiated by management. And that is on track to deliver what had been communicated earlier this year. If we look at it from a geographic lens, both North America and International have shown a degree of expansion in their contribution margin, which I understand is the first time in quite some quarter now where both improved at the same time. For the group, we remain on track to deliver the promised improvement of 100 basis points of contribution margin for full year 2025. On the next page, we show the evolution of our marketing spend for the third quarter of the year. With a marketing investment intensity around 20% of net revenue, the business is well invested. This percentage is slightly up versus the H1 trend, which is explained by the back-to-school seasonality, a moment when it makes sense to acquire customers when families are grappling with returning to a post-summer routine. Overall, the absolute amount spend reduced by about EUR 25 million in the quarter. But because it reduced less year-on-year than the revenue decline, the percentage increased versus last year. I think this is a result of the strategy shared over the last few quarters to acquire less but higher quality customers with better product offering while pursuing a higher marketing ROI. This is noticeable on the meal kit P&L, where we continue to see a step down in marketing spend in both absolute and percentage of sales. Yet there's still a meaningful amount invested, which was leveraged to target existing and prospect customers on our Hello ReFresh product upgrade. For ready-to-eat, as it was discussed during the previous Capital Market Day, we are continuing to invest in brand equity building for Factor and the other RTE brands in order to support long-term quality growth where we note increase in awareness from the uninterrupted investment. You can see the development of our adjusted EBITDA for the quarter as well as year-to-date on this page. Overall, the adjusted EBITDA went down by EUR 32 million in the quarter, which is in large majority driven by ready-to-eat, where we continued to invest in brand equity and products as shared just before. This is visible here on both product category level and as well at a geographic level in North America. On the positive side, you can note a stable absolute profitability in meal kit despite the tailwinds we referred earlier. And we managed to increase the adjusted EBITDA margin this quarter versus the same quarter a year ago. Similarly, the International side of the group kept the same adjusted EBITDA margin in Q3 than last year with a contribution margin almost stable in absolute terms. So again, besides the adjusted EBITDA setback in ready-to-eat, the overall profitability dynamic in the quarter and in year-to-date has been positively supported by the efficiency reset program as well as a targeted attempt to be diligent in our marketing spend. On to the next page now to review our free cash flow performance. So far, the free cash flow is presented excluding repayment of the lease liabilities, but expect it to be presented after those repayments going forward as it is, in my view, the true reflection of the cash flow generated from which we strategically decide to allocate capital. So with or without the repayment of this lease liability, there's a meaningful progress on free cash flow year-to-date by EUR 140 million on the existing definitions. This makes us on track to meet the guidance of more than doubling the free cash flow from last year. I think it's probably a good time to update on the share buyback program. In the first 9 months of the year, we repurchased a total of 11.1 million shares for a total value of EUR 97.6 million. 6.2 million shares were canceled in July, and a further 7.9 million shares are currently in the process of being canceled. So accounting for the impact of our share buyback program, the free cash flow before repayment of lease liabilities per diluted share in the first 9 months of the year was EUR 1.03 compared to EUR 0.18 for the comparative period in 2024. Looking now at the guidance. So with the benefits of 3 quarters of trading behind us, we can first confirm the latest commitment and as well take the opportunity to guide towards the most likely range. So first on top line. For Q4, as preempted in the previous slide, we are seeing sequential improvements for both ready-to-eat and meal kit in constant currency. Of course, we have to be mindful that a month does not make a quarter, but assuming that the current trend persists, meal kits are likely to post a high single-digit decline in Q4 from what had been so far a double-digit decline. Ready-to-eat should also see an improvement. However, with a slight delay in the recovery that we saw in Q3, the growth will likely remain negative in Q4 on a constant currency basis. So with that in mind and somewhat dependent on the path of the recovery of RTE in the next couple of weeks, we would likely be at a mid- to high single-digit decline level in Q4 in constant currency. Which means that for the year, we are trending towards the bottom end of the latest constant currency growth guidance, so at around minus 8%. On the bottom line, for Q3 adjusted EBITDA, we should expect a similar level than last year in absolute euro terms. So extrapolating that for the full year, we should trend towards the bottom half of the latest adjusted EBITDA range of EUR 415 million to EUR 465 million. Thank you. And with that, I'll hand over to the operator for the Q&A sessions. Operator: [Operator Instructions] The first question is from Joseph Barnet-Lamb, UBS. Joseph Barnet-Lamb: So in the deck, you show us on Slide 7 that meal kits only declined high single-digit constant currency in September, which is obviously incredibly encouraging. It's also a big customer acquisition month. So I guess there are two things related to that. Firstly, in order to obtain this performance, I assume you marketed harder. Can you just talk about the phasing of marketing within that quarter a little bit? And also what CAC looked like in September given the heightened spend? And secondly, related to it, I appreciate the month hasn't quite ended, but any indication you can give us on October would be helpful. I mean you've sort of given us some indication with regard to your guidance for Q4, but is it fair to assume that October has followed a similar path to September as well? Dominik Richter: Thanks for your question. Let me take that and give Fabien some time to settle into our Q&A session here. So high level, I think it doesn't make sense to kind of like comment on every single month. I think for Q4, we definitely feel very confident that we'll see a recovery -- a further recovery in meal kits revenues as Fabien just laid out. Month-over-month, I think you will also see that these trends continue that we've seen in September. But overall, there's always like a lot of different holidays, other stuffs, et cetera, so that you shouldn't kind of like always just look at every single month. But I do think that the trends that we saw for Q3, both on RTE and on meal kits will definitely persist into Q4 and into the full Q4. Now with regard to the first part of your question around marketing intensity and CACs, we're definitely still in the phase where we are -- especially for meal kits, I think, holding back a lot of spend. We don't comment on CACs generally because we think CACs are just one part of the overall equation. So what we try to optimize for is that for the -- every marketing dollar that we invest that we get the best return. We don't necessarily always get that by investing at the lowest CAC. You don't get it by investing at the highest CAC. You need to look at the customers that you acquire, what's the quality of them and how do you think they will trend over the next couple of quarters as they pay back the marketing investment. So we always look at the equation end-to-end rather than at one single piece of it. But for sure, what we have seen is that the product -- the ReFresh launch in the U.S. has allowed us to first launch the product and then advertise it both on own channels and also on other advertising channels that we're in. But we haven't been massively, massively kind of like stepping up our investment levels, especially not compared to last year. Operator: And the next question is from Luke Holbrook, Morgan Stanley. Luke Holbrook: I just got a question again on the RTE side, just to try and understand some of the challenges that you're facing that you're expecting declines in Q4 from growth before. How much of this do you think is more [Technical Difficulty]. Can you kind of just give us a bit more color on how we think about the EBIT margin being a bit weaker, but also growth too? Just break that down for us. Dominik Richter: Look, we've had a hard time understanding your question. Maybe you can repeat. Luke Holbrook: I'm just trying to understand why some of the EBIT margin is weaker, but also the [Technical Difficulty] the RTE side. Is this attributable to more competition from community and others? Is this more from the macro conditions? Like what is that you have on why the revenues and EBIT margins are a little bit weaker on the [Technical Difficulty]. Dominik Richter: We continue to have a hard time understanding your question exactly. I picked up a couple of parts and maybe can try to answer what I inferred. So high level, we've reworked a lot of our meal catalog in RTE, right, with additional lab testing with a reformulation of a lot of the process path. We're throwing additional labor sort of like on some of those things to fix the customer experience first. This was our first order of priority, making sure that we fix the customer experience. And certainly, over the course of Q2 and also in Q3, we have definitely like carried some additional cost as a result of it. I think now that the customer experience is restored, we can see positive momentum on lot of the leading indicators. We'll be focused a lot on Q4 and into the next quarters to basically be better on the unit economics and kind of like drive efficiency as much as possible. I hope that was going in the direction as I inferred from what I could hear from your question. Luke Holbrook: And perhaps [Technical Difficulty] just clarification then on the financial side. There's a EUR 20 million cash out on the working capital side [Technical Difficulty] what that was in Q3? And does that unwind in Q4 as well? Fabien Simon: Luke, let me take this one. So I understood your question was related to the Q3 free cash flow. So in Q3, the free cash flow was negative, minus EUR 80 million comparing to EUR 44 million negative last year. So a difference of about EUR 36 million. But I will -- if you look at it, it's all coming from the difference in adjusted EBITDA, which was EUR 32 million. So you have EUR 1 million or EUR 2 million on working capital, EUR 1 million or EUR 2 million on CapEx. But I would say it's exactly the same dynamic. So I would not overread a quarter of free cash flow in this business given the inherent seasonality. What is more critical is the year-to-date. And I'm very pleased with the significant improvement. But even more interestingly, if you look at the free cash flow after lease repayments, this year, it turned positive. Last year, it was negative EUR 36 million year-to-date. Now it's positive, a bit more than EUR 75 million, which is extremely encouraging. And in Q3, the free cash flow landed to the level where the management anticipated it to be, given the seasonality. Operator: And the next question is from Nizla Naizer from Deutsche Bank. Fathima-Nizla Naizer: So my question is around the ready-to-eat business as well. Could you remind us -- so if Q4 is going to be a quarter of declines again, when could the segment again return to growth? Would that be a Q1 '26 story or further out in the year as you continue to invest in the product? Some color there would be great. And maybe connected to that, how do you think of the shape of the group's growth when you look at 2026? Any sort of targets that you already have in mind that you can share with us? Because if this is a transition year, would next year then be the year of recovery and growth again? Some color would be great. Dominik Richter: So we're very happy with what we've seen in the leading indicators in Q3 and how we have restored them from the lows in H1 in RTE. So we think this will definitely be a positive tailwind into Q4. Now are we going to land at flat? Are we going to land at slightly negative, et cetera? I think this is always like within sort of like the margin of error, but we're very confident that we'll see a sequential improvement in RTE. And then we're in the middle of planning for the next year. I think generally, if you think about the drivers of the business, I would expect that we have better order rates in the business next year than what we've seen this year. If you think back to the lows that we've seen in H1, I think we should be able to stabilize our conversion volume. And so I think overall, if I look at the whole picture, I see no reason why we shouldn't be able to grow in RTE next year, but we go through the detailed bottom-up business planning over the next couple of weeks. And in the course of reporting our full year results, we'll also share more about the shape that next year will take. Operator: And next, we have a follow-up from Joseph Barnet-Lamb with UBS. Joseph Barnet-Lamb: Given I've managed to get to the front of the queue again, I might ask a couple, if that's okay. So firstly, on contribution margin, you saw a 0.2 percentage point increase year-on-year in the quarter. In Q2, you saw a 1 percentage point improvement. You mentioned the temporary RTE food manufacturer fixes weighing on this. Do we expect this to continue weighing in 4Q? Is it something that's fixed in sort of one go? Or is it something that's fixed progressively? That would be question one. Question two, there was a USDA recall relating to Listeria. That was in early October, so it wouldn't have impacted 3Q. What was the impact of this, both from a top line and cost perspective? And then -- well, maybe I'll stop there. I've got more. Fabien Simon: So maybe I can take the second part of the question and giving time to Dominik to answer the first one. On the Listeria issue, yes, you have seen indeed the communications on an issue related to a third-party manufacturer. We have been taking very precautionary measures to immediately seize it. And actually, there has been some impact in our Q3 numbers because there has been some inventory write-off that we had at the end of Q3, we decided to book this quarter, which was at EUR 1.7 million. And we may expect a few credits to customers to come in this quarter, but it will be a negligible amount because the issue has been well contained. Dominik Richter: On the contribution margin overall, I mean, there's always sort of like, obviously, Q3 is a seasonally weak quarter. So we absorb sort of like more of the fixed costs in Q3. Generally, there were definitely sort of like some additional costs in reworking some of the RTE manufacturing processes. I think overall, if you look at the substance of our improvement plan, at the substance of our efficiency program, then I think there's quite a bit more that we can clip on the contribution margin side over the next quarters. What we also had in Q3 was the ramp-up. If you think about meal kits 60 to 100 meals in September for RTE then also towards 100 meal menu, this usually is in the first 2, 3, 4 weeks when we introduce it temporarily has somewhat higher costs. That's what we saw in meal kits that has settled back down after 3, 4 weeks when we had some more routine with those processes. So I think really structurally, if you look under the hood, I think a lot of the efficiency metrics are doing pretty well. And I would expect that this is not a sort of like a setback or that the sort of like improvements are now kind of like trending heavily backwards. But that actually the program that we have and a lot of the underlying efficiency metrics, if you net out like some of the one-off impacts that we had in Q3, that there is definitely still ample room to improve further. Joseph Barnet-Lamb: Really helpful. If I can squeeze one more in. At the Capital Markets Day, you indicated that retention was 6% better at 10 weeks and 8.4% better at 20 weeks for your post-pivot cohort. With substantially more data behind you, can you now comment what happens beyond 20 weeks? I certainly don't expect you to give us any specific numbers, but at sort of 30 weeks or 40 weeks, is retention more than 8.4% better than the pre-pivot or less or similar? Any color on that you can give would be amazing. Dominik Richter: So I don't have the exact numbers top of mind. I didn't bring them to this call. But I think what you tend to see is product investments have a particularly good impact on sort of like the outer parts of a cohort. This is really where it addresses sort of like some of the concerns that customers have when they say that the menu kind of like tastes too much the same after I have used it for a long time. These are the things that we're really addressing with a lot of the product reinvestment initiatives. And to date, a lot of the initiatives tested in isolation have shown exactly that impact. And what the aggregate impact of that is, I would have to look up. But generally, I think what we should expect that the bulk of the impact of a lot of our reinvestments comes in the outer quarters of a cohort. Operator: And as we have no further questions in the queue, I will hand back for closing remarks. Dominik Richter: Thank you all for attending our Q3 earnings call. I think when we think back to the start of the year and the plans and objectives that we've laid out back then, we feel very good about our efficiency program. We feel very good about a lot of the organizational and leadership changes that we've made. We feel definitely that the velocity of the organization increased materially. We are very much on track with our recovery plan in meal kits. But obviously, sort of like the curveball that we've had to deal with over the course of the year was around the RTE performance. Here, I think a lot of the leading indicators are pointing to the success of the efforts that we have initiated, but we'll need to work through this to kind of like get both business lines then eventually return to growth and provide sort of like the outcomes that we're all working towards. Thanks a lot for attending our call and speak to you in the new year, most likely. Thank you. Bye-bye.
Operator: Hello, everyone, and welcome to the Samsung Electronics 2025 Third 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: Welcome, everyone, and thank you for joining us from around the globe. I am Daniel Oh, Head of Investor Relations at Samsung Electronics. It's my pleasure to be with you on our earnings call today to discuss our third quarter results. Before we begin, I would like to address some important housekeeping and legal matters. As a reminder, you can follow today's broadcast and slide presentation on our IR website at www.samsung.com/global/ir. Additionally, this call is being recorded, and it will be accessible on the same platform for those who wish to review it at a later time. We kindly ask for your attention and cooperation as we move forward as this session is designed to provide you with comprehensive insights into our financial performance and strategic outlook. I would like to remind everyone that this conference call may include forward-looking statements which are based on our current expectations regarding future events. These statements are not intended to serve as guarantees of future performance. Our actual results could differ materially from these statements due to a variety of factors, including, but not limited to, market conditions, regulatory changes and operational challenges. We appreciate your understanding and attention to these important considerations in our efforts to provide transparent and accurate information. With that in mind, I would like to outline today's format. I will begin the discussion with our third quarter financial performance, followed by EVP Soon-Cheol Park, our Head of Corporate Management Office and CFO, who will share our business outlook, capital expenditures and updates on shareholder returns. We will then turn the call over to our executives who will take this opportunity to discuss their respective business areas in detail. Following their presentations, we will open the floor to our valued analysts for any questions they may have. Please note that this call is planned to last approximately 1 hour, and we appreciate your time and attention throughout the discussion. In addition to myself and our CFO, the other executives joining today's call are EVP Jaejune Kim, representing Memory; VP Hyeok-man Kwon for Systems LSI; EVP Sukchae Kang for Foundry who has joined us for the first time; EVP Joonyoung Park for Samsung Display Corporation; VP Daniel Araujo for the Mobile eXperience; and finally, VP Mark Kim, representing Visual Display for this quarter. Now let's begin with our consolidated financial performance for the third quarter of 2025. Our total revenue reached KRW 86.1 trillion, up by 15.4% quarter-on-quarter. In the DS division, sales increased by 19% sequentially with the memory business setting a new all-time high for quarterly sales driven by strong growth of HBM3E and server SSDs. In the DX division, revenue was up 11% quarter-on-quarter, thanks to launch effects of new folding phones and solid flagship sales. SG&A expenses came in at KRW 21.3 trillion. And SG&A expenses as a percentage of sales declined by 3.1 percentage points sequentially to 24.8%. As of the end of the third quarter, year-to-date R&D expenses climbed to a record high of KRW 26.9 trillion, reflecting our commitment to innovation and long-term growth. Operating profit totaled KRW 12.2 trillion, representing a sequential increase of KRW 7.5 trillion, and operating margin increased by 7.9 percentage points quarter-on-quarter to 14.1%, led by DS division with increased memory sales, improved foundry line utilization and significantly reduced onetime inventory value adjustments compared to the previous quarter. Meanwhile, in the DX division, an increase in sales of high value-added products such as Fold 7 contributed to the growth. Regarding currency effects, the Korean won's relative strength against the U.S. dollar weighted on our component business as a significant portion of its transactions are in U.S. dollar. However, the negatives were largely offset by positives in the DX division, resulting in a minimal overall impact on the company's operating profit. More detailed third 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 the outlook for the fourth quarter and 2026. Soon-Cheol Park: Thank you, Daniel. And good morning, everyone. I am Soon-Cheol Park, CFO of Samsung Electronics. It's a pleasure to join you once again on our earnings call. Firstly, our management is fully aware of the concerns of the market and the shareholders had concerning our performance through the previous quarter. However, thanks to the collective dedication of our employees in overcoming challenges, our third quarter results showed a clear rebound and meaningfully met market and shareholder expectations. Looking ahead, we will continue strengthening our business overall, and we remain committed to delivering strong performances to meet expectations. Before we move on, I would like to express my sincere gratitude to our shareholders for your patience and confidence in Samsung Electronics, especially during such a challenging environment. Now let's begin with the outlook for the fourth quarter of this year. We anticipate our mixed market environment in the fourth quarter characterized by ongoing global trade and geopolitical risks on one hand. And on the other, the potential for growth driven by the rapid advancement of the AI industry. In light of this outlook, the DS division will focus on enhancing its performance by increasing sales of high value-added memory products tail-loaded for AI. In the DX division, ongoing challenges such as heightened competition and tariffs may impact our projections for additional earnings growth. Nevertheless, we are persistent in our effort to expand sales, placing a strong emphasis on advanced AI products. Next, I would like to share our outlook for the coming year. In the first half of 2026, we expect the semiconductor market to remain strong driven by ongoing AI investment momentum. However, due to the uncertainties such as tariffs for the second half, we will provide a more detailed outlook during our earnings call for the second quarter of 2026. To navigate this uncertain environment, we utilized our strong technologies and diverse product portfolio to mitigate risks and maximize opportunities resulting in continuous sales turnover growth. In the DS division, the Memory business will make a timely investment and maintain each operational focus on profitability to actively respond to demand for high value-added AI products. At the same time, we will promote the expansion of sales for cutting-edge products such as HBM and high-capacity DDR5 and SSD. For System LSI, we plan to increase sales of premium SoCs and image sensors. The foundry business will work to strengthen its advanced processes and ensure timely ramp-up for the U.S. Taylor Fab. In Display, we will further reinforce our leading market position with our competitive product from the new 8.6 generation IT OLED design and by advancing our differentiated technologies and product excellence to meet the demand of AI devices. The DX division will strengthen its efforts to launch AI products equipped with the most innovative technologies through open collaboration with the leading global partners in respective business segment. Through digital initiatives, we'll expand sales of premium products and enhanced profitability, driving overall growth and reinforcing our leadership across the board. In the MX business, the launch of the S26 and other flagship products will provide our customers with enhanced performance and more intuitive and elevated AI experience. Moreover, we'll continue to lead form factor innovations with the recently released Galaxy XR and the upcoming launch of Tri Fold and leverage our differentiated Galaxy ecosystem to grow sales led by premium devices. In the VD business, we will drive sales growth by enhancing our premium leadership through the innovative new lineup, including Micro RGB and OLED, and we'll deliver unique customer experience with continually improving AI features. In the DA business, we will accelerate sales by strengthening the product lineups overall and improving differentiated connectivity between our products. Turning to CapEx. In the third quarter of 2025, CapEx decreased by KRW 1.9 trillion compared to the previous quarter and by KRW 3.3 trillion compared to the same quarter last year, coming in at KRW 9.2 trillion. This included KRW 7.8 trillion invested in the DS division and KRW 0.8 trillion in Display. For the first 3 quarter of this year, total CapEx was KRW 32.3 trillion, down KRW 3.6 trillion year-on-year. Of this amount, the DS division accounted for KRW 28.5 trillion, while the Display business represented KRW 2.1 trillion. For the full year of 2025, CapEx is projected to decline by KRW 6.3 trillion year-over-year, reaching a total of KRW 47.4 trillion. Within this total, the DS division is expected to account for KRW 4.9 trillion in CapEx, down KRW 5.4 trillion, while the CapEx for the Display business is anticipated to be KRW 3.3 trillion, down KRW 1.6 trillion. In Memory, we expect overall CapEx to remain relatively flat year-over-year, although infrastructure investments are projected to decline. On the other hand, equipment investment, particularly related to advanced node transitions, are anticipated to increase as we focus on expanding sales of high value-added products. In Foundry, we are continuing to invest in advanced node including 1.4 nanometer technology. However, we foresee a decline in total investment with the operations focused on improving and transitioning our current mass production line. In the Display business, our CapEx was mainly concentrated on reinforcing and upgrading existing production facilities as major investment in the 8.6 generation line are nearing completion. We expect the overall spending to decrease compared to the last year. In 2026, we will flexibly respond to the growing demand for AI by increasing investments strategically as needed. Moving on to shareholder returns. The Board of Directors today approved the quarterly dividend of KRW 370 per share for both common and preferred stock. On our shareholder return policy for 2024 to 2026, we are committing to an annual payout of regular dividends totaling KRW 9.8 trillion. The distribution for the third quarter amounting to KRW 2.45 trillion is scheduled for the payment in late November. Thank you. Daniel Oh: Thank you, Soon-Cheol Park. And to wrap up this portion of the call, I am pleased to report that Samsung Electronics has maintained its position as the world's fifth most valuable brand for the sixth consecutive year in the Interbrand Best Global Brands Top 100 ranking. Our brand value was assessed at $90.5 billion, which was the highest among non-U.S. companies. The evaluation highlighted positives such as our AI capabilities across all business units, the application of AI home experiences across our products, focused investments in AI semiconductors and our consumer-centric brand strategy. Now the executives will provide more detailed information on their respective business units third quarter performance, followed by their own business outlook. We'll start with Jaejune Kim, EVP of Memory business. Jaejune Kim: Good morning. This is Jaejune Kim from Memory Global Sales and Marketing. In the Memory market in the third quarter, demand remained strong and continued focus on HBM, high density DDR5 and server SSDs as the need for high performance and high-density server products are growing with the increasing investment in generative AI. As for mobile and PC, supply-demand dynamics remained tight, due to the impact of industry supply disruption focusing on servers. In this situation, along with increasing HBM3E sales, we proactively address the demand in overall application, including server. And our memory business in the third quarter recorded its strongest sales performance ever. Also, our performance improved significantly quarter-on-quarter, and the reduction in the inventory related onetime charges that occurred in the previous quarter also somewhat contributed to the performance improvement. Now let's move on to the outlook for the fourth quarter. Although uncertainties from tariffs and macroeconomic trends exist, we expect data center companies to continuously expand their hardware investments because of the ongoing competition to secure AI infrastructure. Therefore, our AI-related server demand keeps growing, and this demand significantly exceeds industry supply. For mobile and PC, we expect a supply shortage to intensify further in conjunction with the industry server-focused supply trend, increased content products driven by on-device AI and seasonal demand effects. In the fourth quarter, we will maintain our active response to rising server demand. For DRAM, we plan to optimize overall profitability by managing our product mix, focusing on HBM3E and high-density server DDR5 products in response to the robust demand for AI and conventional servers. And also for NAND, we will concentrate on expanding sales of high-density, high-performance server SSDs. Now let's move on to the outlook for 2026. With the continued expansion of AI investments next year and the increase of memory-intensive computer servers prompted by the spread of AI agents, we expect to see simultaneous growth in AI and conventional server demand. Moreover, in mobile and PC segment, we expect the trends of growing content products to continue with the spread of on-device AI. Especially for NAND, we expect supply constraints to intensify as industry inventory levels roll down sharply with the effect of SSD adoption as a replacement for nearline HDDs, which are in short supply. Accordingly, across overall applications, we are currently receiving memory demand for the year of 2026 and it is much stronger and faster than usual. It is expected that customers' demand for the next year will exceed our supply, even considering our investment and capacity expansion plans. In this situation, for DRAM, we plan to continue increasing the sales base for HBM. In particular, as for HBM4, from the initial stage of product development, we have already secured speed above 11 Gbps, exceeding the customers' requirement. With our industry-leading performance, we will focus on offering HBM4 centering on the high-end segment. Also for conventional DRAM, we plan to increase the portion of high value-added products related to AI application, such as high-density DDR5, LPDDR5X and GDDR7. Also, for NAND, we will increase the sales portion of server SSDs and heightened security in line with the strong demand for AI, and we plan to strengthen our portfolio, focusing on cutting-edge products by continuing the transition to V8 and V9. Thank you. Hyeok-man Kwon: Good morning. This is Hyeok-man Kwon from the System LSI business. In the third quarter, the smartphone market showed signs of slowing growth following modest gains in the first half. Major smartphone OEMs, which had built up inventory in anticipation of potential U.S. tariff risks began destocking in the second half, leading to weaker overall demand. We launched our industry's first 200 megapixel image sensors, featuring 2.5 micrometers, ultrafine pixels, laying the foundation for expansion in the high resolution segment. In SoC, efforts were focused on the stable supply of premium products to major customer flagship lineups. However, overall demand declined versus the first half due to broad-based inventory adjustments and seasonal impacts, resulting in flat quarterly earnings. In the fourth quarter, growth is expected to remain limited amid continued global economic uncertainty. With major OEMs maintaining cautious inventory level, demand recovery is likely to be measured. Against this spectrum, we aim to expand the shipment to key customers' premium lineups and continued cost reduction initiatives to defend earnings. Looking out to 2026, overall smartphone demand in major markets, such as China and the U.S., is expected to remain subdued, while the premium segment continued to post solid growth driven by lineup expansion and specification upgrades by leading OEMs. We are accelerating process stabilization and performance enhancement of our X nodes to secure production in key flagship models, while continuing to expand its market share in image sensors through differentiated technologies, such as the 200 megapixel and nanoprism sensors. Thank you. Sukchae Kang: Hello, everyone. This is Sukchae Kang from the Foundry business. In the third quarter, while U.S. export controls on China impacted sales to certain clients, revenue was sustained at the previous quarter's level driven by expanded sales to key customers in the U.S. and increased sales of memory products. Furthermore, profits saw a significant improvement due to a reduction in one-off cost, better line utilization and the realization of cost-saving efficiencies. We also began mass production of our first product using the first generation of nanoprocess while achieving our record high order backlog, driven by large-scale customer wins centered on advanced nodes. Looking ahead to the fourth quarter, the market is projected to see a slowdown in demand that had temporarily slowed due to the U.S. government tariff policies. However, strong demand in AI and HPC, along with the trend of semiconductor self-sufficiency in China is expected to fuel continued growth. We aim to expand our sales by ramping up mass production of 2nm products, increasing shipments of HPC, automotive and memory products and further improve earnings by enhancing fab utilization. In advanced node, development of the second-generation 2 nano process is processing as planned -- progressing as planned. We expect to expand orders for HPC and mobile applications based on our 2 and 4 nano processes. For mature node, we plan to broaden our customer base by diversifying into automotive and other applications through an expanded portfolio of specialty processes. For 2026, while the mobile market is projected to remain stagnant, we forecast continued robust demand for AI HPC applications. Notably, the first scale extension of 3-nano and 2-nano process mass production is expected to drive growth in advanced nodes. However, global supply chain uncertainties stemming from intensifying U.S.-China technology competition and the U.S. government semiconductor tariff policies are likely to persist, meaning demand volatility will also remain a factor. We plan to continuously increase the proportion of advanced nodes to address strong demand from AI HPC applications, thereby aiming for stable revenue growth. Specifically, we will pursue the mass production of second-generation 2 nano process products based on secured stability and focus on developing differentiated processes to strengthen our technological competitiveness. Additionally, we plan to expand demand for mobile and HPC through mass production of the performance and power optimized 4nm process and HBM4-based die. In addition, our new Taylor fab in the U.S. currently under construction is scheduled to commence operations from 2026. Thank you. Joonyoung Park: Good morning. This is Joonyoung Park from Samsung Display. In the third quarter, we delivered a sequential performance improvement in the mobile display business, thanks to the robust demand for our customers' flagship smartphones and newly launched products. Furthermore, we also achieved sales growth supported by an increase in the IT-led adoption rate. For the large display business, amid the rising demand for QD-OLED gaming monitors, we recorded double-digit growth in moving to sales compared to the previous quarter by actively meeting our customers' needs. Also, we introduced a new 27-inch QHD lineup, laying the groundwork for an additional increase in demand for QD-OLED monitors. Next, let me share the outlook for the fourth quarter. On the back of favorable year-end seasonality, we expect the demand for premium products to stay solid. In response, we will expand our sales by actively addressing customer demand for smartphones and boosting sales in non-smartphone segments such as IT, automotive and gaming. We aim to maximize the sales of QD-OLED monitors with the expected full-scale launches of our new lineup. Furthermore, we will respond to our major customers' demand for TVs in the year-end peak season in a timely manner. Moving on to 2026. Our outlook is quite conservative considering the intensifying impact of tariffs and lingering macroeconomic uncertainties. However, OLED adoption is continuously rising in diverse applications, thanks to its outstanding performance. Under these conditions, we plan to strengthen our product competitiveness for diverse segments, solidifying our market leadership. To start with, our new 8.6 generation IT OLED line slated for mass production next year will deliver competitive products, accelerating OLED penetration rate in the IT market. In addition, we will expand our technology lead in smartphones by enhancing the quality of foldable and introducing differentiated technologies for AI device such as low-power consumption and high refresh rate. Finally, for larger displays, we will continue to enhance the differentiated performance for TVs, such as brightness and solidify our position in QD-OLED monitor market by expanding lineups for both B2B and B2C and diversifying our customer base. Thank you. Daniel Araujo: Hi, everyone. This is Daniel Araujo from the MX division. Let me share our results for Q3 as well as our future outlook. The smartphone market rebounded in Q3 as macro uncertainties were somewhat alleviated due to progress in tariff negotiations among major countries together with expectations of interest rate cuts. For the MX business, Q3 saw smartphone shipments of 61 million units, tablet shipments of 7 million units and the smartphone ASP of $304. The launch of new flagship models contributed to growth in both sales and operating profit compared to Q2. Strong sales centered around the Fold 7 resulted in double-digit growth in both shipments and value for foldable devices compared to the previous year, while the S25 series also maintained solid sales momentum. The growth of flagship sales as a portion of total smartphone sales, along with improved sales of new tablet and variable products, enabled us to sustain robust double-digit profitability. Next, let me share the outlook for Q4. The smartphone market is expected to grow compared to the previous quarter due to seasonal factors. However, competition is expected to intensify especially in the premium segment. In the MX business, we expect a decrease in both smartphone shipments and ASP in Q4 as well as a decline in tablet shipments compared to the previous quarter. We aim to continue robust sales of AI smartphones, including our foldable devices and the S25 series, and we'll also press forward with expanding Galaxy ecosystem product sales in conjunction with seasonal demand, focusing on premium new products. Although we anticipate intensified competition and price increases in key components such as memory, we will persist in our efforts to achieve year-on-year annual revenue growth and maintain profitability through flagship focused sales and efficiency improvements across all processes. Next, I'll share our outlook for 2026. The smartphone market is projected to be roughly flat in both value and volume. Within the premium segment, the ultra premium segment is expected to see significant growth, especially around foldable devices. The mass segment is also anticipated to grow, mainly focused on higher price points. For ecosystem products, while tablets are experiencing a slowdown in replacement demand, the notebook PC segment is expected to expand due to growth of AI PCs and Windows 10 replacement demand. Additionally, the watch and TWS markets are projected to grow as interest in health and sports devices, together with the expansion of AI features. And next, we will continue strengthening our leadership in AI and form factor innovation, maintaining our strategy focused on expanding flagship sales. At the same time, we plan to drive growth across all segments by expanding into new regions and channels as well as upselling based on product competitiveness to solidify our leadership in volume. The S26 series will revolutionize the user experience with a user-centric, next-generation AI experience, a second-generation custom AP and stronger performance, including new camera sensors. For foldable devices, we plan to continue form factor innovations to strengthen our product lineup and provide new experiences aiming to expand our customer base. In ecosystem products, we aim to increase premium product sales with superior products and more advanced and intuitive Galaxy AI features. In particular, we will continue to enhance health AI experiences in our watches and further expand our TWS lineup in order to create new demand. Through these efforts, we will continue our business growth momentum even in the face of anticipated challenges next year. Thank you. Mark Kim: Hello, everyone. I'm Mark Kim from the sales and marketing team of Visual Display. Let me brief you on the market conditions and our results in the third quarter of 2025. In the third quarter, TV market demand increased quarter-on-quarter due to seasonality. However, it is expected to decrease slightly year-on-year as global TV market demand remains stagnant. For Samsung, we achieved solid sales growth in premium segment, including new QLED OLED and large screen TV. In response to intensifying competition in the entry-level market, we also diversified the QLED and 75-inches-and-above lineups to expand sales. If so, our profitability decreased year-on-year due to stagnant TV market demand, declining sales and increased costs driven by intensified competition. Now let me go over the outlook for the fourth quarter of 2025. In the fourth quarter, TV market demand is expected to increase slightly year-on-year although competition is likely to intensify with the year-end peak season. For Samsung, through strategic collaboration with major channel partners, we will strengthen our sales program for premium and large screen TVs to preemptively capture peak season demand and achieve a turnaround in the second half of the year. The TV market in 2026 is projected to grow slightly compared to this year. Also, the portion of strategic products such as QLED, OLED and large screen TVs above 75 inches, which are our core focus, is expected to expand further. For Samsung, we will strengthen premium leadership based on our innovative 2026 new lineup, including micro RGB and OLED. In particular, with our new form factors, micro RGB, we will secure new category in advance and reinforce our technological edge. At the same time, we will continue enhancing the competitiveness of the volume segment to drive a turnaround in revenue. By continuously advancing our AI features, we will deliver differentiated customer experience and solidify our leadership in the AI TV market. Lastly, the service business will drive solid profitability and growth momentum by advancing TV plus content and advertisement. Thank you. Daniel Oh: Thank you, Mark and all the other executives. That concludes our presentation on the third quarter performance of 2025 and brings us 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 other business segments will be answered by business representatives. Operator: [Interpreted] [Operator Instructions] The first question will be made by [indiscernible] from Citigroup. Unknown Analyst: [Interpreted] Yes. First, congratulations on strong performance. I think recently on the semiconductor and memory side. I have one question for Memory and then for the overall company. In the case of Memory, it does seem that you have achieved strong performance in the third quarter. Could you explain more about third quarter bit growth and also pricing dynamics? And also, what is your outlook on the memory business for the fourth quarter? My second question is regarding your share buyback program. I understand that Samsung Electronics share buybacks have recently been completed and finished. Could you provide further details on the current status? Jaejune Kim: [Interpreted] Yes, let me address third quarter Memory performance and fourth quarter outlook. Well, with the expansion of inference applications and wider adoption of agentic AI, AI-related CapEx among data centers has been increasing even more significantly versus our initial expectations. And we continue to see strong demand in the Memory market for both DRAM and NAND driven by server applications. Also, for mobile and PC applications, with the industry providing priority supply to address AI server demand, there are growing concerns of supply shortages, and we have seen a rise in market prices. So already strong AI-related demand has become even stronger, driving the overall memory market. And in the third quarter, we also have expanded sales primarily of AI-related products to capture that demand. For DRAM, the expanded sales of HBM and high-density DDR5, LPDDR5X and GDDR74 servers, achieving big growth in the mid-teens percentage. For NAND, our focus was on profitability and we were able to proactively address demand for high margin services fees, recording around 10 percentage bit growth. Consequently, third quarter bit shipments outperformed our guidance, both DRAM and NAND, with a further reduction in our inventory levels. In the third quarter, impacted by rising pricing trends across the broad memory market, also increase in HBM sales mix. DRAM ASP rose by mid-10% Q-on-Q and then by mid-single-digit percentage. Profitability-wise, as we explained, inventory valuation adjustments in the previous quarter were reduced, partially contributing to improved earnings performance. Also, in the fourth quarter with major CSPs expected to expand CapEx, solid AI-related demand will continue. Meanwhile, on the supply side, with inventory across the industry dropping to subnormal levels, supply is expected to be highly limited, and rising prices are expected to increase further for DRAM and NAND across all applications. Given these conditions, we intend to continue our profitability-focused operations. For DRAM, while actively capturing HBM3E demand, we'll also increase the share of high-margin products for server applications. Within servers, we'll focus on high-value add products such as high-density DDR5, LPDDR5X to drive sales. That being said, as overall inventory levels come down, our bit shipment growth is likely to be limited to the low single-digit percentage in the fourth quarter. In NAND, as we continue to transition to V8 and V9, we'll also look to expand sales of high performance, 16 terabytes and above TLC SSDs for AI in foreign servers. Meanwhile, we'll ramp up supply of ultra-high density QLC SSD, which we collaborate on with large-scale data centers, starting from the fourth quarter onwards. However, as inventory has been declining at a faster pace and made continued migration of legacy lines to advanced nodes, bit production loss may be inevitable in the short term. So we expect fourth quarter bit shipments to come down to around 10% on a Q-on-Q basis. However, the share of server SSDs in our sales mix is expected to increase substantially. Soon-Cheol Park: [Interpreted] I will provide an update regarding our treasury shares. In November 2024, we announced a phased share repurchase program of KRW 10 trillion, which was fully completed by September 29. This was ahead of our original target date and the revised target stated in the third share repurchase disclosure. By executing the share repurchase within a shorter time frame, we aim to actively enhance shareholder value. In addition to the annual dividend of KRW 9.8 trillion, the company also completed further share repurchase during the quarter, reinforcing our active approach to shareholder returns. Also following the completion of the share repurchase regarding the possibility of additional returns, the management and the Board are fully aware of the market's increased interest. As a result, the company is continuously reviewing strategies to enhance long-term shareholder value. Additionally, excluding those reserved for employee compensation, we'll decide on the appropriate timing to cancel the remaining repurchase shares in the near future. Collectively, these actions reaffirm our commitment to creating long-term value for our shareholders. Thank you. Operator: [Interpreted] The next question will be by Mr. Kim Dongwon Dean from KB Securities. Dongwon Kim: [Interpreted] Yes. Congratulations on the highest performance in 3 years. I just have one question for HBM. I think there has been a great deal of recent interest on whether Samsung Electronics passed the final qualifications from NVIDIA or not for HBM3E. And generally, on the status of your HBMs, so could you provide an overview of your HBM3E and HBM4 business and also your sales outlook for HBM in 2026? Unknown Executive: Yes, let me take your question on HBM. First of all, I must say that regarding our HBM qualifications, we are quite aware that the market is very interested. But due to our NDA commitments with our clients, I'm afraid we are not able to comment further. What I can share with you at this point is that we are seeing HBM demand grow at a faster pace than supply, and that we have been expanding HBM3E mass production and sales to all of our customers. As a result, in the third quarter, our HBM bit shipments increased by mid-80% Q-on-Q. And excluding some small tail-end sales of legacy HBMs, our overall sales mix is now fully transitioned to HBM3E. For HBM4, as we explained at our earnings call late July, our development work is already finished, and we have shipped samples to all customers and are ready to start mass production and delivery in line with customers' required project time lines. One thing to look at regarding HBM4 commercialization is that as competition intensifies among customers for GPU performance, this has prompted some of the customers to change their original plans, and they have been asking for HBM4 with even stronger performance. From the start-up phase of our development work on HBM 4, we have made it a point to reflect these market needs in advance of the market, setting our performance targets above customer requirements in all our developments. Samples shipped to customers to date are fully capable of meeting 11 Gbps plus performance on low power consumption. Meanwhile, there is now fiercer demand for improved performance from AI applications because we expect a rise in demand for related HBM4, we will be proactive in executing on necessary investments to expand our 1C nano capacity. Soon-Cheol Park: [Interpreted] Let me address our sales forecast for HBM next year. While our 2026 HBM bit production plan was set reflecting a significant Y-o-Y increase, we have already secured customer demand -- significant customer demand for the planned volumes. However, as we -- as additional customer interest keeps coming in, we are internally reviewing possible capacity expansion. That's said, the recent rise in conventional DRAM prices has resulted in a sharp improvement in profitability. So for any additional product mix, we will be considering the relative profitability of HBM versus conventional DRAM. Any additional capacity expansion will also be set in an adequate level as we continue to monitor evolving market conditions. Operator: [Interpreted] The next question will be Mr. Jay Kwon from JPMorgan. H. Kwon: [Interpreted] This is Kwon Jay Hyun from JPMorgan. My first is on Memory. This is an extension of the prior question. Could you share your outlook on the memory market for 2026? And second, I understand that the company has recently announced an expanded stock compensation scheme for all employees and executives. So could you explain more about this in further detail? Jaejune Kim: Yes. So the 2026 Memory market outlook, let me take that. Next year, we expect the Memory market to continue growth momentum continuously driven by AI application demand. As DRAM requirements become more advanced for AI use cases, the high-performance HBM4 market is expected to emerge at full scale, while server DRAM will continue to shift toward higher capacities. And as industry supply tilts towards HBM and server DRAM, Mobile and PC applications will likely experience supply constraints. For legacy products like DDR4, LPDDR4X, GDDR6, as legacy processes accelerate transition to advanced cutting nodes across the industry, supply constraints have already been impacting prices, which rose sharply in the second half. This constrained supply condition is expected to continue next year as well. For NAND, similar to DRAM, demand is likely to increase mostly around high-performance, high-density products for AI. Also a supply shortage in nearline HDDs may solidify demand for substitute products, LC SCDs. And inventory -- industry inventory levels may bottom out faster than initially expected. So consequently, next year, amid overall bullish market conditions, even when assuming our CapEx and expansion and maximum production, customer demand will still exceed available supply and our available supply will remain far short of meeting customer demand. That said, for the second half of 2026, given various geopolitical uncertainties such as tariffs or export controls on high-end AI chips. We are looking more cautiously at the possible impact to market conditions. Even under such market uncertainties, we will continue to strengthen the competitiveness of our products in line with market demand and we plan to expand the supply of AI-related products, targeting the high-growth area markets, we'll focus on commercialization of HBM4 with differentiated performance, expanding sales of high-density, DDR5, SOCAR, GDDR7 and server SSDs, with products like 10.7 Gbps LP, DDR5 and UFS 5.0, will also actively address specialized demand for on-device AI to lead the market. Soon-Cheol Park: [Interpreted] Next, I'll provide an update regarding employee stock compensation. As reported in the media on October 14, to support mid- to long-term value creation, we plan to use performance stock units, or PSUs, and we'll expand stock compensation and the NPI performance incentive to include all employees. The goal is to motivate our people to focus on long-term performance and faster mutual growth across the company through this foundation. Under the performance stock units or the PSU program, the final number of shares granted will be determined by the stock's 3-year performance, and the granting of shares will then be made in installments over 3 years. This is an advanced compensation method linked to the company's future performance designed to align employee rewards with a stock price and enhance shareholder value. Next, the OPI stock compensation program will be expanded from executives only to include all employees starting from the payout in January 2026. The program for executives which began in January 2025 to strengthen responsible management will be available company-wide. Of the KRW 10 trillion worth of treasury shares repurchased over the past year, excluding the portion allocated for employee stock compensation, KRW 8.4 trillion worth will be canceled at an appropriate time, consistent with our previous disclosure. The KRW 1.6 trillion worth of treasury shares repurchased for employee stock compensation will be used for existing programs such as OPI, while additional shares for the newly announced PSU program will be purchased in the future. The specific acquisition period and volume will be determined in consultation with the Board and disclosed to shareholders accordingly. Overall, linking employee compensation to the stock price enables employees to focus on enhancing the company's value and delivering long-term performance while providing direct incentives to increase shareholder value so that we can remain committed to enhancing corporate value over the mid- to long term. Thank you. Operator: [Interpreted] The next question will be by Mr. Han Dong Hee from SK Securities. Dong Hee Han: [Interpreted] Yes, this is Han Dong Hee. I'm in charge of semiconductors at SK Securities. I have a question on foundry and another on smartphones. First, for foundry, it seems third quarter loss appears quite noticeably reduced versus the second quarter. What are the main reasons and drivers? Do you expect this improvement to continue into the fourth quarter. And for smartphone, in terms of profitability, amid the rise in memory and other component prices, do you think that you will be able to maintain current levels of profitability? Sukchae Kang: [Interpreted] Yes, let me answer your question on foundry. So in the first half of this year, there was impact from U.S.-China sanctions on advanced AI chips. And we did see an increase in certain one-off costs such as inventory write-downs from products that became unsellable due to sales restrictions. There was also impact from the sale of certain products produced at high cost during a period of low utilization in the second half of 2024 and also low utilization first half of 2025. However, in the third quarter, one-off costs from the second quarter decline and we saw utilization improve primarily around the advanced processes, resulting in cost savings, which combined led to a significant reduction in third quarter loss. In the fourth quarter, we will be ramping up mass production of new products, applying first-generation 2 nano processes. And we also expect an uptick in sales in high-demand HPC and auto products from main customers in the U.S. and China as well as memory products overall. We will engage in ongoing activities to further improve utilization and for cost efficiency gains, and we expect this to present additional improvements to our earnings. Daniel Araujo: I'll take your question on MX. So memory prices have seen a significant rebound beginning in Q3 with a steeper rise expected in Q4, leading to increased material costs for MX. Given the rising cost pressures, we aim to leverage the strong sales momentum of the Fold 7 -- Z Fold 7 as well as the continuing strong sales of the S25 series to drive revenue growth from high-margin flagship models. We will also drive sales of our newly launched Tab S11 and Watch 8 series to strengthen our premium market position in ecosystem products. At the same time, we're continuing efforts on process optimization, such as using standardized components as well as sharing components across product lines, while also pursuing efficiency improvements and cost reduction activities. Thank you. Operator: [Interpreted] The next question will be by Mr. Nicolas Gaudois from UBS. Nicolas Gaudois: So earlier, you have explained that you expect the memory business to be fairly strong in 2026. So in light of that outlook, could you directionally guide us on what Samsung memory CapEx will be looking like in 2026 compared to 2025 and maybe give a bit of clarity on the DRAM versus NAND flash. Jaejune Kim: [Interpreted] Yes. Let me address your question on memory CapEx. In 2026, we plan to maintain a proactive stance toward investments in memory. In fact, we are considering a significant year-on-year increase versus 2025. For several years now, we have been making steady investments in infrastructure to secure clean rooms for the future. Now building on that as a base, we are looking to execute facility investments at a scale required to address rising demand. For DRAM to address the rise in AI demand, we'll build on our 1b nano -- the 1b nano product portfolio and focus on capital investments to boost cutting-edge bit production. Also to respond to mid- to long-term future demand, we will also carry out some construction investments as well. And DRAM share of total investments will likely increase versus this year. For NAND, after confirming market demand, we intend to gradually increase the share of advanced processes in terms of our future directionality. Operator: [Interpreted] The next question will be by Mr. SK Kim from Daiwa Securities. S. K. Kim: [Interpreted] Yes. I'm Sung Kyu Kim from Daiwa. I have a question for foundry and another for a Samsung Display. So for foundry, it seems that your investments in foundry for this year were significantly cut. So could you explain the reasons why? What is your direction for investments next year? What will be your areas of focus investment? And second, for display. Other than smartphones, it seems that OLED penetration is increasing in these other non-smartphone applications as well. So what is Samsung Display's strategy in that regard? Sukchae Kang: [Interpreted] Yes, let me address the foundry CapEx question. This year, we continue to invest for the future to secure competitiveness in our 2 nano and 1.4 nano advanced node processes. CapEx for advanced production, however, was actually reduced year-on-year as we focus mostly on conversion of existing lines and line enhancements and upgrades. In 2026, we will maintain our basic position of flexible CapEx linked to customer demand and customer acquisition. We plan on finishing up construction on our new Taylor Fab for ramp-up of production and we'll be making facility investments toward our goal of supplying advanced semiconductor products to diverse customers in the U.S. In parallel, we'll also be preparing for mass production of new processes such as second-generation 2 nano and 17 nano CLS so CapEx will likely increase to 2024 levels. Joonyoung Park: [Interpreted] I'll give you an answer on the SDC. We have been extending our differentiated technologies proven over many years in smartphones to areas such as IT and auto, leading the expansion of the OLED ecosystem. Recently, across various products, including IT, automotive and watches, the adoption of OLED has been increasing, resulting in a growing contribution to the company's revenue. In particular, with the expansion of AI IT devices, market demand for low power and high-resolution OLED is increasing, and the adoption of OLED in IT products is expected to continue growing. In response, at the new 8.6 generation IT line, we plan to produce competitive products in 2026 to mainstream the IT OLED, while strengthening production and customer support capabilities to secure a mid- to long-term growth trajectory. For automotive products, we'll leverage our competitive edge in rigid OLED to expand our business not only in premium, but also in volume segment while applying UDC new form factors and other differentiated technologies to gradually increase OLED market share. We will further strengthen our competitive advantages in existing businesses while expanding our new growth industries including IT and automotive to establish a stable and balanced business portfolio. Daniel Oh: [Interpreted] I'll just take one more question due to time constraints. Operator: [Interpreted] The next question will be made by Giuni Lee from Goldman Sachs. Giuni Lee: I'd like to ask about the DX division. Could you please provide any update on the status of the Exynos adoption as well as of AI usage patterns for smartphones? Also, the second question is centering on Chinese brands. Price competition in the TV market continues to intensify. What impact will it have on your TV business? And what are your strategies? Daniel Araujo: Sure. So we, in MX, have clear standards for the experiences that each of our products should provide to customers, and we thoroughly evaluate APs across many dimensions and select ones that meet our criteria. This year, the Exynos AP was adopted in several of our products, including the Flip 7 and some A-Series models. For next year's S26, the evaluation for the AP is still underway, so we can't yet confirm on next year's flagship plan. Regarding AI usage patterns, this year's flagship devices show strong AI adoption with usage rates of Galaxy AI features of 60% weekly and 80% monthly. Features like now brief, which provides personalized information and photo assist for AI photo editing has been well received by users. And going forward, we plan to integrate more AI applications through our AI agent in order to streamline complex tasks and expand AI utilization across Galaxy devices. Unknown Executive: [Interpreted] I'd like to give you an answer on the TV part. In the TV market, aggressive pricing by competitors has boosted demand for entry-level models within each segment, heightening competition. Amid this difficult environment, we'll leverage our differentiated TV competitiveness to restore market share and return to a growth trajectory. First, we plan to launch a new form factor, micro RGB, to reinforce our technology leadership. At the same time, we'll expand OLED sales to drive premium growth and maximize synergies between micro RGB and the premium segments. Second, in the volume segments, we'll expand the application of our TV's key strengths, AI features and lineups while strengthening our real QLED marketing communication to counter competitors, price-focused strategies and shift the basis of competition toward consumer value. In September, we launched a conversational AI platform that provides natural interactions with Bixby to offer visually tailored information and recommendations called Vision AI Companion. In 2026, we plan to expand its availability across more lineup and countries to lead the AI TV market. Also, we will highlight the excellence and safety of our QLED TVs, which are the only products certified with real quantum dot display recognition. In addition, within the ultra-large TV segment, we'll expand our entry lineup, thereby strengthening our leadership in the 98-inch and above ultra-large TV market, which is showing a rapid growth even within the volume segment. Last, our service business, which continues to deliver strong profitability will further be expanded as a new growth driver for our TV business. TV Plus, our SaaS service, will differentiate itself by securing exclusive and live content. And to drive growth in performance-based advertising revenue, we will also secure new advertisers. Thank you. Daniel Oh: [Interpreted] Thank you for the answer. I would like to thank everybody who shared their valuable opinion. And that completes our conference call for this quarter. We wish all of you and those close to you to stay strong and in good health. We thank everyone for your participation today, and we look forward to speaking with you. Thank you. [Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]
