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WRT1V.HE 2025 Q3 财报电话会议

Hanna-Maria Heikkinen: Good morning, and welcome to this news conference for Wärtsilä Q3 2025 Results. My name is Hanna-Maria Heikkinen, and I'm in charge of Investor Relations. Today, our CEO, Hakan Agnevall, will start with the group highlights, continue with the business performance. And after that, our CFO, Arjen Berends, will continue with financials. After the presentation, there is a possibility to ask questions. Hakan, time to start. Håkan Agnevall: Thank you, Hanna-Maria. Thank you, and welcome, everybody. This quarter was a good quarter actually, and we are moving in the right direction, but it's also a quarter where you need to look a little bit under the hood. I mean, first of all, operating results and cash flow increased. Order intake was stable at around EUR 1.8 billion. But if you look at organic growth, it's actually up 6%. And also, if you look at Marine & Energy specifically, you see that Marine order intake was actually up 8%, and Energy order intake was up by 29%. The challenge, and I'll come back to that, is on our battery business, our energy storage business, where the order intake in Q3 for new equipment was basically 0. But Marine & Energy growing in a good way. This also leads to a strong order book of EUR 8.6 billion. Net sales decreased by 5% to EUR 1.6 billion. But also there, this is driven primarily by timing of deliveries on energy. So the deliveries in Energy will be tilted to the fourth quarter. I'll talk more about that later. Comparable operating results increased by 10%. So we continue our journey to reach our financial targets. We are now at 11.9% of sales. Operating results increased by 20% to EUR 230 million, which corresponds to 14.1% of net sales, and items affecting comparability amounted to EUR 35 million, mostly related to the divestment of ANCS. On services, our group service book-to-bill ratio continues to be well above 1. And cash flow, I will come back to that. We have a strong cash flow from our operating activities of EUR 340 million. Now let's look more into the details of the numbers. So if we start with the quarterly, the Q3 results. So order intake, as we talked about, is actually down 1%. But as I said, if you look on organic, organic growth, up 6%. You've also seen the growth in Marine, 8%; Energy, 29%. If we look at the net sales, goes from EUR 1.7 billion to EUR 1.6 billion, down 5%. But as I said, it's major related to prioritization of sales in Energy, and I will come back to that. If we look at book-to-bill, so we continue with a good book-to-bill above 1 at 1.1 this time. And I think this is the 18th consecutive quarter in a row where we have a book-to-bill above 1. Comparable operating result, EUR 195 million, up 10%, and we are now at 11.9% of net sales. And operating results, EUR 230 million, up 20% and now at 14.1% of net sales. If we look at the year-to-date, I think there are 2 figures that I would like to highlight. Our order book, which is up to 14%, up to EUR 8.6 billion and also our continued improved comparable operating result, up 18% going from 10.5% to 11.7%. Solid path to reach our financial targets. Looking at our 2 industries. If we look on the Marine market, we see a moderating demand for newbuilds. But still, in line with the 10-year average. And then if we look at Wärtsilä core segments, strong ordering across cruise, containers and LNG bunkering vessels. So the number of vessels that were ordered in Q3 decreased to 1,200 down from 1,700 corresponding period last year. The regulatory uncertainty, high newbuild prices and softer market conditions affecting negatively the newbuild investment demand in some segments. Ordering has though been uneven across vessel segments. We continued strong ordering appetite in Wärtsilä's key segments, cruise, containerships and LNG bunkering vessels. And contracting in our key segments is expected to remain clearly above the 10-year average level with the latest forecast, actually, indicating a 30% increase in contracting volumes between 2025 and 2027. Shipbuilding continues to expand, primarily in China. And in January to September, 259 orders for new alternative fuel capable vessels were reported, which accounts for 48% of the capacity of contract investments. On the Energy side, the increased demand drives investment in the energy transition. And the global energy transition continues to move forward. And EAI -- EAA -- IEA, sorry for that, International Energy Agency, not so easy to pronounce, this morning, expects renewables, grids and storage investments to post another record high in 2025 and investments in fossil fuels to decrease. BNEF reported that both wind and solar investments grew in the first half of the year compared to H1 in 2024. Energy-related macroeconomic development in 2025 has been heavily impacted by elevated risks in the geopolitical environment. In our engine power plants, market demand for equipment and services has been strong. Demand for baseload engine power plants is expected to remain stable with further growth opportunities in data centers. The drivers for engine balancing power plants continue also to develop favorably. In battery energy storage, though, the demand is closely linked to the increasing share of intermittent renewables, which in one side continues to progress slowly. However, the U.S. market is facing headwinds in the regulatory environment, though several drivers remain solid and actually also on the storage side now with data centers as a potential new opportunity. Going through the numbers. Organic order increased, as I said, organic order intake increased by 6%. Order intake overall remained stable. Marine order intake increased by 8%. Energy order intake increased by 29%, but energy storage order intake decreased by 79%. Equipment order intake remained stable and service order intake remained stable. If we look at the order book, we have a strong order book. Rolling book-to-bill continues well above 1. We see the trend. We also see that the order book is building up further and further into the future. So that is something to recognize. Organic net sales remained stable. So net sales decreased by 5%. Marine net sales increased by 18%. Energy net sales decreased by 30%. And this, once again, it's driven by the prioritization of deliveries between quarters. And we do expect that deliveries during the second half year will clearly be tilted in Energy to the Q4. Also, as you know, we have more and more equipment contracts moving from EPC to equipment and equipment contracts, to make it simple, they are invoiced when the delivery. EPC is a little bit more smooth than out. So you can also see this as one of the consequences of that we are actually moving our Gravita to equipment business. Energy storage, net sales decreased by 10%. Equipment net sales decreased by 11%. Service net sales remained stable. Profitability continues to improve. So net sales, given the context, decreased by 5%, but comparable operating results increased by 10% and comparable operating margin 12-month rolling is now at 11.6% compared to 10.6%. On technology and partnerships, so we continue to shape the decarbonization of Marine & Energy. The Energy, example, 217-megawatt dual-fuel power plant to deliver reliable power for Kentucky residents. So we will supply the engineering and equipment for 217-megawatt power plant in Kentucky in the U.S. The plant is needed to provide additional grid capacity, thereby helping East Kentucky Power Cooperative to meet increasing demand. And this order was booked by us in Q3. On the Marine side, we continue our close collaboration with Wasaline. And now we will together deliver the world's largest marine battery hybrid system project. So we have been selected as the electrical integrator for a major battery extension project for the Wasaline ROPAX ferry, the Aurora Botnia. When the project will be finished, it will be the world's largest marine battery hybrid system in operation, close to 13-megawatt hours. And the Aurora Botnia operates with a range of Wärtsilä solutions, including 4 highly efficient Wärtsilä 31DF engines. And this order was also booked in Q3. Marine, and here, we have a fantastic picture of a fantastic Finnish icebreaker. We are very much close to this segment, half of the world's icebreakers actually have engines from Wärtsilä. So exciting opportunities also in the dialogue between the governments of Finland and governments of the U.S. Marine. So increased order intake, net sales and comparable operating results and continued growth in equipment order intake. So we see overall order intake up 8%, net sales up 18%, and we do see also the continued improved profitability margin. The drivers in the bridge for the profitability, higher service and equipment volumes, better operating leverage. And on the headwind, it's increased R&D costs. We keep on investing in our future and being a technology leader in our space. If we look at the service business. Overall, Marine service book-to-bill well above 1. Strong growth in service agreements. However, in this quarter, we saw reduced order intake in retrofits and upgrades. So to the left, you can see 8%, I would say, solid CAGR growth in the Marine service business. On the right side, you see the different disciplines of our service business. You see the service agreement curve, accelerating in a good way. We now have about 30% -- 34% of our installed fleet under service agreement. The renewal rate continues to be above 90%, good progress. You also see the retrofits and upgrades coming down. But as we talked about before, retrofit and upgrade, that's a project business, and it can be a bit bumpy, and it's lumpy by nature. And we have a good pipeline in front of us that I can say. Energy. Increased order intake, lower net sales due to the timing of the deliveries, but continued growth in equipment and service order intake. So on the order intake side, up 29%. And this quarter, we haven't had a data center order. You remember, we had our first U.S. data center order in Q2. However, there is an exciting pipeline of data center opportunities in front of us, various stages of maturity. So there is a good pipeline coming. Net sales, down 30%, driven by the prioritization. Comparable operating results, the percentage is moving in the right direction. And if we look at the drivers, the higher service volumes clearly contributed to the profitability. But lower equipment sales in this quarter is, of course, a drag. And also here, we continue to increase our R&D investments to be a technology leader for the future. If we look at energy service business, the book-to-bill also continues to be well above 1. Strong growth in service agreements also here. However, also in Energy, reduced order intake in retrofits and upgrades. Here, you can see also a solid service business CAGR, 7% over 2 years. Also, it looks a little bit similar so as Marine. There is no correlation why this coincides, Marine & Energy. It's a coincident. But you can see agreement is continuing to go up also in Energy around 33%, 34% coverage, also the renewal rate on agreement above 90%, so very positive. We see the retrofit business clearly being down in Q3, but also here, we have a good pipeline in front of us. So energy storage, which, of course, on the order intake was challenging in Q3. So order intake low due to the U.S. tariffs, regulatory changes and also increased competition. On the positive side, really strong profitability in Q3, 6.9% EBIT, real EBIT in Q3. I think that's a strong delivery by the team. But of course, order intake coming down 79%. However, I want to highlight the press release we made yesterday where we took our first order in Q4. So we are also very clear that we do expect order intake to pick up in Q4. Net sales down 10%. The operating margin is -- continues to develop in a good way. And if we look at the bridge on the positive side, really solid project execution. We are delivering on our backlog in a very good way with a great risk reward and with happy customers. We also have higher service volume. So the service business is, of course, smaller than for the rest of our Wärtsilä business, but it's growing. And then on the negative side, we are investing, you could say, in growing, and that's part of our strategy that we have communicated in the past that we will expand on geographical coverage. So we are increasing head count supporting the new markets, new customers and the products. And here, you have the bridge Q3 '24 to Q3 '25. And I think really good development, Marine going from 10.4% to 12.4%, EBIT Energy from 13.6% to 15.9%. Energy storage, as I talked about before, from 4% to 6.9% and then portfolio business from 9% to 6.8%, but that is primarily driven by ANCS, which has now been divested. So we have taken that out and the business contributed profitably -- in a profitable way to portfolio. So comparable operating results increased by 10%. Other key financial side. Over to you. Arjen Berends: Thank you, Hakan. If we look at the other key financials, also very positive numbers in general. First of all, cash flow, clearly, a very strong cash flow in Q3. It was at least the highest cash flow in the last 50 years. We did not go further back, but EUR 340 million, clearly, a good number, taking us close to EUR 1 billion year-to-date. Good support in the cash flow from profitability, but also clearly from working capital. Working capital at the moment approaching, let's say, EUR 1.1 billion negative, which is also an all-time low. Net interest-bearing debt, clearly moving also in the right direction, EUR 1.4 billion at the moment, negative. And return on capital employed, ROCE, clearly improving from 44.6% at the end of Q2, now to 51.1%. So over the 50%, which is really remarkable for us as a company. Gearing, clearly, going also in the right direction. We have been running this at a negative number already for a long time, well below, let's say, our financial targets and solvency also clearly improving now with improved profitability. Earnings per share, both on the quarter as well as on the year-to-date clearly ahead of last year at the same time in the same quarter. If we look at the trends, cash flow as well as working capital to net sales ratio, both are moving in the right direction. If you look at the dotted line on the right side graph, working capital or let's say, 5-year average working capital to net sales ratio every quarter, we are, let's say, lowering the line basically. At the end of Q1, it was 2.4%. At the end of Q2, it was 1.3% and now 0.1%. So we are very close to a negative line here as well going forward. And actually here, I also want to comment, let me anticipate that, let's say, this negative working capital will sustain the next years. Looking at our financial targets and the progress there. If I start at the left side, top graph, Marine & Energy combined organic growth, plus 13%, well above, let's say, our targets of, let's say, 5%. So really going in the right direction here, same for profitability percentage at the end of Q2 was 13.1%, now 13.2%. So it's again a step up, a small step, but a step up. If we look at energy storage, of course, growth is not there as we want it to be, given all the, let's say, challenges that we had in the past quarters on that one with respect to order intake. But clearly, let's say, the delivery is going very well. And also, let's say, as Hakan also explained, let's say, generating good profitability from executing projects from the order book. Currently, we are at 4.2% of sales here and really within the frame of the financial targets. Group targets, I don't want to comment too much. I think gearing is very obvious. We are well below 0.5 positive. We are actually 0.5 more than negative and dividend, we have always met our financial targets of paying at least 50% of EPS out as dividend. With these words, back to you, Hakan. Håkan Agnevall: ROCE at 50%. This is... Arjen Berends: Yes, yes, fully agree. Håkan Agnevall: Now we continue our journey to become a more focused, stable and profitable company. So we are making progress in our portfolio business divestments. So as we announced in Q2, the divestment of ANCS to Solix was completed the 1st of July. And in Q3, this divestment had a positive impact of EUR 34 million on the result, and it's reported in the items affecting comparability in Q3. Annual revenue of the business was close to EUR 230 million in 2024. So that's also a data point. ANCS did not anymore contribute to the figures in Q3 2025 and the group order book has been adjusted accordingly, so impact about EUR 260 million. And on MES, as we announced in July 2025, Wärtsilä MES, Marine Electrical System to Vinci Energies and subject to approvals, the transaction, we expect the transaction to be completed in Q4 2025. So given -- let's look at our outlook then. So for Marine, we expect the demand to be better than in the comparison period. In Energy, we expect the demand environment for the next 12 months to be similar to that of the comparison period. But here, we also note that Q2 was all-time high in order intake. So we are coming from a very strong order intake in Energy overall. On storage, we expect the demand environment for the next 12 months to be better than in the comparison period. However, here we really highlight the geopolitical uncertainty that particularly impacts this business. Then we also make a general comment that we underline that the current high external uncertainties make forward-looking statements challenging. Due to high geopolitical uncertainty, the changing landscape of global trade and the lack of clarity related to tariff, now risks for postponement in investments, decisions and also of the global economic activity slowing down. All right. So that was a summary of Q3. And now we open up for Q&A. Hanna-Maria? Hanna-Maria Heikkinen: Thank you, Hakan, and thank you, Arjen. [Operator Instructions] Operator: [Operator Instructions] Next question comes from Max Yates from Morgan Stanley. Max Yates: I guess my first question, just starting on the data center-related business. I guess the first thing to understand, when you talk about anticipating better order intake in the fourth quarter, to what extent is that a comment around data center and the energy thermal business? Or are you really just relating to the energy storage business? And I guess, more broadly, when we look at quotations and conversations with your customers, I mean, maybe help us understand how those are evolving versus 6 months ago. I think there's a lot of expectation in the market that there's more emphasis on engine technology, there's a greater acceptance of the engine technology. Would you say you kind of see that reflected in your customer conversations and the number of these kind of hyperscalers and colocation companies that are kind of knocking on your door or flying into Wärtsilä. So any comment there would be appreciated. Håkan Agnevall: Absolutely. Quite a few questions, but I'll try to answer them. And even if I forget some of them, please remind me again. So just to clarify, this is about Energy Q3, Q4, that is on the sales side. I mean, our deliveries, where we clearly say that deliveries and therefore, sales recognition are clearly skewed to the fourth quarter. So that is not related to the whole data center. I will get to that later, but just so we are clear, so we have been clear in our communication. It's related to deliveries, and we're basically saying deliveries and therefore, sales recognition is skewed to Q4. I mean it was fairly low in Q3 for Energy. Max Yates: Sorry to interrupt, but you do say in the release, we anticipate ordering to pick up in the fourth quarter. So I guess I was just trying to understand on that comment. Is that storage or is that the thermal business? Håkan Agnevall: Okay. Okay, good. That's -- so first, I talk about Energy, and I made the comment on sales deliveries and Energy, that is our power plant business. Then coming to -- okay, sorry, if I misunderstood your question. If I talk about the storage business and on the storage business, yes, it's clearly that we expect order intake to pick up in Q4. And I mean, it was basically 0 for newbuild for equipment in Q3. So it will certainly pick up at a much higher level. And a proof point is that, as I mentioned yesterday, we announced our first order for Q4, and there is more coming. So -- and even though, clearly, the U.S. market is still slow. There are other markets like Australia, this order from yesterday was from Australia and there are also other markets to support the energy storage order intake for Q4. Then moving to data center. And then I have to ask you, were you referring to data center and energy storage or data center in our thermal business? Max Yates: The data center in your thermal business and specifically the growing interest in engines and how has that led to a rise in quotations on the number of projects you're discussing versus, say, 6 weeks ago? Håkan Agnevall: Yes. So we do see increase in interest in the engine technology. You might recall this what we've been talking about, and this is a journey of, I would say, 2 years. It used to be data center sizes, needing power, 5, 10, 20, 30, 50 megawatts. Now the data centers are growing in size, and it's -- the data center owners, they cannot get access to the utilities, so they need to build their own power generation, off-grid. And now we are talking about hundreds of megawatts, 100, 200, 300, 400 megawatts. And this is coming right in our sweet spot. And so this market is really heating up for us. And to your question, yes, we see a lot of engagement from customers, a lot of interest. I think many customers are more and more also recognizing the benefit of the engines compared to the competing technologies on the gas turbine side, but also on the high-speed engine side. So yes, there is more activities clearly. And then if I may just for clarification also because we also mentioned data centers in relation to our battery business, or battery storages. So then you might say, what the hell is this? I think what operate -- I mean, the data center operators, they are also finding out there are rather big swings. And there are the big swings in the minutes region, but there are also the big swings in the millisecond regions. And here, so it's balancing power. It's a good old balancing power. And you need -- you have 2 tools in the toolbox for the balancing power. And in this millisecond, second region, we see an increased interest actually for battery storage to kind of balance the load. Operator: The next question comes from Daniela Costa from Goldman Sachs. Daniela Costa: I wanted to follow up on Energy, but sort of thinking more about the margin and what you've said on sort of like less EPC now concentrates the deliveries into Q4 more skewed than in the past. Does that apply also to how we should think about margin seasonality? Should we think about sort of like a more intense concentration of margin also in Q4 than in the past, in general? How does that work? Håkan Agnevall: Arjen, you take that? Arjen Berends: Yes. I would say, yes, margin correlates with sales volume. So margin that you make on the project is recognized in the quarter that you recognize the sales. And that depends on, is it percentage of completion, which is typically used in EPC contracts or, let's say, on time -- or let's say, completed contract method, which is then basically based on deliveries. So yes, when sales shift also margin shift at the same time in the recognition, correct? Daniela Costa: Great. It's just for -- it was just for Energy. I would say then that your comment on skewness on EPC. Arjen Berends: Yes, yes. And also, let's say, the EPC comment is related to Energy. Marine is basically all is completed contract method. Operator: The next question comes from Akash Gupta from JPMorgan. Akash Gupta: I have a follow-up on energy. So I think you are kind of indicating that revenue in equipment side will be strong in Q4, and this simply has to do with seasonality in delivery of equipment, which will be more in Q4 than Q3. I mean I just want to understand like what is causing this seasonality in delivery because I think I would assume that you would be producing these engines every quarter. And therefore, when it comes to delivery patterns, they would be more homogeneous. But maybe if you can help us explain what is causing this seasonality? And is this something we should expect every year that some periods may be more busy, some periods may be less busy on revenue? Or there is something unusual in 2025 that may not be repeating next year? Arjen Berends: I can answer that. Let's say, it's really about the delivery schedules that you've agreed with customers, okay? Some years, you have it more evenly spread. Other years, it's, let's say, more in certain quarters. What you mentioned earlier that, okay, production of engines does not relate to, let's say, income recognition or sales recognition in a certain quarter. It's the delivery to the customer that counts. And here, we follow basically what we have agreed with customers. So there are -- clearly, in every project, there are delivery schedules. And in this year, in the second half of the year, it's mostly into, let's say, Q4. I cannot comment whether this will happen every year because that depends on the orders that you have in that particular year. But let's say, if I try to put a little bit myself in the shoes of, let's say, customers that if you build a power plant or if you build a ship and you work with percentage of completion, most likely, yes, if you want to, let's say, have an impact on your results, yes, you want to have the delivery done before the year-end, if you close your financial year at the calendar year. So that might be one driver. But let's say, we follow the schedules that we agreed with customers. Akash Gupta: And maybe just a follow-up to that question. Does the size of project change this seasonality? Because I assume that if you have a large 200, 300-megawatt order, then you may want to ship everything in one go, which could create a bit of this pattern. So any comment on size of orders may be impacting revenue recognition profile? Arjen Berends: Yes. There are many delivery schedules in a certain project. It might be, let's say, shipping -- let's say, if you have a power plant with 10 engines, let's say, it might be one batch in this quarter and the next batch in the other quarter. It varies a lot by project. And it depends also quite much, let's say, where do you need to ship it to. So there is no, let's say, one pattern and one size fits all here. Håkan Agnevall: I agree. And it's not that for certain -- it's not a model where you bundle all the engines and you ship them at once. There are many different ways to deliver the engines. So normally, you deliver them in stages. It's easier to handle them at site, if you talk energy than receiving everything at once, et cetera. So I'm afraid it's much more complicated than that. And it's really related to how the customer want us to deliver, so to say, and that can vary quite a lot. Operator: The next question comes from Sven Weier from UBS. Sven Weier: Just wanted to follow up on what you said on data centers and battery storage because obviously, we had the announcement from NVIDIA mid-October around the next-generation data centers, the 800 VVC ecosystem, which builds in battery storage kind of as a standard. So I was just curious if you were also kind of referring to that announcement? And what do you need to do to be able to do business there in terms of the battery sourcing? I mean, how much have you already changed the sourcing maybe to Korea, which I guess will be in a much better starting point and China probably continues to be penalized. So that's the first one. Håkan Agnevall: So 2 things. I mean, I think actually that -- and this is my inside out -- outside in, sorry, outside-in observation that I think there is a lot of learning going on, on how the data centers are behaving as electric loads. I mean you have certain data centers that are focusing on learning, then you have other data centers that are focusing on interference, and they have completely different load profiles in terms of what energy they need and how it swings back and forth. So I cannot comment on the latest from NVIDIA. But clearly, there seems -- and there is an evolving understanding that for certain type of data centers, the swings can be pretty big and pretty quick. And that leads to an interest to the energy storage side, so to say. Then coming to where we source our batteries, yes, we certainly source from China, but we also source from other countries in Southeast Asia. We are also looking at possibilities for sourcing in the U.S. However, in our view, that is taking longer to move. Sven Weier: And would you say the largest share still clearly comes from China? Or how should we think about that? Håkan Agnevall: Yes. In the share of supply of batteries -- battery cells for Wärtsilä, the biggest share is still from China, yes. Sven Weier: Okay. But you started to already make the shift to other regions in the last quarter. Håkan Agnevall: Yes, correct. Sven Weier: And then maybe one quick follow-up on the thermal side and the discussions you have with the U.S. customer base for data centers. I mean, what is the biggest pushback? I mean, do you reckon there are still predefined views that kind of people think you don't get fired for buying a turbine, but no experiments with new tech because engines have probably not been used so much for baseload in the U.S.? Or what's the biggest hurdle you find in your discussions? Håkan Agnevall: No, I think the technology acceptance is certainly evolving. I mean we have one group of customers. They are fully into engines. They see the benefits, et cetera. Then there are other customer types, which is a little bit more what you're alluding to. It's a new technology. But I think this is how we've been selling the Wärtsilä propositions for many, many years, and we run our simulations, we show all the proof points, et cetera. And step by step, we convince customers because also in this application, there are some intrinsic benefits for the engine. Energy efficiency is higher than our competition. No derating on high altitude, which is sometimes important, very little water consumption, which is sometimes important. Really good -- I mean, ramping, we all know that from the balancing compared to the CCGTs, et cetera, et cetera. So for me, it's very similar, you could say, the business development and sales process that we have with many of our, you could say, regular customers. I think the difference is that the speed of execution and the desire from the customers to deliver, that is clearly 1 or 2 notches higher than, so to say. Operator: The next question comes from Panu Laitinmäki from Danske Bank. Panu Laitinmaki: I wanted to ask about cash flow and capital allocation. So you had EUR 1.4 billion of net cash. And maybe just to confirm that did you change your comment on the net working capital that you expect it to remain negative for longer as you previously, in my view, indicated it to kind of reverse? And then if that's so, does it kind of change your view on capital allocation, if it's like better for longer in terms of balance sheet? Are you more open to doing share buybacks? Or what will you do with the cash? Arjen Berends: Let's say, the allocation principles as such don't change. Let's say, we have been saying and I have been saying in many quarters that, okay, the negative working capital level is extraordinary. And okay, it's not so long ago that we went through the negative line, basically from positive working capital to negative working capital. You could, in a way, say it felt in the beginning a little bit uncomfortable, but we now see that this is a sustainable trend that we see. Will it be all the time that negative as we see it today? Question mark. Let's say, there are clearly, let's say, factors in the market that are currently there, which in the future might not be there. And I give one example. I think I gave it also last time. Yard order books are very long. Yards want to lock their cost. If they want to lock the cost in Wärtsilä, they need to put the order at Wärtsilä with a down payment. So you get cash earlier. Well, the exit cash or the cost, let's say, generation is later in the time. That's a positive impact, which is happening today. Will yard order books in the future get shorter again? It might reverse that trend. Difficult to say if that will happen, when it will happen. But at least for the coming years horizon, we anticipate that working capital will stay negative. Another trend, which I also, I think, mentioned last time is, for example, in energy, we have seen a few projects. I'm not wanting to call it a trend, but we have seen more projects than before, let's put it that way, where customers don't want to make, let's say, payment security arrangements, like LCs, bank guarantees, et cetera. That's fine for me. Cash upfront. Then we have a lot more cash early on before we actually make the cost. So is this something that will stay there? Difficult to say. For now, I think it will not change rapidly. But yes, this can change. So that's where we were in the beginning, very careful with, let's say, making bold statements about working capital staying negative. I think we feel much more comfortable about at least the coming few years to say, yes, it will stay negative. But sorry, I did not answer your capital allocation question. Let's say, the capital allocation principles don't change. And share buybacks, yes, that's for future consideration, not at the table today. Operator: The next question comes from Vaspaan Avari from Barclays. Vladimir Sergievskiy: It's Vlad, from Barclays. Two questions from me, if I may. Very strong margin in thermal energy this quarter. Congratulations on that. This lack of the equipment deliveries in the quarter, did it have positive or negative impact on the margin? Because, of course, on one hand, mix is favorable, but on the other hand, cost absorption is less. That's first question. Second question, could you comment on competitive environment in energy storage globally and maybe by key regions? Has there been any changes there recently? Håkan Agnevall: You take the first one? Arjen Berends: I did not catch the first one, to be honest. The line was... Håkan Agnevall: I think I get it, but it's better to say... Arjen Berends: The line was a bit... Vladimir Sergievskiy: I can easily repeat the first question. The question is the lower deliveries in the Energy business in Q3, did it have positive or negative impact on profitability in Q3, given that on one hand, the mix is favorable, but on the other hand, cost absorption is less. Arjen Berends: Shall I answer that, please? Håkan Agnevall: Please. Arjen Berends: So let's say, the answer is fairly simple. Let's say, of course, in absolute terms, it's negative because you have less sales that generates margin because we make positive margin on our new build business. But of course, from a percentage point of view, in the mix, it's a positive because service typically has higher margin percentages. So in the percentage mix, it's a positive. So it's both actually. But it depends if you look absolute or if you look percentage of sales. Håkan Agnevall: And then if I continue, as I understood your question, Vlad, is how is the competitive situation develop in energy storage more from a global perspective. And I would say that the competition is increasing, and I think there are 2 major drivers for it. One driver is, of course, the slowdown of the U.S. market with the regulation and tariff regimes, which then, of course, drives suppliers to focus on other markets. And the other trend is also that we see more vertical integration, where cell producers are also moving into the integrated space, so to say. So the competition is increasing, in general, I would say. Operator: The next question comes from Mikael from Nordea. Mikael Doepel: Still one on data center, if I may. In your view, I mean, how big part of the future data center market is relevant for the 50 to 400-megawatt sweet spot that you are referring to? So I assume that you have done some research on the topic. So just trying to understand the opportunity for Wärtsilä here. That would be my first question. I can come back to the second one. Håkan Agnevall: Now so just to give you -- I mean, the short answer, there is a significant opportunity. It's very hard to quantify. Why is it so hard to quantify? I can give you some other public data that has been compiled by a number of reputable players like the McKinseys, the Goldman, the JPs, the International Energy Agency. If you look at the forecast of -- if you just zoom in on U.S. If we look at the forecast, how much growth there will be in data center power from now to 2030, there is a span from those reputable players in their forecast from 20 to 100 gigawatts. So it's very hard to -- with that as a starting point to derive what is the concrete addressable market. I would say the underlying -- there is definitely a market for engines. There is definitely a market for -- I mean, if we -- there is definitely a market for off-grid. In the off-grid space, there is definitely a market for engines. And if you talk engines, there is definitely a market for Wärtsilä. We do see growth opportunities, but it's very hard to pin down what are the -- even the spans of the additional capacity that would go trickle down when the spread in the starting estimate is as broad as it is. Now we think that data center is a very interesting opportunity. We have a pipeline that is looking very interesting. No orders in Q2, but we have interesting pipeline. And we are also looking on how to further develop our delivery capabilities. Mikael Doepel: And the second question would be on the carbon capture systems. I think we haven't talked about that on that topic for a while. So I wanted to revisit that and maybe you could get a bit of an update where are we now in terms of the infrastructure developments there? What is the customer interest right now given the regulatory environment? And do you have anything in the pipeline and so on and so forth? Håkan Agnevall: So basically, just to make a quick recap, we actually did the commercial launch of a carbon capture solution for Marine. So it's an extension of our scrubber business. So we can now deliver 70% capture rate, 7-0, on a 10% to 15% energy penalty because it's really this for a large [indiscernible] between you how much you can capture and how much energy you put in. That is -- it needs to be a viable route, so to say. We have had our first pilots in full scale, and it's working very well. We had the commercial launch. So we are engaged with customers. Now clearly, this is a whole ecosystem that needs to evolve. I mean we add a piece to the puzzle. We can capture the carbon. We can store it on the vessel, but then you need to take a short and what do you do with it? And we all know there are basically 2 routes. You can use it for sequestration, pumping it back or you can use it as a raw material for some -- in some kind of chemical process, including synthetic fuels. Now the customers that we are talking to now, they are more the early adopters. The regulatory framework already before IMO, the recent IMO postponement, I think in April in the MEPC83, it was already decided to come back and work further on the regulatory context and coming back later. So that from IMO, it will still take some time for the regulatory landscape to evolve. I think EU is further ahead in this area, so to say. So this is a market that will evolve. It will take time. We have made it clear. And I would say we are engaged with our customers that are the kind of early adopters of the pioneers. Operator: The next question comes from Vivek Midha from Citi. Vivek Midha: I have a couple of questions. The first is on energy power plants. I was interested in hearing your latest view on pricing trends. We've seen big price uplift, for example, in the turbines. We, of course, can't see the underlying pricing trends, stripping out mix and scope and so on. We can only see the crude average selling price, and that appears to actually be down around 25% on my calculations versus the second quarter. So could you give us any indication on the underlying pricing trends and new order margins? Håkan Agnevall: So I would say, in general, it is a hot market in the Energy space, and it's a hot market for all the technologies that I know of, so to say. And of course, in that type of market, it gives the suppliers opportunities for price realization. Then, of course, there is a customer that -- where the offering needs to make sense for the customer to build a business case, et cetera. So there is always a balancing. But I would say, in general, I think the price realization is rather good. Vivek Midha: Understood. And just one follow-up as well differently on the Marine service growth. If I'm just looking at the spare parts development, it looks like there's been a drop year-on-year and the book-to-bill below 1. How should we think about that developing? And would it be fair to assume that the spare parts are the highest margin part of the service business? Håkan Agnevall: So overall, I wouldn't be concerned, and you clearly looked at what we call the 4 disciplines. It will vary a little bit. I think the big trend agreement is clearly growing. There's a bit of spare parts in agreements as well. And then we have the retrofits. And the retrofits, it looks pretty dramatic as a downturn, but it's the cyclicality of the retrofit business. And as we have indicated, we see we have a good pipeline in front of us. So our message on services, both in Energy and Marine with a book-to-bill above 1. It's a consistent continued message. Operator: Next question comes from Max Yates from Morgan Stanley. Max Yates: Maybe just 2 quick follow-ups. Just the first one is around your energy storage business and obviously, a softer quarter this quarter. It feels like some of the U.S. kind of competitors have talked about a much more positive market backdrop. So I guess I was trying to understand, is this an active decision by you not to participate so much in the U.S. market because it's viewed as more competitive and therefore, focus outside? Is there any reason if sort of storage gets better in the U.S., your either setup of sales network, your procurement because of tariffs makes you less able to participate? And do you think it is fair that you're kind of focusing on other markets? Just to really understand what looks like a bit of a kind of difference with your performance versus what some of the other peers in the U.S. are kind of talking about for this market? Håkan Agnevall: So I would say U.S. is an important market for us. But I would say, in relative terms, I mean, Australia and U.K. and a couple of other markets, they carry a lot of weight. There are other players that -- where U.S. is more important for them, but -- relatively speaking. But U.S., we are in the U.S. We have continued our kind of selective strategy in the sense that we don't try to be the solution for each customer type. We continue to focus on the customer types that value our delivery track record, which is -- it's really solid, our thermal track record, which is really solid and also our capability to leverage our power system skills to integrate the equipment. So -- and you could see, I mean, looking at our profitability, it has -- with the help of a good project execution, is translating to real bottom line. Now I cannot comment on others, but we will continue this selective strategy. Then what we said when we came out of the strategic review is that we will try to add a couple of geographical markets. We will try to expand. And so we are definitely going to remain in the U.S. We will probably try to add, but we will have a selective approach overall. Now in this situation, we also talk about that we are certainly looking at how do we improve -- further continue to improve our competitiveness. And this is, of course, continue to work on our costs and also exploring avenues for -- I mean, synergetic opportunities with the supply chain, so to say. So these are the areas that we are working on. Max Yates: Okay. And maybe just a very quick follow-up. On your energy deliveries, and this is your sort of thermal power plant business, are you seeing any customers, particularly in the U.S., pushing back related to tariffs? And any kind of obviously, you've said tariffs are built into the contract structure, the customer pays them. Are any customers slowing deliveries? And is that having any impact on the rate of delivery? Or is it purely just a timing issue? Håkan Agnevall: No, this is clearly a pure timing issue. I mean it's not about -- I think it's fairly well. Of course, customers are not happy about it, but I think customers understand the dynamic about that we are adding the import tariffs to our prices. Nobody likes it. We don't like it either, but that's a clear principle. We haven't had any cancellations or anything like that. So I mean, this Q3, it's purely -- we talked about the customer delivery schedules that happens to be in this way this year. Operator: The next question comes from Antti Kansanen from SEB. Antti Kansanen: It's Antti, from SEB. I have 2 questions regarding the trends in Marine Service, please. And I fully understand the volatility related to the retrofits and upgrade business, so we can kind of exclude that from the discussion. But looking at the agreement book-to-bill growth, could you please remind what do you actually book in terms of agreement orders? If I understand correctly, the backlog is the 24-month expected value. So is that also kind of what do you include in the agreement orders there? And then the second question is maybe on the slowing trend on the book-to-bill on the parts and field services. Do you think you are cannibalizing that with the agreement business? And kind of should we be a bit concerned that the sales growth in the Marine services will start to approach 0 as kind of the agreement is longer converting and maybe the more transactional is slowing down? Arjen Berends: I think there is -- let's say, the first part of your question, we can confirm that's correctly assumed. Let's say, it's good to -- we take 24 months in. And then, let's say, on the moment that we take an order in on an agreement, then let's say, we roll it every quarter basically, let's say, with 1 quarter forward until, let's say, the whole agreement lifetime is consumed, you could say. When it comes to the spare parts, is it -- sorry, our agreements, let's say, cannibalizing parts? No, I would not say so. Agreements are contributing to parts. But of course, it depends a little bit, let's say, what kind of agreement you have. Let's say, if you have an agreement where you get paid by running hour a certain fixed fee. And within that fee, you need to do the maintenance. Of course, your aim is to do as little as possible spare parts. Spare parts, typically, what we book as part of an agreement ends up in the graph basically as parts. So that's good to keep in mind. Håkan Agnevall: And I would say to the -- what I assume is your more fundamental question, how do we see book-to-bill in services going forward? And I would say that underlying, we have a very positive view on that. I would say both in Marine and Energy. Arjen Berends: Mix between the lines can change. But in general, we look positive. Antti Kansanen: If I think about earnings contribution within the aftermarket, I guess the parts business is very, very important in that regard. So do you have any kind of views on why the book-to-bill on a 12-month rolling basis has been slowing throughout '25. Is there something in the customer behavior that you can clearly kind of pick out what's causing this? Or is it just a normal fluctuations? Arjen Berends: I would say it's normal fluctuations. . Håkan Agnevall: I agree on that. Operator: The next question comes from Akash Gupta from JPMorgan. Akash Gupta: Yes. I have a follow-up on your capacity in Energy, and what sort of flexibility do you have given the demand that we see in the data center is more for gas engines, while I think in your business, you have both gas, oil and renewable fuel engines. So a question like, is there any way to quantify how much theoretical megawatt or gigawatt you can produce? And then how much of that is gas versus non-gas? And do you have flexibility to retool capacity for oil engines to gas engines? So any color on that would be helpful. Håkan Agnevall: So to -- I mean, some general -- so we -- our engines are fuel flexible. So it's not about oil or gas. I think the more critical thing for us when it comes to our supply chain and our manufacturing is the size of the engines. I mean, you have the large bore engines and you have the medium bore engines. So this is more where we need to be careful in our forecasting and how we manage our delivery capabilities. Just to clarify. So it's not fuel related, it's size related. Secondly, I understand you want to know the gigawatts, but so does competition, and I won't tell them. So sorry about that. Then what we clearly said that -- and for certain engine types, and I will not go for the same reason, I will not go into the details, which -- but for certain engine types, I mean, we are now looking at delivery times in the second half of 2027. But we still have other engine types where we can deliver next year. So it's a mixed situation. Hanna-Maria Heikkinen: Thank you, Hakan. Thank you, Arjen. And thank you for all of the good questions. I'm afraid that we have already run out of time for this call. So as a reminder, we are hosting several events every quarter, which are equally open for everybody who is interested in Wärtsilä as an investment. And next event will be hosted by Håkan. It's a CEO Strategy Call on November 27. So I hope to see you there. Thank you. Håkan Agnevall: Thank you for today. Arjen Berends: Thank you.