Mui Lian Cheng: Good morning, everyone. Thanks for joining us this morning for MIT Second Quarter and First Half Financial Year '25-'26 Results Briefing. MIT has released its results today after market closed. We have the management team to present the key highlights of the results. Ms. Ler Lily, CEO; Ms. Khoo Geng Foong, CFO; Mr. Peter Tan, Head of Investment; Ms. Serene Tan, Head of Asset Management; Ms. Chng Siok Khim, Head of Marketing. I'll pass to Geng Foong to bring us through the results highlights. Geng Foong Khoo: Good morning, everyone. Thanks for joining us today. So for second quarter FY '25, '26, year-on-year, our net property income decreased due to loss of income from the divestments of 3 industrial properties in Singapore, which we have completed in August. Lower contributions from the North American portfolio from nonrenewal of leases, weaker U.S. dollar. These were partially offset by the higher contribution from acquisitions we did end of last year, as well as the completion of final fit out works in May '25. Borrowing costs decreased due to repayment of borrowings with the divestment proceeds, lower interest on unhedged floating rate loans and effects of weaker U.S. dollar. These were partially offset by higher borrowing costs we took for the Japan portfolio. Distribution declared by joint venture decreased due to higher borrowing costs from repricing of matured interest rate swaps as well as pre-termination of lease at one of the joint venture properties in prior year. So overall, our distribution to unitholders decreased 5.3% to $90.7 million, and our distribution per unit increased 5.6% to $0.0318. This prior year, we also distributed about $3.3 million of divestment gain from divestment of Tanglin Halt. So if we exclude that, our DPU would have decreased 2.2% instead. So for first half, most of the reasons are quite similar, so I'll skip that. So for quarter-on-quarter, our net property income decreased due to loss of income from the divestment of the 3 industrial properties in Singapore. Full quarter impact of end of lease amortization for the fit-out works at one of the property in Singapore portfolio, higher operating expenses at North American and Singapore portfolio. These were partially offset by the full quarter contribution from the final fit-out works at Osaka Data Center. So on borrowing costs is lower mainly due to repayment of borrowings with the divestment proceeds and lower interest on unhedged floating rate loans. Overall, our distribution to unitholders decreased 2.7% to $90.7 million and DPU decreased quarter-on-quarter 2.8% to $0.0318. From a capital management perspective, our total borrowings reduced to $3.1 billion, largely due to the repayment of loans with the divestment proceeds. Accordingly, our aggregate leverage ratio decreased to 37.3% and our interest rate hedge ratio increased to close to 93%. With a lower leverage ratio, this provides us with ample debt headroom to capture any potential growth opportunities. Our average borrowing cost for the quarter reduced slightly to 3%, largely due to repayment of higher cost debt with the divestment proceeds and lower interest rate on the unhedged floating rate loans. Having said that, we do have interest rate swaps coming due every year. So for this financial year as well as next financial year, we do have about $600 million of IRS due or coming due, which we expect to have impact on borrowing costs. Even these interest rate swaps were previously locked in when interest rates were lower. So overall, the borrowing cost for this financial year, we expect to be around 3.1% to 3.2%. And for next financial year, the interest cost will be about 3.3% to 3.4%. Our debt maturity profile remains well staggered. No more than 24% of total debt maturing in any single year and average debt tenure of 3 years. On the FX front, as much as feasible, we try to draw local currency loans to provide natural hedge for our overseas investments. This helps to protect FX fluctuation on our NAV and DPU. So for example, about 50% to 52% of our portfolio are funded with loans. So while our exposure to the U.S. by AUM is about 47% of onshore borrowings, our distributable income exposure to U.S. dollar is about 25% to [ 20% ]. This means that in terms of sensitivity for every 5% depreciation in dollar impact to our distributable income is only about 1.5%. So for the remaining of the foreign currency, we enter into FX forwards to hedge the income into Sing dollar. So we have about 86% of our next 12 months distributable income is hedged or derived in Sing dollar. Now to Lily to go through [Technical Difficulty]. Lily Ler: I will cover the operational performance. So if we can start off with the occupancy of the portfolio, I think that's something that above our [indiscernible]. On a portfolio basis, the occupancy rate has, I would say, remained relatively flattish. So we are looking at 91.3%. If you look at the Singapore portfolio, pretty resilient. We have managed to keep the occupancy flat, right? For North American portfolio, we do see a bit of slightly marginally down to 7.8%, and that's largely because of the expiry of lease at San Jose, which is something that we have spoke about in the last quarter. On the Singapore side, something which I missed out just now would be the progress of the Kallang Way property. I think that one, we have managed to improve the committed occupancy to 64.4%. So there is about a 1 percentage point improvement from the last quarter we have reported. I think this quarter, we have also seen quite a bit of new leases and renewal that we have actually executed. To date, we have executed about 184,000 square feet of the space in North America. This is about 2.6% if you look specifically at the North America [indiscernible]. Of this 184,000 square feet, we have about 20% -- 20% to 23% of these leases actually pertains to empty units, which were previously vacant. So we are able to fill up some of the vacant units. The rest of it are basically just renewals. So it's not going to -- it basically means that we are able to extend the lease period, right? I think if you look in terms of some details for lease renewals, weighted average revision comes up to be about 3%. I think if you look at the range of the revision, we are talking about from a low single of 2% to a double digit like 10%. And on lease renewal also for a relatively long period, so about 5 to 11 years. I think maybe I just also want to highlight that these are -- a lot of these leases or most of these leases, we will be taking effect only in FY '26, '27. That means the next financial year. I mean these are actually forward renewals that we have entered into. The lease commencement actually starts next financial year. So we will see the effect. I think the current financial numbers does not include the effects of these leases, not significant [indiscernible]. The rental revision in Singapore continues to be quite positive. I think we are looking at a weighted average of 46.2% on the average. Of course, if you look in terms of greater details, the general industrial buildings continue to see encouraging rental revision at about 8%. We do have a little bit of a negative revision in the Hi-Tech building and business space, specifically, that is more on the business park, where we have one particular tenant. I would say, not very sizable, but it's not your usual typically 1,000, 2,000 type of spaces. So we have actually defended the occupancy by taking a lower rental rate. So that accounts for the negative rental revision that you see. I think then if you look at the lease expiry -- in terms of the WALE, we will see that there is a slight improvement in terms of the overall portfolio. Last quarter, we reported 4.5 years. So this quarter, we actually reported a 4.6 years. Of course, you also understand that every time you move 1 quarter, naturally, this number will drop, but we have actually managed to improve it, and that is mainly because of one of the renewals that we -- which was one of a renewal, which I've mentioned earlier on that actually take effect towards the end of the financial year. So that has basically lengthened the WALE. If you look in terms of the profile for FY '25, '26, in total, we have about 4.6% of our total portfolio expiring. If we look specifically at the North American data center, that would be about 1.8%. And of course, I think we have spoke about this last quarter as well [indiscernible] 1.8%. There is also 1.2% that is largely due to the vacant unit. The office spaces that was given up by one of the data center tenants in 250 Williams. So I think whatever that is left in the remaining of the financial year, we are quite positive in terms of the renewal and backfilling. Okay. So for next financial year, '26-'27, of course, the large part of the expiry for the North American portfolio continues to be the San Diego. So that is something that we are keeping an eye on as well. I think in terms of some of the investment divestment activities, we have completed our divestment -- the Singapore divestment of the 3 properties. So that takes place -- that took place on 15th August. I think that is also why this quarter, we see some effects of the loss income coming from the divestment [indiscernible] through the financial numbers, right? With this, I think we will continue -- we will still continue to look at our divestment for the portfolio. But I think this -- the focus will be more on the North American side. I think that is something that we have always been looking at as well, right? So I think we probably will be looking at another $500 million to $600 million of divestment for the portfolio. In terms of investment activities, I think since our divestment, we have managed to bring our leverage ratio down. So that does give us some headroom in terms of looking at acquisitions. So I think we have -- we are seeing quite a few transactions in the market, say, in the Europe and more recently, in fact, I would say, a little bit more on the Japan side. So Europe and Asia will continue to be our focus. And of course, the 50% stake that the sponsor is still holding it will continue to be something that we want to look at. I think if you look at this portfolio specifically, it is a good portfolio, which can help to improve our quality of the quality of MIT's portfolio overall. And of course, we also know that, that is the one, where the hyperscalers facilities forms a large part of it. So it will be an interesting pipeline for us. So with this, I think we hope to be able to recycle the seeds that we have obtained from the divestment. And of course, with further divestment that can come through, that will also help to give us more gun powder in terms of the acquisitions. So looking ahead, I think our priorities will remain very much centered on improving the occupancy at both the Singapore and the North American sites. We have been getting some traction in recent times. So we are quite encouraged by that [indiscernible] continue doing this. We are still in talks with a few potential renewals or new leases in the North American side. So that is something that we hope we can continue to provide some good news next quarter. right? I think in terms of the interest rate side, as Geng Foong has said, we do have some repricing replacement that needs to be managed. So we need to be very nimble, and we can just adjust the hedge ratio and keep a lookout for any opportunities. So I think as we move along, there may be some transitional impacts on our results. Some of these -- as I said, some of these renewals that we are looking at are actually forward renewals. So we are actually paving the way going forward. So that's something that I hope you guys will understand. I think with this, that will end our presentation. I'll pass it back to -- I'll pass the floor back to Mui Lian. Mui Lian Cheng: [Operator Instructions] Terence, would you like to ask the first question? M. Khi: This is Terence from JPMorgan. Just wanted to ask a bit more on the backfilling of the U.S. data centers. Could you share a little bit on what -- how do you see progress? Or how should we expect backfilling for 250 Williams and the AT&T next year Lily Ler: I think for 250 William, we have -- as you will probably note that for the past few quarters, we have been able to lease out some of the office space. Although, as I said, these are not very big significant type of areas that we can go -- that we can fill up immediately, but we have been making some progress, and we are actually quite encouraged by that. There have been still quite a number of -- we are still seeing quite a few inquiries, some people coming to view, et cetera. So I think it seems like while the office space continues to still be quite weak in terms of the demand, there seems to be some slight recovery that is coming back. So we hope that we are able to continue this traction. In terms of the AT&T, we are still -- we are actually talking -- we are still kind of -- we need to talk to them and see actually what is their plan because if you remember, for AT&T, there is a further options to -- for them to extend another 5 months. So that's something that we will get some clarity -- we want to get some clarity from them. And of course, the efforts for us to release the building, repurpose the building or even to do a divestment for the building continues to be something on the card that we [indiscernible]. I hope that answers your question. M. Khi: Yes. So is that -- I mean, to give a sense, is there any details on whether we should expect that 5-month extension? Lily Ler: There's no clarity at this point actually. M. Khi: Okay. Great. Could I ask about the FX hedging? What is the hedge rate for U.S. dollar ForEx into the second half of the year? And how should we see the FX hedging for next year? Geng Foong Khoo: So for the income hedges, we have hedged about 53% of our USD income stream for the next 12 months. The average rate is about [ 1.28, 1.29 ]. Hopefully, it's for the next 12 months. M. Khi: And maybe a final question for me. Any thoughts? Could you share a little bit more on the acquisitions? I understand that you're looking at both the sponsors, 50% and also Europe and Asia. Maybe a bit more details in terms of cap rates and how you are seeing any preference? Lily Ler: I think now with the current interest rate environment, where the rate seems to be easing off, it is something -- it is a development, which will, I guess, help in terms of the acquisition cases. I think at least in terms of the yield spread that can start to make sense or make better sense for some of the projects that we are looking. So I think in more recent time, we have been seeing transactions that is coming up from the Europe, from the Japan and I think even from the U.S. for that matter. I think for us, it is very -- we do recognize that it is something that we want to -- that we will want to keep on pursuing in terms of the acquisition because at the end of the day, now that we have divested a bit of the -- relatively significant portfolio from the Singapore side, it is something that we will need to be able to replace at least if not part of the income that has been lost. So that is something that the team will have to continue to work on. So I think if you look in terms of the numbers or that, I don't think the numbers very, very far out from what you're seeing in the market. So Japan, you typically will still be looking at around 4%, sometimes maybe a bit sub-4%. But I think the interest rate side, I think there is still some -- I'll say that the increase doesn't seems to be so coming in so strongly. So I think in terms of the yield spread, it still quite makes sense. So I think we probably can be looking at a yield spread of around, say, 1.5% to 2% type. And you'll probably see a similar type of yield spread across the other regions as well. So basically, when your cap rate is there, your cost of funds tends to follow it as well. M. Khi: And in terms of timing, how should we think about timing? Is there a time or target for acquisitions? Lily Ler: In terms of what, sorry? M. Khi: Sorry, timing of acquisitions? Lily Ler: Well, I guess the thing with external acquisition is you either get it or you don't get it, right? So we have evaluated. We have tried -- we have done some submissions, et cetera. So I think we hope that we're able to get something quite soon as well. But as I say, this is something that we will have to continuously be in the works. Of course, what would be easier within which will be the 50% stake that we can look at. So I think that is something that we are always in continuous discussion with the sponsor. If they are looking to sell, I think it's something that we want to look at it seriously as well. Mui Lian Cheng: Can we have [indiscernible] to ask the next question. Unknown Analyst: Can I ask about the next $500 million to $600 million of divestment? Is that something that we can expect over the next 6 to 12 months? And also, is this sufficient to fund for your acquisition? Or are you also open to equity fundraising? Lily Ler: Okay. Let's address the $500 million to $600 million. I think that is generally the part of the portfolio, which we think that we want to do a recycling. As for the timing in terms of $500 million to $600 million, it is not it's not small, okay? So I think if you look at the U.S. trending so far, those properties that we have been selling are generally on individual basis relatively small, right? But this -- I think we do expect that perhaps we hope that for this financial year, we can do about $100 million to $200 million, right? But to fully divest the entire $500 million to $600 million, I think it will probably take some time. 12 years might be a bit too much. 12 months might be a bit too short for us. So you'll probably take, say, maybe about 1 or 2 years or so. Unknown Analyst: Funding for acquisition? Lily Ler: Sorry. So whether we will consider EFR, of course, it's never a case of I must do a divestment before I do an acquisition, right? It very much depends on the attributes of the projects. And if the market is conducive, we would want to do a bit of equity fundraising. That is that can basically help us in terms of managing our balance sheet as well. So I think it will also depend on the sizing of the -- the size of these acquisition targets. Unknown Analyst: Okay. Got it. Second question is on debt hedging. Can you explain why is it at 90% currently? And what's the comfortable level for debt hedging? Geng Foong Khoo: We pay down loans with the divestment proceeds. So what we have done is, of course, we paid down the unhedged portion. So that brings our interest rate hedge ratio to close to 93%. But we do have IRS coming due remaining financial year. So by March, we'll see this closer to about 80% back to the normal level. Unknown Analyst: And the target is to maintain it at 80%. Geng Foong Khoo: By year-end, it will be 80%. But of course, I mean, but over the next few years, we'll see the interest rate environment and recalibrate the hedge ratio. Mui Lian Cheng: Do we have Derek from Morgan Stanley to ask the next question? Jian Hua Chang: Can you hear me now? Mui Lian Cheng: We can hear you. Jian Hua Chang: All right. Perfect. I just want to ask on the upcoming lease expiry in FY '27 for U.S., how much is U.S. account for FY '27? And of that, how much is the AT&T lease? Lily Ler: Okay. So you're talking about FY '26-'27, right? Jian Hua Chang: Yes. Lily Ler: In total, if you look at the total portfolio, it's 19.2%. Specifically for North America, that would be about 5.5%. Of course, the majority will be for San Diego. I think San Diego generally contributes about 2.4%. Jian Hua Chang: 2.4%. Geng Foong Khoo: 2.5%. Jian Hua Chang: Sorry, 2.4%. Geng Foong Khoo: 2.5%. Jian Hua Chang: 2.5%, 2.5%. Okay. So 2.5%, that one is more -- that one visibility is much lower, but the remaining 3 percentage points that shouldn't be an issue? Lily Ler: I think it's something that we are continuously looking at. That's why I think if you look at some of the leases that we have signed this quarter or to date, some of these are actually pertaining to the '26, '27. So we would be able to -- I would say, the significant lease is actually more on the San Diego one. Jian Hua Chang: Understood. The ones that you signed, which also pertains to FY '27, those came at reversion of 3%, right? Lily Ler: Weighted average 3%, yes. I think in terms of the range, which is a wider range. So you're talking about the low 2% [ of ] 10%. So it's about 2% to 10%. Jian Hua Chang: 2% to 10%. Okay. And just on, I guess, San Jose, is there any updates on your power studies over there? Lily Ler: The power study has been done. We understand that the current facilities can take up to 7 megawatts, although I think previously, it was running at about 3 megawatts, right. if we want to bring the facilities up to a 20 megawatt, it is possible, but I think it will -- means that you need to put in the power supply -- the power supplier will need to put in additional CapEx to bring -- I think they need to build a new substation and put the new cabling through. So there will be cost involved in getting the 20 megawatts. And of course, that also means that it will take some time. Jian Hua Chang: So are you angling towards just going ahead with 7 megawatts without having to build power station? And how soon would you expect the lease-up of that asset? Lily Ler: Yes. So I think with this, what we have actually done is we wanted to -- with the power study in Japan, we wanted to actually sell the properties. I think the response is not as expected as what we expected. We do note that there is quite a number of requirements, those that come to look at it, the requirements tends to be more for the immediate power. So I think some of them are not prepared to wait 3, 4 years for the additional powers to come in. So I think this is something that we will have to continue to engage the prospect. Jian Hua Chang: Okay. So there's no timing per se that you can guide for at this point in time? Lily Ler: I think we are currently in the progress of actually trying to reach out to the prospect and maybe also to expand the marketing program. Jian Hua Chang: Okay. Understood. And are there any other power studies for other assets or it's just San Jose for now? Lily Ler: We have done one for Horton. And I would say that it is quite positive, right? So we are able to bring in much higher power as compared to San Jose, right? So I think that Horton is currently still leased. The lease will end probably next financial year. So that's something that we're also talking about talking to a tenant about the re-leasing -- sorry, the renewal of it. Jian Hua Chang: This is the -- this is in FY '27? Lily Ler: This is in FY '26, '27, the next financial year. Jian Hua Chang: How much does it account for that 5.5% for U.S., the Horton one? Lily Ler: I think it's about 1.2%. Jian Hua Chang: 1.2% Okay. Okay. So you're in the process of renewal and if that doesn't come through, you would use the power studies and increase the IT capacity for the [Technical Difficulty]. Mui Lian Cheng: Derek from DBS has the next question. Derek Tan: Can you hear me? Just a few questions from me. First one is on your rent reversion that you achieved for America, right? I'm just curious whether the leases were likely renewal or backfilling. I just want to get a sense whether there's possible improvements in occupancy. Lily Ler: Those -- the rental reversion we talked about is only for the [Technical Difficulty]. So we're talking about backfilling as in us trying to fill up additional empty spaces. I think just now I mentioned out of the 184,000 square feet that we have signed to date, about 23% are actually, I would say, backfilling of empty units. So yes, you'll see some contributions towards the occupancy. But I think we will also [Technical Difficulty]. Derek Tan: Then my next question is on your comments on acquisition, right? You're mentioning that you are scanning -- you're potentially divesting. But if you look at, let's say, opportunities that you're keen to execute, right, what -- how will you rank the 50% stake will be ranked the highest in our view? Lily Ler: Well, I think it's a difficult question. Derek Tan: Easy as I know, but... Lily Ler: [indiscernible] question I ask Peter to address, okay? Che Heng Tan: Yes. I mean, what Lily mentioned earlier, the 50% stake, those are very good properties and a good portfolio add-on to improve our quality of our portfolio. But we also -- we are also seeing a lot of other decent opportunity that is coming on our table. So we will have to assess it, but it kind of at least give us some leeway to choose, which is the assets or which are the portfolio that we wanted to add on to MIT. Lily Ler: It's not a very easy decision, I guess. Che Heng Tan: To add on is like [indiscernible] we have to choose. Lily Ler: I guess if we are able to get in other [ draw free ], it will also help in terms of the diversification for the portfolio, right? Notwithstanding that, the acquisition of the 50% stake will also increase our exposure to the hyperscalers. So I think that is something we have to evaluate when the transaction comes so forth. Derek Tan: Okay. Okay. Got it. But you're saying that you're also looking for Asia and Europe, anything that you believe is very -- that will rank quite soon because I'm just thinking about it from a new spread, right? I mean, Europe and Asia will be higher. Lily Ler: I think there is quite a number of transaction that potentially can be coming out. So that will be something that we'll be quite keen to pursue. So -- and you're right. I think in terms of the U.S. spread, maybe initial might be similar, but I think the difference also lies in terms of the built-in escalation, right? So I think typically, if you look at Europe, you'll be around 2% to 3%, which is quite similar too. I think Japan, generally, we are seeing some between the 1% to 2%. So that's something that we have to take into consideration as well. Of course, transactions varies from one another. So it really depends on what is the attributes, so. Mui Lian Cheng: We have Rachel from Macquarie to ask the next question. Lih Rui Tan: Maybe my first question is on the interest cost. I think at the start of the year, there was like $597 million of IRS that's due this year. And then now there's $600 million due this year and next year. Can you give us a breakdown in terms of how much has already lapsed and has been included in the interest cost? And then how much are we expecting the rest of this year? And how much are we expecting next year? Geng Foong Khoo: Thanks, Rachel. So okay, it's a bit difficult to -- because we do like some of the earlier renewal of -- mention of the hedges. So early this year, we have about close to $600 million IRS, right, coming due this financial year. But of course, all these were progressively due over this financial year. But having said that, whenever interest rate [Technical Difficulty] slightly, we will try to lock in a bit. So to date, we have locked in about maybe about $200 million IRS. So we still have about $400 million to go. But having said that, like I mentioned earlier, our hedge ratio is quite high. So we will -- this $400 million floating rate and then so that the hedge ratio will be about 80%. But net-net per annum impact, if you look at it, per annum impact all these replacement hedges for IRS is due this financial year, [ NIM ] is about $9 million to $11 million, but most of these are in U.S. dollar. onshore. So we have a bit of tax shield there. So net of the tax shield may be about $7 million, $8 million. And so you see the full year impact probably next year. This year, maybe half year impact. Lih Rui Tan: So meaning the net impact, $7 million, $8 million this year is half of that the impact and then next year will flow through. Geng Foong Khoo: Yes. Lih Rui Tan: Okay. And then the remaining [ 400 ] hedges that is expiring this year, you will drop it off. But next year, is there any more IRS? Geng Foong Khoo: Yes. So like I mentioned earlier, we have another $600 million IRS coming due next year. Similarly, we will see impact from these replacement hedges. But having said that, the average interest rate for those IRS coming due next year will be kind of slightly higher than this year's IRS due. So we'll see some impact, but not as much as this year. Lih Rui Tan: So -- okay, sorry, the next year one is also $600 million. Yes. So the $600 million this year and next year, $600 million, roughly. Okay. Okay. Then my next question is in terms of the San Jose, if I were to follow up, now that the tenant, I think you mentioned that the tenant want a higher power, right, but you are still talking to the tenant. So any intention of you putting in CapEx now that you're talking to a tenant? Or you will still walk away from putting in additional CapEx? And are you able to sell these assets? Che Heng Tan: Yes. I mean, just really to clarify, were you referring to San Jose or the one that we mentioned about, we're talking to existing tenant, which is Horton? Lih Rui Tan: No, no, the San Jose one. Che Heng Tan: So San Jose, the tenant have vacated earlier already, but we did complete the power study. So we are now just exploring whether with potential prospects to divest the property essentially. Lih Rui Tan: Okay. I see. So okay, right, to divest the property completely, right, with potential tenants, okay. Okay. Got it. Yes. And then maybe just squeeze in one. I remember in terms of acquisitions last quarter; you were actually more positive on like EU in terms of acquisition. But somehow rather this quarter seems the narrative seems to have changed a little bit. Can I just understand, has something changed along the way? Lily Ler: No. I'm still keen on Europe. I think at the end of the day, we do recognize that it will be good to have Europe, which is one of the -- which is one of the largest data center market globally. So Europe is definitely something that's on our radar. Similarly for Asia as well. I think in more recent times, we are -- I would say, in more recent times, we are seeing a little bit more transaction coming out from Japan. I think Europe, there is a few. So no, our radar is still on these 3 -- on Europe, Asia and potentially the 50% stake. Lih Rui Tan: Okay. Got it. Yes. And are you -- do you still intend to acquire bigger data centers in terms of the size? Che Heng Tan: I think in terms of the size, of course, we have done a range of transactions from $100-plus million, $500 million to about, say, $1-plus billion. So the range remains similar. Of course, considering where we are, it will be very hard for us to do a 1 gigawatt or 100-megawatt type of data center, but probably $1 billion-ish or so or from $100-plus million to $1 billion-ish remains on our radar. Mui Lian Cheng: We have from [ Yew Wong from CLSA ] to ask the next question. Unknown Analyst: I just have one question focusing on the 50% balance from the sponsor. Can you share more details about this portfolio in terms of performance, right? So if we look at your U.S. data center portfolio has been trending down over the past few years. Was -- does the 50% mirror similar trends? And also, secondly, what is the NPI margin as well for -- do you see the similar NPI margin decompression trend that you have with your existing portfolio? And how much of the 50% balance, right, has exposure to hyperscaler and also like megawatt capacity? Anything that you can share? And lastly, does the valuation of the portfolio, right? Is the cap rate similar to your existing cap rate of your U.S. data center portfolio? Lily Ler: Okay. For the 50% stake, that portfolio, a large part of it, I would say, about 60% of it is actually the hyperscaler that you see here. So the balance of it, most of them are colo providers, right? I think the issue that we are seeing with some of -- with our current portfolio is more of the facilities that were previously occupied by the enterprise user. So I think I mentioned previously before that when it comes to enterprise user, they are fixed in terms of the location, they are fixed in terms of how they allocate the space and how they design, the data centers fit-out, et cetera, may not be as efficient as what a data center operator was. So that kind of makes the re-leasing a little bit more difficult, right? But you don't have that in the 50% stake portfolio. Unknown Analyst: So the margins will be better as well and the occupancy will be arguably higher? Che Heng Tan: Okay. I think from a margin perspective, because they do have triple net leases and gross leases and so on. So ultimately, we will probably be looking at very similar cap rate currently about 5.5% to 6%. And I think in terms of -- sorry, your second question is the occupancy, yes. So for this 50% portfolio, the occupancies are generally pretty very strong. So we have always seen it as more than 90-plus percent currently and going forward. Unknown Analyst: Okay. So it did not really come down to the 80s, mid-80s as seen in your portfolio? Che Heng Tan: Not yet. Yes. I think… Unknown Analyst: not yet. Or is it -- you don't expect it to come down? Che Heng Tan: No, we think that it's probably quite pretty resilient or you will be more than -- you will be more [indiscernible]. Lily Ler: Yes. And this is actually locked in for quite long term as well. I think maybe just for this portfolio, if you recall, in one of the quarters, we [ said ] that we have a tenant who has vacated one of the buildings in Tampe is that. So I think that one, we are in the progress of backfilling it. We think that there shouldn't be any problem. Unknown Analyst: Okay. Okay. Yes. And any idea on like power capacity? Che Heng Tan: Yes. So I mean, for the 3 hyperscale data centers that we have in Northern Virginia, those [ carry ] between about 60 to 70 megawatts. And then the rest would be spread. Each asset is probably about 3 to 4 average. So total -- but the 3 to 4 are mainly our power shell assets. So -- but in terms of IT load, you're talking about, including the Northern Virginia ones, probably about 90 to 100 megawatt. Unknown Analyst: Okay. So total will be -- you're talking about the 50% that is from the sponsor, right? Che Heng Tan: Yes, yes, correct, correct. But all is on the entire 100 all the buildings -- is on the building, it's not proportionate. Lily Ler: Maybe just to add, so for the [ MRODCT ] portfolio, right, there's 2 parts, the power shell and the data hyperscale data center. So the 3 data hyperscale data centers, they are actually located in Northern Virginia, a very tight market at the moment. For the [indiscernible] data centers, right, actually, the WALE are fairly long. They are looking at maybe around 7 to 9 years. So for this particular portfolio, right, actually, we see trending maybe above 95%, 100% is about 94%. Unknown Analyst: And then -- and sorry, slip in one more question. So if you were to fund it using U.S. debt, right, what's the current debt that you can get in the market today? Geng Foong Khoo: For USD today, maybe about all in U.S. dollar funding, maybe about 4.4%, 4.6%. Mui Lian Cheng: We have Jonathan from UOB Kay Hain to ask the next question. Jonathan Koh: My first question relates to divestment. You mentioned you will focus on North America. And the size you indicated is quite large, $500 million to $600 million. Can I ask if you are like looking at like divesting a basket of data center in North America that will help you achieve that sizable goal? Are you looking at selling a few of them in a portfolio. Is that what you're looking at? Second question relates to your guidance of cost of debt going higher to 3.3% to 3.4% for FY '27. What's your assumption in terms of rate cut going forward for -- to get that 3.3% to 3.4%. And does that include or doesn't include the JV, the interest rate that you have mentioned? Lily Ler: Okay. I think in terms of the divestment portfolio; I think the approach is something that is not fixed. It doesn't mean that I will just group every one up because the moment you group everyone up, it becomes pretty sizable. So it may not be that easy to sell. And I think because the portfolio is actually quite spread out in terms of the location, et cetera, so depending on the individual local situation, sometimes it's better for us to just sell it as asset by asset or we also may look at bundling up some of the assets together as a portfolio to sell. So the approach that we are taking is not a very -- it's not something that is fixed at. I'll just package everything and go, right? So given the different attributes and the different local situation, demand and supply situation in the market, we will want to take the approach that can give us the best value. Jonathan Koh: Okay. So not cast in stone... Che Heng Tan: Yes. Maybe to add on, we do have -- okay, I won't say it's cast in stone, but we do have really identified how do we want to divest all those assets. Some of them are single asset transactions, some of them are on a portfolio basis. So you'll see a mixed bag. It won't be like, say, we want to sell 10 properties for $600 million or so. Geng Foong Khoo: Okay. So on the interest rate for FY '26-'27, the guidance 3.3% to 3.4%. Basically, we have assumed that the whole 600 million IRS coming due next year will be refinanced with, let's say, a 5-year USD [Technical Difficulty] about 3.4%, 3.5%. So as you're aware, we cut the base rate. So now it's around 3.75% to 4% range. So if because various banks have various expectation or forecast for next financial year -- for next year. So if the floating rate come down to around 3%, we may be able to so-called adjust that hedge ratio and accordingly, we price this at a lower level [Technical Difficulty]. And yes -- so just to clarify, all our capital management positions include our JV. Jonathan Koh: Okay. So you do factor in rate cuts in that forecast. Geng Foong Khoo: No. We have not factored in so-called the rate cut. We have assumed this 5-year pricing, a 5-year interest rate swap today instead of floating rate. Jonathan Koh: Okay. That is the rate today that you get. Geng Foong Khoo: For 5-year interest rate swap. Mui Lian Cheng: We have Vijay to ask the last question. Vijay Natarajan: A couple of questions from me. Firstly, in terms of the operating costs, I think operating costs for this quarter seems to have gone up a bit because of maintenance and utilities. Are there any one-offs? And moving forward, what should we expect in terms of margins? Geng Foong Khoo: I think in the set of numbers for this quarter, we do have some training contracts, which was renewed. So that one, we do see some inflationary increase in terms of the contract price. So that kind of explained it. But I think we basically I would say, tranche out our contracts. So we don't renew every one at one go, right? So the effect will be more muted that way. But I think in terms of the margin, the NPI margin, we should expect it to be somewhere similar to what we have this quarter. Vijay Natarajan: My second question is in terms of potential portfolio, I mean, possibly if you add on U.S. assets and Europe assets, I think over time, your Singapore exposure is going to go less and less below 40% or closer to the mid-30s, et cetera. Are you comfortable with that because I don't see any pipeline also in Singapore? Lily Ler: I think we would love to be able to add on more to Singapore. Our -- while we are doing a lot of acquisitions in terms of the data center global Singapore remains our home ground, and that will still be one of the focus. The only thing is at this point, acquisitions opportunities are actually quite limited. So I think if you look at it in terms of, say, data center in Singapore, the market is very tight. So we would love to be able to add something on. But it is also very limited in the sense that the government has been -- is putting on quite a bit of control in terms of the power acquisition -- sorry, the power allocation, right? So I think -- and in order for us to apply for all these power allocation, there are certain criteria that needs to be met. And some of these actually has to be -- it's more -- is something which an operator will be able to achieve, like you need to have a PUE of at least 1.3x, et cetera. So we are -- it is not -- the opportunities for us to do the acquisition in Singapore is not easy. And of course, if you look at other industrial properties that we see in Singapore, that continues to be something that we will be keen to look at and we will continue to look at. The only issue is when you look at the Singapore industrial property, a lot of them comes with the short land tenure. So that proves to be a bit something that can be -- well, I think that makes our decision much more harder because the moment you buy, say, 25 years underlying lease, in 5 years' time, you start to see the valuation of that property dropping simply because of the shortening land tenure. So that is something that we are also quite careful about, right? Of course, what we can do in terms of the Singapore properties is that we continue to look out for opportunities where we can do, say, build-to-suit projects, so getting land allocations from the governments together with the tenant that they like, right? Or we can also look at redeveloping the existing properties that we have on hand. I mean, if someone comes along, happy for us to take up some of the space if we were to redevelop, that can actually be a potential trigger for us to go to the government and see if they are able to extend the underlying land lease. So these are some of the things, which we hope that we can execute, and we will continue to scan the market for such opportunities. Vijay Natarajan: Got it. Just one last question, if I can. Can you give some color in terms of business park demand and Hi-Tech demand in the Singapore market at this point of time, which still seems a bit soft looking at the reversion in your portfolio? Lily Ler: Yes. I think Hi-Tech space and business park space are definitely still a weaker link at this point of time, and we have been seeing this for the past few quarters. Generally, I think when we look at the demand that is coming through there continues to be demand. So it's not a case of totally nobody even wants to look at it. There continues to be demand, except that the demands are not for the bigger space. So this tends to be the smaller areas. So if you take, for example, our development at Kallang Way, we started off [Technical Difficulty] redevelopment, we started off hoping that we are able to lease up floor by floor, which is relatively huge floor plate, right? But the demand aren't' really there. So we actually start to cut them out into smaller units, and that is where we start to see a bit more traction. So I think if you track our progression so far, last quarter, we managed to improve the committed occupancy by 3 percentage points. This quarter, 1 percentage point. So I think the -- I would say the transactions continues to be there. We are still continuing to be able to cross some of these inquiries into contracts. So this will be more for the smaller space. And for business park, I think we also know that there is quite a lot of competition in the vicinity. If you -- right now, we have already -- we have -- we had 3 business parks. Now -- and we divested 2. So I'm just left with the one in Changi Business Park. But if you look at Changi Business Park, specifically for our building, while the business park demand may not be so good, we have been able to hold up to the occupancy rate for Changi Business Park pretty well. right? Right now, I think you are looking at about 83%, 85% occupancy, right? If you look at some of the buildings in the vicinity, similar buildings in the vicinity, the occupancy is definitely not there. So I think that is also the reason why we want to make sure that we are able to defend that. And I think that was also the point that I made where we decide that for a tenant, where you have a slightly bigger size unit, okay, we are prepared to go down a bit just to defend the occupancy. I think the rest of the renewals that possibly can be coming up for the Changi Business Park smaller floor units. So that is something that we think we still can hold. Mui Lian Cheng: Maybe we can have Donald to ask the last question and end the session. Donald, are you there? Donald Chua: Can you hear me? Okay. Just a couple of quick clarifications. First is on the interest rate question. Do you mentioned -- so if U.S. rates -- swap rates come down by around 50 basis points, you mentioned about 3%, you can -- are you able to -- you can get some savings? Would that mean that your WACC is likely to come down if we -- if U.S. rates come off by 50 basis points in FY '27. Geng Foong Khoo: Yes. So for next [indiscernible] I think I want to like clarify that when Fed cut rates is on the floating. When we look at the interest rate swaps replacement, we look at the long-term rates, the 5-year long-term rates, which is today maybe 3.5%, right? So when they cut it, it doesn't mean that your 5-year rate will be lower? So… Donald Chua: Sure. So maybe put it another way, at current rates, you're expecting your interest cost -- all-in interest cost to go up in FY '27. By how much must rates come down for you to see your all-in interest costs come down? Yes. Geng Foong Khoo: Let's put it the other way around. If let's say, this $600 million now, I assume 3.5%, right? But in -- come next year, if the floating rate for U.S. dollar is 3%, we have the loans hedged. So I see that for [Technical Difficulty] 50 bps on that $600 million. Donald Chua: Sorry, you broke up a little bit. So if floating rate gone up by to 3%, you will see a neutral level. Is that what to take away from that? Geng Foong Khoo: You will still see some impact because all the interest rates were locked in when it was quite low, right? So average maybe 2%, 2.3%. So you still see why you have a bit of savings. Donald Chua: And then the second question about the MRO DCT portfolio. Any indication of what's the valuation and the ticket size at this point? Che Heng Tan: [ SGD 1 billion ]. Donald Chua: SGD 1 billion for the 50% stake, is it? Che Heng Tan: Right. Donald Chua: Okay. And is there any under-renting in the colo leases or hyperscale leases at this point? Che Heng Tan: Under-renting I wouldn't say it's under-rented [indiscernible]. Donald Chua: So pretty, quite near -- pretty much at market. Che Heng Tan: Yes, that's correct. Mui Lian Cheng: [Technical Difficulty]. If you have any questions, please reach out to us. Thank you.
Operator: Good morning, everyone. If you'd like to listen to this session in English, please click the interpretation icon at the bottom of screen and select English channel. Thank you very much for taking your precious time to attend Renesas Electronics 2025 Third Quarter Earnings Call. We thank you very much, indeed, for your attendance. Today, simultaneous translation is made available. Please click the translation button at the bottom of the screen and select the language of your preference. Now speakers, you are requested to turn on your video. For today's presentation, we have the attendance of President and CEO, Hidetoshi Shibata; as well as Senior Vice President and CFO, Shuhei Shinkai, as well as some other staff members. After this, we will hear some greetings from Mr. Shibata, and then Mr. Shinkai will follow with the explanation on the third quarter results, which will be followed by the Q&A session. We intend to finish the entire session in about 60 minutes. The materials to be used for today's presentation is already posted on the IR site of our home page. Mr. Shibata, please turn your microphone and begin your statement. Hidetoshi Shibata: Good morning, everyone. This is Shibata here. Today, I caught a cold. So maybe it might be difficult for you to hear my voice, but please excuse me. The temperature has come down quite suddenly, and school events, there are so many -- so much events. So there are many people around me catching cold, so please be careful yourself as well. Now the third quarter, maybe have already seen. In a sense, I think I would say the results have landed in line with the expectations. As you may recall, there might have been some upside, but we have declared to operate the business in a very diligent manner, and the numbers came in as anticipated. So the revenue came in as planned. The revenue from the channel, there were some upside. So the channel inventory is now becoming smaller. And that is the -- by and large, the highlights of the results of the third quarter. And so if things stay as is, we are not really assured. So towards that fourth quarter, we hope to further reinforce the channel inventory in the fourth quarter. So that's how we plan to manage the business. Overall, I would say, from the sell-through at the end demand. If I talk about the end demand, the sell-through, by and large, I think the performance has been flattish. There were some ups and downs depending on the elements, but by and large, it was flattish. Automotive, for some certain customers, the production and also inventory adjustment has been done. So there might be some decline on the -- there was some decline on automotive, but 28-micron and Gen 4 SoC, they are taking off steadily as planned, but the scale is still limited. And of course, the 28-nanomicron MCU, especially due to the China-specific element, we are going through some phase of adjustment. So it's not at a phase of achieving a significant growth, but we are enjoying steadfast increase. On the other hand, for nonautomotive, towards the fourth quarter, how should I put it? The outlook compared to the last time, I think, is more favorable, I would say. So -- I'm sorry for the ambiguous expression of favorable, but I think things are turning to the better. As for the industry overall, there are, of course, some ups and downs depending on each element. But overall, we are seeing a robust growth. At the third quarter, continuous after the third quarter in the fourth quarter as well, the AI infrastructure, there has been a very strong demand, and that has been continuing to be the case. And the production side, we are now making efforts on the production side rather, so that we can make sure to supply the needed demand, so we will produce and sell and produce and sell. So those are the areas that we are going to attach focus on in the fourth quarter. And consumer, consumer mobile and IoT, this segment, nothing strange. But third quarter, we have seen a significant increase. And the decrease in the fourth core, that kind of seasonality is already factored in. But there has been a share gain in this segment. So overall, we are seeing a general uptrend here. So IIoT overall, as a general trend, I think we are seeing a favorable trend. Automotive, next period, and there are some uncertainties there. But as always, we'll keep the same attitude of having a deliberate management, and we'll keep a close eye on the management, the inventory level and be cautious in our management. Especially when it comes to channel inventory management, this is some time ago already, but about 5 years ago, we have experienced a very bad situation. So learning from that lesson, we will continue to be cautious. So I would like you to keep an eye on our performance and evaluate as adequate. Then up until the last earnings call, because it's been than 1 year since we acquired Altium, so we have been listening -- we have been hearing some questions from the investors regarding Altium. So just today, I would like to give you a little bit of update on Altium. In a phased manner, we'll try to enrich our disclosure regarding the Altium. So I will just give some overview today. Just a little overview. So if you can put up the screen, please. Yes, this is Altium stand-alone. So far, as planned, cost synergy and organic growth, they are performing in line with our expectations, so steadfast progress has been achieved. So those are the 2 elements that you see on this slide here. The sales synergy takes longer time, definitely. And the so-called enterprise or the large accounts that's leading the world. The sales expansion to those clients have just started on a gradual basis. So that's what is meant by the box on the far left. Right now, we are making a focused effort to the middle section here, i.e., after the acquisition of Altium from a stand-alone basis, we are now -- that will not make sense if it's standalone. So we are now going through a major transformation. One thing, as it was already announced by Altium. And if you can look at the website, I think you'll be able to have a better understanding. So far, the PCB designer software and Octopart, those different products had been provided by Altium. But right now, we are making a transition to become a platform company. So we are in the middle of this effort. And in parallel to that, the user base is planned to be expanded. So we are now expanding our efforts to expand the user base as we had declared from before. So those efforts are now being propelled. And why Renesas? One of the pillars why Renesas is this Renesas 365. This is our own platform. And we -- the development is currently underway. And in the first half of this year, Embedded World, at that trade show, we demonstrated a demo. So by the end of the year, we plan to launch this and the progress -- the preparation is currently underway. As for the future, as you can see on the right-hand side of the slide, Renesas 365 is planned for launch within this year. At the point of launch, at that time, it's not going to be something splendid that will surprise you naturally. So in the past, Windows made a very silent debut, but then with Windows 95 made a huge takeoff with Windows 95. So that is the kind of avenue that we would like to follow with. So please expect for this Renesas 365, but not with a huge anticipation. The overall progress, as I mentioned, because we are in the middle of this major transformation, we don't want to set the KPIs everything from the beginning. So -- and because we don't want to change them later. So we are very cautious in setting the KPIs. So if things go as planned, I think we will be able to disclose what kind of KPIs will be set for this business during the next earnings call. And the progress will be reported at the Capital Markets Day next year with a more bird's eye view with more enriched data. So we would like to give you an update on the progress on that occasion. So from here, I would like to -- starting off with the Altium business and also the details of the earnings call will be handed over -- will hand over the microphone to Shinkai-san so that he can give some updates on those things that I just mentioned. Shuhei Shinkai: This is Shinkai, CFO. On the left-hand side of the previous slide, we have -- there was progress. I would like to give some more details regarding the progress so far. It's been 1 year since the acquisition. So I would like to talk about the progress thereafter. If you can look at the right-hand side, cost synergy. Cost synergy. There was the initial cost reduction immediately after the closing and also the cost suppression after that, absorbing the cost increases using Renesas resources. So we had been contemplating this 2-tiered approach. The first phase will be -- was completed by the end of the first quarter of this year. And the organic growth, the second point there. As you can see on the left-hand side, the ARR, annual recurring revenue, annual recurring revenue is the indicator that we have used here. This is based on term-based contract and subscription-based contract revenues. So the annual recurring revenues per 1 year is indicated by this indicator. So compared to third quarter 2024, we have achieved a year-on-year 15% increase in the ARR. This represents the same pace of growth prior to the acquisition. The sales synergy, we have started to see this. We are starting this with the cross sales measures for enterprises and the transformation to the platform business. Renesas Retail Supply development in addition to this line of development, in the finance and account area, as we discussed the other time, the revenue recognition policy was changed as we announced the other time -- the other day in view of this transformation into a platform business. So starting this year, we've changed the revenue recognition policy because of this. That was about the progress relating to Altium. From here, I would like to use your usual slides and explain the results for the third quarter of the year. If you can go to Page 6, please. This is the overview of the financial results. For the third quarter, if you look at the dark blue columns in the middle, revenue, JPY 334.2 billion; gross margin, 57.6%. Operating profit, JPY 103.2 billion. Operating margin, 30.9%. Profit attributable to the owners of parent, JPY 88.2 billion. EBITDA, JPY 122.5 billion, and foreign exchange, JPY 146 to the dollar and JPY 170 to the euro. Compared to the forecast, if you look at the 3 columns to the right, and I would like to explain them in more detail using the subsequent slides. That was the non-GAAP. And for the GAAP performance, I'll come back to you later. On the next page, please. This is the third quarter revenue, gross margin and operating margin and also the segment results. For the company total, first, compared to the forecast, operating revenue was 1.3% higher, 2/3 of this increase was the result of foreign exchange, a weaker yen and the remaining 1/3 is from other factors. Automotive was in line with the expectations, and the sell-through upside, we had planned for this shipment that can cater to sell-through. And sell-through was okay and shipment was almost in line with the expectation. And the IIoT compared to the forecast, we have achieved upside, AI server and PC and also memory interface, those were the major drivers behind this incremental performance. Now regarding gross margin, gross margin compared to the forecast came in 1.1% higher. The details of that. There are mix improvement and also utilization improvement. And mix improvement was due -- as I mentioned with the revenue increase, this was due to the memory interface, because they are higher in gross margin, they sold well, and that drove the growth and also utilization increase. I'll come back to this topic later, but input utilization came in higher than expected. We review the schedule and the input was increased in the -- towards the third quarter compared to the fourth quarter. OP margin, this increased by 3.9 percentage points. So the significant improvement compared to the forecast. As I mentioned earlier, because the revenue also increased and also in addition to the gross margin improvement, operating expenses also accounted for a major bulk of this improvement of operating profit. In actual numbers, operating expenses, OpEx ratio and also plus R&D, there was a reduction of JPY 6.3 billion. So almost half of this improvement was due to the timing difference of R&D projects and the remaining half has come from the net cost reduction, so the net reduction in costs. So those had a stronger impact than expected. And therefore, the timing difference of R&D because this is now postponed from the third quarter to the fourth quarter. So that has accounted for a major impact of the profit improvement. And I'll come back to this topic later. But in the second half, if you average out for the second half, I think the OP margin will reflect a more realistic number. Now on a Q-on-Q basis, if you look at the bottom box on the right-hand side, revenue came in 2.9% higher and automotive Q-on-Q decline and IoT Q-on-Q increase. Operating gross margin improved by 0.8 percentage points, on a Q-on-Q basis and mix improvement, utilization increase and cost reduction, those were the drivers behind this. OP came in 2.6% higher. OP margin came in 2.6% higher due mainly to the expense reduction and revenue growth, as I mentioned earlier. And also, I have one more thing regarding here. Regarding the segment, the -- as far as automotive is concerned, if you look at the very bottom, if you look at the OP margin there, OP margin Q-on-Q achieved a significant improvement because this -- in the second quarter, there was a one-off factor or one-off losses regarding litigation expenses. In reaction to that, there has been an increase. So on a Q-on-Q basis, it seems larger as an improvement. But the actual -- if you ask me if this is recurring, then if you even out the 3 quarters overall, then in the 9 months up to the third quarter, the automotive OP was 29.5% OP margin. So that I think, reflects the reality, I believe. As far as IIoT is consumed, nothing in particular that I have to note. So I can move on to the next page. So next is about the revenue. As a whole, year-on-year, 3.2% decrease Q-on-Q, 2.9% increase. As for by segment, this is as shown here. Next page, please. Now different trends of the different numbers. Nothing to be -- nothing remarkable. So moving on. About the inventories. Q-on-Q up and down and also the forecast are summarized here. First of all, in-house inventory. In Q3, Q-on-Q, the inventory and DOI, both of them increased as expected. In Q3, DOI was 111. Q4, Q-on-Q increase is expected. As for the work in progress, the internal production, mainly the die bank will be expanded or increased. At the same time, the strong demand for AI and data centers, we want to increase the die bank, but we are unable to do so, so far. As for the finished products at the beginning of the year, in order to prepare for the shipment at the beginning of the year, we will be increasing slightly for that. Next is the channel inventory. Q3, WOI and inventories decreased in real terms. And it was 8.9 weeks and then down to 8.1 weeks. So this is due to the higher sell-through and the channel inventory came down. Q4, overall, the slightly decrease is expected. For automotive, it will be aligned with the sell-through inventory will be flat. As for the IIoT, we will try to align with the sell-through. But for the AI data center, the sell-through will be brisk. And as a result, the channel inventory will decline. That is what we expect. Earlier, Shibata-san mentioned that we are trying to expand the channel inventory. But Q-o-Q from Q3 to Q4, sell-through is almost flat and sell-in is likely to increase. So in that sense, the channel inventory decline or decrease will be smaller. Next page is the front-end utilization. Q3, as I mentioned slightly, the expectation of 50% -- less than 50% and the actual was 50%. So slight increase of the utilization based on the input. This is not due to the fundamental, but we revisited the schedule for the holiday season and bringing the schedule from -- input schedule from Q4 to Q3. So because of that change, we expect a slight decrease in Q4. And we do not have any particular things about the CapEx. As for Q4 forecast, in the middle of the table, please refer to the dark blue. The gross margin median is JPY 340 billion -- sorry, the revenue median JPY 340 billion; and the gross margin, 57%; and operating margin, 27.5%. The ForEx expectations, dollar is JPY 150 to the dollar. JPY 175 to the euro. So this is a 3-year Q-on-Q, weaker yen for dollar and JPY 5 weaker in euro. So as for the revenue, median is JPY 340 billion. So this is the 16.2% increase year-on-year and 1.7% increase Q-on-Q. Now Q-on-Q increase, the ForEx impact is high and the device sales related is small. And the Q-on-Q for the device for mobile and IoT seasonality will lead to the decrease, but we will offset that with a strong DC, data center as well as the signs of the bottoming out of the customer inventory. As for the gross margin, 57%, it's down 59 basis points Q-on-Q, so slightly decreased. This is due to the mix deterioration. And the 338 basis points negative -- sorry, OP margin, 27.5%, down 338 basis points Q-on-Q. And from -- there was a shift from Q3. And also, there is a concentration towards the end of the term and the ForEx. So these are -- each represent 1/3 of the factors. So Q-on-Q increase of the operating expenses is JPY 11 billion. As for the 27.5% change of the OP margin in the second half -- in the first half, it was 27.7%, and there's been the improvement of the 100 basis points, and this is due to the progress of the top line and the higher expenses and others. At the bottom of the right-hand side, we added the ForEx sensitivity for the first time. The volatility of the ForEx is relatively high. And the constant currency, what would look like if the currency is JPY 100 to the dollar. So we wanted to add this so that you can see that. So what I can say here is that as sensitivity against the dollar and the euro, when there is a change of JPY 1, what will be the impact on the revenue and operating profit are shown. As for the dollars, with the JPY 1 change, JPY 1.7 billion impact on revenue and JPY 0.7 billion impact on operating profit. Based on this ForEx sensitivity, if I assume -- sorry, based upon the constant currency of about JPY 100 to the dollar and JPY 120 to euro, the forecast of the Q4 operating margin is 22.3%. And so that is from 28.5% to 23%. So going on to Page 19 in the appendix, the net income, JPY 106.3 billion Wolfspeed-related evaluation gain is included in the interest expenses, that is JPY 44.5 billion. The following page on the break down or how to think about this Wolfspeed-related number. On the left-hand side, originally, before going to the Chapter 11. At that timing, the securities that we held, we had the convertible bond and equity and the warranty for the shares. And then there was a Chapter 11 at the end of September. So these assets at the end of the quarter, we needed to evaluate that. So basically, this is equity-based assets. So we have to look at the market, the share price of the Wolfspeed, it would change. So as you can see in the middle, at the end of Q2, the market cap was the JPY 1.66 billion. And our stake for that is a JPY 0.575 billion. So after the Chapter 11, the market cap was updated. And then based upon the share price, we multiplied what we own, and we calculated the total amount. At the end of September, $28.6 was the share price, and we calculated $2.71 billion. And our stake based on that is the $0.874 billion. So in Japanese yen, that is JPY 130.1 billion. So here, we booked the gain of JPY 44.5 billion. So that is the impact on the finance up to Q3. So what would happen in the future is summarized at the bottom right. As of now, the CFIUS approval is not something that we have gained. So strictly speaking, the warranty and the share equities, those are something that we would obtain after the approval of CFIUS. So those are considered to be the similar right or the same level. But as for the CFIUS approval, we expect that this is something that we would have. But because of the shutdown of the U.S. government, the schedule of this approval is being delayed. And ultimately, this after the CFIUS approval and after getting the equity and converting the bond and so forth and about 30% is what we'll own. And let me turn this. We can separate this from the equity method, Wolfspeed financial impact. And with that, I would like to end my presentation. Thank you. Operator: Thank you. Now we'd like to move on to the Q&A session. Shibata-san, please turn on your video. So let me first explain how to raise a question. [Operator Instructions] In the interest of time, we would like to limit the number of questions to 2 questions per 1 questioner. Now first, Takayama-san from Goldman Sachs. Can you begin your question? Daiki Takayama: So let me ask a question. The first question is about the infrastructure business. Memory interface as well as NVIDIA PMIC. I think those are performing very strongly according to what I see. What are the requirements that are given to you towards next fiscal year because you said that you are not able to keep up with this demand. So what is the request from these companies? Are you receiving massive amount of orders? Or is there a very strong appetite among from these demands? And based on your position, the memory interface, your market share has come down, but is it coming up again? For NVDIA related, from 1/3, you said to 1/5. Have you been able to improve your position in the market as planned? Can you comment on those points as well? Hidetoshi Shibata: Yes. For memory interface and RDM, we keep a bullish forecast. And we -- there's no factors that will force us to change that outlook. So for the market share as well, we also maintain a bullish forecast. For power, for a specific customer, we cannot comment on a specific customer, but these matters, it's very difficult to forecast on a 1-year basis or for several quarters basis. The requirements from the market are very strong. They are giving us a very strong order amount as a request. But the suppliers that can qualify are also increasing on the other hand. So it should not be -- so reassured. For the time being, more than 1/3, I think we have an expectation that will be -- we will achieve much increases. So if I talk about the next quarter, a very high market share will likely be maintained. Beyond that, I think we cannot talk about that until we get into the next quarter. But the demand itself is quite strong. So it's all up to us whether we can execute. If we are able to execute properly, we shall be able to secure these. Daiki Takayama: All right. For the memory interface, recently, the DRAM memory, the outlook for that is quite strong recently. What was the expression you used for the January to March quarter and the April to June quarter, what is the likelihood of increase? What are the requirements or requests coming from the customers for this? Hidetoshi Shibata: Well, it's very difficult to predict up to that point. We cannot -- we don't have a very definitive number for that far out. But for -- if you look at the trends, recently, as of September end and also towards the end of October backlog, if you look at the backlog trend, as you mentioned, if I -- we are seeing a step increase like a staircase. It's not a crawl. It's a significant sudden increase. That's what we see. Daiki Takayama: All right. The second question, automotive by region. Can you talk about the performance by region? You mentioned a specific customer. I think that is about China. There might be some decline in the October-December period, but it's coming back again in January and beyond. What are the major -- the outlook for the major markets like Europe and Japan? What is the inquiries from the customers? Hidetoshi Shibata: To give you a comment on the recent performance. As far as Japan is concerned, because of the cycle, Japan is likely to be very strong. But for Europe, I think relative -- Europe I think, is relatively weaker. China. For China overall, compared to one time, we have seen a slight slowdown. Amid that, depending on the customer, there are customers who can expect a further increase or other customers that is going through an adjustment. So mixed performance when depending on the customer for China. So depending on exposure to the customer, the aggregate numbers may be affected. But overall, the market conditions, I would say, is slightly weaker, I think. That's my impression. Daiki Takayama: If I may supplement. So the overall tone, of course, the year-end profit margin may come down because of the expenses. But the operating profit bottoming out, can -- do you see signs of that towards the beginning of the year, next year? Or is that the message you want to get across? Or do you still maintain a cautious forecast? And will that stay flattish? Is that your message, Mr. Shibata-san? So what is the message, your main message today? Hidetoshi Shibata: Well, that is the point that I find difficulty with. Flattish, slight increase in terms of margin. I think if you can achieve that number, I'd be happy. I do understand the background where your question is coming from. But I, myself, we have to accelerate the investments for the longer term of the business. So if you consider that rather than continuously increasing the margin, we would like to achieve a gradual increase in line with the revenue. So that I think is the best scenario for us. Operator: Next, UBS Securities, Yasui-san. Kenji Yasui: I would also like to ask a question about the data center. That's my first question. Or GPU customers, in addition, there will be a custom ASIC increase next year. So the 1/3 or higher share and based upon the certain size, non-GPU, is that something that you think you can achieve? Hidetoshi Shibata: Well, that's a very good question. How can I say this? It is yes, but it's a custom -- so it has to do with our bandwidth. So doing everything is not possible. And if we try to do that, execution will deteriorate. So each one, choosing each socket is something that we will be doing. I will not mention the numbers, but in Q4 forecast, custom power number is coming in, and it's going to grow strongly next year. And custom platform for the hyperscalers, we have several different ones. So for example, try to do everything. Getting 50% or 100%, that is not realistic. So choosing some of them rather than 1/3 or going for a higher share. That would be our approach. Kenji Yasui: So in that sense, PMIC, digital power for different customers, I think that there will be differences? Hidetoshi Shibata: Not really, but depending on customers, the architecture that they want is different. And the generation change and the timing of that will be different. But having said that, wafers and back end, the production side would be the same. So it has to do with the capacity allocation and equipment facilities that we need, because of those factors, if you look at end-to-end, it's not just making one product and apply it to everything else. Kenji Yasui: I see. The second question is about automotive. In Q3, the gross margin is 55%. So I think this is the highest level that you achieved based on the disclosure. So do you think that this will go up further? Q3 was high. Is this sustainable? If you can comment on that. Hidetoshi Shibata: Yes. I would ask Shinkai-san to respond. Shuhei Shinkai: Yes, Q3 automotive the utilization rate increased and the production expenses coming down. So it has to do with the cost side improvements. And because of those, this is a Q-on-Q increase of 22.8%. So whether it's sustainable or not, it really depends on the utilization rate. So half of that will be changing based upon the utilization, and the remaining half will be the cost reduction, and the continuous progress of the cost reduction. Based on that, we might be able to continue. Thank you. Operator: Moving on to the next questioner. BofA, Hirakawa-san. Mikio Hirakawa: BofA, Hirakawa here. My first question. The noncore business write-off or the reorganization, what is the progress? By the media, you said that you're planning to sell timing-related business? I'm sure you cannot -- if you can comment to the extent possible, that would be appreciated. But rather than these specific names, I would like to talk about the overall progress, how that is positioned? And what kind of actions are being implemented together with the time horizon? That's my first question. Hidetoshi Shibata: Shinkai-san, can you talk about that? Shuhei Shinkai: Yes. The product portfolio review. We have an annual cycle and on a continual basis, we are reviewing this with that approach. So in that cycle, we decide whether to focus or which one to go for an alternative approach. At this point of time, it's not that we have decided everything, and this is in the portfolio for restructuring. We are looking at things on a continual basis. The criteria that we apply for that selection, is whether that is suited for our core embedded semi. How much they can offer a synergistic value inside the company, we look into that, the contribution to the core. And based on that, we decide whether to focus on the business or not to focus on that particular business. Mikio Hirakawa: Well, a follow-up question on that point. So the synergistic value, what kind of asset? So if you take the total asset of your company as 100, which -- what percentage of such -- do you have such kind of assets that can be synergistic to your core? Shuhei Shinkai: Well, it's very difficult to give a quantitative number as to this much is the synergistic asset. But we would like to conduct a continuous update and review the product line on a continuous basis. And because these changes -- these things changes on a relative basis based on these considerations. Mikio Hirakawa: All right. My second question. Relating to Altium Renesas 365. You said that you are working to expand the user base of Renesas 365. What kind of actions are you implementing in order to expand the user base? And if you can give us some quantitative indication as to the pace of increase of user base. And also, you said that you are taking a Windows-like approach. You're not going to be hasty. But when you launch this system in the end of the year, what are the features to be made available upon the launch? If you can comment on that, that would be appreciated. Hidetoshi Shibata: User base expansion has just started. It's just earlier. So we cannot comment on the pace of progress. By having this on the cloud, the pricing structure has changed significantly weak. So compared to before, for small users, I think it's easier to use. So we are going to provide an option that will make it easier for use for the smaller scale users. That's one thing. Another thing is that by region, we will apply more resources such as China and India. For those markets, we'll become more full scale, full scale in addressing these markets. So those are the 2 major pillars that we are working on in order to expand the user base of Renesas 365. And for Renesas 365, for one thing, at the Embedded World, we have demonstrated something that will serve as a benchmark for you. But beyond that, I think this is more effective and maybe not be a clear cut at site. That is about the cloud-embedded nature. Previously, we had provided many different tools. We thought that we had been providing good tools, but that can be downloaded from the website, but the version management was so complex. So we had taken that kind of classic approach. But this time around, everything will be cloud enabled from this time onwards. So when that happens, I'm sure you're using this, but Office -- if you use Microsoft Office 365, you don't have to care about the version difference of the software and all the bug fix will be done automatically. So in that way, in that kind of approach, all the latest versions are provided seamlessly through the cloud. That is the state that we would like to realize in this first phase of this product. So the functionality is not going to increase significantly, drastically. Rather, the ease of use compared to before will improve significantly. That is the first focus. And then from there, our philosophy is that we would like to work together with lead partner customers. The number of such customers will be limited. So together with them, we would like to discuss what are the futures that will -- that needs to be improved, that could be most effective for the customers. So we will work on that and then decide on the priority of our development. As you may be aware, in the cloud environment, the update cycle will change significantly compared to conventional products. So agile will be the key here. So we will constantly upgrade and update the product. So when you notice, the customers will notice that the ease of use has changed dramatically. So that is the initiative that we are contemplating. Operator: Next, Daiwa Securities, Okawa-san. Junji Okawa: Okawa from Daiwa. In the IIoT, the gross margin, the -- I think that the data center is brisk with the high profitability, but this is not growing as much as expected. So Q4, you mentioned that the deterioration of the product mix. Could you elaborate on that? IIoT and automotive, maybe it's for both. So if you can make some additional comments. Hidetoshi Shibata: Yes, Shinkai-san, please. Shuhei Shinkai: Well, first of all Q3, IIoT, there are differences. So gross margin relatively high, is for the data center, the memory interface grew. So for example, the same data center segment would have lower profitability. So we are trying to drive that mix. So right now, what is growing? And among them, the higher -- they're not always higher than the average gross margin. So there are some differences of the gross margin level. And so IIoT margin changes reflect those differences. So for example, high-density power compared with the average, gross margin is not so high. So if it grows, the overall margin will be pushed down. So margin, gross margin growth is muted, so to speak. It appears to be muted. So in Q4, the similar reason, Q3 was good. So there is a reaction from that. And as a whole, the low-margin products will grow. And as a result, the margin would come down. Junji Okawa: Second question is about the industrial prospect. Competitors, of course, they handle the different products, but the industrial, I think there are some conservative or prudent prospect by other companies. So for you, what is your prospect? And by different regions, do you see the differences of the recovery? So about the industrial? Hidetoshi Shibata: Yes. Well, maybe if I can categorize them into 3 groups. The first is traditional factory automation and energy management is another. And the third is the smart appliance or white goods. So if I categorize them into 3 energy management is strong, it appears. So by region or rather than differences by region, there are customers who are strong in energy management. And of course, there are regional differences. But regardless of the geography, energy management is strong. As for white goods, it is also quite good, quite strong. No differences of the region. Well, China is big in terms of volume. But rather than the regional differences, hitting the bottom and a recovery cycle has already started. As for the hardcore factory automation, there is a mixed view. The Japanese customers are not so strong. If you look at the world, they don't really look very strong. But in the past, there was a very difficult situation, but that is over. So gradual recovery is something that we expect. So by region, as I said, and in the short term, Japan Europe towards Q4, how can I say this, because of the comparison to Q3, the growth will be driven, but as an overall trend, it is not so strong. Operator: Now moving on to the next question. Citigroup Securities, Fujiwara-san. Takero Fujiwara: This is Fujiwara from Citigroup. I also have two questions. One, well, I'm just -- this just happened recently. So this is about the Nexperia supply issue. I just want you to remind us once again. I'm sure that you are now sorting things out at the customer side, but what is the likely impact on the fourth quarter performance according to your assumption? Or what are the potential outcome that is indicated by the customer? If you can share that with us to the extent possible. Hidetoshi Shibata: Shinkai-san, can you answer that question? Shuhei Shinkai: Yes. At this point of time, the current outlook does not factor in this impact. As far as the shipment is concerned, there won't be a significant impact according to our view because of the backlog -- in relation to the backlog. As far as the sell-through is concerned, we are anticipating a slight impact from this. We cannot rule out that possibility. Sell-through, we are going to ship things based on the sell-through. But if there's any downside to the sell-through, then the inventory may climb up. So that's a possibility that we have to foresee. But we don't have the details available. So that's the reason why we have not factored this in -- in the forecast. So the -- it's not -- unless there's a major adjustment, the October-December period will be landing as planned. And if there's any impact, you're going to adjust with the first quarter in the next year. Yes, if there's an impact in December, then we'll have to adjust and there may be a handover effect on the January to March quarter. Takero Fujiwara: Okay. The second question regarding the procurement attitude on the part of customers, if you can comment on that. Well, this year, you received many short-term orders, I believe. But when you look at the overall industry, the inventory level is quite slim. So customers are not increasing their inventory level according to what I see. So have you seen any changes in the customers' procurement attitude, if there's any indication that you can share with us towards 2026? What is the direction of customers purchasing or procurement attitude? If you can share with us, that would be appreciated. Hidetoshi Shibata: Well, a very good question. Well, at this point of time. As a general trend, the inventory buildup trend were increasing lead time, that's what we do not see at the moment. But if you think about the possibility, data center or AI-related components, some components relating to AI because they use a significant amount of certain components, like because the device die is so large, and therefore, that's the area where we have a shortage in terms of components and then our capacity. So then we cannot rule out the possibility of everybody trying to go secure that. So that may result in a longer lead time. If that is the case, then the inventory buildup trend and initially, I would say, may be difficult for us to distinguish whether that is a buildup of inventory. So we have to make sure that we have a close communication with customers and address what is happening there. So at this point of time, I would say we are not seeing any conspicuous changes. For the short term, there might be some customers narrowing down the inventory level too much and therefore, increasing, but we don't see a general trend across the board yet. Operator: We are getting close to the end. So we'd like to end the Q&A. Lastly, I'd like to ask Shibata-san to say the closing remarks. Hidetoshi Shibata: Yes. So we continue to see that strong AI and as a derivative of that, energy-related is strong, and also IoT, part of it, we are gaining market shares. And so it's strong. So those are the major parts and especially the execution, we want to make sure that we don't make any mistakes. We want to work on the internal initiatives. And as for automotive, there are some uncertainties. So we'd like to be careful, but we want to make sure that we capture the upside. So that is the attitude that we have had, and we would like to continue that. So I hope that you will continue to support us, and thank you for joining us today. Operator: So with that, I'd like to end the Q3 earnings call of Renesas Electronics. Thank you very much for your participation today. [Statements in English on this transcript were spoken by an interpreter present on the live call.]
Benjamin Poh: Good morning. Ladies and gentlemen, this is Ben Poh, the Head of Investor Relations at ASMPT. And today, I'll be moderating the call for the first time. On behalf of ASMPT Limited, welcome to our third quarter 2025 investor conference call. Thank you all for your interest and continued support. [Operator Instructions] During the Q&A session priority will be given to the covering analyst. Before we start, let me go through our disclaimer. Please note that there may be forward-looking statements about the company's business and finances during this call. Such forward-looking statements could involve known and unknown uncertainties and risks that could cause actual results, performance and events to differ materially from those expressed or implied during this conference call. On the call, unless stated otherwise, all references to gross profit or margin, operating profit, segment profit and net profit are on adjusted basis as described in our MD&A. For your reference, the Investor Relations presentation on our recent results is available on our website. On today's call, we have the Group Chief Executive Officer, Mr. Robin Ng; and the Group Chief Financial Officer, Ms. Katie Xu. Robin will cover the group's key highlights for the third quarter, guidance and outlook for the next quarter, while Katie will provide details on the financial performance for the third quarter. Now I will hand it over to our Group Chief Executive Officer, Robin. Cher Ng: Thank you, Benjamin. Good morning and good evening to everyone today. It is a pleasure to have you all on our earnings conference call for the third quarter of 2025. Now let's start with the key highlights of the third quarter. This quarter, we continue to experience strong momentum driven by AI. The group's Advanced Packaging and mainstream businesses continued to benefit from sustained AI adoption. The group's strong Advanced Packaging momentum has been driven by Thermo-Compression Bonding or TCB. We remain dominant in advanced logic, have made rapid inroads into high-bandwidth memory or HBM and more recently have a first mover advantage in HBM4. At the same time, AI infrastructure comprising data centers, data transmission and power management contributed to demand in the mainstream business. In China, demand was also driven by EV and high factory utilization across OSATs. Now let me talk about our technology leadership in TCB. We have further solidified our leadership in HBM. The group's HBM TCB solution have achieved better yields versus the competition. And as I said above, we are leading in the transition to HBM4. In addition, our proprietary fluxless active oxide removal technology provides superior scalability for HBM 16-high and above with the lowest cost of transition. In logic, the group's ultrafine pitch TCB for chip-to-wafer with plasma AOR solution has successfully passed final qualifications for quality and reliability at a leading foundry and is ready for high-volume manufacturing. Notably, plasma-based technology has been endorsed by this leading foundry, underscoring this technological advantage over other processes. Turning to TCB orders. Encouragingly, the group achieved recurring orders from both memory and logic customers in the third quarter. In memory, our TCB solutions for HBM4 12-high became the first to secure orders from multiple HBM players. We expect to remain as a primary supplier, demonstrating our technology leadership in the rapid transition to HBM4. In logic, the group continued to win orders as a process of record for chip-to-substrate applications for key customers. As the market transition to a larger compound dies, we are well positioned to secure sizable orders in Q4 2025 and beyond from the OSAT partners of a leading foundry. As a business, we remain confident in the outlook for TCB demand. As to the other updates, in hybrid bonding, the group continued to ship hybrid bonding tools in Q3 2025. Our second-generation hybrid bonding solutions are competitive in alignment precision, bonding accuracy, footprint efficiency and units per hour. In photonics, we continue to dominate the optical transceiver market, reinforcing our leadership as a key supplier of 800G transceivers while also actively engaging industry players on next-generation 1.6T photonics solutions. Moving to SMT. Bookings were better than expected in the third quarter, demonstrating signs of recovery in the business. SMT's AP solutions achieved strong bookings year-on-year growth in the third quarter and won sizable Systems-in-Package orders from IDMs and OSATs for RF modules for base station to support AI growth. SMT also continued to win orders for the next-generation chip [ SMT 2 ] in advanced logic smartphone applications from a leading foundry and OSAT partners -- and OSAT players. In our mainstream SMT business, the demand came mainly from EVs where we remain a leading player in China. Before I conclude this section, I want to highlight that we have delivered a profitable quarter, excluding the strategic restructuring costs from the voluntary liquidation of the Shenzhen AEC plant as announced in August. The decision was made to optimize the group's global supply chain to better align with the evolving market dynamics and customer needs. As said in the announcement, this move is expected to improve the cost competitiveness, agility and resilience of the group's global manufacturing operation for its key products and solutions. With those highlights, let me now pass over the time to Katie, who will talk about our group and segment performance. Yifan Xu: Thank you, Robin. Good morning, and good evening, everyone. Let me take you through the group financials. This slide covers the group's key financial metrics for the third quarter of 2025. The group delivered revenue of USD 468.0 million, representing an increase of 7.6% quarter-on-quarter and 9.5% year-on-year, largely driven by growth in SMT. In third quarter, the group recorded bookings of USD 462.5 million, driven by AI momentum. We recorded recurring TCV orders in memory and logic and SMT bookings were also better than expected. This marks the sixth consecutive quarter that we have achieved year-on-year growth. The group had an isolated bookings cancellation in the third quarter for its panel deposition tools from a leading high-density substrate manufacturer in response to a slower-than-expected digestion of its existing capacity. This is a one-off occurrence. And excluding this cancellation, the group's bookings in the third quarter would have been USD 486.6 million, 1.5% higher quarter-on-quarter and 20.1% higher year-on-year. The group achieved a book-to-bill ratio of 1.04 for the quarter, maintaining a ratio above 1 since Q1 2025. SMT posted a robust ratio of 1.12, while SEMI's ratio was at 0.96. The group closed the quarter with a backlog of USD 867.7 million. The group's adjusted gross margin for the third quarter was 37.7%, which is lower than our typical level. It was impacted by a larger contribution from SMT and the lower SEMI gross margin, which I will explain in the next slide. I would like to note that the group's year-to-date adjusted gross margin remained healthy at approximately 40%. The group's operating expenses were up 6.2% Q-on-Q and 5.3% year-on-year. As expected, higher OpEx was largely due to strategic R&D and infrastructure investments and foreign exchange impact. They were partially offset by prudent spending control and some benefits from restructuring. The group's adjusted operating profit was HKD 124.4 million, down 26.6% quarter-on-quarter and 30.3% year-on-year due to lower gross margin and higher operating expenses. Group adjusted net profit was HKD 101.9 million, down 24.4% quarter-on-quarter, but up 245.2% year-on-year. The quarter-on-quarter adjusted net profit, which included the fee collected from the order cancellation mentioned above was offset by the absence of tax credits recorded in the previous quarter. The year-on-year increase in adjusted net profit was driven by the fee collected from the order cancellation and a lesser negative impact from foreign exchange. The adjusted earnings per share was HKD 0.24. Now moving on to the Semiconductor Solutions segment for the third quarter of 2025. SEMI's revenue was USD 240.5 million, down 6.5% quarter-on-quarter, but up 5.0% year-on-year. The year-on-year revenue increase was driven by stronger demand for wire bonders and die bonders due to the increased needs for power management across multiple applications. Quarter-on-quarter revenue decline was due to the timing of key customers' AI technology road maps, which impacted AP demand this quarter. There was also some shipment disruption caused by a typhoon in September in China. SEMI's bookings of USD 207.8 million were down by 1.7% quarter-on-quarter and 12.4% year-on-year. Excluding the booking cancellation explained above, SEMI's Q3 2025 bookings would have been USD 231.9 million, 9.6% higher quarter-on-quarter and slightly lower year-on-year. SEMI recorded quarter-on-quarter and year-on-year growth in wire bonders and die bonders. TCB orders were up quarter-on-quarter but remained at a lower level due to the impact on AP demand, as mentioned above. As I said earlier, SEMI's adjusted gross margin was lower than normal at 41.3% for Q3 2025. Q-on-Q decline was due to a higher contribution from wire bonders, lower TCB revenue and a relatively lower manufacturing utilization in Q3 2025. Year-on-year decline was due to high base effect from TCB manufacturing ramp in Q3 2024 and a higher contribution from wire bonders this quarter. Encouragingly, year-to-date SEMI adjusted gross margin has stayed in the mid-40s and AP margins have remained stable. SEMI adjusted segment profit was HKD 82.6 million in Q3 2025, down 52.8% quarter-on-quarter and 41.5% year-on-year, mainly due to lower gross margin and higher operating expenses, as mentioned in the previous slide. Next, the SMT Solutions segment of our business. SMT delivered strong revenue of USD 227.5 million, up 28% quarter-on-quarter and 14.6% year-on-year. This was due to a robust performance in Asian markets driven by AI servers, EVs in China and the delivery of a smartphone bulk order booked in the previous quarter. However, contributions from automotive outside China and industrial remained soft. SMT registered Q3 2025 bookings of USD 254.7 million, down 5% quarter-on-quarter, but up 51.8% year-on-year. Marginally lower quarter-on-quarter bookings were due to a high base effect from the Q2 smartphone bulk order, while the year-on-year increase was driven by strong momentum across both AP and the China mainstream markets. AP bookings were supported by demand from IDMs and OSATs for telecom base stations and AI servers. China's mainstream business recorded strong year-on-year growth due to demand from EVs. SMT delivered a gross margin of 33.9% this quarter, up 136 basis points quarter-on-quarter and 163 basis points year-on-year. And segment profit was HKD 163.0 million, up 205% quarter-on-quarter and 65.6% year-on-year. Both were driven by higher volume effects. With that, let me now pass the time back to Robin for Q4 revenue guidance. Cher Ng: Thank you, Katie. Now to Q4 revenue guidance. The group expects Q4 2025 revenue to be between USD 470 million and USD 530 million. This is up by 6.8% quarter-on-quarter and 14.3% year-on-year at the midpoint, which is above market consensus. This growth will be supported by momentum in both SEMI and SMT. Looking ahead, the group's TCB TAM projection has a potential to go beyond USD 1 billion in 2027, supported by recent news about investments in the AI ecosystem. AI data centers will continue to drive demand for AP, particularly TCB for HBM4 and advanced logic where the group has technology leadership. The group's mainstream business will be supported by global investment in AI infrastructure and stable demand from China, while visibility for automotive and industrial end markets recovery remains low. While the group has not experienced any material impact from tariff policies, it acknowledges that uncertainties remain. The group's global presence will provide flexibility to navigate any potential impact, and we will continue to monitor the situation closely and adapt as needed. This concludes our third quarter 2025 presentation. Thank you, and we're now ready for Q&A. Let me pass the time back to Ben to facilitate. Benjamin Poh: Thank you, Rob. [Operator Instructions] With that, may I request Gokul to unmute. Gokul Hariharan: First question I had is on the HBM4 commentary from you, Robin. And you mentioned that you are leading this transition to HBM4. Could you explain a little bit more what exactly that is indicating? Do you think that you would have higher market share in HPM4-based TCB compared to the incumbent Korean vendor? And also your updated view on when does the fluxless TCB insertion happen for HBM? Is it happening for HBM4 or we are waiting for HBM4E for this migration to happen? Cher Ng: Gokul, have you finished? Gokul Hariharan: Yes, that's my first question. Cher Ng: I think the question is on the HBM4, right? Benjamin Poh: Leading transition to HBM4. Cher Ng: That's right. Yes, I think as mentioned in our MD&A, we believe we have established ourselves as a primary supplier for the HBM4 market. I mean we have a conviction because we have won -- we are probably the first to have won the HBM4 orders for not just 1, but 2 major HBM players. Now I think the second question is on fluxless. We believe that there is point as the industry continue to stack higher and higher and move from HBM4 to [ 4E to 5 ], in our opinion, it's quite inevitable that they have to move to a fluxless solution because the number of IOs will continue to increase, the pitch will probably narrow down, the chip gap will get smaller. So all this means that fluxless will be a better solution compared to a flux-based TCB solution. Gokul Hariharan: So just to clarify, Robin when you talk about 2 HBM vendors, does it include the biggest market share player? Because I thought they are still using the incumbent vendor, right? Cher Ng: Yes, of course, of course, as we said, we have won orders from 2 of the 3. So definitely, yes, we are talking to the leading one. Gokul Hariharan: Got it. Understood. Also maybe next question is, I think you observed some pause in AP and TCB in Q3. What is the reason for that? And given your guidance for 7% Q-on-Q growth for Q4, could you talk a little bit about how SEMI's overall and TCB within that will be growing? That would be outgrowing that 7% or it will be growing slower than the 7%? Cher Ng: I think in terms of when we talk about pause, actually, it's really largely driven by the timing of key customers' technology road map, right? So we are confident that when they launch the new architecture, we will get the orders. So it's a matter of timing in our opinion. So TCB demand, whether in terms of booking or billing will actually align with this timing as far as concerned. So it tends to be a bit lumpy, yes. Gokul Hariharan: Is that more about logic? Or is it more about HBM? And also any indications on like segment-wise too, how are we thinking? Cher Ng: Gokul, I would say both because the technology road map will drive both HBM as well as on the logic side as well. Yes. Gokul Hariharan: Okay. And Q4, any thoughts? Cher Ng: I think in terms of, if you are alluding to booking, maybe it's time for me to give you some color on booking for Q4, right? I'm sure this question will pop up during the conference call as well. Now the way we look at Q4 booking color on the group-wise in Q4, group-wise booking in Q4, we expect our bookings to be kind of flattish compared to Q3 reported number of -- Q3 reported number was USD 462 million. So going forward in Q4, we expect that to be kind of flattish on a group basis. However, we do expect that this Q4 booking for the group will be the seventh consecutive quarter of year-on-year booking growth since Q2 2024. So it's encouraging to note that we have been growing our bookings for 7 consecutive quarters. And I think Gokul, encouragingly we see SEMI bookings are expected to increase by mid-teens Q-on-Q mainly due to TCB. So I'd say Q-on-Q mid-teens and still comparing against the reported number, right? So that's for the SEMI bookings, expected to increase mid-teens Q-on-Q mainly due to TCB. So we expect TCB booking to sort of increase on Q-on-Q basis compared to Q3. And for SMT, we expect SMT to decline Q-on-Q due to the already high base effect in the prior quarter. Now baked into the Q4 booking for SEMI, I think the [ QR ] for chip-on-substrate application. And as the market moves towards larger compound die because of higher computing power -- compute requirement, we are confident of achieving a sizable TCB order for OS application in Q4 from the leading foundry OSAT partners. And these orders will be likely built in early part of 2026, which will be definitely gross margin accretive, right? So I think to sum it all in terms of Q4 and certainly beyond Q4 in terms of booking color, we remain confident that the strong AI tailwinds, including the recent news regarding investment in the entire ecosystem for AI will continue to drive demand for AP, in particular, our TCB technology leadership will position us strongly going into 2026 and beyond. So this is a bit of Q4 color and slightly into Q1 as well. Benjamin Poh: And next, I would like to request Donnie to unmute. Donnie Teng: My first question is a housekeeping question. So considering we have disposed the AEC operation in China, wondering if Katie can give us some color on how should we estimate the OpEx or OpEx ratio in the coming quarters as we have seen the OpEx ratio has been pretty high for the past few quarters. So wondering if it will be coming down after the disposal of the AEC operation and also some cost control management. And my second question is regarding to the TCB. So my understanding is that despite we have some progress in fluxless TCB, but the real volume shipment remains small into maybe fourth quarter this year. So I was just wondering if you can give us a time line where -- when exactly the fluxless TCB for memories and for leading foundries can ramp up more significantly in the future. And also some comment on the progress in China will be also appreciated. As you know that China has been aggressively increasing their AI chip production capability, including HBMs as well. Yifan Xu: I think I will take the first portion, Donnie. So you asked a question about AEC liquidation. I just want to make a correction. For AEC liquidation, as we announced, the savings was going to be RMB 150 million each year. Majority of that saving actually will be benefiting COGS, not OpEx. There will just be a little bit factories and G&A that will be part of OpEx. So that -- so on AEC, let me just spend a quick minute. The liquidation took -- sorry, the announcement took place in August, and the project has been progressing pretty well. And we do expect that the savings will benefit us going forward. And on the OpEx ratio and specifically on OpEx, there's actually no change. At the beginning of this year, we announced that we will be investing incrementally HKD 350 million in R&D, especially AP and the infrastructure of the company. So every quarter, we've been actually -- we are on the path of the investment. And because of that incremental investment, we've mentioned in prior quarters that this year's OpEx will be similar to prior year with some marginal increase. And that narrative has not changed and will not change for the year. Cher Ng: Okay. I will take on the second question, Donnie. In terms of TCB fluxless application. As mentioned in our MD&A, we have made very good progress in terms of fluxless [indiscernible] TCB for logic side, Chip-on-Wafer. I think plasma technology has been endorsed by the leading foundry. And also just to recap, Donnie we have been saying already in the past, but it's good for recap that Chip-on-Wafer demand this year, even we have won the technology battle, the Chip-on-Wafer demand will not be significant this year. We are looking into 2026 for inflection point in terms of Chip-on-Wafer application for logic TCB fluxless. Now I think that's your question, if I'm not wrong. Benjamin Poh: Yes, next question on the time line for the memory and leading foundry shipment. Cher Ng: Yes. I think in terms of fluxless, I answered the first question to Gokul already. So I think it all depends on when they will adopt the fluxless TCB for memory. As I said in our opinion, as the industry continues to step higher, the chip get smaller, more IOs in our opinion, at some point, quite inevitable that they have to move towards a fluxless TCB solution even for HBM. Donnie Teng: And any color on China's adoption of TCB or opportunities there? Cher Ng: Yes. Donnie, I think we have been saying we are -- we supply to the global customer base. I think in terms of volume, obviously, the rest of the world volume in TCB is still higher than those of China. And for sure, we -- China ambition to really step up in terms of advanced packaging. Benjamin Poh: And next, I will request Kevin to unmute. Unknown Analyst: My first question is on the TCB outlook. As mentioned on the logic side, we are already passing the qualification, right? So I was wondering how should we think about the potential business opportunity on the chip-to-wafer part as compared to chip-to-substrate, as mentioned that most of the contribution will be coming from next year. And when is it likely the timing of this contribution will start? And also on the memory side, I think we just mentioned that HBM4 we are screening order from multiple customers, right? So just wondering for the customer, are these for sample tool or for production already? Cher Ng: I can answer your first question first, Kevin, in terms of chip-to-wafer. Quite similar answers to Donnie. Chip-to-wafer in terms of volume, we expect it to be still smaller compared to substrate because substrate, I think the whole industry has moved -- almost the whole industry has moved to TCB solution. Whereas for chip-to-wafer at the moment, it's only the leading foundry leading the pudding in terms of using a TCB for particular end customer. So if more end customers adopt TCB, then you will see Chip-on-Wafer TCB solution fluxes will increase. Otherwise, it's just one customer. I think the volume will still be smaller than the substrate volume. Now in terms of HBM4, I would say they are already into some kind of a small volume production already using our tools for HBM4 production for the 2 customers that we talked about. Unknown Analyst: My next question is on the hybrid bonder side. So we are -- I was wondering how competitive are we in our Gen 2 hybrid bonder, which [indiscernible] we are already shipping? And what kind of chip order process are these for? Or this is going to be for mainly on the logic side or for the memory side? Cher Ng: Yes, Kevin, we have -- I would say we are shipping HBM -- HB, hybrid bonding solution for both logic and memory. As we speak, we are actively collaborating with other key logic and memory players and we're making good progress and all these projects are at different stages of evaluation. So we are hopeful that at some point when the hybrid bonding market takes off, we are there to compete with incumbent. Unknown Analyst: Okay. So we have already -- are we securing order from these customers already? Or this is just right now still in the evaluation process? Cher Ng: Yes, still in evaluation for some of these very key logic and memory players. We are engaging them very actively as we speak. Benjamin Poh: And next, I would like to request Sunny to unmute. Sunny Lin: Could you hear me okay? So my first question is on a high level, directionally, how should we think about the recovery of mainstream SEMI solution from here? I wonder in the last few months, now given more manageable impact from tariffs, do you think the overall client sentiment is improving or not much change for 2026? Cher Ng: Thanks, Sunny. I think in terms of mainstream, I would say quite encouraging because mainstream are now also -- I mean AI also contribute to the mainstream demand. I think as you're probably aware, China is a significant portion. So we see China volume has been picking up for the last few quarters. So that's giving -- that's supporting the mainstream quite a fair bit for both SEMI as well as SMT. Now in terms of tariff, I think the initial part of the year and initial period of the year, I think the tariff situation definitely has some impact on the sentiment of our customers. Now I think with the tariff situation a little bit more stable, I think customers are now a little bit more confident, I would say, in terms of placing orders. That's why we are also seeing -- we have good orders coming from mainstream wire bond, die bond and SMT are also seeing a mainstream application for putting chips on larger PCB boards for base stations and all that. So all these are also partly driven by the AI adoption. So in general, we see mainstream certainly coming up on the bottom. But going forward, we see mainstream stable, especially the demand coming from China provides that kind of stability for mainstream. Sunny Lin: Got it. And then I have questions on TCB. Maybe if you could remind us the lead time for you to make TCB tools nowadays. In terms of orders, should we expect the inflection point to potentially come maybe in first half or second half of 2026 for logic and for HBM? Cher Ng: I think for logic, I think we mean that sizable orders for the chip-on-substrate for larger compound die will most likely realize the revenue in the early part of 2026. For HBM, it all depends again on the timing of our key customers' technology road map. So if they accelerate, we will see revenue earlier for HBM. If there's a further delay, then our timing will also align accordingly. Now in terms of TCB lead time, actually, internally, we are efficient. We don't take a long time to assemble a TCB machine. It all boils down to material supply, right? So if we -- if customers give us more visibility, we can order materials earlier, then the lead time will be shorter. So I think that's the dynamic of the TCB lead time at this point in time. Sunny Lin: Sorry, maybe a quick follow-up. So for logic -- so on Chip-on-Wafer, any view on when the leading foundry may start to migrate to TCB? Maybe will that be in second half of next year or early 2027? And therefore, assuming if your lead time is about like 2 quarters, should we see orders starting to come through maybe from first half of next year? Cher Ng: We are hoping orders will come sooner. But again, as I say, it depends on the timing of the road map. We are confident that chip-to-wafer, we will have delivery or shipment in 2026. I don't think it will delay to 2027. Benjamin Poh: And next, I would like to request Daisy to unmute. Daisy Dai: My first question is for Katie regarding the SEMI Solutions gross margin. Katie, you previously mentioned that the closure of AEC will have a positive impact of the cost of goods sold going forward. Yes. So how we should think about the near-term and the long-term gross margin for the SEMI Solutions segment? Yifan Xu: Daisy, assuming you're kind of talking about basically the gross margin going forward, right? Daisy Dai: Yes. Yifan Xu: Okay. So first on the AEC point, is correct. We would expect the savings to come in gradually in Q4 and then full-fledged in next year. Now in terms of the overall SEMI Q4 gross margin, we do not provide guidance, but just some kind of directional pointers. Robin guided Q4 revenue probably could tell that the TCB contribution -- revenue contribution will continue to be lower, but with some have high photonics but wire bond momentum will be sustained. So therefore, we expect a slight margin accretion for SEMI's margin in Q4. And then when you look at the group level, then if SEMI and SMT mix stays similar and SMT experiences a stable margin, then we expect basically slight margin accretion for the group in Q4. Now of course, we always caveat right it's really depending on the mix going forward, especially in the midterm in kind of longer run, we -- the technology leadership in HBM and advanced logic with those leadership, we expect the TCB order in Q4 and beyond -- I'm talking about in the midterm now, would actually provide support to SEMI's gross margin. And with this liquidation that you mentioned earlier, we do expect that the SEMI gross margin will come back to the kind of the mid-40s level. Daisy Dai: It's clear. And second question is for Robin on the hybrid bond. So you are at an evaluation stage for the leading foundry and HBM customers. So for the HBM use hybrid bond, do you see that it will happen in 16-high or 20-high. Cher Ng: Since we are a dominant TCB player, we hope that they can continue to use TCB even up to 20-high. But nevertheless, we are prepared that if they have to switch to hybrid bonding, we will be there also to provide competitive solution for hybrid bonding for HBM 20-high. Daisy Dai: Yes. And also a quick follow-up for your leading foundry customer, your European peer has been a dominant supplier for hybrid bond at that leading foundry customer. So how you see your hybrid bond opportunity at this leading foundry customer? Cher Ng: Yes. We will be relentlessly knocking on their doors for sure. But I think having said that we also have been saying that because we are not the leading player in hybrid bonding, I think the advantage is that we know the pain point, existing pain points, right? So with that coming in from behind, we are relentlessly and diligently working with all the leading logic and memory players, asking them what are the current pain points so that we can incorporate features, engineering innovations to mitigate or totally eliminate those pain points using our tools. This is what we have been doing. So I think we are confident that our Gen 2 and in future Gen 3 should be able to address all the pain point and give us an entry point in all this leading key logic and memory players. Daisy Dai: And sorry, final follow-up. So in the Gokul's question, you said that you are the primary supplier of the HBM4 market and the first company won the HBM order at 2 key customers. So is it the fluxless TCB or the flux TCB? Cher Ng: It's still the flux TCB at this point in time. Daisy Dai: [ Flux 1 ]? Cher Ng: Yes. The Flux 1. Yes. Benjamin Poh: Next, I will request Leping to unmute. Leping Huang: I have another question about the TCB. So what are the current customer concentration level of your TCB equipment now? And what may look like in the future? So is it mainly still concentrated on the top 3 memory maker and the leading foundry? Or you also see some broadening of your customer to other OSAT or other foundries in the market? This is my first question. Cher Ng: I think we have definitely we have broadened our TCB fan-out to not just leading foundry, the OSATs, HBM and also globally as well. So we're pretty engaged with all top AI customers needing requiring or requiring TCB solution. I hope I answered your question. Leping Huang: Okay. The second question is about this -- you have the deposition equipment cancellation. So is it due to some the road map change of the -- in the advanced packaging? Also, I remember, is it due to the -- you have a company subsidiary called NEXX, it is from that subsidiary. Cher Ng: It is from that. It is from NEXX. I think it's a case of digestion of capacity, right? So there was a bit of a sizable capacity maybe about 2 years ago, right? So the customer take time to digest. So -- and these particular customers decided to give it up and pay us a cancellation fee. Benjamin Poh: Next, I will request Alex to unmute. Alex Chang: First question is about your margin on SMT solution. It seems like your quarterly revenue level already increased to the level similar to 4Q '23 or early '24. So I see the margin still like low 30s to -- is this the normalized margin going forward? Or you expect margin can return to high 30s level sometime in the future? Yifan Xu: Yes, Alex, this is Katie. Thanks for the question. So for -- you're kind of comparing to a few years ago where actually the SMT's end market composition were quite different. The -- few years ago, actually, automotive and industrial were running really, really strong and their contributions to SMT's revenue were much larger. And this is where we actually could command relatively higher margin. So currently, as we mentioned, the automotive and industrial end markets are relatively muted. And that's why the margins are sitting in the, call it, low 30s. Unless the end market composition changes, this kind of level will be sustained in terms of margin percentage. Alex Chang: Another follow-up question on TCB. You mentioned the TAM would reach like USD 1 billion in 2027. Do you have probably a rough split between the logic versus memory and also split between C2W applications? Cher Ng: Yes. I think it's dynamic. I would say, Alex, it's very dynamic. Again, it all depends on customer road map and all that. But generally speaking, if you take really looking further into the future, it's just intuitive that the HBM TCB demand or size or TAM will be larger than logic because of the number of stacks and also as the industry migrate from one architecture to the next generation, they require more HBM stacks per chip, right? So naturally, I think HBM demand over time, not in a particular year, not in a particular quarter, but over time, HBM demand for TCB will be larger than logic. Alex Chang: Got it. So what is the company's target market share for each application? Cher Ng: We don't go down to that kind of granular level HBM market share or logic. But overall, I think last year, we put out the TAM for TCB, our aspiration is to hit 35% to 40% market share in the entire TCB TAM. Benjamin Poh: And next, I would like to request Arthur to unmute. Yu Jang Lai: Can you hear me? So the first one, Robin, if you can -- can you share with us a high-level ballpark figure on the revenue contribution from AI? Cher Ng: This is a difficult question. I think for -- we don't share -- sorry, first, we don't share, but also this is a difficult question because we talk about AI benefiting both AP and mainstream. Well, we have better visibility on how AI benefit AP. But in terms of mainstream, it's a little bit tricky because wire bond, die bond, they are quite fungible. Today, customers may say, okay, I use it for AI-related packaging, tomorrow, they use it for others. So it's a bit difficult to really unpack, sorry. Yu Jang Lai: No problem. Because you just mentioned that you saw some power application, they start to come back and the drivers from the AI. So that's why I want to get this high-level ballpark figure. Maybe we can discuss it next quarter when we have a visibility. The question number 2 is on the cancellation from the high-density substrate. And I think Leping already touched base a little bit. So my question is, is the key component of the equipment fungible? Can you give it to the other substrate customer? Cher Ng: The short answer is yes, there's no inventory related issue relating to this cancellation. Yu Jang Lai: Because if we look into the AI business of the rack and also the key component, actually, we heard more and more PCB, HDI substrate shortage at this moment. So I'm kind of wonder, so was the client is based in Japan or in Taiwan or China? Cher Ng: None of this actually, none of this. I mean this is a NEXX business, we are saying that they supply to a few key players, high-density substrate players. It just happened that, as I said, I repeat again, it just happened that there was a big capacity ramp-up in the last 2 years. And this particular customer just say, okay, I'd rather not keep you holding on all these orders, I decided to cancel it. So I think in short, this is that kind of circumstances. Yu Jang Lai: So in the future, when we look back, this could be an isolated event. So do we think this demand for the other customer will return? Cher Ng: No. This in a way I don't -- if you are thinking is this AI related, I wouldn't say this is AI related. Yes, this is -- they are serving a particular IDM which use all this equipment for RDL and all that. So it's a particular application. I would say it's not related to AI. So don't link this cancellation with AI that we have been talking about. De-link these 2 pieces, Arthur. This cancellation has nothing has nothing to do with AI. Benjamin Poh: I think we have time for one last question. I think we have Gokul here. Gokul Hariharan: So my question is more on the margins and operating leverage. I think we are having pretty good momentum both now in mainstream and in TCB. Margin still seems to be a little bit sluggish. How do you think, let's say, next 2, 3 quarters, TCB revenues will come through given all these orders, bookings realize into revenues. What does it do to gross margins? Like is TCB still accretive to group gross margins right now? Or is it kind of similar to group gross margins? Second part of the question, again, to Katie is on operating leverage because now that we are back to some degree of revenue growth, we're still not yet seeing meaningful operating leverage come through. I'm asking because Street expectations are for very big operating leverage to kick in for next year. I think revenue growth of 10%, 15% contributing to doubling of your operating profit is what a lot of Bloomberg estimates are looking at. So just wanted to understand what is the extent of operating leverage that we can expect? I think we have seen operating margin go back to high teens to 20% at really, really peak kind of levels back in 2021. But in the recent past, we've not really seen operating margin really get beyond the mid-single-digit levels. So just wanted to understand what is the extent of operating leverage we can expect as we start some of these ramp-ups for TCB and other products? Yifan Xu: I appreciate the question. First thing, TCB, I just want to make it very clear that TCB margin has been stable and is accretive to SEMI business. Now overall, when you say operating leverage, volume has come back up, but not quite at the super cycle level. And within the volume, we always say there are a few mixes that actually impact margin. One is the segment mix. So far, as you can tell, like in Q3, for example, the SMT contribution to the group is at about 50%, right? SMT naturally has lower gross margin. Therefore, the segment mix could be different based on the contribution from the 2 businesses. The other thing is on product mix. Within SEMI, for example, it really depends on the product mix between TCB and wire bond in Q3 and as we guided for Q4, if you look at that product mix, when we have less TCB revenue, but more wire bond revenue coming from mainstream applications, the margin -- the gross margin side would not -- would be under certain pressure. But having said that, in the long run, as a few of you asked earlier, we do expect that our SEMI business will continue to enjoy the accretive margin contribution from applications like TCB. And with the AEC liquidation we mentioned, we should have savings from operation efficiency, et cetera. So that I think our conviction for SEMI gross margin to stay in the mid-40s and then gradually going up has not changed. And then so at the group level, we've been talking about the 40%, right? I think, again, I'm talking about in the long run, not a specific given quarter, I think we are comfortable that the group's gross margin will be at that level and gradually improve as we go. Gokul Hariharan: Got it. So just on the OpEx side, same, because that's something that you can control revenue harder to control, especially on mainstream. Are we going to stay around this roughly HKD 5 billion kind of level going into next year? Or we still see that OpEx will keep growing given we are investing in some of these newer technologies? Yifan Xu: Yes. So Gokul, I actually cannot answer your question very well right now. Maybe give us a quarter because the organization actually is going through the budget process. But directionally, as we have talked about before, the OpEx has been running at HKD 4.7 billion in the last few years. And this year, with the R&D and infrastructure investment, we have communicated that will be marginally higher. Though the investment is at HKD 350 million, we are doing certain restructuring projects and the cost saving projects that you probably have seen in the last few years on trying to bring it down. So this year, I think you guys can do the math, right, it's about HKD 2.8 billion. So that's kind of where we are. I think going forward, Gokul, we're not going to change our commitment in R&D investment as you guys were talking about TCB, hybrid bond, all that, that side of the conviction has not changed. We'll continue to do the right investment. On the other front, for the overall efficiency and productivity of OpEx, we'll continue to look into any opportunities we can find and trying to contain that. So again, I cannot give you a specific number. We'll probably share with you more. But I think our strategy -- our thinking on OpEx has not changed. Benjamin Poh: That will be all for the last questions. And I will now pass the time back to Robin for his closing remarks. Thank you. Cher Ng: Thank you, Benjamin. Just a couple of pointers before we officially close the call. The group maintained strong business momentum this quarter. Our AP and mainstream business will continue to benefit from sustained AI adoption. TCB solution, we secured repeat orders in both memory and logic, reflecting ongoing technology leadership, particularly in HBM4 and advanced logic. What Katie said, we are in the midst of really finalizing our budget for 2026. But certainly, I can -- at this juncture, we can give you some direction or some color on how we look at 2026. We expect a growth year in 2026 largely driven by AP because of AI and underpinned by the sustained momentum of our mainstream business. And finally, we remain confident in the total addressable market for TCB, which we believe could go beyond USD 1 billion in 2027. So thank you. With that, we will close the call and see you next quarter.