88天前Insight Analytics约5分钟阅读

NMR 2026 Q2 财报电话会议

Operator: Good day, everyone, and welcome to today's Nomura Holdings Second Quarter Operating Results for Fiscal Year Ending March 2026 Conference Call. Please be reminded that today's conference call is being recorded at the request of the hosting company. Should you have any objections, you may disconnect at this point in time. [Operator Instructions] Please note that this telephone conference contains certain forward-looking statements and other projected results, which involve known and unknown risks, delays, uncertainties and other factors not under the company's control, which may cause actual results, performance or achievements of the company to be materially different from the results, performance or other expectations implied by these projections. Such factors include economic and market conditions, political events and investor sentiments, liquidity of secondary markets, level and volatility of interest rates, currency exchange rates, security valuations, competitive conditions and size, number and timing of transactions. With that, we'd like to begin the conference. Mr. Hiroyuki Moriuchi, Chief Financial Officer. Please go ahead. Hiroyuki Moriuchi: Thank you very much. This is Moriuchi, CFO. I will now give you an overview of our financial results for the second quarter of the fiscal year ending March 2026. Please turn to Page 2. Group-wide net revenue came in at JPY 515.5 billion, down 2% from last quarter. Income before income taxes fell 15% to JPY 136.6 billion, while net income was JPY 92.1 billion, down 12%. Excluding gains from the sale of real estate recorded in the previous quarter, net revenue was up 10% and net income was up 40%, reflecting steady growth. Earnings per share for the quarter were JPY 30.49 and return on equity was 10.6%, reaching the quantitative target for 2030 of 8% to 10% or more for the sixth consecutive quarter. In addition, income before income taxes in the 3 international regions rose 63% to JPY 44.9 billion, marking the ninth consecutive quarter of profitability. For all 4 divisions in total, income before income taxes rose 25% to JPY 132.6 billion. In Wealth Management, the balance of recurring revenue assets and recurring revenue saw a net inflow for the 14th consecutive quarter, reaching an all-time high. And in Investment Management, assets under management also reached an all-time high on a 10th consecutive quarter of net inflows. Revenues and profits rose in both divisions. In Wholesale, the overall trend of growth in both revenue and profits strengthened further with net revenue in Equities reaching a record high in Global Markets and momentum remains strong in Investment Banking, too. The Banking division established in April also performed well. Before we go into details for each business, let us first take a look at the performance in the first half of the fiscal year. Please turn to Page 3. As shown on the bottom left, income before income taxes rose 26% year-on-year to JPY 296.9 billion. Net income rose 18% to JPY 196.6 billion, and earnings per share came in at JPY 64.53. Return on equity rose to 11.3% as medium- to long-term initiatives steadily bore fruit. In addition, group revenue rose by 11% and profits benefited from cost controls and operating leverage with a cost coverage ratio of 71%. Please see the bottom right for a breakdown of income before income taxes. Income before income taxes at the 4 main divisions rose 11% to JPY 238.4 billion. Growth in recurring business revenue in Wealth Management and Investment Management helped to stabilize overall performance and Wholesale continued its self-sustained growth based on the principle of self-funding, enabling income before income taxes to rise substantially, thereby driving overall performance. Banking got off to a good start and has made progress with preparations for the introduction of a deposit sweep service next fiscal year. In view of this performance, for the period ended September 2025, we expect to pay a dividend of JPY 27 per share. This works out at a dividend payout ratio of 40.3%. Please turn to Page 4. This time, we have added this slide to our presentation. We calculate stable revenues as the sum of recurring revenue at Wealth Management, business revenue at Investment Management and revenue at Banking. Steady growth in recurring assets in both Wealth Management and Investment Management, shown on the left, has resulted in strong growth in stable revenues, as shown in the graph on the right. And Banking has been steadily increasing its recurring business, including loans outstanding and trust balance, thereby expanding its foundation for growth. Now we will look at the second quarter results for each division. Please turn to Page 7. All percentages discussed from now on are based on a quarter-on-quarter comparison. Wealth Management net revenue increased 10% to JPY 116.5 billion, and income before income taxes grew 17% to JPY 45.5 billion. Income before income taxes was the highest in about 10 years since the quarter ended June 2015. Recurring revenue and the balance of recurring revenue assets both reached record highs as recurring revenue assets saw a net inflow for the 14th consecutive quarter. As major equity markets rose to fresh highs during the quarter, client activity increased and flow revenue registered strong growth. Meanwhile, the pretax profit margin reached a high level of 39%, buoyed by ongoing cost controls. The recurring revenue cost coverage ratio for the last 4 quarters came to 70%, leading additional stability to the division's performance. Please turn to Page 8, where you can see an update on total sales by product. Total sales declined around JPY 300 billion to JPY 6.4 trillion, but this was owing to a tender offer in excess of JPY 1 trillion during the previous quarter. As for recurring revenue assets, sales of investment trusts and discretionary investments grew steadily, supported by continued strong demand for long-term investment diversification. Regarding insurance, sales have continued at a high level, reflecting the relatively high U.S. interest rate environment. Next, let's take a look at the KPIs on Page 9. On the top left, you can see that recurring revenue assets saw a net inflow of JPY 289.5 billion. As major markets reached new highs, net inflows remained at a high level despite increased selling pressure from portfolio adjustments as our efforts to expand the recurring business proved successful, taking us to the next stage. Meanwhile, as shown on the top right, recurring revenue assets totaled JPY 26.2 trillion at the end of September and recurring revenue exceeded JPY 50 billion for the first time in our quarterly results, owing to a contribution from investment fees, which are collected on a half-yearly basis in the second quarter. As shown on the bottom right, the number of workplace services rose steadily to exceed 4 million. Next, let's take a look at Investment Management. Please turn to Page 10. Net revenue came to JPY 60.8 billion, up 20%. Income before income taxes amounted to JPY 30.7 billion, up 43%. Stable business revenue has been growing steadily. In addition to favorable market factors, 10 straight quarters of net inflows resulted in assets under management topping JPY 100 trillion and asset management fees reaching a new high. Investment gain loss came to JPY 16.8 billion, rising sharply by 69%. This reflects not only a large increase in investment gain loss related to American Century Investments, but also profits recorded at private equity investment firm, Nomura Capital Partners on the sale of shares held in Orion Breweries, which publicly listed. Let's now turn to Page 11 and examine our asset management business, which is the key source of business revenue for the division. The graph on the upper left shows that assets under management reached JPY 101.2 trillion at the end of September. As shown on the bottom left, net inflows amounted to JPY 498 billion. Net inflows to the investment trust business totaled around JPY 525 billion and net outflows from the investment advisory and international businesses were around JPY 26 billion. Net inflows in the investment trust business were achieved despite share price increases on the major markets, triggering profit-taking sales, pushing up funds kept in reserve in MRFs. But even excluding MRFs, funds flowed into Japan equity ETFs, private assets and balanced funds. The investment advisory and international businesses saw net outflows owing to reshuffling of investments by Japanese investors and outflows from Asian equities, which outweighed inflows to U.S. high-yield bonds and UCITS investment funds. As shown in the graph at the bottom right, alternative assets under management rose to a new high of JPY 2.9 trillion. This performance is the result of solid net inflows and not solely owing to market factors. Next, Wholesale Division. Please go to Page 12. Net revenue came to JPY 279.2 billion, up 7% as shown at the bottom left of the slide. Global Markets net revenue was up 6% and Investment Banking net revenue was up 15%. Meanwhile, stringent cost management resulted in division expenses only rising 3%. As a result, cost-income ratio improved to 81% and income before income taxes rose 27% to JPY 53.1 billion. Please turn to Page 13 for an update on each business line. Net revenue in Global Markets business rose 6% to JPY 235.7 billion. Fixed income revenue was JPY 121.9 billion, in line with the previous quarter. Let's look at the product breakdown. In macro products, rates revenues were down quarter-on-quarter in EMEA. FX/EM revenues in AEJ were also down. In spread products, credit revenue growth in Japan and AEJ was attained by capturing client flows and securitized products revenue growth was supported in the Americas by the prevailing direction of the interest rate environment. As a result, higher revenue from spread products offset lower revenues from macro products. Equities revenue rose 16% to a new high of JPY 113.8 billion. In equity products, revenues grew on higher client activity in Japan and AEJ, supporting a strong performance in the derivative business and the Americas business remained favorable. Execution services sustained strong revenue from the previous quarter. Please turn to Page 14. Investment Banking net revenue rose 15% to JPY 43.5 billion. Corporate action in Japan remained consistently strong and the international business also contributed to revenue growth. By product, in advisory, momentum remained strong in Japan with multiple transactions involving financial sponsors and moves to take companies private. And international business also made a contribution with M&A deals related to renewable energy and digital infrastructure, primarily in EMEA. Advisory continued to rank top in the Japan-related M&A league table for January through September and ranked 15th in the global M&A league table, demonstrating its global presence. In financing and solutions, revenue rose in DCM on continued solid performance in Japan and multiple international transactions, primarily in EMEA as well as ALF deals, particularly in the Americas. Now let's look at Banking. Please turn to Page 15. In Banking, net revenue came to JPY 12.9 billion, flat from the previous quarter. Income before income taxes fell 12% to JPY 3.2 billion. KPIs such as loans outstanding and investment trust balance remained at a high level and revenue from lending business and trust agent business held firm. Meanwhile, higher costs pushed down profit as an upgrade to the core banking system completed at Nomura Trust and Banking in May 2025 resulted in the associated depreciation being fully booked this quarter. Preparations for the deposit sweep service scheduled for introduction in FY 2026, '27 are progressing as planned. Now I will explain noninterest expenses. Please turn to Page 16. Group-wide expenses came to JPY 378.8 billion, a 4% increase from the previous quarter. Compensation and benefits totaled JPY 195.1 billion, rising 5%, reflecting an increase in performance-linked bonus provisions. Commissions and floor brokerage fees came to JPY 47.2 billion, up 5%. The increase was driven by a heavier volume of transactions. Other expenses came to JPY 52.8 billion, which includes JPY 3.1 billion related to acquisition and integration of the U.S. asset management business of Macquarie Group as well as the expense of paying compensation for losses arising from fraudulent trades in clients' accounts due to phishing scams. I will comment in more detail on how the phishing scams affected our profits this past quarter at the end of today's presentation. Lastly, we take a look at the financial position, Page 17. In the table on the bottom left, you can see that Tier 1 capital at the end of September came to approximately JPY 3.6 trillion, up roughly JPY 170 billion since the end of June, while risk-weighted assets came to JPY 23.5 trillion, up roughly JPY 660 billion. The common equity Tier 1 ratio at the end of September accordingly came to 12.9%. This is within our target range of 11% to 14%. Our common equity Tier 1 ratio finished the quarter down from the 13.2% marked at the end of June, but this decrease reflected the accumulation of positions commensurate with revenue opportunities as well as the increase in the value of risk-weighted assets due to market factors. As we explained 3 months ago, the calculation method for regulatory capital ratios will change once the acquisition of Macquarie Group's U.S. asset management business has been completed, and we currently expect this to depress the CET1 ratio by about 0.7 percentage points. This concludes our overview of second quarter results. We would like to provide more detail on the issue of fraudulent trading in client assets resulting from phishing scams. In response to instances of fraudulent trading, we have raised the security level in stages and the number and scale of damages have come down greatly from April peak. At this point, we have been in direct contact with nearly all clients that have been affected by the attacks, and we are working through the process of paying a compensation to them. There are times during the second quarter when the related damages increased again, but at present, the situation has settled down, owing to various steps undertaken to address the issue. In the second quarter, the negative impact on the profit came to JPY 4.8 billion. Although the number of damages fell sharply, fluctuation in share prices led to high costs in some cases to restore our clients' assets to their original condition. In this regard, we are working to avoid market volatility risk to the greatest extent possible. On October 18, we introduced a passkey authentication system that is recognized as an effective means of thwarting phishing attempts, and we are strengthening measures to eliminate such damages. Looking ahead, we expect that the impact of phishing scams will be much smaller than it has been up through the second quarter, judging from the current state of damages. Our swift action to implement high-quality security countermeasures does more than just limit the damages suffered by our clients. It enhances the security and convenience of the financial services we provide. Our plan is to be proactive in assembling effective account security measures in our role as an industry leader and thereby reinforce our brand as the most trusted partner for our clients. I would like to close with some final remarks. During the quarter just finished, stock indices in Japan and other major economies rose steeply amid lessened uncertainty over the trajectory of U.S. interest rates and widespread interest in AI-related stocks and other high stocks -- high-tech stocks. Those conditions helped us record another quarter of strong earnings as we expanded our stable source of revenue and successfully monetized robust client flows. EPS in the second quarter came to JPY 30.49 and ROE came to 10.6%. For 6 quarters in a row, we have attained a quantitative target for 2030 announced last year of consistently achieving ROE of 8% to 10% or more. In addition, ROE for the first half of the fiscal year was 11.3%. As mentioned at the beginning of this presentation, we have seen solid growth in our key sources of stable revenue, including revenue -- recurring revenue in Wealth Management, business revenue in Investment Management and net revenue in Banking. This has added further to the stability of our company-wide performance. Wholesale as well as steadily achieving independently sustainable growth under the self-funding approach. Revenues and profits in the division have both been increasing in the continuation of last year's trend and overseas business, which has long presented a challenge, has gained ground in making a steady profit contribution. Let me briefly touch on the situation in October. In Wealth Management, net revenue thus far in October is well above the levels observed in the second quarter. We have seen continuous medium- to long-term growth in investment trust and discretionary investment and other such products and services premised on the idea of long-term diversified investment, and this trend has continued in October. The flow from savings to investment has become well established, and we have tangible sense that the client base for investment in marketable securities have broadened steadily. We intend to continue playing our part to transform Japan into an asset management powerhouse by building relationship of trust with our clients and providing them with asset management services tailored to their needs. In Wholesale GM business, equity products have continued performing well. In Investment Banking, we expect the current high frequency of corporate actions to continue. In October thus far, the net revenue in Wholesale continues to be solid. Going forward, we aim to raise our profit baseline by taking on risks appropriate to market conditions, and we ask for your continued support. Operator: [Operator Instructions] The first question, Bank of America Securities, Tsujino-san. Natsumu Tsujino: This is Tsujino. Two questions. First is regarding the personnel expenses. And as explained, in Q1, you had the U.K. and according to the accounting rules, every year, the expenses tends to be high. So you started at a low level. And this time, compared to Q1, the yen has weakened slightly, so the costs are a bit higher. But even so, if you look at it on a Q-on-Q basis, the personnel or compensation and benefits has increased too much, I think. Considering the wholesale revenue and even compared to that, I think comp and benefits has increased too much is my impression. So could you add more color on that, please, is my first point. My other point is, and this was the case in the past, too, but the CET1 ratio is within target range. And after Macquarie acquisition, it will go down a little bit. And it was 12.5% or so, which -- and you said you were not exactly fully comfortable with that. So now the market is strong and the position tends to increase. So for this year, regarding the buybacks this year, is there going to be any change compared to the past? So could you -- maybe you can't disclose that, but any color on that, too, please? Hiroyuki Moriuchi: Tsujino-san, this is Moriuchi. Regarding your first question about comp and benefits, yes, the points you raised are all correct. And yes, let me add some color to that. Within the compensation and benefits, there's the bonus increase linked to our earnings. That is a big factor. And on top of that, there was some retirement bonus increase in Wholesale, for example. And that does tend to happen as part of our business. And in this quarter, the retirement payments was a little larger than usual. So that's my answer to your first question. And for the second question, regarding the CET1 ratio target, 12.9% is going to go down to 12.8%, but how we think about the buybacks this year? Well, as for buybacks and for shareholder return in general, we have committed to the market of 40% dividend or above and total payout ratio of 50% or above. And we plan to stick to that as we consider shareholder return. And we had the Macquarie closing and the CET1 ratio is going to decline further from here. And within Wholesale at the moment, we are seeing some high-quality deals and opportunities, and those are increasing. So from an investment perspective and financial discipline perspective and shareholder return, we will keep those 3 factors in mind, and it's quite hard to balance those 3. But we will make sure to stick to our commitments. Thank you. I hope that answers your question. Operator: The next person asking the question is SMBC Nikko Securities, Mr. Muraki. Masao Muraki: I'm Muraki from SMBC Nikko. I have 2 questions. First question is about markets department revenue. Now in macro, revenue seems weak and credit and equity derivatives -- sorry, securitized products and equity derivatives seem strong. But the way revenue is generated in Page 17, the credit risk RWA increase has followed -- or is continuing? And where are you taking the risk and what kind of revenue is being generated? And recently, you said there are quality deals, but what kind of risk taking is expected in the third quarter? So could you explain? That's my first question, market revenue and risk taking. And my second question is as follows. The First Brands failure, so such incident from such instance, did you have some impact or any lesson that you have taken? And regarding private credit, oftentimes, there are many inquiries we receive about private credit. But looking at your balance sheet, trading book loan is JPY 1.9 trillion. And other than that, excluding Nomura Trust and Banking, loan is about JPY 1.2 trillion. In Americas, securitized -- securitization department or private credit-related business, what is the size of the business in this overall number? Could you give me some sense? Hiroyuki Moriuchi: Thank you very much for your questions. For your first question regarding credit risk, where we are taking and how we are taking credit risks. In the first quarter and second quarter, as you say, SPPC and equity derivatives were very strong. Also, usually in credit trading business, our credit trading business contributed to revenue solidly. And what is the outlook for the third quarter, as you said, related to SPPC. There are interesting deals in the pipeline. On the other hand, your -- it's related to your second question, but in our credit business, including First Brands, whether we see abnormality in credit market, we receive such questions often. Regarding SPPC, internally, we have been having various discussions and high profitability deals lined up. On the other hand, in our balance sheet, concentration risk on SPPC is something we have to be mindful of. So more than ever before, we have to be selective in deciding which deal to do. So in our total portfolio, SPPC portion is not going to be grown rapidly from where it is now. Regarding your second question about First Brands related impact as well as lessons we have learned and also the scale or magnitude. Firstly, regarding this specific case or impact on our business or P&L was very small from this specific case. To a certain extent, we had some exposure, but it's negligible in size. Also, this name in question did not cause direct cost. And is there a broader implication related to this? As you say, regarding firm-wide stress testing, periodically and nonperiodically, we conduct a stress test to see the changing pattern of tail risk. Indeed, looking at our existing portfolio, whether the risk has grown bigger a lot or not, the risk is not growing rapidly because in SPPC business, private credit business portion in size is very small. So the SPPC business has mortgage structured lending and infrastructure business. So those represent a big portion. So regarding private credit, private credit-related business is right now in the sense of the balance sheet of our P&L, the impact from that is not big, even though I cannot give you a specific number. That's all. Masao Muraki: If possible, I am deviating from the earnings result, but I'd like to ask you about your perspective. So related to First Brands -- so risks related to First Brands, which you mentioned, what kind of risks are you paying attention to? For example, simply, but is it simple credit risk or nonbank intermediary-related risks or double collaterals were involved in some companies' transactions, but is there a risk of fraudulent transactions that you may be involved in? So specifically, what kind of risks are you being attentive to? Hiroyuki Moriuchi: It's not that because this incident happened, but regarding individual cases, credit, we need to perform due diligence closely to look at the creditworthiness of each case. And regarding the fraudulent case or scam, by -- all we can do is to conduct a thorough due diligence to screen for the fraudulent trading. Regarding the nonbank intermediaries, unlike commercial banks, we are a firm that's focused on the trading. So what we take is inventory as a counterparty. So how should I put it? Nonbank credit risks themselves are not taken greatly by us. The risk which I mentioned is in the sense that regarding individual transactions, we pay close attention to credit. And for example, for the specific individual cases, when we receive sizable deal to conduct, we are not a major firm. Our balance sheet size is limited. So to what extent do we allocate balance sheet to one transaction. So what is the level of concentration risk. So those are the items or matters that we closely evaluate as we make a decision, and that's what we will have to keep doing. Operator: The next question is from Mr. Watanabe of Daiwa Securities. Kazuki Watanabe: This is Watanabe from Daiwa Securities. Two questions, please. First is regarding the October revenue environment. And in wholesale equity and IB is strong, which I understand. But for FIG, what are the trends you see in FIG? And compared to Q2, if you look at the Wholesale division revenue, is it above or higher or lower, please? Number two is the tax burden, Page 5. If we look at it year-on-year, the pretax income is increasing, but the net profit is down. And international pretax income size is larger, but the tax rate is going up. Why is that, please? Two questions. Hiroyuki Moriuchi: Watanabe-san, this is Moriuchi. Regarding your first question, the fixed income trends. First, for Japan, fixed income is quite strong. In the first half, for the ultra-long-term domain, it was quite difficult, including position taking. But even in that domain, we are seeing a normalization. And the market is very active and the revenues are catching up in accordance with that is my impression for fixed income in Japan. As for international, I think we're seeing a similar trend, similar to first half. And from here on, depending on the rate environment going forward, there could be upside. And as part of the overall portfolio, when fixed income improves, that starts -- that tends to normalize the other businesses. But as we bundle the overall business, we are seeing an increase in stable revenues and that level is gradually improving is my impression. That's my first answer. Your second question regarding the tax burden or the tax cost going up slightly. Sorry, it's hard to go into the details. There's a lot of technical issues here. So what I can say now, well, I won't go into the technical details. Kazuki Watanabe: Just to check on the first point, in October, Wholesale division revenue compared to Q2, is it above? Is it higher? Hiroyuki Moriuchi: Well, overall, it is strong, but I would say it's about the same level. It's still only been 3 or 4 weeks. So we'll see where things go. It's still a bit early to say. But just for the first 3 weeks, I would say it's about the same level. Operator: The next question comes from JPMorgan Securities, Sato-san. Koki Sato: I am Sato from JPMorgan Securities. I have 2 questions. First question, sorry for dwelling on this, but Wholesale, Equities or especially equity product business. So the revenue has reached the record high level. But firstly, in the short term, in the first quarter, Americas derivative did well, if I recall. But this time, looking at the material, Japan, AEJ had a significant increase in revenue. Anyways, derivative seems to be the strong area. But if it is fine with you over the several quarters in each region, what has been the trend of movement of each business line over the last several quarters? And such trend, is it sustainable over the next several quarters in the future? Can you give me some sense? My second question is about risk asset. The target range is set at 11% to 14%. And in this situation, now after the closing of Macquarie acquisition, it will come to around 12%, but the CET1 ratio, CET, if it's JPY 3 trillion, if core equity, then if it's 11%, then it's going to be JPY 27 trillion. Then for the time being, is that going to be the allowable ceiling of risks you can take? Can I have that sense? So I'd like to ask you to elaborate on the capacity of risk taking. Hiroyuki Moriuchi: Sato-san, thank you for your questions. Firstly, your first question, equities, what was the equities performance in each region? And what is the extent of sustainability moving forward? This time for the U.S., I might not have -- the material might not have mentioned it. But in the first quarter, the Americas has been the driver of revenue and the strength continues in Americas, though that's not specifically mentioned. On the other hand, for Asia and Japan, compared to the first quarter on a Q-on-Q basis. Now second quarter results came in stronger. Overall, equities in AEJ, Japan and U.S.A. the performance was very strong. And to what extent for how long can we retain this strength? If equities continues to be this strong, then sometime down the road, there will be a point of normalization. That's what we are discussing internally. But as you are aware, not only in Japan, but in U.S.A. and Asia, we have geographical diversification. And within equities, we have various products and the last several years, we have worked to diversify and broaden the product range within equities. So in that sense, we are more tolerant or resistant against downside risk. In any case, equities have become stronger. So moving forward, we expect certain normalization, but in such situation, resource could be -- resource -- fixed income resource, which we had intentionally reduced could go up for macro and other fixed income. So I encourage you to take a look at the entirety of the portfolio. And regarding your second question, target range from 11% to 14%. After Macquarie closing, the ratio is around 12%. So what is the future capacity of risk taking, that's what you asked about. So it is a good point you made. But firstly, regarding Wholesale, so stringently, they are sticking to the self-funding concept as they grow their business. So self-sustaining growth is being driven. So in the third and fourth quarters, if Wholesale continues to perform strongly, then based upon the revenue and profit generated by Wholesale and based upon the capital accumulated -- to be accumulated, RWA headroom or capacity will be increased. On the other hand, for areas other than Wholesale, we have the question of whether we find a need for capital in the near-term future. But if there are opportunities for M&A or inorganic growth, then in a step change manner, resource may be grown. But in any case, it's going to be immediately after Macquarie transaction. So when it comes to finance, we would like to stay on the safe side, and we would like to be conservative to a certain extent, and we want to take a look at the balance. I hope I answered your question. Operator: The next question is from Morgan Stanley MUFG Securities, Nagasaka-san. Mia Nagasaka: This is Nagasaka. Two questions. On Slide 14, Investment Banking. In the second half and next year, how do you think about the pipeline towards the future? In Q2, Japan was strong. International also recovered. And according to your explanation, corporate actions will remain strong. So what about advisory, finance solutions? Could you add some comments by product, please, is my first point. My second question is regarding the ROE. In Q2, 10.6% ROE on a full year basis, and there were some one-off items, but even so, 10.6%. So what is the base ROE which you can achieve? I think -- I guess the base ROE has gone up quite a bit. And your target 2030 target of 8% to 10% plus, what is the -- and I guess your expected profit level to achieve that is going up. So are you going to reconsider the target profit level at this stage? Any thoughts on the upside, downside, as CFO, please? Hiroyuki Moriuchi: Thank you for your questions. This is Moriuchi. Regarding your first question about the pipeline by product. First of all, for advisory, in Japan, there are some cross-border opportunities and large opportunities and quite a lot of opportunities are building up in the pipeline. And for international, it depends on the region, but we have announced many deals. And also in the second half, there are some deals which we haven't announced, which is building up as well. And for advisory, the pipeline is building up quite nicely. Meanwhile for ECM, the fee pool is normalizing and shrinking somewhat. And there are some normalizations of the cross-shareholdings opportunities. But even for the reduction of cross-shareholdings, that seems to be picking up slightly. And in the second half, usually, it's the second half that corporate actions tend to be concentrated versus first half in this product. So we'll make sure to pitch and win these opportunities. And for DCM, the business remains strong. And for the second half, as rates are expected to go up, but we are expecting a certain level of deal flow. Advisory, very strong. DCM is -- we expect a similar level to continue. For ECM, compared to a typical year, it's a bit weak, but we expect some recovery would be the summary. Your second question regarding ROE. And in Q1, Q2, and based on the results, we are already booking more than 10% ROE. So are we not going to raise the level is your question. And yes, as you pointed out, if we look at the current earnings, our base earnings power is gradually improving. This is a result of portfolio reforms as well as the operational reforms at each business division, and those are leading to results. So in terms of ROE, we get a lot of inquiries about whether we are going to reconsider and revise it. And we are discussing a little bit internally, but the point here is that which part of the cycle we are in right now, that's something we need to be mindful of. And regardless of the economic cycle, we want the products in Wholesale to offset each other so that we can maintain the overall revenue level. That's the kind of portfolio we are aiming for. But if we are going to enter a slowdown, is something we need to consider. And even in that case, we want to maintain at least the 8%, which is the lower end of the range of 8% to 10%. And we are currently building up the earnings capability, and that's what we should be focusing on at the moment. I hope that answers your question. Operator: [Operator Instructions] As there is no more question, we'd like to conclude question-and-answer session. Now we'd like to make closing address by Nomura Holdings. Hiroyuki Moriuchi: Thank you. This is Moriuchi again. Thank you very much for attending the call despite your tight schedule. So we were able to show you the good results. And we still have third quarter and the fourth quarter remaining, so we will stay focused so that we can deliver results so that we can do so, the management members will keep making efforts. Thank you very much for your continued support. Thank you. Operator: Thank you for taking your time, and that concludes today's conference call. You may now disconnect your lines. [Statements in English on this transcript were spoken by an interpreter present on the live call.]

88天前Insight Analytics约5分钟阅读

FSBC 2025 Q3 财报电话会议

Operator: Welcome to the Five Star Bancorp Third Quarter Earnings Webcast. Please note, this is a closed conference call, and you are encouraged to listen via the webcast. [Operator Instructions] Before we get started, we would like to remind you that today's meeting will include some forward-looking statements within the meaning of applicable securities laws. These forward-looking statements relate to, among other things, current plans, expectations, events and industry trends that may affect the company's future operating results and financial position. Such statements involve risks and uncertainties and future activities and results may differ materially from these expectations. For a more complete discussion of the risks and uncertainties that may cause actual results to differ materially from the company's forward-looking statements, please see the company's annual report on Form 10-K for the year ended December 31, 2024, and quarterly reports on Form 10-Q for the 3 months ended March 31, 2025, and June 30, 2025, and in particular, the information set forth in Item 1A, Risk Factors in those reports. Please refer to Slide 2 of the presentation, which includes disclaimers regarding forward-looking statements, industry data, unaudited financial data and non-GAAP financial information included in this presentation. Reconciliations of non-GAAP financial measures to their most directly comparable GAAP figures are included in the appendix to the presentation. The presentation will be referenced during this call, but not followed exactly and is available for close reviewing on the company's website under the Investor Relations tab. Please note, this event is being recorded. I would now like to turn the presentation over to James Beckwith, Five Star Bancorp President and CEO. Please go ahead. James Beckwith: Thank you for joining us to review Five Star Bancorp's financial results for the third quarter of 2025, which were released yesterday. The release is available on our website at fivestarbank.com under the Investor Relations tab. Joining me today is Heather Luck, Executive Vice President and Chief Financial Officer. Our third quarter results include outstanding growth in loans and core deposits attributable to our differentiated client experience and organic growth strategy. We maintain our unwavering commitment to clients and community partners throughout Northern California. Financial highlights during the third quarter include $16.3 million of net income, earnings per share of $0.77, return on average assets of 1.44% and return on average equity of 15.35%. Our net interest margin expanded 3 basis points to 3.56% and our cost of total deposits declined by 2 basis points to 2.44%. Our efficiency ratio was 40.13% for the third quarter. During the third quarter, we saw continued balance sheet growth as loans held for investment grew by $129.2 million or 14% on an annualized basis. Total deposits increased by approximately $208.8 million or 21% on an annualized basis. During the quarter, non-wholesale deposits increased by $359 million or 11%, while wholesale deposits decreased by $150.2 million or 23%. Our asset quality remains strong with nonperforming loans representing only 5 basis points of total loans held for investment. We continue to be well capitalized, with all capital ratios well above regulatory thresholds for the quarter. On October 16, our board declared a cash dividend of $0.20 per share on the company's common stock, expected to be paid in November. We continue to deliver value to our shareholders. Our total assets increased during the third quarter by $228.3 million, largely driven by loan growth within the commercial real estate portfolio, which grew by $77.7 million. Our loan pipeline remains strong. The credit quality of loans remained strong due to our conservative underwriting practices, robust monitoring throughout the life of a loan and our relationship-based approach to lending. As a result, we have a very low volume of nonperforming loans, which declined by $149,000 during the third quarter. We recorded a $2.5 million provision for credit losses during the quarter, primarily due to loan growth. The increase of our total liabilities during the third quarter was a result of growth in interest-bearing and noninterest-bearing deposits related to new accounts. The new interest-bearing deposit accounts contributed to $171.6 million of overall growth. New noninterest-bearing deposits contributed to $28.8 million of overall growth. Noninterest-bearing deposits remained consistent at 26% of total deposits as of September 30, 2025. Approximately 60% of our deposit relationships totaled more than $5 million. These deposits have a long tenure with the bank with an average age of 8 years. We believe our deposit portfolio to be stable funding base for our future growth. And now I will hand it over to Heather to present the results of operations. Heather? Heather Luck: Thank you, James, and hello, everyone. Net interest income increased $2.8 million from the previous quarter, primarily due to a $4.3 million increase in interest income, driven by new loan production at higher rates, contributing to overall improvement in the average yield on loans. This was partially offset by a $1.4 million increase in interest expense related to core deposit growth during the quarter of $359 million, which exceeded the $150.2 million of higher-cost wholesale deposits maturing during the quarter. Noninterest income increased to $2 million in the third quarter from $1.8 million in the previous quarter primarily due to an increase in swap referral fees recognized during the 3 months ended September 30, 2025, and partially offset by no gain on sale of loans recognized during the quarter in connection with our strategic shift to reduce wholesale SBA loan production and sales. Noninterest expense grew by $900,000 in the 3 months ended September 30, 2025. This is primarily due to an increase in salaries and employee benefits related to increased head count to support customer-facing and back-office operations. We continue to invest in our Bay Area expansion, evidenced by the opening of our newest full-service office in Walnut Creek, contributing to a slight increase in occupancy and equipment. And now I'll hand it back to James for closing remarks. James? James Beckwith: Thank you, Heather. During the quarter, we opened our ninth full-service office in Walnut Creek in response to the demand for our services in the San Francisco Bay Area. Our presence in the San Francisco Bay Area continues to grow with 36 employees and $548.9 million in deposits as of September 30, 2025. In addition to the new Walnut Creek office, we are pleased with the growth of our previously announced food agribusiness and diversified industry business, where clients benefit from our global trade services and exceptional treasury management tools. Five Star Bank success serves a strong testimony to clients who value our team of committed professionals who provide authentic relationship-based service. We continue to ensure our technology stack, operating efficiencies, conservative underwriting practices, exceptional credit quality and a prudent approach to portfolio management will benefit our customers, employees, community and shareholders. As we look to the fourth quarter of 2025, we thank our employees for their outstanding commitment to ensuring Five Star Bank remains a safe, trusted and steadfast banking partner. We are confident in the company's resilience and demonstrated ability to adapt to changing economic conditions while remaining focused on the future and execution of our long-term strategy. The beneficiaries of our focused business approach are our clients, employees and community. We believe that if we support these constituents well, our shareholders will realize the benefits. We appreciate your time today. This concludes today's presentation. Now we will be happy to take questions you might have. Operator: [Operator Instructions] Our first question today is from David Feaster with Raymond James. David Feaster: I wanted to start on the deposit front. I mean, perhaps in my mind, perhaps the core deposit growth that you saw was one of the most impressive parts about the quarter. You decreased wholesale funding. Just kind of curious where you're having the most success driving core deposit growth and how you think about that opportunity to continue to optimize the funding base a bit as you do that? James Beckwith: Well, certainly, third quarter, David, was exceptional. And it was -- a lot of things went our way in terms of new clients which we're very excited about. And we saw growth across our platforms in all of our geographies. So that was very exciting. I think that to replicate that type of quarter, again, David, it's going to be pretty difficult when we say that. But we were pretty happy about where we ended up. Now our deposit pipeline, just like our loan pipeline, remains strong across all of our platforms and geographies. And so we don't anticipate that type of growth on a go-forward basis. We're looking for deposit growth on an absolute basis, not annualized between -- probably anywhere between 1% to 2% in the fourth quarter. So I think the third quarter was very strong. And I say that because we're still trying to deal with our broker deposits that we have. We have a long-term desire to eliminate those, and we're making progress. We made very substantial progress in the third quarter, and we'll just have to see how the fourth quarter goes. So that probably will have an impact in terms of limiting overall deposit growth to the extent that we pay any of those off and don't renew. But we are anticipating some growth but not to the same extent that we saw in the third quarter on the deposit side. David Feaster: Okay. But -- and the reason for that is just the continued optimization of the deposit base. Because you're still going to be driving core deposits. I just want to make sure that I'm understanding that right, still driving core deposit growth, but using that to paydown broker? James Beckwith: Yes. [indiscernible]. Go ahead. David Feaster: Yes. Perfect. And then maybe switching gears to the loan side. I mean originations were strong, the pipeline is still robust. But payoffs and paydowns are still a pretty material headwind. I think it's the second highest level that -- as far as I can see back over the past several years. I guess I wanted to first get a sense of what's driving these payoffs and paydowns? How much is it losing deals to competitors through refis or whatever asset sales or just deleveraging? And then how do you think about payoff and paydown activity going forward as rates continue to decline? Is that going to remain a pretty material headwind? James Beckwith: Well, in part, it's our business model with respect to our MHC and RV business, David. We anticipated being in these deals 3 to 4 years before our clients will either sell the properties or take their long-term financing to agency. And we saw a lot of that in the third quarter, and we expect that will continue to happen. Having said that, we also retained a lot of these notes that were maturing -- not necessarily maturing, but having their rates reset because we're typically -- we lend on a 5-year fixed rate basis, and it will adjust after this -- the rate -- the yield will adjust after the 60th month. And so a lot of that is starting to come through on those originations were done particularly in '20, and we'll see some more of that in '21 -- '26 and '27 for originations in '21 and '22. So it's just really the nature of our business. There's nothing that we think is unusual about it. We recognize that we have to stay ahead of it. We've got the horses to do that. So that's why those -- we will continue to build our balances. So we're not necessarily losing deals to anybody. We like to think that we're the quickest know in town. If somebody else wants to do a deal, that's fine. But we're -- we like the model. The model is working exactly as like -- as we thought it was going to work. It's just David, fundamentally, the nature of our business and the types of credits that we make. David Feaster: And that makes sense. And so with that, I mean, you talked about having the team and the horsepower to continue to outpace payoffs and paydowns. You've been really active hiring. You recently hired the Ag team. I guess, first, I wanted to just get an update on -- as you think about growth, where are you seeing the growth opportunities today? Kind of an update on the ag team, what they're seeing? And are there any other segments like that, that you might be interested in expanding into organically and hire or lift out a team? Just kind of curious what you're seeing on that front? James Beckwith: Yes. Let's just talk about the ag team. We booked some good credits. We're anticipating booking some very large credits in the fourth quarter, very active in the market. We're excited where that business is going. The credits and the relationships are quite substantial. To call them granular would be a complete misnomer. And when we -- when we board them, they do move the needle because they're larger deals, both on the deposit side and on the loan side. But we like where we're doing that. We're making some penetration in markets. People know -- are beginning to know that we're serious and we're excited about where we stand in that. And the sales cycle in that business is, it can't be long sometimes over 2 years, 2 or 3 seasons. So we're very committed to it, number one. We continue to see growth in our MHC and RV business. And where we continue to add core clients in the space. And our clients are still -- our existing clients are still buying parks and so we're excited about where that business is going. And our storage business seems to be very strong also. RV, MHC storage is really a national platform and we're doing business across the United States. In fact, Heather, we filed what tax returns in 27 different states? Heather Luck: We do. That's correct. James Beckwith: So we have nexus in all these states. So it's truly geographically diversified. So David, we expect to see continued growth in that particular segment. From a geographic perspective, our Bay Area loan pipeline remains very strong, and that's made up of C&I and also CRE lending. We've done a lot of student housing deals in the Berkeley area, and we will continue to look for opportunities there. So that's strong. Our Construction Industries group continues to perform well and that's primarily a deposit play. So we're excited where that business is going. Our faith-based business is having a good year, a very good year. We expect that to continue to grow. Our nonprofit business is very robust, particularly in the Bay Area. So we like where that's going. And then, of course, our government book and which, David, we focus on small districts -- small special districts, if you will. And we've seen a lot of success in that space. And again, that's primarily deposit driven. So across the platform, we seem to be -- and geographies, our verticals and our geographies seem to be performing very well and their prospects are strong. Operator: The next question is from Woody Lay with KBW. Wood Lay: Wanted to start -- I wanted to start on the net interest margin outlook. If I just look at your balance sheet, it would seem that you are set up pretty well for a down rate environment. So how should we think -- based on the most recent cut and the expectation for additional cuts from here, how should we think about the earnings power there? James Beckwith: Well, we think it's pretty good. We recognize we have a near-term liability sensitive, and that could -- 125 basis point cut, Heather, over a quarter would mean what? Heather Luck: About $850,000 of improvement. James Beckwith: So we see some expansion in our margin that's potential in the fourth quarter, 1 to 3 basis points, pretty consistent with what we've seen in the second or the third quarter. Maybe we can do a little bit better than that, but that's kind of what our sense of it is right now. We continue to see loan repricing in our loan portfolio. Sooner or later, we're going to run out of that as those -- all those loans reset. But near term, it looks pretty decent for us. So we see continued margin expansion with these rate cuts. You could tell, Woody, that our cost of funds is noticeably higher than our peers, and that's because we do pay up for deposits. In a downgrade environment, that's going to be our benefit -- to our benefit, not only in our money market book, but also in our government book and some extent in our wholesale CD book. So we like the way that our balance sheet is constructed in a slight down rate environment. Wood Lay: Yes. Yes, it definitely seems like a benefit. To the extent we get these additional rate cuts, get the NIM benefit, do you think it drives positive operating leverage? Or does it give an opportunity to keep reinvesting in some of the -- in the Bay Area expansion market in some of these new business lines? How do you think about the toggle there? James Beckwith: Well, we've been pretty active in terms of bringing on very talented yet high-priced bankers. And we -- our plans on a go-forward basis -- right now, we're -- Heather, we've got 41 biz dev people right now? Heather Luck: Yes. James Beckwith: We're going to have a new one join us next week. So we're going to continue to look for opportunities to get talent. Because it's out there, it's still out there, maybe not out there to the same extent as it was 2 years or even a year ago. But we like to think we've got this balance between earnings growth and reinvesting back into our business. It's -- the toggle is not one way or the other. We like to think we can do both. We recognize that if we didn't continue to invest, our earnings would probably be bigger, larger, but we're playing the long game here in terms of growing the growing the franchise and taking advantage of opportunities as we see them when they come up. We've always been opportunistic, and I don't see us changing that way of doing business. Wood Lay: No, that's really helpful. And then just last for me. Can you just remind me longer term how you think about the loan-to-deposit ratio? I mean, it's down from 104% last year. There's some broker deposit remix opportunities. So could you just remind us sort of where you aim to target that longer term? James Beckwith: Well, I think that we're comfortable at 95%. That's kind of a line that we all look at every month with our Board. And that's a good target for us. Sometimes it might be higher, sometimes might be less. I don't know how far less. But if there is a bias, it'd probably be higher. But we do target 95%, is something where we're comfortable at. Running -- you can run hot at 100 -- north of 100. But that's nothing that we think that we'd want to do year in and year out. Wood Lay: Congrats on the good quarter. Operator: The next question is from Andrew Terrell with Stephens. Andrew Terrell: Maybe, Heather, I wanted to go back to some of the margin really quick. I think -- did you say $850,000 positive pickup for each 25 basis point cut, was that right? Heather Luck: Yes. For the full quarter, though, because it will take some time for our wholesale book to reprice. So it will take a full quarter to see full effect, yes. Andrew Terrell: [indiscernible] Heather Luck: 200 for immediate repricing net. Andrew Terrell: Yes. I guess I'm just trying to think through the -- you mentioned margin of 1% to 3% in the fourth quarter, 850,000 is 7, 8 basis points of margin. We'll get the full quarter of the September cut in the fourth quarter and then it looks like in October and maybe a December cut as well that -- I feel like the margin should be up more than 1 to 3 basis points. So I guess I'm trying to ask what are maybe some of the puts and takes to the margin in the fourth quarter that could limit what it feels like it should be a decent bias higher? James Beckwith: So I'm going to weigh in on that, so you don't mind, Heather. So Andrew, in our government deposit book, it's driven by LAIF, local area investment fund rates, and those change every month. So you really don't see an impact of a Fed move until 90 days. You probably get the whole impact at the end of the -- that quarter or those 90 days. On our -- so that's a lagging index, okay? This is why we came up with what our sense of the margin improvement might be. Then on our wholesale CD book, which is around $0.5 billion, those usually are 90-day resets. So you're not going to see the impact of that -- until the full impact, but quarterly impact, if you will, for 90 days. But they're all kind of -- they're not all maturing at the same time. So that impact kind of rolls in during the quarter. So the number -- or the guidance that we gave you -- that Heather gave you is really like a clean, okay, what happens at this cut, maybe a quarter down the road, what's the impact going to be. Does that make sense? Andrew Terrell: Yes, I understand. So just -- it's based on the maturity of the deposits and once you kind of fully get those through, that would get to the $850,000. James Beckwith: Correct. Yes, sir. Wood Lay: Got it. Do you have, [indiscernible], just the spot interest-bearing deposit costs at [ $930 millon ]? Heather Luck: Yes. That was [ $240 million ]. Andrew Terrell: Okay, $240 million total. Got you. And then -- on the Page 22 disclosure around the adjustable rate repricing, I appreciate you guys adding that in there. Just the $363 million of adjustables that come up in 2026, they're at a 4.35% rate today. If those were to reprice in today's rate environment, where would the new yields be at? I'm just trying to gauge that repricing benefit to the margin, James, that we've talked about? It seems like it'd be a pretty decent tailwind. James Beckwith: Yes. It's probably around $180 to $200 over that. So it's really -- our spreads are usually $2.75 to $3.25 in the quarter. So you look at the 5-year today, it's 3 and -- what was it $350? Heather Luck: $361. James Beckwith: $361 and add that on top of it. That's kind of where I think it would end up. There's a pretty decent pickup -- pretty decent pickup. Andrew Terrell: Okay. And then last one for me. James, we're seeing quite an acceleration in M&A, maybe not as much in California as in other geographies. But you've got -- it's a pretty strong currency now with the stock prices trading. Just talk about your views on M&A. And I know you've obviously got a very healthy organic growth engine, probably not press for M&A, but just talk about your views on the landscape right now. James Beckwith: Well, it was a pretty active Monday, I'll say that much, with first foundation trading. They have some operations up and around us. And then the big deal when Cadence sold out. So those are -- I go to these conferences, Andrew, and I know these CEOs, and so they're -- they made a decision to sell. So from an M&A perspective, where we sit, we've grown, I don't know, $600 million so far this year, Andrew. That used to be a size of a bank in California. And I think the average size in California is probably $1 billion now, right? But so we've been pretty -- we don't need to buy anybody per se. And there are -- there could be opportunities that are out there, and we always want to be able to take advantage of something that comes up. And is it -- we lean organic, most definitely. We lean organic. And as we continue to grow and develop, we become especially where our valuation is right now, the more fit, more able acquirer. So there's nothing on the horizon for us right now. We're going into our planning session here in November. And certainly, this is always a topic of conversation. So where we sit on it is that we could be -- we could do something, but it have to be just a great deal for us and very opportunistic and deal with something that we feel like we need maybe to a little help on. And if we need a little help with anything, it's probably on our -- the granularity on our deposit side. But -- and then a lower cost of funds, if you will, somebody who's got a lot of noninterest-bearing deposits. But we're doing fine there. We're seeing very solid growth in that particular line item in our liabilities. So I'm all over the map on this response, but we're really driving what we're doing right now organically. But like you never -- and none of our Board wants to roll out an M&A deal. But that's kind of where we -- that's where we sit. Andrew Terrell: Yes. Great. I appreciate the color. And high bar, growing $600 million this year. Great work. Operator: [Operator Instructions] The next question is from Gary Tenner with D.A. Davidson. Gary Tenner: I had another question just on the -- as you were going through some of the deposit buckets and so forth. Just on the money market book, what type of beta were you able to push through when we had the September cut? And what are your expectations, I guess, for cut this week? Heather Luck: Yes. When we did that, we were about 30% beta. James Beckwith: Overall. Heather Luck: Yes, overall. And then 25% [indiscernible]. James Beckwith: So we'll tell you, Gary, so we're going to take any deposit relationship that's -- that is outside of our CD book that's priced 225 basis points and higher, we're going to take -- on that day, we're going to take 100% cut on those deposits. And that equates to around... Heather Luck: $1.4 billion. James Beckwith: $1.4 billion. Certain type of accounts like high-yield money market accounts are going to have 100% beta. But overall, it's... Heather Luck: About 30%. James Beckwith: About 30%. Gary Tenner: Okay. But like, for instance, in that money market book then about 75% beta, I guess, effectively. Because most of that $1.4 billion of higher non-CDs would be in that book, right? James Beckwith: Yes, sir. Gary Tenner: Okay. Okay. Great. And then just on the topic of expansion and hiring, are you seeing it becoming more competitive and more challenging to recruit? Are there more banks in your footprint following that playbook now? I mean we're seeing it in other regions of the country where like every bank in the Southeast is on these massive recruiting strategies. Are you seeing that pick up and become more competitive for you? James Beckwith: Yes, we are. And so it all depends on what -- whose platform is out there recruiting. A lot of the folks that we compete against don't have our performance don't have our reputation in the marketplace. So we think we've got a competitive edge there when we do go up against people and folks and for bringing on experienced bankers. So we think if we really want somebody, we'll be able to get them, but it is more competitive, most certainly. There are options. And if people are looking to grow, and if they can pick up a team, it seems like more folks are doing it. Now having said that, these bankers, and this is a phenomenon that is not unique to California are very expensive. And especially with folks that have been through a process for the last 2, 3 years that have banks that either have been taken over -- excuse me, failed or taken over or just struggling in terms of trying to rationalize the investments they're making in these folks here in California. And so we see some opportunity coming out of that space. But what's happened is that these bankers have been bid up. So you have to be very careful of how much you want to pay, and you have to rationalize what are they going to be able to do for you? And so those are the equations or the economics that we go through when we're thinking about picking up a team. But to answer your basic question, the answer is yes. It is more competitive. Operator: This concludes our question-and-answer session. I would like to turn the conference back over to management for any closing remarks. James Beckwith: Thank you. It is with deep appreciation and gratitude that we have advocated for our clients and champion the communities we serve. We always will. As our expansion in the San Francisco Bay Area continues and as we build upon a legacy of superior community banking in the capital region and North State, we answer the call of businesses and organizations who desire a time-honored banking partner. Five Star Bancorp is here to stay. We are proud to have experienced another quarter of significant organic growth built upon a sturdy foundation of client service, expanded relationships and products and the loyalty of our exceptional clients. We will always remember that we exist because of our clients trust us and we believe in them. It is our privilege to continue as a driving force of economic development, a trusted resource for our clients and a committed advocate for our communities. We look forward to speaking with you again in January to discuss earnings for the fourth quarter of 2025. Have a great day, and thank you for listening. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