Operator: Good morning, and good evening. Thank you all for joining the conference call for the LG Display earnings results. This conference will start with a presentation followed by a Q&A session. [Operator Instructions] Now we will begin the presentation on LG Display's Third Quarter of Fiscal Year 2025 Earnings Results. Suk Heo: Good afternoon. This is Heo Suk, Leader of the LG Display IR team. Thank you for joining our third quarter 2025 earnings conference call. Joining us today are CFO, Kim Sung-Hyun; Vice President, Choi Hyun-chul, in charge of Business Control and Management; Vice President, Kim Kyu Dong, in charge of Finance and Risk Management; Lee Kyung, in charge of Business Intelligence; Vice President, Kim Yong Duck, in charge of Large Display Planning and Management; Hong-jae Shin, in charge of Medium Display Planning and Management; Park Sang-woo, in charge of Small Display Planning and Management; and [ Hong Moon-tae ], Head of Auto Planning and Management. Today's conference call will be conducted in both Korean and English. For detailed performance-related materials, please refer to our disclosure or the Investor Relations section in the company's website. Please refer to the disclaimer before we begin the presentation. Please be informed that the financial figures presented in today's earnings release are consolidated figures prepared in accordance with IFRS. These figures have not yet been audited by an external auditor and are provided for the convenience of our investors. I will now report on the company's business performance in Q3 2025. Panel shipment grew Q-o-Q across the entire OLED product line, driven by the start of seasonality and supply for new small- and medium-sized OLED products. Revenue was KRW 6.957 trillion, up by 25% Q-o-Q and up 2% Y-o-Y. Operating profit reached KRW 431 billion, improving by over KRW 500 billion Q-o-Q and Y-o-Y. The improvement resulted from the growth in shipment and portion of OLED products as well as the company's ongoing intensive cost innovation activities. The number reflects around KRW 40 billion in onetime costs related to workforce efficiency activities, excluding which the business performance stands at approximately KRW 470 billion. Net income was KRW 1.2 billion, including the impact from the foreign currency translation gain with the exchange rate rising Q-o-Q. EBITDA in Q3 was KRW 1.4239 trillion with an EBITDA margin of 20%. Next is the trend in area shipment and ASP. In Q3, area shipment fell 1% Q-o-Q despite the seasonality and growing shipment of small and medium OLED product lines. This is following reduced shipment of low-margin midsized LCD models in line with our ongoing profitability-focused product portfolio management. ASP per square meter was $1,365, up 29% Q-o-Q, slightly outperforming the guidance. It was driven by the higher-than-planned growth in shipments of small and medium OLED products. It is an all-time high, resulting in part from the rising portion of OLED. Next is revenue share by product category. Mobile and Others, which has the largest share, reached 39%, up 11 percentage points Q-o-Q, led by panel shipment growth stemming from the seasonality and preparation for new products. In IT, while revenue grew on the back of sharp expansion in shipment of OLED panel for IT, there were larger changes in revenue in other businesses. As a result, its portion fell to 37%, shrinking by 5 percentage points Q-o-Q. The TV segment's revenue share was 16%, down 4 percentage points Q-o-Q. Auto segment's share was 8%, down 2 percentage points Q-o-Q. The share of OLED products out of total revenue was 65%, up 9 percentage points Q-o-Q and 7 percentage points Y-o-Y. As we continue to expand the performance of OLED-centric business structure upgrade, its impact is further solidifying our foundation for growth and profitability. Next is financial status and main indicators. Cash and cash equivalents in Q3 stood at KRW 1.555 trillion, largely unchanged Q-o-Q. As we keep downsizing nonstrategic businesses, for example, discontinuing the LCD TV business and enhancing operational efficiency, the size of essential working capital has also decreased. Debt-to-equity ratio was 263% and net debt-to-equity ratio 151%, down 5 percentage points and 4 percentage points, respectively, Q-o-Q, further strengthening our financial soundness. Next is Q4 guidance. Continuous growth is expected in area shipment of OLED products in Q4, while LCD shipment is expected to decrease as we keep running profitability-centered product portfolio. Accordingly, total area shipment is projected to grow in low single-digit percentage Q-o-Q. And for ASP per square meter, we saw much more pronounced increase in Q3 than usual, thanks to shipment growth of small and midsized OLED driven by seasonality and preparation for new product launches. And that is also why going into Q4, we anticipate another higher level of ASP compared to average quarters. However, it is expected to decline in low single-digit percentage Q-o-Q due to some factors such as mix change in small and midsized OLED products. And now let me hand over to our CFO, Kim Sung-Hyun. Sung-Hyun Kim: Good afternoon, everyone. This is the CFO, Kim Sung-Hyun. Let me thank you all for joining us at our conference call. Q3 this year was when we saw the results of our ongoing strategy to upgrade our business structure to be more OLED-centric and our strong initiatives for cost innovation beginning to come to fruition and manifest themselves into business performance. As mentioned earlier, Q3 saw an increase in shipment coming from the seasonality, coupled with the impact of concentrated shipment of small and medium OLED for new products, it has boosted OLED product group's revenue share up to 65%. Based on this, Q3 year-to-date business performance showed revenue of KRW 18.6093 trillion and operating profit of KRW 345 billion, continuing the trend of improvement and giving more visibility to a full year turnaround after 4 years. Despite the pressure on revenue from the discontinuation of the LCD TV business, it remained flat Y-o-Y, thanks to larger portion of OLED and premium products. Operating profit year-to-date improved by approximately KRW 1 trillion Y-o-Y. It is owed to the intense and speedy execution of strategic initiatives, including cost innovation and operational efficiency along with business structure upgrade. External uncertainties and the consequent shipment volatility are expected to persist in Q4. There still remain variables in the business environment, including macro-related real demand, intensifying competition among suppliers and supply chain stability, but we plan to address these challenges by prioritizing business efficiency initiatives. OLED products revenue share is expected to be similar Q-o-Q in Q4 with the annual share projected at a low 60% level. Incidentally, we are also planning for an additional workforce improvement program in Q4 as part of our ongoing cost innovation effort. The specifics cannot be disclosed in advance, but its impact on our financial performance is considered to be more than that of last quarter. The onetime cost occurred by this workforce improvement program will be offset after 1.5 years, providing positive impact on the business performance thereinafter. Next, let me share our plans and strategies by business segment. For small mobile business, we plan to ensure more stable operations by expanding panel shipments every year based on our technological leadership and stronger partnership with our customers. At the same time, we will keep broadening our future business opportunities by methodically implementing all future-proofing activities, including R&D and investments in new technologies. For IT OLED, which is part of our midsized business, we plan to respond to the growing demand in high-end tablet market with our Tandem OLED technology. And for the anticipated shift to OLED in the notebook sector, we will closely examine the market size and pace of change and respond effectively. Overall, we will enhance our responsiveness with differentiated approaches. Leveraging our long-standing technological leadership and mass production competitiveness, we will solidify our leading position in the market. We will also proactively respond to changing environment, including market demand and customers' requests through efficient utilization of our existing infrastructure. In IT LCD business, we remain focused on reducing low-margin products while focusing on B2B and differentiated high-end LCD segments. It is encouraging that this has led to meaningful improvement in profitability Y-o-Y. We will strengthen execution of our current initiatives to deliver improved results next year as well. For large panel business, where OLED's differentiated competitiveness is well recognized in the market, we will further solidify our leadership in the premium market with a various lineup of OLED panels offering unique value based on close partnership with strategic customers. We will continuously grow our business performance and intensify cost improvement initiatives to maintain stable business operations. Last is Auto. The market outlook is more positive than other product areas, led by expanding in-vehicle display adoption and accelerating enlargement of displays. While competition is expected to intensify, we plan to maintain our competitive edge and create differentiated customer value based on our solid market position and diversified technology and product portfolio. Finally, on investment. Our principle in CapEx execution remains unchanged, focusing on investment for future preparedness and business structure upgrade. Because our investment efficiency initiatives continue, CapEx this year is expected to be at high KRW 1 trillion range below last year's level. Moving forward, we will make prudent investment decisions while maximizing the use of existing infrastructure. New investments will be executed with profitability as the top priority. Thank you very much for your attention. Suk Heo: This concludes our presentation of business highlights for Q3 2025. We will now take your questions. Operator, please commence with the Q&A session. Operator: Now Q&A session will begin. [Operator Instructions] The first question will be provided by Gang Ho Park from Daishin Securities. Gang Ho Park: Congratulations on the good performance. Now I have largely 2 questions. Now I see that in the third quarter, the performance has risen sharply, and that appears to be on the back of rising revenue from the OLED panel as well as the revenue share of the OLED panel as well. Then the question is, does the company believe that it has the kind of structure that can sustain this kind of business performance down the road? And then related to this, traditionally, the company has been sluggish in the first half because of the strategy of its strategic customer. But then given the fact that it saw a good performance in the first half of this year, then does the company believe that this marks any change in the structure of the OLED market or the OLED business? And then based on that, then what would be the outlook for next year first half and also for the whole year? And the second question is, now in 2026, it appears that the macro uncertainties will continue and also competition continues to intensify even amidst the sluggish demand in the downstream. And as a result of this, then there could be some pressure from the customer to lower the ASP. Then how does the company intend to respond if such pressure should arise? And what is the company's strategy for continuous growth for the future? Choi Hyun-chul: This is VP Choi Hyun, in charge of the Business Control and Management responding to your questions. Now allow me to respond to the second part of your question first. And thank you very much for your interest in the company. Now it is true that in the past few years, the uncertainty and volatility in the external environment have continued. But then the company have continued also to expand our business performance every year based on internal capabilities based on our push to upgrade our business structure to be more OLED-centric and also to continue with the cost innovation activities. And as a result, despite the various factors coming from the outside, we were able to improve our performance, and we intend to keep demonstrating more stable performance down the road. Now looking back to the performance in the past 2 years, then last year, in 2024, we were able to narrow the loss by a very big margin of KRW 2 trillion from the previous 2023. And then for this year, although we still have the fourth quarter to go, we have the projection that we will be able to improve profitability by another KRW 1 trillion this year for the year. Now looking ahead, uncertainties in the external environment are likely to persist. But then as explained earlier, based on the stronger business fundamentals as well as the ongoing efforts at cost innovation, we will continue to work to further improve our business performance next year as well Y-o-Y. And looking ahead, we will continue to maintain stable business performance. And now it is true that there has been sluggish demand in the display market downstream and also stronger competition, making it difficult for any company to go for both growth and stable management of profitability at the same time. Having said that, the company will continue to try to expand our revenue and solidify our market leadership by increasing the OLED product portion, focusing more on high value-add and high-end products from global leaders and also developing the new growth engines based on differentiated technologies. And now with regards to your question about the panel price, I take it that it is a question about our maintenance of the profitability. Now based on our strong partnership with our customers, we will continue to operate an optimum pricing strategy, while at the same time, upgrading our product mix and continuing with our cost innovation and operational efficiency activities at the same time so that we can continue to expand our profitability. Suk Heo: We will take the next question. Operator: The following question will be presented by Mingyu Kwon from SK Securities. Mingyu Kwon: Congratulations on the good performance. I have 2 questions, and one is about the mobile. So it seems that the -- so I'm wondering about the market reception to the launch of new models by the North American customer. Now from media reports, it seems as if the reception for the standard model is better than expected, for the air model, perhaps less so. Then what would be the implications for the LG Display? For example, will there be any changes in the expected shipments or in the market share? And then the second question is now for the smartphone panel annual shipment target and the outlook for next year. So if there is a foldable product to be launched and also given the -- so given the likely launch of the foldable product and also the intensifying competition, then what is the possibility of shipment increase in 2026? If the company believes that shipment growth in 2026 is possible, then what would be the drivers for that? And then the last question is related to the small to midsized OLED. Now because of the restructuring in the Japan Display Inc., it is understood that LG Display is now the sole supplier for the smartwatch panels. Then what will be the volume, the annual volume of supply? And also what will be the contribution to the company's revenue and profit and loss? Park Sang-woo: This is Park Sang-woo, in charge of Small Display Planning and Management. Now for the smartphone business, the company has been achieving stable performance, thanks to our stronger competitiveness with our technology and production as well as across all areas of operation. And then in terms of the response to the new models by the customer, we understand that generally, it is quite positive. But then for the different models, the actual demand could be different. So this could also translate into some changes in the shipment plan based on the market trends. And now in the first half, despite the seasonality, there was a meaningful shipment growth by over 20% Y-o-Y. And then in the second half, thanks to the diversified product portfolio and stable supply system as well as the efficiency improvement, there has been improvement in profitability as well. So for the year, we are confident that we will be able to further expand our performance from last year. Now for the company, we believe that we have already have built up the technological know-how to flexibly respond to the diversifying needs from the customer. For example, by having a stronger capability in development and mass production of smartphone panels. And also by more efficiently utilizing the current infrastructure, we will be able to respond even more speedily and flexibly to new technologies and also growth in demand for different products. And looking ahead, we will continue to create stable performance by strengthening our quality competitiveness, continuing with our cost innovation efforts and preparing for the future technologies based on our close partnership with the customer. Now about the wearable devices, they are equipped with a number of different functionalities. And also across the society, we are seeing increased interest in health overall. So it seems as if the use of these products across the consumers' lifestyle in general is going to keep going up. So we believe that the outlook for the mobile OLED product market, including the smartphones is quite positive. The company already has the best technological leadership and production capability in the smartwatch panel business. And recently, there has been a change in the supplier status in the industry, which has also resulted in the growth of panel supply volume. And we believe that this will serve to further solidify the company's position in the premium wearable market. Now in terms of the annual supply volume, revenue, profitability and other information related to them are directly related to the customer. And thus, please understand that I am not in the position to discuss the details or the specifics. But then we will continue to create stable performance in the smartwatch panel business, utilizing our technological competitiveness and leading supplier status. Suk Heo: We will take the next question. Operator: The following question will be presented by John Heekyu Yun from UBS Securities. John Heekyu Yun: I have a question on the small mobile product. Now the market expectation is that in the second half of 2026, the North American customer will be launching a foldable smartphone product. Now then what would be LG Display's strategy for foldable smartphone panel business? And can you also share with us the status of the company's readiness for the product and technology? Park Sang-woo: Now for foldable products, there is growing anticipation from the market on the possibility of opening up new market segments for its differentiated form factor and the new user experience that it provides. Now if the foldable smartphone market becomes well established, then the product can also become the vehicle for trying out new technologies as the flagship model. So the company is closely monitoring the smartphone market trends as well as the demand outlook and is preparing for potential market growth. But for now, our strategy is to maximize the supply volume for the existing products so that we can continue to heighten our performance until we can get better visibility into the demand growth as well as opportunities for the company. So the company continues with the series of activities to strengthen our R&D and acquire new technologies. Now in the smartphone areas, if we can come upon more clearer opportunities, then we will build up our supply structure and expand our business opportunities after carefully reviewing the market acceptance of differentiated product as well as the market growth pace. Suk Heo: We will take the next question. Operator: The following question will be presented by Sun Kim from Kiwoom Securities. Sun Kim: I have 2 regarding the IT business. Now first, in IT, the LCD, the competition for LCD in IT is intensifying. And also, at the same time, the profitability is worsening. Then are there any plans for the company to downsize or even exit the LCD IT business as it has done so in the LCD TV? Or otherwise, what would be the strategy for the LCD IT business? And then second, now there is also outlook for growing adoption of OLED in the IT market as well. And in response to this, the -- your peers in the market are now making investment into the 8.6 Gen OLED. So what is the company's preparation or what are the company's activities in order to be ready for this potential adoption growth of OLED in IT? Hong-jae Shin: This is Hong-jae Shin, in charge of Medium Display Planning and Management. Now it is true that the medium product market remains overall sluggish, but then the company has been maintaining intense cost innovation activities. And as a result, we have been moving closer to our targeted performance, for example, making gradual improvement on our profitability, thanks to our focus on the high-end LCD technologies and differentiated competitiveness coming from OLED. In LCD, we are maintaining profitability-centric business management by the select and focused approach centered on strategic customers. And utilizing the company's technological advantage and global customers' partnerships, we continue to maintain our business based on B2B and high-end lineups. While at the same time, downsizing the low-margin models and improving profitability and enhancing stability. And for OLED, in particular, the company is providing various solutions to our customers based on the 2-track strategy of addressing new demand and preparing for future market. Now based on the company's differentiated competitiveness, we continue to respond to the growing demand of high-end monitors like gaming. And as a result, we are also seeing increase in the shipment of OLED panels for monitors. Now in the notebook business, it is expected that there is going to be a gradual transition to OLED. But then the company believes that we need to see additional and clearer signs of the market size, transition speed as well as consumers' acceptance. As such, the company remains closely watching the OLED notebook market size, while at the same time, we will be utilizing the existing infrastructure as much as possible for the technologies that can apply to future products. And by doing so, we will steadily make preparation for future technologies and mass production. Suk Heo: We will take one last question. Operator: The last question will be presented by Won Suk Chung from iM Securities. Won Suk Chung: Now I have a simple question about the OLED TV. So the macro uncertainties continue and also there is growing competition with the LCD products. And then at the same time, there are also reports that a domestic TV set-top company is intending to expand its OLED lineup as well. So what is LG Display's strategy and mid- to long-term target for the OLED TV business? Kim Yong Duck: This is Kim Yong Duck, in charge of Large Display Planning and Management. Yes, it is true that the uncertainties in the external environment and the business environment continue. But then for the company this year, we are projecting a mid-6 million unit level of large OLED panel shipment, which is growth Y-o-Y. Now compared to the LCD, the unique value of OLED panel appears to be more and more recognized in the market. And also pricing is nearing the range of affordability, enhancing further its acceptability in the market. And as such, for next year, the company is looking forward to another growth expecting 7 million units. And in particular, the gaming OLED monitor, so the demand for the gaming OLED monitor that is produced out of the large OLED fab is seeing meaningful growth. So for the large OLED panel, so we believe that the gaming OLED monitor out of the large OLED panel shipment, the share will be around low- to mid-teen percentage this year. The company continues to strengthen the fundamental competitiveness of OLED products as we also continue to diversify our product group. At the same time, we are maintaining very intense cost innovation activities and operational efficiency activities at the same time so as to continue to improve profitability of our large panel business. Of course, I cannot mention the specific profitability of each business segment, but then the results of all these multifaceted efforts are coming together to make a bigger contribution to the overall business performance. But of course, external uncertainties persist and competition between the different products is also intensifying as evidenced by the launch of various products that are in direct competition with OLED. So in response to these changes, the company will maintain our very strong cost innovation activities and also continue to build up our partnership with global top-tier customers so that we can maintain stable business performance. And last, the company's OLED capacity is 180,000 for Generation 8, out of which we are currently utilizing 135,000 for mass production. And down the road, we intend to flexibly run the capacity in linkage to actual demand. And we also have sufficient infrastructure to flexibly respond to any additional growth in the market demand. Suk Heo: Thank you very much. This concludes LG Display's Q3 2025 earnings conference call. We thank everyone for joining us today. Should you have any additional questions, please contact the IR team. Thank you. [Statements in English on this transcript were spoken by an interpreter present on the live call.]
Operator: " Mark Wilson: " Chris Chong: " Malcolm Bundey: " Rahul Anand: " Morgan Stanley, Research Division Paul Young: " Goldman Sachs Group, Inc., Research Division Lachlan Shaw: " UBS Investment Bank, Research Division Glyn Lawcock: " Barrenjoey Markets Pty Limited, Research Division Kaan Peker: " RBC Capital Markets, Research Division Ben Lyons: " Jarden Limited, Research Division Jonathon Sharp: " CLSA Limited, Research Division Mitch Ryan: " Jefferies LLC, Research Division Unknown Analyst: " Robert Stein: " CLSA Limited, Research Division Matthew Frydman: " MST Financial Services Pty Limited, Research Division Lyndon Fagan: " JPMorgan Chase & Co, Research Division Operator: Thank you for standing by, and welcome to Mineral Resources Analyst Call covering today's release of its September 2025 Exploration and Mining Activity Report. Your speakers today are Mark Wilson, Chief Financial Officer; and Chris Chong, General Manager, Investor Relations. A bit of admin before we kick off. [Operator Instructions] This call is being recorded with a written transcript being uploaded to the MinRes website later today. I will now hand over to the MinRes team. Mark Wilson: Thanks, Josh, and good morning, everyone. My name is Mark Wilson. I'm the CFO of Mineral Resources, and welcome to our quarterly call for September. In the office with me this morning, I have Chris Chong, Investor Relations. And today, we're joined on the line by our Chair, Malcolm Bundey. As usual, I'll first run through some highlights from the quarterly, which was released this morning, and then we'll be happy to take questions at the end. Beginning with the key highlights. I'm pleased to advise we've delivered another strong quarter across the business and as a result, confirm that we're on track for our volume and cost guidance for FY '26. Onslow Iron was a key highlight in the quarter. We shipped 8.6 million tonnes on a 100% basis in the quarter, which was a commendable performance from the team, noting that road upgrades were being conducted through almost all of the quarter. Project also operated at its full 35 million tonne per annum nameplate capacity between August and October, which, as announced this week, triggered a $200 million Morgan Stanley Infrastructure Partners payment, which we expect to receive in coming days. Securing that contingent payment is a strong financial outcome that rewards the operational excellence we're seeing at Onslow Iron. And I want to take a moment to thank the entire team for a huge effort to get us to that point. This range from the construction team to our approvals and heritage teams through the commodities and mining services teams. On the Board renewal front, Mel commenced as Chair on the first day of the quarter. We also announced the appointment of 2 new independent nonexecutive directors in the quarter, being Lawrie Tremaine and Ross Carroll. And after quarter end, we were pleased to advise the further appointments of Colin Moorhead and Susan Ferrier as independent nonexecutive directors. Turning to safety. The 12-month rolling TRIFR was 3.35, which was a 13% improvement quarter-on-quarter. That's a solid outcome and reflects less recordable injuries following the wind-down of construction activity at Onslow Iron. In terms of corporate, our liquidity remains strong and steady at $1.1 billion at 30 September, with net debt at $5.4 billion and importantly, net debt to EBITDA continuing to fall. I believe we're now past peak net debt, and we continue to see a clear pathway to deleveraging through the operations. As we've said previously, as Onslow Iron ramps up, our EBITDA is expected to increase, and our net debt to EBITDA will continue to decrease organically. The Onslow Iron carry loan, which to remind everyone, is the receivable from our JV partners for funding them into the project, is now being repaid with interest, with balance at the end of the quarter of $714 million. That's a decrease of over $50 million over the quarter despite some additional spend adding to the balance. Subject to commodity prices, we expect that balance to reduce more quickly in coming quarters. As foreshadowed during the quarter, we successfully refinanced our USD 700 million May '27 notes, extending the maturity out to April 31 at our lowest coupon rate of 7%. This represents the smallest spread over treasuries we've achieved, and I believe it reflects the bond market's understanding of our diversified business model and the improved quality of cash flows being generated in the business. In terms of Mining Services, quarterly production volumes were 81 million tonnes, steady over the prior quarter and notably representing growth of 19% year-on-year. Volumes were driven by the ramp-up of Onslow Iron to nameplate and were partially offset by reduced volumes at Mt Marion and a couple of the client sites. At Onslow Iron, we have -- sorry, we have incurred additional costs as a result of the use of contracted trucks, but we've also benefited from higher rates, which were designed to protect us through the first 15 months or so of operations. Those rates are now back to long-term rates. In terms of the broader market for mining services, third-party demand remains strong, and we see good growth opportunities with Onslow Iron being a great showcase of our capability. For Mining Services, we remain confident of hitting our guidance range of 305 million to 325 million tonnes for the year, implying 13% annualized growth. In terms of iron ore, total attributable shipments were 7.6 million tonnes over the quarter, up over -- sorry, up 30% over the quarter. The average quarterly realized price across both hubs was USD 90. That represented an 88% realization. We continue to see strong demand for our Onslow Iron product. I do, however, want to point out that realizations at our Pilbara hub are likely to reduce over the next 2 quarters as the contribution of ore from One Mana decreases ahead of Lamb Creek's ramp-up in Q4. As I flagged last quarter, with iron ore prices solid and the curve relatively flat, we've prudently hedged out about 1/3 of production to the end of calendar year '25, given the first half weighting of CapEx. We're currently assessing our strategy for the next calendar year. In terms of iron ore at Onslow, as I said, team is delivering excellent performance there. We've loaded 44 oceangoing vessels this quarter. And as of today, we've loaded a total of 136 vessels, and continue to be very pleased with the way the transshippers are performing. We have had an issue with the bouruster of one of the transshippers since the 7th of October, which means that for the last 3 weeks, we've been operating with 4. That bouruster is being repaired and expected to be back online early next week. Sixth transshipper was launched from China in the quarter, and we expect it to be commissioned by around June next year, as we flagged previously. Over the quarter, we had 202 -- on average, 202 road trains operating, 118 of the MinRes jumbo trucks, and 85 contractors with over 31,800 trips to port completed. With the private haul road upgrade completed, we're now operating unconstrained at normal speeds, and all the contracted road trains are now solely using our road. We do have the full fleet of jumbo road trains on site, and we're progressively reducing the number of contracted trucks being utilized in line with contract arrangements. We'll be able to continue to operate at the 35 million tonne per annum nameplate rate, but do expect some seasonality impacts through the typical cyclone season from November through to April. On the costs at Onslow, I've said previously that I feel like we have a pretty good grip on those. They came in -- the costs came in at $54 a tonne at the bottom end of guidance. And just confirming there were no capitalized operating costs as we had declared commercial production from 30 June. In terms of the Pilbara Hub, we shipped a total of 2.7 million tonnes, which was another strong quarter. PB costs came in at $83 a tonne, reflecting a higher contribution from Iron Valley. We do expect those hub costs to fall back within guidance over the year as we transition from One Mana to the lower-cost Lamb Creek operation in the second half. Turning to lithium. The lithium pillar continued the strong operational performance we've reported over recent quarters. Production across Mt Marion and Wodgina was 137,000 dry metric tonnes on an SC6 equivalent basis, with sales of 142,000 tonnes SE6. That's up 23% quarter-on-quarter. Average realized quarterly prices across both sites was USD 849 dry metric tonne on SE6 equivalent basis. That's up 32%. Wodgina delivered sales of -- sorry, 88,000 kilotonnes of SE6. That was helped by a ship that was scheduled for June slipping into early July. Production was up 6%, driven by improved recoveries of 67%. That followed the plant improvements that I mentioned last quarter, including the successful commissioning of high-intensity conditioning dewatering cyclones on the second and third processing trains, which is now complete. We achieved a FOB cost for Wodgina, SE6 equivalent basis of $733 per tonne. I just want to point out that we expect that cost number to rise in the second half. Essentially, we're moving from higher or upper levels of Stage 3 down. And as we do that, we're feeding ore that we'll see a little bit more dilution and lower recoveries through the plant, but we will then get to deeper and higher quality ore. In terms of Marion, Q1 sales were 55,000 on an SC6 equivalent basis, in line with the prior quarter, the cost coming in at $796 a tonne. Those costs are lower than guidance. And again, I just want to point out that we expect them to rise in the second half. We're transitioning from the central pit to the north pit. So the grade changes and the mining costs increase. Finally, to finish with energy, we did receive an independent resource certification for the Lockyer-6 well in October, post-quarter end, and we've now received $41 million for that as a final payment under that arrangement with Hamrock. Having completed those comments, I'm now happy to hand back to Josh to queue questions. Thanks. Operator: [Operator Instructions] Our first question today comes from Rahul Anand from Morgan Stanley. Rahul Anand: Look, I've got 2 questions. Firstly, in terms of Mining Services, you did talk about the 15-month rates coming off and the rates being lower. But then I guess, to offset that, you do have contractors going off the road. And I understand year-on-year, there's going to be a bit of a lower margin in terms of EBITDA per tonne. But how should we think about that margin progressing into next year? And how should we basically square the circle of these 2, I guess, opposing forces for the margin side of things? And I'll come back with the second. Mark Wilson: Yes. Thanks, Rahul. We generally talk in terms of the $2 a tonne number, and we said that we think that's a reasonable guide going forward. There is a little bit of up and down in the first half with the movements that you've described. We do get the benefit from that additional rate through the first quarter. So it might be a little bit up and down. But yes, generally, $2 over the year still seems right for us. Rahul Anand: And then, look, I just wanted to touch upon the lithium business. Obviously, very strong performance this period. And I guess the market is there to be able to supply as well. Two quick ones there are just around -- is there potential to sweat the assets a bit harder to kind of make use of this strong market in terms of volumes? And then any sort of progress update on that lithium business potential sale, as well, that's previously been talked about? Mark Wilson: I think that makes 3 questions in total role, but I'll answer them both. In terms of the lithium, we're very pleased with the way that business is performing. It's been performing well for quite some time now. We have pulled back on production, as we've said previously, we're running Mt Marion a little bit slower. And Wodgina, we're running a little bit over 2 trains on average over the period. We can push that third train on with relatively short notice when we choose to do so. But what we've said is that we won't be at clean ore to be able to feed 3 trains consistently until around November -- around this time next year. So there is capacity to go harder. We don't have any plans to push it harder at this point. In terms of any sort of process around lithium, I'm not going to comment specifically on lithium as such. What I will say is that Chairman in his letter to shareholders expressly referenced a willingness to consider inorganic deleveraging, and you should assume that's something that we're continuing to do. As we've said before, we've got a history of doing that. We've been doing that for the last 5, 7 years, and we'll continue to evaluate options. Operator: Our next question comes from Paul Young from Goldman Sachs. Paul Young: First of all, really strong operating performance. So well done on a good quarter. First question is on Onslow and with respect to actually costs, which were really, really good considering you're still running the contractor fleet. But I noticed the strip ratio was really low, only 0.3:1. So as you unwind the contractors, you're going to benefit there. But just on the strip ratio, maybe just over the near to medium term, how are you seeing that profile? Mark Wilson: Yes. So I just want to make it clear. Thanks, Paul. Nice to talk. Just want to make it clear for everybody. Those contractor costs don't come through that fog number. Those contractor costs sit in the mining services business because they have a mining services business has effectively a mine-to-ship contract. So the MineCo, Onslow Iron enjoys the benefit of a fixed price contract. And so that number of 54 reflects that price. So those costs have effectively reduced the margin in Mining Services, albeit, as I said earlier, offset by higher rates. So hopefully, that clarifies that. In terms of the strip, it is true that the strip at Onslow is low. It will revert in the short to medium term to 0.6. We are actually pulling tonnes now from Upper Cane, which actually has a strip of 0.1. So we expect to see low cost going forward, and we don't see upward pressure on that $54 into future quarters. Yes, we still think we'll be between guidance of 54 to 59. Paul Young: And second question, just on the hedging strategy, which has been great so far. I mean you hedged at 30 volumes at the end of the year. The market is tight. You can see that through your realizations. What is the hedging strategy next year? I know you said you're assessing it, but I would have thought that it'd be pretty compelling to hedge more at -- under the current structure into next year? Mark Wilson: Yes. We are considering it. There are a range of considerations that we're weighing up. We actually have locked a few tonnes away in January. We're using the same sorts of structures, zero cost collars with a floor -- the ones this year -- this calendar year, between a floor of 100 to 101 and a cap of around 106 to 108. We can get probably slightly better numbers in January, which we have in place for a small number of tonnes. We're looking at now extending that out. The market has moved a little bit over the last week, as you know. So it's something we're watching closely. But it is attractive at these prices, particularly as we move through this deleveraging phase. Operator: Our next question comes from Lachlan Shaw from UBS. Lachlan Shaw: So 2 from me. I suppose I just wanted to check with Onslow. So the August run rate, 38 -- in excess of 38 million tonnes per annum. And obviously, TSB 6 arrives within sort of 12 months. Just interested in how you're thinking about the ability of the asset to sort of sweat or push above that 35 million tonne per annum run rate sort of post '26. And I'll come back with my second question. Mark Wilson: Thanks, Lachlan. We're very pleased with the way the assets performed or the projects performed over the quarter. We have benefited from comparatively calm weather through the period. We have lost a number of days, but this is a quarter we would expect to do well. As you would expect from us, we're constantly looking at ways that we can improve productivity. We're searching for minutes literally in every aspect of the operation. What we've said consistently is the sixth transshipper should give us the capacity to go to 38 million tonnes per annum. We are trialing and have been trying for the last month or 2 channel passing of our transshippers, and we see the potential to possibly increase throughput by another 5% as a result. But we'll -- possibly, we'll see how we go through -- we'll continue running those trials over the coming months. But I think the headline number that we've got to remains unchanged that we see us getting up to 38 million with the sixth transshipper. Lachlan Shaw: And look, my second question, so just on the lithium side of the business and the MineCo, and obviously, reports around and being open to, I suppose, capital recycling. But I wanted to ask, can you help us understand -- I mean, how do you think about this business, and I suppose the optionality embedded in being exposed to the potential for fly-up pricing in lithium, there will be another cycle. We know that, versus obviously, a key motivation for doing or looking at this sort of transaction will be at the gear. But can you help us understand how you think about -- I mean, how do you sort of weigh all that up? Because I do know, obviously, spot prices are looking better. You're realizing a better price this quarter, and perhaps things are looking a little better into next year. So just interested in how the business thinks about those trade-offs. Mark Wilson: So what I'll say is I'll just repeat, Chairman's expressed very clearly an intention to consider inorganic deleveraging. Management is assessing a whole range of different possibilities. You should assume that anything we do on any of the assets, we will only transact if we see real value there. So we don't need to do a transaction today. We're really pleased with the way the business is performing. We're pleased with the cash it's generating. We can see that, as I said earlier, that clear line of sight to deleveraging through the performance of the business. Just to emphasize, we won't do anything unless we can see very strong value, both financial and strategic for doing something. I don't know that I can say much more than that. Operator: Our next question comes from Glyn Lawcock from Barrenjoey. Glyn Lawcock: Just if you could maybe help a little bit on the realizations for iron ore, 85% of Pilbara and 90% at Onslow. How much of that was due to the hedging you put in place? And just how much is that maybe quality as you start pushing Onslow because it was -- you were getting more like 80% realization? Mark Wilson: Yes. So Glynn, almost no impact from the hedging. We had maybe a couple of percentage points impact through prior period adjustments, but not substantial. Really, what we've seen is the whole market has tightened in terms of low-grade discounts over the quarter. There's been a shortage of supply into China, and we're seeing as the mills become more familiar with the Onslow product and figure out how to blend and optimize it through the plant, continuing to see very strong demand for that product. And really, they would take as much as we could give them. So very pleased with the way that's performed. But as you pointed out, even in the Central Pilbara, the discount has been tighter. So I think that's reflected in general market conditions. And we're seeing that continue into the early stages of this quarter. Glyn Lawcock: And then maybe just any update you can provide on discussions with the Pilbara Port Authority over the dispute on charges for Onslow? Mark Wilson: We've got a great relationship with the Port Authority. We work with them in a number of areas. I can't comment specifically on that matter because it's before the courts. Operator: Our next question is from Kaan Peker from RBC. Kaan Peker: Just on the parallel channel passing, just wanted to get an understanding of how the trials have gone. What needs to be seen to be rolled out? And why only 5% upside in capacity? A bit more detail around that? And I'll circle back with a second. Mark Wilson: Thanks, Kaan. The trials are performing well. We have to trial with each of the vessels. We have to trial with the different shifts. We have to trial with day and night. We have to trial with the different crews. So there's a whole number of elements that need to be trialed over a period of time. We're also working with the Chevron vessels passing in the channel and so on. So it just -- it's a process that we've agreed with the port authority. It takes time over a period of months. In terms of the 5%, we've modeled it out. We're taking a view. We can't assume that we can do that for every movement of the transhippers. So to get to that number, we've taken a view on the percentage to see how frequently we can utilize that opportunity. Kaan Peker: And then maybe the commentary around flotation at Mt Marion. You've sort of mentioned it before, but I think it's the first time seen a date of 1Q '27. Just wondering the CapEx for that and if that's been included in FY '26 guidance. Mark Wilson: In terms of the float, that's something we're still studying. So we're doing some -- we are doing a little bit of design work on it, design engineering work. We're working with our joint venture partners to understand what that looks like. But the actual work itself is not underway. When I say the work itself, the construction, we haven't taken a decision to do that. That's something that we'll talk with the Board about and with our JV partner about as we work through our updated capital allocation framework. Operator: Our next question comes from Ben Lyons from Jarden Securities Limited. Ben Lyons: First question, just on Onslow. Congratulations on a very strong quarter, obviously. And I understand your comments around the channel passing trials, et cetera. Just specifically on one of the transshippers, though, Montebello doesn't appear to have moved since very early in the month of October. So just wondering if there's any maintenance issues or operating issues or crew availability or whether you just don't have sufficient capacity to run all of those transshippers simultaneously at present. Mark Wilson: The Mondi is the vessel that I was referencing earlier when I said that one of the transshippers had a bowruster issue. So the portside bowruster was lost in operation. And just to be prudent, we basically moor it up whilst we repair it. And that's down from the 7th of October. As I said, we expect it to be back in service early next week. So it's not a capacity issue or anything like that. It's just an unplanned maintenance. Ben Lyons: Apologies, I did miss the first part of the call. And this one might have already been asked as well, but just on the iron ore hedging, just whether you've disclosed the rough pricing you've hedged away that sort of 33% of volumes for fiscal '26. Mark Wilson: Yes, no problem. One of the things I said earlier, and you might have missed it, was that we've only hedged out through calendar '25. So we haven't hedged the full financial year. We're actually waiting to see and understand better the impact of the change to the 61% index. So we've hedged the third out to the end of December. We've done that with a series of 0-cost collars with a floor of somewhere between 100 and 101 and a cap of $106 to 108. We've also got a few 0-cost forward sales, $102 to 105. So that's out to December. I also said that we've been able to hedge just a small volume of tonnes into January, and we're just reassessing what we might do through that first quarter next calendar year. Operator: Our next question comes from John Sharp from CLSA. Jonathon Sharp: Chris, congratulations on the ramp-up of Onslow, quite impressive results. And just the first question there around that, and a similar question to Lockheed sweating the assets, but more to do with the road trains. You've said that you're confident that you'll maintain the 35 million tonnes per annum as contractors come off. But are there any improvements that you see there with the road trains, whether it's cycle times, loading of trucks, anything that you're seeing there where you can improve? Or is that not a concern because maybe the transshippers are more of the concern? Mark Wilson: I think we've been consistent in saying that ultimately, the transshippers are the bottleneck. We did have some inefficiencies through that first quarter just because of the use of the public road at times, the use of large numbers of contracted trucks, which impact productivity when they're unloading, and so on. So we expect to see greater efficiency over the coming months, but we don't see the haulage as being the constraint. Jonathon Sharp: And just a question on the progress towards autonomous haulage. Can you just give us an update there? Is there any regulatory sort of certification that needs to be done, or anything to update us on there? Mark Wilson: Thanks, John. The benefit -- or one of the benefits of having the road upgrade completed is now that we can move back to trialing of the autonomy, which is now underway. So we are trialing a number of trucks with the autonomy. That's a process that we said is going to take some time. We need to collect all the data and do the analysis, and working closely with the regulator to satisfy ourselves and then the state of those systems. So we've said that that's going to be a second half of next year sort of thing before we can really know with certainty how it's tracking. But at this point, we're still very confident in terms of how it's shaping up. Operator: The next question comes from Mitch Ryan from Jefferies. Mitch Ryan: Just wondering on within the lithium business, if I look at on an SC6 basis, there was a divergence between the ASP at Mt Marion and Wodgina. Can you help us understand this, please? Mark Wilson: Sure, Mitch. So a couple of things I'd point out. We're very, very happy with the price performance, in particular of Wodgina. And so we sell on spot. And obviously, in part, it depends on timing of sales and cargoes and the like. But I'd say that Wodgina's sales performance has been very strong through the quarter. So I think that, that delta between the 2 is possibly exaggerated to an extent by that. And the demand for that Wodgina product continues to be very strong, reflecting of the grade that we put through there. Marion, we tend to sell as a parcel with a combination of the higher grade and the lower grade. And so historically, the difference between the 2 has been about 5%. This quarter, it's 10%. I'd say it's in part due to the strength of the performance of Wodgina. There is a 10% discount applied to the S3 product, the 3.5. Mitch Ryan: And then staying at Marion, total tonnes mined were down materially quarter-on-quarter. How do we think about strip ratios and material movements in the mine plan going forward? Mark Wilson: Yes, it's a good pickup and consistent with what we're saying -- one of the benefits of Marion is we operate out of a number of pits. So we don't just have a single pit. So you shouldn't be -- and you haven't suggested this, but I'm talking about the market generally. I shouldn't be worried that we're high-grading or anything like that. We're just reshuffling, resequencing our mine planning. And you're right, we were able to benefit from lower strip at Marion through the quarter. And we did that in part to help manage CapEx. We've said before that we're conscious about the way that we're managing our capital through the business. And so we are going to sequence back to higher strip pits, and the life of mine average at Marion is 10 to 11. So that's one of the reasons why I called out costs going up in the second half as we do that. But just to emphasize, we still see costs for the year falling within guidance. Operator: Our next question comes from [ Hayden Burlow ] from [indiscernible]. Unknown Analyst: Really good result. Just a couple of questions from me. Mark, just on mining services. Just keen to get your sort of thoughts on external volumes and whether that you see some opportunities to grow, I guess, more into next year than this year, but just keen to see where that's at. And also in the Pilbara Hub, do we assume then lower volumes in this in the next quarter, just as you transition and get Lamb Creek going in Q4? Mark Wilson: In terms of the first question, mining services, as I said, I think the external market, the demand for the services is strong. The industry is generally strong with the others in the industry, not that we have any true competitors the way we operate, but others are focused on gold. We see significant pipeline of opportunity into calendar year '26 and beyond. So very comfortable with the outlook and prospects for that business. In terms of the volumes out of the Central Pilbara, it's more a shift between the mines. As the market understands, one of the challenges with the Iron Valley product, even though it's a great product, it's very high. And so we do need to blend it. Wonmana is there, but the grades are falling. And so that's one of the reasons why I called out lower realizations over the next 2 quarters as we do that blending with reducing grades before we get Lamb Creek on. And then Lamb Creek, we'll see the grade stabilize and the blended grade stabilize. It will also see the cost improve because of the strip is quite low. Operator: Our next question comes from Robert Stein from Macquarie. Robert Stein: Quick one on just CapEx, the $400 million. I assume that's front-end weighted into the first half of the year, and obviously, because guidance is still intact that we can expect a slower second half run rate? And I've got a follow-up. Mark Wilson: Rob, yes, that's an accurate assessment. Robert Stein: And then secondly, just the Hancock payment. So the $41 million that was results to date, the issue with the well being capped basically getting another drill rig back on site, and then the other remaining part of the contingent consideration is still accessible once you're able to access or drill that -- the second part of the well? Mark Wilson: No. So the Hancock arrangements now concluded with that payment of $41 million. The well that we referenced in the quarterly was another exploration well, and we weren't able to determine commercial volume to be able to take it to production. So we've got a program of drilling planned with Hancock. They're going to drill some material for opportunity for themselves, and JV will do some work over the coming months, but we have no intention to go back to that well. Operator: Our next question comes from Lyndon Fagan from JPMorgan. Our next caller is Matthew Frydman from MST Financial. Matthew Frydman: A couple of questions on mining services, please. Firstly, you mentioned in the release a bit of a reduction in third-party or client contract volumes. That sounded pretty minor. But is there anything you can do to quantify the drivers there, or whether that's a temporary or lasting impact? Mark Wilson: Yes. Happy to explain that a little bit better. We had an external site finish last quarter, and we had a new one start this quarter, and they didn't balance out. We did more volume with the terminating contract and the new contract through its start-up phase. So that's a timing thing. And then we had 1 or 2 sites where the client wasn't able to provide us with the sort of volumes that we would normally expect. But again, not significant in any sense. So just a temporary thing, I think best described as. Matthew Frydman: And then maybe following up on Hayden's earlier question, just, I guess, trying to quantify the next opportunity in mining services. I mean simple maths will tell us that even to grow volumes by a fairly modest 10%, it needs to be a 35 million tonne per annum contract. So what does the next opportunity in mining services look like? Is it partnering on more onslowsized developments? And I guess what sort of timeline do you expect in terms of yes, achieving some of those opportunities? Mark Wilson: I think you've identified that -- I mean, the business has got a fantastic track record of growth over many years. And I think you've identified one of the challenges, which is to continue to support that sort of growth rate for a number of years into the future. So it is something we talk about internally. We do think about how we allocate resources. We've got -- we do have -- we've got a wonderful team, but we've got a certain number of people. We need to make sure they're pointed to the right opportunities. And so we need to work with management and with the Board to make sure we're thinking about that capital need going forward. I can't talk about specifics as you would appreciate. But what I would say is that the market better understands the capabilities of that business as a result of the success of Onslow, and I'll probably leave it at that. Operator: We're going to try Lyndon Fagan again. Lyndon Fagan: Look, just wanted to check in again on Wodgina Train 3. I'm not sure if this got covered off, but given a better outlook for the market, what do you need to see to ramp it up? Mark Wilson: So the answer is that we've sought to be disciplined with supply. We have pulled volume out of the market. We do run that third train from time to time. We haven't set a hard number as such. We obviously track the market every day with the calls that we're making around sales. So we've got a pretty good view and feel for the market and what that outlook looks like in the short term. It's a JV asset as well. So any decision that we take around that needs to take into account the views of Albemarle. What I would say is we still -- we're holding to the guidance for this year. I think that's the best way to put it in terms of where we think sales production will be. Lyndon Fagan: And I guess if you decided at the end of this year, the market outlook was sufficient to bring it on, when -- how quickly could you go from that decision to Train 3 at nameplate across the whole operation? Mark Wilson: I think one of the interesting parts about that question is it highlights the optionality that sits inside the business generally. Specifically with respect to Train 3, we can turn that on overnight, and we can produce. In terms of having clean, consistent feed to support all 3 trains, that will be 12 months from now. We would be able to deliver production from 3 trains next week. But what we would see would be recoveries would fall, costs would be a little bit higher because we'd be dealing with more contact ore, and we'd have some dilution impacts on the plant. So on the mining and through the plant. So it's a choice that's available, but to get to nameplate with clean ore is going to be 12 months. Operator: [Operator Instructions] Our next question comes from Lachlan Shaw from UBS. Lachlan Shaw: Just a couple quick ones. So firstly, great result with the recent debt refinance. I'm just wondering, though, corporate spreads are pretty tight right now. You might be tempted to go early again on the next bond due November 27. Mark Wilson: We were very pleased with the market reaction when we came to market. There was a lot of appetite both out of Asia and out of the U.S. The bond -- the next bond has a call premium of $1.04 effectively. So it's a little bit expensive to go now. That will step down shortly. It's a broader conversation in terms of how we think about the capital stack and what we're doing. So we don't have any hard plans to go, but that's an option we're continuing to monitor. Lachlan Shaw: And then just a final one from me. So obviously, the haul road Donslow repair is complete, a really good outcome. As we're coming into the wet season and you sort of look at how that's all gone, are you comfortable that the sort of the risk areas along the road in terms of river crossings and potential for ling water to impact? Are you comfortable that's all being sufficiently addressed, and you've now got pretty reliable and resilient pathway through the wet season? Mark Wilson: One of the benefits of the somewhat painful experience earlier this year was that we got a better understanding of where the water sat and how it moves live as opposed to the modeling. And so you can assume that we've studied that. We've worked with that, and we've tried to address that in the work that we've done through that period up to September. So yes, I'm confident that the team has done that work. Operator: Our next question comes from Mitch Ryan from Jefferies. Mitch Ryan: Previously, you had disclosed plans to take Onslow well beyond 35 million towards 50 million tonnes with the deleveraging in sight. Is there any information to dust those plans off? Or what would you need to see to dust those plans? Mark Wilson: Mitch, thanks for the question. We're not changing our position. We see a potential to go to 38 with the sixth transhipper. We know that there's a huge amount of resource out there, but there's also a lot of work that will be needed to be done both on the resource and on port infrastructure to go materially higher. So that's something you can assume that we're talking about because we always have the medium to long term in mind. But for the short to medium term, there's no plans to change what we're saying. Mitch Ryan: And just with regards to the study of reintroducing float at Mt Marion, does that potentially use the existing float equipment there? Or will it need new equipment? Mark Wilson: There's potential to reuse some of it, but it will be largely new. And just we've talked about it a little bit today. Yes, the benefits of the float are clear in the sense that it would allow us to have a single product, and it should take -- subject to what the study -- final study says, we estimate it could take up to $100 a tonne out of the all-in sustaining cost of the operations. But ultimately, it's a capital investment decision. We have to take that through management and through the Board once we finish our analysis. Operator: There are no further questions. That concludes today's call. Thank you for your time, and have a great day. Please reach out to the MinRes team if you have any follow-up questions. You may now disconnect.
Bong Kwon: Greetings, everyone. I am Peter Kwon, Head of KB Financial Group IR Division. We will now begin the 2025 Q3 business results presentation. Thank you very much for participating in today's earnings release. We have here with us executives from the group, including our Group CFO, Sang-Rok Na. We will have our CFO cover 2025 Q3 major business results, and then we will have a Q&A session. I will now invite our group CFO to walk us through 2025 Q3 business results. Sang-Rok Na: Good afternoon. I'm Na, Sang-Rok, CFO of KB Financial Group. Thank you for joining the third quarter 2025 earnings presentation by KBFG. Before running through the third quarter performance, let me first talk about our approach to profitability against changing business environment. Amid continuing slow growth trend, we face wide-ranging factors, including interest rate and FX volatility, government housing market stabilization measures and policies to revitalize the capital market. Navigating this environment and underpinned by robust fundamentals, KBFG mitigated the impact of external uncertainties as it continuously ensures stable earnings capacity. On strong growth of core deposit base, we defended the group's NIM resilience offsetting external volatilities, while through nonbank subsidiaries portfolio, we are building a well-balanced earnings structure in this new wave of change. We are also maintaining appropriate RWA growth, absorbing the impact arising from multiple variables, which we believe forms a steady foundation for the group's overall profitability. Under the government's target of KOSPI reaching 5,000, Korean economy is at an inflection point where the pivot of the economy is moving from real estate to capital market. In line with such change, KBFG will leverage this opportunity and turn the tide of change to one that can strengthen our profit-making capacity in order to broaden the basis of group's future growth. Upon the bank and KB Securities WM channel, we will expand brokerage, credit and sale of investment products to broaden the basis of earnings while supporting financial asset growth of the Korean people. Leveraging our accumulated expertise and influence in the capital markets, we aim to lead the market tide characterized by expansion of productive finance and venture capital and capture emerging and new business opportunities. And I believe our experience in investing into venture and innovative companies and the success cases we were able to draw from them will provide greater boost for our market leadership as we make investments into growth sectors. Thus, supported by well-prepared leadership, KBFG will proactively respond to change, driving quality improvement in earnings structure. Before moving on to financial performance, first on Q3 cash dividend. Today, Board of Directors approved KRW 931 DPS with total cash dividend amounting to KRW 335.7 billion. Q3 cash dividend per share increased KRW 135 Q-on-Q, excuse me, year-over-year on the back of increase in total dividend sum beginning of the year and the impact of share buyback. Next, moving on to financial performance of KBFG. Group's net profit for the quarter reported KRW 1.686 trillion, while on a cumulative basis as of Q3 increased 16.6% year-on-year, reaching KRW 5,121.7 billion. Cumulative group ROE in Q3 was 12.78%, an improvement by a large margin versus last year. This was driven by solid core earnings and with the absence of ELS reserving impact and gains from sales of holdings in our consolidated funds in Q2, there was sizable recovery on the nonoperating accounts. On top of this, rigorous cost control efforts were compounded, driving and attesting to group's solid fundamentals. Meanwhile, nonbank business accounts for 37% of cumulative Q3 net profit as we maintained diversified earnings portfolio. Next, I will move on to detailed breakdown of earnings results. Group's third quarter cumulative net interest income was KRW 9,704.9 billion, flat year-over-year. In Q3 '25, group's net interest income was KRW 3,336.2 billion, but removing the base effect of costs related to liquidation of fund being recognized as interest expense, NII was flat Q-on-Q. Next, I will elaborate on bank loans in Won growth. As of end September 2025, bank loans in Won stood at KRW 375 trillion, a 3.3% growth compared to last year and a 0.9% growth Q-o-Q. Household loans recorded KRW 182 trillion, a 0.7% growth Q-o-Q and corporate loans centering on large corps and robust SME loans grew 1.0% Q-o-Q. Taking into consideration the government stance of strengthening household debt management and housing market stabilization measures, we expect household loans to show limited growth for the time being. However, we plan to rebalance household loan portfolio from a profitability perspective and pursue a loan growth strategy focusing on robust SMEs to secure our interest income basis. Next is NIM on the bottom right of the page. Q3 bank NIM stood at 1.74% on the back of funding cost management efforts and group NIM posted 1.96%, maintaining a similar level to the previous quarter. In particular, despite the contract in loan yields this quarter, the bank's NIM remained stable at around KRW 7.9 trillion growth in core deposits alleviated funding pressure, enabling a steady defense of our margin. Next, I will cover noninterest income. Q3 cumulative group noninterest income posted KRW 3,739 billion, a 1.1% decrease Y-o-Y. Q3 cumulative other operating income posted KRW 786.6 billion, a 15.4% decrease Y-o-Y, and it was primarily attributable to the base effect from the reversal of KRW 123 billion in KB Insurance, IBNR reserves in the previous year. On the other hand, Q3 cumulative net fee income posted KRW 2,952.4 billion, a 3.5% growth Y-o-Y. Along with the increase in stock market trading volume, brokerage commission income grew significantly, while strong bancassurance sales and the expansion of trust-related earnings also contributed to improved performance. In particular, in case of our subsidiaries, KB Securities showed 16.5% net fee income growth and KB Asset Management showed 23.3% of net fee income growth, respectively, and drove group's fee income expansion. We believe that this increase in fee income from the capital market, in line with the ongoing momentum of capital market revitalization, has ample potential for further expansion going forward. Since around 70% of the group fee income is generated by nonbanking subsidiaries centering on the capital market, we plan to strengthen nonbanking competitiveness to further expand our fee income basis. Next, I will cover general G&A. Q3 cumulative general G&A posted KRW 5,007.7 billion. And on the back of continuous cost efficiency efforts, it stopped at a 2.8% increase Y-o-Y. Q3 cumulative group CIR recorded 37.2% and is being stably managed within our target range. We have been exerting efforts to save recurring expenses and at the same time, maintaining an appropriate level of investment in essential areas, including IT, disaster prevention and strengthening information security. We are strategically expanding investment in growth areas, including AI. And going forward, we will heighten our cost structure efficiency through selective cost implementation. Next is Page 8, group provision for credit losses. Q3 provision for credit losses posted KRW 364.5 billion, a 44.4% decrease Q-o-Q. Q3 group credit cost went down 25 bps Q-o-Q, posting 30 bps and on a cumulative basis, recorded 46 bps and transitioned to a lower stabilization trend. To give more color about the main reason why this quarter's provisioning decreased around KRW 290.6 billion Q-o-Q, it was on the back of the conservative additional provisioning stance we had until now as well as slightly alleviated burden on provisioning accumulation through the portfolio improvement efforts, which took place from the second half of last year as well as the bank retail credit assessment model advancement. In addition, there was a partial provisioning reversal due to NPL recovery in Q3. So overall provisioning size decreased significantly. We believe that our efforts to strengthen risk management until now have been gradually showing results. And considering this trend of improved soundness, we believe that this year's group -- this year, group's credit cost will be managed around the mid-40 bp range. I will now cover group's capital ratio. At the end of September 2025, estimated group BIS ratio posted 16.28% and CET1 ratio recorded 13.83%, respectively, securing one of the highest levels of capital adequacy in the industry. 2025 September end group risk-weighted asset posted KRW 358 trillion and increased 3.5% compared to the end of the previous year. In Q3, the KRW 48 depreciation of the Korean Won against the U.S. dollar acted as a driver of RWA growth, but through RWA monitoring and portfolio adjustment, the FX effect was absorbed, and we adequately manage RWA growth at an appropriate level. From the next page, please refer to the detailed materials regarding the performance results I have just covered. With this, I will conclude KBFG's Q3 business results presentation. Thank you for your attention. Bong Kwon: Thank you for the presentation. We will now begin the Q&A. Operator: [Operator Instructions] We will take the first question, Do Ha Kim from Hanwha Securities. Do Ha Kim: I have one question on margin, and you talked about the reversal. So first, on margin, it seems like the decline has now stopped. And there's been an offset in Q4 or for next year. Do you have, maybe not, a specific number in terms of the guidance? Do you see that the decline in margin has now stopped? And are you looking forward to a turnaround? And you talked about the reversal from the recovery of the NPL. What is the amount? Bong Kwon: Give us one moment as we prepare for the answer to the question that you've submitted. Jong-Min Lee: Yes. Good afternoon. I am Lee, Jong-Min. I'm the CFO of KB Bank. First, we'll talk about the NIM outlook. If you look at Q3 NIM, it was 1.78%, so it's 1 basis point increase. And basically, the rate down-cycle has somewhat slowed. And also our core deposit on an average balance basis, there was an increase of KRW 4.3 trillion. So through our efforts in reducing the funding cost, we were able to defend the margin from the stagnant loan growth. Now under the government policy in terms of having a very rigorous control over household debt, we believe that for the time being, the loan growth is going to be limited. We will continue to focus on expanding our core deposit and also reducing the funding costs. That would make the key pillars behind the NIM. We are going to focus on company's institutional sales and expand on the low-cost deposit so that we can drive further savings in terms of funding cost. On an annual basis, in the second half or in Q4, we expect the NIM -- of course, it will be impacted by the movement of the market policy rate. There are multiple views regarding how the market rate is going to go going forward. However, looking at the overall direction forward, we think that in the second half, there's going to be a quite gradual decline at low single digit. That is what we are forecasting. And in order to defend its impact on margin, we're going to really make that up and offset the impact through strengthening our deposit base. Regarding the reversal of the provision, and you asked me about the size, it's around KRW 70 billion. Basically, overseas acquisition, we were able to recover certain bad debt there. And for domestic regarding the knowledge complex centers and the loans that were extended, there was a recovery, and that was reflected on the reversal. Operator: We will take the next question from ANZ, [indiscernible]. Unknown Analyst: Two questions from my side, please. One is, given that the policy rates in the U.S. are falling now faster than those by BOK, what is the plan for the financial group or for KB Bank -- for Kookmin Bank to issue additional Tier 1 securities in foreign currency in U.S. dollars? That's number one. And second question is, what is your guidance for NPL coverage for the foreseeable future? Do we expect it to decline further? Or you will keep it at the current levels or approximately around those? Unknown Executive: Can you repeat the first question on the Tier 1 capital? Did you say issuance of USD-denominated Tier 1? Unknown Analyst: Yes. So is the bank -- is the group or the bank planning to issue U.S. dollar-denominated additional Tier 1 securities given that the cost of foreign currency debt is now falling faster than the Korean won policy rate? Bong Kwon: Yes, give us one moment. Sang-Rok Na: Regarding the first question, now the FX rate is very elevated at this point. And compared to the fall in the U.S. Fed rate, if you look at Korea, we have a household loan-related issue and also there are real estate packages. So we do expect that the interest rate decline is not going to be faster than the U.S. So in consideration of that, so at this point, the U.S. dollar-denominated bond or any issuance of a hybrid bond issuance denominated in U.S. dollars, we're not yet considering to do that. You also asked about the coverage ratio. Right now, we are at about 130% coverage. Now over the past 2 years, we've really cleaned up our bad assets. And also there were some factors that drove reversal. So from -- it is correct that it went down from 200% level to 130% level. Now over the past 2 years, we've maintained this trajectory. So as we complete the NPL cleanup and we've seen improvement in the portfolio, we think that the inflow of new NPLs is going to be limited. Now having said that, our reserving discipline is going to stay intact. So the coverage ratio compared to where we are right now may slightly go up. Operator: We do not have any questions in the queue as of now, so we will wait. We will take the next question from BNK Investment Securities, Kim In, Director Kim In. Unknown Analyst: Congratulations, and thank you for the good performance. Bong Kwon: Can you speak up a little bit? Unknown Analyst: I think for KB for Q3, your earnings are good, but this could be a little bit sensitive. But as you probably know, we are hearing some talk about fines, administrative fines. So if you can comment on this, can you tell us about your thoughts, what is currently on your mind regarding these fines? Operator: We will soon answer the question, please. Sang-Rok Na: I am the CFO of the group. So to briefly elaborate, currently, regarding the size of the fine or the timing, it is very hard for us to comment because of its impact or the amount or the calculating standard, it is not finalized. So it is difficult for us to answer it in detail. And for the basic fine or the deductions, I believe that the authorities have shown us some clear guidance. And looking at the current situation, we are actively giving them our responses. So I think that we're in the process of coming up with a reasonable resolution. I'm sure that we will have some impact, but we are doing our best to minimize the impact, and we're working very hard. So we will work hard so that it will not actually have an impact on the shareholder return policy that we have committed ourselves to. And our bank CFO, I think, will also give a few comments, but maybe we can just conclude the answer at this time. Thank you. Bong Kwon: We will actually wait just a little more. Operator: We do not have any questions in the queue as of now. And we will take the next question from HSBC Securities. We have Won Jaewoong. Jaewoong Won: Despite the challenging environment, thank you very much for your great earnings. I have one question and for core deposit growth, I think that is quite notable. And regarding your core deposits, I think all other banks have this increase. So I think NIM has gone up. But I think that the competition is getting fiercer. Do you think this trend will continue for the time being? Or do you think that because there was the great elevation because of some maybe one-offs, so I'm curious about what was the main reason for this? And another question is, on Page 14 of the presentation, I think when we have a booming stock market for savings products, or I think a lot of the money moves to demand deposits. So do you think this is a trend? Or do you think it's because core deposits are coming in from the outside, so this is actually growing? So if you can explain about this phenomenon, it will be greatly appreciated. Bong Kwon: We will soon answer the question, please. Jung-Soo Huh: Yes, I will answer your question. For the bank, for the core deposit increase, regarding the reasons, I think on the whole, the interest rate fell. So that was a big impact because when the market rate falls, we tend to have more core deposits. So they are elevated. So I think that is the basic direction. I believe that recently, we had some of -- more customers that actually are using us to deposit their salaries. And on the whole, I think we have this increase in our customers that is leading to more core deposits. And I think we -- there are some changes so that we can receive more of these deposits from institutions and others and companies. So I think through these changes, we're seeing more companies and institutions that are providing more core deposits to us, and we are making many efforts. And I think in the stock market, we can see that with unsecured loans, it is inching up a bit and coming in as demand deposits and then going to the stock market. So I think we have this money move and it's going back and forth. So I think regarding whether that had a big impact, we will need to wait and see. But I think for individuals, we had more customers, customer numbers increased, which was the biggest impact. And I think for corporations, it's because we had some changes to make this easier for them to give us their accounts. Operator: Next Cho, Jihyun from JPMorgan. Jihyun Cho: I have two questions. First one has to do with the productive finance. What are your plans regarding productive finance? And also for RWA and CET 1, what's the impact that you're projecting? Also for the loan growth up to Q3, compared to your peers, we see that your loan growth is weaker and KB usually has a strength in the household lending space. So going forward, in terms of the loan growth, there is expectation that it may be difficult for you to achieve the target that you've said. So we'd like to gain some insight on Q4 and for next year, what is your loan growth projection, especially in relation to all the inclusive finance related effort? So there was a big write-back in Q3. And because that size is quite big. So in the second half, you seem to allude to the fact that the overall size of the reserve is going to be more downsized. What can we expect in Q4? Are you looking towards a write-back of the reserves? And your NPL dipped slightly. Is this -- do you think it peaked out? Are we now in a secular trend in terms of the NPL decline? So I would like to gain your thoughts on this. Bong Kwon: Give us one moment. Sang-Rok Na: Thank you for the good questions for productive finance and its impact on RWA. Let me briefly respond to that. Now since there hasn't been any official announcement, we have all the preparation that we've set aside. And once that announcement is made, we will share with the market as to what the extent or the size of this support is. And so in light of the government's official guidance, we will be determining the size of the product to finance package. But of course, the amount is important, but what's more important than the mere amount is that our asset structure has to be transformed in a way that actually improves on the RWA and that whole process and having that in parallel is what's most important. What that means is that our asset structure now is overly tipped towards properties and financial assets. And if that is redirected to SMEs and manufacturing sector, where we increased the RWAs that basically is our basic approach. So when it comes to not just the productive finance package and also its impact on our assets, there are certain areas that we do need to lower our exposure on. So in consideration of all of those factors that we are planning our RWA direction. So we think that next year, we will be amply -- we will be able to amply meet that RWA growth rate of around 5%. I say that because from the government's side, they're trying to revitalize the capital market, and they've made adjustments to the risk weights, lower than for the securities for the RWA securities. Now -- so we believe that we are in good alignment with the government's policy approach as well. So for next year, there is an impact of this productive finance. And so in controlling the RWA, it's become much more complicated for us to manage against RWA last year. And this year, as we monitor the RWA, we were able to build up on our know-how and experience. So we are very certain and confident that we will be able to continue to do so as we move into next year. In terms of the loan growth, I'm going to turn it over to CFO of the bank to respond to that question. Jung-Soo Huh: So in terms of the loan growth, just to add, now our bank on a quarterly basis, we try to ensure stable growth, so Q1, 2 and 3, we are growing at about the same rate. So under that approach for the loan growth, especially for household, it will be 3%, 6% to 7% for corporate loans. That's the growth rate that we are working under, so which will bring us about 5% of an annual growth. And we believe that we will be able to achieve that same level next year as well. Sang-Rok Na: Well, I would also like to add one more thing. So in terms of the growth of the loans and the assets, if I could elaborate, yes, there is the loan growth aspect. But if you look at this pivot changing to the capital market, now there is also a potential growth from the securities. So if you look at our asset mix, the loan growth is about 4.5%. That's the expected projected growth. For the securities, we expect it's going to show about 9% securities investment. So for next year, in terms of the mix of our assets, yes, loan growth is important, but there's also securities investment domain that we will also focus on to really drive growth. Just one more thing because you did ask about the asset quality projection. As you have mentioned up to the first half of the year, we went through some difficult patch. But starting end of last year, we've taken on a quite aggressive approach in improving and enhancing our portfolio. Thanks to these efforts, we have seen the outcome of that starting the second quarter, and we believe that, that improvement continued on into the third quarter. So in terms of the delinquency rate, in terms of NPL ratio, although a bit cautious, I believe that we are now in a period where we are now starting to see a recovery. And especially for the stimulus packages of the government and also support packages for those people and the vulnerable part of the society, we believe that there will be some gradual improvement. In terms of credit cost, we started off at an elevated level in the first half of the year, but we were very conservative in reserving -- we were very conservatively reserving and now we are seeing a reversal of such loan reserves. And we believe that this type of a trend can continue on until the end of Q4. So CCR we will be able to achieve the target that we set originally. Now having said that, when it comes to asset quality and the level and the extent of that improvement is going to be contingent on how the domestic market recovers and what the situation is for the real estate market. Those are also factors that will impact that going forward. For borrowers who are vulnerable, we will make sure that we keep a close monitoring of those segments so that we can have a rigorous control. Operator: We do not have any questions in the queue as of now, so we will hold. Bong Kwon: I think we had a very good Q&A session. And we have actually from Samsung Securities, Kim Jaewoo, who will ask the next question. Jae Woo Kim: I have two questions. The first question is related to asset quality that was mentioned and regarding credit card delinquency rates. I think we are seeing a notable decline. So if asset quality is improved, and I think for vulnerable borrowers, you said you have a prudent attitude. But do you think internally -- do you think that we have had meaningful improvement? Or do you think that you will need to wait and see, and this is just what happened in Q3? And I think regarding your forecast for Q4, then for next year for provisions, so what is the level that you're expecting? Because looking at the credit cost for this first half of this year, well, there was an elevated effect in March. So I think if it shows that the economy has deteriorated, do you think that for next year, how do you think it will change? And my second question is the capital adequacy ratio, and I think it has improved significantly. And I think that excess of 13% in RWA, you mentioned that. So based on that, so when we have simple calculations, I believe that we could see actually more than expected. So maybe I'm speaking a little bit earlier than is concerned. But I think for this year, we are expecting about excess of 50%. Then what do you think is the window that we should open to? And do you think that will be quite difficult? Or if it follows the formula then for next year, as you had mentioned, do you think that you can have differentiated TSR that can lead the industry? So can you tell us what we can expect? Bong Kwon: We will soon answer your question. Thank you. Jung-Soo Huh: Regarding credit card delinquency, I would like to answer that question. As you had mentioned, for a credit card, from late last year, we have been very aggressive and active in entry management and having good write-offs and sell-offs. So due to this, we have had portfolio improvement. And I think we're seeing the effects of our efforts materialize. So I think regarding the positive results, it is not just a one-off effect. I think this will actually continue until next year, the positive results. Of course, for the receivable, the voluntary adjustment and others, we will do so. But I believe that we will be able to manage it at the current level. You also asked a question about asset quality and the level of CCR for next year. And as was mentioned previously, I think until now, we will maintain the stance for management that we have had until now, and I think early 40% range could be the goal that we are going to pursue. Sang-Rok Na: Regarding Q4, capital adequacy rate and expectations for next year's shareholder return, well, regarding the amount of TSR or shareholder return, well, I also have very rosy expectations, and I'm keeping an eye on the situation. And regarding the capital adequacy ratio, well, I think that we have had a very high FX rate and it's being maintained. So we need to have ample buffer for that. So we have been managing our RWA. In Q4, there are seasonal factors. So it normally falls. And I think this pattern will also be repeated in Q4 of this year as well. So we need to take that into consideration. And regarding TSR, whether it will go up or down, well, you probably know we can't really comment on what we think will happen. But regarding the excess capital that goes beyond our committed number, well, we do have a protocol and this protocol will be maintained next year as well. But what we can comment on for sure is that regarding the timing or the size of TSR, regarding what we showed this year, we will be very flexible like we had been this year. And this means that in Q2 of this year, there was the expected shareholder return that we had actually implemented earlier than scheduled. So we will maybe pursue a similar stance next year, but we have the first half and second half of the year policy that we will actually commit to and we promise the highest level of TSR in the industry. So we will do our best to meet our commitments so that we can satisfy the expectation that you're looking for. Thank you. Operator: So we have Cho Jihyun from JPMorgan also wanting to ask a question. Jihyun Cho: Yes, just one more question on shareholder return policy. In the General Meeting of Shareholders, you would make resolution on the dividend payments through the use of the capital reduction. So regarding the separate taxation on dividend, now basically, for high dividend paying, criteria is 40%, cash dividend rate or 25% cash dividend, and then looking at past 3 years -- comparing to the last 3 years' average, for instance. So there are different criteria. Now -- and there's a lot of controversy that it should only be a cash basis of 40%. Now so if -- 25% plus 5%, if basically that theme is what's decided at, then only the company that's doing cash dividend of 30% or 40% that are subject to that separation of taxation. So then can we increase the cash dividend rate up to that ceiling to provide the benefit as much as possible to the shareholders? Now there could be multiple scenarios. How are you going to manage the mix between the dividend and the share buyback and cancellation? Bong Kwon: Give us one moment. Sang-Rok Na: Well, thank you very much for the question, a very good question. Now in the first half of the year, we've mentioned during our earnings call that basically in expanding the retail investor base, and to have the positioning and status as a household name in terms of the capital market investment that basically is our tenet, and we stand by that, and we are considering and looking at reviewing various different elements. So I think that's to the extent that I can share with you at this point because the policies or the law itself has not yet been determined or confirmed. We will engage in active discussion with the outside market as well. In terms of the requirement for that separate taxation for the dividend income because the rules and guidelines have not yet been confirmed, it's quite difficult for me to give you a definitive answer at this point. But when we announced our plan, when PBR is from -- to move from 0.8 to 1, we are going to have a higher level of share buyback and cancellation up until a point we reach a certain PBR ratio. For cash payout ratio, and if the requirement is 30% or set at 40%, so a much higher level, then cash dividend payout ratio, it's difficult for us to really just increase that quite steeply, although the requirement yet has not been determined, we will once again look at the mix between the cash dividend and also the share buyback. Basically, we would based on the discipline that we are using. However, if the taxation requirement is set at a level that we can amply meet, then we will also proactively consider the way to benefit the retail investors as much as possible. Bong Kwon: Thank you very much for the answer. We don't have any questions in the queue as of now. And I believe that we have had a good amount of discussion for about 45 minutes since we had the beginning of our earnings release. If you have any questions, please feel free to contact our IR department. And we will wait just a little bit more if you have any other questions. Well, I think questions are over, and we will conclude our business results presentation and Q&A session. Thank you very much. [Statements in English on this transcript were spoken by an interpreter present on the live call.]
Operator: Welcome to the 2025 9 months results announcement conference call for Budweiser Brewing Company APAC Limited. Hosting the call today from Budweiser APAC is Mr. YJ Cheng, Chief Executive Officer and Co-Chair of the Board; and Mr. Ignacio Lares, Chief Financial Officer. The results for the 9 months ended 30th September 2025 can be found in the press release published earlier today and available on the Hong Kong Stock Exchange's and Budweiser APAC's websites. Before proceeding, let me remind you that some of the information provided during this results call, including our answers to your questions on this call may contain statements and future expectations and other forward-looking statements. These expectations are based on the management's current views and assumptions and involve known and unknown risks, uncertainties and other factors beyond our control. It is possible that the Budweiser APAC's actual results and financial condition may differ possibly materially from the anticipated results and financial condition indicated in these forward-looking statements. Budweiser APAC is under no obligation to and expressly disclaims any such obligation to update the forward-looking statements as a result of new information, future events or otherwise. For a discussion of some of the risks and important factors that could affect Budweiser APAC's future results, see risk factors in the company's prospectus dated 18th September 2019 and the 2024 Annual Report published and any other documents that Budweiser APAC has made public. I would also like to remind everyone that the financial figures discussed today are provided in U.S. dollars, unless stated otherwise. The percentage changes that will be discussed during today's call are both organic and normalized in nature and unless otherwise stated. Percentage changes refer to comparisons with the same period in 2024. Normalized figures refer to performance measures before exceptional items, which are either income or expenses that do not occur regularly as part of Budweiser APAC's normal activities. As normalized figures are non-GAAP measures, the company disclosed the consolidated profit, EPS, EBIT and EBITDA on a fully reported basis in the press release published earlier today. Further details of the 2025 9 months results can also be found in the press release. It is now my pleasure to pass the time to YJ. Sir, you may begin. Yanjun Cheng: Thank you, Rick, and good morning, everyone. Thank you for joining our call today. Our performance in China has been challenged over the past few quarters, as our results have not delivered on the full potential of our brand and organization. While the overall industry has been impacted by soft economic cycle, which had been even more pronounced in our footprint and mix of channels, we have recognized clear opportunities to enhance our route to market and portfolio execution to better align our results to our capabilities. As a company of owners who struggle every day for operational excellence with our customers and consumers, we have been working in China to rightsize inventories and allocate resources. We have a clear view of where to improve. Our priority is to reignite growth and rebuild our market share momentum. We are moving with speed, focus and discipline to ensure that our business turns stronger, more efficient and better positioned to improve over time to outperform for the long term. I will now hand it over to Iggy to provide more on our performance in the first 9 months and the third quarter for 2025. Thank you. Ignacio Lares: Thank you, YJ, and good morning, everyone. In the first 9 months of 2025, total volumes decreased by 7%. Revenue decreased by 6.6%, while revenue per hectoliter increased by 0.4%. Our normalized EBITDA decreased by 7.7%, and our normalized EBITDA margin contracted by 37 basis points. In the third quarter, total volumes and revenue decreased by 8.6% and 8.4%, respectively, with ongoing challenges in China, partially offset by our performance in India. Revenue per hectoliter increased by 0.1%, driven by a positive geographic mix in India and revenue management initiatives in APAC East, partially offset by our performance in China. Our normalized EBITDA decreased by 6.9%, impacted by our top line performance, while our normalized EBITDA margin expanded by 46 basis points. Now let me discuss some highlights for each of our major markets. In APAC West, in the first 9 months of the year, volumes and revenue decreased by 7.9% and 8.7%, respectively, while revenue per hectoliter decreased by 0.8%. Normalized EBITDA decreased by 9.7%. In China, volumes in the third quarter decreased by 11.4%, impacted by continued weakness in our footprint and on-premise channels. Revenue decreased by 15.1%, while revenue per hectoliter decreased by 4.1%, impacted by increased investments behind innovations and brand activations as well as efforts to expand our in-home presence coupled with an adverse brand mix as we managed inventories. Normalized EBITDA decreased by 17.4%, impacted by our top line performance and operational deleverage. On that note, as YJ mentioned earlier, we have a clear view of where we look to improve in China and how to achieve this. Accordingly, we are focused on improving our top line performance through the following areas: further strengthening our route to market with an elevated focus on the in-home channel across online, offline and O2O; increasing investment in our mega brands, such as Budweiser, Harbin and Corona, to win in the Premium, Core+ and Super Premium segments now and as the industry recovers; leading innovation within the industry across packaging, brands and liquids to increase category participation and develop new consumption occasions; expanding our footprint through targeted geographic expansion; and restoring our excellence in execution. We made further progress in our channel expansion strategy in the third quarter, focused on premiumizing the in-home channel as in-home consumption occasions continue to develop. In the first 9 months of the year, the contribution of the in-home channel to our volumes and revenue increased as we began to extend our distribution within this channel. On the portfolio side, we continue to invest in diverse marketing campaigns and innovations to further increase the brand power of our portfolio, connect with consumers across more occasions and increase sales momentum. Corona expanded its signature Drinking with Lime ritual from bottles to cans with the launch of a full open-lid can design, which further reinforces the brand's differentiation and appeal. This innovation is now rolling out across online and retail channels to expand Corona's reach in in-home drinking occasions. Budweiser introduced Budweiser Magnum in a 1-liter can, broadening its consumer reach with a greater in-home presence while retaining its striking black and gold design. The new packaging format further highlights the brand's distinctive brewing and aging process as well as its unique flavor. On the digitization front, the usage and reach of BEES, our B2B wholesaler and customer engagement platform, continued to expand. As of September 2025, BEES was present in more than 320 cities across China. We continue to leverage technology to further enhance our commercial capabilities, optimize our route to market and strengthen our customer relationships. While our performance in China has been disappointing, our businesses in South Korea and India have continued to deliver solid results. In India, in the third quarter, we delivered double-digit revenue growth, which translated into a strong EBITDA performance, further compounded by the lapping of additional costs incurred in the third quarter of last year on projects to enhance the digitization and integration of both financial and nonfinancial information. In the first 9 months of the year, the Budweiser brand continued to grow ahead of the industry with the volume and revenue of our Premium and Super Premium portfolio increasing by double digits. In APAC East, in the first 9 months of the year, volumes decreased by 0.5% with revenue and revenue per hectoliter increasing by 1.8% and 2.3%, respectively. Normalized EBITDA increased by 0.3%, with our EBITDA margin decreasing by 46 basis points. In the third quarter, volumes in South Korea were flattish as we continue to offset ongoing industry weakness by outperforming the industry in both on-premise and in-home channels. Revenue and revenue per hectoliter both grew by mid-single digits, driven by our ongoing revenue management initiatives and a positive brand mix. Meanwhile, our EBITDA and EBITDA margin expanded substantially supported by a strong commercial performance and commodity tailwinds. We increased our commercial investment to bolster our competitiveness in the lead-up to Chuseok, one of the key selling periods in South Korea. From a portfolio perspective, we also unveiled recently Cass ALL Zero, South Korea's first nonalcoholic beer to emphasize a 4 Zero concept of 0 alcohol, 0 sugar, 0 calories and 0 gluten. And with that, YJ and I are here to answer any questions that you may have. Operator: [Operator Instructions] Our first question is coming from Lillian Lou from Morgan Stanley. Lillian Lou: Can you hear me? Ignacio Lares: Yes, very well, Lillian. Lillian Lou: I have 2 questions. One is about China. In particular, you mentioned in-home mix has been increasing but underlying -- and I would like to get more color about the brand performance, in particular, the major mega brands' performance relatively in third quarter. And also, what's the latest trend for Budweiser, Harbin Super Premium segments? That's my first question. I will ask the second one after that. Yanjun Cheng: Okay. This is YJ, Lillian. Thanks for your question. In terms of brand performance, let's talk about it by channel. By channel, on-premise got impacted by the industry in the past few years' weakness. We also got impacted as well. And also the new trend for the channel, which is in in-home O2O, that's one we have a gap, and we are working with the vendors, retailers to build a platform to fill the gap, what we have and which linked to the brand portfolio we have. The brand portfolio we have, which the consumer knows and love, we have rich portfolio. For the -- we've also focused on innovation to meet the consumer needs by channels, for example, Budweiser, fits the in-home channel, it created a 740 ml, a bigger can, which is a quite good performance in the in-home channel. And also in terms of O2O, we also create a Bud Magnum 1-liter can to fill the gap and the channel, O2O. And for the Super Premier, we see the O2O trend, the performance is quite good. We have a rich portfolio of Super Premier as a company we are. And give example, Corona, we also developed a full open-lid can, not only bottle with lime but also able to allow the consumer to drink Corona with lime in a full open-lid can. So those are -- talk about brand linked to the channel with the innovation. See the gap we have. See the soft weakness that we have in the Premier. Those are the actions we see -- we take in terms of channel investment, cooperation and also the innovation we develop. We see good trend on this. And also for the Core+, we are working hard on it. And we do have a very good example, the benchmark in Korea. You see the cost, so priority, I think to the innovation. There's a big innovation, big best practice we're going to apply and learn within the APAC. So -- but I try to break this by channel linked to the innovation and the gap we have, the action we take, investment we take, best practice we learn from Korea to be able to answer your question. Thank you. Lillian Lou: Thanks, YJ. My next question is about Korea. In Korea, we understand that the whole industry demand is still pretty weak and Budweiser and Cass are gaining market share. I'm trying to understand what is the latest demand trending into fourth quarter and next year and reacting to that, what the competition dynamic could shift to. Ignacio Lares: No, thank you for the question, Lillian. I'll take that one on Korea. So you're correct that the total industry remains soft, right, given the macroeconomics. The demand has been soft now for several quarters. If you take a look at maybe the economic indicators, we've seen CPI stabilized, so inflation has stabilized and consumer sentiment actually has been improving sequentially over the past few months. However, by the same token, the savings rate, right, for consumers has been on the rise, and that's despite inflation being under control and actually, interest rates being cut in Korea as well. So consumers are effectively acting as if they're under some level of pressure, and they're prioritizing essential spending, which, of course, includes food and utilities within that category. So this consumer frugality trend or kind of short-term effect is currently, of course, impacting overall alcohol consumption as well as the natural structural trade up, right, that you often see from lower-priced alternatives, such as Soju, of course, into beer, which has been long standing in Korea. But even within this context, right, you still see pockets of growth within Korea. And so we see nonalcoholic beer growing. We see flavored beer growing. We see RTDs outperforming. So these are also gaining popularity as they are in other developed markets or more developed markets, right, which presents, of course, opportunities for us as well. Then from a competition perspective, the way I would look at it is, I mean, the summer and the Chuseok selling periods are usually the most active, right, in terms of promotional activity, investment innovations, and this year really has been no exception. In this context, we're very pleased with the commercial results from the South Korea team in the third quarter. They continue to gain market share in both the on-premise and in-home channels, and that was led, of course, by the Core portfolio and by Cass, which helped to offset, of course, the soft industry, right, the soft demand, as we just discussed. But I think most importantly, perhaps the fact that the brands are very healthy there, the innovation pipeline has been very effective at solving consumer needs, right, in the last couple of years. In Core specifically, of course, we've continued to increase consumer participation in the category via nonalcoholic beer, flavored beer and several other liquid innovations, including Cass 0.0, the Cass ALL Zero, of course, that I discussed in my comments earlier, and then different variants, of course, the Cass Lemon Squeeze as well, not to mention, of course, HANMAC's Extra Creamy Draft can as well. On top of that, we're still focused, of course, on continuing to lead premiumization, which we see as an opportunity as well given it remains under-indexed in Korea relative to other more developed markets. So I think as we move into this last quarter of the year and into 2026 with our brand portfolio healthy, with it being very well supported by the route to market we have there and by the very strong team in Korea, we see ourselves as ready to continue to lead beer industry growth across Korea for the future. So I hope that answers your question. Thank you so much, Lillian. Operator: Our next question is coming from Wenbo Chen from CICC. Wenbo Chen: I have 2 questions. First is about channel inventory. We have seen ongoing progress with destocking in the third quarter. So could you please share what's our outlook for the China market in the fourth quarter and the coming year? And do we expect a rebound in the selling performance? Ignacio Lares: Wenbo, no, thank you for the question. I mean you're correct. We've been proactively taking steps, right, to adjust or manage our inventory in the current business environment, and that's with the intent, of course, of ensuring the health of our route to market, right? And we've been doing that since about the late third quarter of 2024. Our inventories as of the end of the third quarter this year, third quarter '25 are now actually lower than they would have been in the same period of last year. And that's both in terms of absolute inventory and days of inventory, and we would expect this, of course, to be lower than the industry average. So we've made good progress, I think, on the inventory front thus far. Going forward, we'll continue to manage our inventory very attentively, so we don't give an explicit outlook, but we always want to make sure that we're on top of inventories and managing it very attentively. And there will be adjustments, of course, based on sell-out trend changes as we move forward. However, we wouldn't expect these to be necessarily as significant as what we have done, of course, over the past year. So I hope that answers your question, Wenbo. Wenbo Chen: Okay. And my second question is about the in-home channel. We have made great progress in the in-home channel this year, and you just mentioned our optimized product mix. Could you also share the current penetration level of the in-home channel across the business in the first 3 quarters? And also, what are the plans for the further expansion in the fourth quarter in the next year? Ignacio Lares: Yes. First, thank you for the kind words. We've been working very hard, as YJ also mentioned, right, on making progress in the in-home, which is a big priority for us. And of course, you can see that in many of our markets. Maybe the way we tackle this is, I mean, first and foremost, with increasing disposable income and market maturity across China, we would expect both the in-home channel to continue to grow and the premiumization trend to take more root there over time. And this, of course, offers us one of the largest opportunities to expand our business moving forward. When we look at the current -- to your point on penetration, current level of the off-trader in-home channel in China, it's directionally 60-plus percent of the industry. However, it only accounts for a little bit more than 50% of our channel mix, right? So we still have a big opportunity to expand our presence closer to the industry average. And we know that the in-home will continue to grow its share of industry, as I mentioned, as the market continues to mature. So we'll hopefully catch both, right? Close the percentage mix here and its weight will increase rather over time. Then from a brand and portfolio perspective, and YJ was alluding to this earlier, right, in retail, it's essential to have a full portfolio, right? And you need to have various packages at each critical price point to fulfill different consumer demands. We're very fortunate, right, to have the portfolio that we have available to us. And the brand power of that portfolio is actually significantly higher than our market share, right? So we know that it offers the potential to drive far more penetration that we have today. We have solid plans here, and we're going to continue to invest behind our mega brands with the strong mega platforms we have to achieve that. The teams also continued to make progress on the right packs, right? So it's important to have the right assortment, as we were discussing, at the point of sale and to have key price points covered. And the biggest remaining opportunity, as we've shared before and YJ mentioned earlier on the call, is really on Core+, right, which is particularly relevant in the in-home channel. Then from a route-to-market perspective, the key to successful in-home expansion is really to expand the high-quality distribution network to be able to cover more points of sale. We've been doing that over the past couple of quarters going wider and deeper even in geographies where we already have a well-established presence. So we're developing new Tier 1 and Tier 2 wholesalers to help us expand to more points of sale. This takes time, of course, as you need to recruit wholesalers and build capabilities, right, to ensure that you have the right picture of success in every in-home point of sale. But the teams are very encouraged with the progress here and maybe 2 proof points I would probably give are: one, the contribution of the in-home channel to our total volume and revenue has continued to increase, so that focus is driving us in the right direction; and second of all, when we look at the in-home channel, actually, Premium and Super Premium's contribution within in-home is now outpacing that of Chinese restaurants, right? So we're seeing the in-home channel premiumize as the teams exert their energy and their efforts there. So I would echo YJ's points, right? I would say the team has the right plan and the right initiatives in mind. There's progress already on several of the portfolio and route-to-market areas, and now there's just a lot of work to do, a lot of work to be done, right, to scale this with consistent execution in the quarters to come. So thank you so much for the question, Wenbo. Operator: Our next question is from Chen Luo from Bank of America. Chen Luo: So I've got 2 questions. Both of them are on China. The first question is about our branding strategy. Early this year, we heard about our commitment to developing the Harbin brand nationwide, and most recently, channel [ checks ] seem to suggest that we are making even further commitment to the same strategy. Considering the rise of the local and regional brands and the very niche brands in China recently, do we think Harbin is strong enough to compete, especially to compete in Guangdong province. So this is our stronghold province, but we now see big pressure of share losses to local brands. Do we believe local consumers are willing to switch from Zhujiang or Liquan to Harbin, which originated from Northeast in China? Are we going to develop some regional brands to bond with local consumers given the success of Sedrin [ Lychee ] in Fujian province? So maybe I'll stop here. Later, I will ask my second question. Ignacio Lares: Okay. No, thank you for the question, Luo Chen. Maybe let me start here. I think if we didn't have confidence in Harbin, right, we wouldn't have prioritized it for our first offering in the Core -- in the RMB 8 price point, right? So if you think about it, Harbin has been a national brand for years and has a broad presence nationwide across different channels, right? It's -- given the amount of time the brand has existed for, given the presence in multiple provinces, it's one of the few truly national brands in China. In Guangdong specifically, the brand has been there for a long time, and we've been developing the brand, particularly in the on-premise channels but also, of course, in the in-home more recently, focusing historically more on the RMB 6 price point. As we expand into the in-home, we chose Harbin Icy GD Zero Sugar priced at that RMB 8 price point [ in CR ] to kind of leverage the brand power of Harbin, both nationally but also in Guangdong, which actually stacks up very well versus other local brands. So we're, of course, bullish on Harbin overall in Icy GD, in particular, based on that starting point from a brand power perspective. And then as YJ mentioned earlier, based on the superiority framework we have in place, where we test liquid, packaging, positioning, communication and value with consumers, we know that we have a superior offering, right, one that should outperform other offerings in the market at the price point at which its being offered. So we know we have a strong horse in the race. From that perspective, the sales volume of Harbin Icy GD Zero Sugar, we also actually tested with consumers where the volume would come from. And actually, most of that volume is either sourced from existing consumers trading up within our portfolio, so moving up from RMB 6 such as Harbin Icy into RMB 8 or also successful conversions from other local competitor brands, right? And so the fact that it has both a functional benefit and a specific partnership behind it, right, with the NBA, so zero sugar plus NBA partnership, made it a superior offering, which is explaining a bit that advantage that it has against other brands. By the same token, you're right. China is a very large country, and you need more than one brand to be successful. Harbin Icy GD Zero Sugar represents our first offering in that RMB 8 price point, and it is a priority for us to capture growth opportunities with this brand, but we know that we will need a portfolio over time. In other places, we might complement our portfolio with other Harbin innovations. We, of course, have local brands that have innovation opportunities, as you mentioned as well. Beyond Harbin, of course, we've got Sedrin in Fujian, which is doing very well, and I'm sure you would have seen it during your most recent visit there, Nanchang in Jiangxi, Big Boss in Jiangsu, Double Deer in Wenzhou and so on and so forth, right? So we can also invest behind some of these local brands, and we have a very solid innovation pipeline across different regions, which is designed to be tailored for local consumer needs and should be complementary to what we're doing on the Harbin brand today. So I think from a brand and portfolio perspective, we're in a good place. I think the key element, going back to YJ's point, will be the expansion of our in-home coverage and distribution and the enhancement of our trade execution. So I think the better those 2 things are done, the more we will get it at the portfolio that I just mentioned. So lots of work to do but the teams are committed to the brands, and they're actually quite excited about the growth potential that they show at this point. So I hope that answers your first question. Chen Luo: That's very helpful. The second question is about the channel in China. Despite our progress with the in-home channel, the on-trade channel is still witnessing quite big declines. How are we going to sustain the sales momentum in the on-trade channel? How are we going to cope with the rise of the new channels amid the increasing channel fragmentation? Ignacio Lares: Well, thank you for the question. Yes. So I think there's a couple of things. It's more of a question of the magic of the and versus or, right? We need to do well in both channels. We've been somewhat conservative on our expectations on on-premise recovery because, of course, the trend for consumer occasions growing in the in-home continues, and it's been taking place at a similar rate for a while. So in terms of on-premise recovery, we haven't really seen a significant improvement yet. By the same token, we continue to sustain our investment in the channel. This is still a critical place, right, to do brand building, to have effective innovation launches, et cetera. And it's very important for the health of many of our wholesalers. It will be very important for us to continue to invest here, particularly for when the on-trade begins to recover as well. In the interim, though, we're focusing on the factors that are more inside of our control, right? We're closely working with the distributors to optimize packaging assortment, right? And so the launch of different packaging examples like the ones YJ gave before on Budweiser and Corona and also Blue Girl are tailored for that current consumption environment. We're also investing significantly in trade execution, so I think brand promoters, targeted food streets, essentially things that allow us to elevate the consumer drinking experience and promote on-premise consumption in the areas and sub-channels that have been more resilient within there. But you're right, in terms of emerging channels, right, the instant retail, O2O and e-commerce channels continue to grow. They're a big focus for us moving forward. The O2O channel actually conveniently skews more premium, which is beneficial, right, to our in-home premiumization efforts, and we benefit from having a full portfolio there. And of course, the contribution of O2O to our in-home sales mix is also increasing. So yes, we're engaged with our wholesalers to utilize these platforms to drive traffic, to promote different drinking occasions for our full portfolio and to capture growth opportunities. So I don't think we can choose one or the other. I think we need to do a good job of maintaining the on-premise, while building a stronger in-home presence, which we're doing very actively today. Thank you for the question, Luo Chen. Operator: Our next question is coming from Mavis Hui from DBS. Mavis Hui: My first one is on low-alcohol beer. On the back of rising health awareness, what could be our impending strategies on product innovation and advertising and promotion to further seize market share in low-alcohol products? And do we have some expectations on -- or the targets on the proportion of our sales coming from light beers or alcohol-free products in 5 years' time? Ignacio Lares: Thank you for the question, Mavis. Yes. So where I would start is, I mean, we constantly interact with consumers to get feedback on their needs, and then we innovate, right, to ensure that our portfolio is providing balanced choices that meet these needs. And we're seeing nonalcoholic and low-alcohol beers gaining popularity in many markets. If you look at APAC overall, the development of both nonalc and low alc is actually quite different by market. So maybe I'll cover it by country. I think if you go to China, nonalc and low-alc beer is still a niche market today, right? And consumers have many different nonalcoholic options, which can serve as great alternatives in nonalcohol-appropriate occasions. However, when consumers drink beer, they generally still prefer to consume alcohol, right? So we're here present with Budweiser 0.0, with Corona Cero as well here in China, but it's more with the intent of growing the nonalcoholic beer segment in the right way and preparing for the future as the China market matures. If you move to South Korea, it's a bit different, right? Nonalcoholic beer is gaining popularity, and we expect, of course, that momentum to continue. There, we have several nonalcoholic product innovations behind Cass, right? So we have Cass 0.0. We have the all-new Cass ALL Zero, which we mentioned earlier, and we have flavored variants, right, like the Cass Lemon Squeeze 0.0 as well. So we're seeing success with different offerings there, and all of these offerings are actually quite helpful because in both the nonalcoholic and low-alcoholic space, they're increasing consumer participation in the category. They're providing incremental volumes, right, to the team there, so they're helping us to offset some of that industry softness we discussed before. And they're actually also incremental to our profitability as well. So it kind of serves all 3 purposes. And then if we move to India, right, the beer market has been traditionally dominated by hard liquor and very high alcohol percentages, right, so 40-plus percent ABV products. Beer is growing in India and strong beer, so think 6% to 8% ABV are a big part of the India beer market today. However, there's a growing trend, right, towards lower alcohol products, which favors, of course, the growth of the beer category overall in India. And yes, within this context, nonalcohol beers have a role to play. They'll help to provide consumers in India more choices, right, to match their needs and their lifestyles. And our leading nonalcoholic offerings in India today include Budweiser 0.0, flavored Budweiser, which is Green Apple and Hoegaarden 0.0, right? So I think each of the markets is in a different place. We haven't shared targets at a -- by market level, but we have high growth ambitions across the board. It's just a question of taking advantage of market maturity to make sure we have the right offerings in the right place, and we lead the development of the nonalcoholic segment as well. Thank you for the question, Mavis. Mavis Hui: And my second question is about India. Can we have some more updates on the biggest barriers to scaling up faster in India aside from religious or cultural diversity? For example, would it be the route to market, regulatory hurdles or maybe consumer education? And where do we see the most untapped growth opportunities in the market over the next 1 to 2 years? Ignacio Lares: Thank you for the question, Mavis. Look, in India, we're focused on consistent and sustainable top line growth, first and foremost, particularly given the maturity level of our India business. And of course, we want it that to translate both to bottom line and cash flow growth as well. In India, we have strong growth momentum. The Premium, Super Premium revenue, which is roughly 2/3 of our business in India today, grew by double digits, both in the quarter and year-to-date, right, first 9 months of the year. And the Budweiser brand, of course, continues to grow ahead of the industry. Premiumization continues to be the most critical driver, right, of EBITDA performance as well. We delivered strong results with double-digit revenue growth and significant EBITDA margin improvement, which you would have seen in our APAC West results. And of course, admittedly, this was on a softer base in the second quarter last year, but we still see the benefit of strong premium growth in our quarterly results. In terms of the industry overall, year-to-date, it continues to grow, which is also helpful, of course. As you'll recall, India has very low per capita consumption, so that's what makes the opportunity so enticing long term. The industry is expected to continue growing, and that's both in volume and revenue terms, and that's actually even before we consider the impact of moderation initiatives, which we see as an opportunity to unlock an even more exciting future for India. And I mean we're encouraged by a few things we've seen in the last few quarters, right? So the number of points of sale in some states, including Uttar Pradesh, for example, have increased. In Uttar Pradesh, they actually roughly doubled the number of outlets that are allowed to sell beer, so there's more than 10,000 points of sale of beer now. Some states are experimenting with low-alcohol bar retail vans, which can serve beer or wine. And as these become allowed and they're introduced in some key cities like Noida and Lucknow, we see, of course, that picks up consumer demand. And then in Maharashtra, we've also actually seen positive changes for both excise as well as how beer distribution can be done. So we see some signs in different places that help to advance the industry moving forward. And then among things we can control even through that period, productivity is also an important driver, right, of our ambitions in India. That will help us to drive EBITDA margins. And the way we're doing it is the supply chain teams continue to make progress here by benchmarking our best-in-class small breweries in China, which are referenced, looking at initiatives that they can replicate there in India, and we see very good progress on these initiatives that are helping us to accelerate profitability. So it's a bit of these different buckets, but hopefully, that answers your question as well, Mavis. Thank you so much. Operator: Our next question is coming from Anne Ling from Jefferies. Kin Shun Ling: I have 2 questions, 1 for China and 1 for Korea and Taiwan. So first, on the China side, on the commercial investment, how do you allocate resources between the on-trade and off-trade currently? And management mentioned previously the mega platform investment in third quarter '25. So would you share with us what is the ROE when you compare to like some of the previous initiatives? And looking ahead, how do you plan to allocate ad spend or marketing spend across different channels, for example, digital platform, entertainment or sports events? That's my first question. Ignacio Lares: Okay. Thank you for the question. A few things to unpack here, so let me maybe try and break it down into components. I think the first piece on mega platforms, I think we're very fortunate, right, to have access to the mega platforms. That's one of the big benefits that we have. And these, of course, would not necessarily make sense to pursue on an individual country basis, right? So here, we're very lucky that they're relevant with consumers in many markets, and we benefit from 2 things. We benefit from, of course, a more manageable cost by taking on these mega platforms at a global level and if we undertook them, of course, ourselves for 1 or 2 markets. But then we also get the opportunity to activate them with different brands in different markets based on consumer preferences and needs, right? So that's helped a lot to make the mega platforms high ROI initiatives in general. And then, of course, good examples of that would be things like FIFA, the Olympic partnership and many music platforms, right, a good example being Tomorrowland, which we'll be doing in Shanghai, right, later in November. In terms of commercial investments by channel and how we think about them, going back to maybe the question earlier, right, we're sustaining our investment in the on-premise channels because we still see them as critical for route to market, critical for brand building. So despite, of course, the pressure on the on-premise channels, they still play a critical role. By the same token, the incremental investments that we're making are going more towards the in-home channels, right, and especially as YJ was saying before, the emerging sub-channels, so to all instant retail, e-commerce, right? So as in-home occasions continue to develop, we're putting a larger proportion of our spend in that direction. And then given, of course, the market, right, has been shifting quite a bit, we look to continue to remain agile in the context of that macro environment. So as channels recover, et cetera, we're actually in quite an easy position to increase or adjust our spend accordingly. Then in terms of marketing spend or marketing investment specifically, the brand power of our portfolio is the critical element for driving premiumization, right? So that's our reference for market share growth potential. And from that perspective, we look to continue to give differentiated offerings to our consumers and drive more value, right, for our premium brands with unique experiences. In the kind of 9 months of '25, our investment as a percentage of revenue increased, and that was driven mainly by marketing investment on our mega brands and behind our mega platforms, right? So they're the FIFA focus, right, for Budweiser, the music focus for Budweiser, the NBA sponsorship and campaigns for Harbin have been the places where we look to continue to create premium and kind of trend-setting experiences. And these need to be rooted, of course, on consumer passion points. The second piece has been around innovations, right? So launching the Budweiser Magnum 1 liter that YJ mentioned, the Corona full open-lid can as well that YJ mentioned, which give us a chance to increase category participation and develop new consumption occasions as well, right? So if you think about the Corona full open-lid can, it allows consumers to have a lime experience in a can in in-home setting, which is something that, of course, is a much nicer experience than without it. And then the third area of focus is increasing direct consumer communication, right, so with differences from media channels and points of contact, making sure we increase our consumer reach and contact frequency to deliver that innovation and that mega platform messaging in the right way. So we'll continue to invest in diverse marketing campaigns and innovations, and the goal will be to further bolster the brand power of the portfolio to continue to connect with consumers, obviously, across more occasions and then, of course, to increase our sales momentum as we move forward. Thank you for the question, Anne. Kin Shun Ling: Got it. Got it. And my second question is on -- back to the Korea and also like the Taiwan custom update. And so would you give us an update on the status on the 2 -- these 2 recent event? Number one is that the current customer tax dispute, first reported in Feb '24 and then like in June, you also have an update on that. So I would like to get an update on the Korean dispute. And the second is the impact from the antidumping duties in Taiwan for the 4 months from July. So we understand both are like small events but would love to hear some comments from you. That's all my question. Ignacio Lares: Thank you for the question, Anne. So on the Korea customs tax side, I mean, the dispute is ongoing. What I can share is what we shared via the press release, which is obviously in 2023, right, during the year ending 2023. Oriental Brewery, which is a wholly owned subsidiary in South Korea recorded USD 66 million nonunderlying charge, and that related to a customs audit claim, right, which is reported in our financial statements that year. During the third quarter of this year, right, so the period ending 30th of September of 2025, OB recorded an USD 18 million nonunderlying charge, and that was related to these same customs audit claims but for the remaining audit periods. So accordingly, the aggregate amount of nonunderlying charges that are related, right, to such claims is now USD 84 million, and we shared that the potential penalty exposure was not expected to be material to the company. As you're well aware, we continue to vigorously defend against the customs tax dispute, which, as we mentioned in the past, can be a lengthy and potentially multiyear process. And we remain committed to upholding the highest standards of compliance across all our operations as well. On Taiwan, specifically, the -- there was a provisional tariff, which, you're correct, which is more than 33%, which was announced back in June. Since then, the rate has been slightly adjusted by 2.5 percentage points down to 31.3% in the third quarter. And of course, we're closely following the situation and continue to monitor for further updates in the months to come. But that's the only update thus far, right, a small adjustment down in the tariff rate in the third quarter. I think the point for us on Taiwan is we value the Taiwan market, and our priority there is ensuring that our consumers and our customers have full access, right, without any disruption to our portfolio of beers, the full portfolio of beers, right, they choose from. So we continue to carefully assess actions to support our wholesalers and local consumers with that perspective in mind. So I think that's all I have for those 2 topics, Anne. Operator: Our next question is coming from Leaf Liu from Goldman Sachs. Ye Liu: Can you hear me? Ignacio Lares: Yes, very well, Leaf. Ye Liu: I also have 2 questions. The first one is on the product innovation in Korea. We indeed deliver quite strong results in Korea, especially with ASP up 5%. So won't you discuss how to look at your future premiumization strategy in Korea? Also, any specific color on the performance of all the great new products launched in the recent 2 years, as you mentioned, Cass Zero and -- 0.0, Cass Lemon Squeeze? And also, will we continue to see strength in ASP and product mix in Korea going ahead? Ignacio Lares: Thank you for the question, Leaf. I mean South Korea, as we discussed previously, it's one of the more mature markets we have in Asia and the Premium segment is still quite underdeveloped, right, versus other similar markets. And the price and margin ladders in Korea are historically much more compressed than in other countries, so consumers have been less aware of the reasons really to pay a premium price for premium products. And this, of course, means that the premium mix growth in the past was not as pronounced as it could be. So I mean, we've been making an extensive effort, right, to drive premium experience at an expanded price, Premium to Core. We've been doing that in the on-premise channel, leading with Stella Artois, but the rest of the Premium portfolio has been helping there, too. And you've probably seen, right, the Perfect Serve program that the teams have been executing with Stella draft. So the toolkits that we provide there to bars and restaurants make the consumption experience far more elevated than historically would be the case. They strengthened our Premium brand equity and they allow consumers to pay more, right? And so in the on-premise channel, of course, the weight of premium beer has increased as a result. And actually, more recently, Stella Artois has taken the #1 position in premium draft as well, which the team is very proud of there. So in the past 3 years, it's really been about helping consumers to see the value of premium products, and this helps to expand the price ladder for premium products moving forward. And in terms of innovation or new products, right, we share your excitement about innovation in Korea. So thank you for the kind words. HANMAC Creamy Draft, which is priced at a premium to Cass, is gaining popularity in the on-premise channel. So the teams are quite pleased with that as well, and we continue to expand its presence in bars and restaurants. In the third quarter, actually, HANMAC grew by double digits, so it's reinforcing its position within the portfolio there. We also continue to increase consumer participation, as I was saying earlier, via non-alcoholic beer and some of the other flavored innovations, so Cass 0.0, Cass ALL Zero and the different variants of Cass Lemon Squeeze are doing very well there, too. So yes, we're very pleased with the healthy brand portfolio, the strong route to market and the people capabilities we have there, and we're excited to continue to lead the beer industry growth in Korea moving forward. Thanks for the question, Leaf. Ye Liu: That's very clear. And my second question is on group level cost. So how to look at any potential cost-benefits into next year with our 12-month rolling hedging scheme? Ignacio Lares: I mean, through the first 9 months of the year, our cost of goods on a per hectoliter basis has roughly been flattish, right, remained largely flattish. In fact, it decreased by 0.4%. So we've been taking advantage of commodity tailwinds this year, right, which is a product of 2024 hedged pricing, right, versus 2023 as well as the efficiency improvements that you count on us to do, and that's been partially offset by country mix, right, with Korea outperforming relative to China -- Korea and India performing relative to China. We've not really made any changes to our commodity hedging strategy, so you can still think directionally speaking around packaging material cost trends in the context of a roughly 12-month hedging policy. If you look at spot pricing, right, for the last few months, barley has continued to decline or been softer than the previous year even if in a more muted rate, so I think more like low single-digit decline. If you look at aluminum pricing in the market, it's continued to increase in 2025 versus 2024, so that one presents a bit of a headwind. It's now sitting in the high USD 2,000s per ton, whereas it was more low to mid-2,000s, right, at kind of bottom. Energy is a bit harder to predict and to hedge, but it's been mostly neutral thus far, right? So we don't really give a guidance, but if you just took a look at 2025 pricing versus 2024 pricing and you used a fairly simple view of hedging, you'd expect probably a slight headwind, right, in commodity pricing. As, of course, given we're already late in '25, we would be mostly hedged for next year. But I think the reality is the way we structure our business, and we've said this in the past, is to leverage our efficiency improvements and cost management initiatives to be able to manage, right, these types of changes. And given commodity escalations fairly moderated, it wouldn't be a stretch for us to ask our operations, right, to do their best to offset as much of the impact of commodities moving forward. So if everything goes this way, that should leave us a premiumization as ideally the most meaningful driver or variable, right, for cost of goods escalation as we move forward and look into 2026. So thank you for the question, Leaf. Operator: In the interest of time, our final questions will come from Linda Huang from Macquarie. Linda Huang: I have 2 questions regarding China. The first one is regarding for the net revenue per hectoliter because during the third quarter, we found that it's under the bigger pressure compared to the first half. So can you give us some of the context what is driving this? And then how do you see this trend going forward? Ignacio Lares: Yes. Thank you for the question, Linda. I mean, in the third quarter, our net revenue per hectoliter decreased approximately 4 percentage points, and this was a consequence of increased investments behind brand activations and our innovations with a focus, of course, on expanding our in-home presence, coupled with an adverse brand mix, particularly as we managed inventories as well. I mean we remain very agile in our investments, and within the context of the current consumption environment, that means where, how and how much we invest. If we look at the third quarter specifically, a greater proportion of our investments actually went to through-the-line campaigns, which were designed to provide as much value as possible to our consumers, to drive traffic for the in-home and to support our route to market in that regard as well. So you would have seen a lower net revenue per hectoliter with, on the other side, kind of a reduced sales package investment at the same time. So you could think of it as a bit of a switch in kind of investment mechanisms or areas of focus, right, with maybe more above-the-line or gross profit investment and less sales and marketing or SG&A investment. Despite the increased investment, though, both behind brands and innovations, the contribution actually of our Premium and Super Premium segments to our total revenue continued to increase in the quarter. And yes, equally important, I mean, we continue to maintain pricing discipline while investing, right? So we'll look to lead and grow the category and drive value for our consumers in a disciplined way. And so yes, as we move forward, we still expect premiumization will continue to be the primary driver for both top line growth and for margin expansion as well. Thank you for the question, Linda. Linda Huang: Yes. So the second one is regarding for industry because I also noticed that the private label trend is taking off in China, and there's many retailers right now, they also have their own beer brands. So does the company have any plan to work as an OEM with those retailers? Yanjun Cheng: Yes, Linda, this is YJ. Let me take this question. In terms of OER, I think the major thing that are linked to the people who like to have retail, like to have OEM is why is the consumer want to have a differentiation of the beer. And second one is with the current industry, the extra capacity and the efficiency in the breweries. So thanks for everybody really to our Fujian market and Fujian brewery back in the week of September 15. So you already see we are the company, how a rich portfolio can provide consumers the differentiation of the brand and package. So we have a big advantage in terms of differentiation that can meet consumers' needs. And second one, see the capability in the brewery and the efficiency we have in Fujian and also linked to the new technology, linked to the high quality growth. So we do have this kind of advantage in terms of differentiation of the brand and also efficiency improvement, the excellent program and the high technology we have. So that's all the advantage we have regard to make this happen. And let me summarize what we just talked about. First, in terms of brand portfolio, we have rich -- we got to strengthen this further to the consumer. And our route to market not only on-premise but also the new channels, in-home and O2O, that are going to invest and build our platform. And third one is the most important for us, after we have a plan, we have our initiative, the key is execution. So the execution, I'm talking about across 3 R: responsibility, resources and recognition. We're going to have the team on the field to own the plan and initiative, which is a very clear target and KPI to be able to track it. In terms of the resources, we're going to further invest the channel and also the brand. So we're going to use an excellent program to develop the best practice and the toolkit to help people to be able to implement the target we have. And at the end of the day, we're going to recognize people who's better, who's not good and recognize people and to reward and consequent people clearly. So those are the 3 I talked about. We also developed a platform we call [ One Bud ] platform between commercial and the supply chain to work together to make this happen. We are on the stage to build a 1-year plan for next year, so our direction is quite clear, keep the momentum and build -- see the gap we have, build a plan and the portfolio, the route-to-market execution and to have the next quarter as a bridge to bring our performance to be stabilized and further get -- improve time by time. So I want to use this opportunity to thank the analysts, investor for your attention to our performance. We're going to speed up the speed, focus and the discipline of the execution. Thank you. Operator: This concludes our Q&A session today. I would like to turn the conference back over to YJ for the closing remarks. Yanjun Cheng: Thank you, Rick. As discussed on the call today, we recognize that our results are out of sync with the quality of our brand portfolio, route to market and people. We are actively correcting this by focus on strengthening our key portfolio offerings, speeding our in-home route to market and enhance our execution to capture future growth opportunities in China. We are pleased with the results of our business outside of China and looking forward, continue their momentum as we improve our results to be more in line with the potential of our business. Thank you all for joining us today, and I'm looking forward to speaking to you again soon. Operator: This concludes today's results call. Please disconnect your lines. Thank you.