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ALFVY 2025 Q3 财报电话会议

Operator: Ladies and gentlemen, welcome to the Alfa Laval Q3 '25 Report Conference Call. I'm Valentina, the Chorus Call operator. [Operator Instructions] The conference is being recorded. [Operator Instructions] The conference must not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to Tom Erixon, CEO. You will now be joined into the conference room. Tom Erixon: Good morning, and welcome to Alfa Laval's Third Quarter Earnings Call. And Fredrik and I, we're going to take you through the quarter. So let me, as always, start with a couple of introductory comments. Now with a solid order book and good demand in service and short-cycle businesses, sales grew 8% organically in the quarter. It was a stable and clean quarter operationally and earnings increased to a new record level of SEK 3.2 billion in the quarter on the EBITA level. And then finally, as you noticed, we have adjusted our financial targets to better reflect our financial performance levels. And I will comment on the financial targets a bit later. So let me go to the key figures. Order intake was good in the quarter with a 10% organic decline as expected due to the normalization of demand in cargo pumping applications. In the short-cycle business, both order intake and factory utilization are is at high or record high levels in several end markets and product groups. Sales developed well, supported by all 3 divisions and generated a margin of 18.4%. In all, it was a well-executed quarter with mix effects contributing to the margin improvement. Moving on to the Energy division. The market dynamics are shifting towards a stronger HVAC, heat pump data center growth and moderate expectations on CapEx projects in the fossil fuel business. Cleantech remains on a positive growth track across a wide range of applications despite growing concerns regarding the political support for the decarbonization journey in Europe and in the U.S. Strong momentum in energy efficiency, growing demand for nuclear and an expected scaling, making new technologies financially sustainable are the foundation for future growth in the cleantech sector. The margin was sequentially stable, but note that transaction costs related to the Fives Cryo acquisition was charged to the P&L in Q3 on the Energy division. So moving on to Food & Water. Order intake was firm in most end markets. Large order bookings were relatively slow, although the project pipeline still remains healthy in terms of outstanding quotations. Short-cycle demand drove a positive mix change with a healthy margin. The project business generated a positive margin improvement in the quarter, but we are still working through some project execution issues in the quarters to come. Then coming to Marine. Profitability remained sequentially stable on a high and good level with good order execution in the quarter. While the record ship contracting year in 2024 will not repeat, contracting at the yards is expected to remain at about 2,000 vessels per year pace, approximately matching the global yard capacity. As expected, the 2024 contracted ships are now converted into our order books with record level orders in several product groups within the Marine division. The order intake decline compared to last year was entirely related to the expected normalized order level in cargo pumping with new orders at a normal rate for the business. So on to service. Service has grown substantially over many years and now accounts for 31% to 32% of orders, structurally somewhat higher than historically. Still, this year, we have worked through a lot of operational challenges, both related to physical distribution centers and the digital systems supporting the spare parts flow in the Energy division. It is and was a needed scaling project to cope with the larger volumes. And with the troubleshooting behind us, we expect the Energy division to return to service growth in line with other divisions. In the Marine division, service accounted for 40% of order intake, supported by a larger installed base and an aging global merchant fleet. If the aging fleet provides some tailwinds, the constant transfer of older tankers to the Russian dark fleet is a headwind and obviously outside our business scope. Then finally, a few comments on key markets. China and the U.S. accounting for approximately 40% of our business had a strong quarter with good demand in many areas. Note that the cargo pumping affecting an otherwise growing business in both China and Korea. Most markets are stable to positive at this point in time in the quarter, but looking forward, Middle East CapEx projects may be negatively affected by the lower oil price. And with that, I hand over to Fredrik for some further comments. Fredrik Ekstrom: Thank you, Tom. So hello, everyone. Let us get started by recapping the order intake in quarter 3 at SEK 16.6 billion. Organic growth contracted with 10% in the quarter. A substantial part of this contraction stems from the lack of large project orders. In the Energy division, both the welded heat exchangers and Circular Separation Technologies noted the absence of large orders. Desmet and food systems in the Food & Water division denoted the same pattern. And finally, in the Marine division, the continued normalization of tanker vessel contracting impacted the numbers. Important to mention in this context is that the project list remained strong, both in quantity and quality. It is the conversion to orders that is occurring at a lower pace, reflecting uncertainty in the market driven by external factors. Transactional business has a different development, up 8% in the quarter comparatively, excluding currency movements. Both gasketed and brazed heat exchangers booked orders above the same period last year in the Energy division. Fluid handling equipment, separators and decanters also booked higher order intake levels than in quarter 3 last year in the Food & Water division. And finally, our traditional marine products are also continuing to outperform quarter 3 last year. Service was up 8% in the quarter, excluding currency movements. Currency has an overall negative impact of almost 6% and, our acquisitions so far this year have a positive impact of 3% on the total. The same pattern repeats on a year-to-date basis and is an important input to any trend analysis. Book-to-bill in the quarter was 0.96 with a remaining strong backlog of SEK 51 billion, of which SEK 16 billion is slated to be invoiced in quarter 4. The backlog price levels are well in line with current input prices and in line with current tariff levels. Now on to sales. SEK 17 billion in sales in quarter 3 represents a strong historical level for quarter 3. Our manufacturing entities are delivering to our customers on commitment and on high utilization levels, which is clearly visible in the gross profit boosted by a strong factory and engineering result. Currency once again impacts negatively on a comparative basis, but prominently organic growth is up 8% in the quarter. Worth mentioning here is that the proportion of large project business in the invoicing mix is high. Transactional volumes are up, but not to the same extent. Net sales for service grew 3.1% compared to the same quarter last year, accounting for a mix of 30%. We expect this mix pattern to continue into quarter 4. Gross profit improved to 36.8%, boosted by better factory and engineering results and positive purchase price variances compared to the same quarter last year. Operating income increased with 12.6%, to SEK 3 billion. Sales and administration expenses were SEK 2.6 billion during the third quarter, corresponding to 15.4% of net sales. Research and development expenses were SEK 427 million during the third quarter, corresponding to 2.5% of net sales. Earnings per share in the quarter amounted to SEK 5.53 and SEK 15.22 for the first 9 months. The corresponding figure, excluding amortization of step-up values and corresponding tax was SEK 15.97 for the first 9 months. Now on to profitability. The Energy division posted an EBITA margin of 16.6%, which is lower than previous quarters due to a shift in mix towards large orders and costs related to the acquisition of Fives Cryogenics. Continued strong sales in the transactional business portfolio and service compensated for a large project mix invoicing in the quarter, yielding an EBITA of 16.1% for the Food & Water division. The Marine division continued with a positive mix of invoicing from cargo pumping systems and service, which yielded a 23.5% margin. On a group level, the adjusted EBITA margin of 18.4% is a record with a -- sorry, is high with a record SEK 3.2 billion in money terms with a negative currency impact of SEK 178 million. Now on to the debt position. Post 3 acquisitions so far this year, most notably the Fives Cryogenics business, debt stands at SEK 18.6 billion or 1.3x last 12 months EBITDA. Net debt, excluding leases at 0.86 and including leases at 1.1 last 12 months EBITDA. Given our stated thresholds, the group retains sufficient debt power to complete further quality acquisitions as those opportunities arise. Cash flow from operating activities was SEK 2.2 billion in the third quarter and SEK 5.8 billion for the first 9 months. The lower cash flow is mainly due to an increased working capital compared to the same period last year, driven by inventory and predominantly [ WIP ] and decreasing advance payment as large projects are invoiced. Acquisition of businesses in the first 9 months was SEK 9.3 billion, whereof SEK 8.8 billion for the Cryogenics acquisition, and SEK 529 million was due to two minor acquisitions. Financing activities amounted to SEK 3.9 billion in the quarter and SEK 4.5 billion in the first 9 months. These numbers primarily composed of the additional debt added for the acquisitions of SEK 8.7 billion and a shareholders' dividend of SEK 3.5 billion. Before concluding, some guidance for the quarter ahead and looking into 2026. CapEx guidance for the fourth quarter is SEK 700 million, and reiterated guidance of SEK 2.5 billion to SEK 3 billion in 2026. PPA amortization of SEK 175 million in quarter 4 and SEK 580 million in 2026. These numbers include the preliminary purchase price allocations for the three acquisitions in 2025. Tax rate is guided to stay in the interval of 24% to 26%. And with that, I hand back over to Tom for some words on quarter 4. Tom Erixon: Thank you, Fredrik. Some forward-looking comments then as a summary. Let me start with the financial targets. The change in financial targets should not be seen as a change in guidance. We are making the adjustment because of two main reasons. First, we tend to overshoot the targets and consider them a floor level for performance. Now we are moving the targets into the present performance range, and it's important for us, including for internal reasons that we have similar objectives externally and internally. Second, we want to recognize that the investments during the last 5 years into technology and capacity were made for good reasons. We believe we have invested our shareholders' money responsibly and profitably, and we expect to continue to convert those investments into profitable growth in the next 5-year period. So finally, our crystal ball is no better than yours. If global macro deteriorates, if the energy transition stumble, if AI and data centers run into difficulty, we and others would find financial targets challenging. But with that said, we have changed the targets in terms of growth to 7% sales growth. And the EBITA margin moved up to 17% over the cycle. And we kept the ROCE target at the current 20% just to allow for the effects of future potential acquisitions. Regarding the next quarter, we believe demand in the fourth quarter is sequentially stable and on about the same level as in the third quarter. And on a divisional level, we expect the Energy demand to be higher, the Marine to be somewhat lower and the Food & Water to be stable compared to the third quarter. So with that, let's get over to the Q&A session. Operator: [Operator Instructions] The first question comes from Gustaf Schwerin from Handelsbanken. Gustaf Schwerin: Can I ask on the Energy division orders? If we look at this organically, they are largely unchanged versus Q2, so a bit lower than what you guided back during the summer. You, of course, mentioned the decision-making here. So given that you're now saying this should increase in Q4, has anything underlying really changed? Or is this just a matter of slower commercial rates on the orders? Yes, that's the first one. Tom Erixon: It's a good question. I think our perspective is that it is a fairly stable growth curve and sometimes projects end up in one quarter or another. So we are relatively positive to the demand trend in Energy. And given that we see improvement on the HVAC side and in a number of areas, the outlook for Q4 is reasonably positive. So I think it's more a question on when bookings are taking place than any change. We had a reasonable positive view 3 months ago in terms of the growth perspective, and we remain committed to that. Gustaf Schwerin: Okay. Then secondly, on the margin in Energy, can you give us a rough sense of the M&A costs here, and if we should expect this going forward as well? Tom Erixon: You should expect that the margin was essentially unchanged compared to Q2, excluding the cost related to the transaction. There will be some costs also in Q4, but I believe on a lower level. And we are not dealing with them as adjusted earnings. We're just [ charging ] them straight off. Operator: The next question comes from Magnus Kruber from Nordea. Magnus Kruber: Magnus from Nordea. Could you -- with respect to Cryogenics, does that business sit completely within the process industry end market? Tom Erixon: Yes. I mean it depends. There are essentially three application areas for Cryo at present. One is normal industrial gases, and the other one is LNG. And gradually, we expect hydrogen and energy transition applications, including carbon capture, be growing as part of the segment. So those are the end markets that we are dealing with. Largely, the applications are for larger projects in the industrial space. But I remind you that there's also Cryogenics pumping side that may fit well with our Marine business and some other applications as well. So I think the Cryo side may be a bit wider as we go along. But presently, essentially, you could consider it the process industry-related application. Magnus Kruber: Perfect. And secondly, light industry and tech saw a second quarter of declines year-over-year. Of course, FX is part of that. But could you comment a little bit about the momentum in data centers and other parts of the business, please? Tom Erixon: Yes, I think it's a correct observation. We are very comfortable with the development on the data center side. And we are entering into the expected frame agreements. And -- but I think what happens is that in terms of the actual quarterly bookings of the order, there are some variations. So in terms of progress on the data center side, it was good in the quarter. We expect that to continue into Q4 and next year. So we're on track with our plans, but the actual order intake bookings in Q3 was not that strong. Operator: The next question comes from Carl Deijenberg from DNB Carnegie. Carl Deijenberg: So first, I want to come back to the acquired Fives Cryogenics. I know you've talked about in the past that the aftermarket exposure in this entity relative to the, let's say, core Alfa Energy division is lower. And I just wanted to understand is there any difference here in the seasonality on the earnings given the sort of differences in the operational character? And also maybe going forward, I saw that you were adding roughly SEK 2 billion in the backlog. I guess this relates to the acquired entity. And given, let's say, the longer cycles you're addressing there relative to the transactional exposure in the Energy division, is there any significant quarter here going forward that you're set to finalize something or any large order that is going to come in that we should be aware of? Tom Erixon: I will not comment on individual orders, of course, but we always monitor our pipeline of outstanding quotes. And if I look at that pipeline, both in the Food & Water division and in the Energy division, it is relatively positive. The conversion time and if it gets through the final CapEx decision, there's always some uncertainties. But in general, we have a positive feeling around the pipeline in the Energy division, specifically for Q4. The Cryo, I don't -- it is, as you say, low on service. It will probably remain that way. The order intake will vary over the quarters. We had, I think, a normalized Q3. We expect a relatively strong Q4 on the Cryo applications. But in terms of earnings and how we execute those projects, it's percentage completion. I think we will -- Fredrik will work to have that as a stable and correct representation of progress every quarter. So I don't think -- if you want to add something? Fredrik Ekstrom: No, there's no particular seasonality to the percentage of completion. It's when the projects come to fruition and commissioning starts. So there's no deviation from that point of view, and there's no seasonality from that point of view. Carl Deijenberg: Okay. Very well. And then secondly, just very quickly on the pumping systems side. I see here in Q3 that orders seem to be stabilizing and actually being up slightly Q-on-Q, not by a huge amount, but a little bit. And could you just talk a little bit now on the sort of backlog or the timing on the orders you're taking in now on Framo and the lead times, just to understand the phasing of the backlog and so forth in Marine? Tom Erixon: Yes. I will not give you the full timeline on everything, but we are clearly fully booked for Q4, and we are essentially fully booked for 2026. So what we expect to see now is the normalized level renewing normal order flows as the contracting in '26 is expected to remain at about the 2,000 ships. And we don't see huge fluctuations in tanker contracting either. We think sort of with some variations between quarter, we will see a reasonable amount of new orders being signed, new contracts being signed. And so we were at Q3, if you think about it historically, actually perhaps somewhat on the high side when it comes to sort of our average order intake level. So we were pleased with the quarter. I think it substantiates that although we are not going to be at 2024 level in terms of order booking expected for a long time, we will continue to run that business on a good level. And that is also reflected in the investment decision we announced with our biggest CapEx decision in our history of SEK 4 billion. Although spread over a number of steps, a number of sequences and over 5 years plus, it is a big commitment to a business we believe in. Operator: The next question comes from Uma Samlin, Bank of America. Uma Samlin: My first one is on your guidance. So would you be able to help us to clarify how should we think about your growth guidance of 7%? What component of that is organic versus inorganic? And also on the margin guide, did I hear you clearly that the guidance is not a floor, but more of a through-cycle average margins? If that's so, where do you think we are in terms of the cycle? Tom Erixon: Yes. The growth ambition includes the possibility of acquisitions. We will make those judgments as we go, partly on where we are on the organic side and the macroeconomics and partly what opportunities we have on the M&A side. But we feel we have built a stable foundation for organic growth in the coming years. So without that, we would not have stretched our growth targets above the 5% we were at historically. And obviously, as you see, current level is higher. And at some point in time, the spread between the target and the floor level versus where we were just becomes a little bit problematic. So we think this is a good reflection on the growth side. On where we are in the cycle? If you asked me 10 years ago, I would give you a reasonable answer. After the last 5 years when we've been going through a COVID, shutdown, hyperinflation, a trade war, I have no clue where we are. The only thing I know is that with all of the turbulence that we've been living with in global markets, we come through that in a good way. And if we get some stability in the world regarding wars, regarding trade routes, regarding tariffs, I expect that we will have a couple of good years ahead. But to predict the macro events at this point in time seems to be a bit problematic. So we will deal with it as we go. But obviously, if we have a sharp downturn in the coming years, it will affect our financial performance just as everybody else. Uma Samlin: That's super helpful. May I just have one more follow-up on Marine. So how should we think about your expectation for Marine orders into Q4 and into '26, given the contracting has been fairly weak year-to-date. We just heard from your competitors who's expecting sort of like for '26 and '27 marine contracting to be up 30%. What's your thinking on that? Where do you see is the normalized level for Marine orders? Tom Erixon: Well, as I've said a couple of times, if we look at our invoicing path in Marine, it's a somewhat better way to track us financially than on the order intake and the contracting side. The global shipyard capacity in terms of deliveries is at about the 2,000 ship level, thereabouts. It may increase somewhat in the years to come, but we are not quite there yet. So that means that irrespective -- and basically, the yards are fully loaded for the years to come. So we see a lot of stability in terms of our delivery path in the coming years. In some areas, we are obviously tight on capacity now, but we are meeting our commitments and our obligations towards our customers. And there's a team who's doing a very, very good job on that. But sort of the downward risk in terms of volumes of invoicing for the foreseeable future is not -- does not look as a huge challenge at this point in time. I remind you that last year, we had an order intake of SEK 30 billion, about 50% ahead of the normal numbers. And so I said then, and I repeat that we are not a SEK 30 billion division in terms of invoicing, but we are on the SEK 20 billion plus. And I think it's from that level that we work with the organic growth and potential acquisition growth going into '26. Operator: The next question comes from Andreas Koski, BNP Paribas Exane. Andreas Koski: So three questions. First, on Marine sales. Can you give an indication of your pumping systems sales in the quarter? Are we at a level around SEK 2.5 billion or even closer to SEK 3 billion? And did I understand it correctly that you are fully booked through 2026. So the sales level that we're seeing in Q3, we should also expect through 2026? Tom Erixon: I will not give you detailed numbers to the million on individual path. But I want to remind you that the pumping systems include an offshore business. It does include a small aquaculture business. And so the whole thing is not and will not be on cargo pumping applications for tankers. So just for you to keep that in mind. But with that said, all of those businesses are in a good shape. And the demand situation looks -- despite some concerns on the oil and gas side, the demand situation for offshore looks reasonable going forward. The service business in that area remains strong. So that's sort of the backdrop of the business. I think in terms of invoicing, we are more or less at capacity, and the big investment program that we are doing is partly going to cope with the existing demand pressure, modernization, efficiency, automation and site consolidation improvements. But that will not have any major impact on invoicing capability for next year. And in any case, I think at the end of the day, it's the yard capacity that is determining the invoicing level in 2026. And I think they are pretty much running at full pace as we see it. Andreas Koski: Yes. The reason for asking is to try to understand if we should expect a margin of 23%, 24% also for the full year 2026 because the mix will remain as positive as it is today, but maybe you don't want to give any indications of that. Tom Erixon: I have full confidence in your ability to make your own calculation on that. Andreas Koski: Yes. Okay. And then on the order intake side in Q3, I understand Fredrik -- I think Fredrik mentioned that you lacked large project orders in Q3, but that the project business remains strong, both in quantity and quality. So I just wonder, in your outlook statement, have you assumed that the larger part of that project pipeline will convert into orders? Fredrik Ekstrom: No. To say that a larger part of the project list that we have right now would convert into quarter 4, then we would be giving you a different guidance... Andreas Koski: No. I mean a larger part than in Q3, I mean. Fredrik Ekstrom: Well, the conversion rate is determined by a lot of factors, and some of them are clearly external and clearly are held back on uncertainty. And if we see the uncertainty decreases in the coming 20, 30 days and assuming that, that's sufficient for somebody to make the final decision on an investment, then we might see that we have orders that have slipped in from quarter 3 that we expect to come into quarter 4, and there will be orders in quarter 4 that may very well slip into 2026. So it's hard to give you an exact guidance more than the one we already provided for quarter 4. Andreas Koski: Understood. And then lastly, if I may, on your new financial targets. If you want to elaborate and explain why you didn't go for a more ambitious margin target? And how much of your new growth target is expected to be organic? Tom Erixon: Yes. I think on the organic, some people already observed it was quite in line with our 2030 target of SEK 100 billion. We stick to that one. And let's see how the mix is. Obviously, the reason we are increasing the growth target is for organic reasons. We may or may not have some M&A opportunities converting in 2026 and 2027. But we think we have a good growth platform installed, build up, invested into capacity-wise created space for. So the organic growth is, I think, for us, the most important part of the growth story for us. So I leave it at that. We see where it comes. On the profitability target, I said this during many years, at the 15% level that our ambition is not at this moment in time to optimize our margin at all costs. We are a growth company. We are investing what we think is responsibly and profitably into technology and capacity. We continue to do so. And we think the long-term shareholder will benefit from long-term growth plan, stability in our execution. So we don't want to put ourselves into a type of a profit escape opportunity where we are acting everything that is not generating 17% plus. So this was a measured step reflecting approximately where we were and leaving the floor of 15% a little bit behind us and accepting that the current performance level is perhaps about the target range that makes sense for us. Andreas Koski: So does that mean that we shouldn't expect 17% to be sort of the floor as the 15% was? Tom Erixon: No. I think we did the 15% 20 years ago. I don't think it was, at that time, a floor. It was an ambition. We are not super guiding you on the margin. I mean, as you could notice this quarter, we were above. I think we will fluctuate. I think my point is saying, and I've told you this before, that it would be a very simple trick to increase the margin in Alfa Laval from where we are today with a percentage point or 2 if we decided that the long-term future was less opportunistic. And so we are committed to our long-term growth plan. We are investing in that, and we don't want to cut and limit our opportunities for the long-term growth potential that we see. So that will, in a sense, determine a little bit where the margin will be, and that's why we don't want to go too high on our ambitions because we think there are opportunities. But we also recognize that the 15% is not all that relevant as a financial target. And if you look at your own and everybody else's assumptions, I think the market estimates for the coming 3 years is pretty aligned with our targets. So that's why we're saying that don't think about this as a very strong guidance comment. It's more creating a relevance, not least internally for what we expect ourselves to work with. Operator: The next question comes from James Moore from Rothschild & Co. Redburn. James Moore: Can I just go back to Fives and the charges and just confirm that the Fives integration costs were SEK 215 million in the quarter and that the charge is basically exactly in line with the 430 bps impact on the energy margin year-on-year. And would it be fair to say about SEK 100 million for the fourth quarter? And attached -- maybe we start there, and I could follow up. Fredrik Ekstrom: Yes. No. So what we have indicated is that if you look at the sequential development and you look back a quarter, you probably get a better indication of what that charge was in relation to where we were -- finished in quarter 3 and that the same will probably hold true into quarter 4. Of course, some of this is also dependent on the invoicing mix that we have in quarter 4 with the invoicing mix that we had in quarter 3. decreased the margin. I think a good guidance is to look at quarter 2. So sequentially stable. James Moore: Sequentially, not year-on-year. My mistake. And the underlying performance of Fives, did -- it looks like you did SEK 620 million of revenue for, I don't know, [ 2.75 ] months, which to me looks like it's growing 20%. I don't know if that is the case. And if you strip out the charges, what was the underlying operating margin at Fives slightly accretive to Energy in the kind of low 20s margin range as you previously hoped? Or did it go up with growth? Or was it below due to seasonality? And how does the Fives seasonality play out over the coming few quarters, please? Fredrik Ekstrom: Yes. And as we indicated before, there's no real seasonality to the Fives or to the Cryogenics business unit, as we call it. There's no real seasonality to that invoicing. It's more how it's delivered to the customer and the milestones that are agreed with the customers from a percentage of completion point of view. Of course, the invoicing was good in quarter 3 for the Cryogenics business, and the margins were in line with expectations as we took on a business. There are some -- there is an element of onetime charges and integration charges, but we include those as part of the operating business. James Moore: I understand. And lastly, if I could. I understand the philosophy behind your new targets through cycle, internal benchmarking, et cetera. But obviously, behind that is a fair degree of confidence on long-term organic growth potential. I was just wondering to what degree is that underpinned by existing backlogs? And to what degree is it once you've got through those backlogs, you still see a high pace of growth continuing? And what is it that gives you renewed confidence on that apart from recent growth trends being better? Or is it just recent growth trends being better? Tom Erixon: Yes. We think it's better to look at -- if you're a debt analyst, you will look at the last couple of years and make a prediction of the future. If we do that, and we look at all the investments we've done, and how we described the 2030 target last year, and we will go through that again in our Capital Markets Day in November, there is the basis for our belief. We have, I think, an end market exposure that couldn't be better. And so I think it's up to us to utilize those positions in Energy, in Marine and in Food & Water alike. And are we convinced that we will reach the targets? We think this is the best indication we can give to ourselves, and we communicate the same to you guys that this is where we think we will be. But I would recommend you to come to the Capital Markets Day for a little bit of a review of the verticals and the business opportunities, the way we see the plan going forward rather than just a quick Q&A here. Operator: The next question comes from John Kim from Deutsche Bank. John-B Kim: I was wondering if we could speak a little bit about Marine regulations. You may have seen the MEPC 84 session in October delayed the decision on, I guess, stronger emissions controls. I'm wondering if you're seeing any knock-on impact in terms of how your customers are ordering, not ordering, delaying orders? Tom Erixon: Yes, it's a very good question. And it's, of course, a situation we monitor extremely closely. It does potentially impact the way a customer will decide. I think our best estimate at this moment in time is that one of the main drivers other than efficiency and fuel efficiency and such, for environmental technology and multi-fuels capabilities, is to create an insurance against having a stranded asset some years from now when and if a new regulatory environment is forcing a decrease in the emissions. Now obviously, for many reasons, not only Alfa Laval's business, we are hoping that there will be a framework implemented in terms of emissions control on the Marine side as well as in other areas. And I think short term that the fair amount of ship owners will continue to hedge their bets as they order new ships. And I remind you that if we look at the multi-fuel levels in the industry right now about -- if you take ammonia and LNG and a couple of other sort of main alternative fuels to heavy fuel oils, the current level of orders are representing about 15% or so of the global fleet, equipping themselves with multi-fuel capabilities. So even if it should go down somewhat, it's not going to be a major impact on us in the next quarters or so. If we look at the current trend curves as they are, they are continuing to grow. But of course, those trend curves are back to time almost driven by decisions prior to the delay of the implementation side. So it's a bit early to really make a call on what is the immediate effect. But I would be surprised if we will see a dramatic change in the trend curve over the next couple of quarters while the uncertainty remain. John-B Kim: Great. And if I may, I'm sorry if I missed this, but can you update us on your newer product offerings in energy? I'm speaking specifically about the liquid-to-chip offering? Tom Erixon: Well, it's -- listen, it is our normal product ranges that are going into air and water cooling, and it's a question of capacities for certain sizes and formats and things like that. So the product mix in our supply chain is changing somewhat. But we are not in a technology development -- we do an awful lot of technology development, but for the data centers, it actually is in line with our current supply capabilities. And so our main challenge is to figure the volume demands in the coming years and matching sort of the supply chain capacities that we need in order to serve that market. So that's where we are on that one. Operator: The next question comes from Klas Bergelind from Citi. Klas Bergelind: Klas at Citi. I had -- coming back to the Energy and Food & Water margins. In Energy, obviously, some costs are linked to the recent acquisition, but you still have the R&D ramp. I was under the impression that, that R&D ramp concluded already in the second quarter. So I'm interested in how you look at this into the fourth. And then in Food & Water, you booked quite a lot of large orders in the second quarter. And obviously, this is a very good margin you're delivering right now. But I'm just trying to understand whether the mix from having then that backlog built up on the larger side will start to weigh on the margin here a bit in Food & Water. I'll start here. Fredrik Ekstrom: Well, if I take Food & Water first, of course, the -- we have a large percentage of large orders invoicing out in quarter 3. But we also have a substantial resurgence of the transactional business, and that's been happening over the last 6 quarters that we have seen an increase in the transactional business, including service. And of course, the fundamental margin accretion that we get from that transactional business and the service mix into Food & Water, of course, lifts the margin overall. So it's not that we have drastically changed the margin profile of large project orders. It's rather the mix that we see in the current quarter. That mix may look different, of course, in coming quarters. But -- so it's a little bit based on that mix. And if we then look at the Energy division. Well, the Energy division, we have spoken a little bit about the margin development before. And if we look at specifically the R&D as your question was, well, we have not put an end date to R&D. R&D is something we continue to do over indefinite period really. I mean, it's about product development. And if I take it one step further back to the question that Tom answered just a second ago around data centers, yes, we have a lot of products that are directly applicable and have a really good fit with the current demand for data centers, but we also have the ability to adapt those products further. And that's part of the R&D that we continually do, and that we do in dialogue with our customers. So I don't think, Klas, you should see the investment into R&D as something that has an end date when it comes to the Energy division or any of our other divisions for that matter. And I don't know if Tom wants to complete more on that. Tom Erixon: I agree. Fredrik Ekstrom: Agreed. Klas Bergelind: Okay. Okay. That's good to hear. Then looking at project orders in Energy, I mean, last quarter, and I'm zooming in now on clean energy. I mean, last quarter, i.e., second, you said that decisions were pushed to the right, reflecting increased uncertainty. It looks like orders are coming back here this quarter. So I'm interested in what happened here. And if you see this elsewhere, i.e., that decision-making on the larger side, Tom, is easing a bit or whether it's just normal lumpiness. Tom Erixon: I think maybe a little bit of both. There is a normal lumpiness in that. We have been having and we continue to have, a rather diversified cleantech order book and order pipeline. And that holds both geographically and application-wise. So the bookings were good in Q3. And although good means that the comparable quarter was maybe a bit weak side, so -- but anyhow, it was in line with what we were hoping for. And if we look at the pipeline, which obviously stretches more than a quarter forward, we see a number of projects and some of them, I would say, financially sustainable without being based on regulatory frameworks or such. So there are -- we have obviously moderated our expectations in the 5-year period as to what the energy transition will do. But we are still following an interesting track on a steady growth area in related to carbon capture, in related to plastic and packaging replacement materials in relation to possibility of SAF, and biofuel coming back a bit after a very low investment period during the last few years. So we are cautiously hopeful that we will see the energy transition continuing in a good way. Klas Bergelind: Good. Finally, back to you, Fredrik, on the ROCE target. It's unchanged despite lifting the margin by 2 percentage points. I guess this is just incremental intangibles from recent M&A? Or how should we think about it? Obviously, you're going to invest now in Framo, quite over capacity, but also curious to hear about your further working capital ambition within that. Fredrik Ekstrom: Yes. No. And the reason we have retained the return on capital employed target at 20% is because of exactly the dynamics that you bring up here. It is about a continued CapEx ambition going forward, we reiterate the SEK 2.5 billion to SEK 3 billion a few years going forward. We have announced the investment package in Framo, and we should expect that there will be other acquisitions, beyond the one -- acquisitions we've already made. We have the firepower in our balance sheet to make sure that we can also add on inorganic growth beyond the organic growth opportunities that we have. And a reflection of all of that ambition is why we have returned the return on capital employed target as it is. And it may temporarily -- should all of those things align very much in a short period of time, go below 20%, but with the ambition of going to 20% and above 20% in the long run, of course. Operator: The next question comes from Johan Eliason from SB1 Markets. Johan Eliason: I was just going to ask about the return target that you kept unchanged, but you sort of already replied to it. But I was wondering a little bit. I remember you did lower -- this was before you, but the Board lowered the target from 25% to 20% when you did the Frank Mohn acquisition. How has your major acquisition delivered versus the 20% return target? I guess Frank Mohn today is probably benefiting well above this 20% target. But what about the Norwegian weather forecasting service? Is that also performing well in line with these return targets? Tom Erixon: Well, may I first say that it's so nice to meet an analyst who's been longer with us than ourselves almost. So I appreciate the question very much. And I was not present at the Frank Mohn acquisition, but I think you are completely right that although it was a highly profitable business at the time, but when you put -- I think it was around SEK 13 billion on the balance sheet, to get a 25% return on that number is very hard. We have commented. And of course, as we go forward now, if we look at the Framo acquisition, in today's books, as you know, we are conservative on the goodwill side. So we put as much as we can into amortization, and that is almost completed for the Framo side now. So I think next year is the last year, if I remember correctly. And so we have a slightly smaller balance sheet post on it. We have a company that may be close to twice as big and at maintained margin, I think the return on capital on that investment, now, 12 years later, will start to look quite good. We haven't run those numbers, I think. But we may actually do this ahead of the Capital Markets Day. It's an interesting question. When we have looked at the entire M&A portfolio in recent times, we have concluded that if you take out the acquisitions over the last 15 years or so, our return on capital for the traditional Alfa Laval business or Alfa Laval classic is about 50%. And with the current multiples in the M&A market, we struggle to get to 20% regardless of the profitability. The pricing on those assets allows us maybe to get to a double-digit return number, but definitely not to close to 20%. So we don't see that our CapEx program into our existing businesses is affecting ROCE negatively. We were actually a little bit worried about that when we started the big investment programs years ago, but growth has compensated for that. So we -- the returns on our organic growth journey are excellent. And the question that's going to decide whether we are 25% or 20% or below 20% is the amount of capital we deploy on M&A. We'll get back to that question, I think, at the Capital Markets Day. It's a good one. Fredrik Ekstrom: It's well noted. Tom Erixon: Yes, well noted. Johan Eliason: Yes. No, but it will be interesting. I think the return target is important because it does give you some top price that you're willing to pay, that's obviously interesting for the investors. Looking forward to Capital Markets Day, as I said. Tom Erixon: I think with that, we take the last question. Operator: We have a follow-up question from Magnus Kruber from Nordea. Magnus Kruber: I just wanted to see if you could comment a bit about the development in the other end market category in Food & Water. You've seen a very good pickup there over the past few quarters, and you break out starch and sugars in this quarter specifically. Could you comment a little bit how sustainable this level is? Tom Erixon: Yes. We are reasonably -- well, it tends to be the stability of Alfa Laval, right? It doesn't change that much. The normal dynamics of GDP growth and a happier middle class is taking demands forward. When you think of stability in the Food & Water side, the thing I want you to remember is that we actually dropped quite significantly on the biofuel side 2 years ago. And it's been a very low project activity on the biofuel side other than some exceptions on the ethanol side. And so I think that is still not quite in the books. Pharma came down for us a bit after the COVID, where we had a lot of vaccine-related implementations on pharma. We expect that to come back. Dairy has remained quite good. Beer has been a bit up and down after years of consolidation. We see less of that now, but still the return of CapEx on the brewery side has been a bit better recently than before. So all in all, we see the coming years as reasonably interesting. What I would add to that, if I round up your question with that and say thank you for that, I'll just do a little marketing campaign for the Capital Markets Day. So we will meet in Flemingsberg, which is the technology center for Food & Water and the high-speed separation centers. We are inaugurating that, and we are also displaying part of the technology that we are developing there. And in that context, we will do divisional reviews. And one of the things that is changing is that we are redoing the strategy in the Food & Water division under new leadership with new growth aspirations and new opportunities. So we will review a number of interesting things, some things you will see visually and some things you will see on the slide. We hold those tools as realistic growth opportunities. So I hope you are excited about it. We are almost sold out. Ticket prices are rising. So I would recommend you to sign up quickly, and we look forward to welcome you in Flemingsberg in November. Operator: We have no more questions. Tom Erixon: Thank you. Operator: Ladies and gentlemen, the conference is now over. Thank you for choosing Chorus Call, and thank you for participating in the conference. You may now disconnect your lines. Goodbye.

88天前Insight Analytics约5分钟阅读

ELO.OL 2025 Q3 财报电话会议

Erica Binde Honningsvag: Good morning, everyone, and welcome to the third Quarter 2025 Results Presentation for Elopak. My name is Erica Honningsvag, and I'm the Investor Relations and Treasury Officer. Today's presentation will be held by our CEO, Thomas Kormendi; and our CFO, Bent Axelsen and will last for about 30 minutes, followed by a Q&A session, where the people here in the audience and the people watching online will be able to ask questions. So with that introduction, I will hand it over to our CEO, Thomas Kormendi. Thomas Kormendi: Thank you, Erica, and good morning to all of you here in Oslo. It's actually lovely to see such a filled room here today. And also, of course, a very warm welcome to everyone joining us on the webcast. Today, we are particularly happy actually to present the best ever financial result for the group to date. So it's a presentation with quite a few milestones, and we are very, very excited to present. Before we start on the quarter, of course, just for those of you who are not so familiar with Elopak, what we do is, we are in sustainable packaging. What we do is, we protect commodities, we enable nutrition around the world, and we do all of that with a mission of actually reducing the overall plastics consumption. So replacing more and more plastics with more and more carton packaging. But let's then look at the quarter, and it's been quite a unique quarter, as I said. First of all, we have seen a plus EUR 49 million EBITDA result with more than -- with 17% margin level. It's a very strong result in absolute terms, and it's also within organic revenue growth of 1.2%. Most of the revenue -- most of the result is driven by an incredible strong performance. Again, I have to say, in Americas with 18% growth, and also in a period where our plant in Little Rock, actually for the first quarter, started turning a profit, as we said that it would do actually after Q2 as well. It's also a quarter where we -- and I will address that more later in the presentation, have decided to increase the capacity ahead of time in U.S. with yet another line. So the third line to be installed and also now a quarter where we say that even though the EMEA business is meeting some consumption headwind generally, we are seeing that the business is resilient and doing well -- in spite of all of this. And finally and very importantly, I'm sure for many in this room here as well, this is a quarter where we have a solid cash generation. We've been able to pay back our net debt and are now facing a 2.1x leverage ratio, again, in line with -- almost in line with the midterm target. So overall, strong financial performance in the quarter and some very important milestones for the future growth of Elopak. Let's just think 2 minutes on the strategy that we presented back at the Capital Markets Day, and that we've been following up since and where you see that the quarterly result we have now is a direct result of the activities we have initiated throughout this period and on the back of the strategy. Our strategy consists of 3 elements: number 1 relates to the geographical, what we call global growth. For us, global growth for a very, very, very big part relates to America and the continued development in America. Needless to say, performance in America and what I've just shown is a testament that, that is actually paying off. The second one relates to the development around making our core stronger. And our core in Europe, where we have a significant part of our business, also relates to development, innovation around new materials in line with and meeting the regulations upcoming in EU such as the packaging and packaging waste regulation. A lot of the work in that field is directly transferable into the overall ambition we have in replacing plastics, what we call plastics to carton. This is a massive area way outside our current business but in adjacent areas, but also in the actual substrate shifts happening in our business, i.e., if you think of it, the milk currently packed in plastics moving into cartons, et cetera. But the potential, of course, is way, way, way beyond that. Now starting with number 1 and the geographical expansion, let's just turn and think about Americas, again, because it has been quite a journey for us. We -- as some of you remember and seen is, we decided back in '23 to establish a new plant in U.S. And that is on the back of a position we've had in U.S. for -- actually for 20 years. we came to North America in 2000, yes, and supplied North America with plants in Canada, our big Montreal plant and also the plants in Mexico and the Caribbean. In '23, we decided we need plant inside U.S. and then we established the plant -- decided to establish a plant in Arkansas, Little Rock. In September of the same year, we announced that we are going to put in another line in that plant because we saw increasing demand around our supply, our services, our packaging offerings and generally an opportunity in the market. In April of this year, we had the inauguration of the plant. The plant, I can happily say was built, constructed and made in time and on budget and has been up and running ever since and we are ramping up. And as you have heard earlier, we are now seeing the fruits with the plant turning a profitable business already here in Q3. So the demand actually in America is very clear. And if you think of it, we have been growing since 2020 on an average 15% a year. That's a 76% actually the growth in the Americas business in a market, in a stable, mature category such as milk and juice. So we have seen that there is a demand for what our services and for that reason, we have also taken the step now to announce the decision that we are going to build, extend our capacity with the third line in Little Rock, allowing us to drive our market share, continue to -- on the growth pattern we've been on, allowing us to establish a much broader portfolio than we had before, simply given that as equipment gets to the manufacturing plant, gets more and more full with existing orders, we need to have a broader setup to be able to offer a broader portfolio. And that is what we're going to do with the third line. So what is very fundamental is that with this third line that we're actually putting in place somewhere a year ahead of what we had originally thought. But with this, we confirm again that we will reach our targets as presented on the CMD back in '24, the midterm target as well as the long-term target. This will enable us to drive as I said, increase our value share -- our share of wallet with a number of our customers as well as increasing our market share in general in America. Because of the product mix, though, in America, which is in the third line, will be primarily focusing on smaller size packs, including anywhere from school milk size and upwards. For our large customers in the U.S., they always have a mixed portfolio in their sales, i.e., from very small ones to the larger half gallon sizes. For us, establishing a third line, enables us to get a higher share of wallet with them, supplying them the full portfolio and hence become a better and more valuable supplier to the industry and to our customers in general. So although we have a run rate because of the product mix on the third line, which is different than what we have announced on the first line. We're also going to see that with this, it's accretive to the group, and it's certainly very, very strongly supporting the group's industrial presence in America. It would also mean that we will have a higher level of flexibility in how we run operations in America. We will have a higher level of operations with line 2. And 3, which will allow us to ramp up line 2 at a faster pace because of line 3 than without line 3. And that has to do with product mix and how you move products and sizes, et cetera. Very important is, we are building line 3 because we have the commitment, full commitment on that line from customers in U.S. So the line 3 acts both as an industrial strategic investment, it has the full backing of customers, and it is definitely accretive to the group, and will strengthen our overall position in U.S. Now back to our results. And as you will see, we have a revenue that is down, but on -- due to the currency effect in U.S., on an organic level, we are up by 1.2% and up by around 2% for the full year. EBITDA wise, we have a strong performance, which is both in the quarter and of course, in the year, but in the quarter very strongly driven by the development in U.S. And remember, we have a negative currency effect that we'll address later in this period. All in all, we are heading now at 17%. And for those of you who recall our Capital Markets Day targets, we did say 15% to 17% midterm target. So it's -- it's a very healthy level for us to be at in this period here. There is a one-off though, which has to be set in EMEA of around EUR 1.5 million, which is also part of why we get a positive one-off -- of EUR 1.5 million. With this, as I said, this is actually the highest EBITDA we've had to date, and we are very excited with what that brings to the future. So with this, I think I'm going to hand over to you, Bent, on the financials. Bent K. Axelsen: Thank you, Thomas, from financials to more financials, which is fun today. Let's jump straight to it with EMEA. What we can see here is that we are delivering a revenue of EUR 206 million, which is 5% down compared to last year. But if we analyze the performance, the underlying performance, we can say that we do have a resilient performance despite continued soft consumption. Now why is that? If we look at our Pure-Pak revenues, they are stable year-over-year. So what we are seeing despite the soft consumption, we are continuing to increase market share. Specifically for this quarter, we are regaining our business in MENA as fresh dairy is strengthening in that region. And in the -- for the aseptic business, we are growing by taking market share and basically growing with our customers. If you look at the key contributor to the revenue decline, it's actually related to filling machines. We are commissioning around the same number of machines this quarter compared to last year, but the machines are smaller. So we have a negative mix effect. That actually explains around 60% of the revenue decline. So if you move on, we -- as we have reported before, we still observe a competition in the Roll Fed segment, and that is happening both in Europe and in India. In Europe, it plays out through lower volumes, albeit at -- the pace has slowed down. So we see a positive development in the Roll Fed area because we see that the trend is slowing down. In India, it plays out with a margin squeeze because it's a crowded place. We are growing organically 19% in India with our Roll Fed business. When it comes to profitability, we are reporting 36.7%, that is up 2% compared to last year. That comes from improved pricing and improved mix in Pure-Pak. And we also have this switch from Pure-Pak to Roll Fed, which is also contributing to the positive mix. And Thomas already mentioned the one-off, which is in Europe, which has also impacted these results by -- positively by EUR 1.5 million. So in conclusion for EMEA, resilient performance despite continued soft consumption. Over to America, the growth journey continues with a revenue growth of 11% or 18% on a fixed currency basis. So we are still seeing the interest and the demand in our products. So the growth is in revenue, is volume, carton and closures, and it's enabled by two things. Obviously, we have the ramp-up in the U.S., but we're also seeing improved productivity in the assets in Canada and in combination that is then enabling this growth. Also in America, we have a negative revenue impact in regards to filling machine. So it's the same explanation here. We have a mix effect. In this quarter, we have commissioned school milk machines, and they are smaller in size and also then smaller in revenues. If we move to the EBITDA, we see a very strong growth of the EBITDA, 21% growth of the EBITDA up to EUR 21 million with a margin of 24%. In addition to the top line growth itself, we have positive mix effects but we also do see the benefit of improved asset utilization, and we are leveraging our fixed cost base. It's also -- of course, as Thomas mentioned, very proud that this is the first quarter with positive EBITDA in Little Rock, a milestone for us. We are very, very pleased with that. The ramp-up continues, and it's obviously better than last quarter. But we obviously would have liked to see even faster ramp-up than what we have seen. When it comes to the joint ventures, we have an EBITDA or a share of net income of EUR 1.4 million. That is actually a decline from EUR 2.1 million and the explanation for that is a softer demand and a change in consumption habits. But overall, the key message is that we do have improved that utilization that enables growth in America. Let's take the group perspective and start with the net revenue mix. So this is EUR 7.4 million, and that is mainly driven by: one, the growth in America and the positive mix and pricing effects in EMEA. When it comes to raw material, this is again where we have the one-off, which is positive. And then we have a negative effect of EUR 0.6 million for the underlying raw materials. That comes from board price increases, all the price increases, even though the PE has softened year-over-year. Our operating costs are mainly explained by salary inflation of 3%. And also the ramp-up in Little Rock, which also is affecting the operating cost level somewhat naturally. The rest of the fixed cost base in the company remains rather stable. The last bridge element, we have already mentioned joint ventures and the FX, which also Thomas talked about, that is the result of the 6% weakening of the dollar versus the euro on an average year-over-year basis, leading to the 70%, which is on par with the best we have done. Let's move to the cash flow. It's probably the most exciting part of the financial this time because we also are not only reporting record profitability, but we are also reporting record cash flow generations -- sorry, cash flow generation from operations. The cash flow from operation is EUR 55 million. It's not only driven by the profitability but also driven by the improvement in working capital. This element is, to a large extent, driven by timing of accounts payables, that can go up and down between quarters. It was quite low last quarter, and then it's higher. So this could vary a little bit up and down, important to notice, but we also have an underlying improvement of our inventory in Europe from our working capital project. Also here, we are seeing the ramp-up effect of Little Rock. We are also building working capital, obviously, as a part of growing the top line in the U.S. Our cash flow from invested -- investing activities is EUR 11.5 million. We are still having EUR 2.4 million in investment in Little Rock in this quarter. The rest is our replacement program in Europe. While filling machine investments are lower than last year because most of the projects are sales rather than lease and then it doesn't impact the investment line. Cash flow from financing activities is also EUR 11.5 million, nothing special there, which brings us to a net debt of EUR 272 million, so which means that the cash bank debt has reduced EUR 31 million quarter-over-quarter, which we regard as a rather solid. With this cash flow generation, we are deleveraging the company. As Thomas said, we are bringing the leverage ratio very close to our midterm target of 2x. This comes from not only the payment of the debt, but we also have improved the LTM EBITDA by EUR 3 million. And the good thing with that, it enables future investment in our strategic initiatives and it allows us to continue to pay healthy dividends. And if you check your bank accounts, yesterday, you received dividends in total, EUR 21.5 million. This comes from the second installment of 2024 and also from the first half result of 2025 as we are in this transition year from annual dividend payments to semi -- to 2 payments per year. If you look at the right-hand side, it's a little bit difficult to see, but the curve is going upwards on ROCE. So we finally are seeing improvement of our return on capital employed, as we have talked about in earlier quarters. And that is coming from the fact that we are finally making profit from our Little Rock investments with the capital that we already have installed there. We have so far invested $86 million in Little Rock. We have $42 million to go, and we expect that around $6 million of those will come this year in Q4. So in summary, the financial position is really strong. And we are continuing to leverage the company despite the investment program. So this concludes the financial section, which was actually quite great to present. Thomas Kormendi: Thank you, Bent. Good, you liked it. So finally, as you can sense, we are really happy to report to the highest -- and I would change that into the best financials yet for the company. It's EBITDA, as you saw, but it's also the cash generation that we have succeeded with in the period. And it's also a period where we are reaffirming our strategy. We are confirming the strategy we are now putting in and deciding on the third line, really it's putting a strong footprint in the U.S. and in the Americas in general, North Americas. . We are also seeing EMEA despite these headwinds that we have talked about that we're actually seeing very solid developments in big parts of EMEA, not the least in South, not the least in MENA that gives us the confidence that we're also here on the right track, and we'll continue to develop the business in line with the plans we've outlined in the Capital Markets Day. So all in all, what we are now saying is we expect to deliver within our mid-term targets as you know, which is 4% to 6% organic growth and 15% to 17% on the margin side for the year. And with this, I think we're going to hand over to questions. Erica Binde Honningsvag: Thank you, Thomas. Thank you, Bent, for the presentation. So we will now open up the floor for questions, starting with the audience here first. [Operator Instructions] Marcus Gavelli: Marcus Gavelli, Pareto. So you have previously said that line 2 will be fully ramped up in H1, '26. At the presentation today, you said that line 3 will coincide with line 2. Could you try to provide some color on what you really meant by that because I assume that line 2 is still on track, and line 3 will come a bit later. Bent K. Axelsen: I just want to clarify that we will open line 2 in H1, '26, not ramp up. Thomas Kormendi: Yes, we would ramp -- what we said then was we are going to ramp up during '26, right? It's not that in -- that we are fully done. As we have said, we're going to install line 2 and start ramping up during next year. Thank you. So why are we saying that the two actually help each other? Well, it is like this, right? If you look at the industry and the -- I don't think in a way, the dairy industry is way different than many other industries, our big customers have a variety of sizes, formats, and evidently, we look at their supply -- suppliers, one of which is us to say, can you supply us with a broad set of formats in order for us to essentially become -- in order just to close a partnership with you. And the close partnership in our industry is really, really important because you know we have very long tenures generally in the industry. The closer we work with someone, the better we can develop it and the longer performance we can actually secure for our customers. So with this move, we ensure that we can use our line 2. On some formats, that would not have been possible had we not had line 3 to complement that. And from a customer point of view, they would then have said, it's difficult for us to move volume into you unless you can also do some other formats. That is the simple -- so it's a little bit opaque when I put it like this, but it is actually what it is. Marcus Gavelli: That's perfect. And then also with what you said in MENA with the volume growth commencing again, could you again try to provide some color on -- is that more of a one-off? Are you seeing some sea change over there? And then also how you think about, I guess, growth into Europe with price increases and so on. Thomas Kormendi: I think sea change is probably overdoing it. But I'm very optimistic around MENA, honestly. And it is what it is. It's a sensitive economy, right? So consumption is impacted by ups and downs, clearly, but the underlying business for us is the strategic direction we have is add more value to our customers in MENA by adding ESL, longer shelf lives, which drives down their cost, improves the performance of the products in shelf, have a better product with a better looking product on shelf, et cetera. And that is actually why we are seeing that we can gain business and are gaining business. Now the business we are gaining is not necessarily the business you see right now in this quarter because, as I say, there are ups and downs. But why I'm saying I'm positive is because underlyingly, we are moving in the right direction. And then what we have seen in previous quarters, a little bit how Ramadan falls and inventory builds up, et cetera. So in a way, I wouldn't put too much focus just on a quarter when it comes to MENA, much more is the underlying business moving in the right direction, and it is. Bent K. Axelsen: And also technically speaking, I think the quarter last year was relatively soft. So part of that is also a rebound, but it's really, as I must say, we need to look into a longer perspective to really get insight from the development. . Erica Binde Honningsvag: Okay. So then we will move forward with the questions that we have received online. Starting with a couple of ones from Jeppe, in Arctic. I will take them one by one. It's regarding the line 3. What are the expected revenue levels and EBITDA margin for the third line? Thomas Kormendi: So what we are saying is run rate is going to be lower than when we talked about line 1. It's a different product mix than what we talked about 1, which was really a very, very -- I wouldn't say simple because that would offend the people of Little Rock, but a different mix than saying actually 1 product versus different products, smaller formats. So it's going to be lower. We're not complete -- we are not explicit about it because we are looking at the plant in combination of the 3 lines, right? It's not this line, that line, this line. The combination of the lines will generate the result. And in fact, what we're even doing more is we are more occupied with looking at the Americas result than single lines and single factories. And on the Americas result, we can just reaffirm we are going to deliver the midterm targets and the long-term targets. And then we will fix the mixing between the various production lines. Bent K. Axelsen: I think the key here is the midterm target. And I also want to note that typically, the way we follow up the American business is in dollars. We did convert that to a euro top-down target in the Capital Markets Day. And back then, the currency was [ 108 ]. So obviously, things have happened to the currency as well. So that could also be good to remember when you are calculating. . Erica Binde Honningsvag: Okay. When do you expect production to start? And what's the planned ramp-up of line 3? Thomas Kormendi: We expect production of line 3 in '27, which means that with these lines, there's a certain lead time when you order them and then installing them, et cetera. And that's why we're doing it now to be able to actually produce in '27. Erica Binde Honningsvag: So does the addition of this line affect the ramp up of line 2? Thomas Kormendi: It does affect the ramp-up because it gives us flexibility to move products around. To the point of saying with the line 3, we can get more customers in who have a mix of products, more customers in will allow us to move products between the lines in a faster pace. And hence, we think it's going to be very beneficial for Line 2 as well. . Erica Binde Honningsvag: And last one from Jeppe. Will this dilutive school milk production form the joint venture? Thomas Kormendi: That is not the intent, no. Erica Binde Honningsvag: Okay. A couple of questions from Luis in [ BNP ]. Can you give some extra color on what the EUR 1.5 million one-off is related to? Bent K. Axelsen: I can do that. So basically, over the last couple of years, we paid too much in utility costs in one of our factories. And we got that money back. So we paid the amount. So it's nothing more dramatic than that. So it's basically a retroactive correction. Erica Binde Honningsvag: Is Roll Fed production integrated with Pure-Pak sleeve production or can otherwise repurpose activity? Thomas Kormendi: Can you just take it again, please? . Erica Binde Honningsvag: So is Roll Fed production integrated with Pure-Pak sleeve production or can otherwise repurpose activity? Thomas Kormendi: I assume this refers to -- if you -- okay, let me put it like this. If you look at our plants now, it's integrated as much as in the same plant, we will do both. But it doesn't mean necessarily it's all the same machines, of course, because you have -- in Pure-Pak, you have sealing machines, you don't use for Roll Fed, and you typically have different converters as well where possible. We are doing Pure-Pak and Roll Fed in Åhus, we will be doing Pure-Pak and Roll Fed in India as well. So you will have mixed factories, and you will have factories that are not mixed. Erica Binde Honningsvag: Last one from Luis, what is your competitive advantage in aseptic since you mentioned MENA customers are moving that way? Thomas Kormendi: Right. So that -- I think that's a very interesting actually question and something I could probably give a longer answer to it, but I will make it reasonably short. I think from a -- if you are in the aseptic business, right, you are going to look for something that I mean, let's now, let's go one step back. On the aseptic business, clearly, you need performance, technical performance, you need the performance on the packaging systems, et cetera. So that is the fundament for anyone who goes into this business. In the case of Pure-Pak, we have a technology that allows us to keep a low waste with our filling machines. That is because it is blank fed versus Roll Fed, and that actually means that the amount of waste during the production is much, much, much lower in those systems. That's number one. That's a more technical operational issue. Our machines, our system is running at a high technical efficiency, which is important, of course. But the market point is -- it is a system that is unique. It is the iconic system for carton packaging, milk packaging and it is actually the consumer preferred system as well from a handling and consumer point of view. This is, I think, evidenced by the development we have, for instance, in South, where we're seeing solid growth in the UHT long-life milk areas and also in other markets where it is. It is a system with a solid technical performance and a very -- and a high consumer approval. In short, we can do it much, much longer, if you like. You want to buy a machine, let me know. Bent K. Axelsen: We can also lease it. Erica Binde Honningsvag: Then we have a question from Ole Petter in SpareBanken. This quarter saw smaller machines both in EMEA and U.S., should we expect an increased share of smaller filling machines also for Q4 and into '26? Or was this a special for the third quarter? Bent K. Axelsen: I think this timing has proven to be very difficult to predict. So generally speaking, I would say that Q3 was usually -- was unusual from a size perspective. I think we haven't done an explicit forecast on that. But our hope is, of course, to get back to the big machines. So we can generate more blank sales and also improve our working capital position. But it will be -- this will be always going a little bit up and down between the quarters. Erica Binde Honningsvag: Then we have a question from Amer [ Jabbari ]. How does the cost pressure in raw materials impact your pricing directions in '26? Thomas Kormendi: Right. So this is, of course, early days to be specific around pricing. But what we do see is that there are raw materials, including board, which will go up in the coming period. And for us, of course, it will mean that we will also increase our prices for TransX. I cannot evidently explain the amount, but we will be increasing prices, yes. Erica Binde Honningsvag: Okay. We have a last one, but I think you covered it during the last question, was regarding board price changes for '26. All right. If there's no further questions from the audience here, I think we will round off today's Q&A session and also the results presentation. Thomas Kormendi: Thank you very much. . Bent K. Axelsen: Thank you.

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055550.KS 2025 Q3 财报电话会议

Cheol Woo Park: Good afternoon. This is Cheol Woo Park, in charge of IR. I thank everyone for joining us at the 2025 third quarter earnings release by Shinhan Financial Group despite your busy schedule. Today, we have here with us Group CFO, Sang Yung Chun; Group CSO, SeogHeon Koh; Group CRO, Dong-kwon Bang; Shinhan Bank CFO, Jeongbin Lee; Shinhan Card CFO, Haechang Park; Shinhan Securities CFO, Jeonghoon Jang; and Shinhan Life CFO, Sunghwan Joo. We will start out with the CFO's presentation on business performance of Q3 2025, followed by a Q&A session with the executives present here with us. Let me now go to CFO Chun to start the presentation. Sang Yung Chun: Good afternoon. Thank you for joining us for the third quarter 2025 earnings release. I will begin from Page 2, business performance highlights. As of the end of September 2025, the group's CET1 ratio was preliminarily estimated at 13.56%, maintaining a stable level. It results from our unending RWA management effort combined with robust profit generation despite the won depreciation and growth in loan assets for future preparedness. Based on this, Board today resolved on cash dividend of KRW 570 per share for the third quarter. Shareholder return in 2025 is expected to be around KRW 2.35 trillion with KRW 1.1 trillion in cash dividend plus KRW 1.25 trillion in share buyback. The shareholder return policy is expected to remain unchanged in the foreseeable future given the stable CET1 ratio and financial soundness. In Q3, the group's net income was KRW 1.4235 trillion despite the decrease in securities-related profits as credit costs were well under control. The cost/income ratio also remained stable. Credit cost ratio stood at 46 bp, up 2 basis points year-on-year, but has generally improved, decreasing Q-o-Q. But whether the asset quality will turn around to decreasing trend, we will have to wait and see due to current combination of factors such as uncertainties in the macro environment and domestic economy. Next is Page 3, capital. As explained earlier, the group's CET1 ratio was kept at 6 bp lower Q-o-Q, thanks to stable net income despite the numerous factors driving up RWA. The group's RWA increased by KRW 8 trillion Q-o-Q, driven by growth in foreign currency-denominated RWA due to won depreciation and loan-driven asset growth. We will keep our utmost focus on maintaining a stable capital adequacy ratio by supplying sufficient funds where and when needed, while improving internal efficiency and strategic resource allocation. Please refer to the slide for details on assets and liabilities on Page 4. Page 5, group's profit and loss. The group's Q3 net income was managed at 8.1% decline Q-o-Q. There was a decline in securities-related profits, reflecting market rate movements, but credit cost was well controlled. ROE and ROTCE, key indicators in corporate value enhancement plan, rose by 0.7 percentage points, respectively Y-o-Y to 11.1% and 12.5%. I will go into more details by item from the next page. Page 6, interest income. Group interest income rose by 2.9% Q-o-Q, thanks to profitability-based asset growth and active margin control. The bank's loan in won increased by 2.7% Q-o-Q. The retail sector grew by 3.1%, primarily driven by policy funds on the back of growing market demand, while the corporate segment grew by 2.3% through proactive funding, also thanks to the active growth strategy from July. Please refer to Page 26 for further details. The bank's NIM rose to 1.56%, up 1 bp Q-o-Q. Although the interest-bearing asset yield fell by 12 bps Q-o-Q, reflecting market rates, including won-denominated loans, it was more than offset by the improvement in funding cost. Next page, noninterest income. The group's noninterest income decreased Q-o-Q, reflecting market conditions. Gains on securities, FX and derivatives declined, while fees remained stable. Credit card fees decreased Q-o-Q due to increased promotional expenses in response to seasonal factors like the Chuseok holidays, but brokerage fees, IB-related fees and product sales fees, including funds, surged Q-o-Q on the back of recent capital market activities. Insurance-related profits decreased by 2.4% Q-o-Q, but profitability remained stable, thanks to scaled up CSM management. Moving on Page 8, group's SG&A expense and credit costs. Group's SG&A increased by 2.2% Q-on-Q due to recognition of voluntary retirement costs at Shinhan Card. However, CIR on a cumulative basis remained stable at 37.3%, maintaining a sound level. Credit cost decreased by 30.1% quarter-on-quarter, reflecting the expiration of corporate credit rating impacts recognized in the previous quarter and the group's continued efforts to manage asset quality. Additional provisions arising from the government-led real estate PF workout plan also decreased significantly Q-on-Q, remaining within our anticipated range. Credit risk among corporate has risen due to delayed economic recovery and challenges persist among vulnerable customer segments. Along with timely funding, more prudent asset quality management will be needed. Turning to Page 9, here are the group's asset quality indicators. Group's NPL coverage ratio declined by 2.9 percentage points quarter-on-quarter as the balance of substandard and below loans in the nonbank sector increased. However, the bank's NPL coverage ratio improved by 12.17 percentage points quarter-on-quarter, supported by the NPL sales and strengthened asset quality management. Delinquency ratio at both the bank and card are also gradually improving. Detailed information on the group's loss absorption capacity NPL sales provided on the following page. Page 11 is profit and loss of our subsidiaries and overseas businesses. Shinhan Bank's earnings declined slightly from the previous quarter, impacted by noninterest income factors, including marketable securities. For details, please refer to Page 21. Shinhan Card posted higher earnings over previous quarter despite the decrease in merchant fee income and recognition of voluntary retirement cost, thanks to reduced credit cost supported by improved asset quality. Shinhan Securities earnings decreased Q-on-Q due to lower product management income. However, the company continues to restore its structural earnings capacity year-on-year through enhanced competitiveness in its core business areas. Shinhan Capital continued to face pressure on funding and credit cost showing a subdued performance. Specialty credit subsidiaries, including card and capital, are steadily improving fundamentals through asset rebalancing and various self-help measures and are expected to gradually recover profitability. Overseas services delivered differentiated results in Q3, particularly in Japan and Vietnam despite ongoing domestic and global uncertainties. Page 12 through 13 summarize our performance in digital initiatives and sustainable management activities. From Page 15 to 18 are the progress of our corporate value-up plan. Overall, the group has achieved solid results in terms of execution, speed and outcomes compared with the plans announced last year and early this year. Please refer to the materials for detailed information. From Page 18 onward, we will find details on the financial status, P&L and funding and investment operations of each subsidiary. Korean financial industry faces challenge, a productive financial transformation to support Korea's economic recovery and sustainable growth. Forward, Shinhan Financial Group will continue its consistent approach of allocating resources to corporate finance while providing timing and efficient funding. We will lead in fulfilling the financial industry's core role in intermediating capital management, managing risk and supporting growth. This concludes our presentation. Thank you very much for your attention. Cheol Woo Park: Thank you very much. And now we will take your questions. [Operator Instructions] And now we will take your questions. The first question will be delivered by Mr. Jung Jun-Sup from NH Securities. Jun-Sup Jung: I am Jung Jun-Sup from NH Securities. So I have 2. Now first is about the capital policy. So the government recently is talking about the dividend payout, the separation taxation and then also the similar in other industries as well. So now then in terms of the dividend tax, then I wonder whether related to the dividend tax, have there been any discussions about changes in the group's dividend policy? And then second is about the loan. So the government continues to control the household loans. And I believe that there has been a bit of an excess in the quota that has been given. Then also more recently, now the deposits are also appearing to decline. So it seems as if both the loans and deposits are unlikely to grow much in the future. Then looking ahead to the fourth quarter and beyond, then what would be the outlook for the group's loans and deposits? And also, how does the group intend to respond to these changes? Cheol Woo Park: Thank you very much for the questions. And please wait a moment for us to prepare our response. Sang Yung Chun: Thank you very much. So there were 2 questions. Now first, about the capital policy, I will respond to that. And then now with regards to the loan and deposit outlook for the longer term, then that will be responded to by the bank's CFO. Now first, about the capital policy. So you talked about the dividend payout separate taxation and then the non-tax dividend payout. And then first, regarding this, we have had some discussions at the BOD. So through the workshop, we have discussed the shareholder return policy. But given the fact that we have yet to come up with the business plan for next year, we have not made any decisions. But of course, having said that, now with the dividend payment separate taxation then now also to broaden the individual shareholders, now in order to be in alignment with the taxation policy, then we also intend to slightly increase the dividend payout. Having said that, now there's a number of indicators for our shareholder return policies. So for example, shareholder -- the share buyback and cancellation. So even if we do that, then this will not be undermining each of our policies. So we would also look into that. And next is about the tax-exempt dividend payout. And yes, we have also discussed this several times. And yes, we do have some profit available for dividend payout. But then now, looking at the industry trends then, now yes, there is also this kind of a dividend payout that is [indiscernible]. So we would have to wait and see, but we would also be positive about the changes as well. With regards to these overall changes, I do believe that we will be coming to some kind of decisions as the Board has to come up with the business plan for next year. But then overall, I can say that we are positive about both aspects. Lee Jeong-bin: Thank you very much. And now this is the CFO of the bank. So the question was about the deposits and loans. So now first, about the loans, then now in the first half, now given the fact that we have grown in the previous year, so we were conservative in terms of our loan growth outlook. So that was for the corporate loan. And then now for also loan, then -- now there was also some increase. And then also, yes, in terms of the banks, then we are a bit over the guidance that was given by the government. But then for the fourth quarter, I do believe that we will be in line with that. And then now for the corporate loan, as I have mentioned earlier, now there was some conservative growth in the first half. But then now in the third quarter, then there was over KRW 1 trillion growth in the corporate loan. And then now for the year, then we were actually planning for about KRW 9 trillion growth. But then now so the actual utilization will be about KRW 7 trillion to KRW 8 trillion. Then also the loan is in won so we were planning for about 5% growth. But then now for the year 2025, we will be growing by about high [indiscernible] so not too different from the plan. Then we're looking ahead to next year for the [indiscernible] loans growth. Now for the household loan, obviously, there are a number of regulations [indiscernible] specific environment for this. So it is not likely for the household loan to grow very [indiscernible] But then yes, there would also be some policy funds to be provided by the government. Then now for the corporate loans, then now compared to this year, so to be in line with the government's policy like the productive finance, I do believe that there will be more growth than this year. But having said that, next year, it is likely to be around 5% to 6% next year. And then about the [indiscernible]. And for this series, there were also some discussions about the deposit. And this is, of course, funding is very important. And also the cost management is also very important. So now then for this year, so we have also focused on the funding control to also defend the NIM. But then also, on the other hand, we also need to ensure funding stability. So yes, we also have a funding management strategy. Now in the fourth quarter, yes, there are -- for the traditionally, now this is the funding maturity period for the bank. So we are also making preparation. And also, the question was some concerns about the expected difficulties for the deposit. And yes, for the individuals and for example, the time deposit, it is being reduced, but then now we also are managing the interest rate quite tightly. So next year, next year perhaps, you can have more appropriate management of the interest rates so that we will be able to have stable funding. Unknown Executive: And then also last part of the question, so about funding moving to the capital market and how the group is making the decision for this. Now as the bank's CFO has mentioned, so it seems as if there is a little change in terms of the capital flow in and outside of the bank. But then now, we can see that now for the money flow, so we see that it continues to be stable. But now in terms of the resource allocation, now for the next year and rather than the resource allocation in the bank, we would also allocate more resources to the capital market, and we intend to be flexible depending on the market circumstances. Cheol Woo Park: I hope that answered your question. We will move to the next question. [Operator Instructions] HSBC's Won Jaewoong, you have a question. Please go ahead. Jaewoong Won: Thank you for good results. Now looking at Page 9, the bank delinquency rate seems to be staying stable. So I was fairly encouraged by that. Now then such trend in fourth Q do you think will continue also for the next year also? That's my first question. The next question is that card delinquency rate in the third Q, it dropped significantly. So the public will [indiscernible] support coupon, may that happen? Or on the card side, do you think there is also signs of stabilization? And the next question is about the credit cost. Now this year, the guideline was about mid 40 bp. I do believe that was your target range. Then in the third Q, you managed quite well, given that in the fourth Q, seasonality makes that we need more provisioning. So I think it could creep up. And does that mean that the credit cost needs to be expected higher than anticipated and fourth Q one-off provision, it's not going to be that high. That's my question. Cheol Woo Park: Well, thank you for your question. While we prepare for the answer, please bear with us. Unknown Executive: Yes. Thank you for that question. Now in terms of the asset quality prospects and second was related to credit costs. About credit cost, I will answer first. And about the asset quality on the overall situation, Group CRO, will respond to that. And Banks and Card CFO will talk about banks and cards asset quality related and respectively. Now in terms of guidance on credit costs, if I may give you the conclusion first. As I said, the mid-40 bp in the first half earnings call, I think it's going to hold for the coming period also. Of course, seasonality require more provisioning. But if our simulation shows that within this range, the mid-40 bp range would cover everything. Of course, in the future, on a short-term basis, there could be some unforeseen circumstances, but in the current position, I believe the mid-40 bp range still stands going forward. Dong-kwon Bang: And I'm CRO. Let me give you overall response to the asset quality. So bank delinquency rate, yes, you said it was stabilizing. So on a group level, not only bank, but for all of our subsidiaries, including nonbank side. In terms of asset quality, I think we are seeing signs of flattening. But as you know, there's a lot of uncertainties in terms of economic outlook and also there's also other external uncertain factors, including tariff situation. So in terms of now the prices and the current policies again are all uncertain. So the flattening, whether it will go down further, I think it's only to make any judgment. So fourth Q up to the first Q of next year, we just have to wait and see. So we will maintain the current trend up to that time, then I think the result will be positive. That's our anticipation. And as you know, on the banking side, on the banking sector, in Korea, we are one of the relatively best in terms of asset quality. So we will try best to maintain that. Lee Jeong-bin: Yes, I'm CFO of the Bank. So if I may add on a response to the CRO. So for Shinhan Bank, when it comes to asset quality, up to a few years ago, among the top 4 banks in Korea, we were actually falling a bit short. So asset quality, of course, is very important, while continuing growth is also important. So we have made various efforts for asset quality, like credit risk system, the management, the portfolio level. And as a result, among the top 4 banks, delinquency and other things are very much staying positively. But as the CRO stated, asset quality or delinquency rate, whether it has become stable, it's too early to say. But flattening, it seems to be continuing, but I think we need to keep our guards up. So within first half of next year up to that period, we have to keep close tab on the asset quality and manage it tightly. Additionally, on the banking side, the credit cost, we are managing on the bank level also. So on the fourth Q, when it comes to credit cards, we will implement more prudent policies. That's my opinion. Thank you very much. Hae Chang Park: So my -- I'm Card CFO. So the card delinquency ratio, we look at on a monthly basis and keeping close tabs on it. So we also look at the new loans that become delinquent. So it peaked in 0.45%, but it improved to 0.41% in September because of the public relief fund that you talked about that increased small merchant sales, thereby improving the overall finances of the small merchants. But going forward, the government will continue to support small merchants and self-employed. So we have to keep a close watch on that. For example, in the past, for a small merchant, low interest rate lending, they said they will put about KRW 10 trillion toward that. So if the policy continues, in the pandemic era, that also improved the situation. So we think that will be something we will also see here also. Thank you. Cheol Woo Park: Thank you very much. I hope that has answered your questions, and we will take the next question. [Operator Instructions] So there are -- yes. Yes, there is a question. From Hanwha Securities, we have Kim Do Ha. Do Ha Kim: I'm not sure whether it is a question that would have a specific answer, but I would just like to get your thinking about these topics. So now look at the slides, for the first time in a while, I could see that the interest spread. So it was rising by 3 bp. So from last May to this year, then we see that the interest rate was falling, but then it seems as if considering the circumstances, you were able to really defend the margin. Now then for next year, then if this is the trend, then we need to think about a higher margin next year? And also it seems as if the securities performance is also very good. So then in terms of the resource allocation for next year, then I wonder whether the shareholder return increasing, whether that will be the end all? But then for example, if the margin is going to be better or if the securities profitability is better, then perhaps you can allocate more for growth? So yes, I know that this is a question that defies an easy answer, but then I was just wondering what the group is thinking. So that is all. Cheol Woo Park: Thank you very much for the questions. And yes, please give us a moment to prepare our response. Sang Yung Chun: Thank you very much for the question. And yes, the question that you have raised is actually what we have been thinking for quite some time. So first of all, about the interest spread. Now this is what I would think. So first of all, the policy rate was cut twice this year and then also for the year, then we believe that there is going to be one more cut. And then now we see that, yes, gradually, the interest rate is falling. But then when we look at the market rate, then looking at the usage and also in Korea and then also the FX, so considering other circumstances, then the interest rate taking a clear fall is not really for certain. So that is something that we needed to consider. So yes, the margin perhaps compared to what we have thought last year, the margin did not fall as much as we had expected. Now that is for the short term, but then now for the longer term then both in the U.S. and Korea, then at least 50 bps or even more than 70 bps. So the prevalent view is that it is going to fall by over 70 bps. So then for the longer term, the interest rate is likely to come down. So then looking at the profit and loss for the end of September, then we can see that the interest rate increase was much lower than the overall revenue increase. So right now, we are just defending the interest income, but then over the long term, we believe that the interest income is likely to fall. So we need to be more conservative about this outlook. On the other hand, what we are more positive about is now on one hand, yes, there is the capital market and also the noninterest income, which is doing much better. So for example, brokerage and also the IB, so the noninterest income is actually quite sturdy. So those are also the areas, the businesses where we must have in order to keep growing. So we will continue to encourage that. But then in terms of the resource allocation, as I have mentioned earlier, basically, in terms of the allocation for growth, now compared to this year for next year, then rather than in the bank, the allocation would be heavier for the capital market is the direction for next year. But then again, in terms of the allocation for the growth then, now in terms of the shareholder return policy, so we have already stated the target for the shareholder return. So we will keep to this commitment. But then now the ROE continues to improve, but then also compared to the COE that we have, then it is still lower. So again, we will be flexible about this. But again, overall, the direction is to follow the plan for corporate value enhancement. And then also for the asset growth because the nominal growth is very low. So I mean there is a limit to how much we can pull this up. So in terms of the resource allocation, we will remain with the current framework. But then now in terms of the specific allocation, there could be more -- a bit more allocation to the capital market to be in line with the market circumstances. That is all. Thank you. Cheol Woo Park: Thank you. I hope that has answered your question, and we will take the next question. So next is Kim Jiwon from DAOL. Jiwon Kim: So CET1 ratio is my -- about -- my question. So it seems the lending side has grown. So as you said, RWA, it's relative though on the household lending, and you said that will be in alignment with government policy. But as being higher on the corporate side, you said that there will be more growth. And for us, RWA overall management strategy, how is going to see that going forward? And is there any factors where you could grow CET1 ratio further -- CET1 ratio further going forward? Cheol Woo Park: Please wait as we prepare an answer to your question. Sang Yung Chun: So RWA and also the future directionality of the -- that. So RWA, we have grown slightly in the Q3. So it looks -- it's higher than the first half. But if you look at the ratio of the growth compared to the previous year, it's still on the lower side. So on the third Q, RWA has grown slightly, but on a yearly basis, compared to the initial expectation of its growth, I think it will be lower than the expected. And going forward, the RWA growth rate, the recurring growth rate would stay on the path of the [ current ] year. And internally, if you take a deep dive for the household lending for the second and third Q because there was high market demand. However, due to regulatory environment now, household lending, I do not think, can grow further. Then on the corporate side, there will be the growth driver for us. But as you know, relatively speaking, corporate side, we have also allocated resources a lot in this area. So the corporate loan in terms of the share will grow, but it will be managed with the overall framework that we have. And in terms of CET1 ratio, compared to last year, this year, the level is a bit higher. So due to various variabilities that is anticipated, we increased it a bit. CET1 ratio, it's not always high being the better. So in terms of capital efficiency, the current mid-13% range is the adequate level. But by Q4 seasonality, there will be less earnings given so it will dip a bit from the current level. But on a yearly basis, we said the base will be 13.1%, but it will be managed in a higher level than that. Anyway, the CET1 ratio be it in the asset growth or it's a key in the shareholder return policy. So we maintain the base, but would also give a lot of buffer so they can be managed on a stable level. Cheol Woo Park: Thank you very much for the response, and we will take the next question. [Operator Instructions] So there are currently no questions requested. So it seems as if there are no further questions. And then with that, we will conclude the 2025 third quarter earnings release conference call by Shinhan Financial Group. You can find today's presentation at our web page as well as the Shinhan Financial Group IR YouTube channel. If you have any further questions, then please contact the IR team. And we will see you again in February next year for earnings release for the year of 2025. Thank you very much. [Statements in English on this transcript were spoken by an interpreter present on the live call.]

88天前Insight Analytics约5分钟阅读

ZONNF 2025 Q3 财报电话会议

Pedro Cota Dias: Hello, everyone. Good morning. Welcome to NOS's Third Quarter 2025 Conference Call. I'll hand you over to our CFO, Luis, who will deliver a short presentation, and then we'll open for Q&A as usual. Luis do Nascimento: Well, good morning, and welcome to NOS's third quarter conference call. We will begin, as usual, with the main highlights of the third quarter. A strong operational performance with the RGU trends significantly improving versus previous quarters. Consolidated revenue of EUR 457 million, strongly impacted by A&C decline despite resilient performance from Telco, an efficient cost management that is driving EBITDA growth and sustainable operational cash flow generation and a solid balance sheet and financial position with leverage below reference level of 2x. So a quick overview of our main KPIs. This quarter, revenues declined 1.2% to EUR 457 million, but EBITDA rose 2.7%. This positive EBITDA performance, along with a CapEx reduction of 2% led to improved EBITDA CapEx of almost 10%. Recurring free cash flow, excluding extraordinary effects, decreased 19% and net income increased 25%, reflecting the solid operational performance and our strategic transformation program. NOS proudly leads in global sustainability, having been recognized by both Time and the Financial Times in their international benchmarking rankings as one of the world's most sustainable companies. This impressive achievement places NOS as one of only 5 Portuguese companies in both lists and the only one from the telco sector. This highlights NOS's strong commitment and significant progress towards a sustainable future. Furthermore, NOS has received recognition from DECO Proteste, the leading Portuguese Consumer Rights Association Magazine, being named best in test for its mobile Internet, Wi-Fi and TV services. It's the first time any operator has secured all 3 core distinctions, underscoring NOS's strong commitment and investment in superior network and quality of service. On the operational performance side, this was another strong quarter of fiber-to-the-home expansion. More than 5.9 million households are now covered by NOS gigabit fixed network with FTTH representing almost 88% of households passed. This is a significant increase of 78,000 households quarter-on-quarter and almost 300,000 year-on-year. But despite the challenging competitive market, NOS strong offers and commercial capabilities delivered a very strong third quarter with a 2% increase to 10.9 million RGUs. With 131,000 net adds, this quarter posted the highest level of net adds since 2023, driven by solid numbers in both fixed and mobile RGUs. With 12,000 net adds of unique fixed accesses, this third quarter saw an acceleration of the operational momentum, driven by high levels of fiber deployment, low levels of churn and competitive offers, particularly from WOO brand and naked broadband that are changing the mix of new customers. In mobile, we do 111,000 net adds in the quarter. Mobile RGUs increased 3.3%, reflecting a stronger performance both in postpaid and prepaid. Postpaid has 160 net adds, posting very strong results driven by Woo and NOS competitiveness on convergent cross-sell. Prepaid net additions continued to improve since first quarter and just decreased 5,000 in the quarter, a clear improvement from Q2 seasonality despite competitive pressure. In summary, a solid operational performance and a strong improvement versus the previous quarters. Now moving to our Audiovisuals and cinema business. The number of tickets sold declined by 28% driven by the lack of blockbusters lineup this quarter in contrast with third quarter '24, which featured several box office hits, including Inside Out 2, the most watched film ever in Portugal. The Audiovisual segment was dragged down by cinema distribution, reflecting the lack of successful movies lineups in this third quarter as opposed to third quarter '24, where NOS distributed Inside Out 2. Only 3 NOS Audiovisual films ranked in the top 10 this quarter, harming NOS performance. Now on the financial performance side, NOS consolidated revenues decreased 1.2%, a reduction of EUR 5.5 million, driven by a EUR 6.8 million decline in the Audiovisuals and Cinema division and despite the resilient performance of the Telecom segment. Telco revenues show a resilient 0.3% growth, primarily due to the performance of the enterprise sector, which posted a 4.4% increase driven by the corporate segment. The B2C segment experienced a decline of 1.2% due to increased competition impacting [indiscernible] despite stronger operational activity. The new IT business showed a small decline of 0.4%, mainly driven by a reduction in the volatile resale of equipment and licenses. However, this was almost fully offset by a solid 8.4% growth in IT services. As previously explained, the Audiovisuals and Cinema division reported a 21% decline, driven by the 28% reduction in cinema attendance. So NOS's operational performance and the solid results of NOS transformation program supported on Gen AI-driven efficiency program continued to deliver a solid 2.7% EBIT increase, significantly above revenue with a robust contribution from telco and IT, which recorded increases of 4.3% and 10.4% and despite Media segment decline of 21%. This quarter, NOS achieved a 4.6% OpEx decline, largely due to proactive cost management and Gen AI supported transformation program that continues to boost structural efficiencies organization-wide. Two significant examples of AI impact this quarter include the automation of call center and customer care service through LLM-powered voice virtual assistants and Gen AI-based chatbots, which drove a 19% reduction in customer care costs. Furthermore, a 14% reduction in maintenance and repair costs was achieved by decrease in call times and intervention orders, also driven by AI. NOS CapEx continues the structural declining trend, and this quarter dropped 2% to EUR 91.5 million, mainly supported by the telco CapEx decline of 2%. In Telco, we saw a 2.4% reduction in customer-related investments and a 3.7% decrease in base CapEx. Expansion CapEx, however, saw an exceptional increase of 1.8% this quarter, driven by a temporary peak in NOS FTTH projects. IT CapEx increased by EUR 300,000 to EUR 1.9 million, driven by customer-related investment to support business growth and Audiovisuals and Cinema CapEx declined 7% to EUR 4.6 million, reflecting a return to a more normal spending levels. As a result, improved operational performance and efficient CapEx management drove a 9.6% increase in EBITDA AL minus CapEx. NOS show the consolidated net income rise 25% to EUR 65 million, a strong EBITDA growth supported by a solid operational performance and nonproactive cost management were key drivers, complemented by reduced financial costs and the EUR 5 million contribution from tax incentives. Free cash flow declined by 56% to EUR 51 million, primarily due to a reduction of almost EUR 50 million in extraordinary effects mainly related to tower sales to Cellnex and the tax receivable paid in advance in 2023, which positively impacted third quarter by EUR 30 million. However, this quarter, we have a negative impact of EUR 90 million in taxes from extraordinary gains in 2024 from tower sales and refund of activity fees. With NOS's extraordinary items, recurring cash flow dropped 19%, driven by a EUR 39 million increase in taxes that totally offset the positive impact of the strong operational performance, lower investments, a reduction in working capital and lower interest rates. To finalize, this quarter, NOS debt decreased to EUR 1,093 million and the financial leverage ratio dropped to 1.6x, well below the reference threshold of 2x. Additionally, NOS benefits from a lower average cost of debt, now below 2.8%, representing a decrease of 0.2% quarter-on-quarter and 1.2% year-on-year. As end of March, the company held EUR 343 million in cash and liquidity. So with this, we conclude our presentation, and we are now ready to answer to all your questions. Operator: [Operator Instructions] Our first question comes from the line of Mollie Witcombe from Goldman Sachs. Mollie Witcombe: I have 2 questions, please. Firstly, on the competitive environment. If you could give us a little bit more color on how that is progressing versus previous quarters, specifically in the budget segment. It would be really good to understand as well the uptick in net adds that you've seen. Is it mainly driven by WOO and the budget segment or elsewhere? And then my second question is on upside from cost efficiencies. Obviously, you've set out your transformation plan. To what extent are these savings already make a part of guidance? And to what extent do you think there's potential for further upside from cost efficiencies driven by AI savings? Miguel Almeida: Thank you very much for your questions. In terms of competitive environment, to be completely honest and transparent, these last few months, I don't think there's any news, anything relevant that is different from the previous months. So the dynamics since last November has been more or less the same. There's -- in our case, there is already some weight in terms of gross adds coming from the discount brands, but that number is still -- not even double digit. But still, it's more or less stable in terms of weight of gross adds. So to be honest, we don't see anything changing significantly from what we have seen in the first half of the year. Luis do Nascimento: On the cost efficient side, I would say that cost efficiencies are the main driver behind the operating cost decline of 2.6% in telco. Almost all of it are coming from efficiencies, as I said, from customer-related and from operating-related cost decrease, we believe they are sustainable as the Gen AI initiatives are still far from explored. It's a long-term program. So we believe that we will have efficiencies for a long period. Operator: We'll now move on to our next question. Next question comes from the line of António Seladas from A|S Independent Research. António Seladas: Thank you for the presentation. It's just one. It's related with the [indiscernible] that your retail customers are renegotiating their packages. So taking in consideration that this new environment is now about 1 year old. And at same time, your loyalty programs are for 2 years, so it's fair to assume that roughly 50% of your customers -- retail customers all have [indiscernible] package? Or do you think this is too optimistic? Miguel Almeida: Look, first of all, thank you for the question, António. We -- since in this new competitive environment, so again, last 12 months, the pressure on our retention lines, so customers trying to renegotiate contracts has not increased. It has been more or less stable. We haven't seen -- namely on these last few months, we haven't seen any pickup on customers trying to renegotiate contracts. So on that front, I would say also like in the competitive environment, things are pretty much stable. António Seladas: Nevertheless, your [indiscernible] blended price in retail are coming down 1% year-on-year on the second, now about 2%. So is this kind of performance that we should expect for the coming quarters? . Miguel Almeida: Look, that decline has a number of effects built into it. First of all, there are -- you have the data -- mobile data revenues that we had a one shot decline last December or November. That's a one-off effect that will not continue for the future. And then you have -- as I mentioned, we already have since last November, some gross adds coming from the WOO brand, the discount brand, which has a much lower ARPU than our brand. So in terms of -- and that progressively has an impact. And on top of that, I would recall that we didn't have the price increase beginning of this year. So if you have to add up all these effects to explain that decline. Operator: We'll now move on to our next question. . Next question comes from the line of Fernando Cordero Barreira from Banco Santander. . Fernando Cordero: Three questions from my side, if I may. The first question is as a follow-up on the strategic transformation plan. You have already highlighted the impacts on the customer care and in maintenance and repair costs. Are you foreseeing any other area in the operational side where the AI-driven efficiencies could be as relevant as in this, too? The second question is related with the [indiscernible] expansion. You have already commented in the presentation that you have already added 300,000 new homes. I would like to understand what is the still potential expansion of [indiscernible] network. What would be the, let's say, the number of households that could be deployed in the future just to understand which is also the impact on your potential top line growth? And the last question is, looking to your KPIs where the some performance in volumes has been offset by the trends in ARPU as you have already highlighted. I would like to understand -- or I understand that you are prioritizing volumes versus customer value versus ARPU can you help us to understand why have you opted by this scenario instead of prioritizing ARPU versus volumes? Just to understand what has been your way of thinking in the current strategy? Miguel Almeida: Thank you, Fernando. I would like to start with the last question, which I think it's very interesting. Well, I don't think it's fair to say that we are prioritizing volume against price. As I mentioned, we -- of course, we don't want to give too much space to the discount -- brands of the discount players. And we launched, as you know, a discount brand, and obviously, that has an impact because progressively, we have more customers within this brand with lower ARPUs, much lower ARPUs. And when you see the combined ARPU, that has an effect. But that's it. I don't think it's fair to say that we are prioritizing volume versus price. We are not going to give too much space to the new entrants, that's for sure. But we are trying to manage value. I don't think your comment is very fair, to be honest. I understand it. Don't take me wrong. I understand it. But this is a result of a number of things. Our strategy is not to prioritize volume against price. It's to find the right mix. Luis do Nascimento: Okay. So on the transformation program, the Gen AI is part of our program, and we -- the idea is to massify Gen AI across the entire organization. We have around 135 different use cases, and we have just started with around 25% of them. So there's a lot of room to massify GenAI across NOS. On the expansion, we are expanding FTTH, our own FTTH, and we will do it until the end of the first half of 2026. But we will have -- then we will have houses from third parties. So we expect it to have around 300,000, 350,000 houses for the next year, but a significant part of them from third parties. So our CapEx -- expansion CapEx will continue to decline in the -- in 2026. Fernando Cordero: Just a follow-up on the network expansion side. Not only I'm, let's say, looking to understand what could be the CapEx trend for next year. Also to understand, given that you are increasing your footprint by close to 5% and your customer base in terms of fixed assets by around 2%, I just 0I would like to understand which would be the network expansion that you are expected for '26, '27, not just on the impact of CapEx, but particularly in the impact of new addressable areas for your marketing activities? Miguel Almeida: I would share 2 comments on that. First of all, there is a time to take up. So one thing is to have the expansion. Another thing is to acquire customers, it takes time. So you cannot expect -- if you increase by 5% the number of households, you don't -- you cannot expect to increase the number of customers by 5% day 1. It takes time, and it takes a lot of time, obviously. So the take-up is going according to our expectations, but there's obviously a delay. On the CapEx side, what you can expect as we have been saying for quite some time now is CapEx going down. Part of this expansion -- fiber expansion is on third-party networks. So what you can expect for next year in terms of CapEx is a reduction. Operator: We'll now move on to our next question. Our next question comes from the line of José Cabezon from [ CaixaBank ] Unknown Analyst: One question regarding the efficiency plan. You have mentioned that you have 135 areas of where you can extract more efficiencies. Could you tell us the percentage of potential sales that have been already considered? And the amount that will be -- will emerge in the coming quarters? Luis do Nascimento: Okay. Well, to give you the percentage of efficiencies that we have, it's a form of guidance. So we are not sharing this number. Unknown Analyst: Okay. And my second question is regarding the comparison basis for us from this quarter. Are you expecting that the decline in RPUs and the changes that we are seeing year-over-year are going to soften in the coming quarters? Miguel Almeida: Well, let's say, our expectation is that it can get a little bit worse before it gets better. Long term -- sorry, just to add to that. So you're talking about the next quarter. Unknown Analyst: I am referring to the -- basically as from the next quarter, what we are going to see, especially in the first quarter of next year and the following ones? Miguel Almeida: Our expectation is that short term, probably it will decline a little bit more medium term. So looking 6 months, 9 months ahead, it will stabilize. Operator: We'll now move on to our next question. Our next question comes from the line of Roshan Ranjit from Deutsche Bank. . Roshan Ranjit: I've got 2, please, many follow-ups. Just on the competitive dynamic. And I guess, having had quite a strong start to the year, the new entrants momentum has perhaps stalled. I don't know if that's fair to say. How should we then be thinking about the scope for price increases next year? Because I think typically, it's around this time where you do inform your customer base around the kind of inflationary pricing indexation that we see. And I think this year, we didn't have anything. And secondly, it's around the network dynamics. And have you changed your stance or have you seen kind of incremental approaches for wholesale access? Anything that has changed on that front? Again, the new entrant has been pushing hard to increase their coverage. Any thoughts around that, if there's been any change or is it still the same? Miguel Almeida: Well, thank you for your questions. You're right, it's more or less around this time of the year that we have to inform customers, but it's still closer to the end of November, beginning of December. And the fact is that as of today, we have no decision. But I can tell you that we are evaluating the option, and we have no conclusion yet, but we are looking into it seriously. And we'll inform the market of our decision or not by the end of November. In terms of network development and wholesale access, namely from the new entrant, we don't know if -- with us, there's no discussions whatsoever. With the others, we don't know if there are any discussions, but in terms of closed deals, there's nothing new. Operator: We'll now move on to our next question. We have a follow-up question from the line of Fernando Cordero Barreira from Banco Santander. . Fernando Cordero: It's only one. I just would like to understand if there is any news regarding the legal situation of one of your majorholders, the 26% stake [indiscernible]. Just to understand if there has been any update or you have any update on that situation? Miguel Almeida: Well, that's the easiest question of all. No developments whatsoever. Nothing new. Everything is as it was 1 year ago, 2 years ago, 3 years ago. Operator: There are no further questions at this time. So I'll hand the call back to Pedro Dias for closing remarks. . Pedro Cota Dias: Okay. So thanks very much for tuning in, and we hope to see you back in fourth quarter 2025 results. Bye-bye.