Operator: Ladies and gentlemen, welcome to the Befesa Third Quarter 2025 Results Conference Call. I am Jota, the Chorus Call operator. [Operator Instructions] The conference must not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to Rafael Perez, CFO of the company. Please go ahead. Rafael Perez: Good morning, and welcome to the Third Quarter 2025 Results Conference Call of Befesa. I am Rafael Perez, CFO of Befesa. This morning, I'm joined by our Group CEO, Asier Zarraonandia. Asier will start with an executive summary of the period, and then he will cover the business highlights of the Steel Dust as well as Aluminum Salt Slag Recycling businesses. I will then review the third quarter financials by business and we'll cover the evolution of commodity prices, our hedging program and finally, cash flow, net debt, leverage and capital allocation. Asier will close this presentation providing an update to the outlook of the rest of 2025 as well as an update on our growth plan. Finally, we will open the lines for the Q&A session. Before getting started, let me remind you that this conference call is being webcast live. You can find the link to the webcast of the third quarter 2025 results presentation on our website, www.befesa.com. Now let me turn the call over to our CEO. Asier, please. Asier Zarraonandia Ayo: Thank you, Rafa. Good morning. So moving to Page 5 of the business highlights. Befesa has delivered strong third quarter results, continuing the solid trend seen in the first half of the year. Our performance demonstrates once again the resilience of our business model and the benefits of our diversified operations. Adjusted EBITDA for the first 9 months of 2025 reached EUR 174 million, up 15% year-on-year. EBITDA margin improved significantly to 21.3% in Q3 2025 compared to 16.6% in the same quarter last year, reflecting a strong operational efficiency and disciplined cost management. Financial leverage was further reduced to 2.6x in September 2025 compared to [indiscernible] a year ago, highlighting our continued focus on deleveraging. Net income and earnings per share also increased sharply. EPS rose 143% year-on-year to EUR 1.52, reflecting strong profitability and improved financial performance. In our Steel Dust business, we achieved a strong recovery in Q3 volumes following the maintenance shutdowns carried out in the first half of the year. Performance was further supported by lower zinc treatment charges and favorable zinc prices. Our secondary aluminium business continues to be impacted by a persistently challenging environment, driven mainly by weak automotive market in Europe as well as the usual summer period maintenance activities in the auto industry. The Palmerton expansion project is developing as expected with the second kit successfully hot commissioned in July 2025. Looking ahead, we confirm our full year '25 EBITDA guidance in the lower part of the initial range of EUR 240 million to EUR 265 million, as we already commented in July. We expect a strong Q4 driven by higher EAF dust volumes across all markets. Our financial leverage is expected to fall below 2.5x by year-end, supported by solid cash generation and disciplined capital allocation. Growth CapEx will continue to focus on the Bernburg project following the substantial completion of the Palmerton expansion. I will comment on the outlook in more detail later. Going to the Page 6, Steel Dust business highlights. In Europe, steel production in the third quarter of 2025 remained depressed, down 4% year-on-year, mainly due to the weak manufacturing activity and soft demand in the automotive and construction sectors. Despite this, our steel dust deliveries from EAF steel customers continued to in line with the 2024 average and solid levels. Operationally, the European plants performed strongly, achieving a 94% load factor in the quarter. We expect strong volumes to continue into Q4, supported by healthy inventory levels and no major maintenance stoppage planned. In the U.S., steel production increased by 4% year-on-year in the third quarter, driven by infrastructure spending and tariffs supporting domestic steel demand. Our U.S. plants operated at an 80% load factor in Q3, the highest level since the acquisition and reflecting a gradual improvement. The 2 new kilns in Palmerton have been fully operational since July 2025 and new EAF steel supply contracts are ramping up progressively through the Q4 following some initial start-up delays. At the same time, cost reduction measures at the U.S. zinc refining plant continue to deliver the expected improvements in asset profitability. In Asia, volumes in Turkey increased by 40% year-on-year in Q3, recovering strongly after a weak second quarter affected by maintenance shutdowns. In Korea, the load factor reached 77% in the first 9 months of the year, up 11 percentage points year-on-year, driven by higher domestic deliveries and a strong operational evolution. In China, operation continued at low utilization levels with earnings around breakeven, reflecting ongoing market weakness. Moving on to Page 7, business highlights for the Aluminium Salt Slags Recycling business. In our aluminium business, performance has remained mixed in the third quarter, starting with the Salt Slag Recycling business, operations has continued to perform strongly, running in line with previous quarters. Utilization levels remained around 90% for the first 9 months, demonstrating the robustness and efficiency of our assets. As in the previous years, we carried out the scheduled maintenance stoppage during the summer months in Q3, and we expect a stronger operational performance in Q4, driven by higher volumes. In our secondary Aluminium segment, the market environment continues to be very challenged. The European secondary aluminium industry remains under pressure with tight metal margins and limited production activity, largely as a consequence of the ongoing weakness in the automotive sector. Q3 is typically a softer period due to seasonal maintenance shutdowns in the industry and this year was not exception. Despite these headwinds, we continue to focus on operational discipline, cost efficiency and customer diversification to preserve profitability and position the business for recovery once market conditions improve. Now Rafael will explain the financials in more detail. Rafael Perez: Thank you, Asier. Moving on to Page 9, the financial results for the Steel Dust segment. Steel Dust delivered EUR 154 million of adjusted EBITDA in the first 9 months of the year, which represents a 27% year-on-year improvement compared to the 9 months of the previous year. EBITDA margin improved from 20% to 26% in the period, mainly driven by better pricing environment on treatment charges and zinc hedging. The EUR 33 million EBITDA improvement has been driven by the following factors: the year-on-year impact from volume has practically no impact with similar plant utilization at a good level of around 69%. As we already highlighted, there are no major maintenance stoppages in the second part of the year in large assets. We enjoy high EAF gas inventory levels across all our assets, and we expect an increase in customers deliveries in the U.S.A. for new contracts that are gradually starting in this quarter. On price, strong positive EBITDA year-on-year impact of around EUR 28 million, with the 2 main price components being around EUR 15 million of positive impact from higher zinc hedging prices, 5% higher year-on-year; and secondly, EUR 13 million positive impact from the lower treatment charges, which was set at $80 per ton for the year 2025. On costs and others, a net EUR 4 million positive impact is largely driven by the lower operating cost in the zinc smelter in the U.S. as well as lower average coke price in the period. These 2 positive effects have been partially offset by higher inflation costs in the recycling business, as well as unfavorable FX. Moving on to Page 10, financial results of our Aluminum segment. Aluminum Salt Slag delivered EUR 23 million of EBITDA in the first 9 months of the year, which represents 26% year-on-year decrease compared to the EUR 30 million in the same period of the previous year. The year-on-year EUR 7 million negative EBITDA development was mainly due to the lower aluminum metal margin as well as slightly higher operating costs and energy prices. On volumes, overall marginally negative EBITDA year-on-year impact during the 9 months with a decrease of EUR 1 million. Our recycled volumes of salt slag remained pretty much in line with the previous year. With these volumes, we operated our plants at a strong capacity utilization rates of about 89% in salt slag and 77% in secondary aluminum. With regard to prices, negative EBITDA year-on-year impact of about EUR 4 million, as explained mainly driven by the pressure aluminum metal margins versus the previous year. This compression in the aluminum metal margin is caused by 2 factors. On the one hand, there is a scarcity of aluminum scrap in the European market, driven by lower overall industrial activity as well as higher exports of alu scrap away from Europe. And secondly, a very weak automotive industry in Europe, which impacts demand of secondary aluminum from automakers. However, this was partially offset by higher aluminum F&B price with an increase of 2%, averaging EUR 2,372 per tonne. On cost and others, increased pressure from higher operating energy-related expenses, mainly through the higher energy prices of electricity as well as natural gas. Moving to Page 11, zinc prices and treatment charges. Regarding zinc price during the 9 months of 2025, zinc has been trading in the range of $2,520 to $3,020 per tonne, showing particularly positive trend in the last months of 2025. The average of 9 months zinc LME prices have been $2,768 per tonne, which is 3% above the same period of the last year average, [ being ] the average of the Q3 $2,825 per tonne compared to $2,640 per tonne in Q2. On the right-hand side of the slide on treatment charges. In 2025, treatment charges for zinc was set in April at $80 per tonne for the full year 2025 compared to the $165 of the last year, marking an all-time low record level. This deduction is driving earnings significantly in 2025. Turning to Page 12 on hedging. Our hedging book covers until the first quarter of 2027, close to 15 months of hedges in our books at increasing hedging average prices of EUR 2,640 in 2025 and EUR 2,655 per tonne in 2026. This level of hedging represents an all-time high level of hedging for Befesa, providing stability and visibility over the coming quarters. We are taking the opportunity of the recent rally on the zinc price to close volumes for the first quarter of 2027, and we continue to monitor the market to close volumes for the remainder of 2027. Turning to Page 13, Befesa energy prices. The page shows the evolution of the 3 energy sources that we have in Befesa, coke, natural gas and electricity. With regard to coke price, which today represents around 60% of the total energy bill, the normalization that started in the second quarter of 2023 continues throughout the first 9 months of 2025. Average coke price in the third quarter was about EUR 153 per tonne, consolidating its downward trend compared to the previous quarters. Regarding electricity, which today accounts for around 30% of the total energy expense, prices have rebounded to EUR 103 per megawatt hour in the third quarter of 2025. after a significant correction in the second quarter of 2025. And gas prices continued their normalization in the third quarter of 2025 to EUR 46 per megawatt hour, reversing the upward trend observed in the last year. Now turning to Page 14, the cash flow results. Operating cash flow in the 9 months of the year has reached EUR 115 million, which represents a decrease of 3% compared to the same period of last year due to a positive tax effect that we enjoyed last year. On the EBITDA to cash flow bridge, starting with EUR 174 million of adjusted EBITDA and walking to the left. Working capital consumption amounted to EUR 42 million in the first 9 months of the year, mainly driven by the usual first quarter working capital consumption as well as the usual Q3 impact on secondary aluminum, driven by the slowdown in the auto industry. As in previous years, most of this working capital will [ revert ] into the fourth quarter. Taxes paid in the 9-month period came in at EUR 17 million as a result of the final tax assessment of previous year in comparison with the EUR 4 million collected in the period of last year, resulting in an operating cash flow of EUR 115 million in the first 9 months of the year. On CapEx, during the period, we have invested EUR 30 million in regular maintenance CapEx across the company, EUR 23 million of growth CapEx related to the refurbishment of Palmerton plant in Pennsylvania, which is now practically completed and [ Bencpur ] (sic) [ Bernburg ] expansion project in Germany. In summary, CapEx of EUR 53 million in the quarter. For the full year, we expect total CapEx to be around EUR 80 million, which is in the lower part of the range of EUR 80 million to EUR 90 million. Total interest paid amounted to EUR 26 million and the total borrowing amounted to EUR 22 million in the first 9 months of the year. For 2025, the EGM has approved in June to pay a dividend of EUR 26 million in July, equivalent to EUR 0.63 per share or 50% of the net income. In summary, final cash flow amounted to minus EUR 13 million in the first 9 months of the year. Cash on hand stood at EUR 90 million, which together with our EUR 100 million undrawn revolving credit line provides Befesa with almost EUR 200 million of liquidity. Gross debt at the end of September stood at EUR 700 million. Net debt stood at EUR 610 million compared to EUR 662 million in the same quarter of last period -- last year, resulting in a net leverage of 2.59x at closing of the quarter, a strong improvement compared to the 3.36x at September 2024. Turning to Page 15, debt structure and leverage. Following the refinancing back in July 2024 and the repricing in March this year, Befesa today has a long-term capital structure with optimized financial cost. We will continue reducing the leverage throughout 2025 to keep it between 2x and 2.5x by the end of the year and going forward. We expect net leverage to be below our target of 2.5x by the end of the year. To do so, we are prioritizing growth CapEx in those projects that are delivering immediate cash flow upon completion like the approved projects of [ Bernburg ] and other market opportunities that could appear. Also, we will keep the annual regular maintenance CapEx around EUR 40 million to EUR 45 million in the coming years. On dividend, we are committed to maintain our dividend policy to pay between 40% to 50% of the net income to shareholders. Now back to Asier on outlook and growth. Asier Zarraonandia Ayo: Thank you, Rafa. Looking at the full year, we confirm our EBITDA guidance in the lower part of the range of EUR 240 million to EUR 265 million, as we previously communicated and in line with the current market consensus. This will be achieved through increased utilization driven by a strong volume in EAF across all markets, along with currently favorable market conditions, low treatment charges, supportive hedging price, declining coal prices. Total CapEx in the year will be between EUR 80 million to EUR 90 million with around EUR 45 million on regular maintenance and the remaining on growth. Net leverage will be below 2.5x by the end of the year, and EPS is expected to be higher than 2, representing an increase of at least 57% in the year. Moving on to Page 18 on Palmerton. In the United States, our Palmerton plant has been successfully refurbished, marking a key milestone in our strategic growth road map. Both kilns are now fully operational, positioning Befesa to capture the significant growth expected in the U.S. EAF steel dust market over the coming years. U.S. electric arc furnace steel capacity is projected to increase by more than 20% by 2028, equivalent to around 18 million tons of new steelmaking capacity. This expansion translates into over 300,000 tons of additional steel dust, creating a substantial opportunity for Befesa's recycling operations. With a total installed capacity of [ 643,000 ] tons across our U.S. plants, we are now well positioned to leverage this growth. Our goal is to progressively ramp up utilization from below 70% today to around 90% by 2027, as new electric arc furnace capacity comes online. The combination of our [ modernized ] Palmerton facility, long-term customer relationships and strategic geographic footprint [ near key steel procedures ] ensures that Befesa is ready to capture this next phase of growth in the U.S. market. Bernburg, moving to Page 19. This is another important milestone in Befesa's growth journey, as we continue to strengthen our aluminium business and expand our recycling capacity in Europe. From a timing perspective, all permits have now been obtained and construction officially started in August 2025. We expect a 12-month construction period followed by a 6-month ramp-up phase in the second half of 2026. On the commercial side, we have already secured strong customer support. Overall, the Bernburg expansion is progressing fully in line with plan. Thank you very much. Rafael Perez: Thank you, Asier. We will now open the line for your questions. Operator: [Operator Instructions] The first question comes from the line of Shashi Shekhar with Citi. Shashi Shekhar: I have a couple of questions. My first question is on capital expenditure. Could you please guide us which project or projects are you planning to undertake post the Bernburg expansion project? And what is the total CapEx guidance for 2026? My second question is on China. Can we expect any improvement in the utilization rate in 2026? Rafael Perez: Thank you, Shashi. I will take the question on CapEx and Asier will explain you the China market environment. But on CapEx, as I said, Palmerton is almost completed or completed and the focus at the moment is on Bernburg. Bernburg is a EUR 30 million total CapEx. I would say probably 40% this year, 60% next year. On top of that, you have to consider the regular maintenance CapEx of EUR 40 million to EUR 45 million, okay? Still early to say a guidance for next year, but with these numbers, you can figure it out. Beyond that, there are 2 projects in Europe. One is the expansion of Recytech to capture the growth of the EAF market in Europe. And the other one is a brand-new salt slag plant in Poland. Those 2 projects, we still haven't got a time line. These are market opportunities that we are envisaging the market, but they still haven't been approved by the Board, and we still haven't got a time line for those. And Asier will comment on China. Asier Zarraonandia Ayo: Yes. Thank you for the question, Shashi. Yes, the question for China is always there. And well, we have to say that basically, the '25 year is coming basically the same than '24. The utilization level of the mini mills, the electric arc furnace at the areas are very, very low, and we are at a breakeven point. Question for '26. Again, it's early, as Rafa said, with the CapEx, but I think that it's not final, that is going to change a lot. But well, the year is long and probably we need a little bit more time to see if the real estate of the construction business start to grow a little and that means more volume. So it's still early, but I cannot say that it's going to be a change -- a very significant change in '26 right today. We will update further later. Operator: The next question comes from the line of Lasse Stueben with Berenberg. Lasse Stueben: Just a question on the secondary aluminum business, just to get a feeling for kind of the near-term outlook. It seems to have sort of rolled over in the third quarter. So I'm just wondering if -- is there going to be somewhat of an improvement in Q4 or also generally into '26 I guess, structurally, there's some problems with European automotive at the moment. So just wondering, want to get some comfort on the outlook also for '26 and beyond. And then also on Bernburg, following on from the weakness in sector aluminum, what are thoughts -- clearly, you're pressing ahead here, but I'm just wondering, given the issues in European automotive, can you give us some comfort here that that's kind of the right move and you're not investing into something which is going to struggle for years to come? Asier Zarraonandia Ayo: Thank you, Lasse. Fair question. Well, obviously, this year, the secondary aluminum business is a very challenged for us and is obviously affecting to our results. The fact is that the automotive sector in Europe is foreseeing this situation in the secondary aluminum because pressing the volumes, pressing the margins down and it's a difficult situation. It's not something new, has happened in the past as well. And well, finally, the market start to absorb this level and be back on better margins. And so starting for the 2 themes. Fourth quarter, well, we don't see a very strong quarter in terms of results, but I do think that probably it's going to be better than the Q3 because the volume even in the Q3 is lower because the maintenance stoppage and now we are going to have more volumes and the last part of the year normally for inventories and other matters is going to be better than the Q3, probably in line with the Q2 or something like that. I mean it's like we don't hope a big recovery. '26 is a different history. I think that '26 the situation is going to be definitely better, not like a very good year, but probably some recovery in the normal activity of the automotive. But linking with the question of Bernburg, which is a logical question is like the Bernburg project, the increase of capacity is linked to not automotive demand. It's linked to the food demand, cans and other with a customer, with a tooling contract with a new customer. So this is going to deliver positive results for sure, because the volumes are there. So all in all, Bernburg new contribution, even if it's going to be half year and some recovery. We do think that in the '26 year it's going to be clearly a better year than '25 in the secondary aluminum, not at the best of the series for sure, but it's going to help us to keep -- keeping with the good results in the global Befesa EBITDA and rest of the other matters. Rafael Perez: Just, Lasse just one additional comment on what Asier said regarding Bernburg, which is a logical question to have. Let's not forget that the demand for secondary aluminum in the long term is very positive and everybody agrees that there's going to be more than 50% growth demand of secondary aluminum over the next 10 years. This is a structural trend. And what we want to do with Bernburg is to capture on that trend. And Asier said very well, it's about diversification from the auto industry into the beverage cans industry, which is also a good thing to have in the company. Lasse Stueben: Understood. And if I may, just a follow-up on CapEx. I mean, based on your comments, I mean, could it be that CapEx next year is well below EUR 80 million just based on your comments? Or is there something potentially that could come through, which kind of pushes you up to that kind of EUR 80 million that you mentioned? Rafael Perez: Fully agree, Lasse. I think CapEx next year will definitely be lower than this year. We still are in the middle of the budgeting process for the next year, which we do bottom up, but clearly below this year. And I think, yes, EUR 80 million will be a cap on the CapEx for next year, definitely. Operator: The next question comes from the line of Olivier Calvet with UBS. Olivier Calvet: Hope you can hear me well. I have a couple of follow-ups. Firstly, on the CapEx budget from 2026. Can you help us think about your pecking order of projects for growth? Are we -- are you rather looking more to EAF expansion in Europe or salt slag expansion in Europe? Or are you rather looking at potentially using your cash flow for further deleveraging or returns to shareholders? That would be the first question. Rafael Perez: Thank you, Olivier. I think I have already tried to answer that. But yes, basically, the focus at the moment is on free cash flow generation and deleveraging and those growth projects that we have clear visibility, like Palmerton is almost completed and Bernburg, as we have been commenting before. On top of that, you have to consider the recurring maintenance CapEx. We don't envisage any investment in the expansion of EAF in France or in the salt slag plant in Europe in 2026, okay? So that's what we can say. That will definitely help deleveraging within our target of between 2 and 2.5x, and maybe we will get closer to 2x rather than 2.5x. Olivier Calvet: Okay. And then the second question would be on the EBITDA guidance for this year. I guess mostly on the high end of the EBITDA guidance. What would you need to see basically to get to that level? Asier Zarraonandia Ayo: Well, definitely the high end is really not realistic for today, I want to say like that. The question here is that we are going to be in the range of EUR 240 million to the midpoint depending on the final production, which are coming very strong in October. Of course, the pricing, I mean, you have seen the zinc prices in October. So depending on how they develop could help us to get more. And again, the recovery of aluminum that for sure, in the salt slag, which is another important business is coming for sure, better because they are not the maintenance stoppage. So well, we have to determine what is the final EBITDA level in this range. What is true is that you think in the very high part of the range, what we explained there is that at the beginning of the year when we do the guidance, well, depending on basically those things, how the aluminum business will perform, zinc prices during the year and other matters that are not happening. So at the end of the day, I think that that's why we are confirming the guidance and the guidance is the reference, but probably among the low part, between the low -- sorry, the low part and the medium part. This is the idea. Rafael Perez: Which is Olivier in line with the market consensus at the moment, as you know very well. There are 3 main elements that will make, as Asier explained, be on the higher part secondary aluminum is weaker than what we expected. Also, FX is unfavorable. And then obviously, in the higher part, we always consider a much higher zinc price environment, okay? Olivier Calvet: Makes sense. Okay, cool. And just the last one. Could you give us an update on the operating issues of one of your competitors in Mexico? Have you seen additional steel dust contracts as a result of their issues or --. Asier Zarraonandia Ayo: Well, yes, we listen about that and we cannot comment about the problems of those guys, but more than what we can treat the same than you. It's not a big effect at the beginning. They are more or less operating well and there are no changes in the market. If it is going to come more change because the problems persist or no, we will see. But in this moment, it's not a big issue and not affecting us in a positive way, obviously, not in the negative because it's not our task. Operator: The next question comes from the line of Fabian Piasta with Jefferies. Fabian Piasta: Just got a question on the treatment charge going forward. I mean, on the chart, you were showing zinc price is increasing or very favorable this year that points towards like more stable, stable treatment charge, but spot treatment charges have increased rapidly. Do you have any visibility on where we might move? So what would be the swing factor? Are we thinking about the 10% increase, 20% increase? What are you seeing in the zinc market? Second question would be, given the inventory levels, do you expect any spillover effects into the first quarter of 2026? That would be it for now. Asier Zarraonandia Ayo: Thank you for the question, Fabian. Treatment charge, well, I would like to know exactly what is going to be the figure for next year. What the rumors, salt, everything is commenting in the LME Week in London and so on is that, obviously, nobody knows what happens. But based on, as you say, in the spot and everything, perhaps levels of $120, $130, $150 max could be on the place there. We will see. I mean, our steel very good treatment charge for us for the miners position because obviously we are one of the lowest, but probably definitely are going to be higher than this year because it's the lowest ever, right? And probably to keep $80 will be very, very difficult. So we'll see. I mean, probably, as you say, 20%, 10%, 20%, more 20% of increase over this year probably is a headwind that we are going to have next year. And... Rafael Perez: Can you remind Fabian, the second question, please? Fabian Piasta: Yes. The second one was basically on your steel dust inventories, whether you're expecting some spillover effects into 1Q 2026? Because I mean, when I'm looking at consensus numbers on full year sales, that would imply a revenue increase of 27% in the fourth quarter. So is there still like some dry powder for 1Q, even if you get these volumes through in the fourth quarter? Asier Zarraonandia Ayo: Well, once again, we will see how we finish the year. But I think that the production of the steelmakers is still under pressure but depending on the geographies starting to be a little bit more positiveness for the next year in terms of orders and so. And the inventories are now normalized because we increased the level in the second quarter because the maintenance stoppage now are normalized. So I don't think the first quarter is going to be affected, but nothing very strange. So well, again, '26 is -- we were expecting question about '26 because we are in October that is logical. But at the end of '26, we need a little bit more time to develop, but no reasons to believe that there's going to be a big change over the normal production out of, we have to start to include some maintenance stoppages because yearly basis for those are normally affecting. So all in all, we will see what is the level, but nothing very, very crazy or very, very strong. Operator: The next question comes from the line of Jorge González with Hauck & Aufhaeuser Investment Banking. Jorge González Sadornil: I have a couple of questions. And the first one, Asier, on regards of the expectation for Q4, I think you have just mentioned that the stocks that you have are now normalized after the strong Q3. This means that we should not expect a Q4 above Q3 in terms of the works sold or the steel dust process for the quarter or Q4 could still be above Q3? That would be my first question, please. Asier Zarraonandia Ayo: Thank you, Jorge. Now clearly, it's going to be above Q3. I mean the fact the inventory history was affected more than the Q3 because normally, over the years, we have some maintenance stoppage. And you see the series, Q4 always is the strongest of Befesa, we hope the same. I mean now with the deliveries and the normal inventories, we are willing to run very strong in Q4. And the reason is as always because there are no maintenance stoppage. So the Q3 has been very strong. And I think that we think that the Q4 is going to be even more, not a lot because we are running at very high utilization rates. But no, no, definitely, it's going to be higher than the Q3 in steel dust. And as well, we have to consider that the maintenance stoppage in the salt slag, which is our other strong and profitable business is going to come higher, which is a different for the Q3 because it was some maintenance stoppage that are not going to happen in Q4. So you put together, it's going to be definitely the Q4. As usual, it's going to be our strongest EBITDA, our strongest activity period, and we can confirm that. That's why we expect a strong Q4 and to be where we are going to end in the range, but definitely a strong and higher utilization rate than the Q3. Jorge González Sadornil: Okay. And then my last question is on regard the secondary aluminum profitability. Can you help us to understand where the profitability could be for next year? Do you have any targeted range for the profitability, taking into account some stabilization in the auto industry and the new assets starting to contribute? That will be very helpful. Asier Zarraonandia Ayo: For me too. Now seriously, Jorge, it's a good question. Well, I think that probably you have in front of you the last years, getting an average could be a good reference. Other is to be back for the '24 level and then again, because it's a kind of cyclicity in the business. So you can take other probably the reference of the '24 or an average or something like that. That's what we see now. Probably we need a little bit more color as well on the market in the last months, but I think that is a good reference getting in the '24 or something like that, that is what we expect in '26 because it's difficult to see a full recovery because we know all of us read about the automotive sector with the problems and production levels that are showing European carmakers, especially. So not a full recovery, but some recovery and the levels of '24 or average of the last year probably could be a reference. Jorge González Sadornil: Are you expecting any adjustment of capacity in the sector that could help the margins to go up at some point or there is not any noise in this? Asier Zarraonandia Ayo: This is basically the point. This is basically the point. There are starting to be some players under troubles, financial troubles and probably the capacity is going to be, as always in the crisis periods adapted. It's not the case, obviously, of Befesa because we have this business, as always explained, that is for us is supporting the salt slag. Financially, we have no problems to survive there, but there are guys that probably they can get out of the market or reduce some capacity and everything is going to be more balanced. That's why the logic of the market that has to be organized as well and that's why we understand that it's going to happen better '26 outlook for the aluminum business. The level, early to say. But again, I think that probably a recovery '24 levels or average of the last 2, 3 years, probably would be a good level. Operator: [Operator Instructions] The next question comes from the line of Anis Zgaya with ODDO. Anis Zgaya: I have only 2. First one is on hedging. When we see the current zinc LME '27 forward prices, which are at $2,900 per tonne or slightly above. That's not bad. Why don't you accelerate hedging for the whole '27 year at this level? And my second question is on treatment charges. The current spot prices in China increased to around $120 per tonne after a very low level in the beginning of the year. Does this seem to you to be a good indicator for the future benchmark level of treatment charge to be set next March? Rafael Perez: Thank you, Anis. I will take the question on hedging. Obviously, we are doing that. Actually, this week, we have closed a very interesting volume of hedging for the first quarter of 2027. You cannot go at once all the way through to the entire year because the curve is in backwardation, which means that the forward prices are lower than the spot prices. So yes, you see the spot prices, but when you want to lock in prices 12 months, 1.5 years, 2 years ahead, the prices are decreasing, okay? And we have internally certain targets that we don't want to miss, okay? So -- but yes, we are taking the opportunity, and we are moving forward with the hedging in the first quarter. So we will take one quarter at a time. And Asier will be taking the question on treatment charges. Asier Zarraonandia Ayo: Yes. Thank you, Anis. Yes, I think it's a good reference, the spot normally in China because it's basically the only part of the world which runs on a spot basis in a massive way. Yes, it's a reference definitely, but always we can talk about reference. They have been periods where there is strictly the same of the spot TCs or the others is similar or not. As I said before in the previous question, yes, this is the $120, $130 is the level that now they are considering. So well, the reference and the trend, the spot is a good light to see what is going to come. But still, again, early to say. Operator: The next question comes from the line of Adahna Ekoku with Morgan Stanley. Adahna Ekoku: I've just got one follow-up on the 2026 EBITDA, especially for steel dust. And maybe could you help us with what utilization you're targeting in the U.S.? I think you've got 90% for 2027. And in Europe, would you expect any upside from the recently announced steel safeguard measures? Or is it still too soon to say on this front? Asier Zarraonandia Ayo: Thank you for the question. Yes, I think the answer is yes to both. I mean we have in pipeline for the U.S. more tonnages than this year, definitely. And one of the reasons, again, that we are not moving in the low part of the range as the volume in U.S. that we have already contracted because there are some delays in the ramp-up are coming later than we expected, but definitely are starting to come and we hope that next year are going to be on our facilities during the whole year. So yes, I think it's an intermediate year to capture the 90% utilization probably in '27, but next year it's going to be higher than this year and probably in the range of 80% or we will see exactly, but U.S. is one -- it's going to be the more volumes in U.S. is one of the boxes that we have in mind for '26, the headwind of the treatment charges probably is going to be compensated by higher volumes in U.S. and probably in other geographies like in Europe. In the case of Europe, the answer is yes, we are starting to capture some projects that are going to come into picture in '26, not many, but there are some in, one in Spain and others that we have under the contracting period now. And we -- that's going to help to be a little bit less pressure to keep the 90%. I think here in Europe to grow from the current levels is difficult because basically you have full capacity. And the only thing which is pressing is that probably transportation cost for the dust and other are going to be benefit. So if all those projects starting to see that are coming really, then we will start the increase of capacity in Europe probably in '27. So '26 is going to be a good year in Europe to see how the projects are delivering. But definitely, it's going to help and we are continuing with that to have more dust in 2026. Operator: Ladies and gentlemen, that was the last question. I would now like to turn the conference back over to Rafael Pérez for any closing remarks. Rafael Perez: Thank you all for your questions. You can also contact the Investor Relations team of Befesa for any further clarification. We will now conclude the conference call and the Q&A session. Let me remind you that you can find the webcast and the dial-in details to access the recording of this conference call in our website. Thank you very much and have a good day.
Operator: Good morning, and good evening. Thank you all for joining the conference call for the SK Telecom earnings results. This conference will start with a presentation followed by a Q&A session. [Operator Instructions] Now we will begin the presentation on SK Telecom's Third Quarter of Fiscal Year 2025 Earnings Results. Jun Chung Hee: Good morning. I am Chung Hee-Jun, IRO of SK Telecom. Let us begin the earnings conference call for Q3 of 2025. Today, we will first deliver a presentation on the financial and business highlights, followed by a Q&A session. Please note that all forward-looking statements are subject to change depending on various factors such as market and management situation. Let me now present our CFO. Yang-Seob Kim: Good morning. This is Kim Yang-Seob, CFO of SK Telecom. The third quarter of 2025 was the period where we renew our mobile business by implementing the accountability and commitment program to overcome the cybersecurity incident and reassess company-wide AI capabilities, thereby renew our goals and determination for the future. In this quarter, the accountability and commitment program has had a significant financial impact. The consolidated revenue posted KRW 3,978.1 billion, 12.2% decline year-on-year. The M&A revenue fell by approximately KRW 547.7 billion year-on-year due to 50% tariff discount in August for all customers with the customer appreciation package and series of team membership discounts. The significant sales decline led to 90.9% year-on-year drop in operating income to KRW 48.4 billion. The net income turned negative due to the penalties from the cybersecurity incident. Given the unprecedented deterioration in the financial performance, the company inevitably decided not to declare dividends for the third quarter. While the financial impact of the incident continues to weigh on the results, we are fully committed to restoring stability and resuming dividend payments going forward. Now let me report on business updates. The fixed and mobile business are showing gradual recovery from the cybersecurity incident. The number of 5G subscribers increased by approximately 240,000 Q-on-Q to 17.26 million, and broadband and IPTV subscribers also recorded positive net additions. As part of our mobile business innovation, the company recently launched Air, a digital communication service exclusively for unlock device. Designed with an emphasis on simplicity and practicality based upon in-depth analysis of the needs of the customers in their 20s and 30s, this service is expected to play a key role in broadening our mobile customer base. The AI business is bringing together previously distributed AI capabilities under one structure. Functions and organizations, including AI DC, A dot B for enterprises, A dot service for B2C and global AI partnerships and investment and AI R&D are being reorganized into the AI CIC, establishing a more cohesive and efficient business structure. Revenue from the AI business achieved a 35.7% year-on-year increase in revenue, further expanding the foundation for achieving its mid- to long-term goals. Driven by the acquisition of the Pangyo data center and the award of the GPU leasing support program, AI DC revenue posted KRW 149.8 billion, up 53.8% year-on-year. The company continues to expand the scale and profitability of its data center operations. The Ulsan AI data center poised to be a key driver of data center revenue growth, held its groundbreaking ceremony in late August and is now under full construction. In addition, the company recently signed a memorandum of understanding with OpenAI to jointly build an AI data center dedicated for OpenAI in Korea's Southwest region, positioning itself to capture new opportunities in the rapidly evolving AI infrastructure market. Revenue posted KRW 55.7 billion, up 3.1% year-on-year. Officially launched in late June, AIX an AI agent designed for enterprise use, has received positive initial feedback as workplace AI tools that helps employees focus more on their core tasks. In this quarter, the service was rolled out to about 10 SK Group affiliates, including the company and is planned to be expanded to a total of 25 affiliates by the end of this year. Through its latest upgrade this quarter, A. has integrated cutting-edge ALM such as AX 4.0 and GPT5 while introducing a new AI message feature that alerts users to potential spam or phishing text. In addition, with its recent integration into T Map in September, A. is now accessible to a broader base of users, allowing more people to experience the service firsthand. Building on its long-standing expertise in LLM, the SK Telecom Consortium was selected in August as a core team for the proprietary AI foundation model project led by the Ministry of Science and ICT. Through the project, the company aims to further strengthen its AI competitiveness, pursue new business opportunities, and contribute to the development of sovereign AI. The past 6 months have been the most challenging period for SK Telecom since its founding. The entire organization has been fully mobilized to respond to the cybersecurity incident. While it served as an opportunity to emerge as a stronger and more secure company, it also led to the loss of many customers and continued financial impact. To move beyond this crisis toward recovery and renewed growth, the company has set a clear goal of driving continuous innovation in information security. We will strengthen execution across key areas such as increased security investment, adoption of next-generation technologies, and enhancement of the external verification system. In the telecom business, we will place customer trust restoration at the highest priority and focus on reinforcing our core competitiveness to reclaim our position as Korea's leading telecom company. At the same time, in the AI business, we will focus on delivering tangible results. SK Telecom is determined to turn this crisis into an opportunity for renewed growth and to emerge as a stronger, more resilient company. We sincerely ask for the warm encouragement and continued support of our investors and analysts as we embark on this new beginning. Thank you. Now we'll begin the Q&A. Operator: [Operator Instructions] The first question will be provided by Jae-min Ahn, from NH Investment & Securities. Jae-min Ahn: I have 2 questions. The first question is about dividends. During the presentation, you said that you will not declare the dividend for the third quarter, which is regrettable. And I'd like to hear about your focus on the fourth quarter dividend. And it might be a bit too early to discuss about the 2026 dividend policy. Can you give us a heads up as to whether the dividend of 2026 will return to the level of '24? The second question is about the performance. The third quarter's poor performance is something to be expected. And I'd like to ask you about the fourth quarter outlook because the free offering of the 50-gigabyte data and the discount are still ongoing. So, there could be the potential for the tariff down selling. So, I would like to hear about your 4Q performance outlook. Yang-Seob Kim: Thank you for this question. I'd like to respond to your second question first, the impact of the incident on the third quarter performance. The financial impact from the cybersecurity incident in Q3 was mostly reflected on the revenue side. Mobile revenue declined about KRW 500 billion Q-on-Q, nearly all attributable to the incident. The largest factor was the 50% discount on August tariffs offered to all customers as part of the customer appreciation package, while enhanced membership benefits also contributed to the revenue decline. On the cost side, KRW 134.8 billion of fines imposed by the Personal Information Protection Commission was recognized as a non-operating expense in Q3. As the customer appreciation package, such as additional data and the membership benefits, will continue through the year-end. So, some decline in mobile revenue is expected to persist in Q4, but the impact should be significantly smaller than in Q3. That said, Q4 typically involves concentrated spending activities, so a cautious approach is warranted regarding operating profit. While it is too early to provide detailed guidance for fiscal year '26 before finalizing management plans, the company aims to drive a steady recovery in mobile revenue through restored customer trust while maximizing cost efficiency to return to pre-incident operating profit levels. The company's AI business, including AI DC, continues to show solid growth momentum, which is expected to contribute to a turnaround in overall performance. Further details on FY '26 guidance will be provided once management plans are finalized. Thank you. So let me respond to the question about dividends for the whole year FY'25 and FY'26. As mentioned earlier, following a resolution by the Board, the company has decided not to declare a dividend for the third quarter. This was an unavoidable decision, taking into account the financial impact of the cybersecurity incident, cash flow condition, and overall financial stability. We ask for your kind understanding. As for the Q4 dividend, it is difficult to make any definitive statement at this time, but the Board will review the matter once the full-year performance and cash flow are finalized, taking into consideration the company's growth investment capacity, financial structure, and overall capital allocation balance. As the impact of the cybersecurity incident will be mostly reflected in 2025, the operations are expected to normalize from 2026, and all the operational improvement measures will be fully implemented. And we will make every effort to restore the dividend to the pre-incident level in line with improved performance. Operator: The following question will be presented by Heejin Lim from Citi Securities. Heejin Lim: I have 2 questions. First, is that this is the first earnings call after the incident and the implementation of the rectification measures. So, the question is that how much of the customers that you have lost in the previous quarter, you have regained in this quarter? And what are your plans to win back this customer? And I'd like to learn about your marketing plans. The second question is about the Air that was mentioned during the earlier presentation. So, it seems that the Air is a smart service that is offered at an affordable price range. So, I'd like to understand its implications on the top line and ARPU. Yang-Seob Kim: Thank you for this question. And this question will be answered by the marketing strategy team. Unknown Executive: After the contract cancellation fee waiver period ended on July 14, the company focused on rebuilding customer trust to reverse the market trend. Through these efforts, the customer churn was successfully contained in August and September, resulting in a net neutral balance between additions and losses. Going forward, rather than focusing on numerical recovery of the customer churn, which could overheat the market, the company plans to pursue qualitative recovery centered on strengthening fundamental competitiveness and improving customer and revenue quality. Through granular customer analytics, we provide optimized products, subscription methods, rate plans, and value-added services tailored to customer needs across different distribution channels. The recently launched air service is a prime example designed to meet diverse customer demand. The company will continue to enhance customer satisfaction by offering segment-optimized products and services while strengthening its overall competitiveness in the market. Yang-Seob Kim: So let me respond to your second question about Air. On October 13, the company officially launched Air, a digital communication service exclusively for unlocked devices. AI represents SK Telecom's new initiative to respond to the shift in mobile usage patterns among customers in their 20s and 30s towards SIM-only and fully digital experiences. It allows customers to complete all service procedures directly through the app without visiting offline stores. The service offers 6 simple rate plans focused on the most commonly used data tiers. While it does not support teamwork, team membership, fixed mobile bundles, or family discounts, it provides only the essential features at more affordable prices. While existing pay service cater to customers seeking a wide range of benefits such as family bundle discounts or device subsidies, Air is designed for unlocked device users who value digital convenience and practical benefits. Through the launch of Air, the company expects to meet the needs of wider customer base and broaden its marketing reach. By offering a new telecom service for unlocked device users, Air is expected to gradually expand the overall wireless subscriber base and continue to top-line growth. In terms of its price, it will be in the same range as the chief direct plan, so its impact on ARPU will be minimal. Operator: The following question will be presented by Sohyun Park from UBS. Sohyun Park: Two questions I have. The first question is about the Ulsan DC, this is something that you are working together with AWS and understand that the groundbreaking ceremony was held sometime at the end of August. So, I'd like to understand the progress of the Ulsan AI DC project. And when do you foresee the completion of this construction and the beginning of the operation? And if you have any additional plans to add other data center facility, please do share? The second question is about A. service. You have recently surpassed the 10 million subscriber landmark and now was able to secure a quite sizable user base. So, I'd like to understand if you have any plan to actually charge the service. Yang-Seob Kim: So thank you for this question. First question will be answered by the AI DC development team. And the second question will be answered by the AI growth strategy team. Unknown Executive: So let me respond to you about the progress of the Ulsan AI DC project. Construction of the Ulsan AI data center began on September 1 and is progressing smoothly according to the plan. The revenue from the Ulsan AI data center will follow a ramp-up structure and increasing in proportion to the utilization. The profit generation is expected from '27 and expected to grow steadily thereafter. The Ulsan AI data center will also serve as a key reference case marking SK Telecom's successful attraction of global big tech partners to Korea and will act as an important catalyst for future expansion of the company's AI data center business. In addition, the company is in active discussions with global investment firms and other major technology companies considering AI data center projects in Korea and across the broader APAC region, exploring various form of collaboration. Next, I'd like to discuss our data center expansion plan. As mentioned in the previous earnings call, the company aims to achieve KRW 1 trillion level revenue by operating a cumulative 300 megawatts or more of data center capacity by 2030. To this end, we are currently pursuing the construction of an additional AI data center in Korea Seoul, and the design work has just begun. Given that this location represents the last valuable site in Seoul with secured power capacity for data center development, it offers ample land to accommodate large-scale facilities. We anticipate a strong demand for the project. We will provide further details to the market as the project progresses and plans become more concrete. Ji Hoon Kim: This is the Head of AI Business Strategy, Kim Ji Hoon. Let me respond to your second question of the plan to charge the A. service. As of the end of September, the cumulative subscriber for A. has surpassed 10,560,000, and that is a growth of 8.3% versus the end of June. When we include the other A. function users outside of the A. app, which mainly refers to the phone and the BTD, and the total MAU exceeded 10 million as well. So, we were able to achieve this performance within 2 years from the official launch, the achievement, meaning that subscriber over 10 million and the AU exceeding 10 million. That is thanks to the continuous service sophistication and active expansion into the external platform. Last June, we have launched note and briefing. In August, we offered 4.0 update on the agentic workflow function has been added, and this has garnered a strong response from the users. In September, A. is made available in T Map and contributed further to the increase in AU. The B2C paid model will be reviewed -- are under review, and that will be most likely in the form of the subscription or the branded products centering around A. pillar services, and our target launching period is the first half of 2026. Until that time, we will continue to focus on improving usability of A.'s core services and expand the customer base. So, regarding the B2B profit model, including the A. agentic workflow, that will be implemented into the T Map, and we expect the revenue generation from the fourth quarter, and that will be the beginning, and we expect a gradual expansion of the revenue. Operator: The last question will be presented by Hong-sik Kim from Hana Securities. Hong-sik Kim: I will have to ask some difficult questions. Then you have started the quarterly dividend payout. But this quarter, you have decided not to declare the dividend. And from the perspective of the investors who have been waiting for this cash flow from the dividend, we are at a loss, and I'd like to understand more visibility into the future. And according to the business report, there are some companies that are showing higher degree of the visibility or the productivity when it comes to the dividend. So, in that line, I'd like to ask the company, do you have any plan for the future dividend? And if so, please share. So, if you are not able to provide any dividend for the third quarter, I believe that there should be some sufficient response going forward. So please specify them. And at this point, this is, I believe the high time that you need to revisit the plan to provide dividend on a quarterly basis because you have made the disclaim or announcement some time ago, but you are not able to provide this quarterly dividend for this quarter. So, this is extremely a regrettable situation, I have to say. And the second question is that according to the report that the ground or the basis of providing the dividend is the 50% of the consolidated net income. And it is our existing understanding is that it is adjusted consolidated net income, but it turns out the decision to waiver the third quarter dividend is based upon not adjusted, but the net income of this quarter. So does that suggest that in case of any future incidents that might involve the significant onetime expenses, then there will be some wavering of the dividend for the particular quarter. So please share with us your dividend profile. Yang-Seob Kim: So let me respond to your question. This is the CFO. So, as you might understand and appreciate that we have been providing the stable provision of the dividend based upon the strong performance. But due to these unforeseeable incidents that we're not able to provide the dividend for this quarter. As a CFO, this is an extremely unsettling situation, and I'd like to extend my sincere apology to the investors. So, we take your question and the feedback with great heart and try to figure out the best way forward. And I'd like to give you this commitment as a CFO that we will make every effort to normalize our business environment, and this is something that I will share the commitment to you on behalf of every single employee of SK Telecom. So let me respond to your question about the 50% of the adjusted consolidated net income. So, in relation to our shareholder return policy, the company classified items such as operating revenue and operating expenses, which arise from its principal business activities, as recurring income or loss items. And conversely, nonoperating income and expenses are not directly related to the operating activities are categorized as nonrecurring items. The administrative fine imposed by the PIPC this year is classified as a nonrecurring item. The customer appreciation packages, and the SIM card replacement costs are directly associated with the company's core business activities and therefore, are not regarded as one-off or nonrecurring items. The company's shareholder return policy, which is returning 50% of adjusted consolidated net income, represent a symbolic lower bound. This threshold expresses our commitment to provide dividends at a higher level than the minimum target. And historically, our dividend payout ratio has remained above this level. For additional inquiries, please contact our IR organization, and we will make sure that you get the full response. Jun Chung Hee: This concludes our Q3 '25 earnings call. If you have any further questions, please contact us. Thank you.