88天前Insight Analytics约5分钟阅读

WRTBY 2025 Q3 财报电话会议

Hanna-Maria Heikkinen: Good morning, and welcome to this news conference for Wärtsilä Q3 2025 Results. My name is Hanna-Maria Heikkinen, and I'm in charge of Investor Relations. Today, our CEO, Hakan Agnevall, will start with the group highlights, continue with the business performance. And after that, our CFO, Arjen Berends, will continue with financials. After the presentation, there is a possibility to ask questions. Hakan, time to start. Håkan Agnevall: Thank you, Hanna-Maria. Thank you, and welcome, everybody. This quarter was a good quarter actually, and we are moving in the right direction, but it's also a quarter where you need to look a little bit under the hood. I mean, first of all, operating results and cash flow increased. Order intake was stable at around EUR 1.8 billion. But if you look at organic growth, it's actually up 6%. And also, if you look at Marine & Energy specifically, you see that Marine order intake was actually up 8%, and Energy order intake was up by 29%. The challenge, and I'll come back to that, is on our battery business, our energy storage business, where the order intake in Q3 for new equipment was basically 0. But Marine & Energy growing in a good way. This also leads to a strong order book of EUR 8.6 billion. Net sales decreased by 5% to EUR 1.6 billion. But also there, this is driven primarily by timing of deliveries on energy. So the deliveries in Energy will be tilted to the fourth quarter. I'll talk more about that later. Comparable operating results increased by 10%. So we continue our journey to reach our financial targets. We are now at 11.9% of sales. Operating results increased by 20% to EUR 230 million, which corresponds to 14.1% of net sales, and items affecting comparability amounted to EUR 35 million, mostly related to the divestment of ANCS. On services, our group service book-to-bill ratio continues to be well above 1. And cash flow, I will come back to that. We have a strong cash flow from our operating activities of EUR 340 million. Now let's look more into the details of the numbers. So if we start with the quarterly, the Q3 results. So order intake, as we talked about, is actually down 1%. But as I said, if you look on organic, organic growth, up 6%. You've also seen the growth in Marine, 8%; Energy, 29%. If we look at the net sales, goes from EUR 1.7 billion to EUR 1.6 billion, down 5%. But as I said, it's major related to prioritization of sales in Energy, and I will come back to that. If we look at book-to-bill, so we continue with a good book-to-bill above 1 at 1.1 this time. And I think this is the 18th consecutive quarter in a row where we have a book-to-bill above 1. Comparable operating result, EUR 195 million, up 10%, and we are now at 11.9% of net sales. And operating results, EUR 230 million, up 20% and now at 14.1% of net sales. If we look at the year-to-date, I think there are 2 figures that I would like to highlight. Our order book, which is up to 14%, up to EUR 8.6 billion and also our continued improved comparable operating result, up 18% going from 10.5% to 11.7%. Solid path to reach our financial targets. Looking at our 2 industries. If we look on the Marine market, we see a moderating demand for newbuilds. But still, in line with the 10-year average. And then if we look at Wärtsilä core segments, strong ordering across cruise, containers and LNG bunkering vessels. So the number of vessels that were ordered in Q3 decreased to 1,200 down from 1,700 corresponding period last year. The regulatory uncertainty, high newbuild prices and softer market conditions affecting negatively the newbuild investment demand in some segments. Ordering has though been uneven across vessel segments. We continued strong ordering appetite in Wärtsilä's key segments, cruise, containerships and LNG bunkering vessels. And contracting in our key segments is expected to remain clearly above the 10-year average level with the latest forecast, actually, indicating a 30% increase in contracting volumes between 2025 and 2027. Shipbuilding continues to expand, primarily in China. And in January to September, 259 orders for new alternative fuel capable vessels were reported, which accounts for 48% of the capacity of contract investments. On the Energy side, the increased demand drives investment in the energy transition. And the global energy transition continues to move forward. And EAI -- EAA -- IEA, sorry for that, International Energy Agency, not so easy to pronounce, this morning, expects renewables, grids and storage investments to post another record high in 2025 and investments in fossil fuels to decrease. BNEF reported that both wind and solar investments grew in the first half of the year compared to H1 in 2024. Energy-related macroeconomic development in 2025 has been heavily impacted by elevated risks in the geopolitical environment. In our engine power plants, market demand for equipment and services has been strong. Demand for baseload engine power plants is expected to remain stable with further growth opportunities in data centers. The drivers for engine balancing power plants continue also to develop favorably. In battery energy storage, though, the demand is closely linked to the increasing share of intermittent renewables, which in one side continues to progress slowly. However, the U.S. market is facing headwinds in the regulatory environment, though several drivers remain solid and actually also on the storage side now with data centers as a potential new opportunity. Going through the numbers. Organic order increased, as I said, organic order intake increased by 6%. Order intake overall remained stable. Marine order intake increased by 8%. Energy order intake increased by 29%, but energy storage order intake decreased by 79%. Equipment order intake remained stable and service order intake remained stable. If we look at the order book, we have a strong order book. Rolling book-to-bill continues well above 1. We see the trend. We also see that the order book is building up further and further into the future. So that is something to recognize. Organic net sales remained stable. So net sales decreased by 5%. Marine net sales increased by 18%. Energy net sales decreased by 30%. And this, once again, it's driven by the prioritization of deliveries between quarters. And we do expect that deliveries during the second half year will clearly be tilted in Energy to the Q4. Also, as you know, we have more and more equipment contracts moving from EPC to equipment and equipment contracts, to make it simple, they are invoiced when the delivery. EPC is a little bit more smooth than out. So you can also see this as one of the consequences of that we are actually moving our Gravita to equipment business. Energy storage, net sales decreased by 10%. Equipment net sales decreased by 11%. Service net sales remained stable. Profitability continues to improve. So net sales, given the context, decreased by 5%, but comparable operating results increased by 10% and comparable operating margin 12-month rolling is now at 11.6% compared to 10.6%. On technology and partnerships, so we continue to shape the decarbonization of Marine & Energy. The Energy, example, 217-megawatt dual-fuel power plant to deliver reliable power for Kentucky residents. So we will supply the engineering and equipment for 217-megawatt power plant in Kentucky in the U.S. The plant is needed to provide additional grid capacity, thereby helping East Kentucky Power Cooperative to meet increasing demand. And this order was booked by us in Q3. On the Marine side, we continue our close collaboration with Wasaline. And now we will together deliver the world's largest marine battery hybrid system project. So we have been selected as the electrical integrator for a major battery extension project for the Wasaline ROPAX ferry, the Aurora Botnia. When the project will be finished, it will be the world's largest marine battery hybrid system in operation, close to 13-megawatt hours. And the Aurora Botnia operates with a range of Wärtsilä solutions, including 4 highly efficient Wärtsilä 31DF engines. And this order was also booked in Q3. Marine, and here, we have a fantastic picture of a fantastic Finnish icebreaker. We are very much close to this segment, half of the world's icebreakers actually have engines from Wärtsilä. So exciting opportunities also in the dialogue between the governments of Finland and governments of the U.S. Marine. So increased order intake, net sales and comparable operating results and continued growth in equipment order intake. So we see overall order intake up 8%, net sales up 18%, and we do see also the continued improved profitability margin. The drivers in the bridge for the profitability, higher service and equipment volumes, better operating leverage. And on the headwind, it's increased R&D costs. We keep on investing in our future and being a technology leader in our space. If we look at the service business. Overall, Marine service book-to-bill well above 1. Strong growth in service agreements. However, in this quarter, we saw reduced order intake in retrofits and upgrades. So to the left, you can see 8%, I would say, solid CAGR growth in the Marine service business. On the right side, you see the different disciplines of our service business. You see the service agreement curve, accelerating in a good way. We now have about 30% -- 34% of our installed fleet under service agreement. The renewal rate continues to be above 90%, good progress. You also see the retrofits and upgrades coming down. But as we talked about before, retrofit and upgrade, that's a project business, and it can be a bit bumpy, and it's lumpy by nature. And we have a good pipeline in front of us that I can say. Energy. Increased order intake, lower net sales due to the timing of the deliveries, but continued growth in equipment and service order intake. So on the order intake side, up 29%. And this quarter, we haven't had a data center order. You remember, we had our first U.S. data center order in Q2. However, there is an exciting pipeline of data center opportunities in front of us, various stages of maturity. So there is a good pipeline coming. Net sales, down 30%, driven by the prioritization. Comparable operating results, the percentage is moving in the right direction. And if we look at the drivers, the higher service volumes clearly contributed to the profitability. But lower equipment sales in this quarter is, of course, a drag. And also here, we continue to increase our R&D investments to be a technology leader for the future. If we look at energy service business, the book-to-bill also continues to be well above 1. Strong growth in service agreements also here. However, also in Energy, reduced order intake in retrofits and upgrades. Here, you can see also a solid service business CAGR, 7% over 2 years. Also, it looks a little bit similar so as Marine. There is no correlation why this coincides, Marine & Energy. It's a coincident. But you can see agreement is continuing to go up also in Energy around 33%, 34% coverage, also the renewal rate on agreement above 90%, so very positive. We see the retrofit business clearly being down in Q3, but also here, we have a good pipeline in front of us. So energy storage, which, of course, on the order intake was challenging in Q3. So order intake low due to the U.S. tariffs, regulatory changes and also increased competition. On the positive side, really strong profitability in Q3, 6.9% EBIT, real EBIT in Q3. I think that's a strong delivery by the team. But of course, order intake coming down 79%. However, I want to highlight the press release we made yesterday where we took our first order in Q4. So we are also very clear that we do expect order intake to pick up in Q4. Net sales down 10%. The operating margin is -- continues to develop in a good way. And if we look at the bridge on the positive side, really solid project execution. We are delivering on our backlog in a very good way with a great risk reward and with happy customers. We also have higher service volume. So the service business is, of course, smaller than for the rest of our Wärtsilä business, but it's growing. And then on the negative side, we are investing, you could say, in growing, and that's part of our strategy that we have communicated in the past that we will expand on geographical coverage. So we are increasing head count supporting the new markets, new customers and the products. And here, you have the bridge Q3 '24 to Q3 '25. And I think really good development, Marine going from 10.4% to 12.4%, EBIT Energy from 13.6% to 15.9%. Energy storage, as I talked about before, from 4% to 6.9% and then portfolio business from 9% to 6.8%, but that is primarily driven by ANCS, which has now been divested. So we have taken that out and the business contributed profitably -- in a profitable way to portfolio. So comparable operating results increased by 10%. Other key financial side. Over to you. Arjen Berends: Thank you, Hakan. If we look at the other key financials, also very positive numbers in general. First of all, cash flow, clearly, a very strong cash flow in Q3. It was at least the highest cash flow in the last 50 years. We did not go further back, but EUR 340 million, clearly, a good number, taking us close to EUR 1 billion year-to-date. Good support in the cash flow from profitability, but also clearly from working capital. Working capital at the moment approaching, let's say, EUR 1.1 billion negative, which is also an all-time low. Net interest-bearing debt, clearly moving also in the right direction, EUR 1.4 billion at the moment, negative. And return on capital employed, ROCE, clearly improving from 44.6% at the end of Q2, now to 51.1%. So over the 50%, which is really remarkable for us as a company. Gearing, clearly, going also in the right direction. We have been running this at a negative number already for a long time, well below, let's say, our financial targets and solvency also clearly improving now with improved profitability. Earnings per share, both on the quarter as well as on the year-to-date clearly ahead of last year at the same time in the same quarter. If we look at the trends, cash flow as well as working capital to net sales ratio, both are moving in the right direction. If you look at the dotted line on the right side graph, working capital or let's say, 5-year average working capital to net sales ratio every quarter, we are, let's say, lowering the line basically. At the end of Q1, it was 2.4%. At the end of Q2, it was 1.3% and now 0.1%. So we are very close to a negative line here as well going forward. And actually here, I also want to comment, let me anticipate that, let's say, this negative working capital will sustain the next years. Looking at our financial targets and the progress there. If I start at the left side, top graph, Marine & Energy combined organic growth, plus 13%, well above, let's say, our targets of, let's say, 5%. So really going in the right direction here, same for profitability percentage at the end of Q2 was 13.1%, now 13.2%. So it's again a step up, a small step, but a step up. If we look at energy storage, of course, growth is not there as we want it to be, given all the, let's say, challenges that we had in the past quarters on that one with respect to order intake. But clearly, let's say, the delivery is going very well. And also, let's say, as Hakan also explained, let's say, generating good profitability from executing projects from the order book. Currently, we are at 4.2% of sales here and really within the frame of the financial targets. Group targets, I don't want to comment too much. I think gearing is very obvious. We are well below 0.5 positive. We are actually 0.5 more than negative and dividend, we have always met our financial targets of paying at least 50% of EPS out as dividend. With these words, back to you, Hakan. Håkan Agnevall: ROCE at 50%. This is... Arjen Berends: Yes, yes, fully agree. Håkan Agnevall: Now we continue our journey to become a more focused, stable and profitable company. So we are making progress in our portfolio business divestments. So as we announced in Q2, the divestment of ANCS to Solix was completed the 1st of July. And in Q3, this divestment had a positive impact of EUR 34 million on the result, and it's reported in the items affecting comparability in Q3. Annual revenue of the business was close to EUR 230 million in 2024. So that's also a data point. ANCS did not anymore contribute to the figures in Q3 2025 and the group order book has been adjusted accordingly, so impact about EUR 260 million. And on MES, as we announced in July 2025, Wärtsilä MES, Marine Electrical System to Vinci Energies and subject to approvals, the transaction, we expect the transaction to be completed in Q4 2025. So given -- let's look at our outlook then. So for Marine, we expect the demand to be better than in the comparison period. In Energy, we expect the demand environment for the next 12 months to be similar to that of the comparison period. But here, we also note that Q2 was all-time high in order intake. So we are coming from a very strong order intake in Energy overall. On storage, we expect the demand environment for the next 12 months to be better than in the comparison period. However, here we really highlight the geopolitical uncertainty that particularly impacts this business. Then we also make a general comment that we underline that the current high external uncertainties make forward-looking statements challenging. Due to high geopolitical uncertainty, the changing landscape of global trade and the lack of clarity related to tariff, now risks for postponement in investments, decisions and also of the global economic activity slowing down. All right. So that was a summary of Q3. And now we open up for Q&A. Hanna-Maria? Hanna-Maria Heikkinen: Thank you, Hakan, and thank you, Arjen. [Operator Instructions] Operator: [Operator Instructions] Next question comes from Max Yates from Morgan Stanley. Max Yates: I guess my first question, just starting on the data center-related business. I guess the first thing to understand, when you talk about anticipating better order intake in the fourth quarter, to what extent is that a comment around data center and the energy thermal business? Or are you really just relating to the energy storage business? And I guess, more broadly, when we look at quotations and conversations with your customers, I mean, maybe help us understand how those are evolving versus 6 months ago. I think there's a lot of expectation in the market that there's more emphasis on engine technology, there's a greater acceptance of the engine technology. Would you say you kind of see that reflected in your customer conversations and the number of these kind of hyperscalers and colocation companies that are kind of knocking on your door or flying into Wärtsilä. So any comment there would be appreciated. Håkan Agnevall: Absolutely. Quite a few questions, but I'll try to answer them. And even if I forget some of them, please remind me again. So just to clarify, this is about Energy Q3, Q4, that is on the sales side. I mean, our deliveries, where we clearly say that deliveries and therefore, sales recognition are clearly skewed to the fourth quarter. So that is not related to the whole data center. I will get to that later, but just so we are clear, so we have been clear in our communication. It's related to deliveries, and we're basically saying deliveries and therefore, sales recognition is skewed to Q4. I mean it was fairly low in Q3 for Energy. Max Yates: Sorry to interrupt, but you do say in the release, we anticipate ordering to pick up in the fourth quarter. So I guess I was just trying to understand on that comment. Is that storage or is that the thermal business? Håkan Agnevall: Okay. Okay, good. That's -- so first, I talk about Energy, and I made the comment on sales deliveries and Energy, that is our power plant business. Then coming to -- okay, sorry, if I misunderstood your question. If I talk about the storage business and on the storage business, yes, it's clearly that we expect order intake to pick up in Q4. And I mean, it was basically 0 for newbuild for equipment in Q3. So it will certainly pick up at a much higher level. And a proof point is that, as I mentioned yesterday, we announced our first order for Q4, and there is more coming. So -- and even though, clearly, the U.S. market is still slow. There are other markets like Australia, this order from yesterday was from Australia and there are also other markets to support the energy storage order intake for Q4. Then moving to data center. And then I have to ask you, were you referring to data center and energy storage or data center in our thermal business? Max Yates: The data center in your thermal business and specifically the growing interest in engines and how has that led to a rise in quotations on the number of projects you're discussing versus, say, 6 weeks ago? Håkan Agnevall: Yes. So we do see increase in interest in the engine technology. You might recall this what we've been talking about, and this is a journey of, I would say, 2 years. It used to be data center sizes, needing power, 5, 10, 20, 30, 50 megawatts. Now the data centers are growing in size, and it's -- the data center owners, they cannot get access to the utilities, so they need to build their own power generation, off-grid. And now we are talking about hundreds of megawatts, 100, 200, 300, 400 megawatts. And this is coming right in our sweet spot. And so this market is really heating up for us. And to your question, yes, we see a lot of engagement from customers, a lot of interest. I think many customers are more and more also recognizing the benefit of the engines compared to the competing technologies on the gas turbine side, but also on the high-speed engine side. So yes, there is more activities clearly. And then if I may just for clarification also because we also mentioned data centers in relation to our battery business, or battery storages. So then you might say, what the hell is this? I think what operate -- I mean, the data center operators, they are also finding out there are rather big swings. And there are the big swings in the minutes region, but there are also the big swings in the millisecond regions. And here, so it's balancing power. It's a good old balancing power. And you need -- you have 2 tools in the toolbox for the balancing power. And in this millisecond, second region, we see an increased interest actually for battery storage to kind of balance the load. Operator: The next question comes from Daniela Costa from Goldman Sachs. Daniela Costa: I wanted to follow up on Energy, but sort of thinking more about the margin and what you've said on sort of like less EPC now concentrates the deliveries into Q4 more skewed than in the past. Does that apply also to how we should think about margin seasonality? Should we think about sort of like a more intense concentration of margin also in Q4 than in the past, in general? How does that work? Håkan Agnevall: Arjen, you take that? Arjen Berends: Yes. I would say, yes, margin correlates with sales volume. So margin that you make on the project is recognized in the quarter that you recognize the sales. And that depends on, is it percentage of completion, which is typically used in EPC contracts or, let's say, on time -- or let's say, completed contract method, which is then basically based on deliveries. So yes, when sales shift also margin shift at the same time in the recognition, correct? Daniela Costa: Great. It's just for -- it was just for Energy. I would say then that your comment on skewness on EPC. Arjen Berends: Yes, yes. And also, let's say, the EPC comment is related to Energy. Marine is basically all is completed contract method. Operator: The next question comes from Akash Gupta from JPMorgan. Akash Gupta: I have a follow-up on energy. So I think you are kind of indicating that revenue in equipment side will be strong in Q4, and this simply has to do with seasonality in delivery of equipment, which will be more in Q4 than Q3. I mean I just want to understand like what is causing this seasonality in delivery because I think I would assume that you would be producing these engines every quarter. And therefore, when it comes to delivery patterns, they would be more homogeneous. But maybe if you can help us explain what is causing this seasonality? And is this something we should expect every year that some periods may be more busy, some periods may be less busy on revenue? Or there is something unusual in 2025 that may not be repeating next year? Arjen Berends: I can answer that. Let's say, it's really about the delivery schedules that you've agreed with customers, okay? Some years, you have it more evenly spread. Other years, it's, let's say, more in certain quarters. What you mentioned earlier that, okay, production of engines does not relate to, let's say, income recognition or sales recognition in a certain quarter. It's the delivery to the customer that counts. And here, we follow basically what we have agreed with customers. So there are -- clearly, in every project, there are delivery schedules. And in this year, in the second half of the year, it's mostly into, let's say, Q4. I cannot comment whether this will happen every year because that depends on the orders that you have in that particular year. But let's say, if I try to put a little bit myself in the shoes of, let's say, customers that if you build a power plant or if you build a ship and you work with percentage of completion, most likely, yes, if you want to, let's say, have an impact on your results, yes, you want to have the delivery done before the year-end, if you close your financial year at the calendar year. So that might be one driver. But let's say, we follow the schedules that we agreed with customers. Akash Gupta: And maybe just a follow-up to that question. Does the size of project change this seasonality? Because I assume that if you have a large 200, 300-megawatt order, then you may want to ship everything in one go, which could create a bit of this pattern. So any comment on size of orders may be impacting revenue recognition profile? Arjen Berends: Yes. There are many delivery schedules in a certain project. It might be, let's say, shipping -- let's say, if you have a power plant with 10 engines, let's say, it might be one batch in this quarter and the next batch in the other quarter. It varies a lot by project. And it depends also quite much, let's say, where do you need to ship it to. So there is no, let's say, one pattern and one size fits all here. Håkan Agnevall: I agree. And it's not that for certain -- it's not a model where you bundle all the engines and you ship them at once. There are many different ways to deliver the engines. So normally, you deliver them in stages. It's easier to handle them at site, if you talk energy than receiving everything at once, et cetera. So I'm afraid it's much more complicated than that. And it's really related to how the customer want us to deliver, so to say, and that can vary quite a lot. Operator: The next question comes from Sven Weier from UBS. Sven Weier: Just wanted to follow up on what you said on data centers and battery storage because obviously, we had the announcement from NVIDIA mid-October around the next-generation data centers, the 800 VVC ecosystem, which builds in battery storage kind of as a standard. So I was just curious if you were also kind of referring to that announcement? And what do you need to do to be able to do business there in terms of the battery sourcing? I mean, how much have you already changed the sourcing maybe to Korea, which I guess will be in a much better starting point and China probably continues to be penalized. So that's the first one. Håkan Agnevall: So 2 things. I mean, I think actually that -- and this is my inside out -- outside in, sorry, outside-in observation that I think there is a lot of learning going on, on how the data centers are behaving as electric loads. I mean you have certain data centers that are focusing on learning, then you have other data centers that are focusing on interference, and they have completely different load profiles in terms of what energy they need and how it swings back and forth. So I cannot comment on the latest from NVIDIA. But clearly, there seems -- and there is an evolving understanding that for certain type of data centers, the swings can be pretty big and pretty quick. And that leads to an interest to the energy storage side, so to say. Then coming to where we source our batteries, yes, we certainly source from China, but we also source from other countries in Southeast Asia. We are also looking at possibilities for sourcing in the U.S. However, in our view, that is taking longer to move. Sven Weier: And would you say the largest share still clearly comes from China? Or how should we think about that? Håkan Agnevall: Yes. In the share of supply of batteries -- battery cells for Wärtsilä, the biggest share is still from China, yes. Sven Weier: Okay. But you started to already make the shift to other regions in the last quarter. Håkan Agnevall: Yes, correct. Sven Weier: And then maybe one quick follow-up on the thermal side and the discussions you have with the U.S. customer base for data centers. I mean, what is the biggest pushback? I mean, do you reckon there are still predefined views that kind of people think you don't get fired for buying a turbine, but no experiments with new tech because engines have probably not been used so much for baseload in the U.S.? Or what's the biggest hurdle you find in your discussions? Håkan Agnevall: No, I think the technology acceptance is certainly evolving. I mean we have one group of customers. They are fully into engines. They see the benefits, et cetera. Then there are other customer types, which is a little bit more what you're alluding to. It's a new technology. But I think this is how we've been selling the Wärtsilä propositions for many, many years, and we run our simulations, we show all the proof points, et cetera. And step by step, we convince customers because also in this application, there are some intrinsic benefits for the engine. Energy efficiency is higher than our competition. No derating on high altitude, which is sometimes important, very little water consumption, which is sometimes important. Really good -- I mean, ramping, we all know that from the balancing compared to the CCGTs, et cetera, et cetera. So for me, it's very similar, you could say, the business development and sales process that we have with many of our, you could say, regular customers. I think the difference is that the speed of execution and the desire from the customers to deliver, that is clearly 1 or 2 notches higher than, so to say. Operator: The next question comes from Panu Laitinmäki from Danske Bank. Panu Laitinmaki: I wanted to ask about cash flow and capital allocation. So you had EUR 1.4 billion of net cash. And maybe just to confirm that did you change your comment on the net working capital that you expect it to remain negative for longer as you previously, in my view, indicated it to kind of reverse? And then if that's so, does it kind of change your view on capital allocation, if it's like better for longer in terms of balance sheet? Are you more open to doing share buybacks? Or what will you do with the cash? Arjen Berends: Let's say, the allocation principles as such don't change. Let's say, we have been saying and I have been saying in many quarters that, okay, the negative working capital level is extraordinary. And okay, it's not so long ago that we went through the negative line, basically from positive working capital to negative working capital. You could, in a way, say it felt in the beginning a little bit uncomfortable, but we now see that this is a sustainable trend that we see. Will it be all the time that negative as we see it today? Question mark. Let's say, there are clearly, let's say, factors in the market that are currently there, which in the future might not be there. And I give one example. I think I gave it also last time. Yard order books are very long. Yards want to lock their cost. If they want to lock the cost in Wärtsilä, they need to put the order at Wärtsilä with a down payment. So you get cash earlier. Well, the exit cash or the cost, let's say, generation is later in the time. That's a positive impact, which is happening today. Will yard order books in the future get shorter again? It might reverse that trend. Difficult to say if that will happen, when it will happen. But at least for the coming years horizon, we anticipate that working capital will stay negative. Another trend, which I also, I think, mentioned last time is, for example, in energy, we have seen a few projects. I'm not wanting to call it a trend, but we have seen more projects than before, let's put it that way, where customers don't want to make, let's say, payment security arrangements, like LCs, bank guarantees, et cetera. That's fine for me. Cash upfront. Then we have a lot more cash early on before we actually make the cost. So is this something that will stay there? Difficult to say. For now, I think it will not change rapidly. But yes, this can change. So that's where we were in the beginning, very careful with, let's say, making bold statements about working capital staying negative. I think we feel much more comfortable about at least the coming few years to say, yes, it will stay negative. But sorry, I did not answer your capital allocation question. Let's say, the capital allocation principles don't change. And share buybacks, yes, that's for future consideration, not at the table today. Operator: The next question comes from Vaspaan Avari from Barclays. Vladimir Sergievskiy: It's Vlad, from Barclays. Two questions from me, if I may. Very strong margin in thermal energy this quarter. Congratulations on that. This lack of the equipment deliveries in the quarter, did it have positive or negative impact on the margin? Because, of course, on one hand, mix is favorable, but on the other hand, cost absorption is less. That's first question. Second question, could you comment on competitive environment in energy storage globally and maybe by key regions? Has there been any changes there recently? Håkan Agnevall: You take the first one? Arjen Berends: I did not catch the first one, to be honest. The line was... Håkan Agnevall: I think I get it, but it's better to say... Arjen Berends: The line was a bit... Vladimir Sergievskiy: I can easily repeat the first question. The question is the lower deliveries in the Energy business in Q3, did it have positive or negative impact on profitability in Q3, given that on one hand, the mix is favorable, but on the other hand, cost absorption is less. Arjen Berends: Shall I answer that, please? Håkan Agnevall: Please. Arjen Berends: So let's say, the answer is fairly simple. Let's say, of course, in absolute terms, it's negative because you have less sales that generates margin because we make positive margin on our new build business. But of course, from a percentage point of view, in the mix, it's a positive because service typically has higher margin percentages. So in the percentage mix, it's a positive. So it's both actually. But it depends if you look absolute or if you look percentage of sales. Håkan Agnevall: And then if I continue, as I understood your question, Vlad, is how is the competitive situation develop in energy storage more from a global perspective. And I would say that the competition is increasing, and I think there are 2 major drivers for it. One driver is, of course, the slowdown of the U.S. market with the regulation and tariff regimes, which then, of course, drives suppliers to focus on other markets. And the other trend is also that we see more vertical integration, where cell producers are also moving into the integrated space, so to say. So the competition is increasing, in general, I would say. Operator: The next question comes from Mikael from Nordea. Mikael Doepel: Still one on data center, if I may. In your view, I mean, how big part of the future data center market is relevant for the 50 to 400-megawatt sweet spot that you are referring to? So I assume that you have done some research on the topic. So just trying to understand the opportunity for Wärtsilä here. That would be my first question. I can come back to the second one. Håkan Agnevall: Now so just to give you -- I mean, the short answer, there is a significant opportunity. It's very hard to quantify. Why is it so hard to quantify? I can give you some other public data that has been compiled by a number of reputable players like the McKinseys, the Goldman, the JPs, the International Energy Agency. If you look at the forecast of -- if you just zoom in on U.S. If we look at the forecast, how much growth there will be in data center power from now to 2030, there is a span from those reputable players in their forecast from 20 to 100 gigawatts. So it's very hard to -- with that as a starting point to derive what is the concrete addressable market. I would say the underlying -- there is definitely a market for engines. There is definitely a market for -- I mean, if we -- there is definitely a market for off-grid. In the off-grid space, there is definitely a market for engines. And if you talk engines, there is definitely a market for Wärtsilä. We do see growth opportunities, but it's very hard to pin down what are the -- even the spans of the additional capacity that would go trickle down when the spread in the starting estimate is as broad as it is. Now we think that data center is a very interesting opportunity. We have a pipeline that is looking very interesting. No orders in Q2, but we have interesting pipeline. And we are also looking on how to further develop our delivery capabilities. Mikael Doepel: And the second question would be on the carbon capture systems. I think we haven't talked about that on that topic for a while. So I wanted to revisit that and maybe you could get a bit of an update where are we now in terms of the infrastructure developments there? What is the customer interest right now given the regulatory environment? And do you have anything in the pipeline and so on and so forth? Håkan Agnevall: So basically, just to make a quick recap, we actually did the commercial launch of a carbon capture solution for Marine. So it's an extension of our scrubber business. So we can now deliver 70% capture rate, 7-0, on a 10% to 15% energy penalty because it's really this for a large [indiscernible] between you how much you can capture and how much energy you put in. That is -- it needs to be a viable route, so to say. We have had our first pilots in full scale, and it's working very well. We had the commercial launch. So we are engaged with customers. Now clearly, this is a whole ecosystem that needs to evolve. I mean we add a piece to the puzzle. We can capture the carbon. We can store it on the vessel, but then you need to take a short and what do you do with it? And we all know there are basically 2 routes. You can use it for sequestration, pumping it back or you can use it as a raw material for some -- in some kind of chemical process, including synthetic fuels. Now the customers that we are talking to now, they are more the early adopters. The regulatory framework already before IMO, the recent IMO postponement, I think in April in the MEPC83, it was already decided to come back and work further on the regulatory context and coming back later. So that from IMO, it will still take some time for the regulatory landscape to evolve. I think EU is further ahead in this area, so to say. So this is a market that will evolve. It will take time. We have made it clear. And I would say we are engaged with our customers that are the kind of early adopters of the pioneers. Operator: The next question comes from Vivek Midha from Citi. Vivek Midha: I have a couple of questions. The first is on energy power plants. I was interested in hearing your latest view on pricing trends. We've seen big price uplift, for example, in the turbines. We, of course, can't see the underlying pricing trends, stripping out mix and scope and so on. We can only see the crude average selling price, and that appears to actually be down around 25% on my calculations versus the second quarter. So could you give us any indication on the underlying pricing trends and new order margins? Håkan Agnevall: So I would say, in general, it is a hot market in the Energy space, and it's a hot market for all the technologies that I know of, so to say. And of course, in that type of market, it gives the suppliers opportunities for price realization. Then, of course, there is a customer that -- where the offering needs to make sense for the customer to build a business case, et cetera. So there is always a balancing. But I would say, in general, I think the price realization is rather good. Vivek Midha: Understood. And just one follow-up as well differently on the Marine service growth. If I'm just looking at the spare parts development, it looks like there's been a drop year-on-year and the book-to-bill below 1. How should we think about that developing? And would it be fair to assume that the spare parts are the highest margin part of the service business? Håkan Agnevall: So overall, I wouldn't be concerned, and you clearly looked at what we call the 4 disciplines. It will vary a little bit. I think the big trend agreement is clearly growing. There's a bit of spare parts in agreements as well. And then we have the retrofits. And the retrofits, it looks pretty dramatic as a downturn, but it's the cyclicality of the retrofit business. And as we have indicated, we see we have a good pipeline in front of us. So our message on services, both in Energy and Marine with a book-to-bill above 1. It's a consistent continued message. Operator: Next question comes from Max Yates from Morgan Stanley. Max Yates: Maybe just 2 quick follow-ups. Just the first one is around your energy storage business and obviously, a softer quarter this quarter. It feels like some of the U.S. kind of competitors have talked about a much more positive market backdrop. So I guess I was trying to understand, is this an active decision by you not to participate so much in the U.S. market because it's viewed as more competitive and therefore, focus outside? Is there any reason if sort of storage gets better in the U.S., your either setup of sales network, your procurement because of tariffs makes you less able to participate? And do you think it is fair that you're kind of focusing on other markets? Just to really understand what looks like a bit of a kind of difference with your performance versus what some of the other peers in the U.S. are kind of talking about for this market? Håkan Agnevall: So I would say U.S. is an important market for us. But I would say, in relative terms, I mean, Australia and U.K. and a couple of other markets, they carry a lot of weight. There are other players that -- where U.S. is more important for them, but -- relatively speaking. But U.S., we are in the U.S. We have continued our kind of selective strategy in the sense that we don't try to be the solution for each customer type. We continue to focus on the customer types that value our delivery track record, which is -- it's really solid, our thermal track record, which is really solid and also our capability to leverage our power system skills to integrate the equipment. So -- and you could see, I mean, looking at our profitability, it has -- with the help of a good project execution, is translating to real bottom line. Now I cannot comment on others, but we will continue this selective strategy. Then what we said when we came out of the strategic review is that we will try to add a couple of geographical markets. We will try to expand. And so we are definitely going to remain in the U.S. We will probably try to add, but we will have a selective approach overall. Now in this situation, we also talk about that we are certainly looking at how do we improve -- further continue to improve our competitiveness. And this is, of course, continue to work on our costs and also exploring avenues for -- I mean, synergetic opportunities with the supply chain, so to say. So these are the areas that we are working on. Max Yates: Okay. And maybe just a very quick follow-up. On your energy deliveries, and this is your sort of thermal power plant business, are you seeing any customers, particularly in the U.S., pushing back related to tariffs? And any kind of obviously, you've said tariffs are built into the contract structure, the customer pays them. Are any customers slowing deliveries? And is that having any impact on the rate of delivery? Or is it purely just a timing issue? Håkan Agnevall: No, this is clearly a pure timing issue. I mean it's not about -- I think it's fairly well. Of course, customers are not happy about it, but I think customers understand the dynamic about that we are adding the import tariffs to our prices. Nobody likes it. We don't like it either, but that's a clear principle. We haven't had any cancellations or anything like that. So I mean, this Q3, it's purely -- we talked about the customer delivery schedules that happens to be in this way this year. Operator: The next question comes from Antti Kansanen from SEB. Antti Kansanen: It's Antti, from SEB. I have 2 questions regarding the trends in Marine Service, please. And I fully understand the volatility related to the retrofits and upgrade business, so we can kind of exclude that from the discussion. But looking at the agreement book-to-bill growth, could you please remind what do you actually book in terms of agreement orders? If I understand correctly, the backlog is the 24-month expected value. So is that also kind of what do you include in the agreement orders there? And then the second question is maybe on the slowing trend on the book-to-bill on the parts and field services. Do you think you are cannibalizing that with the agreement business? And kind of should we be a bit concerned that the sales growth in the Marine services will start to approach 0 as kind of the agreement is longer converting and maybe the more transactional is slowing down? Arjen Berends: I think there is -- let's say, the first part of your question, we can confirm that's correctly assumed. Let's say, it's good to -- we take 24 months in. And then, let's say, on the moment that we take an order in on an agreement, then let's say, we roll it every quarter basically, let's say, with 1 quarter forward until, let's say, the whole agreement lifetime is consumed, you could say. When it comes to the spare parts, is it -- sorry, our agreements, let's say, cannibalizing parts? No, I would not say so. Agreements are contributing to parts. But of course, it depends a little bit, let's say, what kind of agreement you have. Let's say, if you have an agreement where you get paid by running hour a certain fixed fee. And within that fee, you need to do the maintenance. Of course, your aim is to do as little as possible spare parts. Spare parts, typically, what we book as part of an agreement ends up in the graph basically as parts. So that's good to keep in mind. Håkan Agnevall: And I would say to the -- what I assume is your more fundamental question, how do we see book-to-bill in services going forward? And I would say that underlying, we have a very positive view on that. I would say both in Marine and Energy. Arjen Berends: Mix between the lines can change. But in general, we look positive. Antti Kansanen: If I think about earnings contribution within the aftermarket, I guess the parts business is very, very important in that regard. So do you have any kind of views on why the book-to-bill on a 12-month rolling basis has been slowing throughout '25. Is there something in the customer behavior that you can clearly kind of pick out what's causing this? Or is it just a normal fluctuations? Arjen Berends: I would say it's normal fluctuations. . Håkan Agnevall: I agree on that. Operator: The next question comes from Akash Gupta from JPMorgan. Akash Gupta: Yes. I have a follow-up on your capacity in Energy, and what sort of flexibility do you have given the demand that we see in the data center is more for gas engines, while I think in your business, you have both gas, oil and renewable fuel engines. So a question like, is there any way to quantify how much theoretical megawatt or gigawatt you can produce? And then how much of that is gas versus non-gas? And do you have flexibility to retool capacity for oil engines to gas engines? So any color on that would be helpful. Håkan Agnevall: So to -- I mean, some general -- so we -- our engines are fuel flexible. So it's not about oil or gas. I think the more critical thing for us when it comes to our supply chain and our manufacturing is the size of the engines. I mean, you have the large bore engines and you have the medium bore engines. So this is more where we need to be careful in our forecasting and how we manage our delivery capabilities. Just to clarify. So it's not fuel related, it's size related. Secondly, I understand you want to know the gigawatts, but so does competition, and I won't tell them. So sorry about that. Then what we clearly said that -- and for certain engine types, and I will not go for the same reason, I will not go into the details, which -- but for certain engine types, I mean, we are now looking at delivery times in the second half of 2027. But we still have other engine types where we can deliver next year. So it's a mixed situation. Hanna-Maria Heikkinen: Thank you, Hakan. Thank you, Arjen. And thank you for all of the good questions. I'm afraid that we have already run out of time for this call. So as a reminder, we are hosting several events every quarter, which are equally open for everybody who is interested in Wärtsilä as an investment. And next event will be hosted by Håkan. It's a CEO Strategy Call on November 27. So I hope to see you there. Thank you. Håkan Agnevall: Thank you for today. Arjen Berends: Thank you.

88天前Insight Analytics约5分钟阅读

ELPKF 2025 Q3 财报电话会议

Erica Binde Honningsvag: Good morning, everyone, and welcome to the third Quarter 2025 Results Presentation for Elopak. My name is Erica Honningsvag, and I'm the Investor Relations and Treasury Officer. Today's presentation will be held by our CEO, Thomas Kormendi; and our CFO, Bent Axelsen and will last for about 30 minutes, followed by a Q&A session, where the people here in the audience and the people watching online will be able to ask questions. So with that introduction, I will hand it over to our CEO, Thomas Kormendi. Thomas Kormendi: Thank you, Erica, and good morning to all of you here in Oslo. It's actually lovely to see such a filled room here today. And also, of course, a very warm welcome to everyone joining us on the webcast. Today, we are particularly happy actually to present the best ever financial result for the group to date. So it's a presentation with quite a few milestones, and we are very, very excited to present. Before we start on the quarter, of course, just for those of you who are not so familiar with Elopak, what we do is, we are in sustainable packaging. What we do is, we protect commodities, we enable nutrition around the world, and we do all of that with a mission of actually reducing the overall plastics consumption. So replacing more and more plastics with more and more carton packaging. But let's then look at the quarter, and it's been quite a unique quarter, as I said. First of all, we have seen a plus EUR 49 million EBITDA result with more than -- with 17% margin level. It's a very strong result in absolute terms, and it's also within organic revenue growth of 1.2%. Most of the revenue -- most of the result is driven by an incredible strong performance. Again, I have to say, in Americas with 18% growth, and also in a period where our plant in Little Rock, actually for the first quarter, started turning a profit, as we said that it would do actually after Q2 as well. It's also a quarter where we -- and I will address that more later in the presentation, have decided to increase the capacity ahead of time in U.S. with yet another line. So the third line to be installed and also now a quarter where we say that even though the EMEA business is meeting some consumption headwind generally, we are seeing that the business is resilient and doing well -- in spite of all of this. And finally and very importantly, I'm sure for many in this room here as well, this is a quarter where we have a solid cash generation. We've been able to pay back our net debt and are now facing a 2.1x leverage ratio, again, in line with -- almost in line with the midterm target. So overall, strong financial performance in the quarter and some very important milestones for the future growth of Elopak. Let's just think 2 minutes on the strategy that we presented back at the Capital Markets Day, and that we've been following up since and where you see that the quarterly result we have now is a direct result of the activities we have initiated throughout this period and on the back of the strategy. Our strategy consists of 3 elements: number 1 relates to the geographical, what we call global growth. For us, global growth for a very, very, very big part relates to America and the continued development in America. Needless to say, performance in America and what I've just shown is a testament that, that is actually paying off. The second one relates to the development around making our core stronger. And our core in Europe, where we have a significant part of our business, also relates to development, innovation around new materials in line with and meeting the regulations upcoming in EU such as the packaging and packaging waste regulation. A lot of the work in that field is directly transferable into the overall ambition we have in replacing plastics, what we call plastics to carton. This is a massive area way outside our current business but in adjacent areas, but also in the actual substrate shifts happening in our business, i.e., if you think of it, the milk currently packed in plastics moving into cartons, et cetera. But the potential, of course, is way, way, way beyond that. Now starting with number 1 and the geographical expansion, let's just turn and think about Americas, again, because it has been quite a journey for us. We -- as some of you remember and seen is, we decided back in '23 to establish a new plant in U.S. And that is on the back of a position we've had in U.S. for -- actually for 20 years. we came to North America in 2000, yes, and supplied North America with plants in Canada, our big Montreal plant and also the plants in Mexico and the Caribbean. In '23, we decided we need plant inside U.S. and then we established the plant -- decided to establish a plant in Arkansas, Little Rock. In September of the same year, we announced that we are going to put in another line in that plant because we saw increasing demand around our supply, our services, our packaging offerings and generally an opportunity in the market. In April of this year, we had the inauguration of the plant. The plant, I can happily say was built, constructed and made in time and on budget and has been up and running ever since and we are ramping up. And as you have heard earlier, we are now seeing the fruits with the plant turning a profitable business already here in Q3. So the demand actually in America is very clear. And if you think of it, we have been growing since 2020 on an average 15% a year. That's a 76% actually the growth in the Americas business in a market, in a stable, mature category such as milk and juice. So we have seen that there is a demand for what our services and for that reason, we have also taken the step now to announce the decision that we are going to build, extend our capacity with the third line in Little Rock, allowing us to drive our market share, continue to -- on the growth pattern we've been on, allowing us to establish a much broader portfolio than we had before, simply given that as equipment gets to the manufacturing plant, gets more and more full with existing orders, we need to have a broader setup to be able to offer a broader portfolio. And that is what we're going to do with the third line. So what is very fundamental is that with this third line that we're actually putting in place somewhere a year ahead of what we had originally thought. But with this, we confirm again that we will reach our targets as presented on the CMD back in '24, the midterm target as well as the long-term target. This will enable us to drive as I said, increase our value share -- our share of wallet with a number of our customers as well as increasing our market share in general in America. Because of the product mix, though, in America, which is in the third line, will be primarily focusing on smaller size packs, including anywhere from school milk size and upwards. For our large customers in the U.S., they always have a mixed portfolio in their sales, i.e., from very small ones to the larger half gallon sizes. For us, establishing a third line, enables us to get a higher share of wallet with them, supplying them the full portfolio and hence become a better and more valuable supplier to the industry and to our customers in general. So although we have a run rate because of the product mix on the third line, which is different than what we have announced on the first line. We're also going to see that with this, it's accretive to the group, and it's certainly very, very strongly supporting the group's industrial presence in America. It would also mean that we will have a higher level of flexibility in how we run operations in America. We will have a higher level of operations with line 2. And 3, which will allow us to ramp up line 2 at a faster pace because of line 3 than without line 3. And that has to do with product mix and how you move products and sizes, et cetera. Very important is, we are building line 3 because we have the commitment, full commitment on that line from customers in U.S. So the line 3 acts both as an industrial strategic investment, it has the full backing of customers, and it is definitely accretive to the group, and will strengthen our overall position in U.S. Now back to our results. And as you will see, we have a revenue that is down, but on -- due to the currency effect in U.S., on an organic level, we are up by 1.2% and up by around 2% for the full year. EBITDA wise, we have a strong performance, which is both in the quarter and of course, in the year, but in the quarter very strongly driven by the development in U.S. And remember, we have a negative currency effect that we'll address later in this period. All in all, we are heading now at 17%. And for those of you who recall our Capital Markets Day targets, we did say 15% to 17% midterm target. So it's -- it's a very healthy level for us to be at in this period here. There is a one-off though, which has to be set in EMEA of around EUR 1.5 million, which is also part of why we get a positive one-off -- of EUR 1.5 million. With this, as I said, this is actually the highest EBITDA we've had to date, and we are very excited with what that brings to the future. So with this, I think I'm going to hand over to you, Bent, on the financials. Bent K. Axelsen: Thank you, Thomas, from financials to more financials, which is fun today. Let's jump straight to it with EMEA. What we can see here is that we are delivering a revenue of EUR 206 million, which is 5% down compared to last year. But if we analyze the performance, the underlying performance, we can say that we do have a resilient performance despite continued soft consumption. Now why is that? If we look at our Pure-Pak revenues, they are stable year-over-year. So what we are seeing despite the soft consumption, we are continuing to increase market share. Specifically for this quarter, we are regaining our business in MENA as fresh dairy is strengthening in that region. And in the -- for the aseptic business, we are growing by taking market share and basically growing with our customers. If you look at the key contributor to the revenue decline, it's actually related to filling machines. We are commissioning around the same number of machines this quarter compared to last year, but the machines are smaller. So we have a negative mix effect. That actually explains around 60% of the revenue decline. So if you move on, we -- as we have reported before, we still observe a competition in the Roll Fed segment, and that is happening both in Europe and in India. In Europe, it plays out through lower volumes, albeit at -- the pace has slowed down. So we see a positive development in the Roll Fed area because we see that the trend is slowing down. In India, it plays out with a margin squeeze because it's a crowded place. We are growing organically 19% in India with our Roll Fed business. When it comes to profitability, we are reporting 36.7%, that is up 2% compared to last year. That comes from improved pricing and improved mix in Pure-Pak. And we also have this switch from Pure-Pak to Roll Fed, which is also contributing to the positive mix. And Thomas already mentioned the one-off, which is in Europe, which has also impacted these results by -- positively by EUR 1.5 million. So in conclusion for EMEA, resilient performance despite continued soft consumption. Over to America, the growth journey continues with a revenue growth of 11% or 18% on a fixed currency basis. So we are still seeing the interest and the demand in our products. So the growth is in revenue, is volume, carton and closures, and it's enabled by two things. Obviously, we have the ramp-up in the U.S., but we're also seeing improved productivity in the assets in Canada and in combination that is then enabling this growth. Also in America, we have a negative revenue impact in regards to filling machine. So it's the same explanation here. We have a mix effect. In this quarter, we have commissioned school milk machines, and they are smaller in size and also then smaller in revenues. If we move to the EBITDA, we see a very strong growth of the EBITDA, 21% growth of the EBITDA up to EUR 21 million with a margin of 24%. In addition to the top line growth itself, we have positive mix effects but we also do see the benefit of improved asset utilization, and we are leveraging our fixed cost base. It's also -- of course, as Thomas mentioned, very proud that this is the first quarter with positive EBITDA in Little Rock, a milestone for us. We are very, very pleased with that. The ramp-up continues, and it's obviously better than last quarter. But we obviously would have liked to see even faster ramp-up than what we have seen. When it comes to the joint ventures, we have an EBITDA or a share of net income of EUR 1.4 million. That is actually a decline from EUR 2.1 million and the explanation for that is a softer demand and a change in consumption habits. But overall, the key message is that we do have improved that utilization that enables growth in America. Let's take the group perspective and start with the net revenue mix. So this is EUR 7.4 million, and that is mainly driven by: one, the growth in America and the positive mix and pricing effects in EMEA. When it comes to raw material, this is again where we have the one-off, which is positive. And then we have a negative effect of EUR 0.6 million for the underlying raw materials. That comes from board price increases, all the price increases, even though the PE has softened year-over-year. Our operating costs are mainly explained by salary inflation of 3%. And also the ramp-up in Little Rock, which also is affecting the operating cost level somewhat naturally. The rest of the fixed cost base in the company remains rather stable. The last bridge element, we have already mentioned joint ventures and the FX, which also Thomas talked about, that is the result of the 6% weakening of the dollar versus the euro on an average year-over-year basis, leading to the 70%, which is on par with the best we have done. Let's move to the cash flow. It's probably the most exciting part of the financial this time because we also are not only reporting record profitability, but we are also reporting record cash flow generations -- sorry, cash flow generation from operations. The cash flow from operation is EUR 55 million. It's not only driven by the profitability but also driven by the improvement in working capital. This element is, to a large extent, driven by timing of accounts payables, that can go up and down between quarters. It was quite low last quarter, and then it's higher. So this could vary a little bit up and down, important to notice, but we also have an underlying improvement of our inventory in Europe from our working capital project. Also here, we are seeing the ramp-up effect of Little Rock. We are also building working capital, obviously, as a part of growing the top line in the U.S. Our cash flow from invested -- investing activities is EUR 11.5 million. We are still having EUR 2.4 million in investment in Little Rock in this quarter. The rest is our replacement program in Europe. While filling machine investments are lower than last year because most of the projects are sales rather than lease and then it doesn't impact the investment line. Cash flow from financing activities is also EUR 11.5 million, nothing special there, which brings us to a net debt of EUR 272 million, so which means that the cash bank debt has reduced EUR 31 million quarter-over-quarter, which we regard as a rather solid. With this cash flow generation, we are deleveraging the company. As Thomas said, we are bringing the leverage ratio very close to our midterm target of 2x. This comes from not only the payment of the debt, but we also have improved the LTM EBITDA by EUR 3 million. And the good thing with that, it enables future investment in our strategic initiatives and it allows us to continue to pay healthy dividends. And if you check your bank accounts, yesterday, you received dividends in total, EUR 21.5 million. This comes from the second installment of 2024 and also from the first half result of 2025 as we are in this transition year from annual dividend payments to semi -- to 2 payments per year. If you look at the right-hand side, it's a little bit difficult to see, but the curve is going upwards on ROCE. So we finally are seeing improvement of our return on capital employed, as we have talked about in earlier quarters. And that is coming from the fact that we are finally making profit from our Little Rock investments with the capital that we already have installed there. We have so far invested $86 million in Little Rock. We have $42 million to go, and we expect that around $6 million of those will come this year in Q4. So in summary, the financial position is really strong. And we are continuing to leverage the company despite the investment program. So this concludes the financial section, which was actually quite great to present. Thomas Kormendi: Thank you, Bent. Good, you liked it. So finally, as you can sense, we are really happy to report to the highest -- and I would change that into the best financials yet for the company. It's EBITDA, as you saw, but it's also the cash generation that we have succeeded with in the period. And it's also a period where we are reaffirming our strategy. We are confirming the strategy we are now putting in and deciding on the third line, really it's putting a strong footprint in the U.S. and in the Americas in general, North Americas. . We are also seeing EMEA despite these headwinds that we have talked about that we're actually seeing very solid developments in big parts of EMEA, not the least in South, not the least in MENA that gives us the confidence that we're also here on the right track, and we'll continue to develop the business in line with the plans we've outlined in the Capital Markets Day. So all in all, what we are now saying is we expect to deliver within our mid-term targets as you know, which is 4% to 6% organic growth and 15% to 17% on the margin side for the year. And with this, I think we're going to hand over to questions. Erica Binde Honningsvag: Thank you, Thomas. Thank you, Bent, for the presentation. So we will now open up the floor for questions, starting with the audience here first. [Operator Instructions] Marcus Gavelli: Marcus Gavelli, Pareto. So you have previously said that line 2 will be fully ramped up in H1, '26. At the presentation today, you said that line 3 will coincide with line 2. Could you try to provide some color on what you really meant by that because I assume that line 2 is still on track, and line 3 will come a bit later. Bent K. Axelsen: I just want to clarify that we will open line 2 in H1, '26, not ramp up. Thomas Kormendi: Yes, we would ramp -- what we said then was we are going to ramp up during '26, right? It's not that in -- that we are fully done. As we have said, we're going to install line 2 and start ramping up during next year. Thank you. So why are we saying that the two actually help each other? Well, it is like this, right? If you look at the industry and the -- I don't think in a way, the dairy industry is way different than many other industries, our big customers have a variety of sizes, formats, and evidently, we look at their supply -- suppliers, one of which is us to say, can you supply us with a broad set of formats in order for us to essentially become -- in order just to close a partnership with you. And the close partnership in our industry is really, really important because you know we have very long tenures generally in the industry. The closer we work with someone, the better we can develop it and the longer performance we can actually secure for our customers. So with this move, we ensure that we can use our line 2. On some formats, that would not have been possible had we not had line 3 to complement that. And from a customer point of view, they would then have said, it's difficult for us to move volume into you unless you can also do some other formats. That is the simple -- so it's a little bit opaque when I put it like this, but it is actually what it is. Marcus Gavelli: That's perfect. And then also with what you said in MENA with the volume growth commencing again, could you again try to provide some color on -- is that more of a one-off? Are you seeing some sea change over there? And then also how you think about, I guess, growth into Europe with price increases and so on. Thomas Kormendi: I think sea change is probably overdoing it. But I'm very optimistic around MENA, honestly. And it is what it is. It's a sensitive economy, right? So consumption is impacted by ups and downs, clearly, but the underlying business for us is the strategic direction we have is add more value to our customers in MENA by adding ESL, longer shelf lives, which drives down their cost, improves the performance of the products in shelf, have a better product with a better looking product on shelf, et cetera. And that is actually why we are seeing that we can gain business and are gaining business. Now the business we are gaining is not necessarily the business you see right now in this quarter because, as I say, there are ups and downs. But why I'm saying I'm positive is because underlyingly, we are moving in the right direction. And then what we have seen in previous quarters, a little bit how Ramadan falls and inventory builds up, et cetera. So in a way, I wouldn't put too much focus just on a quarter when it comes to MENA, much more is the underlying business moving in the right direction, and it is. Bent K. Axelsen: And also technically speaking, I think the quarter last year was relatively soft. So part of that is also a rebound, but it's really, as I must say, we need to look into a longer perspective to really get insight from the development. . Erica Binde Honningsvag: Okay. So then we will move forward with the questions that we have received online. Starting with a couple of ones from Jeppe, in Arctic. I will take them one by one. It's regarding the line 3. What are the expected revenue levels and EBITDA margin for the third line? Thomas Kormendi: So what we are saying is run rate is going to be lower than when we talked about line 1. It's a different product mix than what we talked about 1, which was really a very, very -- I wouldn't say simple because that would offend the people of Little Rock, but a different mix than saying actually 1 product versus different products, smaller formats. So it's going to be lower. We're not complete -- we are not explicit about it because we are looking at the plant in combination of the 3 lines, right? It's not this line, that line, this line. The combination of the lines will generate the result. And in fact, what we're even doing more is we are more occupied with looking at the Americas result than single lines and single factories. And on the Americas result, we can just reaffirm we are going to deliver the midterm targets and the long-term targets. And then we will fix the mixing between the various production lines. Bent K. Axelsen: I think the key here is the midterm target. And I also want to note that typically, the way we follow up the American business is in dollars. We did convert that to a euro top-down target in the Capital Markets Day. And back then, the currency was [ 108 ]. So obviously, things have happened to the currency as well. So that could also be good to remember when you are calculating. . Erica Binde Honningsvag: Okay. When do you expect production to start? And what's the planned ramp-up of line 3? Thomas Kormendi: We expect production of line 3 in '27, which means that with these lines, there's a certain lead time when you order them and then installing them, et cetera. And that's why we're doing it now to be able to actually produce in '27. Erica Binde Honningsvag: So does the addition of this line affect the ramp up of line 2? Thomas Kormendi: It does affect the ramp-up because it gives us flexibility to move products around. To the point of saying with the line 3, we can get more customers in who have a mix of products, more customers in will allow us to move products between the lines in a faster pace. And hence, we think it's going to be very beneficial for Line 2 as well. . Erica Binde Honningsvag: And last one from Jeppe. Will this dilutive school milk production form the joint venture? Thomas Kormendi: That is not the intent, no. Erica Binde Honningsvag: Okay. A couple of questions from Luis in [ BNP ]. Can you give some extra color on what the EUR 1.5 million one-off is related to? Bent K. Axelsen: I can do that. So basically, over the last couple of years, we paid too much in utility costs in one of our factories. And we got that money back. So we paid the amount. So it's nothing more dramatic than that. So it's basically a retroactive correction. Erica Binde Honningsvag: Is Roll Fed production integrated with Pure-Pak sleeve production or can otherwise repurpose activity? Thomas Kormendi: Can you just take it again, please? . Erica Binde Honningsvag: So is Roll Fed production integrated with Pure-Pak sleeve production or can otherwise repurpose activity? Thomas Kormendi: I assume this refers to -- if you -- okay, let me put it like this. If you look at our plants now, it's integrated as much as in the same plant, we will do both. But it doesn't mean necessarily it's all the same machines, of course, because you have -- in Pure-Pak, you have sealing machines, you don't use for Roll Fed, and you typically have different converters as well where possible. We are doing Pure-Pak and Roll Fed in Åhus, we will be doing Pure-Pak and Roll Fed in India as well. So you will have mixed factories, and you will have factories that are not mixed. Erica Binde Honningsvag: Last one from Luis, what is your competitive advantage in aseptic since you mentioned MENA customers are moving that way? Thomas Kormendi: Right. So that -- I think that's a very interesting actually question and something I could probably give a longer answer to it, but I will make it reasonably short. I think from a -- if you are in the aseptic business, right, you are going to look for something that I mean, let's now, let's go one step back. On the aseptic business, clearly, you need performance, technical performance, you need the performance on the packaging systems, et cetera. So that is the fundament for anyone who goes into this business. In the case of Pure-Pak, we have a technology that allows us to keep a low waste with our filling machines. That is because it is blank fed versus Roll Fed, and that actually means that the amount of waste during the production is much, much, much lower in those systems. That's number one. That's a more technical operational issue. Our machines, our system is running at a high technical efficiency, which is important, of course. But the market point is -- it is a system that is unique. It is the iconic system for carton packaging, milk packaging and it is actually the consumer preferred system as well from a handling and consumer point of view. This is, I think, evidenced by the development we have, for instance, in South, where we're seeing solid growth in the UHT long-life milk areas and also in other markets where it is. It is a system with a solid technical performance and a very -- and a high consumer approval. In short, we can do it much, much longer, if you like. You want to buy a machine, let me know. Bent K. Axelsen: We can also lease it. Erica Binde Honningsvag: Then we have a question from Ole Petter in SpareBanken. This quarter saw smaller machines both in EMEA and U.S., should we expect an increased share of smaller filling machines also for Q4 and into '26? Or was this a special for the third quarter? Bent K. Axelsen: I think this timing has proven to be very difficult to predict. So generally speaking, I would say that Q3 was usually -- was unusual from a size perspective. I think we haven't done an explicit forecast on that. But our hope is, of course, to get back to the big machines. So we can generate more blank sales and also improve our working capital position. But it will be -- this will be always going a little bit up and down between the quarters. Erica Binde Honningsvag: Then we have a question from Amer [ Jabbari ]. How does the cost pressure in raw materials impact your pricing directions in '26? Thomas Kormendi: Right. So this is, of course, early days to be specific around pricing. But what we do see is that there are raw materials, including board, which will go up in the coming period. And for us, of course, it will mean that we will also increase our prices for TransX. I cannot evidently explain the amount, but we will be increasing prices, yes. Erica Binde Honningsvag: Okay. We have a last one, but I think you covered it during the last question, was regarding board price changes for '26. All right. If there's no further questions from the audience here, I think we will round off today's Q&A session and also the results presentation. Thomas Kormendi: Thank you very much. . Bent K. Axelsen: Thank you.

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SHG 2025 Q3 财报电话会议

Cheol Woo Park: Good afternoon. This is Cheol Woo Park, in charge of IR. I thank everyone for joining us at the 2025 third quarter earnings release by Shinhan Financial Group despite your busy schedule. Today, we have here with us Group CFO, Sang Yung Chun; Group CSO, SeogHeon Koh; Group CRO, Dong-kwon Bang; Shinhan Bank CFO, Jeongbin Lee; Shinhan Card CFO, Haechang Park; Shinhan Securities CFO, Jeonghoon Jang; and Shinhan Life CFO, Sunghwan Joo. We will start out with the CFO's presentation on business performance of Q3 2025, followed by a Q&A session with the executives present here with us. Let me now go to CFO Chun to start the presentation. Sang Yung Chun: Good afternoon. Thank you for joining us for the third quarter 2025 earnings release. I will begin from Page 2, business performance highlights. As of the end of September 2025, the group's CET1 ratio was preliminarily estimated at 13.56%, maintaining a stable level. It results from our unending RWA management effort combined with robust profit generation despite the won depreciation and growth in loan assets for future preparedness. Based on this, Board today resolved on cash dividend of KRW 570 per share for the third quarter. Shareholder return in 2025 is expected to be around KRW 2.35 trillion with KRW 1.1 trillion in cash dividend plus KRW 1.25 trillion in share buyback. The shareholder return policy is expected to remain unchanged in the foreseeable future given the stable CET1 ratio and financial soundness. In Q3, the group's net income was KRW 1.4235 trillion despite the decrease in securities-related profits as credit costs were well under control. The cost/income ratio also remained stable. Credit cost ratio stood at 46 bp, up 2 basis points year-on-year, but has generally improved, decreasing Q-o-Q. But whether the asset quality will turn around to decreasing trend, we will have to wait and see due to current combination of factors such as uncertainties in the macro environment and domestic economy. Next is Page 3, capital. As explained earlier, the group's CET1 ratio was kept at 6 bp lower Q-o-Q, thanks to stable net income despite the numerous factors driving up RWA. The group's RWA increased by KRW 8 trillion Q-o-Q, driven by growth in foreign currency-denominated RWA due to won depreciation and loan-driven asset growth. We will keep our utmost focus on maintaining a stable capital adequacy ratio by supplying sufficient funds where and when needed, while improving internal efficiency and strategic resource allocation. Please refer to the slide for details on assets and liabilities on Page 4. Page 5, group's profit and loss. The group's Q3 net income was managed at 8.1% decline Q-o-Q. There was a decline in securities-related profits, reflecting market rate movements, but credit cost was well controlled. ROE and ROTCE, key indicators in corporate value enhancement plan, rose by 0.7 percentage points, respectively Y-o-Y to 11.1% and 12.5%. I will go into more details by item from the next page. Page 6, interest income. Group interest income rose by 2.9% Q-o-Q, thanks to profitability-based asset growth and active margin control. The bank's loan in won increased by 2.7% Q-o-Q. The retail sector grew by 3.1%, primarily driven by policy funds on the back of growing market demand, while the corporate segment grew by 2.3% through proactive funding, also thanks to the active growth strategy from July. Please refer to Page 26 for further details. The bank's NIM rose to 1.56%, up 1 bp Q-o-Q. Although the interest-bearing asset yield fell by 12 bps Q-o-Q, reflecting market rates, including won-denominated loans, it was more than offset by the improvement in funding cost. Next page, noninterest income. The group's noninterest income decreased Q-o-Q, reflecting market conditions. Gains on securities, FX and derivatives declined, while fees remained stable. Credit card fees decreased Q-o-Q due to increased promotional expenses in response to seasonal factors like the Chuseok holidays, but brokerage fees, IB-related fees and product sales fees, including funds, surged Q-o-Q on the back of recent capital market activities. Insurance-related profits decreased by 2.4% Q-o-Q, but profitability remained stable, thanks to scaled up CSM management. Moving on Page 8, group's SG&A expense and credit costs. Group's SG&A increased by 2.2% Q-on-Q due to recognition of voluntary retirement costs at Shinhan Card. However, CIR on a cumulative basis remained stable at 37.3%, maintaining a sound level. Credit cost decreased by 30.1% quarter-on-quarter, reflecting the expiration of corporate credit rating impacts recognized in the previous quarter and the group's continued efforts to manage asset quality. Additional provisions arising from the government-led real estate PF workout plan also decreased significantly Q-on-Q, remaining within our anticipated range. Credit risk among corporate has risen due to delayed economic recovery and challenges persist among vulnerable customer segments. Along with timely funding, more prudent asset quality management will be needed. Turning to Page 9, here are the group's asset quality indicators. Group's NPL coverage ratio declined by 2.9 percentage points quarter-on-quarter as the balance of substandard and below loans in the nonbank sector increased. However, the bank's NPL coverage ratio improved by 12.17 percentage points quarter-on-quarter, supported by the NPL sales and strengthened asset quality management. Delinquency ratio at both the bank and card are also gradually improving. Detailed information on the group's loss absorption capacity NPL sales provided on the following page. Page 11 is profit and loss of our subsidiaries and overseas businesses. Shinhan Bank's earnings declined slightly from the previous quarter, impacted by noninterest income factors, including marketable securities. For details, please refer to Page 21. Shinhan Card posted higher earnings over previous quarter despite the decrease in merchant fee income and recognition of voluntary retirement cost, thanks to reduced credit cost supported by improved asset quality. Shinhan Securities earnings decreased Q-on-Q due to lower product management income. However, the company continues to restore its structural earnings capacity year-on-year through enhanced competitiveness in its core business areas. Shinhan Capital continued to face pressure on funding and credit cost showing a subdued performance. Specialty credit subsidiaries, including card and capital, are steadily improving fundamentals through asset rebalancing and various self-help measures and are expected to gradually recover profitability. Overseas services delivered differentiated results in Q3, particularly in Japan and Vietnam despite ongoing domestic and global uncertainties. Page 12 through 13 summarize our performance in digital initiatives and sustainable management activities. From Page 15 to 18 are the progress of our corporate value-up plan. Overall, the group has achieved solid results in terms of execution, speed and outcomes compared with the plans announced last year and early this year. Please refer to the materials for detailed information. From Page 18 onward, we will find details on the financial status, P&L and funding and investment operations of each subsidiary. Korean financial industry faces challenge, a productive financial transformation to support Korea's economic recovery and sustainable growth. Forward, Shinhan Financial Group will continue its consistent approach of allocating resources to corporate finance while providing timing and efficient funding. We will lead in fulfilling the financial industry's core role in intermediating capital management, managing risk and supporting growth. This concludes our presentation. Thank you very much for your attention. Cheol Woo Park: Thank you very much. And now we will take your questions. [Operator Instructions] And now we will take your questions. The first question will be delivered by Mr. Jung Jun-Sup from NH Securities. Jun-Sup Jung: I am Jung Jun-Sup from NH Securities. So I have 2. Now first is about the capital policy. So the government recently is talking about the dividend payout, the separation taxation and then also the similar in other industries as well. So now then in terms of the dividend tax, then I wonder whether related to the dividend tax, have there been any discussions about changes in the group's dividend policy? And then second is about the loan. So the government continues to control the household loans. And I believe that there has been a bit of an excess in the quota that has been given. Then also more recently, now the deposits are also appearing to decline. So it seems as if both the loans and deposits are unlikely to grow much in the future. Then looking ahead to the fourth quarter and beyond, then what would be the outlook for the group's loans and deposits? And also, how does the group intend to respond to these changes? Cheol Woo Park: Thank you very much for the questions. And please wait a moment for us to prepare our response. Sang Yung Chun: Thank you very much. So there were 2 questions. Now first, about the capital policy, I will respond to that. And then now with regards to the loan and deposit outlook for the longer term, then that will be responded to by the bank's CFO. Now first, about the capital policy. So you talked about the dividend payout separate taxation and then the non-tax dividend payout. And then first, regarding this, we have had some discussions at the BOD. So through the workshop, we have discussed the shareholder return policy. But given the fact that we have yet to come up with the business plan for next year, we have not made any decisions. But of course, having said that, now with the dividend payment separate taxation then now also to broaden the individual shareholders, now in order to be in alignment with the taxation policy, then we also intend to slightly increase the dividend payout. Having said that, now there's a number of indicators for our shareholder return policies. So for example, shareholder -- the share buyback and cancellation. So even if we do that, then this will not be undermining each of our policies. So we would also look into that. And next is about the tax-exempt dividend payout. And yes, we have also discussed this several times. And yes, we do have some profit available for dividend payout. But then now, looking at the industry trends then, now yes, there is also this kind of a dividend payout that is [indiscernible]. So we would have to wait and see, but we would also be positive about the changes as well. With regards to these overall changes, I do believe that we will be coming to some kind of decisions as the Board has to come up with the business plan for next year. But then overall, I can say that we are positive about both aspects. Lee Jeong-bin: Thank you very much. And now this is the CFO of the bank. So the question was about the deposits and loans. So now first, about the loans, then now in the first half, now given the fact that we have grown in the previous year, so we were conservative in terms of our loan growth outlook. So that was for the corporate loan. And then now for also loan, then -- now there was also some increase. And then also, yes, in terms of the banks, then we are a bit over the guidance that was given by the government. But then for the fourth quarter, I do believe that we will be in line with that. And then now for the corporate loan, as I have mentioned earlier, now there was some conservative growth in the first half. But then now in the third quarter, then there was over KRW 1 trillion growth in the corporate loan. And then now for the year, then we were actually planning for about KRW 9 trillion growth. But then now so the actual utilization will be about KRW 7 trillion to KRW 8 trillion. Then also the loan is in won so we were planning for about 5% growth. But then now for the year 2025, we will be growing by about high [indiscernible] so not too different from the plan. Then we're looking ahead to next year for the [indiscernible] loans growth. Now for the household loan, obviously, there are a number of regulations [indiscernible] specific environment for this. So it is not likely for the household loan to grow very [indiscernible] But then yes, there would also be some policy funds to be provided by the government. Then now for the corporate loans, then now compared to this year, so to be in line with the government's policy like the productive finance, I do believe that there will be more growth than this year. But having said that, next year, it is likely to be around 5% to 6% next year. And then about the [indiscernible]. And for this series, there were also some discussions about the deposit. And this is, of course, funding is very important. And also the cost management is also very important. So now then for this year, so we have also focused on the funding control to also defend the NIM. But then also, on the other hand, we also need to ensure funding stability. So yes, we also have a funding management strategy. Now in the fourth quarter, yes, there are -- for the traditionally, now this is the funding maturity period for the bank. So we are also making preparation. And also, the question was some concerns about the expected difficulties for the deposit. And yes, for the individuals and for example, the time deposit, it is being reduced, but then now we also are managing the interest rate quite tightly. So next year, next year perhaps, you can have more appropriate management of the interest rates so that we will be able to have stable funding. Unknown Executive: And then also last part of the question, so about funding moving to the capital market and how the group is making the decision for this. Now as the bank's CFO has mentioned, so it seems as if there is a little change in terms of the capital flow in and outside of the bank. But then now, we can see that now for the money flow, so we see that it continues to be stable. But now in terms of the resource allocation, now for the next year and rather than the resource allocation in the bank, we would also allocate more resources to the capital market, and we intend to be flexible depending on the market circumstances. Cheol Woo Park: I hope that answered your question. We will move to the next question. [Operator Instructions] HSBC's Won Jaewoong, you have a question. Please go ahead. Jaewoong Won: Thank you for good results. Now looking at Page 9, the bank delinquency rate seems to be staying stable. So I was fairly encouraged by that. Now then such trend in fourth Q do you think will continue also for the next year also? That's my first question. The next question is that card delinquency rate in the third Q, it dropped significantly. So the public will [indiscernible] support coupon, may that happen? Or on the card side, do you think there is also signs of stabilization? And the next question is about the credit cost. Now this year, the guideline was about mid 40 bp. I do believe that was your target range. Then in the third Q, you managed quite well, given that in the fourth Q, seasonality makes that we need more provisioning. So I think it could creep up. And does that mean that the credit cost needs to be expected higher than anticipated and fourth Q one-off provision, it's not going to be that high. That's my question. Cheol Woo Park: Well, thank you for your question. While we prepare for the answer, please bear with us. Unknown Executive: Yes. Thank you for that question. Now in terms of the asset quality prospects and second was related to credit costs. About credit cost, I will answer first. And about the asset quality on the overall situation, Group CRO, will respond to that. And Banks and Card CFO will talk about banks and cards asset quality related and respectively. Now in terms of guidance on credit costs, if I may give you the conclusion first. As I said, the mid-40 bp in the first half earnings call, I think it's going to hold for the coming period also. Of course, seasonality require more provisioning. But if our simulation shows that within this range, the mid-40 bp range would cover everything. Of course, in the future, on a short-term basis, there could be some unforeseen circumstances, but in the current position, I believe the mid-40 bp range still stands going forward. Dong-kwon Bang: And I'm CRO. Let me give you overall response to the asset quality. So bank delinquency rate, yes, you said it was stabilizing. So on a group level, not only bank, but for all of our subsidiaries, including nonbank side. In terms of asset quality, I think we are seeing signs of flattening. But as you know, there's a lot of uncertainties in terms of economic outlook and also there's also other external uncertain factors, including tariff situation. So in terms of now the prices and the current policies again are all uncertain. So the flattening, whether it will go down further, I think it's only to make any judgment. So fourth Q up to the first Q of next year, we just have to wait and see. So we will maintain the current trend up to that time, then I think the result will be positive. That's our anticipation. And as you know, on the banking side, on the banking sector, in Korea, we are one of the relatively best in terms of asset quality. So we will try best to maintain that. Lee Jeong-bin: Yes, I'm CFO of the Bank. So if I may add on a response to the CRO. So for Shinhan Bank, when it comes to asset quality, up to a few years ago, among the top 4 banks in Korea, we were actually falling a bit short. So asset quality, of course, is very important, while continuing growth is also important. So we have made various efforts for asset quality, like credit risk system, the management, the portfolio level. And as a result, among the top 4 banks, delinquency and other things are very much staying positively. But as the CRO stated, asset quality or delinquency rate, whether it has become stable, it's too early to say. But flattening, it seems to be continuing, but I think we need to keep our guards up. So within first half of next year up to that period, we have to keep close tab on the asset quality and manage it tightly. Additionally, on the banking side, the credit cost, we are managing on the bank level also. So on the fourth Q, when it comes to credit cards, we will implement more prudent policies. That's my opinion. Thank you very much. Hae Chang Park: So my -- I'm Card CFO. So the card delinquency ratio, we look at on a monthly basis and keeping close tabs on it. So we also look at the new loans that become delinquent. So it peaked in 0.45%, but it improved to 0.41% in September because of the public relief fund that you talked about that increased small merchant sales, thereby improving the overall finances of the small merchants. But going forward, the government will continue to support small merchants and self-employed. So we have to keep a close watch on that. For example, in the past, for a small merchant, low interest rate lending, they said they will put about KRW 10 trillion toward that. So if the policy continues, in the pandemic era, that also improved the situation. So we think that will be something we will also see here also. Thank you. Cheol Woo Park: Thank you very much. I hope that has answered your questions, and we will take the next question. [Operator Instructions] So there are -- yes. Yes, there is a question. From Hanwha Securities, we have Kim Do Ha. Do Ha Kim: I'm not sure whether it is a question that would have a specific answer, but I would just like to get your thinking about these topics. So now look at the slides, for the first time in a while, I could see that the interest spread. So it was rising by 3 bp. So from last May to this year, then we see that the interest rate was falling, but then it seems as if considering the circumstances, you were able to really defend the margin. Now then for next year, then if this is the trend, then we need to think about a higher margin next year? And also it seems as if the securities performance is also very good. So then in terms of the resource allocation for next year, then I wonder whether the shareholder return increasing, whether that will be the end all? But then for example, if the margin is going to be better or if the securities profitability is better, then perhaps you can allocate more for growth? So yes, I know that this is a question that defies an easy answer, but then I was just wondering what the group is thinking. So that is all. Cheol Woo Park: Thank you very much for the questions. And yes, please give us a moment to prepare our response. Sang Yung Chun: Thank you very much for the question. And yes, the question that you have raised is actually what we have been thinking for quite some time. So first of all, about the interest spread. Now this is what I would think. So first of all, the policy rate was cut twice this year and then also for the year, then we believe that there is going to be one more cut. And then now we see that, yes, gradually, the interest rate is falling. But then when we look at the market rate, then looking at the usage and also in Korea and then also the FX, so considering other circumstances, then the interest rate taking a clear fall is not really for certain. So that is something that we needed to consider. So yes, the margin perhaps compared to what we have thought last year, the margin did not fall as much as we had expected. Now that is for the short term, but then now for the longer term then both in the U.S. and Korea, then at least 50 bps or even more than 70 bps. So the prevalent view is that it is going to fall by over 70 bps. So then for the longer term, the interest rate is likely to come down. So then looking at the profit and loss for the end of September, then we can see that the interest rate increase was much lower than the overall revenue increase. So right now, we are just defending the interest income, but then over the long term, we believe that the interest income is likely to fall. So we need to be more conservative about this outlook. On the other hand, what we are more positive about is now on one hand, yes, there is the capital market and also the noninterest income, which is doing much better. So for example, brokerage and also the IB, so the noninterest income is actually quite sturdy. So those are also the areas, the businesses where we must have in order to keep growing. So we will continue to encourage that. But then in terms of the resource allocation, as I have mentioned earlier, basically, in terms of the allocation for growth, now compared to this year for next year, then rather than in the bank, the allocation would be heavier for the capital market is the direction for next year. But then again, in terms of the allocation for the growth then, now in terms of the shareholder return policy, so we have already stated the target for the shareholder return. So we will keep to this commitment. But then now the ROE continues to improve, but then also compared to the COE that we have, then it is still lower. So again, we will be flexible about this. But again, overall, the direction is to follow the plan for corporate value enhancement. And then also for the asset growth because the nominal growth is very low. So I mean there is a limit to how much we can pull this up. So in terms of the resource allocation, we will remain with the current framework. But then now in terms of the specific allocation, there could be more -- a bit more allocation to the capital market to be in line with the market circumstances. That is all. Thank you. Cheol Woo Park: Thank you. I hope that has answered your question, and we will take the next question. So next is Kim Jiwon from DAOL. Jiwon Kim: So CET1 ratio is my -- about -- my question. So it seems the lending side has grown. So as you said, RWA, it's relative though on the household lending, and you said that will be in alignment with government policy. But as being higher on the corporate side, you said that there will be more growth. And for us, RWA overall management strategy, how is going to see that going forward? And is there any factors where you could grow CET1 ratio further -- CET1 ratio further going forward? Cheol Woo Park: Please wait as we prepare an answer to your question. Sang Yung Chun: So RWA and also the future directionality of the -- that. So RWA, we have grown slightly in the Q3. So it looks -- it's higher than the first half. But if you look at the ratio of the growth compared to the previous year, it's still on the lower side. So on the third Q, RWA has grown slightly, but on a yearly basis, compared to the initial expectation of its growth, I think it will be lower than the expected. And going forward, the RWA growth rate, the recurring growth rate would stay on the path of the [ current ] year. And internally, if you take a deep dive for the household lending for the second and third Q because there was high market demand. However, due to regulatory environment now, household lending, I do not think, can grow further. Then on the corporate side, there will be the growth driver for us. But as you know, relatively speaking, corporate side, we have also allocated resources a lot in this area. So the corporate loan in terms of the share will grow, but it will be managed with the overall framework that we have. And in terms of CET1 ratio, compared to last year, this year, the level is a bit higher. So due to various variabilities that is anticipated, we increased it a bit. CET1 ratio, it's not always high being the better. So in terms of capital efficiency, the current mid-13% range is the adequate level. But by Q4 seasonality, there will be less earnings given so it will dip a bit from the current level. But on a yearly basis, we said the base will be 13.1%, but it will be managed in a higher level than that. Anyway, the CET1 ratio be it in the asset growth or it's a key in the shareholder return policy. So we maintain the base, but would also give a lot of buffer so they can be managed on a stable level. Cheol Woo Park: Thank you very much for the response, and we will take the next question. [Operator Instructions] So there are currently no questions requested. So it seems as if there are no further questions. And then with that, we will conclude the 2025 third quarter earnings release conference call by Shinhan Financial Group. You can find today's presentation at our web page as well as the Shinhan Financial Group IR YouTube channel. If you have any further questions, then please contact the IR team. And we will see you again in February next year for earnings release for the year of 2025. Thank you very much. [Statements in English on this transcript were spoken by an interpreter present on the live call.]

88天前Insight Analytics约5分钟阅读

IBE.MC 2025 Q3 财报电话会议

Ignacio Cuenca Arambarri: Good morning, ladies and gentlemen. First of all, we would like to offer a warm welcome to all of you who have joined us today for our 2025 9 months results presentation. As usual, we will follow the traditional format given in our events. We are going to begin with an overview of the results and the main developments during the period. Everything given by the top executive team that is today with us: Mr. Ignacio Galan, Executive Chairman; Mr. Pedro Azagra, CEO; and finally, Mr. Pepe Sainz, CFO. Following this, we'll move on to the Q&A session. I would also like to highlight that we are only going to take questions submitted via the web. So, please ask your question only through our web page, www.iberdrola.com. Finally, we expect that our event will not last more than 60 minutes. If any questions remain unanswered, we at IR team are, as always, fully at your disposal. Hoping that this presentation will be useful and informative for all of you. Now without further ado, I would like to give the floor to Mr. Ignacio Galan. Thank you very much, again. Please, Mr. Galan. Jose Sanchez Galán: Good morning, everyone, and thank you very much for joining today's conference call. In the first 9 months 2025, our reported net profit reached EUR 5,307 million, leading up a 17% increase in adjusted net profit, including capital gain from asset rotation -- excluding capital gain from asset rotation. This growth was driven by robust operating performance with reported EBITDA reaching EUR 12,438 million, mainly in our Networks business, where EBITDA rose by 26%. Thanks to a higher rate base driven by investment and improvement regulatory frameworks. EBITDA from Renewables & Customers was impacted by lower market price and higher ancillary service costs in Iberia due to changes in the digital operation after the blackout, which we are gradually passing through, partially offset by the contribution from additional renewable capacity. Investment reached a new record of EUR 9 billion in just 9 months, reflecting the execution of our plan. Networks investment increased by 12% for a total regulated asset base of close to EUR 50 billion. And we have added 2,000 megawatts of new capacity in the last 12 months. Driven by additional investment, operating cash flow increased by 10% to EUR 9,752 million, which combines with EUR 8 billion of new asset rotation and partnership and the capital increase of last July has allowed us to reduce the consolidated net debt by EUR 3.2 billion to EUR 48.5 billion, substantially improving our ratios in line with our BBB+ rating. The strong operating performance and the ongoing improvement in our financial position have led us to increase interim shareholder remuneration by 8.2% to EUR 0.25 per share. Reported EBITDA reached EUR 12,438 million, driven by a strong performance of our networks business, up 26% in the first 9 months, supported by higher regulated asset base in all countries, especially in the United Kingdom and Brazil and positive rate adjustment mainly in the United States and Brazil as well. As mentioned, EBITDA in Renewable Power & Customers was affected by the one-off impact in the change of system operation applied by Red Electrica in recent months as more synchronous generation has been introduced, which is impacting our retail business in the short term until these costs are passed through. In addition, we saw lower market price and a lower contribution from Mexico after the last year transaction. All these impacts were partially offset by additional renewable capacity. Networks once again -- that is once again a main contributor of our EBITDA, driven by the continued growth in our U.S. and U.K., which increased their combined share by 12 points, reaching 43% of the total EBITDA, reflecting the 13% increase in investment made in both countries, which together represents 60% of the group total as of September. As a result, total investment reached a new record of EUR 9 billion, up 4% year-on-year. By business and area, 60% of investment were allocated to Networks, where we invested EUR 4,904 million with a 12% increase year-on-year. Networks investment increased by 45% in United Kingdom to EUR 1,524 million, driven by the integration of ENW and 18% increase in investment in the Scottish Power Transmission and Distribution. Investment in United States reached EUR 1,739 million, in line with the last year as the 9% increase in distribution was offset by decrease in transmission investment due to the gradual completion of NECEC. Additionally, we invested EUR 1,215 million in Brazil, up 14% and EUR 426 million in distribution in Spain, 60% more than last year. As a result, our regulated asset base grew by 12% on year-on-year to EUR 49.3 billion. Investment in Renewables reached EUR 3,442 million, well diversified across geographies and technologies. 60% was allocated in United Kingdom and United States, with U.K. investment increasing by more than 45%, mainly linked to our offshore wind farms currently under construction. East Anglia THREE with 1,400 megawatts of capacity and East Anglia TWO with 900 megawatts. Our Offshore wind farms under construction in other countries are also making good progress with more than 50% of Vineyard Wind 1, 806 megawatts already in operation in the United States and the 315 of the Windanker wind farm in the Great Baltic -- in the German Baltic Sea advancing as scheduled. Investment in Onshore Renewables reached EUR 1,904 million with 62% in onshore wind. And we invested more than EUR 300 million in storage, including both pumped hydro in Iberia and batteries mainly in Australia. Moving to Network business performance. Regulatory framework continued to evolve positively across key geographies. In United Kingdom, the RIIO-ED3 methodology for distribution was published, representing a first step in a process that will lead to a new framework by April 2028. And in transmission, the RIIO-T3 Draft Determination was released, as you know, and we have expected final determination by -- before the year-end. In United States, current rate cases have resulted in a 10% average increase in tariff in New York and Maine, compared to last year. And Avangrid is already in the process of new rate cases in both the states they agree effective from May 2026. As mentioned, NECEC, our interconnection project between Canada and Massachusetts is on track to reach full commercial operation before year-end. And we are already working on projects that will continue delivering growth in transmission, mainly the Powering New York will result in EUR 1,650 million of planned investment in the coming years. In Brazil, following the annual update in Neoenergia Brasilia, rate has increased an average of 8% compared with last year. And the renewal of distribution concessions continued to progress. The concession Neoenergia Pernambuco was already signed, and we expect the other distribution companies to follow in the coming months. In Transmission, Neoenergia is on track to complete the last four lots under construction by December 2025, increasing annual remuneration in this business by BRL 600 million to more than BRL 2 billion per annum. Finally, in Spain, the process of the review of the remuneration methodology and the rate of return continue. Moving to Renewables. In the last 12 months, we have installed over 2,000 megawatts with significant progress in offshore wind. In United Kingdom, production of our Offshore wind farms in operation, West of Duddon Sands and East Anglia ONE exceed 2,400 gigawatt hours in the first 9 months of 2025. And we continue progressing the construction of East Anglia THREE with 20 monopiles already installed. In East Anglia TWO, where preliminary works are underway after having signed all major procurement contracts. On top of this, our East Anglia ONE North project with 900 megawatts was qualified for the upcoming AR7 auction scheduled by mid-November. In the United States, the construction of Vineyard Wind 1 is now above 50% completion with 32 turbines fully installed and more than 200 gigawatt hours produced. Finally, in France, St. Brieuc project produced 1,150 gigawatt hours during this period. And the output of our offshore wind farm in operation in German Baltic Sea reached 1,594 gigawatt hours as well. As mentioned, in Germany, we have another project under construction, Windanker, which is moving ahead as planned for commercial operation in 2026. Over the last 12 months, we have also installed 1,350 megawatts of Onshore technologies well spread across our geographies, 1/3 United States and U.K., including 200 megawatts of repowering project. Around 1/3 in Spain and the remaining 1/3 in another European countries and Australia. Finally, in Storage, we continue progressing with our pumped hydro project under construction in Iberia, including Torrejón Valdecañas with 15 gigawatt hours capacity. And in Australia, the Smithfield battery project is already in operation. The Broadsound project is progressing as planned for the total of 490 megawatt hours of storage capacity. All in all, we have currently close to 5,500 megawatts under construction, of which more than half correspond to Offshore wind project and 25% to Onshore wind. And we are very well positioned to capture additional growth if demand accelerates due to the electrification, thanks to a strong pipeline of 4.5 gigawatts of advanced projects ready to start construction by 2028, including Repowering project mainly in United States. Through September, we have also continued improving our financial strength. Thanks to a 10% increase in our operating cash flow to EUR 9,752 million, driven by higher cash generation in Networks and the execution as well of our asset rotation and partnership plan. Since January, we have signed transactions worth EUR 8 billion with a positive impact of EUR 4.5 billion in our net debt as of September. On asset rotation, as you know, we have already received close to EUR 1.1 billion from the sale of our Smart Meters business in United Kingdom. We have signed other transactions like the sale of our Renewable business in Hungary, which will allow us to collect EUR 128 million before the year-end. Finally, the regulatory approval required for the sale of our Mexican business continue on track. Regarding Partnership, we have added 708 megawatts to our joint venture with Norges Bank for Renewables in Iberia, reaching 900 megawatts in operation, fully on track to reach 2,300 by 2027 with a total co-investment of EUR 2.4 billion. Our partnership with Kansai in the Windanker Offshore wind farm in Germany will represent a total co-investment of EUR 1.3 billion. And our partnership with Masdar for Offshore wind in the U.K. and Germany, which will result in co-investment of EUR 6.8 billion is also progressing well. With the construction of East Anglia THREE moving forward in line with our plan as explained and in Baltic Eagle in Germany already energized. Increasing cash generation and the execution of our asset rotation and partnership plan, together with the capital increase executed last July has led to a reduction of EUR 3.2 billion in adjusted net debt year-to-date to EUR 48.5 billion, driving even better stronger financial ratios fully aligned with our BBB+ credit rating. FFO to adjusted net debt increased by 330 basis points to 26.2% and net debt is already less than 3x EBITDA. We also maintained a strong liquidity position of EUR 23 billion, sufficient to cover 25 months of financial needs. Thanks to our strong business performance and improving financial strength, the Board has approved an 8.2% increase in interim dividend of EUR 0.25 per share will be paid at the beginning of this year. As always, a supplementary dividend will be proposed for approval at the Annual Shareholders' Meeting paid in July. I will now hand it over to our CFO, who will present the group financial result in further detail. Thank you. Jose Armada: Thank you, Chairman. Good morning to everybody. Our adjusted net income for the first 9 months of the year, excluding the sale of the U.K. Smart Meters accounted for in this quarter, which is the capital gain is EUR 381 million gross and the same number net as we don't have a tax impact here and including the cap allowance in 2025, which is EUR 191 million, reached EUR 5,116 million, representing a 16.6% increase compared to the adjusted net income for the first 9 months of '24, excluding the divestment of the thermal generation assets, which impacted the net profit was EUR 1,165 million net and including the U.K. cap allowance for '24, which is EUR 81 million, as you can see in the slide. Excluding also the recognition of costs in the U.S. for EUR 389 million as it is a non-cash item, the first 9 months of '25 growth is 8%, reaching EUR 4,727 million. The main perimeter change, as you know, is that ENW has been fully consolidated since March. The FX evolution has had a minor effect on results. Thanks of our hedging policy with the dollar 2.5% lower and the real 10% lower. Reported net profit for the first 9 months of '25 reached EUR 5,307 million, decreasing by 3% year-on-year, affected by the asset rotation that I have just mentioned that has been EUR 784 million less in '25 than in '24. Revenues increased by 2.3%, driven by the Network business. Procurements rose 2.6% and gross margin grew 2%, reaching EUR 18.4 billion. Excluding the capital gains from the asset rotation, as I mentioned previously, which is referring to the Smart Meter divestment and the thermal generation assets, 9 months net operating expenses improved 7%, affected by lower storm costs that also lowers the gross margin. Net personnel expenses rose 0.4% due to higher number of employees. External services declined 6.1%, mainly due to the EUR 330 million lower storm costs. Other operating income increased by 21% compared to the adjusted 9 months of '24 due to the indemnities of past year costs, the ENW consolidation, partially offset by EUR 121 million negative impact of the East of Anglia THREE sale, EUR 4 million more than in the first half results due to a negative impact accounted in Q3. As you will see later, this impact is more than offset at the financial expenses level. Excluding the mentioned storm-related impacts and other adjustments, net operating expenses improved by 0.8%. Analyzing the results of the different businesses and starting by Networks, its EBITDA grew 26% to EUR 6,128 million, mainly driven by the strong performance of the U.K. and the U.S. linked to higher asset base and past cost recognition. In the U.S., EBITDA reached $2,046 million, 88% more with a 10% average higher rates in Distribution and a better contribution from Transmission, and positively affected in the first quarter by the decision of the New York regulator that allowed to register a regulatory asset under IFRS regarding past costs, which have already been accrued and recorded under U.S. GAAP, aligning both standards. It is worth highlighting, as the Chairman has mentioned, that NECEC finally is expected to start contributing from November of this year. In the U.K., EBITDA increased 22.5%, reaching GBP 1,129 million, including 7 months positive ENW contribution of GBP 253 million with a growing -- with growing results for transmissions driven by a higher RAV. In Brazil, EBITDA was up 12.6% to BRL 10,000 million. Thanks to the higher revenues in Distribution linked to higher inflation and an average 8% increase in rate reviews over a higher asset base. In addition, Transmission contributed positively with BRL 1.3 billion gross margin as construction progresses. And as the Chairman has said, it is expected to finalize all the construction of transmission lines this quarter and will contribute BRL 2 billion in '26, already fully completed. In Spain, EBITDA increased by 9.3%, reaching EUR 1,340 million, positively affected by the CNMC draft retribution rate of 6.46% versus the previous 5.58% and by positive adjustments to past year's remuneration. In this first 9 months, Energy Production and Customer business, EBITDA reached EUR 5.9 billion versus the EUR 6.7 billion in last year, excluding capital gains from asset rotation. The business reached c. 86% emission-free generation. In Iberia, EBITDA was EUR 3,052 million, 17.5% down with higher production more than compensated by lower margin and sales, explaining 30% of the year-on-year variation and higher ancillary services, higher levies and positive court rulings in '24 despite 1.2% revenue tax termination explained the remaining 70% of the decrease. Hydro reserves remain above the 10-year average. In the U.S., EBITDA remained flat reaching $813 million, supported by improved wind and solar performance, despite the fact that '24 was positively impacted by an Arctic Blast storm one-off of $34 million. In the U.K., EBITDA grew 5.3% to GBP 1,136 million, driven by the GBP 324 million capital gain from the U.K. Smart Meters divestment in this quarter. Excluding them, the business decreased 24.8% with lower wind resource and prices and weaker supply business, also driven by lower prices and volumes. Net operating expenses, including GBP 103 million negative one-off impact linked to the East of Anglia THREE sale more than compensated at the net financial result, as I have mentioned. In the Rest of the World, EBITDA grew 31.5% to EUR 588 million, with 61% higher offshore production due to higher contribution from wind farms, St. Brieuc in France and Baltic Eagle in Germany. With lower supply results due to the EUR 30 million negative impact in Portugal due to the ancillary services cost as in Spain as a consequence of the blackout. In Brazil, EBITDA fell 23.6% to BRL 947 million with lower renewable and thermal production compared to last year. Finally, in Mexico, EBITDA reached $467 million, decreasing 78.5% with lower reported contribution compared to last year that included the thermal asset capital gain. Depreciation and amortization and provisions were up 2% to EUR 4,272 million, driven by higher asset base despite the full year '24 adjustments impact and lower bad debt provisions, mainly in Spain. EBIT reached EUR 8.2 billion and grew 6%, excluding capital gains. Net financial results worsened EUR 93 million to EUR 1,445 million, driven by EUR 208 million higher debt-related costs due to EUR 7 billion higher average net debt -- average net debt in the first 9 months of the year, while interest rate related costs and FX improved by EUR 85 million due to the FX depreciation, especially of the real. And derivatives had a positive contribution of EUR 234 million due to the East of Anglia THREE derivatives, as I mentioned, compensate the lower net operating expenses. While the rest has had a negative impact mainly due to the Mexico hedges, mainly linked to the positive impact of the Mexico transaction last year compensated at the net profit level in the tax line. Cost of the debt improved 12 basis points, mainly thanks to lower short-term interest rates in euros and British pounds and to the depreciation, especially of the real, despite higher interest rates in Brazil. At the end of September, net debt is EUR 3.2 billion lower than the EUR 51.7 billion reported in '24 year-end, reaching EUR 48.5 billion. This positive evolution was driven by EUR 9.8 billion FFO generation, plus EUR 4.5 billion asset rotation and debt consolidation and the EUR 5 billion capital increase, more than covering the EUR 9 billion CapEx and the EUR 4.1 billion dividend as well as EUR 2.2 billion ENW net debt consolidation. As a consequence, our credit ratios are at very strong level in the BBB+ band. Our adjusted net debt-to-EBITDA is below 3x. The FFO adjusted net debt reached 26.2% and our adjusted leverage ratio is 43.3%, 2 percentage points lower than at the end of '24. 9 months '25 adjusted net profit grew 17% to EUR 5,116 million, taking away also U.S. cost recognition, which is a non-cash item, as I commented, the growth is 8%. And now the Chairman will conclude the presentation. Thank you. Jose Sanchez Galán: Thank you, Pepe. The result reflect the foundation of the plan presented a few weeks ago, a transformational plan based on a specific project capable of delivering double-digit growth in profit in the first 9 months of the year. Thanks to the rise in Networks investment up to 12% through September with attractive regulatory framework that are driving increases in tariff of 10% in the U.S. and 8% in Brazil as well as the expansion of our generation capacity of 2,000 megawatts just in the last 12 months with 5,500 more under construction and 8,500 of additional pipeline ready to cover any potential acceleration of demand growth. The implementation of our plan also reinforced our strong financial position, fully compatible with our BBB+ rating, supported by 10% increase in operating cash flow in our asset rotation and partnership plan and is also delivering a growth shareholder return with an interim dividend up 8.2% to EUR 0.25 per share. Driving by this consistent trend of improvement result and financial performance, today, we are improving our guidance for 2025 to a double-digit growth in adjusted net profit, reaching EUR 6.6 billion or more than EUR 6.2 billion even excluded EUR 389 million of Networks cost recognition in United States. This net profit guidance is already EUR 1 billion above the net profit target set for 2026 in our previous plan. Proving once again that our strategy, focus on Networks in the right countries with attractive remuneration frameworks and selective growth in renewables is allowing us to grow and beat our estimate constantly. You can be sure that we will continue working towards that objective. Thank you very much for your attention. Now we can begin with the Q&A session. Thank you. Ignacio Cuenca Arambarri: The following financial professionals have asked the following question to us. Philippe Ourpatian, ODDO; Fernando Lafuente, Alantra; Meike Becker, HSBC; Manuel Palomo, BNP Paribas; Pedro Alves, CaixaBank; Gonzalo Sánchez-Bordona, UBS; Robert Pulleyn, Morgan Stanley; Fernando Garcia, Royal Bank of Canada; Peter Bisztyga, Bank of America; Pablo Cuadrado, JB Capital Markets; Jorge Alonso, Bernstein Societe Generale; Javier Suarez, Mediobanca; Dominic Nash, Barclays; Javier Garrido, JPMorgan; and finally, James Brand, Deutsche Bank. The first one is, can you provide more details on the main factors driving the expected double-digit growth in net profit for 2025 and clarify how the exclusion of capital gains from asset rotations and the inclusion of cap allowances in the U.K. impact this guidance? Jose Sanchez Galán: So as I mentioned, we expect double-digit growth on adjusted net profit to more than EUR 6.2 billion, even excluding past cost recognition in New York, which is EUR 389 million. And look together close to EUR 6.6 billion. Pepe, but I don't know if you would like to clarify in more detail. Jose Armada: Yes. Well, thank you, Chairman. Well, as I commented, these numbers exclude specifically the capital gains from -- basically in Mexico with an impact of EUR 1,165 million and the Smart Meters in the U.K. with EUR 381 million, both at the net profit level, okay? And it includes as we presented in the Capital Markets Day, the cap allowances in the U.K., as you can see in the slide, EUR 190 million for '25 and EUR 81 million in '24. Obviously, for the end of the year, that will add a little bit more, okay? Ignacio Cuenca Arambarri: Okay. Second question, can you please provide guidance for net debt at 12 months 2025? Jose Armada: Yes. We're expecting the net debt by the year-end to be around EUR 51 billion. This is excluding the potential collection of the Mexico divestment. We are not including that in this guidance. But we are including the acquisition of the previous sale of the Neo stake in this EUR 51 billion guidance. This will be even with all these things below the '24 close of over EUR 51 billion at the end of '24. Ignacio Cuenca Arambarri: Next is regarding the use of capital gains. How will the capital gains from recent asset transaction be used in the future? Jose Sanchez Galán: So capital gain, as you know, from asset transaction will be applied as always to future efficiencies, just to improve the future results. Ignacio Cuenca Arambarri: Next is regarding the battery storage, our view of this success -- of this upcoming business for the sector? Jose Sanchez Galán: Well, I think now we talk about batteries. We will start talking about storage 25 years ago. I think as you remember, my first presentation, we were talking about renewables. We are talking about networks and we are talking about storage. I think we've been making renewable, we are making networks and we have been making storage. So, I think, what we've been doing in storage during the 25 years is we've been upgrading our hydroelectric facilities, making our -- most of our turbine reversible to become all those one bidirectional, making already pumping storage plant. We have in this moment a capacity of 120,000 megawatt hours of capacity. I think, it's a huge capacity already in storage. But also, we are investing in batteries, especially where we don't have hydro facilities in our -- or we are not project. I think, the main places is Australia. I think, they have attractive spread of support mechanism. And I think, we have in this moment, there are more than 550 megawatts under construction. But as well, we have another country. I think, we have 200 megawatts in construction in Spain and the U.K. And we have already more than 1,000 megawatts of projects in our pipeline that will be built up depending on the capacity payment of grants that can be provided. Ignacio Cuenca Arambarri: Next question is regarding the data center. What is the company's strategy regarding the growing demand from data centers? And what recent agreements have been signed with technological companies to supply energy? Jose Sanchez Galán: So as you know, data centers will be an important driver of demand growth. And I think -- and that is not new for us. We have already, for many years, we've been signing PPAs with tech companies. In this moment, we have more than 12 terawatt hours a year so far of contracts of PPAs already signed with technical companies, mainly in United States. But I think, because we consider that, that is an important area of demand growth is why we are facilitating the expansion of data centers in those countries, we have already, means for helping the technical companies to invest and to expand. I think, in this particular moment, we have an agreement in Spain with Echelon. And the first project, which is going to make a demand -- energy demand more than 1 terawatt hour a year is already ongoing. And we have another four projects progressing. So, we are active on those one, because we consider that, that is a driver for increase of the electricity demand, and that's why it is -- we would like to help these companies to do the necessary for making that happen. Ignacio Cuenca Arambarri: Next one is regarding the market situation of the United States. Given the recent increase in demand from data centers and industry and the rising energy prices in certain U.S. states, is the company considering increasing its renewable ambition or pipeline? And the second question regarding to this is, how will these market trends impact your PPA strategy and asset development plans? Jose Sanchez Galán: So, I think you will respond, Pedro, but I think just to give you -- it's true that in this moment, United States, the prices are rising. And our expectation is that prices will rise even more. I think, it's the fact that new CCGTs are built. This new CCGT is built, is going to make then the prices will increase, because there are already new power plant have to be already amortized toward those one which are already fully amortized. And I think, those one is pushing the prices up independent of the cost of the gas. But I think it's -- and that is a good opportunity for us. I think, it's a good opportunity, because we have almost 40%, 30% of our fleet is in merchant. And I think, the contract we have already with long-term PPA signed is already, let's say, ending during a certain period. And I think that makes the renovation of this contract probably that is going to increase the prices, we are already making that. All-in-all, that is certainly a great opportunity of increase of value of our assets -- renewable asset in United States. And that is why United States is there a tremendous, let's say, demand of buying existing renewable asset in operation. So, which I think, Pedro, you can already complete this comment. You agree. Pedro Blazquez: Okay. Thank you, Chairman. I think, the example -- a couple of examples, Texas and Oregon, where the prices are already rising, and we operate already 3,400 megawatts in those states. In the short term, this benefits our merchant assets. And then, it will be translated as the Chairman said, to the PPAs. And for example, in those states, we have more than 4,000 megawatts of potential pipeline to come. In the U.S., overall, we have 10,000 megawatts right now in operation, 30% of that is merchant and 70% is PPAs. The average PPA life is 10.7 years. I think, there is an opportunity for life extension and repowering. Around 360 megawatts under construction in the U.S., 432 globally and more than 800 megawatts of additional pipeline, 1,500 globally. So, I think this is good signs of what we can do right now to benefit from the demand increase. Ignacio Cuenca Arambarri: Next is related to Spain. Can you provide an update on the blackout investigation and the causes that triggered the event? Jose Sanchez Galán: I think, during the last weeks, has already had a lot of public reports, a lot of investigation even in the Senate and the different conference. And I think, this public report said clearly that this was a result of lack of synchronous energy to provide inertia in the system. So, they say also, as more renewable enter into the system, supply becomes also variable. And I think that require more synchronous energy. So, the fact now the system operator has changed the operation and is operating with more synchronous energy. So, I think what is saying in the public report and the public information is precisely what now is the system operator is already just doing. Certainly, that has an effect that is increasing the cost of ancillary services, which in our case, that we have most of our sales are under multi-annual contracts is affecting to our results, because we have not passed this extraordinary extra cost for our customers on all those ones, we have a multiyear contract. As Pepe mentioned, that in our case, is close to EUR 180 million affecting our accounts up to September. Ignacio Cuenca Arambarri: Next is related to Spain as well. What is needed to extend the operation of Almaraz Nuclear Plant? Is the 50% reduction in the Extremadura tax sufficient to ensure its continued operations? Jose Sanchez Galán: Well, I was -- you were listening to me for many long time, then the nuclear power plant are safe and are needed. So, I think they are needed more than ever in this moment for avoiding potential blackouts or potential problems in the service. Also, this power plant that you are talking about, they have national international license. So, which I think they allow them to operate at least up to 2030 without being forced to ask for any additional national, international license of operation. But there's something very, very important. It's a social -- national social demand in the country to maintain and operating. I think every week, there are demonstration, there are people writing of different tendencies, different ideas, different political parties and the civil society are asking to maintain and operating. So for two reasons, because of this social responsibility and because the need of this power for keeping the lights on in the country and providing a safe, cheap service is why we three, the owners of the power plant, we have asked the government the continuity of the Almaraz power plant. So, that means in this moment, only depend on the decision of the central government, the continuity of those power plant. There are not any another limitation. Technically, they are allowed to cooperate. Socially is demand, economically is the best solution. And in terms of the operation of the system is needed for keeping already the service operative. So, I think the energy policy made by the government. The government have to take the decision, and they will explain the consequences, whatever decision they will take about. Ignacio Cuenca Arambarri: Another trendy topic in Spain. Can you provide an update on the latest developments regarding the regulatory framework for networks in Spain? And how would the remuneration rate below 7% affect your investment plans? Jose Sanchez Galán: You're talking about Networks. Ignacio Cuenca Arambarri: Networks in Spain. Jose Sanchez Galán: Yes. I think that -- you know Networks in Spain for us is quite small compared with the Networks we have in other countries. I think, it's the fourth in terms, as you saw in our presentation, is the fourth of all our RAV in the different countries. The first one, largest RAV is in the state. The second largest RAV is in U.K. The third largest RAV is in Brazil and the fourth is Spain. So, I think it's small compared with the rest. But saying that, I think as far as I know, they are still that is in process. There are no new news. I think, which I already heard is they are already make a public consult about the terms which have been proposed, but we have no more details on that one. I think, something which is clear is either the government, central government, either the different government of the region are asking for the need of more, more investment in Networks. So, I think if that is not the proper framework, I doubt in this extraordinary investment, which is needed. So, it's going to be made as faster as it will require. Ignacio Cuenca Arambarri: Next, how are the increasing cost of ancillary services being managed? And to what extent are these costs being passed through to the customer as contracts are renewed? Jose Sanchez Galán: Pedro? Pedro Blazquez: I think as of September, yes, we have a negative impact because of our multiyear contracts. But of course, these costs are being passed through as contracts are renewed. We expect by '26, 70% of this already through customers and almost 90% by '27. Ignacio Cuenca Arambarri: Next is regarding the U.K. What is the company's perspective on the current regulatory environment in the U.K., particularly regarding the RIIO-T3 framework? Jose Sanchez Galán: I think, we have a very fluent dialogue with the regulator. I think recently, I met personally the Chairman, the Chair of Ofgem. I think, they are aware about the need of sufficient profitability remuneration and financial ability for already to make -- to attract the investment needed. I think, it's certain they make already a draft determination, which is the base of our rate case plan. I think, our business plan is already just based in this draft determination. But I think, I'm sure that the sensibility of the Ofgem is such that, I hope that there is a potential improvement during the negotiation, which -- to make certain upside, but we will know the final determination by December. So, I think now we are in the process of that one. But I think we are very open dialogue with the regulator, I think ourselves and another two players on this one. And I think they are -- my feeling is that they are already very sensible about the need of making already some adjustment to facilitate to make the huge investment which are needed. Ignacio Cuenca Arambarri: Next is, can you provide details and expectation on your strategy for the AR 7 auction in the U.K.? Jose Sanchez Galán: So as you know, we have already East Anglia ONE North ready to participate that one. So, I think we have a competitive project. We have all the security, all the supply chain secured. We -- but I think, we are very disciplined in terms of profitability criteria. I think yesterday, I heard the budget -- the final budget has been published, which I think only EUR 900 million allocated to offshore. But I think the flexibility to the Secretary of Energy to increase this amount depending on the numbers of bidders. I think, this number, remind like it is in my feeling, my opinion, is not sufficient to achieve the country objective in terms of power, in terms of decarbonization. I think there are no other changes in this year 7. They increase the life of the CFDs from 15 to 20 years. And I think they already make already a reference price, which is 11% higher than the previous one. So, which I think that will sense. But I think the budget, in my opinion, is absolutely insufficient. And I think, if the Secretary of Energy has already the power to modify the numbers after the auction. If that is not modified, my feeling is it should be difficult to achieve the targets where they are already thinking in terms of power, new power and in terms of decarbonization when they are already looking. But new power, in my opinion, they will not really achieve the numbers they were thinking about. Ignacio Cuenca Arambarri: Next, what is the current status of the Mexico operation? And when do you expect regulatory approvals to be finalized? Jose Sanchez Galán: I think in Mexico, you mentioned. Ignacio Cuenca Arambarri: Yes, the deal in Mexico, the pending deal in Mexico. Jose Sanchez Galán: Well, I think the agreement is signed. As far as I know, the buyer has already secured the financing, almost secured. And I think, now we are depending on the approvals of the different authorities. But as far as I know, the things are ongoing. I think, this week, our Mesonero, which is our M&A guy, I think, is in Mexico. And I think he will take fresh news already next week. So, but I think we are not already, let's say, we have not any negative input about that one, and I think they are going already according with schedule. Ignacio Cuenca Arambarri: Two last questions. The first one is probably for Pepe. Effective tax rate is below historical average. Should we expect this effective tax rate to be kept at similar level at the year-end? Jose Armada: Well, I think that we will have tax -- an effective tax rate at the year-end to be around 20%. Let me explain that this is below basically for several reasons. First of all, because -- right now, the contribution of countries with a lower tax rate is higher than in previous years. So the U.K. and the U.S. versus Mexico and Brazil. An impact that it is reducing the tax rate this year is, as I mentioned, the U.K. Smart Meters capital gain in the first 9 months is at the gross and net. So, there is no tax impact here. Last year, the thermal capital gain was affected by the Mexican corporate tax rate. And finally, as I mentioned, last year, we had a negative impact in the taxes due to hedges that we had in and had a positive impact in our financial expenses. And this year is the opposite. We are having a negative impact in the -- due to the last year transaction, a negative impact in our financial expenses due to the Mexican FX hedges that is compensated at the net -- at the tax level. So, all-in-all, that is the explanation why this year, in the first 9 months, the tax rate is below 20%. And the expectation is that by the end of the year, the tax rate will be around this 20%, as I mentioned. Ignacio Cuenca Arambarri: And last question is related to Spain and the contribution of the hydro production in terawatt hour in 2025, which is our expectation related to the average traditional average year. Jose Sanchez Galán: So, just looking here at the numbers. I think, up to today, I think, our production of hydroelectric is around 18 terawatt hours, which I think is an increase of around 3% to 4% over previous year. Approximately 2/3 is traditional conventional and 1/3 is pumping storage. So, I see pumping storage is taking the important role on this one. And I think, now the reserves is on the range of 6 terawatt hours. And I think that, now it's again, it starting raining, which I think heavily, so which I think in a few days, we hope level of reserves will increase. I think that is -- I think in terms of the year, I think it's important, but it's 3% more, but that is not the key of our result. As you know, our result is coming from other sources. Even in Spain, the result is not going -- is not as good as last year, because of the prices and the ancillary service, et cetera. But I think it's a good news in terms that our results are high and probably with these rains, which are now coming and expected, I think the result can be already maintained, which should be a good thing for next year as well, contribution to the next year profit or next year results. So, I think that's good. But I think, the news is it's 3%, 3% to 4% more than previous year. Pumping is 1/3, 2/3 is traditional and the results are in a good shape, very high. But I think that is already, there are room for increasing those one if the rainfall is continuing as the range as the expectation we have in this moment, with that give already certain possible, let's say, extra result for 2026. Ignacio Cuenca Arambarri: We have received as well a final question regarding the guidance for 2026, but probably this is something that we will be delivering next February. So, we anticipate something on the Capital Markets Day, but I mean, for those that has asked this question in February will be the deadline. So, just to finish this event, please let me now the floor to Mr. Galan to conclude the presentation. Jose Sanchez Galán: So, thank you very much, as always, for your very clever, intelligent and very good questions. And thank you very much for participating in part of this conference. And if there are any new questions that you consider, I think our Investor Relations will be ready, as always, to give you additional information you may require. Thank you very much, and see you soon. Thank you.