Ann-Sofi Jönsson: Welcome to the presentation of Electrolux Q3 report. I'm Ann-Sofi Jönsson, Head of Investor Relations and Sustainability Reporting. I'm here with our CEO, Yannick Fierling and our CFO, Therese Friberg. We will run through the presentation. And after that, we will open up for the Q&A session. If you are viewing on the web, do feel free to put your questions in the chat throughout the presentation. And with that, I hand over to Yannick. Yannick Fierling: Thank you very much, Ann-Sofi. Good morning, and good day to all of you. Very happy to be with you for this third quarter report. I will start with very general comments. I mean, growth is 1 of our strategic pillar, and I'm very glad to say that we have been growing once again in the third quarter. We have been increasing our net sales by 4.6%, mainly driven by North America. I'm also very glad to share that we have been growing our market share in the 3 regions here with our main brands, Electrolux, AEG, and Frigidaire. We have been taking our operating margin to 2.8%, with a good progress on cost reduction. We have been adding to the SEK 2 billion we achieved in the first half of the year, an additional SEK 800 million. And afterwards, I've been sharing with you in the last quarters, the aim we have to get faster and more agile moving forward, and I'm very glad to announce some organizational changes, which would be putting us closer to the end consumer. Moving to the results. As I said, I mean, we have been growing our net sales by 4.6%, mainly driven by North America, where we have been gaining in terms of shop floor spaces, and we have been expanding in key channels like the contract channels. In Europe, Asia Pacific, Middle East and Africa, we have been growing slightly in a subdued market with quite a lot of price pressure. In Latin America, strong results once again here, stable net sales on the back of a very strong and hot 2024. In terms of operating margin in the EBIT bridge, we had 2 positives, which were volume and mix and these 2 positives were slightly offset by a price -- negative price development. In terms of external factors, as you can expect, we were hit mainly by tariff and currency. We are very glad to say that we made progress once again in terms of cost reduction by adding SEK 800 million on the SEK 2 billion we achieved in the first half of the year. Moving now to Europe, Asia Pacific, Middle East and Africa. Again, we had a slight organic growth in this quarter. We have been gaining market share with our 2 main brands, Electrolux and AEG, more than offsetting the ramp down we have on the Zanussi brand. Zanussi was an entry price point brand, and we are focusing today on core and premium brands. Quite a lot of pressure, again, in prices, and we saw a negative price development. On the operating income side of the equation, positive in terms of volume and mix, but these positives were slightly offset by a negative price development. The region has been benefiting by a good effect on the cost reduction side of the equation, and we kept on investing in the marketing side of the equation. And that's pretty important because we launched major innovations, especially in the kitchen area under AEG and Electrolux, and we are glad to be able to fuel these major innovations through marketing money. In terms of external factors, we had a negative impact of currency, mainly driven by a weak Australian dollar. Again, in terms of market development, this picture is very similar to the one I've been showing in the last quarters. We had a positive development in Western Europe of 1%. Western Europe represents 80% of the total volume for the region and a minus 1% for Eastern Europe, flat. And here, once again, we had minus 11% versus the third quarter 2019 back to levels we had in 2014. The construction market remains very subdued. I mean we are hoping it to rebound in the coming months due to the lower interest rate, but we don't -- we have not seen any sign of that in the third quarter. On the positive side of the equation, I just want to underline that we saw some sign of recovery in the region, in the month of September. We have been working very hard in the last months to really improve the brand image we have, defining more precisely the consumer targets we have and clearly define an identity card for our 3 brands, Electrolux, AEG and Frigidaire. And I'm very glad to share with you one of the latest campaign. You have seen some just before we have live. This campaign is called the Wash Life Balance, and it's featuring the product leadership we do have in care and garment care. We have been also very proud to announce the launch of our new dishwasher, the AEG FAVORIT dishwasher here, which has been focusing on fit, fill and finishing. It has leadership in terms of perceived quality. And we're also leading in terms of energy consumption, noise level and water consumption here. Let me share with you a short video. [Presentation] Yannick Fierling: Moving now to North America. And we're glad to say that we have been growing significantly in North America. We're announcing a double-digit growth in the third quarter here, thanks to, again, a higher penetration in terms of shop floor space and an enhanced presence in some of the channels we do have like the contract channel here. We're not buying market share. We're increasing the presence we do have in the different channels. We had a positive price impact. We were actually positive on the 3 dimensions, volume, mix and price in North America. As you all know, I mean, we are building our appliances in North America. We're one of the North American constructor. And the last tariff structure should certainly benefit the North American producers. Unfortunately, we have to say that we have not seen the expected price increase for our imported goods coming from basically Asia in this third quarter. We have been leading price increase, and that's very important. I'm very proud to say that we have been covering the vast majority of the tariff impact for the price increase. So it's a competitive situation we have in front of us, with in front of as well a pretty promotional time which would be a Black November in North America. However, I want to repeat that, I mean, the last tariff structure should be benefiting for North American producers. Negative impact as well from a currency side of the equation with a weak dollar in this quarter. The pressure about the picture about the market is very much unchanged versus last year. The market has been pretty resilient to the inflation we have seen in the market. Moving to Latin America here. Almost flat organic growth in the region on the back of a very strong 2024 where we had a heat wave, and where we're selling a significant level of air conditioning and refrigerator. Unfortunately, the summer is not very hot in 2025 here, which has been increasing slightly the stock level we have in products like air conditioning. The competitive pressure in the regions remains pretty high. However, we're delivering, once again, 5.7% in terms of EBIT. We had a bad impact in terms of currency because of the Argentinian pesos and the Brazilian real. The Argentinian market is opening up, which means that we have a high level of import products -- our imported products out of Asia. Cost reduction, we're glad to say that, I mean, we're delivering once again SEK 800 million in the third quarter, which is taking the total amount of SEK 2.8 billion for year-to-date here, and we're still confident to reach between SEK 3.5 billion and SEK 4 billion cost reduction for the full year. This cost reduction is mainly driven by product redesign, a better sourcing in terms of components and suppliers, a higher level of efficiency in our factories and a full leverage of our global scale as Electrolux. Next slide is a slide we're very proud about. In 2016, Electrolux has been funding the Food Foundation here. And the aim of this Food Foundation is twice. The first one is to educate children and adults to eat in the most sustainable manner, but we're also helping adults needs here by giving them cooking lessons given by chef in the different regions. Year-to-date, we have been educating more than 300,000 children and adults through the Food Foundation. And the aim, the target we do have by 2030 is to have more than 1 million people benefiting from this foundation. With that, I'm passing it to Therese. Therese Friberg: Thank you, Yannick. The organic sales growth that we had in the quarter of 4.6% generated a positive impact to earnings of SEK 384 million. This was mainly derived from volume, but we also had a positive mix contribution in the quarter. And this was, of course, offsetting the slight reduction that we did see in price. We are continuing to invest in innovation and marketing, as mentioned by Yannick to really support the strong product portfolio we have in the market. Cost efficiency was a saving of SEK 760 million in the quarter. And I would also like to mention here that in the quarter, we had the group common cost of SEK 50 million, which was SEK 84 million below last year. And this is a result of cost containment, but also a result of some timing between the quarters. We have very significant negative external factors. Of course, as you all know, the negative impact from tariffs, but also quite significant negative impact from currency in the quarter, mainly related to the weakening of the Argentinian piece, but also the strengthening of the Thai baht versus the U.S. dollar and the Australian dollar. And the negative effect we have in acquisitions and divestments is related to the divestment of the water heater business in South Africa that we did last year. The operating cash flow was positive SEK 600 million in the quarter, which was somewhat below last year. This is mainly a result of a negative impact -- a larger negative impact in working capital compared to last year. This -- and this is attributed to one seasonal effect related to receivables that are usually increasing in the third quarter, but this year increased even more substantially than a normal seasonality related to higher sales growth, but also quite a strong September month, as Yannick also touched upon earlier. As you also know, we came into the third quarter with quite high inventory levels from the second quarter from volatile market during the first half and also from that the Brazilian retailers were destocking during the first half or specifically in the second quarter. And this, in combination with weak or cooler weather in Latin America means that we're still sitting on some of that stock. As you know, we usually have a strong reduction of inventory in the fourth quarter according to our normal seasonality, and this is what we are looking for as well this year. CapEx, we are having slightly lower than last year. And then looking at our balance sheet and liquidity. We have a solid liquidity and a well-balanced maturity profile. In the quarter, we amortized long-term debt of around SEK 1 billion, and we issued 3 new bonds of a total of SEK 2.6 billion under our EMTN program. And this will mature in 2029. And for the remainder of 2025, we have borrowings maturing of approximately SEK 1.9 billion, which we will finance from our existing liquidity. We increased the financial net debt slightly in the quarter, but we still have a solid liquidity of SEK 29.4 billion by the end of September, including revolving credit facilities. And of course, we don't have any financial covenants and our target to maintain a solid investment-grade rating remains. And with that, I hand back over to Yannick. Yannick Fierling: Thank you very much, Therese. I will now move to the outlook and the summary. During the quarter, the market demand in Europe increased slightly. Consumer demand continued to be predominantly replacement driven. In Asia Pacific, consumer demand is estimated to have decreased slightly year-over-year. Promotional activity and competitive pressure increased across market. Geopolitical uncertainty negatively impacted consumer sentiment in Europe. This contributed to consumers continuing to shift lower price points and postponing discretionary purchases. Demand for built-in kitchen products in Europe remains subdued. In a longer perspective, it is important to remember that the European market is on a 10-year low. For full year 2025, we reiterate our neutral market outlook for core appliances in Europe and Asia Pacific. During the quarter, consumer demand in North America remained resilient. Industry market price adjustments did not reflect the implemented U.S. tariff structure and competitive pressure and promotional activity remain high. Demand continued to be mainly replacement-driven and consumers continue to prefer lower price points. For the full year demand outlook, economic uncertainties and inflation concerns risk having a dampened effect on consumer demand. Consequently, we maintain our outlook of neutral to negative market demand. Consumer demand is estimated to have increased in Latin America in the third quarter. Competitive pressure increased in the region, most notably in Argentina, where the strong growth was driven mainly by imported goods. Consumer demand grew in Brazil, although at a slower pace than in the third quarter 2024, mainly due to inflationary pressure and higher interest rates affecting consumer spending. These factors contributed to retail continuing to reduce inventories. For the full year, we reiterate our outlook of neutral market demand for core appliances in the region. Moving now to the outlook. We still expect the impact from volume, price and mix to be positive for the year. Previously, price was estimated to be a main positive driver. Now the main driver is estimated to be growth in focused category because of the market dynamics in the third quarter and especially the challenging prices environment in North America. We reiterate that we expect investments, innovation and marketing for full year 2025 to increase. New product launches provide us with a great platform to continue driving growth in our focused categories. Our focus on reducing costs remain high, and we stick to the outlook of SEK 3.5 billion to SEK 4 billion in earning contribution from cost efficiency in the full year 2025, with product cost out being the main driver for the cost reduction. External factors are expected to be significantly negative for the full year. The cost inflation related to increased tariff is included an external factor in our EBIT bridge. Currency remains a headwind and the impact from raw material costs expected to be slightly positive for the year. For the full year, we are lowering our outlook for capital expenditure from SEK 4 billion to SEK 5 billion to approximately SEK 3.5 billion to SEK 4 billion. Investments to strengthen our competitiveness through innovation and manufacturing efficiency are essential to support growth and improve efficiency. But also, we are looking at being as efficient as possible we can and are scrutinizing our priorities. This resulted in a lower CapEx outlook. Moving now to the strategy. And I think we have been hammering. That's our 5 strategic pillar, and we're improving on all of them here. In terms of North America, we have been increasing our market share. We have been increasing the penetration level we have in key channels. We have been increasing the number of shop floor spaces we have, thanks to innovation like the stone-baked pizza feature we presented last month. In terms of growth, we are growing in a challenging market. We are growing in core and premium segments with our brands like Electrolux and in AEG. We keep a very strong position in Latin America. The organic growth has been at the same level as last year, but again, it was on the back of a very strong 2024. We have been launching very strong innovations in kitchen in Europe. In North America with a big kitchen bake oven, and we have product leadership in Latin America. We made progress in terms of cost reduction, adding again, SEK 800 million on the SEK 2 billion we have been achieving in the first half of the year. And last, but not least, the environment is changing. We are in a very unstable market right now where we need to react very fast. We need to be better in terms of speed and agility. And that's why we're driving organizational changes, increasing customer centricity. The first announcement we're making today is we will be splitting Europe, Middle East and Africa and APAC in 2 different regions, 2 commercial regions. One, we'll be focusing on Europe, Middle East and Africa and the other one, we'll be focusing on APAC. As a result, Anna Ohlsson will be leaving the company. Leandro Jasiocha, who is currently in the LatAm region will be moving to Europe, and he will be heading the region. Patrick Minogue will be replacing Ricardo Cons who decided to retire from the company pursuing a family journey he has been starting. And Eduardo Mello will be replacing Leandro Jasiocha as the Head of Latin America. We are sure that with these organizational changes, we will be increasing speed agility and be more consumer-centric moving forward. That's concluding this presentation, and we'll be happy to take any questions. Ann-Sofi Jönsson: Great. Thank you, Yannick and Therese. With that, we will move over to the participants on the telephone conference. So Sarah, you could please go ahead and open up for questions. Operator: [Operator Instructions] We will now take our first question from the phone lines. And this is from Gustav Hagéus from SEB. Gustav Sandström: Congrats on a good result. If I may start on the comment on the U.S. market share gains. And as you mentioned, you take shelf space in the quarter. It appears as if you've had now 4 quarters in a row with some market share gains in the U.S., obviously, superseding a period where you've lost some market share. So interesting to hear now that you're starting to meet a little bit tougher comps in terms of market shares in the U.S. if you see this trend potentially continuing into Q4 and into next year? And if you could shed some light on who you're taking shelf space from, maybe not the name, but if it's domestic or nondomestic players or if it's private label or how you view that dynamic in the trade, that would be interesting to hear. Yannick Fierling: Thanks for the question, Gustav. I think we're taking share, I would say, across. And I think it's mainly due to -- and thanks to the innovation we have been launching mainly in kitchen. Let's not forget as well that we have been ramping up Springfield in the last months here. We have been launching through this ramp up, a new series of cooking products, for instance, which are feeding brands like Frigidaire Gallery. We have been launching the great innovation, which is the pizza stone-baked oven in North America here, which has been getting an excellent reception in the market. We have some new products as well in the food preservation side of the equation. So it is really across market share here. We have been entering, and I want to make sure everybody understands we are not buying market share, but we have been entering into new channels like the contract channels here, and we have been really gaining shop floor spaces in -- with our main customers. I mean Lowe's, Home Depot and Best Buy and others here in the last months. So it's not one specific competitor we're taking share from, but it's a wide range of competitors. Gustav Sandström: And the second part of that question, as you look into -- it appears as if comps on the market share gains in U.S. is a little bit tougher to meet now as you enter Q4 into 2026. Should we expect this trend to continue with some recovery of the market shares also as you enter 2026? Yannick Fierling: Yes. I think I would like to make 2 points going into the volume side of the equation. First, I want to insist on that. I mean that was our commitment. We have been leading price increase in North America in the last month, and that has certainly not been easy. And I think we were very fortunate to have all these innovations in order to compensate basically for this price increase because we are producing, as you know, in North America, we're among the 3 producers in North America. And the last tariff structure introduced at the beginning of the summer was certainly privileging or benefiting North American producers. So we were expecting a higher level of price increase for imported goods, especially coming out of Asia. Unfortunately, I have to say today that we did not see that happening. And I think we're entering into a promotional season in North America now with Black November. However, what I want to underline as well is that, I mean midterm, there is absolutely no doubt that, I mean, North American producers will be benefiting from the current tariff structure here and that import products will be handicapped significantly, and we'll have to increase prices. So we did not see that in the third quarter. We're entering into, of course, a promotional period, which is Black November here, but there is also no doubt in our mind that, I mean, the current tariff structure should be benefiting basically North American producers amongst who we are. We're not giving up on prices, not at all. Here, we're just expecting the market to be rational in North America as well. Therese Friberg: And I guess, a little bit more overall, of course, some of the effects that Yannick talked about with gaining additional shop floor and gaining traction within the contract channel, of course, this is not something that is just happening on and off. But we believe that those types of changes are structural changes that has come gradually during this year, which, of course, also should continue to be a positive going forward. Gustav Sandström: And if I may ask one question on Europe, too. It's interesting to hear that you see some improvement in September in terms of market volumes, if I understood you correctly. Companies tend not to raise these type of monthly data towards the end of the quarter if they haven't seen a similar pattern going into the month that we're in now. Is there any reason to assume that, that logic would not apply to you that October would not follow the September trends? Appreciate it... Yannick Fierling: Yes, I think that's a great question. Unfortunately, in all fairness, I mean, if you look at full 2025, I mean, we have not been going through normal type of patterns in most of the regions, but especially in Europe. Indeed, I mean -- and I think we're happy to say that. I mean, September, we have been mentioning has been a positive month here for us. And I think all we wish is that it will be continuing in the fourth quarter, but I mean the level of unpredictability and uncertainty we do have in the market today in Europe is pretty high. So it's -- I would say it's difficult to say. Certainly, I mean, we're entering as well into a Black November type of market in Europe. But we are confident that with the product we have been introducing, the innovation we have been introducing, with the plan we have in place. And I think the quality of the people we have facing the end consumer, I mean, we will be doing the right thing for what we can control. But unfortunately, I mean, the level of uncertainty is pretty high in the market. Gustav Sandström: I appreciate that. But the question was specifically on October. Is there any reason to assume that the trend reversed again in October? Yannick Fierling: I think I cannot give you any trend, of course, for October right now. But certainly, I mean, the fact that, I mean, September was a positive month is certainly a good indication for us. Therese Friberg: And this is also an important point when thinking about cash flow because as you've seen, we had a weaker cash flow this quarter compared to last year where a large part of this is really related to that we are tying up quite a lot more in receivables this year compared to last year. And this is really driven by that the September month was the very strong month in sales. And hence, we are tying up larger amount in receivables. So we don't see any changes in terms either in receivables or in payables. So it's important to understand, yes, that effect from a cash flow perspective. Operator: We'll now take the next question from the phone lines. And this is from John Kim from Deutsche Bank. John-B Kim: Two questions, if I may. Can you comment on what you're seeing in North America in terms of any potential inventory overhangs? My understanding is that some of your foreign competitors put extra inventory into the market ahead of anticipated tariff increases. I'm just wondering how that's absorbing. Yannick Fierling: John, thanks for your question here. And I would just be repeating the answer I gave last quarter, which is -- again, a very transparent answer. I mean, the fact that, I mean, we may have some of our competitors preloading in order to avoid tariff seems to be logical. However, we did not observe this phenomenon ourselves here. And I think this phenomenon was not reporting to us by our team basically in North America. So unfortunately, I mean, again, logical, but I mean it is something we cannot confirm. John-B Kim: Okay. And I was wondering if you could give us a little bit more color on the reorganization, particularly on the split on what looks like EMEA, Asia Pac and the different regions? Yannick Fierling: Yes, absolutely. I think again, we -- the aim we have in terms of organizational setup is really to get closer to the end consumer from the top to about to reverse basically the organizational pyramid here, and I have the entire organization supporting what we'll be delivering to the market. Having the Asian organization below the European region, I mean, has been adding one layer. What we want to do here is to be able to respond in a faster manner, in a more agile manner to the needs our customers do have as well in the Asia Pacific region. And that's why we have been carving out this commercial region. We will have the head of this commercial region, which we will be reporting directly to myself, the CEO here. And I think with this setup, we are convinced that, I mean, we would be able to support again the region in a better manner. Therese Friberg: Maybe one clarification from an external reporting. We will still hold it together from a back-end perspective across Europe, Middle East, Africa and Asia Pacific. So it will really be a commercial region. So externally, we will continue to have the same segment reporting as today. Operator: Next question today is from Akash Gupta, JPMorgan. Akash Gupta: I have a few as well. The first 1 is on -- again, going back on North America. One of your North American competitor mentioned earlier this week that they produce about 80% of their appliances in the region. And if I may ask, if what's the share of your local production in North America? And how does that compare with industry average if you have that figure? Yannick Fierling: Okay. Thanks, Akash, for the question. We're not giving any precise number here. What I can tell you, however, is that we have 5 factories in North America, 3 in the U.S. and 2 in Mexico, who are USMCA here. So the vast majority of our products are produced in North America today. And again, USMCA compliant. So we are among the 3 major North American producers for appliances here. And certainly, as I said previously, long term, and if the industry is behaving rationally, we should be benefiting from the latest tariff structure here. Unfortunately, that's not what we saw in the third quarter here because we did not see a price increase from import finished goods. Now in all fairness, I mean, the full tariff structure would be implemented beginning of October. So it would be interesting to witness what will be the movements in the coming quarter knowing again that we have Black November in front of us. Therese Friberg: And I think what we have said is that with the competitor you are referring to, we have a relatively similar footprint. So that we have been clear. Akash Gupta: And my second 1 is on the cost savings. You had SEK 2.8 billion in the first 9 months, SEK 800 million in third quarter. Your target is SEK 3.5 billion to SEK 4 billion. That would imply SEK 700 million to SEK 1.2 billion in Q4. But I think in Q4, you have a very tough comp because last year, half of the savings came in Q4 alone. So any indication like where are we trending towards this -- in this SEK 3.5 billion to SEK 4 billion range for cost savings this year? Yannick Fierling: Yes. A couple of stuff, Akash. The first one, I mean, we explained that. I mean it's very difficult to compare the SEK 4 billion we delivered last year with SEK 3.5 billion to SEK 4 billion we're delivering this year because last year, I mean, the saving was for a big part coming from restructuring we have been doing in the past. The SEK 3.5 billion to SEK 4 billion we're delivering in 2025 are much more coming from product redesign, better component sourcing, higher efficiency in terms of factory and better leverage of our global scale here. All what I can tell you today is that we are confident to deliver between SEK 3.5 billion and SEK 4 billion for 2025. Akash Gupta: And my last one is on free cash flow. So again, I mean, you don't provide bridge like your -- some of your competitors, but -- when we look at this change in CapEx outlook, which you have cut today, would that change your internal assumptions for full year free cash flow? Or are there any other element like working capital or something else that might offset? So any commentary on your own expectations for free cash flow? Does that change after CapEx outlook a bit? Therese Friberg: No, I would say that those are disconnected. So with the CapEx refocus that we've done, of course, we continuously do prioritization and reprioritization. And with the focus that we have on cost reduction, actually, that is also spilling over on the CapEx reduction. So of course, when we're looking at costs, we're also looking at how we buy equipment and so forth. So we're not doing the CapEx reduction really to offset other negatives in our cash flow. Those are disconnected. Yannick Fierling: That's very important to underline, and Therese said it. I mean, we are not delaying any launches. We're not delaying any programs. We're not delaying any footprint or whatever here. What we have been doing is, I mean we have been using our CapEx in a better manner in 2025 here. And as you know, we have been hiring about a year ago now, a new CPO, and I think we have been really focusing on buying better, cheaper from best cost countries in 2025. And that's reflected in the cost saving we're having, but also on how we are purchasing equipment and tooling. Akash Gupta: I mean that's fair. But I mean, in theory, like if your CapEx is going down and keeping everything else equal, your free cash flow should be better than before. So my question was that, is this the case that now we should expect keeping everything else equally better free cash flow? Or is there anything that might be offset this benefit that you may get from lower CapEx? Therese Friberg: I guess it depends on the time frame you are looking at. Of course, as we have been transparent about we are not having a strong cash flow this quarter as we did last year. And of course, also year-to-date, we have a weaker cash flow than last year. But the reductions we're doing in CapEx are not to compensate for the negative effects that we have been seeing in working capital. Of course, as we also said earlier, one part of that is really temporary or seasonal that we had a strong September with receivables being negative then in the quarter, more negative than last year and more negative than the usual seasonality. Of course, inventory, we have also been clear with that it is on a higher level already when we came in to the second quarter. And we are usually having a seasonality where we have large inventory reductions towards the end of the year, and this is what we are expecting as well this year. Maybe one additional point that we didn't touch upon. Again, this is not related to the CapEx, but if you look at the full free cash flow for the year, we have talked about earlier in the second quarter that the impact of tariffs is also impacting the working capital level since the terms of when you are having to pay for tariffs compared to when you're able to then reclaim them from price increases from the retailers, there is a time gap. So of course, we've been clear with that. Structurally, we have had a negative impact from that in our cash flow in the year. Operator: [Operator Instructions] We will now move to the next question. And this is from Johan Eliason from SB 1 Markets. Johan Eliason: I was wondering once again, North America. You say you are taking market share there. The brand you have in North America, Frigidaire is typically a mass market brand, which historically has sort of gained share when the consumers become more price conscious. Is that part of what we've seen over there? And could you also update me on how the progress is developing, moving your price points on the brand towards the higher price points like the Frigidaire Gallery issue that you have been focused on over the past few years. Would you say that you have been able, in general to move up the brand a bit on the pricing ladder? Yannick Fierling: Johan, thank you very much for your question. And yes, absolutely, I mean, for the first question, we are not targeting opening price point with Frigidaire, and that's exactly how we have been mixing up with Gallery and Pro. And in all fairness, the entire strategy developed over the last years as well with factories like Springfield or Anderson have been to mix up and have a higher offer in terms of products for Gallery and Pro. I just want to give you very concrete examples. I mean, back command on oven ranges are usually low end. I mean the -- most of the products we do have now, a big part of it out of Springfield has front command here, which is more mid- to high-end segments here. I could give you a similar example on the Anderson side of the equation. The pizza stone-baked oven is, again, a feature which is a big innovation, and we're pricing for this innovation as well in North America. So no, I mean, we're not fighting really for opening price points on Frigidaire. We're not buying market share. What we're really doing is, I mean we're occupying new shop floor spaces by entering new retailers by expanding in channels like the contract channels here, and we are mixing up actually our products here. We should not forget about the Electrolux brand as well in North America, which is a strong brand for front loader for instance, here, and it is a premium brand. So not at all. I mean, we certainly have a philosophy in North America, which is to mix up our product by offering better product and innovations moving forward. Therese Friberg: And I guess important to mention, as Yannick also said earlier, we are improving volume, price and mix in this quarter. And with the combination we're seeing of where we are taking share with what retailers and with what products, we don't really see that it's a -- that we are gaining share is not really a result of, as you're saying, what we have seen before, historically, Johan, that when the market is kind of trading down that we are absorbing that type of volume. That's not what we see in the quarter. Yannick Fierling: And clearly, I mean I want to repeat it. We have been leading price increase in a price pressure market in North America in Q3. Johan Eliason: Excellent. And on the -- can you say anything about the product category where you are sort of gaining more or less? I think historically, the hot products were your most profitable products in North America, but you've lost out on that segment because of the sales issue. But can you say that is the hot product gaining more share? Or is it sort of a broader range over your different categories? Yannick Fierling: I think we are gaining market share almost in every single product category. We're not going into detail. There is -- I mean, there are a couple, of course, where we're losing market share here and where we need to act here, and we have plans in place in order to increase it. But I mean, on the vast majority of the product ranges, we are gaining market share here. So I don't think we should be pointing out 1 specific range or whatever. It is an overboard market share gain. Johan Eliason: Excellent. And then just 1 final minor in the cash flow to Therese. Other noncash items had a negative delta of around SEK 500 million. What's that related to? It was positive SEK 399 million last year's Q3, and now it's negative SEK 104 million. I was just wondering what that cost related to... Therese Friberg: Yes, yes, yes. We -- I mean, with the LTI program that is included in the EBIT, we usually have a negative -- small negative every quarter as long as we continue to, of course, increase the provision of the long-term incentive program. Last year, it's related to the divestment of South Africa, where technically, that's where the change of the goodwill was booked in last year's cash flow. Operator: We'll now take the next question. This is from Martin Wilkie at Citi. Martin Wilkie: Thank you, Martin. I just want to come back to North America. So it sounds like you are making good progress there relative to the market, but obviously, the absolute level of profit is still quite subdued. When we think going forward about the levers to get that higher, is it a market volume question? Or is this all around price cost? I mean is it effectively that the sort of price increases linked to the tariffs and so forth has not yet come through? And I guess related to that, is there any sort of self-help story? I mean a lot of what you've done. at Anderson and other facilities, I guess, are already completed, but is there a self-help element also to getting that margin higher? Yannick Fierling: Yes. Thanks, Martin, for the question. I mean the first thing I would like to underline if you allow me is that, I mean, we are plotting in black for the second quarter in a row in North America in a market, again, which has been pretty price pressured. I mean North America is the first priority. The turnaround of North America is our first priority. And I think we have been making progress throughout the last quarters. Certainly, I mean, we have short-term actions, midterm actions and longer-term actions to take the regions where we believe it should be belonging 6% EBIT longer term. I think the big challenge, the main challenge we had in the third quarter is the one I've been mentioning. We have been making progress in terms of volume, mix and price. However, we were not able to price to extent, we wished simply because, I mean, the tariff structure did not impact the imported goods at the logical or rational level. Now for -- I mean, moving forward, certainly, I mean, we're entering into a Black November, where price pressure will certainly not go down. So the tariff structure would be entirely implemented started 1st of October. So if there is some rational in North America in terms of pricing, we should be benefiting. We should be benefiting mid- to long term out of the current tariff structure here as being a North American producer. So I think, again, I mean, we did not see, unfortunately, a level of rational we would have expected in terms of price increase for importing goods in Q3. I mean challenging month of November with the promotional pressure we'll have. But logically, I mean, moving forward, we should be benefiting from the current tariff structures in North America producing in North America. Operator: And your next question is from Uma Samlin, Bank of America. Uma Samlin: I have a follow-up on North America, if I may. So if we look at the AHAM data on the units for North America, it seems to be flat for the quarter. And you are gaining some share, and it seems like your domestic competitor have that similar things. So who is losing share there? So is there anything you can comment on that? Because given the -- you said like the imports have sort of similar pricing point, they have not been increasing prices. So what is the reason that it seems like the domestic -- you and the domestic peers are gaining share. So is there any comment you can give there? Yannick Fierling: Thanks. Tough question you're asking. I mean, first of all, we are very proud to have gained, to have increased our net sales by a double-digit amount in the third quarter. And again, I want to repeat it is not -- we have not been buying market share. We have been gaining market share here. And indeed, I mean, one of your local producer has been saying the same thing. Unfortunately, we don't buy competitive data in North America. I wish I could answer to what you're asking, but we have the same level of information you do have. So we have AHAM data, and we have our data relative to AHAM. So it's very difficult for us to comment beyond what you just have been mentioning with competitors reporting out as well their Q3 reports in North America. So I'm unfortunately not able to give you more details about who is losing in which product category. Uma Samlin: That's very helpful. So my second question is on Europe. It seems like the competitive pressure in Europe is still fairly strong. And -- but you are seeing some improvement in sentiment. Do you see any increased competition from your Asian peers here in Europe? Do you expect the pricing to bottom out potentially towards the end of the year or into next year? Yannick Fierling: Thanks for the question. Great question here. In all fairness, I mean, Asian penetration in Europe is not something new. I mean, Asian had been entering into Europe now several years ago. Certainly, I mean what I said previously is that, I mean, the cost difference to manufacture a product in Asia or to manufacture a product in North America and Europe has never been as big because of commodity prices, because of energy cost. So cost difference is really, really big. We opted very courageously in Europe a few years ago to step out of entry price points as Electrolux. So we have been ramping down the Zanussi brand, and we have been focusing on Electrolux and AEG. And we're proud to say today that we're winning more market share on Electrolux and AEG core and premium than we're losing on the Zanussi side of the equation here. So we are not exposed to the entrants on entry price point. However, what I need to underline is that, I mean, you're partly right. We see the market moving down into lower price points in Europe. We see cost pressure being more and more intense here, I think we feel slightly protected from that because of the consumer segments we are targeting in Europe. But I mean there is no doubt about that. The market has been moving to lower price points recently, and we see a significant level of price pressure. Operator: And the next question is from Björn Enarson from Danske Bank. Björn Enarson: First question on the U.S. again. And if you can give us some color on the factory load in the plants and what kind of absorption you have of fixed cost now when you gain some volumes, but still volumes are, I assume, quite low. And second question is a little bit on Europe. If you can give some regional comments within Europe where you're seeing this slightly positive trends? Yannick Fierling: Thank you very much for your question. I mean the -- as I mentioned previously, I mean, the most subdued market versus, I mean, the past years, I mean, I mentioned 2019, is certainly Europe. I mean, we are back at the level of 2014. And as I said in the previous call, I mean, usually, this industry in Europe had an organic growth of 2% to 3% a year. So if you put 2014, 2025, we're really missing 20% to 30%. The market is missing 20% to 30% of the volume, we should have expected logically out of the region here. And as a consequence here, the factories overall, which are suffering the most from underutilization are the European factories. That's where everybody is suffering today in terms of factory loading. I would say North America, I mean, a few good news. First, I mean, the Springfield factory, we were suffering end of last year in terms of ramp-up and additional cost. The ramp-up was basically inducing. I mean, Springfield has been reaching what I would be calling a cruising altitude. So the factory is there. And I think we don't have the same factory capacity or utilization issues we do see in Europe. I think certainly, we still have space because we just built this factory. So I think we have space in front of us here. But I mean, factory utilization rate is not the main handicap we may have in North America or the major challenge we do have in North America. Björn Enarson: And are there actions to deal with plant load in Europe? Or how are you dealing with that? What you have done by some divestments et cetera? Yannick Fierling: Absolutely. I mean, first, I mean, we're gaining market share in the core and premium segment. So we are fighting for volume. And I think in the EBIT bridge, as I said during the presentation, I mean we have been positive in volume and mix. And unfortunately, I mean, this advantage was slightly offset by the price pressure we see on the market. So we are really fighting. We're fighting on daily days. Our team is fighting is doing a great job on the market basically to win versus our competitors in Europe. I mean what would be helping us the most is simply to get back to a normal type of growth in Europe. And I think when I say a normal type of growth, I'm not speaking about the 20% to 30% we were expecting a few years ago, but I mean, getting back to 2% to 3% growth in this region here. And what will be helping Electrolux the most because of the strength we do have in kitchen channels is basically that the construction market will bounce back. And we believe it has been reaching bottom here. We're observing that interest rates are lower. So we're really hoping that I mean this market will be bouncing back, I mean, in the coming months. But I mean, right now, we don't have a clear sign it. Therese Friberg: And as you know, with the cost efficiency that we're having this year, it's mainly related to product cost efficiency, but we have 2 years behind us where, of course, we have taken down our staff and our workers in the factories drastically over the last 2 years prior to this one to cope with the factory utilization. Operator: We will now take the next question. This is from Timothy Lee from Barclays. Timothy Lee: Can you hear me clearly? Therese Friberg: Yes. Yannick Fierling: Yes. Absolutely. Timothy Lee: So I have 2 questions on Europe. So the first one is regarding the trend that you have seen in September, which is some improvement. Can I ask about the historical pattern within the first quarter, whether September is usually a strong month in the quarter or not? And so the pickup in September this time is more like a seasonal pattern? Or is really some improvement in terms of your overall business? That's the first question. And the second question is about the margin improvement in Europe on a quarter-on-quarter basis. What's the key driver for that? Is this just from -- mainly from the cost efficiency program or there's something -- some factors that drive the quarter-on-quarter improvement and how sustainable the improvement will be? These are the 2 questions. Yannick Fierling: Thanks for your question. The communication was not very good. So I hope I would be answering your questions correctly. About the month of September, first of all, I mean, we cannot speak about a pattern because, I mean, that was basically a month, and we have seen really quite a lot of unstability in Europe in the past month. And I think in all fairness, unexpected moves as well. So I think I've been in this business for 25 years in all fairness. I mean, it has been in the last years and months, a pretty unstable situation and a situation which is very difficult to predict. However, again, as Therese and myself stated, I mean, we had some positive signals in the month of September. And I think the only wish we have is to get back to a certain level of normality moving forward in this region. In terms of... Therese Friberg: And I guess if the question was more the historical pattern. I think what we can say, historically, of course, we had September, October, November are really the high season month in our industry. Then, of course, as you know, the last few years or quite many years now has been very volatile and not really following a normal seasonal pattern. And also, of course, with a very, very subdued kitchen retail channel in Europe, which is usually the boost as well in these 3 months. That's not really what we have been seeing being strong in the market in the last few years. So that's why we have not really had a normal seasonality. So of course, is September strong because we're coming back to that more positive momentum? I guess it's too early to say because it has been going up and down. But historically, of course, September, October, November are the high-season months. Yannick Fierling: In terms of sales. In terms of margin, if I can just take your question on margin here. As I mentioned previously, I mean, we are not targeting entry price points. Our war, our objective is not cost. I mean we want to introduce consumer-relevant innovations here, and we're extremely proud to have a high consumer 3-star rating across the 3 regions here to win awards like 7 Stevie Awards in Germany in laundry, which never anybody has been reaching before. So we're really trying to get and extract margin out of innovation and the quality of the products we do have over there, trying to escape the price pressure and cost pressure you may find in the enterprise point. However, I mean price pressure is big. Price pressure is big in every single quartile here. And certainly, I mean, reducing cost is one of our strategic pillar, and it is of prime importance to be cost conscious in every single line of our P&L, and that's what we are driving with a lot of intensity. Ann-Sofi Jönsson: Okay. Great. We will take one question from the webinar, which is from Swedbank from Timothy Becker. And that is if we can elaborate on the goal of maintaining a solid investment rating, and if we are okay with the rating or how -- if we have a goal to improve that, and if you could elaborate on that. Therese Friberg: Yes. Of course, I mean, as we stated in the call, our aim is really to maintain a solid investment-grade rating quarter-over-quarter. I mean compared to last year, we are improving on our net debt to EBITDA ratio. And quarter-over-quarter compared to the second quarter, we are stable. And of course, we're doing everything we can to remain a solid investment-grade rated. Yannick Fierling: Our focus remains delivering the year-end results on the profit side of the equation. Ann-Sofi Jönsson: Great. We have one more question on the call that I think we will try to take after we -- or before we close off. Operator: Final question is from John Kim from Deutsche Bank. John-B Kim: Follow up. I'm just wondering if you could comment a bit on wage inflation, sort of percentages are you experiencing? What's the cadence to it? Are there large upcoming negotiations with any unionized union organizations? Therese Friberg: No, I would say nothing extraordinary that we can mention. John-B Kim: Okay. And while I have the floor, is there anything you'd call out in the August developments around U.S. tariffs that are particularly, we should be mindful of, whether it's the metal content or the reciprocal? Yannick Fierling: You want to answer this one? Do you want me to take it? Nothing special on the -- of course, I mean, as I mentioned previously, John, I mean, tariff -- the latest tariff structure is certainly -- should certainly be benefiting the local producers here. The full tariff structure is implemented, I mean, starting beginning of October. And again, all what we're hoping as a North American producer is to see a rational price increase from -- for imported goods starting as soon as possible. That's what I would say. Ann-Sofi Jönsson: Thank you, John. And thank you, everyone, who has listened. With that, we will end this call. And I would like to remind you that we will have a capital market update on the 4th of December that will also be live webcasted. So thank you for viewing and listening in today. Yannick Fierling: Thank you very much.
Parmjot Bains: We're using our new ImpediMed Investor Hub to host the webinar, and I'm pleased to be here with McGregor Grant, our CFO; and Scott Long, our SVP of Sales. We'll be referencing the 4C quarterly activity report and presentation we lodged this morning with the ASX. The presentation is a summary of the more detailed 4C. After our remarks, we'll be taking your questions. [Operator Instructions] A couple of opening remarks. I've just returned from 2 weeks traveling through the U.S., managed to get a cold, hence the voice is a bit weak. I've spent much of the time in Texas meeting with customers and potential customers in lymphedema, heart failure and in body comp. It's always been reinvigorating meeting with the clinicians who are using SOZO with their patients and also seeing the opportunity that is created through the lymphedema business to extend into other indications. The demand for SOZO and the value it generates for patients and clinicians is clearly very evident. I was especially encouraged by the heart failure meetings and the feedback we received for SOZO PRO and the level of information that the new device provides. And I think also what's happening with body comp in the United States is nothing short of astounding. We just don't have anything like it happening in Australia, although I say that yet. From med spas to longevity and hydration clinics, the entire space is exploding on the back of the GLP-1 drugs with many of these clinician -- clinics now prescribing GLP-1 drugs to provide weight loss management services with customers. It's something we'll talk about, but it's clear that ImpediMed has a bright future with lymphedema, heart failure and body comp. So let's move on to the presentation and begin on Page 3 with a quick overview of the agenda for today's call. Great. So we'll start with a business overview, including the key highlights and then take you through the updates for the 3 initial business segment updates. Scott Long, our SVP of Sales, is on the call, as you can see, to provide his perspective on the first 6 months at ImpediMed. I'll then hand over to McGregor to present the financials. And to finish, we'll cover the outlook for the balance of the calendar year before commencing the Q&A session. Now turning to Page 5. One clear insight that was reinforced on my trip for the last couple of weeks was the value proposition that the SOZO Digital platform provides. We have a best-in-class product that provides valuable patient information for clinicians. Clinicians find it quick and easy to use. And in the larger hospitals, they continue to add new devices across departments with different use cases. And we expect that will only continue with focus and effort. We're in a unique position. We have the only device of its type, a best device with multiple FDA clearances across the applications and have invested in the device so that it stands apart from the competition in terms of FDA clearances, its accuracy, usability and applicability. We have now over 600 devices now across the U.S. health care system, including SOZO is in 18 of the top 25 U.S. hospitals. And it's not just about the validation that this provides, but also the ability to leverage these relationships that we have built and leverage the time and effort in meeting the requirements for the security of patient data that enables us to extend the product. It's easy to underestimate the processes required to become established in these hospital systems. Getting a device approved at a hospital isn't quick. There's legal contracts, budget and IT approvals, and it can take months. But once these are completed, adding a second or third device within the hospital system is a much faster process because these hurdles have already been cleared. That's an exhaustive process. But once done, it applies to secondary devices in that hospital or other hospitals within the system irrespective of the application, i.e., lymphedema or heart failure or body composition. And we have multiple MSAs and master service agreements that open up the potential for expansion in over 1,500 related hospital networks. That's a big advantage. The opportunity for us is to leverage everything we have done and maximize the revenue across the cost base that is largely set. And thankfully, it's happening to coincide with some of the fastest-growing thematics in health care, cancer survivorship, GLP-1 therapy and the growing cost of treating heart failure. I remain very positive for the long-term outlook of ImpediMed. Now turning to Page 6, we will touch on the key highlights for Q4. So financial metrics, they remain positive, and I'll let McGregor go through the metrics in detail later in the presentation. Reimbursement. Now this was clearly the standout for the quarter. Reimbursement is absolutely critical for the success of U.S. med tech companies. And since June 30, we have seen a reacceleration of payers updating their policies to include BIS as medically necessary. In the last quarterly, we mentioned a large player commencing coverage. Since then, we've announced another top 10 player publishing positive policy. And even more recently, another 4 Blue Cross Blue Shield plans have updated their policies to include BIS. To put this into perspective, since the 30th of June, states with over 80% coverage have jumped from 25% to 42% and states with over 90% coverage has almost quadrupled from 7% to 27%. These -- and these aren't small states. The top 9 states in population in the United States now have more than 90% coverage. These changes are recent as we expect they will have a positive impact on sales over the coming quarters. In terms of sales, overall unit sales were up on the quarter prior, but U.S. sales were softer than we had anticipated. Even deep into the quarter, we're expecting a closer result to what we produced in the last quarter and in line with our own internal forecast. We track the opportunity through the process and a number reached the final sign-off, but were then held up, not denied, but not approved yet. Some have come through post the end of the quarter and some are still sitting on the CFOs and purchasing managers' desks. We do expect to see a bounce back this quarter, and the team is working hard to deliver. We've also brought Scott Long, our SVP of Sales to the call, and I'm looking forward to introducing Scott shortly to give you his perspectives. Now I'm going to touch base on the 3 applications for SOZO, lymphedema, heart failure and body comp. So first, over to the breast cancer-related lymphedema. I've touched on a number of these points earlier in the presentation, so I won't go through them again. But what I want to do is take away for you is that lymphedema is primed for growth, and we remain very optimistic about the opportunity. And what I'd like to do now is introduce Scott Long, our SVP of Sales. We were really pleased to have Scott join ImpediMed. He brings with him over 30 years of experience in breast cancer medical devices and with that, a deep understanding of the space. He spent his career building strong relationships with breast surgeons and he is used to working with sales teams in smaller companies. This means he not only knows how to get results, but he's got a great network of top-tier sales talent. I've asked Scott to talk about what he's seeing at the call phase as well as his first impressions of SOZO, the opportunity, the team and why he's optimistic. So Scott, over to you. Scott Long: Thank you, Parmjot. And thanks, everybody, for having me on the call, I do appreciate it. Just a little bit about my background. As Parmjot mentioned, I've got 30 years of experience here in the breast cancer field, working primarily in early-stage start-up companies, a number of them that eventually had successful exits. In addition, my big company sales management experiences with Ethicon Endo-Surgery, operating division of Johnson & Johnson and Hologic. So I feel like I bring a unique perspective to the company. As Parmjot mentioned, as a function of having been around for as long as I have, I have not only quite a network of physician friends that I've accumulated along the way, many of whom are either already our customers or are on the way to becoming our customers, but I also have a network of industry colleagues that I've worked closely with through the years. One of them, Lisa Prom, as everybody probably knows, is one of our cornerstone people here at ImpediMed. So what I've gleaned from my 7 months on board with the company now is that we've got a great opportunity at hand here. As Parmjot mentioned, we've got one-of-a-kind technology. We have no commercial competitor. We have a growing reimbursement network, and we have societal guideline support. So those are unique attributes that most companies don't really have as they go into their competitive markets. As she also touched on, this is a multilayered sale that involves various aspects of the hospital, different stakeholders, oftentimes siloed stakeholders that don't readily and often communicate with one another. So it is the very definition of a complex sale. And as a result, it does take quite a while to get these deals over the finish line. All that said, we have also some great work on Lisa Prom's part with our master service agreements. So we have an opportunity here as we enter into those systems to go deep into those systems. And I think as a result, once we get our foot in the door in those systems, I think the opportunity for us to sell 10, 15, 20, maybe even 30 devices is very real. Now upon coming into the company, the only person I knew here from my past lives was Lisa Prom. So I had to sort of size up the sales talent that I inherited here. And there were some really excellent people here, not just Lisa, but Adam Brown comes immediately to mind, and there are some very good, stable, solid people. We did have some holes and some weak links as we deem them to be, and we made some quick replacements and upgraded the profile of our sales team. We brought in 3 individuals that I had worked with previously, all of whom are A-List players in the breast cancer field, the oldest of which at this point has only been on board with us for 4 months. The newest has been on board less than 2 months. So they haven't yet really started to contribute the way that I know they will in this upcoming quarter, but I think that's one of the big opportunities for us. One of the things that was critical to me to do was to really change the culture of the sales organization and get people that were very results-oriented, very successful track records, people that were very positive, optimistic, self-starters and people that really wanted to be part of a winning team. We want to stabilize our sales team here. We've had an issue with turnover of key players in the past, some of which were very good players. We're going to bring that to a stop here under new leadership, and I'm very, very optimistic we can do that. As far as the market opportunities themselves, as Parmjot touched on, breast cancer-related lymphedema is a platform that I believe will grow steadily over time. And I think over time, it will be a tremendous business for the company that we can all look back and be proud upon. It's really the legacy of the company. Body composition is very exciting. There's this new emerging area called exercise oncology, that's garnering a lot of podium time at breast cancer meetings. So I think we're uniquely positioned to capitalize on that. It's a more competitive marketplace, but we've got best-of-breed technology. And although we don't have a CPT Category I code in that area, I think there are ways around that, and we've been creative in putting forth programs that I think the market will readily adopt as we get a little further into this. We're still very much in our infancy with Adam Brown heading it up for the company. Last but not least is heart failure, which -- certainly cardiovascular medicine is part of my background. I had a 7-year stint in CV medicine before I got into breast cancer care. And I think that SOZO PRO is really uniquely positioned to really have an impact and help heart failure patients everywhere. I think it's really going to be probably the greatest value driver for the company over time, and I think it will benefit patients, our employees and our investors alike. And I'm really looking forward to what I think the next couple of years will hold within the heart failure franchise. Parmjot Bains: Brilliant. Thanks, Scott. That was very comprehensive. So we go to Slide 8. Brilliant. We're just finishing up breast cancer awareness month. I think tomorrow is the last day. But around the world, there's such a coordinated effort to increase awareness around breast cancer and also breast cancer-related lymphedema and the side effects of breast cancer treatment. We continue to engage in activities that support our clinicians and help drive awareness of breast cancer and the longer-term challenges for survivorship, which include lymphedema, but also high-risk patients in body composition. This quarter, we attended several conferences that coincided with Breast Cancer Awareness Month, and we also participated in a number of events where clinicians hosted some very well-attended webinars, one of which was really focusing on the Lymphedema Prevention Program along with body composition by Dr. Weintritt, which is part of the U.S. Oncology Network in Virginia. These activities not only support our clinicians, but they also help raise awareness for SOZO and generate leads. Now turning on to Page 9, which is really around heart failure. It's one of my -- the focus areas of my recent trips to the U.S. and the meetings went extremely well. And I returned back to Australia, not only with a cold, but also knowing that the opportunity was very large. The data that we've had from recently completed investigator-led clinical trials has reinforced the clinical utility of SOZO through the potential to manage fluid levels as well as body composition within heart failure and was very well received. As I mentioned in the last quarterly, heart failure is one of the biggest issues that health care systems face. It affects over 64 million people globally, and it's one of the top causes of hospitalization. It's not just a clinical issue, but also places a significant burden on health care systems because of complexity of care, high readmission rates, costs and a sheer volume of patients involved. Each U.S. hospital readmission for heart failure costs between $10,000 to $20,000. And talking with clinicians across the U.S., some of these readmission rates can vary from 10% to up to 30% of patients that were discharged. A lot of hospitals are looking to see how they can address this and SOZO has a really great fit and opportunity. We have FDA clearances in place. SOZO is the only product of its type that can be used with patients with cardiac implantables. It fits into the standard model of care. So all of these heart failure patients will come into a clinic and get a weight. The new SOZO Pro has a built-in weight scale, so it can -- SOZO can actually fit in the pathway of care and the data can be integrated into EHRs for clinician review. There is Medicare coverage and private reimbursement available in some key states, and that's been the area of focus for the visits and the early pilots. We have a couple of investigator-initiated studies underway in the U.S. already, both exploring key heart failure markers alongside SOZO measurements to give us even more data to help support clinical adoption. And we're also looking at how we can increase this payer coverage. We're initiating key commercial pilots in the U.S. with key clinicians across different sites of care. And by that, I mean the inpatient, the outpatient and the private cardiology clinic. Now if I move on to Page 11 (sic) [ Page 10 ] of body composition, which is the other area of focus. So U.S. go-to-market activities have commenced with 2 new dedicated body compositions reps. We've initiated active sales with our current product offering. Initially, we talked about oncology as a natural adjacency and Scott referenced the exercise oncology space, and that continues to be a focus. But we're also looking at how we can leverage SOZO's unique position within hospitals to support clinically managed weight loss and cardiac rehab guidelines. What makes this especially compelling is our unique position in the market in terms of being the only BIS declared device at a time when leading medical societies are specifically calling for muscle mass monitoring during pharmacological weight loss using BMI -- using BIS rather than purely weight for BMI. Although we've highlighted the TAM on the slide to be just body composition [ analogs ] for U.S. health care and clinical market, we see a much larger opportunity being in the wellness market, which is the medical spas, longevity clinics, hormone replacement clinics and hydration clinics, which -- many of which are prescribing GLP-1s. My time in the U.S. was eye-opening. There was generational opportunity emerging around the rise of these weight loss drugs and the sheer number of facilities now prescribing and needing to manage muscle mass and body composition. We've begun a measured expansion into this space, assigning 2 dedicated sales resources to build out the market. And over the next couple of weeks, the team will be attending a couple of key conferences, including MedSpa Pro in Florida and the Lifestyle Medicine Conference in Dallas, and we'll gather early feedback from customers in terms of how we accelerate our go-to-market approaches and also the needs whether or not we need to optimize our current product outputs. In terms of feedback from the market, both in heart failure and body composition, the outputs that we provide are actually enough, particularly in heart failure space, but we're always looking to get feedback from customers. Now I'll turn the presentation over to McGregor, our CFO, to go through the financials. So McGregor, over to you. McGregor Grant: Yes. Thanks very much, Parmjot. So starting on Page 12, as Parmjot mentioned, the financials remain positive. Financial discipline continues to be a core of the business -- core goal of the business, and the company maintains an ongoing program of cost control as part of the target to reach cash flow breakeven. We continue to adjust our cost base as required. The previously announced one-off payment for key electronic components impacted some of the metrics this quarter, along with the continuing strengthening of the Australian dollar relative to the U.S. dollar. The company reported an operating cash flow of $5.6 million for the quarter. This number was inflated by the previously announced one-off $1.2 million (sic) [ $1.1 million ] payment for the electronic components that was originally planned for quarter 4 FY '25. Cash receipts from customers for the quarter were $3.4 million, down on the $3.8 million reported last quarter due to the timing of receipts. We expect this number to increase consistent with the overall growth in revenue. The company's cash balance at 30 September was $23 million, equating to 4.1 quarters of operating cash flow. Excluding the one-off payment, the normalized quarters of operating cash flow would be 5.3 quarters. With the expected increase in receipts from customers, the receipt of the company's R&D tax offset and no recurrence of the one-off payment, Q2 operating cash flow is expected to be approximately $3 million. As previously mentioned, the strengthening Australian dollar relative to the U.S. dollar, resulting in an unfavorable impact on cash of $700,000 as well as unfavorably impacting other items such as annual recurring revenue. We turn over to the next page, TCV and ARR. TCV for the quarter reduced from the record $6.3 million to $4.7 million. The reduction was a result of less devices sold in the quarter and a smaller number of contracts up for renewal compared with the larger number renewed in the previous quarter, which we had mentioned at that time. We continue to be very pleased with the quality of accounts initiated or renewed in the quarter, together