88天前Insight Analytics约5分钟阅读

IBDRY 2025 Q3 财报电话会议

Ignacio Cuenca Arambarri: Good morning, ladies and gentlemen. First of all, we would like to offer a warm welcome to all of you who have joined us today for our 2025 9 months results presentation. As usual, we will follow the traditional format given in our events. We are going to begin with an overview of the results and the main developments during the period. Everything given by the top executive team that is today with us: Mr. Ignacio Galan, Executive Chairman; Mr. Pedro Azagra, CEO; and finally, Mr. Pepe Sainz, CFO. Following this, we'll move on to the Q&A session. I would also like to highlight that we are only going to take questions submitted via the web. So, please ask your question only through our web page, www.iberdrola.com. Finally, we expect that our event will not last more than 60 minutes. If any questions remain unanswered, we at IR team are, as always, fully at your disposal. Hoping that this presentation will be useful and informative for all of you. Now without further ado, I would like to give the floor to Mr. Ignacio Galan. Thank you very much, again. Please, Mr. Galan. Jose Sanchez Galán: Good morning, everyone, and thank you very much for joining today's conference call. In the first 9 months 2025, our reported net profit reached EUR 5,307 million, leading up a 17% increase in adjusted net profit, including capital gain from asset rotation -- excluding capital gain from asset rotation. This growth was driven by robust operating performance with reported EBITDA reaching EUR 12,438 million, mainly in our Networks business, where EBITDA rose by 26%. Thanks to a higher rate base driven by investment and improvement regulatory frameworks. EBITDA from Renewables & Customers was impacted by lower market price and higher ancillary service costs in Iberia due to changes in the digital operation after the blackout, which we are gradually passing through, partially offset by the contribution from additional renewable capacity. Investment reached a new record of EUR 9 billion in just 9 months, reflecting the execution of our plan. Networks investment increased by 12% for a total regulated asset base of close to EUR 50 billion. And we have added 2,000 megawatts of new capacity in the last 12 months. Driven by additional investment, operating cash flow increased by 10% to EUR 9,752 million, which combines with EUR 8 billion of new asset rotation and partnership and the capital increase of last July has allowed us to reduce the consolidated net debt by EUR 3.2 billion to EUR 48.5 billion, substantially improving our ratios in line with our BBB+ rating. The strong operating performance and the ongoing improvement in our financial position have led us to increase interim shareholder remuneration by 8.2% to EUR 0.25 per share. Reported EBITDA reached EUR 12,438 million, driven by a strong performance of our networks business, up 26% in the first 9 months, supported by higher regulated asset base in all countries, especially in the United Kingdom and Brazil and positive rate adjustment mainly in the United States and Brazil as well. As mentioned, EBITDA in Renewable Power & Customers was affected by the one-off impact in the change of system operation applied by Red Electrica in recent months as more synchronous generation has been introduced, which is impacting our retail business in the short term until these costs are passed through. In addition, we saw lower market price and a lower contribution from Mexico after the last year transaction. All these impacts were partially offset by additional renewable capacity. Networks once again -- that is once again a main contributor of our EBITDA, driven by the continued growth in our U.S. and U.K., which increased their combined share by 12 points, reaching 43% of the total EBITDA, reflecting the 13% increase in investment made in both countries, which together represents 60% of the group total as of September. As a result, total investment reached a new record of EUR 9 billion, up 4% year-on-year. By business and area, 60% of investment were allocated to Networks, where we invested EUR 4,904 million with a 12% increase year-on-year. Networks investment increased by 45% in United Kingdom to EUR 1,524 million, driven by the integration of ENW and 18% increase in investment in the Scottish Power Transmission and Distribution. Investment in United States reached EUR 1,739 million, in line with the last year as the 9% increase in distribution was offset by decrease in transmission investment due to the gradual completion of NECEC. Additionally, we invested EUR 1,215 million in Brazil, up 14% and EUR 426 million in distribution in Spain, 60% more than last year. As a result, our regulated asset base grew by 12% on year-on-year to EUR 49.3 billion. Investment in Renewables reached EUR 3,442 million, well diversified across geographies and technologies. 60% was allocated in United Kingdom and United States, with U.K. investment increasing by more than 45%, mainly linked to our offshore wind farms currently under construction. East Anglia THREE with 1,400 megawatts of capacity and East Anglia TWO with 900 megawatts. Our Offshore wind farms under construction in other countries are also making good progress with more than 50% of Vineyard Wind 1, 806 megawatts already in operation in the United States and the 315 of the Windanker wind farm in the Great Baltic -- in the German Baltic Sea advancing as scheduled. Investment in Onshore Renewables reached EUR 1,904 million with 62% in onshore wind. And we invested more than EUR 300 million in storage, including both pumped hydro in Iberia and batteries mainly in Australia. Moving to Network business performance. Regulatory framework continued to evolve positively across key geographies. In United Kingdom, the RIIO-ED3 methodology for distribution was published, representing a first step in a process that will lead to a new framework by April 2028. And in transmission, the RIIO-T3 Draft Determination was released, as you know, and we have expected final determination by -- before the year-end. In United States, current rate cases have resulted in a 10% average increase in tariff in New York and Maine, compared to last year. And Avangrid is already in the process of new rate cases in both the states they agree effective from May 2026. As mentioned, NECEC, our interconnection project between Canada and Massachusetts is on track to reach full commercial operation before year-end. And we are already working on projects that will continue delivering growth in transmission, mainly the Powering New York will result in EUR 1,650 million of planned investment in the coming years. In Brazil, following the annual update in Neoenergia Brasilia, rate has increased an average of 8% compared with last year. And the renewal of distribution concessions continued to progress. The concession Neoenergia Pernambuco was already signed, and we expect the other distribution companies to follow in the coming months. In Transmission, Neoenergia is on track to complete the last four lots under construction by December 2025, increasing annual remuneration in this business by BRL 600 million to more than BRL 2 billion per annum. Finally, in Spain, the process of the review of the remuneration methodology and the rate of return continue. Moving to Renewables. In the last 12 months, we have installed over 2,000 megawatts with significant progress in offshore wind. In United Kingdom, production of our Offshore wind farms in operation, West of Duddon Sands and East Anglia ONE exceed 2,400 gigawatt hours in the first 9 months of 2025. And we continue progressing the construction of East Anglia THREE with 20 monopiles already installed. In East Anglia TWO, where preliminary works are underway after having signed all major procurement contracts. On top of this, our East Anglia ONE North project with 900 megawatts was qualified for the upcoming AR7 auction scheduled by mid-November. In the United States, the construction of Vineyard Wind 1 is now above 50% completion with 32 turbines fully installed and more than 200 gigawatt hours produced. Finally, in France, St. Brieuc project produced 1,150 gigawatt hours during this period. And the output of our offshore wind farm in operation in German Baltic Sea reached 1,594 gigawatt hours as well. As mentioned, in Germany, we have another project under construction, Windanker, which is moving ahead as planned for commercial operation in 2026. Over the last 12 months, we have also installed 1,350 megawatts of Onshore technologies well spread across our geographies, 1/3 United States and U.K., including 200 megawatts of repowering project. Around 1/3 in Spain and the remaining 1/3 in another European countries and Australia. Finally, in Storage, we continue progressing with our pumped hydro project under construction in Iberia, including Torrejón Valdecañas with 15 gigawatt hours capacity. And in Australia, the Smithfield battery project is already in operation. The Broadsound project is progressing as planned for the total of 490 megawatt hours of storage capacity. All in all, we have currently close to 5,500 megawatts under construction, of which more than half correspond to Offshore wind project and 25% to Onshore wind. And we are very well positioned to capture additional growth if demand accelerates due to the electrification, thanks to a strong pipeline of 4.5 gigawatts of advanced projects ready to start construction by 2028, including Repowering project mainly in United States. Through September, we have also continued improving our financial strength. Thanks to a 10% increase in our operating cash flow to EUR 9,752 million, driven by higher cash generation in Networks and the execution as well of our asset rotation and partnership plan. Since January, we have signed transactions worth EUR 8 billion with a positive impact of EUR 4.5 billion in our net debt as of September. On asset rotation, as you know, we have already received close to EUR 1.1 billion from the sale of our Smart Meters business in United Kingdom. We have signed other transactions like the sale of our Renewable business in Hungary, which will allow us to collect EUR 128 million before the year-end. Finally, the regulatory approval required for the sale of our Mexican business continue on track. Regarding Partnership, we have added 708 megawatts to our joint venture with Norges Bank for Renewables in Iberia, reaching 900 megawatts in operation, fully on track to reach 2,300 by 2027 with a total co-investment of EUR 2.4 billion. Our partnership with Kansai in the Windanker Offshore wind farm in Germany will represent a total co-investment of EUR 1.3 billion. And our partnership with Masdar for Offshore wind in the U.K. and Germany, which will result in co-investment of EUR 6.8 billion is also progressing well. With the construction of East Anglia THREE moving forward in line with our plan as explained and in Baltic Eagle in Germany already energized. Increasing cash generation and the execution of our asset rotation and partnership plan, together with the capital increase executed last July has led to a reduction of EUR 3.2 billion in adjusted net debt year-to-date to EUR 48.5 billion, driving even better stronger financial ratios fully aligned with our BBB+ credit rating. FFO to adjusted net debt increased by 330 basis points to 26.2% and net debt is already less than 3x EBITDA. We also maintained a strong liquidity position of EUR 23 billion, sufficient to cover 25 months of financial needs. Thanks to our strong business performance and improving financial strength, the Board has approved an 8.2% increase in interim dividend of EUR 0.25 per share will be paid at the beginning of this year. As always, a supplementary dividend will be proposed for approval at the Annual Shareholders' Meeting paid in July. I will now hand it over to our CFO, who will present the group financial result in further detail. Thank you. Jose Armada: Thank you, Chairman. Good morning to everybody. Our adjusted net income for the first 9 months of the year, excluding the sale of the U.K. Smart Meters accounted for in this quarter, which is the capital gain is EUR 381 million gross and the same number net as we don't have a tax impact here and including the cap allowance in 2025, which is EUR 191 million, reached EUR 5,116 million, representing a 16.6% increase compared to the adjusted net income for the first 9 months of '24, excluding the divestment of the thermal generation assets, which impacted the net profit was EUR 1,165 million net and including the U.K. cap allowance for '24, which is EUR 81 million, as you can see in the slide. Excluding also the recognition of costs in the U.S. for EUR 389 million as it is a non-cash item, the first 9 months of '25 growth is 8%, reaching EUR 4,727 million. The main perimeter change, as you know, is that ENW has been fully consolidated since March. The FX evolution has had a minor effect on results. Thanks of our hedging policy with the dollar 2.5% lower and the real 10% lower. Reported net profit for the first 9 months of '25 reached EUR 5,307 million, decreasing by 3% year-on-year, affected by the asset rotation that I have just mentioned that has been EUR 784 million less in '25 than in '24. Revenues increased by 2.3%, driven by the Network business. Procurements rose 2.6% and gross margin grew 2%, reaching EUR 18.4 billion. Excluding the capital gains from the asset rotation, as I mentioned previously, which is referring to the Smart Meter divestment and the thermal generation assets, 9 months net operating expenses improved 7%, affected by lower storm costs that also lowers the gross margin. Net personnel expenses rose 0.4% due to higher number of employees. External services declined 6.1%, mainly due to the EUR 330 million lower storm costs. Other operating income increased by 21% compared to the adjusted 9 months of '24 due to the indemnities of past year costs, the ENW consolidation, partially offset by EUR 121 million negative impact of the East of Anglia THREE sale, EUR 4 million more than in the first half results due to a negative impact accounted in Q3. As you will see later, this impact is more than offset at the financial expenses level. Excluding the mentioned storm-related impacts and other adjustments, net operating expenses improved by 0.8%. Analyzing the results of the different businesses and starting by Networks, its EBITDA grew 26% to EUR 6,128 million, mainly driven by the strong performance of the U.K. and the U.S. linked to higher asset base and past cost recognition. In the U.S., EBITDA reached $2,046 million, 88% more with a 10% average higher rates in Distribution and a better contribution from Transmission, and positively affected in the first quarter by the decision of the New York regulator that allowed to register a regulatory asset under IFRS regarding past costs, which have already been accrued and recorded under U.S. GAAP, aligning both standards. It is worth highlighting, as the Chairman has mentioned, that NECEC finally is expected to start contributing from November of this year. In the U.K., EBITDA increased 22.5%, reaching GBP 1,129 million, including 7 months positive ENW contribution of GBP 253 million with a growing -- with growing results for transmissions driven by a higher RAV. In Brazil, EBITDA was up 12.6% to BRL 10,000 million. Thanks to the higher revenues in Distribution linked to higher inflation and an average 8% increase in rate reviews over a higher asset base. In addition, Transmission contributed positively with BRL 1.3 billion gross margin as construction progresses. And as the Chairman has said, it is expected to finalize all the construction of transmission lines this quarter and will contribute BRL 2 billion in '26, already fully completed. In Spain, EBITDA increased by 9.3%, reaching EUR 1,340 million, positively affected by the CNMC draft retribution rate of 6.46% versus the previous 5.58% and by positive adjustments to past year's remuneration. In this first 9 months, Energy Production and Customer business, EBITDA reached EUR 5.9 billion versus the EUR 6.7 billion in last year, excluding capital gains from asset rotation. The business reached c. 86% emission-free generation. In Iberia, EBITDA was EUR 3,052 million, 17.5% down with higher production more than compensated by lower margin and sales, explaining 30% of the year-on-year variation and higher ancillary services, higher levies and positive court rulings in '24 despite 1.2% revenue tax termination explained the remaining 70% of the decrease. Hydro reserves remain above the 10-year average. In the U.S., EBITDA remained flat reaching $813 million, supported by improved wind and solar performance, despite the fact that '24 was positively impacted by an Arctic Blast storm one-off of $34 million. In the U.K., EBITDA grew 5.3% to GBP 1,136 million, driven by the GBP 324 million capital gain from the U.K. Smart Meters divestment in this quarter. Excluding them, the business decreased 24.8% with lower wind resource and prices and weaker supply business, also driven by lower prices and volumes. Net operating expenses, including GBP 103 million negative one-off impact linked to the East of Anglia THREE sale more than compensated at the net financial result, as I have mentioned. In the Rest of the World, EBITDA grew 31.5% to EUR 588 million, with 61% higher offshore production due to higher contribution from wind farms, St. Brieuc in France and Baltic Eagle in Germany. With lower supply results due to the EUR 30 million negative impact in Portugal due to the ancillary services cost as in Spain as a consequence of the blackout. In Brazil, EBITDA fell 23.6% to BRL 947 million with lower renewable and thermal production compared to last year. Finally, in Mexico, EBITDA reached $467 million, decreasing 78.5% with lower reported contribution compared to last year that included the thermal asset capital gain. Depreciation and amortization and provisions were up 2% to EUR 4,272 million, driven by higher asset base despite the full year '24 adjustments impact and lower bad debt provisions, mainly in Spain. EBIT reached EUR 8.2 billion and grew 6%, excluding capital gains. Net financial results worsened EUR 93 million to EUR 1,445 million, driven by EUR 208 million higher debt-related costs due to EUR 7 billion higher average net debt -- average net debt in the first 9 months of the year, while interest rate related costs and FX improved by EUR 85 million due to the FX depreciation, especially of the real. And derivatives had a positive contribution of EUR 234 million due to the East of Anglia THREE derivatives, as I mentioned, compensate the lower net operating expenses. While the rest has had a negative impact mainly due to the Mexico hedges, mainly linked to the positive impact of the Mexico transaction last year compensated at the net profit level in the tax line. Cost of the debt improved 12 basis points, mainly thanks to lower short-term interest rates in euros and British pounds and to the depreciation, especially of the real, despite higher interest rates in Brazil. At the end of September, net debt is EUR 3.2 billion lower than the EUR 51.7 billion reported in '24 year-end, reaching EUR 48.5 billion. This positive evolution was driven by EUR 9.8 billion FFO generation, plus EUR 4.5 billion asset rotation and debt consolidation and the EUR 5 billion capital increase, more than covering the EUR 9 billion CapEx and the EUR 4.1 billion dividend as well as EUR 2.2 billion ENW net debt consolidation. As a consequence, our credit ratios are at very strong level in the BBB+ band. Our adjusted net debt-to-EBITDA is below 3x. The FFO adjusted net debt reached 26.2% and our adjusted leverage ratio is 43.3%, 2 percentage points lower than at the end of '24. 9 months '25 adjusted net profit grew 17% to EUR 5,116 million, taking away also U.S. cost recognition, which is a non-cash item, as I commented, the growth is 8%. And now the Chairman will conclude the presentation. Thank you. Jose Sanchez Galán: Thank you, Pepe. The result reflect the foundation of the plan presented a few weeks ago, a transformational plan based on a specific project capable of delivering double-digit growth in profit in the first 9 months of the year. Thanks to the rise in Networks investment up to 12% through September with attractive regulatory framework that are driving increases in tariff of 10% in the U.S. and 8% in Brazil as well as the expansion of our generation capacity of 2,000 megawatts just in the last 12 months with 5,500 more under construction and 8,500 of additional pipeline ready to cover any potential acceleration of demand growth. The implementation of our plan also reinforced our strong financial position, fully compatible with our BBB+ rating, supported by 10% increase in operating cash flow in our asset rotation and partnership plan and is also delivering a growth shareholder return with an interim dividend up 8.2% to EUR 0.25 per share. Driving by this consistent trend of improvement result and financial performance, today, we are improving our guidance for 2025 to a double-digit growth in adjusted net profit, reaching EUR 6.6 billion or more than EUR 6.2 billion even excluded EUR 389 million of Networks cost recognition in United States. This net profit guidance is already EUR 1 billion above the net profit target set for 2026 in our previous plan. Proving once again that our strategy, focus on Networks in the right countries with attractive remuneration frameworks and selective growth in renewables is allowing us to grow and beat our estimate constantly. You can be sure that we will continue working towards that objective. Thank you very much for your attention. Now we can begin with the Q&A session. Thank you. Ignacio Cuenca Arambarri: The following financial professionals have asked the following question to us. Philippe Ourpatian, ODDO; Fernando Lafuente, Alantra; Meike Becker, HSBC; Manuel Palomo, BNP Paribas; Pedro Alves, CaixaBank; Gonzalo Sánchez-Bordona, UBS; Robert Pulleyn, Morgan Stanley; Fernando Garcia, Royal Bank of Canada; Peter Bisztyga, Bank of America; Pablo Cuadrado, JB Capital Markets; Jorge Alonso, Bernstein Societe Generale; Javier Suarez, Mediobanca; Dominic Nash, Barclays; Javier Garrido, JPMorgan; and finally, James Brand, Deutsche Bank. The first one is, can you provide more details on the main factors driving the expected double-digit growth in net profit for 2025 and clarify how the exclusion of capital gains from asset rotations and the inclusion of cap allowances in the U.K. impact this guidance? Jose Sanchez Galán: So as I mentioned, we expect double-digit growth on adjusted net profit to more than EUR 6.2 billion, even excluding past cost recognition in New York, which is EUR 389 million. And look together close to EUR 6.6 billion. Pepe, but I don't know if you would like to clarify in more detail. Jose Armada: Yes. Well, thank you, Chairman. Well, as I commented, these numbers exclude specifically the capital gains from -- basically in Mexico with an impact of EUR 1,165 million and the Smart Meters in the U.K. with EUR 381 million, both at the net profit level, okay? And it includes as we presented in the Capital Markets Day, the cap allowances in the U.K., as you can see in the slide, EUR 190 million for '25 and EUR 81 million in '24. Obviously, for the end of the year, that will add a little bit more, okay? Ignacio Cuenca Arambarri: Okay. Second question, can you please provide guidance for net debt at 12 months 2025? Jose Armada: Yes. We're expecting the net debt by the year-end to be around EUR 51 billion. This is excluding the potential collection of the Mexico divestment. We are not including that in this guidance. But we are including the acquisition of the previous sale of the Neo stake in this EUR 51 billion guidance. This will be even with all these things below the '24 close of over EUR 51 billion at the end of '24. Ignacio Cuenca Arambarri: Next is regarding the use of capital gains. How will the capital gains from recent asset transaction be used in the future? Jose Sanchez Galán: So capital gain, as you know, from asset transaction will be applied as always to future efficiencies, just to improve the future results. Ignacio Cuenca Arambarri: Next is regarding the battery storage, our view of this success -- of this upcoming business for the sector? Jose Sanchez Galán: Well, I think now we talk about batteries. We will start talking about storage 25 years ago. I think as you remember, my first presentation, we were talking about renewables. We are talking about networks and we are talking about storage. I think we've been making renewable, we are making networks and we have been making storage. So, I think, what we've been doing in storage during the 25 years is we've been upgrading our hydroelectric facilities, making our -- most of our turbine reversible to become all those one bidirectional, making already pumping storage plant. We have in this moment a capacity of 120,000 megawatt hours of capacity. I think, it's a huge capacity already in storage. But also, we are investing in batteries, especially where we don't have hydro facilities in our -- or we are not project. I think, the main places is Australia. I think, they have attractive spread of support mechanism. And I think, we have in this moment, there are more than 550 megawatts under construction. But as well, we have another country. I think, we have 200 megawatts in construction in Spain and the U.K. And we have already more than 1,000 megawatts of projects in our pipeline that will be built up depending on the capacity payment of grants that can be provided. Ignacio Cuenca Arambarri: Next question is regarding the data center. What is the company's strategy regarding the growing demand from data centers? And what recent agreements have been signed with technological companies to supply energy? Jose Sanchez Galán: So as you know, data centers will be an important driver of demand growth. And I think -- and that is not new for us. We have already, for many years, we've been signing PPAs with tech companies. In this moment, we have more than 12 terawatt hours a year so far of contracts of PPAs already signed with technical companies, mainly in United States. But I think, because we consider that, that is an important area of demand growth is why we are facilitating the expansion of data centers in those countries, we have already, means for helping the technical companies to invest and to expand. I think, in this particular moment, we have an agreement in Spain with Echelon. And the first project, which is going to make a demand -- energy demand more than 1 terawatt hour a year is already ongoing. And we have another four projects progressing. So, we are active on those one, because we consider that, that is a driver for increase of the electricity demand, and that's why it is -- we would like to help these companies to do the necessary for making that happen. Ignacio Cuenca Arambarri: Next one is regarding the market situation of the United States. Given the recent increase in demand from data centers and industry and the rising energy prices in certain U.S. states, is the company considering increasing its renewable ambition or pipeline? And the second question regarding to this is, how will these market trends impact your PPA strategy and asset development plans? Jose Sanchez Galán: So, I think you will respond, Pedro, but I think just to give you -- it's true that in this moment, United States, the prices are rising. And our expectation is that prices will rise even more. I think, it's the fact that new CCGTs are built. This new CCGT is built, is going to make then the prices will increase, because there are already new power plant have to be already amortized toward those one which are already fully amortized. And I think, those one is pushing the prices up independent of the cost of the gas. But I think it's -- and that is a good opportunity for us. I think, it's a good opportunity, because we have almost 40%, 30% of our fleet is in merchant. And I think, the contract we have already with long-term PPA signed is already, let's say, ending during a certain period. And I think that makes the renovation of this contract probably that is going to increase the prices, we are already making that. All-in-all, that is certainly a great opportunity of increase of value of our assets -- renewable asset in United States. And that is why United States is there a tremendous, let's say, demand of buying existing renewable asset in operation. So, which I think, Pedro, you can already complete this comment. You agree. Pedro Blazquez: Okay. Thank you, Chairman. I think, the example -- a couple of examples, Texas and Oregon, where the prices are already rising, and we operate already 3,400 megawatts in those states. In the short term, this benefits our merchant assets. And then, it will be translated as the Chairman said, to the PPAs. And for example, in those states, we have more than 4,000 megawatts of potential pipeline to come. In the U.S., overall, we have 10,000 megawatts right now in operation, 30% of that is merchant and 70% is PPAs. The average PPA life is 10.7 years. I think, there is an opportunity for life extension and repowering. Around 360 megawatts under construction in the U.S., 432 globally and more than 800 megawatts of additional pipeline, 1,500 globally. So, I think this is good signs of what we can do right now to benefit from the demand increase. Ignacio Cuenca Arambarri: Next is related to Spain. Can you provide an update on the blackout investigation and the causes that triggered the event? Jose Sanchez Galán: I think, during the last weeks, has already had a lot of public reports, a lot of investigation even in the Senate and the different conference. And I think, this public report said clearly that this was a result of lack of synchronous energy to provide inertia in the system. So, they say also, as more renewable enter into the system, supply becomes also variable. And I think that require more synchronous energy. So, the fact now the system operator has changed the operation and is operating with more synchronous energy. So, I think what is saying in the public report and the public information is precisely what now is the system operator is already just doing. Certainly, that has an effect that is increasing the cost of ancillary services, which in our case, that we have most of our sales are under multi-annual contracts is affecting to our results, because we have not passed this extraordinary extra cost for our customers on all those ones, we have a multiyear contract. As Pepe mentioned, that in our case, is close to EUR 180 million affecting our accounts up to September. Ignacio Cuenca Arambarri: Next is related to Spain as well. What is needed to extend the operation of Almaraz Nuclear Plant? Is the 50% reduction in the Extremadura tax sufficient to ensure its continued operations? Jose Sanchez Galán: Well, I was -- you were listening to me for many long time, then the nuclear power plant are safe and are needed. So, I think they are needed more than ever in this moment for avoiding potential blackouts or potential problems in the service. Also, this power plant that you are talking about, they have national international license. So, which I think they allow them to operate at least up to 2030 without being forced to ask for any additional national, international license of operation. But there's something very, very important. It's a social -- national social demand in the country to maintain and operating. I think every week, there are demonstration, there are people writing of different tendencies, different ideas, different political parties and the civil society are asking to maintain and operating. So for two reasons, because of this social responsibility and because the need of this power for keeping the lights on in the country and providing a safe, cheap service is why we three, the owners of the power plant, we have asked the government the continuity of the Almaraz power plant. So, that means in this moment, only depend on the decision of the central government, the continuity of those power plant. There are not any another limitation. Technically, they are allowed to cooperate. Socially is demand, economically is the best solution. And in terms of the operation of the system is needed for keeping already the service operative. So, I think the energy policy made by the government. The government have to take the decision, and they will explain the consequences, whatever decision they will take about. Ignacio Cuenca Arambarri: Another trendy topic in Spain. Can you provide an update on the latest developments regarding the regulatory framework for networks in Spain? And how would the remuneration rate below 7% affect your investment plans? Jose Sanchez Galán: You're talking about Networks. Ignacio Cuenca Arambarri: Networks in Spain. Jose Sanchez Galán: Yes. I think that -- you know Networks in Spain for us is quite small compared with the Networks we have in other countries. I think, it's the fourth in terms, as you saw in our presentation, is the fourth of all our RAV in the different countries. The first one, largest RAV is in the state. The second largest RAV is in U.K. The third largest RAV is in Brazil and the fourth is Spain. So, I think it's small compared with the rest. But saying that, I think as far as I know, they are still that is in process. There are no new news. I think, which I already heard is they are already make a public consult about the terms which have been proposed, but we have no more details on that one. I think, something which is clear is either the government, central government, either the different government of the region are asking for the need of more, more investment in Networks. So, I think if that is not the proper framework, I doubt in this extraordinary investment, which is needed. So, it's going to be made as faster as it will require. Ignacio Cuenca Arambarri: Next, how are the increasing cost of ancillary services being managed? And to what extent are these costs being passed through to the customer as contracts are renewed? Jose Sanchez Galán: Pedro? Pedro Blazquez: I think as of September, yes, we have a negative impact because of our multiyear contracts. But of course, these costs are being passed through as contracts are renewed. We expect by '26, 70% of this already through customers and almost 90% by '27. Ignacio Cuenca Arambarri: Next is regarding the U.K. What is the company's perspective on the current regulatory environment in the U.K., particularly regarding the RIIO-T3 framework? Jose Sanchez Galán: I think, we have a very fluent dialogue with the regulator. I think recently, I met personally the Chairman, the Chair of Ofgem. I think, they are aware about the need of sufficient profitability remuneration and financial ability for already to make -- to attract the investment needed. I think, it's certain they make already a draft determination, which is the base of our rate case plan. I think, our business plan is already just based in this draft determination. But I think, I'm sure that the sensibility of the Ofgem is such that, I hope that there is a potential improvement during the negotiation, which -- to make certain upside, but we will know the final determination by December. So, I think now we are in the process of that one. But I think we are very open dialogue with the regulator, I think ourselves and another two players on this one. And I think they are -- my feeling is that they are already very sensible about the need of making already some adjustment to facilitate to make the huge investment which are needed. Ignacio Cuenca Arambarri: Next is, can you provide details and expectation on your strategy for the AR 7 auction in the U.K.? Jose Sanchez Galán: So as you know, we have already East Anglia ONE North ready to participate that one. So, I think we have a competitive project. We have all the security, all the supply chain secured. We -- but I think, we are very disciplined in terms of profitability criteria. I think yesterday, I heard the budget -- the final budget has been published, which I think only EUR 900 million allocated to offshore. But I think the flexibility to the Secretary of Energy to increase this amount depending on the numbers of bidders. I think, this number, remind like it is in my feeling, my opinion, is not sufficient to achieve the country objective in terms of power, in terms of decarbonization. I think there are no other changes in this year 7. They increase the life of the CFDs from 15 to 20 years. And I think they already make already a reference price, which is 11% higher than the previous one. So, which I think that will sense. But I think the budget, in my opinion, is absolutely insufficient. And I think, if the Secretary of Energy has already the power to modify the numbers after the auction. If that is not modified, my feeling is it should be difficult to achieve the targets where they are already thinking in terms of power, new power and in terms of decarbonization when they are already looking. But new power, in my opinion, they will not really achieve the numbers they were thinking about. Ignacio Cuenca Arambarri: Next, what is the current status of the Mexico operation? And when do you expect regulatory approvals to be finalized? Jose Sanchez Galán: I think in Mexico, you mentioned. Ignacio Cuenca Arambarri: Yes, the deal in Mexico, the pending deal in Mexico. Jose Sanchez Galán: Well, I think the agreement is signed. As far as I know, the buyer has already secured the financing, almost secured. And I think, now we are depending on the approvals of the different authorities. But as far as I know, the things are ongoing. I think, this week, our Mesonero, which is our M&A guy, I think, is in Mexico. And I think he will take fresh news already next week. So, but I think we are not already, let's say, we have not any negative input about that one, and I think they are going already according with schedule. Ignacio Cuenca Arambarri: Two last questions. The first one is probably for Pepe. Effective tax rate is below historical average. Should we expect this effective tax rate to be kept at similar level at the year-end? Jose Armada: Well, I think that we will have tax -- an effective tax rate at the year-end to be around 20%. Let me explain that this is below basically for several reasons. First of all, because -- right now, the contribution of countries with a lower tax rate is higher than in previous years. So the U.K. and the U.S. versus Mexico and Brazil. An impact that it is reducing the tax rate this year is, as I mentioned, the U.K. Smart Meters capital gain in the first 9 months is at the gross and net. So, there is no tax impact here. Last year, the thermal capital gain was affected by the Mexican corporate tax rate. And finally, as I mentioned, last year, we had a negative impact in the taxes due to hedges that we had in and had a positive impact in our financial expenses. And this year is the opposite. We are having a negative impact in the -- due to the last year transaction, a negative impact in our financial expenses due to the Mexican FX hedges that is compensated at the net -- at the tax level. So, all-in-all, that is the explanation why this year, in the first 9 months, the tax rate is below 20%. And the expectation is that by the end of the year, the tax rate will be around this 20%, as I mentioned. Ignacio Cuenca Arambarri: And last question is related to Spain and the contribution of the hydro production in terawatt hour in 2025, which is our expectation related to the average traditional average year. Jose Sanchez Galán: So, just looking here at the numbers. I think, up to today, I think, our production of hydroelectric is around 18 terawatt hours, which I think is an increase of around 3% to 4% over previous year. Approximately 2/3 is traditional conventional and 1/3 is pumping storage. So, I see pumping storage is taking the important role on this one. And I think, now the reserves is on the range of 6 terawatt hours. And I think that, now it's again, it starting raining, which I think heavily, so which I think in a few days, we hope level of reserves will increase. I think that is -- I think in terms of the year, I think it's important, but it's 3% more, but that is not the key of our result. As you know, our result is coming from other sources. Even in Spain, the result is not going -- is not as good as last year, because of the prices and the ancillary service, et cetera. But I think it's a good news in terms that our results are high and probably with these rains, which are now coming and expected, I think the result can be already maintained, which should be a good thing for next year as well, contribution to the next year profit or next year results. So, I think that's good. But I think, the news is it's 3%, 3% to 4% more than previous year. Pumping is 1/3, 2/3 is traditional and the results are in a good shape, very high. But I think that is already, there are room for increasing those one if the rainfall is continuing as the range as the expectation we have in this moment, with that give already certain possible, let's say, extra result for 2026. Ignacio Cuenca Arambarri: We have received as well a final question regarding the guidance for 2026, but probably this is something that we will be delivering next February. So, we anticipate something on the Capital Markets Day, but I mean, for those that has asked this question in February will be the deadline. So, just to finish this event, please let me now the floor to Mr. Galan to conclude the presentation. Jose Sanchez Galán: So, thank you very much, as always, for your very clever, intelligent and very good questions. And thank you very much for participating in part of this conference. And if there are any new questions that you consider, I think our Investor Relations will be ready, as always, to give you additional information you may require. Thank you very much, and see you soon. Thank you.