with the continued solid price increases on renewals, averaging 10% for the quarter. As indicated, churn remains low below 3%. As we know, the ongoing sale of new contracts translates to growth in annual recurring revenue. Contracts in place at 30 September '25 are expected to generate core business annual recurring revenue or ARR of $14.4 million for the 12 months to 30 September 2026. That equates to a 24% year-on-year increase and a 3% increase on the prior quarter. The stronger Australian dollar reduced the increase in ARR as the FX effect is applied to the whole balance. Now turning to Page 14. Revenue for the quarter was a record at $3.6 million, up 33% year-on-year and 9% on quarter 4. This was despite the U.S. revenue result being affected by the impact of the Australian dollar. And Rest of World revenue was up significantly as a distributor reordered inventory at the beginning of the quarter. Cash receipts from customers of $3.4 million, significantly up on a year ago, but down 11% quarter-on-quarter. The reduction from Q4 was largely due to timing of customer receipts, as I've mentioned. And as previously stated, we expect to see this number increase in the coming quarters as our revenue grows. On to Page 15. Parmjot and Scott have already discussed sales. Testing continues to trend upward, up 4% on the prior quarter with a 3-year compound annual growth rate of 16%. We continue to monitor testing numbers closely. Program health is essential to patient outcomes and essential for renewals, so they remain a priority for the company. Like many things in this business, patient testing growth rates are also correlated to levels of reimbursement. As reimbursement increases, we believe the frequency of patient visits will increase until they more closely match the protocol used in the PREVENT trial. This will result in increasing patient testing growth rates over time. I'll now pass back to Parmjot to wrap up before we go to questions. Parmjot Bains: All right. Thanks, McGregor. Last quarter, we set the goals for the first half of the year and overall, we remain on track. The sales for BCRL were behind our expectation. But as I mentioned, we expect them to rebound this quarter. Reimbursement is ahead of expectations with 6 new payers reimbursing, and we've set ourselves a new target of 100% reimbursement for breast cancer-related lymphedema. Heart failure and body composition are on track, and we're working hard to progress these opportunities rapidly and convert them into early sales. We'll do this while driving our financial discipline and constantly refining our cost base. Now we'll open up the webinar for questions. Unknown Executive: [Operator Instructions] we will endeavor to get through as many questions as possible. If we don't get answer your question, then we'll follow up offline. The first question comes from John [ Hardy ]. And John's question was, what steps are you taking to increase sales and reduce costs? Breakeven seems to be unachievable on the current trajectory. What is your plan to raise more capital? Have you explored interest in the sale of the company? If so, what result? If not, why not? Parmjot Bains: Yes. Thanks, John. So I'll pass McGregor -- that question to McGregor. McGregor Grant: Sure. Thank you. Thanks, John, for your question. Look, everything we've done to date has been about increasing sales. As you saw in last quarter's presentation, we've started by building a pipeline of leads and opportunities. You can't accelerate sales without growing these opportunities, and we've invested in systems and in our marketing that is now well developed to support that. As we know, reimbursement is key. We need critical levels of reimbursement across the states. That's taken time, but we are seeing that come through now strongly. Regarding breakeven, clearly, on the current trajectory, that's a challenge. We need to see sales accelerate, and we're confident that that's what we're going to see. We have no plans to raise capital. And if you look at the current numbers, the operating cash flows are running at over 4 quarters. And with the expectations that we've just communicated, next quarter, we should see that increase. We have supportive shareholders and the message that we get is to focus on sales. So that's exactly what we're doing. There are no plans to sell the company. We think the company is undervalued currently. Not many companies have the kinds of opportunities that we have in front of us in terms of FDA approvals, large markets, growing reimbursement. And at this stage, we just do not think that's in the interest of shareholders to pursue that. Unknown Executive: Thank you. The next question comes from Paul. Read the new areas of expansion, heart and wellness, how much investment do you see that requiring? Parmjot Bains: So I'll take that question. Both heart and wellness, the product exists and the data is there to basically go out and capture that market opportunity. So really, the investment is just getting out to the customers and out with the field force. So we've already done a measured expansion into a couple of body composition reps that are focusing on driving those sales and adoptions underneath Adam Brown who is one of our existing reps in that space. Heart failure, we are currently working on very small clinical pilots to drive adoption in a couple of key states. And then we'll reassess that, but it will need to be done. And -- so it will be around sales team growth. But we are working on that go-to-market model for how we capture that cardiovascular market opportunity, which may include partnerships or other ways of capturing that growth with probably minimal investment. So from a product perspective, we really don't see a lot of need for investment. If there's additional data required, we are generating it through investigator-initiated grants, which generally are funded by investigators and we provide the device. Unknown Executive: Thank you. Question from Ian. Cash receipts have fallen for 2 quarters in a row. Can you provide details as to why with sales renewals increases this has occurred, particularly since previous quarter had a record TCV? Parmjot Bains: I'll pass that to McGregor. McGregor Grant: Yes. Thanks, Ian. The answer to the variation in receipts from customers is down to timing. We've looked very closely at that. Some customers pay for a significant portion of their contract in advance and others pay over time. So it is ultimately a question of timing. Internally, we also track days sales outstanding. That metric continues to improve, which gives me confidence that overall, we're managing our receivables correctly and well, and that receipts from customers -- therefore, the fluctuation of receipts from customers really is just a function of the timing of invoicing and payment and the nature of invoices. So we have seen variation in mix from quarter-to-quarter, which is the result that you see. Unknown Executive: Next question comes from John. Has the Board considered listing on NASDAQ where the market has a better knowledge of how to value a tech business such as IPD? McGregor Grant: I'll take that. So yes, John, thanks again for your question. This is something that has been discussed in the past. The issue with U.S. markets, you need to be considerably larger than we are to attract the kind of interest that's necessary. There are many Australian companies that have tried that with limited or no success. We have a very supportive shareholder base here. And when a med tech company like ours starts to perform, the share price performance can become very meaningful. So it's not something we're considering at this time. Unknown Executive: Thank you. Next question comes from [indiscernible]. He has 2 questions. Good to see ImpediMed progressing well with the expansion of SOZO. These expansions, including body composition and heart failure being 2 such examples. Can you please confirm if there are further proposed SOZO expansions into areas such as sarcopenia and frailty screening, pediatric growth and fluid disorders, liver disease and pregnancy monitoring, just to mention a few. If expansion beyond body composition, heart failure and lymphedema, how challenging would hardware and software be? And the second question, it would seem that the expansion potential for the SOZO device and software platform are numerous, which could add significant opportunities moving forward. If the organization has addressed the potential for SOZO expansion beyond the current capabilities, how cost prohibitive, if at all, would it be to affect the necessary hardware and software changes? Parmjot Bains: Okay. Great. Thanks for your question. So sarcopenia and frailty come under body composition and also in heart failure and are definitely on our radar and our device can -- does actually measure that. One of our clinical sites that's using it for heart failure is actually measuring frailty under the frailty index for heart failure patients. And we've got clinicians in NYU using sarcopenia and frailty as they look at doing transplant patients. So it's definitely there under the radar, and we are working on how we kind of tweak or adjust the outputs on the SOZO software to do that. Pediatrics was difficult and we've kind of -- we keep an eye out on other opportunities like venous insufficiency and end-stage renal disease. But as a very small business, we have focused and prioritized ourselves on lymphedema, body composition and heart failure based on the major trends that we're seeing and the likelihood of clinical adoption within the U.S. health care system. In terms of these growth opportunities, hardware and software aren't limiting factors. The devices now already exist. SOZO is a current device and SOZO PRO is a new device, both are now in the market and are being used and adopted. So we don't need any devices. From a software team perspective -- or software perspective, we don't actually need any new applications. We've already got these software screens developed. We have a new Head of Product, our Chief Product Officer, Scott Savage, who joins us from a very long history at Google and Mable and ResApp more recently, and he has built a recreate mindset and capability around any software development that we need in terms of streamlining and accelerating that. So really don't -- we're not aiming on investing a lot of work on software development. Really right now, it's just tweaking and refining the outputs with the team that we've got and the data that we've got. So hopefully that answered questions. Unknown Executive: Next question from Peter. Every day, there are thousands of decisions made by caregivers as they receive breast cancer survivors, whether to SOZO test or not. If each of these daily decisions will be determined whether our company's success, it should be. Therefore, for shareholders needing to understand how well the company will do, it is some baseline tests completed and the sum of the follow-up tests completed is the most important indicator of the future for our company. Can you please share the number of baseline and number of follow-up tests this last quarter split into U.S. and the rest of the world? And can you commit to providing this on a continuing basis? McGregor Grant: Yes. Thanks, Peter. Look, monitoring patient numbers, as we've mentioned, is a very important part of what we do. And -- we monitor very closely, and it's really tied into monitoring the health of the programs that our customers are deploying, which we call our Lymphedema Prevention Program. And so our clinical sales specialists work very closely with our customers to -- once the devices are installed, get the first measurement and then to monitor progress against the protocols. And as the reimbursement improves, we will see hospitals continue to develop and implement and comply with these protocols, and we'll see an improvement in the overall utilization of the devices. It's the information we track internally and the slide that we provide gives a very good idea of how overall measurement use is growing. Unknown Executive: Thank you. A question from Tom. Scott, how long for your team to hit their strides? And do you have a target of U.S. units per quarter? Scott Long: Yes. Thanks for the question, Tom. As I mentioned, we are in the process of building out our team, and it always takes time even for highly pedigreed experienced people with relationships in their areas to really start to hit their stride. So it will be a little bit staggered as a function of when people have come along and when we get them up to speed. But I think -- in round numbers, I think it's realistic for people to land in that 8 to 10, perhaps even 12 on the upside number for devices sold per quarter. I think that's a reasonable target. I think it's achievable. It may take a quarter or 2 to get there, but I'm confident we can. Unknown Executive: Yes. Thanks, Scott. A question from Paul. Read all the new areas of expansion, heart and wellness, how much investment do you see that requiring? Parmjot Bains: So heart and wellness, heart failure, really, as noted, it's going to be around field force and getting reps out to the market. In terms of heart failure, we are doing, as I said, measured commercial trials because there's already reimbursement coverage, Medicare coverage, Medicaid coverage. Many of these heart failure patients are over the age of 65 and are generally covered by Medicare, Medicaid across the United States. The clinical data already exists. We know from previous study that was done by the organization that -- there is a measure that we call HF-Dex which is a measure of extracellular fluid over total body water, which is high in heart failure patients. And a number over 51 has a fourfold increase -- likelihood of readmission and that we have also shown that our HF-Dex is twice as sensitive as weight, which is really kind of one of the key measures that's used to date in terms of managing or decompensation for heart failure and decondition for heart failure. So the data exists. We've checked it out and validated it with the cardiologists and have had a number of discussions with the teams around that. The reimbursement pathway exists. What we are doing now is just starting the commercial pilot. So from a heart failure perspective, I think we've got what we need. There's always opportunities to add more data, and we're looking at investigator-initiated trials to do that and also talking with payers to see where we don't have some payers covered, how can we get that extended in partnership with a number of clinicians who are very, very interested in using the device and actually reached out to us around that. In terms of the body composition space, we're looking at building this out and building out the teams. A lot of our existing reps already called in that space. So within the hospital space, it's about taking that current sales force and moving into the next department. So taking on those adjacencies, both lymphedema [indiscernible] bariatrics, weight loss and other clinics. In terms of that med spa and lifestyle medicine space, that's where we've put the additional dedicated reps. A lot of these are actually large chains in the United States. And so really, it's not about going out and targeting the one-to-one kind of individual clinics, but really looking at these kind of corporate deals. And so the attendance of these conference is actually critical, particularly these ones that are coming up over the next couple of weeks to really look at how we build up those relationships and do that fast. So it's a big area of focus for us. In terms of product, I noted we don't actually need to do anything else with our product. We've got a great product. The software already exists. We will continue to kind of tweak some of these measures, particularly as we look to get that sarcopenia indication and make sure that we continue to differentiate ourselves in the market. But that's really leveraging the existing software team that [ re-exists ]. Unknown Executive: Thank you. Another couple of questions for Scott. I'll take them one at a time. First one, as a result of receiving greater than 90% coverage in the 9 largest states, can you speak of, one, likely improvements in the efficiency of customer conversion, e.g., the number of sales visits required before conversion; and two, the likely percentage of customers signing from their own inbound inquiry versus your sales team outbound sales? Scott Long: Yes. I think, look, the improving reimbursement landscape certainly is a bit of wind in our sales. It's very helpful. In the end, is sort of a supplemental question that the hospital needs to do their own due diligence on and decide the value of it. And what I mean by that is that the sale, first and foremost, is really a clinical sale. The clinical stakeholders have to believe that lymphedema is a legitimate problem in their facilities. It's one that they want to address, and they want to make sure they validate our technology as the best solution to address it. That's really kind of the long pole in the tent in terms of how long everything takes. Reimbursement, certainly having it does retire a key objection, but I don't know to what degree that will accelerate sales. It certainly won't hurt, but it's hard to put a value on how much and how fast it will accelerate the process. And I'm not sure I caught the second question. Unknown Executive: No, I haven't given it to you yet. So it was a follow-up from Andrew. Is that 8 to 12 units per sales exec? And how many sales personnel are there now? Scott Long: Yes, that would be the number that we're going to shoot for each one of our people. Right now, we've got 8 people. We have 2 openings. We did have the loss of a key person who've been with us for 6 years, our Denver-based [ Rocky Mountain Kae ] just a couple of weeks ago. We have a strategy in terms of how we're going to cover that area. We do have a Southern California candidate in the queue that we like. Parmjot actually just got done interviewing him within the hour. So hopefully, we'll have that key slot filled here before too long. And then we've got one more opening we need to fill. Unknown Executive: A question from Ian. As Texas has now broken 80% reimbursement and McKesson's are based there. Any feedback on activity there and also with IDNs in general? Parmjot Bains: Absolutely. So let me answer this one. So absolutely, U.S. oncology is kind of one of our key customers in the U.S. health care landscape. And we actually have Lisa Prom as coordinating all of our U.S. oncology activities. We are attending the McKesson Accelerate Conference next week. So we are going to be presenting at the U.S. oncology at this conference. And they have a program that they have initiated around managing the high-risk patient. And so the SOZO product, both in terms of lymphedema and body composition fits really well. That webinar that I highlighted in the presentation deck was actually given by U.S. oncology surgeons and the PA who manage this high-risk patient population. In terms of Texas, it is one of the biggest U.S. oncology areas and one of our top sales reps focuses on the Texas market. So with the addition of the Blue Cross Blue Shield provider that has now provided coverage, we are getting a lot of positive momentum in that market. And this is a market where reimbursement does matter. And we are seeing that. I was actually -- have been in Texas for the last couple of weeks ago and meeting with these surgeons. And so this -- they're in that program where they need to see that adoption and that reimbursement come through for them to grow out and expand that opportunity, but very much an area of focus with a dedicated project manager of the organization and also a dedicated key accounts executive, Lisa Prom, our most experienced exec taking the lead on getting those sell through. In terms of the other IDNs, we had -- as noted in the deck, we've got a couple of additional MSAs. We've got 27 in total. A couple of them like Ascension combined and Indiana combined with Indiana reimbursement going up to 90%, along with an amazing new rep, Julie Davis, gives us a lot of cause to be very optimistic that we will be able to get out there and drive sales. But I might just let Scott add in. I think you probably got the same, right? A lot of these IDNs are starting to come on board. We got some big ones sitting there where they've got 1 or 2 devices and really we just need to kind of grow. But I don't know, Scott, do you want to add? Scott Long: Yes. No, you're right. I think you referenced Ascension, Julie Davis had worked with me with the past company where she did a really nice job in Ascension facilities throughout the Midwest, particularly in her home state of Indiana. I do think we also have a big opportunity out in the Western U.S. in the Intermountain Health area, where we've got 1 device in play right now, pending a successful implementation and associated reimbursement. We have every expectation that we can grow that number to double digits, perhaps within the next quarter or 2, certainly before the end of the fiscal year. So I think the key to our success is going to be really going deep into those IDNs where we have MSA agreements. Again, Lisa Prom has done a masterful job of providing us with that entry point, and it's really a sales execution issue now. Unknown Executive: So a follow-up on the same topic. While it would not be the same for all, what is the level of cover that IDNs look to, to start their programs? Parmjot Bains: A lot of MSAs have been started without the coverage, right? So high level of coverage. And so -- because a lot of it, as Scott said drove around clinical need and clinical adoption. But what you find is that when you're at the call phase, there are those IDNs that -- these assessments go to a value committee, right? And so they do look at that reimbursement and they do look at the financials coming in. And we're not hearing a lot around the cost in the U.S. health care system and if there's an impact, but it does matter. And so that reimbursement does matter. They will vary on what they're doing. But in terms of when we start to see outreach from clinicians, particularly around some states like Texas, they are -- when the reimbursement change, we got the outreach, more outreach. So it kind of varies, right? I might leave it at that. Unknown Executive: Okay. A question from Gary. Do you have a value of the number of units in the sales pipeline? Parmjot Bains: We did put that out last quarter actually, and didn't come in this one. It's over 700 in the opportunity pipeline. We didn't actually put it out this current quarter. So we do track that very closely. And the goal for us is to get those opportunities converted to sales a lot faster. And that's been the big area and Scott is out in the field most days, helping the team get that over there. And so just in terms of the ones where we've got active opportunities under management, that's high. And then as we noted in this current 4C where we've got these IDN networks and master services agreements in place, they represent over 1,500 devices that can be put into these systems. So the opportunity is there and the opportunity is large. It's a matter of trying to accelerate this execution with the new sales team, with this higher reimbursement coverage and some more urgency of action. Unknown Executive: And just a question again from Paul. You mentioned that sales can take time. Respectfully, you highlighted this a number of quarters ago and that the time line seems to be extending. As a shareholder, this is concerning, how many more quarters do you believe we need to wait and see meaningful sales come through? Parmjot Bains: We started to see adoption and pick up. And so we were looking at this quarter, like the previous quarter, we had record number of sales and record number of TCV in the U.S. system. We actually thought we were on track to get the same and continued growth. And I think as Scott has highlighted, with the new reps, we will -- we are expecting this to accelerate and to get all these reps to get on board and get some meaningful adoption. Unknown Executive: So a question from Andrew. Probably, we've missed one of these questions, but I'll get back to that. Follow-up I refer back to my initial question about linear versus exponential growth. Are we expecting 80 to 100 units per quarter static or growing? And are we expecting any sales as they were mentioned in the previous briefings, i.e., 10-plus single sales point -- single point sales? Parmjot Bains: Yes. So if you kind of add up the numbers, it should be at that run rate when everybody gets up to speed. And there are definitely some multisystem deals sitting in that in those offerings. We had the big one that went across the legacy in the last quarter with the 9 system deal, which is now an active implementation going into a very healthy program, which the rep actually sent us a note, Kevin sent us an update note around that this morning. There's a number of them where they are starting with 4 to 5 and then they will grow out. So what we typically see is they'll start with a smaller number and then they will keep adding them on. And that's what we saw with Robert Johnson, started with 1 or 2 and then basically, by the end of the last quarter, they had 9 to 10 across the whole system. So it's unusual to get all 10 at once just because it takes time to get all the adoption set up and each clinician often needs to get buy-in. It typically tends to be more a smaller number that kind of grows out within the system. But that's in breast cancer-related lymphedema, but we do see body comp really picking up and then heart failure also picking up into the next quarters, but body comp definitely. Unknown Executive: Question from Andrew. Are you looking into data from test results in mining for research and how can that be utilized? Parmjot Bains: Absolutely. So as we look at -- so we've got, gosh, over 1 million tests and a significant data set that sits in behind. And with Scott as part of the new team, we've restructured our team so that the data R&D and data analytics that we're now reporting to Scott at least from a Product perspective. So we basically both look at our existing data set, but we also work with clinicians that are using the SOZO device to look to see how we can refine offerings. So some of the areas that we're working on that we're using our data and correlating with DEXA as around trying to build a bone mineral density because that is one thing that we think would add value as we kind of build out the offering. So we absolutely look at that. We also look at that data when we're looking at creating a proposition towards customers and one that we're in discussions with is around Kaiser, where we've got clinicians already using the device. And so we can show them what the lymphedema program looks like, the rates of lymphedema that have occurred within the system and then the savings that they get from early detection and prevention. And we've used that as part of a pitch towards the corporate head office. So we absolutely take a look at our data both from a development perspective, but also from a sales and marketing perspective. And so that one site that Scott is referencing in terms of Intermountain will look at that data as well. So they will get the program going and then they'll look at what -- from a real-world evidence perspective, how successful have the program been, and therefore, look at how they roll that out across the network. And so we have a whole team that goes in and can support that from a data and analytics perspective. Unknown Executive: Part of this question has been answered, but there's a second part that hasn't. This is from Andrew. This is a disappointing quarter. What can we expect in the next quarter, which I think you've answered. And where can you see future savings occurring? Parmjot Bains: I might just pass that to McGregor in terms of savings. But noting that we are constantly looking at our cost structure very constantly and very tightly managing that cash burn. But McGregor I'll get you to jump in. McGregor Grant: Yes, sure. I think just to reemphasize the fact that we are constantly looking to manage our costs very carefully. It's important we don't go too much into the specifics of that, but to be assured that wherever the opportunity presents itself to achieve savings through perhaps increasing the number of roles in where it makes sense like in Australia, as we've done, we'll continue to do that and to ensure that we're focused on only incurring costs on things that are really directed towards driving sales in the near term. Unknown Executive: And a question for Scott. Can you explain the sales process? Given the complicated nature of the sale and the long lead times, how do you monitor the sales progress on a weekly basis? Scott Long: Yes, it's a great question. It really begins with a breast surgeon champion. Typically, the breast surgeon is the quarterback of the care team. They're the ones who are most inclined to get behind a lymphedema prevention program and use their political capital in the hospital to start the process. Really, that's the clinical check box. We have what we call a clif process, CLIF, it's clinical, finance, IT and -- legal, IT and finance. And we sort of walk through those steps progressively. We have that documented on a dashboard that Mike Bassett, Parmjot and I view religiously. We have green, yellow and red in terms of where we are in the process with each one of those key stakeholders. They can take varying amounts of time, but we are very much on top of where we are with each and every one. And we don't graduate an account from the upside or a long shot category as we have it laid out into the forecast until we have all those boxes checked and we have 4 greens across the board. So that's sort of the methodology we use to track our targets. Parmjot Bains: That's all automated. It all that comes out of the CRM. And we do regular kind of calls with each of the sales team just to make sure that it's tracking through. We have a dedicated IT person that supports all these IT assessments within each customer and then contracts and legal person that accelerates that legal process and finance, is really making sure that each system has their budget approved as we work through the value analysis committees. Unknown Executive: A question from Andrew. Is there any plan for recurring revenue from Rest of World markets as I don't see a pathway to profitability from single unit sales for Rest of World sales? Parmjot Bains: In terms of recurring revenue, we did -- we are constantly kind of looking at that market. It's a non-reimbursed market. It's particularly for lymphedema. So a lot of it is really around that capital sales model. Right now, we've kind of kept it as a focus on a capital sales model because it's done through a distributor. And -- but we do look at that. The challenge is particularly in Australia is it's -- lymphedema is kind of reimbursed under the Chronic Care Management code under Medicare, it's really not available to be reimbursed because it's all covered under the state-based health care system rather than the Medicare-based system at the national level. So we constantly keep kind of reviewing it, and we would love to get it to that. But right now, it's really -- the capital sales is the key kind of area of focus. We are looking at that body composition space to see if there are opportunities to work with providers, distributors and potential customers around getting it to a recurring revenue kind of SaaS business model in that space. But the U.S. really at the end is the core market for us, that's really where a lot of that growth is. Unknown Executive: A question for Jonathan. Do you expect to separately report revenue on body comp and heart failure? Parmjot Bains: I'll pass that to McGregor. McGregor Grant: As the revenue from these other indications become material, I think we will look at the best way to reflect that revenue. Unknown Executive: And I think that covers all the questions we have. And given it's 3 minutes to the hour, I'll pass back to Parmjot for closing remarks. Parmjot Bains: Okay. Thank you, everybody. Thanks for the questions and your continued support. Hopefully, today was a good experience with the new Investor Hub and webinar function. Keep an eye on our updates on Investor Hub. We will look to put more regular updates and a lot more narrative so that you can better understand some of these new market opportunities like heart failure and body composition and why we're so excited about this space. We look forward to catching up again on the next quarter. And Scott, it's over to you to get those sales going. Thank you. Unknown Executive: Thank you very much. That concludes our call for today.
Lars Solstad: Good morning, and welcome to Solstad Offshore's Third Quarter 2025 presentation. It has been another quarter of solid operational and financial performance and with a continued high activity across our fleet. Today's presentation will be held by myself, CEO, Lars Peder Solstad; and CFO, Kjetil Ramstad. And after the presentation, we will open up for Q&A. So please submit your questions in the chat. If we take a quick look at the disclaimer before we move over to the third quarter highlights and our business update. It has been another quarter of solid operational performance for Solstad Offshore with a fleet utilization of 97% in the quarter, and that is also the number for year-to-date. So 97% utilization year-to-date. And while the long-term demand remains positive and we see several longer-term opportunities, we also see that in the short-term market, we experienced a slower or lower demand than we previously expected. And that is also in line with what we communicated in the business update in October 9. Following the Solstad Maritime's reduction in full year 2025 adjusted EBITDA guidance, we have then also updated the Solstad Offshore guidance for the year accordingly with operational guidance still intact, while the share of associated companies and joint ventures are slightly reduced as earlier communicated. If we look at this quarter and earnings. Has then been adjusted EBITDA of $29 million, and that is compared to $28 million in the same quarter last year. We have secured several new long-term contracts in Brazil, contributing to a total order intake of $222 million in the quarter, and that includes 1 Solstad Maritime vessel that will go on long-term contract to Petrobras. In addition, we signed a 3-year contract for Normand Turmalina, one of our Brazilian-built anchor handlers, for a 3-year contract starting in first quarter '26. And also our client on CSV Normand Superior exercised their option to extend the contract with 1 more year. It is also nice to mention that the Board proposes a third quarter 2025 dividend of USD 0.05 per share, totaling approximately $4 million, which is more or less equal to Solstad Offshore's share of the Solstad Maritime third quarter dividend. If we take a closer look at the market. Solstad Offshore maintains a very strong foothold in Brazil, where long-term demand for offshore energy services remains robust. And Brazil continues to offer both long-term and project opportunities for the CSV and the anchor handling fleet. Globally and in addition to Brazil, the activity is good and offers more opportunities for our fleet. In 2025, it has been the North Sea that has had lower than expected activity. And as we continue to underline, to be able to sign contracts and to be a part of the global markets, it is essential to have a local presence. And Solstad Offshore has particularly in Brazil a very, very strong position. The long-term offshore energy services remain positive globally, but we have to keep in mind that the oil price development seen in the last months could introduce some uncertainties into activity level going forward. If we look at our backlog and earnings visibility. Solstad Offshore divides its backlog in two. One is the backlog we have on the owned fleet. The other is the backlog on Solstad Maritime vessels that utilize the Solstad Offshore structure for Brazilian contracts. And both continue to strengthen. The new 3-year contract for Normand Turmalina and 1-year option for Normand Superior have increased our direct backlog this quarter. And there was also a material increase in the backlog for Solstad Maritime vessels due to a new 4-year contract for the CSV Normand Commander with Petrobras that starts early next year. So the firm backlog for Solstad Offshore vessels is $280 million, which is a doubling of the backlog compared to last year. And for Solstad Maritime vessels, it is at USD 640 million. In fourth quarter this year, we will have some vessel availability. That is due to one vessel has come off a contract and is now exposed to the short-term market, while one is at a planned yard stay. So that will influence the utilization fourth quarter '25. But looking into 2026, the earnings visibilities are very good. And we also see that for the available vessels we have, we see that there are quite a few market opportunities that we are chasing for those vessels. So Kjetil, can you take us through the financial highlights? Kjetil Ramstad: I will, Lars. So let's start with the third quarter financial highlights for Solstad Offshore. It has been a quarter with high activity in third quarter with 97% utilization for the fleet compared to 97% last year. Year-to-date, we have an overall utilization of 97% versus 96% last year. On the revenue side. For the quarter, $73 million compared to $68 million last year. Year-to-date revenue was $220 million compared to $197 million. Adjusted EBITDA for the third quarter was $29 million compared to $28 million last year. Year-to-date, adjusted EBITDA of $91 million compared to $89 million last year. The net result was for the quarter $26 million compared to $11 million last year. Year-to-date, $88 million versus $52 million last year. Firm backlog for the Solstad Offshore owned vessels of $280 million compared to $42 million last year. This, of course, excludes the vessels on bareboat from Solstad Maritime. Book equity in the third quarter of $375 million, up from $203 million last year. And it gives an equity ratio of 44% for the company. Adjusted net interest-bearing debt of $57 million compared to $206 million last year. And the large reduction is mainly caused by Normand Maximus residual claim, which was approximately $185 million. Cash position at the quarter end was $87 million compared to $60 million last year. Plan to distribute dividend of $4 million in the quarter. Then if we have a closer look at the net interest-bearing debt and lease commitments in Solstad Offshore. We see that we have the regular bank facility of $90 million. That was drawn in November '24. That has a 5-year amortization profile with the majority in November '27. And then we have the financing for our Brazilian fleet, $51 million with BNDES, with maturity between '26 and '31. The lease commitments in the debt side of the balance sheet includes the Normand Maximus bareboat charter lease of $55 million and also the purchase options that is at $125 million and included in leasing with $105 million at the present value. Other leases is mainly the vessels that Solstad Maritime bareboats to Solstad Offshore for Brazilian operations and contracts. And the operational risk for these vessels are with the shipowner, Solstad Maritime. Then if we move over to the financial investments that we have in Solstad Offshore and start with Solstad Maritime, which Solstad Offshore owns 27.3% of. There will be paid a dividend of approximately $150 million in Solstad Maritime, and the share that Solstad Offshore will receive is $4 million. Share of the result in the quarter is $9.3 million compared to $13.1 million last year. Book value of the shares is $212 million. Then if we move to Normand Installer, which is a joint venture, owned 50-50 with SBM Offshore. The vessel is predominantly utilized on SBM Offshore's FPSO projects. First half of the year, the vessel had low utilization. And in the third quarter, the vessel had a planned maintenance dry dock. We expect that the rest of the year will be fully utilized. NISA is in a net cash position. And the share of the result in the quarter was negatively $0.3 million compared to positive $0.6 million last year. The book value of the shares is $20 million. And the last investment that Solstad Offshore has is Omega Subsea, where Solstad Offshore owns 35.8% of the shares. And Omega Subsea has 12 ROVs per the quarter end and 12 more scheduled to be delivered in 2026 and beyond. Share of the result in the quarter was $1.4 million and $4.2 million year-to-date. The book value of the shares is $16 million. Then if we go to financial guidance for Solstad Offshore. As mentioned and communicated 9th of October, we adjusted the financial guiding based on the change in guidance from Solstad Maritime. So the overall guidance on adjusted EBITDA is $150 million. The operational part of the guidance was unchanged at $60 million to $70 million, $53 million year-to-date. And the share of the results from associated companies and joint ventures was adjusted to around $50 million compared to the previous of $60 million to $80 million. As mentioned, there is a proposed dividend payment in the third quarter of USD 0.05 per share, totaling $4 million. And then if we go to the dividend dates. The summons to the AGM will be 3rd of November, and then the AGM will be 24th of November. Last day of trading to receive dividend is 24th of November. The ex date will be the 25th. Record date, the day after the 26th and then distribution date will be on or about the 28th of November this year. So with that, I leave the word back to you, Lars Peder, to summarize. Lars Solstad: Yes. Thank you, Kjetil. And to summarize our presentation and the third quarter. We have had or a quarter with solid operational -- yes, sorry about that. Now we have the correct slide. To summarize the presentation, another solid quarter operationally and financially for Solstad Offshore. We have had a strong order intake that increases the visibility for 2026 and beyond. We also see several market opportunities for the available vessels we have into 2026. But as I have said already, we have to also keep in mind that the recent oil price development represents a source of uncertainty going into the coming quarter and beyond. We are also very pleased to announce that the Board proposed a dividend payment for the quarter, which is also in line with earlier indications. So all in all, a solid quarter for Solstad Offshore and also the visibility for the coming year is solid. So by that, we conclude the presentation. And let's see if there are some questions, Kjetil. Kjetil Ramstad: Yes. Let's take the first one. What is the plan for Normand Tonjer and Normand Topazio? Lars Solstad: Yes. That is a relevant question. And those are the 2 vessels that we have availability or idle time on in fourth quarter. If we take the Normand Topazio first, that is one of the Brazilian-built anchor handlers we have operating in Brazil. That vessel is on a planned yard stay at the moment that will influence the utilization in fourth quarter. It is officially known that we were on top of the list on the Petrobras auction for a long-term contract. Those discussions are ongoing, and let's see how that develops in the coming weeks and months. But we are positive to achieve a good utilization for that vessel either on that contract or on alternative opportunities in Brazil. For the Normand Tonjer, that is a vessel that Solstad Offshore owns 56% of and has been operated on a contract for TGS on seismic projects for several years. That vessel is now redelivered to us, and we operate the vessel in the -- or we are preparing for operations in the short-term market in the North Sea right now. But we are also in some discussions for longer-term opportunities for the vessel, let's say, into '26. So that's what I can announce on those 2 vessels. Kjetil Ramstad: Thank you. Then there's a general question on the market of the fleet that we have in Solstad Offshore. How do you see the rate development on the contracts that we have? Is there escalations? Do we see a development from '25 to '26? Or what to expect on the secured contracts? Lars Solstad: Yes. I think, I mean, on the contracts we have, they are sort of going on their, let's say, original terms with the natural cost escalation process included. On the rate level, we see for vessels that we have available, I would say it's quite stable on a high level, I would say. So I don't see much difference or, let's say, downward pressure on the day rates for the vessel types that we have availability on. Kjetil Ramstad: And then there is a question on Petrobras and cost cutting. Can you update on the discussion on Petrobras with reference to the exposure that we have there with the 4 vessels -- the 3 vessels? Lars Solstad: Yes. I mean, Petrobras is a large client of us and we have had discussions with them, as most other in this business. And I would say it's very constructive discussions where it's about, are there any place where it's naturally to cut cost? That could be for mobilizations or preparations for new contract. It could be on manning level. It could be on other specialties that you see on Petrobras contracts. So constructive dialogue and no sort of red light are linked to those contracts in terms of uncertainty, if that's -- yes, so I think that answers the question, I hope. Kjetil Ramstad: Yes. Thank you. And then on Normand Maximus, it's on contract to the end of 2026. Can you say something about the plans for Maximus below this? And how do you see the market for a vessel like this long term? Lars Solstad: Yes, it's correct. The vessel is still committed for another 14 months or so. We have discussions ongoing with the present client but also with some others. So this is, in a way, one of a kind, let's say, one project enabler and one of the few that has availability into '27 in the market. So the position we have on that vessel is very solid and quite confident that we will be able to secure some interesting work for the vessel also beyond '26. Kjetil Ramstad: Thank you. Let's see. We have some more questions here. In the backlog for Solstad Offshore, we are showing a portion of Solstad Maritime vessels. Can you just explain why we look at Solstad Maritime vessels on the backlog of Solstad Offshore? Lars Solstad: Yes. That is simply because Solstad Offshore is the contract holder with Petrobras or other clients in Brazil. And so the Solstad Maritime vessels are then bareboated to Solstad Offshore. So you will get, let's say, a bareboat backlog into Solstad Maritime while you will get also the, let's say, backlog into Solstad Offshore due to the structure where we in Solstad Offshore are the contract holder with Petrobras. So that's the reason. And it's a back-to-back. So the operational risk, even if it's a bareboat, lays with the vessel owner and not with Solstad Offshore on those vessels. Kjetil Ramstad: Thank you. And then let me have a look. I think that concludes the questions for today. Lars Solstad: Okay. So thank you very much for listening in, and have a nice day ahead.
My Vu: [Presentation] Good morning, and welcome to Höegh Autoliners Third Quarter Presentation. My name is My Linh Vu, Head of Investor Relations. And with me today, we have CEO, Andreas Enger; and our CFO, Espen Stubberud, who will walk you through the last quarter performance. We have a Q&A session at the end of the presentation, and you can ask questions by sending e-mail to our Investor Relations mailbox at ir@hoegh.com. So with that, I will leave the stage to you, Andreas. Andreas Enger: Thank you. Opening this presentation with a photo of beautiful Höegh Moonlight at the quay in Gothenburg, where we had a naming ceremony while loading cargo together with valued customers in Gothenburg. This quarter, we are once again presenting a strong result. We have a good -- have good underlying earnings and profitability driven by our strong contract backlog and an operation as previously noted, we have some more imbalances than others, but fundamentally, we're running full vessels out of Asia and are basically serving customers to the full and executing our backlog. I will open this presentation to basically respond to an issue of a slight change in the payment schedule for dividends that may require some explanation. And I want to do that by starting with reiterating how we operate as a company. We have focused a lot on creating value through the cycle by building backlog, focusing on a cargo strategy being overweight cargo. We have basically operated in the market now there is persisting market imbalances with strong growth in Asia, not so much opportunities elsewhere in the world. Charter market is starting to provide opportunities for short-term capacity, which we are using at the cost to develop our -- and be able to maintain a strong backlog. And we are now faced with, I think, a totally new level of geopolitical uncertainty coming from things like U.S. port fees and taxes and whatever. And while we are fully committed to remain -- keep our dividend policy of distributing excess cash flow, we have found that the unusual geopolitical situation is requiring a slight modification. And it's really triggered by the fact that the implementation of the tripling of the USTR fees that came a couple of weeks ago has resulted in the biggest change in our short-term cash forecast as long as I've ever been to the company. And that period includes the shutdown during the pandemic where we lost a large part of our cargo share. And adapting to a world where governments choose to introduce or increase cash payable taxes with it in reality, 2-day notice is really putting an extra requirement for securing the cash balance that has made us conclude it is prudent to do a small change. And without going into too much details, but the U.S. port fees, and we don't know exactly what's happening with them and the tripling and the retaliation from China is creating a situation where we suddenly get an additional cost of $60 million to $70 million per year effective immediately. And that is totally unprecedented, and we can have all kinds of ideas and theories of what will happen. But in our financial and liquidity management, I think we'll have to work on a worst-case scenario and basically say that we have to be prepared for these kinds of shocks in a situation where our business is drawn into a geopolitical space where we don't think we belong, but we are still pulled in. But I think I also want to emphasize that this is not reflecting a fundamental change in our business operations. I mean coming to that sort of when we have the guiding for the next quarter, but it is to make our -- make sure that we are resilient to type of shocks that we haven't seen before, not because we have any expectations that there will be further shocks, but we think it's prudent to be capable or make sure that we can handle it comfortably. And -- so what we're doing is that we are reiterating, reconfirming our dividend policy of paying out excess cash. We are adjusting the calculation method that basically results in a one-off and nonrecurbable impact to the Q3 distribution. And the way we do it is simply that instead of paying the dividends based on the running sort of outlook of cash, we are changing it to actually do it on the cash balance we are reporting at the end of the quarter -- in this case, the end of Q3. And that creates, in many ways, one quarter gap in the dividend payments. Just to remind, we have a track record of paying out dividends. We paid out NOK 1.5 billion in cash dividends since our IPO. That is more than 3x the equity value of the company at the IPO. So it's quite substantial. And again, we are committed and we have reviewed our financial resilience requirements. We have concluded that the current strategy, the current cash balance is sufficient and that we intend to continue to pay all excess cash in dividends. But we have changed the liquidity policy from a forward-looking one to ensuring that we actually have that cash balance at any time in order to be robust against those types of shocks. And that then leaves us to the headline figures, $155 million of EBITDA, slightly down. Espen will come into more detail, mostly a result of combination of the imbalances in the system and charter costs to keep up the volume. We have 2 further newbuilds at the end of the year, and we have -- so we are -- but we do -- due to our vessel sales, have a capacity gap to fill that is creating some charter costs in the near term. $132 million profit after tax, $92.3 million in gross rate. And then what we talked about, the $30 million dividend, which is then not related to this quarter's free cash, but produced out of this onetime change in the timing of payouts. We have taken delivery of one purchased previously bareboat chartered vessel, Höegh Copenhagen. It's the last one, I think now we have exercised all the purchase options, and we have a strong equity ratio of 54%. If you take into -- going into the market, I think one very important thing is that shipments from Asia continue to grow and expand despite U.S. tariffs and despite the kind of environment, I said, increased geopolitical risks. So we have a very, very strong activity. It's mostly driven out of China. And as we see it, Chinese growth and Chinese exports of vehicles and equipment is basically continuing to grow. And that is a trend that has been driving this industry for a while, continues to drive it. And Chinese share of exports from Asia or actually even the world is strengthening. High and heavy market is also after some flat years going into a good growth pattern. But again, we have a stronger market out of Asia than we have out of the U.S. and Europe. But the market is generally strong and supportive. We have, as we said, a strong contract backlog being fully booked in 2026. And we have a number of -- and we are continuing to add contracts, although I think both capacity and the market cycle, the big contract renewals for the next couple of years is -- or next year is behind us. But we have signed a long-term significant contract during September with substantial value and a 15-year duration actually. We have a contract share that is now up at 81% and a duration of the backlog of approximately 3 years. We do have rate agreements mostly 1 year fixed pricing, but noncommitted, that is a product that is mostly towards freight forwarders and secondhand vehicles. But -- and we do have sort of long-standing relationships also in that area that basically creates stability. And also reiterating that when it comes to what we call spot, it's not the kind of same cargo in the spot contract. New vehicles OEM business is almost entirely on contract and 60% of the spot volume is high heavy and break bulk, which is cargo that has a different -- has more variability in volumes and trades. Espen, should you take over on the capacity side? Espen Stubberud: Yes. On the capacity side, there is still a significant order book in the industry. Net fleet growth is up 12% in 2025 and another 8% is expected in 2026. As we've talked to a few times, we have expected the charter market to normalize in terms of pricing, and we are using that market to a larger extent than we have in the past with 5 actually short-term charters in the third quarter. We see pricing is stabilizing around $40,000 to $45,000 for a large ship at the moment. Andreas Enger: If I take in a short word on sustainability, we showed you Höegh Moonlight. We have 6 of our newbuilds now in operation. We have had an intense docking schedule, which is sort of somewhat variable, but we had a large amount of dockings of all the vessels in the 5-year cycle in 2025. We do have a committed program to use every dry docking to upgrade existing vessels for better fuel economy and efficiency. We have then taken development of delivery now in total of 6 vessels in operation of, I think, the most -- both carbon and fuel and cargo-efficient vessels on the water. And that is now also materializing in a clear downward trend on our carbon intensity. We're also continuing to use 100% biofuel and have 100% biofuel available as a product to our customers. And we have 3000 tonnes bunkered in the quarter. So we have a continued effort on decarbonization, both in improvement of our existing fleet in taking delivery on modern efficient fleets and obviously, also in our path to zero, looking at future fuel options. And that drives us into a carbon intensity -- clear carbon intensity road map. Just reiterating from 2008 to 2024, we have improved our carbon intensity more than 40%. And we do have a clear path to 0 where half of that -- the remaining voyage is on improvements to sort of non-zero carbon fuel-related improvements. The last half of this in our plans will basically have to be covered by clean ammonia and e-fuels, and we believe we are with that on track to be able to deliver zero-carbon transportation by 2040. With kind of the uncertainties creating by the delay of the IMO framework and others, I think it's also prudent to reiterate that in all our decarbonization efforts, we are ensuring dual fuel, multi-fuel capabilities. And we are 100% committed to be able to offer our customers zero carbon transportation by 2040. We are also committed to offering the option to billing customers on zero carbon transportation before 2030, but we are not underwriting the decarbonization cost of our customers. So it has to be aligned with regulations and the customer demand. And we have the ability to deliver, but we will obviously run our vessels in a matter that is economic and profitable in whatever regulatory market that exists. Then back to financials. Espen Stubberud: Yes. Turning to the financials. The [ fourth quarter ] volume came in at 4 million CBM. That's up 4% from the second quarter, but up 17% year-over-year. And we are particularly pleased with our volume development out of Asia. The first 3 quarters this year is up 48% last year, so very strong volumes. The volume we loaded out of Asia in the third quarter is the highest volume we loaded since we IPO-ed back in 2021. We talked to it a couple of times that we took on some -- a couple of large contracts at the end of last year at somewhat lower rates to add to our contract backlog. That lowered the rates that came into 2025. But we've seen very stable rates in '25 with a net rate drop of 2% from second quarter to the third quarter, mainly related to changes to cargo and trade mix. Revenues are moving flat on higher volume, quarter-on-quarter. EBITDA is down about 6% from $166 million to $155 million as our operating margin is being reduced. And as Andreas already mentioned, we talked to the increased imbalance this year, basically reduced network efficiency. We also see somewhat lower utilization of our fleet in the third quarter. That's not so unusual, particularly in August when production is closing down, so which is reducing the efficiency somewhat in the third quarter and we're also using some more charter costs as we talked to. Net profit before tax came in at $132 million in the third quarter. That includes the $20 million book gain of selling Höegh Beijing. Turning to the EBITDA bridge. In the first -- from the first to the second quarter, we added revenues of $38 million. And with that revenue followed the increased voyage costs and charter costs, but we increased EBITDA to $166 million in the second quarter. We also added volume from the second to the third quarter of $15 million in revenue. However, that was fully offset by increased voyage costs and charter costs. And with the rate net rate dropping about 2%, we come in at $155 million for the third quarter. Our balance sheet is robust with healthy ratios. We have seen net interest-bearing debt being increased over the last few quarters as our newbuilds have been delivered. No newbuilds delivered in the third quarter, so moving flat quarter-on-quarter. And as Andreas said, we're looking forward to ship -- sorry, #7, newbuild #7 being delivered now in a few weeks in December and newbuild #8 to be delivered in January, which will reduce our capacity cost going forward. Cash balance and undrawn liquidity from our revolver is moving basically flat over the last few quarters. So it's another strong quarter with strong cash generation with somewhat improved working capital, we have $173 million in cash from operating activities. We have $27 million in dry docks and CapEx, which includes $10 million newbuild installment on vessel #7 -- we have $42 million in proceeds from selling Höegh Beijing in the quarter, and we've drawn $46 million in debt, that's the $10 million for the newbuild installment, and it's $36 million for the purchase of Höegh Copenhagen. That was -- the purchase option was exercised in the first quarter, but the delivery took place in August. Then we had normal mortgage repayment and interest of $31 million, and we paid leases of $43 million, which includes the purchase of Höegh Copenhagen. And we paid dividend of $137 million, ending then the third quarter with cash of $230 million. That only leaves us with the outlook. And I think we need to have -- we need to put in the cautionary note that tariffs may, over time, lower volumes transported. I think it's fair to say that, that has so far not really happened in the sense that the Asian market has continued to grow and remains strong. But clearly, it is a friction and we'll have to look carefully at that over time. The changes to the U.S. port fees that was announced on the 10th of October with implementation from the 14th of October was, as I mentioned in the beginning, quite a substantial shock adding cost of $60 million to $70 million. And we are working diligently to mitigate the impact. We have close dialogues with all affected customers. We are basically have strong beliefs that we will both be able to get unlikely full, but substantial compensation of the U.S. port fees from customers. We will also change our trade pattern in the U.S. to optimize versus the port fees. So we are continuously working on mitigating. But given the kind of erratic, kind of decision-making in this field, it's basically hard for us to provide much guiding beyond the fact that we are clearly working to optimize around it. We are working with customers to recover the cost. And we have, as we said, chosen to have a slightly more conservative cash retention policy by changing not the amounts over time, but the timing of paying dividends to make sure that we are resilient against these types of shocks. When it comes to the Q4 performance, we expect the operational performance to be slightly below the Q3 EBITDA level and that the USTR fees are expected to be around $20 million for the quarter. And on the last one, I would also say that we don't -- we are intending through our mitigating actions to do everything we can to avoid that number being multiplied by 4 for next year. But given that it was introduced at a surprise on a 4-day notice, we obviously had cargo on the water and vessels on the way into the U.S. that strongly significantly reduces our mitigation options during the fourth quarter, but we are working on adjusting and seeking recovery to reduce the impact going into 2026. So that concludes our presentation. We have open for questions. And My Linh, is there anything to answer. My Vu: Yes, there are a few questions for the Q&A session. And the first set of question coming from analyst Jorgen Lian, DNB Carnegie. The first one on the dividend policy. With the quarter end cash balance, would simulate around $200 million based on the declared dividend in this quarter be a constant or a function of certain assumptions? Andreas Enger: Basically, we have said again that we will distribute excess cash. And with that, that is -- and I think you can -- and we have said we're going to be on the reporting quarter. So I think using that number as an anchor point is useful. And we have reconfirmed in the Board, both that we consider that cash level to be -- give us sufficient resilient, and we have reconfirmed our commitment to pay out excess cash in dividends. But I think we should also remind that we do have, obviously, and the Board has the responsibility to make a complete assessment of the total situation at any quarter, and that will obviously be the basis. But in the current environment, and we have reconfirmed our dividend policy, and we are -- but we are using the last reported quarter as a reference for [indiscernible] surplus. My Vu: Thank you, Andreas, for the clarifications. And the next set of question is about port fees. I think we already briefly touched upon that during the outlook sessions. But we mentioned the guided impact for U.S. port fees of around $60 million to $70 million for yearly -- annual impact for HAUTO. And how does this relate to the last quarter guide of around USD 30 million for full year impact, given that now the modified port fee is now 3.3x higher. Espen, you want to. Espen Stubberud: Yes. Now we guided on $30 million earlier, and then the increase in fees now is 3.3x. So when we're saying $60 million to $70 million, this is based on us optimizing our voyages into the U.S., and that's basically about minimizing number of voyages into the U.S. and looking at how we can do that from various angles. We have deep sea vessels going into the U.S., and we try to consolidate as much cargo to the U.S. as possible on those vessels. We also have activity in the Caribbean with smaller feeder vessels that are calling on the U.S. that we will look differently upon and reroute. And of course, we also need to avoid any marginal calls to the U.S. that we have done in the past. So the $60 million to $70 million is more of a -- is an estimate on the cost for the company after we have optimized the voyages into the U.S. My Vu: And it seems we also guide $20 million impact for Q4 out of the $60 million, $70 million for gross impact for the full year. So I guess for Q4, I guess, also takes into consideration the shorter lead time between the modification... Andreas Enger: Yes, yes. Basically, we have no time to optimize. So the impact will be lower going into next year is what you're saying, yes. My Vu: Yes. And the next question is asked by a few analysts as well. Another clarification on the Q4 guidance. Is it correct to assume that the underlying operational result is slightly below Q3 and that the additional $20 million port fee will be added on top of that? Espen Stubberud: Yes. What we're saying is that the performance is continuing strong, third quarter is strong, and we're seeing also good volumes into the fourth quarter. I can repeat what we said earlier, we basically have more cargo than we can carry very strong growth in Asia. So the underlying performance is strong also into the fourth quarter, but slightly below the third. And then on top of that, all of a sudden, we've had this extra $20 million that is reducing the performance in the fourth quarter. My Vu: Thank you Espen. The next question is about capacity management. Höegh Autoliners is chartering in more capacity. So what is the future consideration requirement we have for additional vessels -- additional vessels at this point? Andreas Enger: I think first, we just said we have 2 vessels coming in, in the next couple of months, which are welcome additions to the fleet. And these are large vessels, 9,100 CEU. They're much more effective. And with our attractive both cost and financing on those vessels, they will come in on -- at a capacity cost for us that is substantially lower than the charter market. So we welcome that. But beyond that, I think it's fair to say that our -- looking at the charter rates that Espen showed without speculating too much, we were selling vessels to leverage and utilize a tight charter market. And high asset valuation, that asset valuation is coming down, and I think that is probably reducing our -- the likelihood of future vessel sales. But we are in a fleet renewal -- we have a fleet renewal strategy, and we have a decarbonization strategy. So this is something we will always look at, but they will be done based on specific opportunities rather than any kind of predecided thing. But when it comes to investments in new capacity, our program is fixed. We are getting those 2 vessels now. And then there is a gap until mid-2027, where we will then from mid-2027 into 2028, get the last 4 of the Aurora class vessels then coming at as dual fuel ammonia vessels that will have the option of running zero carbon fuels. It will also have the possibility to run entirely on traditional fuels if the sort of worst thing should happen with the IMO process. I think I also want to reiterate, it's our belief that even without -- with delays in the IMO process, we believe a system will come in place. And in the absence of an IMO system, I think it's also likely that the EU's scheme will continue. It's likely that other regions will copy that and have similar, so carbon taxes in our scenario will come in the years to come. We would have preferred to get them in a level playing field in a uniformed IMO structure. We still hope that, that will get in place. But even if it is further delayed, it doesn't mean that there will not be taxes and fees and costs of emitting carbon in our trade system. So we believe that, that trajectory is still in place. But for CapEx, we don't have any additional vessel CapEx plans that are not already announced and financed and handled. My Vu: Thank you so much, Andreas. And I guess part of your answer already answered the question from one of our audience regarding the plan -- if we have any plan to sell further vessels next year. So the next question is back into the topic of U.S. port fees, and this is asked by several analysts and other investors that follow webcast as well. So how do we plan to handle the U.S. port fee or possible future -- similar future tax with our customer? And how much do you expect to recover or pass on these costs to customers? Andreas Enger: I don't think we can answer that specifically. But clearly, we are introducing those fees in full for our sort of liner business, and we are in dialogues, and we will get substantial compensation for our existing customers. But I think it's also quite clear that this is now a cost that we expect to be embedded in all future contracting in and out of the U.S. And our expectation is that these fees will gravitate to basically become an additional cost for American consumers and American exporters. So -- but there will be a transition period where we will get some compensation, but not full compensation for those fees. My Vu: Thank you, Andreas. I see this question coming in just now. The next question is about the Suez Canal and the opening of Red Sea. When do we expect -- when do we expect the reopening of Red Sea? And how will that affect our operations and earnings? Andreas Enger: I mean I think it is -- I don't think it makes sense for us, I mean, to speculate about opening. It's, again, a geopolitical issue. It's a disturbance that we believe will have to come to an end. But -- and clearly, a reopening will allow us a more efficient trade system. It will also add capacity into our system. But I think we are -- with our sales of vessels with the newbuilds with the current short-term charters, we are fairly well placed in terms of also optimizing that situation, and it gives us more carrying capacity. So in that sense, I think that is an optimization that we are fully prepared for. We have, I think, created some things in our -- a solid structure in order to deal with it, and we will deal with it when it comes. But I don't think we will try to speculate or provide any guiding on the timing. It doesn't seem to be imminent. But when you look half year out, a lot of things can happen. And if you look a couple of years out, we are assuming that the Red Sea will eventually open. But more than that, I think we will refrain from providing -- I mean, there will be not any valid insight into our speculations and that timing because that's driven by totally external factors. My Vu: Thank you for detailed answers, Andreas. I think that's the last question we have for now, and we can give around 15 to 30 seconds more to see if we have more questions coming in. I guess that's the last question we have for now. And of course, if you have further questions, feel free to reach out to us at Investor Relations mailbox at ir@hoegh.com. Thank you for watching, and we look forward to seeing you next quarter.