88天前Insight Analytics约5分钟阅读

NOS.LS 2025 Q3 财报电话会议

Pedro Cota Dias: Hello, everyone. Good morning. Welcome to NOS's Third Quarter 2025 Conference Call. I'll hand you over to our CFO, Luis, who will deliver a short presentation, and then we'll open for Q&A as usual. Luis do Nascimento: Well, good morning, and welcome to NOS's third quarter conference call. We will begin, as usual, with the main highlights of the third quarter. A strong operational performance with the RGU trends significantly improving versus previous quarters. Consolidated revenue of EUR 457 million, strongly impacted by A&C decline despite resilient performance from Telco, an efficient cost management that is driving EBITDA growth and sustainable operational cash flow generation and a solid balance sheet and financial position with leverage below reference level of 2x. So a quick overview of our main KPIs. This quarter, revenues declined 1.2% to EUR 457 million, but EBITDA rose 2.7%. This positive EBITDA performance, along with a CapEx reduction of 2% led to improved EBITDA CapEx of almost 10%. Recurring free cash flow, excluding extraordinary effects, decreased 19% and net income increased 25%, reflecting the solid operational performance and our strategic transformation program. NOS proudly leads in global sustainability, having been recognized by both Time and the Financial Times in their international benchmarking rankings as one of the world's most sustainable companies. This impressive achievement places NOS as one of only 5 Portuguese companies in both lists and the only one from the telco sector. This highlights NOS's strong commitment and significant progress towards a sustainable future. Furthermore, NOS has received recognition from DECO Proteste, the leading Portuguese Consumer Rights Association Magazine, being named best in test for its mobile Internet, Wi-Fi and TV services. It's the first time any operator has secured all 3 core distinctions, underscoring NOS's strong commitment and investment in superior network and quality of service. On the operational performance side, this was another strong quarter of fiber-to-the-home expansion. More than 5.9 million households are now covered by NOS gigabit fixed network with FTTH representing almost 88% of households passed. This is a significant increase of 78,000 households quarter-on-quarter and almost 300,000 year-on-year. But despite the challenging competitive market, NOS strong offers and commercial capabilities delivered a very strong third quarter with a 2% increase to 10.9 million RGUs. With 131,000 net adds, this quarter posted the highest level of net adds since 2023, driven by solid numbers in both fixed and mobile RGUs. With 12,000 net adds of unique fixed accesses, this third quarter saw an acceleration of the operational momentum, driven by high levels of fiber deployment, low levels of churn and competitive offers, particularly from WOO brand and naked broadband that are changing the mix of new customers. In mobile, we do 111,000 net adds in the quarter. Mobile RGUs increased 3.3%, reflecting a stronger performance both in postpaid and prepaid. Postpaid has 160 net adds, posting very strong results driven by Woo and NOS competitiveness on convergent cross-sell. Prepaid net additions continued to improve since first quarter and just decreased 5,000 in the quarter, a clear improvement from Q2 seasonality despite competitive pressure. In summary, a solid operational performance and a strong improvement versus the previous quarters. Now moving to our Audiovisuals and cinema business. The number of tickets sold declined by 28% driven by the lack of blockbusters lineup this quarter in contrast with third quarter '24, which featured several box office hits, including Inside Out 2, the most watched film ever in Portugal. The Audiovisual segment was dragged down by cinema distribution, reflecting the lack of successful movies lineups in this third quarter as opposed to third quarter '24, where NOS distributed Inside Out 2. Only 3 NOS Audiovisual films ranked in the top 10 this quarter, harming NOS performance. Now on the financial performance side, NOS consolidated revenues decreased 1.2%, a reduction of EUR 5.5 million, driven by a EUR 6.8 million decline in the Audiovisuals and Cinema division and despite the resilient performance of the Telecom segment. Telco revenues show a resilient 0.3% growth, primarily due to the performance of the enterprise sector, which posted a 4.4% increase driven by the corporate segment. The B2C segment experienced a decline of 1.2% due to increased competition impacting [indiscernible] despite stronger operational activity. The new IT business showed a small decline of 0.4%, mainly driven by a reduction in the volatile resale of equipment and licenses. However, this was almost fully offset by a solid 8.4% growth in IT services. As previously explained, the Audiovisuals and Cinema division reported a 21% decline, driven by the 28% reduction in cinema attendance. So NOS's operational performance and the solid results of NOS transformation program supported on Gen AI-driven efficiency program continued to deliver a solid 2.7% EBIT increase, significantly above revenue with a robust contribution from telco and IT, which recorded increases of 4.3% and 10.4% and despite Media segment decline of 21%. This quarter, NOS achieved a 4.6% OpEx decline, largely due to proactive cost management and Gen AI supported transformation program that continues to boost structural efficiencies organization-wide. Two significant examples of AI impact this quarter include the automation of call center and customer care service through LLM-powered voice virtual assistants and Gen AI-based chatbots, which drove a 19% reduction in customer care costs. Furthermore, a 14% reduction in maintenance and repair costs was achieved by decrease in call times and intervention orders, also driven by AI. NOS CapEx continues the structural declining trend, and this quarter dropped 2% to EUR 91.5 million, mainly supported by the telco CapEx decline of 2%. In Telco, we saw a 2.4% reduction in customer-related investments and a 3.7% decrease in base CapEx. Expansion CapEx, however, saw an exceptional increase of 1.8% this quarter, driven by a temporary peak in NOS FTTH projects. IT CapEx increased by EUR 300,000 to EUR 1.9 million, driven by customer-related investment to support business growth and Audiovisuals and Cinema CapEx declined 7% to EUR 4.6 million, reflecting a return to a more normal spending levels. As a result, improved operational performance and efficient CapEx management drove a 9.6% increase in EBITDA AL minus CapEx. NOS show the consolidated net income rise 25% to EUR 65 million, a strong EBITDA growth supported by a solid operational performance and nonproactive cost management were key drivers, complemented by reduced financial costs and the EUR 5 million contribution from tax incentives. Free cash flow declined by 56% to EUR 51 million, primarily due to a reduction of almost EUR 50 million in extraordinary effects mainly related to tower sales to Cellnex and the tax receivable paid in advance in 2023, which positively impacted third quarter by EUR 30 million. However, this quarter, we have a negative impact of EUR 90 million in taxes from extraordinary gains in 2024 from tower sales and refund of activity fees. With NOS's extraordinary items, recurring cash flow dropped 19%, driven by a EUR 39 million increase in taxes that totally offset the positive impact of the strong operational performance, lower investments, a reduction in working capital and lower interest rates. To finalize, this quarter, NOS debt decreased to EUR 1,093 million and the financial leverage ratio dropped to 1.6x, well below the reference threshold of 2x. Additionally, NOS benefits from a lower average cost of debt, now below 2.8%, representing a decrease of 0.2% quarter-on-quarter and 1.2% year-on-year. As end of March, the company held EUR 343 million in cash and liquidity. So with this, we conclude our presentation, and we are now ready to answer to all your questions. Operator: [Operator Instructions] Our first question comes from the line of Mollie Witcombe from Goldman Sachs. Mollie Witcombe: I have 2 questions, please. Firstly, on the competitive environment. If you could give us a little bit more color on how that is progressing versus previous quarters, specifically in the budget segment. It would be really good to understand as well the uptick in net adds that you've seen. Is it mainly driven by WOO and the budget segment or elsewhere? And then my second question is on upside from cost efficiencies. Obviously, you've set out your transformation plan. To what extent are these savings already make a part of guidance? And to what extent do you think there's potential for further upside from cost efficiencies driven by AI savings? Miguel Almeida: Thank you very much for your questions. In terms of competitive environment, to be completely honest and transparent, these last few months, I don't think there's any news, anything relevant that is different from the previous months. So the dynamics since last November has been more or less the same. There's -- in our case, there is already some weight in terms of gross adds coming from the discount brands, but that number is still -- not even double digit. But still, it's more or less stable in terms of weight of gross adds. So to be honest, we don't see anything changing significantly from what we have seen in the first half of the year. Luis do Nascimento: On the cost efficient side, I would say that cost efficiencies are the main driver behind the operating cost decline of 2.6% in telco. Almost all of it are coming from efficiencies, as I said, from customer-related and from operating-related cost decrease, we believe they are sustainable as the Gen AI initiatives are still far from explored. It's a long-term program. So we believe that we will have efficiencies for a long period. Operator: We'll now move on to our next question. Next question comes from the line of António Seladas from A|S Independent Research. António Seladas: Thank you for the presentation. It's just one. It's related with the [indiscernible] that your retail customers are renegotiating their packages. So taking in consideration that this new environment is now about 1 year old. And at same time, your loyalty programs are for 2 years, so it's fair to assume that roughly 50% of your customers -- retail customers all have [indiscernible] package? Or do you think this is too optimistic? Miguel Almeida: Look, first of all, thank you for the question, António. We -- since in this new competitive environment, so again, last 12 months, the pressure on our retention lines, so customers trying to renegotiate contracts has not increased. It has been more or less stable. We haven't seen -- namely on these last few months, we haven't seen any pickup on customers trying to renegotiate contracts. So on that front, I would say also like in the competitive environment, things are pretty much stable. António Seladas: Nevertheless, your [indiscernible] blended price in retail are coming down 1% year-on-year on the second, now about 2%. So is this kind of performance that we should expect for the coming quarters? . Miguel Almeida: Look, that decline has a number of effects built into it. First of all, there are -- you have the data -- mobile data revenues that we had a one shot decline last December or November. That's a one-off effect that will not continue for the future. And then you have -- as I mentioned, we already have since last November, some gross adds coming from the WOO brand, the discount brand, which has a much lower ARPU than our brand. So in terms of -- and that progressively has an impact. And on top of that, I would recall that we didn't have the price increase beginning of this year. So if you have to add up all these effects to explain that decline. Operator: We'll now move on to our next question. . Next question comes from the line of Fernando Cordero Barreira from Banco Santander. . Fernando Cordero: Three questions from my side, if I may. The first question is as a follow-up on the strategic transformation plan. You have already highlighted the impacts on the customer care and in maintenance and repair costs. Are you foreseeing any other area in the operational side where the AI-driven efficiencies could be as relevant as in this, too? The second question is related with the [indiscernible] expansion. You have already commented in the presentation that you have already added 300,000 new homes. I would like to understand what is the still potential expansion of [indiscernible] network. What would be the, let's say, the number of households that could be deployed in the future just to understand which is also the impact on your potential top line growth? And the last question is, looking to your KPIs where the some performance in volumes has been offset by the trends in ARPU as you have already highlighted. I would like to understand -- or I understand that you are prioritizing volumes versus customer value versus ARPU can you help us to understand why have you opted by this scenario instead of prioritizing ARPU versus volumes? Just to understand what has been your way of thinking in the current strategy? Miguel Almeida: Thank you, Fernando. I would like to start with the last question, which I think it's very interesting. Well, I don't think it's fair to say that we are prioritizing volume against price. As I mentioned, we -- of course, we don't want to give too much space to the discount -- brands of the discount players. And we launched, as you know, a discount brand, and obviously, that has an impact because progressively, we have more customers within this brand with lower ARPUs, much lower ARPUs. And when you see the combined ARPU, that has an effect. But that's it. I don't think it's fair to say that we are prioritizing volume versus price. We are not going to give too much space to the new entrants, that's for sure. But we are trying to manage value. I don't think your comment is very fair, to be honest. I understand it. Don't take me wrong. I understand it. But this is a result of a number of things. Our strategy is not to prioritize volume against price. It's to find the right mix. Luis do Nascimento: Okay. So on the transformation program, the Gen AI is part of our program, and we -- the idea is to massify Gen AI across the entire organization. We have around 135 different use cases, and we have just started with around 25% of them. So there's a lot of room to massify GenAI across NOS. On the expansion, we are expanding FTTH, our own FTTH, and we will do it until the end of the first half of 2026. But we will have -- then we will have houses from third parties. So we expect it to have around 300,000, 350,000 houses for the next year, but a significant part of them from third parties. So our CapEx -- expansion CapEx will continue to decline in the -- in 2026. Fernando Cordero: Just a follow-up on the network expansion side. Not only I'm, let's say, looking to understand what could be the CapEx trend for next year. Also to understand, given that you are increasing your footprint by close to 5% and your customer base in terms of fixed assets by around 2%, I just 0I would like to understand which would be the network expansion that you are expected for '26, '27, not just on the impact of CapEx, but particularly in the impact of new addressable areas for your marketing activities? Miguel Almeida: I would share 2 comments on that. First of all, there is a time to take up. So one thing is to have the expansion. Another thing is to acquire customers, it takes time. So you cannot expect -- if you increase by 5% the number of households, you don't -- you cannot expect to increase the number of customers by 5% day 1. It takes time, and it takes a lot of time, obviously. So the take-up is going according to our expectations, but there's obviously a delay. On the CapEx side, what you can expect as we have been saying for quite some time now is CapEx going down. Part of this expansion -- fiber expansion is on third-party networks. So what you can expect for next year in terms of CapEx is a reduction. Operator: We'll now move on to our next question. Our next question comes from the line of José Cabezon from [ CaixaBank ] Unknown Analyst: One question regarding the efficiency plan. You have mentioned that you have 135 areas of where you can extract more efficiencies. Could you tell us the percentage of potential sales that have been already considered? And the amount that will be -- will emerge in the coming quarters? Luis do Nascimento: Okay. Well, to give you the percentage of efficiencies that we have, it's a form of guidance. So we are not sharing this number. Unknown Analyst: Okay. And my second question is regarding the comparison basis for us from this quarter. Are you expecting that the decline in RPUs and the changes that we are seeing year-over-year are going to soften in the coming quarters? Miguel Almeida: Well, let's say, our expectation is that it can get a little bit worse before it gets better. Long term -- sorry, just to add to that. So you're talking about the next quarter. Unknown Analyst: I am referring to the -- basically as from the next quarter, what we are going to see, especially in the first quarter of next year and the following ones? Miguel Almeida: Our expectation is that short term, probably it will decline a little bit more medium term. So looking 6 months, 9 months ahead, it will stabilize. Operator: We'll now move on to our next question. Our next question comes from the line of Roshan Ranjit from Deutsche Bank. . Roshan Ranjit: I've got 2, please, many follow-ups. Just on the competitive dynamic. And I guess, having had quite a strong start to the year, the new entrants momentum has perhaps stalled. I don't know if that's fair to say. How should we then be thinking about the scope for price increases next year? Because I think typically, it's around this time where you do inform your customer base around the kind of inflationary pricing indexation that we see. And I think this year, we didn't have anything. And secondly, it's around the network dynamics. And have you changed your stance or have you seen kind of incremental approaches for wholesale access? Anything that has changed on that front? Again, the new entrant has been pushing hard to increase their coverage. Any thoughts around that, if there's been any change or is it still the same? Miguel Almeida: Well, thank you for your questions. You're right, it's more or less around this time of the year that we have to inform customers, but it's still closer to the end of November, beginning of December. And the fact is that as of today, we have no decision. But I can tell you that we are evaluating the option, and we have no conclusion yet, but we are looking into it seriously. And we'll inform the market of our decision or not by the end of November. In terms of network development and wholesale access, namely from the new entrant, we don't know if -- with us, there's no discussions whatsoever. With the others, we don't know if there are any discussions, but in terms of closed deals, there's nothing new. Operator: We'll now move on to our next question. We have a follow-up question from the line of Fernando Cordero Barreira from Banco Santander. . Fernando Cordero: It's only one. I just would like to understand if there is any news regarding the legal situation of one of your majorholders, the 26% stake [indiscernible]. Just to understand if there has been any update or you have any update on that situation? Miguel Almeida: Well, that's the easiest question of all. No developments whatsoever. Nothing new. Everything is as it was 1 year ago, 2 years ago, 3 years ago. Operator: There are no further questions at this time. So I'll hand the call back to Pedro Dias for closing remarks. . Pedro Cota Dias: Okay. So thanks very much for tuning in, and we hope to see you back in fourth quarter 2025 results. Bye-bye.

88天前Insight Analytics约5分钟阅读

AXTA 2025 Q3 财报电话会议

Operator: Ladies and gentlemen, thank you for standing by, and welcome to Axalta Coating Systems' Q3 2025 Earnings Call. [Operator Instructions] Today's call is being recorded, and a replay will be available through November 4. Those listening after today's call should please note that the information provided in the recording will not be updated and therefore, may no longer be current. I will now turn the call over to Colleen Lubic, Vice President of Investor Relations. Colleen Lubic: Good morning, everyone, and thank you for joining us to discuss Axalta's third quarter 2025 financial results. I'm Colleen Lubic, Vice President of Investor Relations. With me today are Chris Villavarayan, our President and CEO; and Carl Anderson, our Chief Financial Officer. We posted our third quarter 2021 financial results and earnings release this morning. You can find today's presentation and supporting materials on the Investor Relations section of our website at axalta.com, which we will be referring to on this call. Our remarks today and the slide presentation may include forward-looking statements reflecting our current views of future events and the potential impact on Axalta's performance. These statements involve risks and uncertainties and actual results may differ materially. We are under no obligation to update these statements. Our remarks and the slide presentation also contains various non-GAAP financial measures. We included reconciliations of these non-GAAP financial measures to the most directly comparable GAAP financial measures. Refer to our filings with the SEC for more information. I would like to now turn the call over to Chris. Chrishan Anthon Villavarayan: Thanks, Colleen, and good morning, everyone. Let's look at Slide 3. We're pleased to report another strong quarter with record adjusted EBITDA and record adjusted diluted EPS driven by our disciplined execution. Our team's focus on customer service and leadership in technology enabled us to outperform industry trends in many regions as we continue to secure new business across our global end markets. Net sales were approximately $1.3 billion. While the broader macro environment remains challenged, especially in North America, we're successfully navigating these headwinds. Industry trends were more stable in Europe, which represents more than 35% of our net sales. Global auto production was again a bright spot with current forecast ticking up in October to approximately 91 million builds for the full year 2025, a 2% increase versus 2024. We posted adjusted EBITDA of $294 million with a margin of 22.8%. This marks 12 consecutive quarters of adjusted EBITDA and adjusted EBITDA margin growth year-over-year. The results demonstrate the culture of continuous improvements that we have established across the company. To that point, we expanded the adjusted EBITDA margin in both segments. Performance Coatings adjusted EBITDA increased by 20 basis points from the prior year period to 25.5%, up 170 basis points from the second quarter of 2025. Net sales in Mobility increased 4% to the third quarter record of $460 million due to sustained growth in China and Latin America. The team's focus on new business wins, margin stabilization and operational rigor resulted in an adjusted EBITDA margin of 18% for the segment, an expansion of 230 basis points compared to last year. During Q3, we executed 100 million in share repurchases, reducing our shares outstanding by over 3% since 2023. Adjusted diluted EPS was $0.67, up 6% versus last year. This reflects our robust earnings power and our commitment to returning capital to our shareholders. Lastly, our net leverage was maintained at 2.5x, remaining the lowest level in Axalta's history. Let's turn to Slide 4. Achieving our A Plan target remains top priority, and the third quarter results show that the strategy is leading to enhanced profitability. This quarter marks the sixth consecutive period with an adjusted EBITDA margin above our A Plan target of 21%. The consistency of our adjusted EBITDA margin performance speaks to the foundational improvements we've made to our business. Our Mobility segment continues to perform well, driving 2% organic net sales growth year-to-date. This top line momentum was driven by roughly $60 million in new business wins and 12 quarters of adjusted EBITDA margin expansion in the segment, driven by strength in China and Latin America. In Refinish, we generated approximately $90 million this year in incremental net sales from the execution of our strategies, which include gaining more than 2,200 net new body shops, expanding into adjacencies, implementing pricing actions and integrating CoverFlexx. We believe that we're well positioned for growth in the business as volumes are expected to stabilize and grow into next year. On the industrial side, profitability remains ahead of schedule despite mid-single-digit declines in net sales were exceeding our 2026 A Plan target for profitability expansion one year early. The results show the effectiveness of our strategic product mix and cost management. This has been a great story, and I believe the business is well positioned to capitalize on volume upside once demand rebounds. Additionally, our cost discipline has been outstanding. Interest expense is down 15% year-to-date, bolstering our adjusted diluted EPS performance. Operating expenses declined by 5%, supported by our 2024 Transformation Initiative. This initiative is running well ahead of plan and has delivered approximately $40 million in incremental savings in 2025, further supporting margin expansion. Before turning the call over to Carl to discuss the results, I want to emphasize that we have delivered strong year-to-date results and are on track to achieve record adjusted EBITDA and record adjusted diluted EPS for the full year. Our performance reflects Axalta's dedication the strength of the A Plan and our commitment to delivering value to our shareholders. In the final quarter of this year, we remain focused on execution, operational excellence and disciplined capital allocation. Carl Anderson: Thank you, Chris, and good morning, everyone. In the third quarter, net sales were approximately $1.3 billion, down 2% year-over-year, primarily due to macro headwinds in North America. Positive price cost actions and disciplined cost management helped to offset mix headwinds, resulting in gross margins holding steady at 35%. Variable costs declined 1% year-over-year, and we expect the raw material environment to remain relatively flat through at least the first half of next year. SG&A expenses declined 7%, reflecting our ongoing focus on efficiency and cost management. Adjusted EBITDA increased $3 million versus last year to $294 million, a quarterly record. Adjusted diluted earnings per share increased 6% to $0.67, another quarterly record, primarily driven by lower interest expense and fewer shares outstanding. Operating cash flow was $137 million and free cash flow totaled $89 million. The decline from last year was driven by higher capital expenditures of $17 million and higher working capital as we have strategically held higher inventory levels this year to manage tariff uncertainty. We anticipate that free cash flow will improve significantly in the fourth quarter as working capital unwinds. Net sales for Performance Coatings, as shown on Slide 6, declined 6% year-over-year to $828 million, driven primarily by trends in North America, impacting both businesses. Refinish net sales came in at $517 million, slightly up on a sequential basis from the second quarter. Lower body shop activity and customer order patterns drove declines versus last year in organic net sales, impacting both volume and price mix. This was partially mitigated by favorable foreign currency translation and growth in Europe and Southeast Asia. Industrial net sales declined 4% year-over-year to $311 million primarily due to volume softness in North America, driven by weakness in industrial production and building and construction. Positive price/mix and favorable foreign currency translation partially mitigated volume headwinds. Performance Coatings delivered adjusted EBITDA of $211 million with a margin of 25.5%, an increase of 20 basis points year-over-year and 170 basis points sequentially. Let's look at Slide 7. Mobility Coatings third quarter 2025 net sales were $460 million, an increase of 4% from the prior year. Light Vehicle net sales increased 7% in the third quarter due to net sales growth in Latin America and China and positive price/mix, which offset volume declines in North America and Europe. Commercial Vehicle net sales declined 7%, primarily due to volume declines from lower Class 8 production, which were partially offset by positive price mix, new business wins and favorable impacts from foreign currency. Adjusted EBITDA for Mobility increased 20% year-over-year to $83 million, with adjusted EBITDA margin expanding to 18%. The team's focus on accretive new business wins and cost control have delivered 12 consecutive quarters of adjusted EBITDA year-over-year margin growth, as Chris mentioned earlier. Capital allocation continues to be a critical part of Axalta's value creation story as shown on Slide 8. Since the third quarter of 2023, diluted earnings per share has increased 55% and adjusted diluted earnings per share has grown more than 40%. We have reduced interest expense by 17% in the third quarter, and our net leverage ratio remained steady at 2.5x aligned with our strategy. Consistent with the A Plan, we have increased capital expenditures by approximately 50% when compared to the third quarter of last year, bringing our year-to-date spend to $138 million. Through the third quarter of this year, we have repurchased $165 million of shares with $100 million being deployed this quarter. Overall, our share count has decreased by 5 million shares since the beginning of the year or 3% since 2023. In the fourth quarter, we expect to accelerate our share repurchase strategy by repurchasing up to $250 million of our stock. Upon completion, we would have deployed over 90% of our free cash flow to share repurchases this year while still maintaining our leverage target. As we move forward, we expect to continue to generate sustainable earnings growth and strong free cash flow. The strength of our balance sheet gives us the flexibility to effectively allocate capital to drive long-term value for our shareholders. Let's turn to Slide 9 for a look at the full year. We expect to deliver record adjusted diluted earnings per share and adjusted EBITDA on lower revenue expectations. Previously, we anticipated that the external environment in North America and Europe would pick up in the third quarter, which would have generated a sequential benefit to net sales in the fourth quarter. However, this improvement did not materialize as expected, and we are adjusting our forecast for the softer demand. Additionally, we also expect softer Class 8 production levels and lower Light Vehicle builds in some regions, given some of the temporary supply challenges that are impacting the industry. In the fourth quarter, we now expect net sales to decline by mid-single digits compared to last year. Adjusted EBITDA is anticipated to be approximately $284 million and adjusted diluted earnings per share is projected to be around $0.60. For the full year 2025, our updated outlook reflects net sales of more than $5.1 billion, with adjusted EBITDA expected to be about $1.140 billion which is at the low end of our previous EBITDA guidance range. We are expecting a significant increase in free cash flow in the fourth quarter, which should put us around $450 million for the year, consistent with last year, but down slightly from our previous view. Additionally, we are forecasting adjusted diluted earnings per share to be $2.50 for the full year, an increase of 6% versus 2024 and an increase of approximately 50% versus the full year of 2023. I will now turn the call back to Chris. Chrishan Anthon Villavarayan: Thanks, Carl. We're well underway to deliver another record earnings year here in 2025, and we have always operated with the commitments made, commitments delivered mindset, and we're excited on what we can accomplish in 2026. Next year, we are planning for an improved Refinish demand environment in North America as claims stabilize and destocking headwinds abate. We continue to gain new body shops and are excited about our growth opportunities in accessories and the economy segment. Light Vehicle global production outlook is expected to be stable and we expect to have another record year in our mobility business. In North America, expectations for lower interest rates and less trade volatility should provide a positive backdrop for customer demand in our industrial business. Our team is poised and ready to execute on new business wins and manage costs through operational excellence and a strong pipeline of productivity projects. The team remains fully committed to delivering on our $1.2 billion adjusted EBITDA target. We expect to repurchase a significant amount of Axalta stock given my confidence on where we can take the business in the years to come. We're all about creating value for our shareholders, and I'm more excited than ever of what we can accomplish. Thanks for joining us today. Operator, please open the lines for Q&A. Operator: Yes, sir. [Operator Instructions] Our first question will come from Ghansham Panjabi with Baird. Ghansham Panjabi: I guess first off on 3Q, just as it relates to the auto Refinish component down 7% for the third quarter, at least for the volume component, how would you disaggregate that between just volumes in the industry versus the inventory destocking? And then just related to that, Chris, you talked about 2026. What are the specific strategies that you're pursuing to support an improvement going into next year from a commercial standpoint? Chrishan Anthon Villavarayan: Ghansham, thanks for the question. Well, giving you a view of Q3, what -- the way we look at it is markets are down about mid- to high single digits. And I would call it specific to us, destocking is also around that mid-single digits number and our performance. So whether if you look at the $90 million that I've talked about in terms of the growth that we had in the business or the incremental sales, whether it's what we did in pricing actions, what we did with new body shop wins of 2,200, which is really a good news story for us because on average, if you look at us, net new body shop wins for us, if you look at the last 3 years, average is around 2,400. So here we are in Q3, and we're already at 2,200. So it's actually a pretty good year for us. And then on top of that, whatever we do with adjacency sales as well as the CoverFlexx integration. So I think all of that is driven what's, as you pointed out, let's call it, this mid- to high single-digit drop in sales as you look at Q3. So what gives me confidence as I think about where is the market and do we see stabilization? And I can sit here and talk to you about insurance rates and what's happening with claims. But I think it's really important to start looking at our numbers. And if you look at our Q1, Q2, Q3 numbers for Refinish, we're running around that $520 million sales. And if you look at Q4, we're essentially saying that's going to drop down by about $20 million, which is what is seasonal and normal for us. So you can start seeing the business is starting to stabilize, and that's what gives me confidence as I look at next year and coming out, so we expect Q1 as always to be a little bit lower. But primarily Q2, we should be lapping where we were with the destocking. And then if you have the tailwind of destocking coming out starting Q2, plus assume the same win rate that we've had for this year, what we've done on average on our Refinish business of $70 million to $90 million you can start seeing that Refinish really starts picking up at the back half of next year. So I hope that answers that question for you. Operator: Our next question comes from Chris Parkinson with Wolfe Research. Christopher Parkinson: Chris, ever since you've taken the helm, I mean, costs have been a tremendous focus of your strategy. Can you just kind of give us any context to help us conceptualize where we stand today and how we should be thinking about the ongoing progress as it relates to 2026 in the context of your end market backdrop? Is this something that can continuously improve even when volumes kind of come back? Or is this something where you're going to have to add back costs and you're really operating at a fair rate? I mean just anything to help us triangulate how we should be thinking about that progress over the next 12 to 18 months would be incredibly helpful? Chrishan Anthon Villavarayan: Sure, Chris. I think coming in 2 years ago or 2.5 years ago, I think there was always this view that what Axalta had done with Axalta Way I, Axalta Way II, how could there be more cost in Axalta. And as you can see, I think if you went back to '22 and what we have accomplished, I'm really proud of the team. We have essentially executed on over 500 basis points and a lot of that is really what we have driven in cost. Obviously, when we put the A Plan in place, the markets across all our 4 end markets are in a different spot. And really, a lot of the performance is really coming from what we were able to do with our cost actions. And I actually use a term that I think Carl uses all the time, which is we're still early in our innings. And why do I feel that is if I look forward, again, take a look at how much we're investing in capital. And if you look between '23, '24 and '25, even as we look at this year, under a challenged macro, we're investing more than we ever have in our plans. And so if you have that return coming through in productivity for next year, you have an element of that. If you look at our Transformation Initiative, we talked about that being about $75 million. To date, we have accomplished about $60 million to $70 million. We still have a flow-through of about probably $20 million into next year. So you got that as well. And then what we can do with supply chain optimization, what we can do with footprint optimization, I still think, as Carl pointed it out, we're still early in our innings. I think there's still opportunities there is opportunity with costs that we can continue to drive into next year. And it will be a portion of our plan while we drive the growth as we think about '26. Operator: Our next question comes from Joshua Spector. Lucas Beaumont: This is Lucas Beaumont -- this is Lucas Beaumont for Josh. So I mean most of your '26 outlook comments kind of focused on Refinish. So then maybe if you could just kind of talk us through your expectations there for the other end markets, mainly industrial and commercial vehicles that you didn't really call that much? Chrishan Anthon Villavarayan: Sure, Lucas. So as I look at it, commercial vehicle, we still expect that to be, let's call it, very muted, certainly a different perspective than what we expected for the year being this pre-buy year when we started the plan 2 years ago. I think the expectation was '26 was going to be $60. I think this year, we're probably looking at '26 being around that $225 to $250 range at best. So I think the market certainly is down about 30%, but a true credit to the team is what they've really accomplished in pivoting towards commercial transportation solutions. So even if you look at our performance for this year, sales are down about 30% -- 25% to 30% in terms of volumes in Class 8. And we're down of just about 7%. And it's really because the teams have pivoted towards commercial transportation solutions. And what is that as we started selling to marine, we started selling to military, we started selling to RVs, off-highway. And so the teams pivoted to smaller customers, but a ton of smaller customers, and we're really able to pivot that. So as we look into '26, we believe that we can still continue to grow that business on the CTS side and also grow it globally. We do have opportunities in Latin America. We also have opportunities in China. So that's a great perspective, but as I think about CTS. And one of the things that we're primarily focusing on is really adding capacity also for our Commercial Vehicle business because at some point, that's going to return. We're well beyond -- below replacement volumes. So if you think about '27, when that returns, we certainly need to have the capacity. So that's, again, one of the things that we're focused on investing. If I look at industrial, our plans for industrial is the markets remain somewhat muted. There are signs if interest rates keep coming down, mortgage rates are at the lowest point in '25 at this point. But again, we need further interest rate cuts and obviously some kind of drive to improve residential and construction into next year. So it's not something that we're counting on, but it certainly will provide a tailwind. I think as we look at it right now, [ Freddie Mac and Fannie Mae ] are expecting about 3% to 4% growth into next year. Again, we're not counting on it because that was also a thought process for this year. But certainly, from an industrial dynamic, our perspective is that volume so that market stays flat to possibly up slightly. Commercial Vehicle, as I pointed out, will be down. Light Vehicle, we're expecting a slight step down. We're at about 91 million builds this year and our thought process is it will be slightly lower maybe by 200,000 or 300,000 vehicles for next year. And then finally, Refinish, we're expecting a stable environment into next year. So volumes down, but stable into next year. Operator: Our next question will come from Matthew DeYoe with Bank of America. Matthew DeYoe: Can you just rehash maybe some of the internal discussion around a dividend and thoughts there? And whether or not the Board is becoming maybe more receptive to this? And I guess, as I think more holistically about capital deployment, I know or I should say people generally, would say that you want to kind of be more acquisitive and reshape the portfolio a little bit, but how does your appetite change? Or does your appetite change for acquisitions considerably given your own valuation here today? Carl Anderson: Matt, yes, this is Carl. So as I think about capital allocation here in the near term, we do see tremendous value in our stock at this point. So that's why you're seeing a pretty significant shift, not only what we did in the third quarter, but also plans to deploy up to $250 million in the fourth quarter to buying back shares. I think as we look at the dividend, obviously, this is a board decision. We've had many discussions as it relates to that. And I think as we launch the next A Plan, I think that's probably a time that we'll spend even more with the Board on making a final decision on that. We do recognize we're currently an outlier at least in the chemical space. But I just continue, and we continue to see just tremendous value of repurchasing shares at this point. And I do think that fits into your M&A question. Again, where our trading multiples are right now, M&A is a little bit more challenging. What we can look to accomplish here in the near term. That's why I got back pivoting back and deploying more into share repurchases here, I think, is the appropriate and prudent move. But as we move forward, I think as -- where we could take this business longer term, M&A will definitely play a part of that. But I think we're a little bit of a timing window at this point. Chrishan Anthon Villavarayan: Just maybe to add a little bit to Carl, especially when we look at where we can get '26 and I think as we're building more confidence around the $1.2 billion for '26, it really puts light to the fact that we should probably be focused on buying back Axalta. Operator: Our next question will come from John Roberts with Mizuho. John Ezekiel Roberts: Could you dive a little deeper into some of the underlying drivers in the Refinish business, auto accident rates, insurance inflation, overall repair costs, those are the things I think, that caused the dip in the business? And what are you seeing from those drivers? Chrishan Anthon Villavarayan: Sure. Absolutely, John. So first, as I look at accident rate, accidents or collisions, I think nothing's changed. Accidents are still occurring. That's around -- there's a slight decline. It's about down 1%, but overall accidents are, let's call it, flat to down 1%. If I look at claims, obviously, this is the big driver to what's driving the disconnect. And if I look at North America, that's down about high single digits. Europe is lower, let's call it, in that mid-single-digit range. And the primary driver here is exactly what happened and what we've talked about quarter-over-quarter, which is insurance premiums going up significantly and also consumers pulling back from just a sense of the confidence and the macro. And around this, I think what you can start getting a sense and obviously, we've spent a lot of time because the Refinish business is such a large and very important part of Axalta is certainly something that we've watched carefully. And I think the good news is when I look at insurance cost -- insurance costs, as we said, if you look back to '24, insurance costs were going up almost double digits. If I look at '25, you can start seeing insurance premiums starting to go flat. And that's an overall perspective for the United States, actually in 27 states, insurance costs are actually coming down quite a bit. And I would say, overall, that would mean the other half of the states are going back -- going the wrong way. But overall, insurance rates are stable and starting to get flat. From a repair cost perspective, what we're starting to notice is repair costs are also starting to get flat and go down 1%. Again, as volumes and backlog start reducing at the body shops, you can start seeing that folks are starting to drive to balance this out. So I would -- that's one of the good perspectives that I think is driving a stable environment as I think of how we're preparing into '26. From a perspective of what we're seeing on the premium side, especially with cost of vehicles going up, as well as what's happening with used car pricing, you can certainly see that work is also starting to drive back. The leading indicators are starting to turn positive. And a perfect example of this is if you look at CarMax or Navana -- Carvana, you can start seeing that their performance is also improving by 20%. So that's a great indicator. Those guys are also large customers of ours, and we can start seeing as cars are coming back from lease or being returned, those folks are also having to fix cars before they obviously try to sell them again. So I think the right market environment is starting to switch. Obviously, winter is also coming, if I think about early next year, so I certainly believe '26 will be a different pace as we start the year for Refinish. Operator: Our next question will come from Mike Harrison with Seaport Research Partners. Michael Harrison: I was hoping that you could talk a little bit about some of the costs that you've been able to take out. I understand that the focus has been on structural cost. But I think, in particular, in Performance Coatings, very surprising to see the margin performance even with volumes and with price/mix lower. So to what extent are some of the cost actions you're taking right now temporary in nature or related to lower discretionary spend that we might need to think about accruing or coming back as we think about next year's cost structure, whether that's incentive comp or other discretionary spend? Carl Anderson: Yes, I think as we look at the cost actions we've taken not only in the third quarter, but really over the last couple of years, the vast majority, if not more, are really structural reductions that -- we have an ability to operate more efficiently and how we run the business. I would say there are some tactical things that we've done as it relates to more discretionary around T&E as an example. So some of that may come back as we get into next year. But I think as I look forward, maybe the better way to think about it is for every $1 of incremental revenue, our conversion rate on that to EBITDA, used to be around 35%, I would expect that should be running closer to -- we're going to be probably getting close to about 40%. And that just speaks to the overall structural reductions we've made and that we expect to stick as we move forward. Operator: Our next question will come from Patrick Cunningham with Citi. Patrick Cunningham: Just on the Refinish side, it's pretty firmly low single-digit price/mix declines. Is this primarily stemming from mix as you move into more mainstream and economy? And how would you characterize your outlook on underlying structural price into 2026? Chrishan Anthon Villavarayan: Patrick, just -- maybe it's actually 2 things. The first one is you're absolutely right as we're growing more into our mainstream and economy and certainly, if you look at our new body shop wins, one of the reasons we're doing so good at body shop wins for this year ahead of what we normally have is foray into mainstream and economy. And with the acquisition of CoverFlexx that's really enabled us to grow. Actually, the last 2 quarters, Q3 and Q2, where some of the highest number of mainstream and economy body shops with one in that segment. We have normally focused on the premium segment. And so you are seeing, let's call it, negative mix from that because the margins in mainstream and economy are lower than our premium margins. However, it's still accretive to Performance Coatings margins or overall Axalta margins. But separate from that, also, when you think about the fact that in this last year, most of our impact from destocking is primarily a North American issue and so whether it's the volume decline that we have seen because of where the market is in North America, plus destocking North America was one of our highest or is one of our highest margin businesses. So it drives a negative mix as well. And as we flip into next year and we get past the destocking issue, I think a lot of that will still be mitigated as especially because the mainstream wins, it will take quite a bit to offset the, let's call it, the step-up from destocking that we expect into next year. Operator: Our next question will come from Aleksey Yefremov with KeyBanc Capital Markets. Aleksey Yefremov: Good morning, everyone. I was hoping to get some of your initial thoughts on Refinish pricing strategy for next year. Should we expect '26 to be a typical Refinish year? Or are you adjusting your expense based on this current environment? Chrishan Anthon Villavarayan: Our plan is to probably to stick to a similar pattern as what we've accomplished for this year. So, Aleksey, that normal 2% is net pricing is what we drive. At this point, that's exactly what we're thinking for next year. Primarily, it's certainly a model that's worked. And I don't see us needing anything further than that. As we pivot into, let's call it, more mainstream as well, I mean the pricing dynamic is slightly different there. But overall, the aspect of driving growth, driving what we're going to be doing on the, let's call it, adjacencies perspective. Those have a little bit of a different pricing mix, let's call it algorithm. But other than that, what we do for the premium business will be probably in line with what we did this year. Operator: Our next question will come from David Begleiter with Deutsche Bank. David Begleiter: Just on Q4, in terms of 2 things, on production, are you running your plans normally? Or are you drawing down some inventory that could be hit to earnings? And on SG&A, should we think about a similar year-over-year decline in SG&A expenses, as you saw in Q3 of roughly 7% year-over-year? Carl Anderson: David, yes, SG&A, I would expect that performance in the fourth quarter will be very similar to what we saw in the third quarter as it relates to that reduction. And then as it relates to inventory, we are expecting a drawdown as we think about the working capital unwind. As I said in my prepared remarks, the third quarter, we did actually run higher inventory levels really just due to some tariff uncertainty in North America, but also within Brazil as we were ramping up our new business wins in that market. So overall, the fourth quarter is shaping up to be a very strong free cash flow quarter, but a big part of that will be the inventory reduction. Operator: Our next question will come from John McNulty with BMO Capital Markets. John McNulty: Can you flesh out a little bit what you saw on the raw material side, what you were seeing kind of in some of the major buckets, how much tariffs impacted you if you think you're pretty much through that tariff headwind at this point at least from an incremental headwind perspective? Chrishan Anthon Villavarayan: For raw materials, in tariffs, we're probably about $20 million or the expectation would be incremental costs that have kind of come in that we've been able to kind of manage through pretty effectively. So at this point, and you never know, but I would say we believe we're pretty much kind of behind that. And kind of the big buckets for us, in total, as we referenced, we saw the raw material basket down about 1% in the third quarter. And if I look at kind of the big items, I think solvents continue to be a very low pricing environment, and we continue to see that benefit. Same thing as it relates to [indiscernible] is another one that we've seen lower cost. There's been some offsets to that in some of the other baskets, such as monomers as well as some pigments as well. But net-net, very stable backdrop to raw materials at this point and we do believe that's going to continue on at least for the next 3 to 4 quarters. Operator: Our next question will come from Vincent Andrews with Morgan Stanley. Vincent Andrews: Chris, the slide indicates that you're expecting Refinish revenue to turn positive in 2Q '26. Do you expect volume to turn positive in 2Q '26? Or is that going to come later in the year or not at all? Chrishan Anthon Villavarayan: No, volumes -- Vincent, we're expecting volumes to also turn positive into Q2 as well. I think you'll get 2 benefits. Obviously, if you think about our body shop wins as well as the adjacencies, a lot of that will transition. Obviously, there's a bit of a ramp-up with that as well beyond what we have this year. So that you would have that tailwind on top of, let's call it, just the destocking coming -- abating. And so that you will get probably a drive from both of that. So from our perspective, we expect volumes to start trending positive in Q2 of next year. Operator: Our next question will come from Jeff Zekauskas with JPMorgan. Jeffrey Zekauskas: You said you might purchase up to $250 million in shares in the fourth quarter. What will determine that? Does that have to do with the price of your shares and how much have you bought so far this quarter? Carl Anderson: Jeff, yes, I think for the quarter, we repurchased $100 million of shares in the third quarter. In the second quarter, we repurchased $65 million. So we've done $165 million to date. The $250 million is where the market is today, even if it's up probably 10% plus, we're a buyer of the stock. We have a big belief in where we can continue to take this company as it relates to earnings and revenue and what the future will bring. And at these trading multiples, it makes all the sense in the world to deploy almost all of our capital at this point to buying back shares. So we will be a big buyer of the shares here in the fourth quarter. Operator: Our next question will come from Mike Sison with Wells Fargo. Michael Sison: I'm just curious if -- I don't want to be a [indiscernible], but is 2026 Refinish doesn't normalize as an industry, how does your strategy change? And is there enough market share gain for you to generate some volume growth in the second half next year? And then BASF sold their business to private equity, are there opportunities -- is that good for the industry? Are there opportunities for market share gains? How do you sort of view that? Chrishan Anthon Villavarayan: Mike, so maybe I'll start with the first one. If I think about Refinish, overall, this industry has been very stable. Obviously, I look at what happened this year as something that is more temporary and certainly, as we look at where our numbers are coming in and once you take out destocking, you can get a sense that with the drop that we have seen there's a sense of stabilization that's happening. And I certainly see it as I look at our sales quarter-over-quarter-over-quarter. And so -- and if you start thinking about the fact that if you put in perspective the fact that Axalta is a leader in the Refinish space and certainly, with our market position and as I look at what's happening as we enter the economy space, certainly, as I think about the number of body shop wins in this challenging market, where we're all chasing sales, Axalta is winning when I think about the 2,200 body shops. So as I think about next year in a market that is in a similar perspective, I think if you pull out the destocking, there is still an opportunity for us to continue to grow, and we will pivot into other areas. So as you look at what are we doing into adjacencies, as I look at pushing what we're doing with putties, fillers, aerosols, we've essentially been able to take the product out of Europe within the U-POL acquisition and really pull it into North America. And we've gotten on thousands of shelves at O'Reilly and AutoZone to be able to take our aerosol product to market. And in essence, what we can do with private branding, what we can do with just expanding that portfolio even with some small bolt-on tuck-ins, I think there's an incredible opportunity with what we have as our strength in the market to be able to continue to grow that segment. We've been very focused on cost. I think as I look at next year, we can certainly pivot towards growth, especially with the strength of the underlying business. So as I think about Refinish, I think with what we have in the portfolio, as well as small elements that if we need to add, we can certainly have a growth story even in a challenged market. So that's the first perspective, as I think about, let's call it, Refinish. To answer the question on BASF, obviously, BASF has been a competitor of ours for a very long time back to DuPont days and all the 11 years of Axalta, and they certainly play a very strong -- they're a very strong competitor of ours in most -- both the Mobility space and the Refinish space. So it's a competitor we know well. And as I think about what is necessary under [indiscernible], I think the drive for margin will probably drive a very good competitor. And I think it will drive some discipline into the marketplace. And we've known them well. So it's probably a good story overall. So I don't expect anything different there. The good news is really the multiple that BASF was sold for. It really shows the valuation that the, let's call it, that Axalta is undervalued. And I think going back to Carl's comments, this is why we're doubling down on buying 90% of our free cash flow, using that to buy back shares. And to the question earlier about why are we confident about $250 million for next year. We're just going to essentially use our Q4 cash flow and essentially continue to buy back Axalta. And if I look at '26, and once you get very confident and once I feel confident around '26, I think the free cash flow from there, we have about $150 million left in our authorization. We'll certainly go back for another $0.5 billion or $1 billion. And I think we can certainly focus on continuing to buy back Axalta because it really shows the value that our margins can provide and what we can do with the business long term, and we'll certainly be an acquirer of our stock. Operator: [Operator Instructions] Our next question will come from Kevin McCarthy with Vertical Research Partners. Kevin McCarthy: Yes. Chris, are you still working on a new company-wide strategic plan to follow the A Plan? If so, I was wondering if you could just comment at least just qualitatively on what you think the company might need to focus on operationally in the years to come versus last couple of years? It sounds like you see runway on cost and clearly, a lot of room to accelerate repurchases. But any other color on where you'd like to take the company strategically? Chrishan Anthon Villavarayan: Yes. Thanks for the question, Kevin. And so certainly, I think if we think about the 5 elements that we defined under the A Plan, under 4 of them, we're certainly in a great position and we are there, a year ahead of plan. So you -- it really positions you to what we need to work on. And the 5 were say a growth, number one. Second was margin. We set a target of 21%. We're close to 23% as we stand right now. The next one was EPS, and we're certainly well beyond our plan there were, as I think about it, will be 70%, if I look at where we'll close the full year. The next one was leverage ratio, and we're -- we set a target of 2 to 2.5, and we'll be the -- right there at the end of this year at 2.5, probably 2.4. And then finally, under ROIC, we're also very close to that target. So the primary focus, as I think about, a, 2029, which are -- Kevin, our plan is to roll that out by May of next year, is to really drive the growth elements. I think the underlying business is performing exceptionally well coming in -- we had 2 areas to focus on. If I go back to the beginning of '23 and in the A Plan, we focused -- we wanted to essentially make sure we got the underlying business where we needed to. And I think that's certainly been a good story for us. And now it's to really pivot to growth. And so as I look at what we will define in the A Plan, there will be primarily a plan that uses -- Axalta has one of the highest margins in the coatings industry. And I think we can use a little bit of that firepower as well as really focus this exceptional team towards what we need to do to drive growth, and that's what you're going to see a lot more in the A plan. Operator: Our next question will come from Arun Viswanathan with RBC Capital Markets. Arun Viswanathan: I guess I just wanted to go back to just kind of a structural question on Refinish as well as Industrial. It appears that Refinish claims are obviously down significantly high single digits this year. Industrial has also been down maybe double digits for a little while now. So what's it really going to take to get these markets back going? Is it kind of inflation on the Refinish side and maybe PMIs on the Industrial side? Or what do you think? And is there anything that you guys can do within your own control to maybe spur some demand if you talk about innovation or maybe adding on the economy side or some other initiatives? Chrishan Anthon Villavarayan: So we normally start on the Refinish side. So Arun, thanks for the question. I'm going to start with Industrial. The Industrial story, as I said in my prepared remarks, I think has been a great story. And even if you look at this quarter, I'd say the markets have been down, let's call it, high single digits, probably just north of 7%, and we're down about 4%. And if I look back and go back to '22, which we were still in the COVID times, the sales, the industrial market, to your point, has been down about 20% to 25%. But we've been down -- we went back all the way to '22, our sales are only down about $100 million. So down, let's call it, mid- to high single digits. And so what's really -- why is this a good story is, if I look through the fact that in that time, the team has driven some incredible performance in the business. We set a target of 400 basis points of margin improvement. And I would say we're north of 500 at this point. And I still think there's more gas in the tank in that business. So we took a business that was, let's call it, very low single-digit margins to almost -- well, above double-digit margins. It's been a great story for us. And what did we do? We really [indiscernible] down some customers. We focused on pricing for the value that we bring to the business. And we really invested and essentially picked -- that business has 3, let's call it, segments, it's got building products. It's got industrial sales and it's got energy solutions. We focus -- and underneath that, there's 12 sub businesses. We focused on a few. We essentially really drove the performance through those to where we knew that we made a difference to our customers and we have certainly driven the margin as well as the growth in that business. Our Energy Solutions business is doing great. If we look at China, it's growing. We provide impregnating resins in that business for motors. We provide coatings for battery casings which is doing great in not only what we provide for vehicles, but also for the industry as cell for data centers. So that's again, a business that's doing very, very well. And so it's been a great business. The margins are in a great spot. There are still elements in that business that we can look at probably at some point, as I've said before, that we might get out of. But that said, the overall business is at a great spot. And what I think is necessary for that to grow is pretty straightforward. It's I think waiting for mortgage rates to adjust and or come down and building -- to your point, PMI, anything that can spur construction is certainly something that we're waiting for. But on top of that, we do believe that we can drive growth in Energy Solutions, coil and certain aspects of that business. So that's Industrial Solutions. In Refinish, I do believe that next year, we should see some stability. The destocking issue for us is specific for us because we have -- we go to market through 3 large distributors and one of those distributors essentially worked on acquiring another one. And that essentially meant that there was over 100 locations and warehouses that were essentially closed down. And so inventory was taken out of the system that takes about a year because of the process they went through. And in essence, we see that as something that will switch and will be temporary and something that we will get out of in Q2 of next year. So that's what gives me confidence in that market that we should have some level of stability. But our story here is really the fact that we continue to win. We believe that we can grow that market at the same rate or better as we proved this year. And we can certainly grow through new body shop wins. We can certainly push more in terms of adjacencies, and we can certainly get into the economy space. We have only 9% market share that we moved to 11% and we believe we can continue to grow that. So that's our story. And I think as we -- as Q1 starts up and as you look at our full year guide for next year, you should get confident around what our story is going to be for '26. Operator: Our next question will come from Laurence Alexander with Jefferies. Laurence Alexander: Just wanted to come back to 2 brief points. So one on the working capital, how do you see your working capital days evolving when your end markets recover? And secondly, on SG&A, what do you see is -- can we annualize the back half of this year as a run rate for next year? Or will there be a kind of reset in a healthier environment? Chrishan Anthon Villavarayan: Yes. So SG&A, I think you'll definitely see the same impact in the fourth quarter that you saw in the third quarter. As you kind of flip into the next year, there probably will be a slight increase, as I think about SG&A, just as a percent of sales as we think about having a little bit higher cost as it relates to merits in the organization. But it will still be running at a pretty low level on a percentage of sales basis as we kind of go forward. And then on working capital, as I said, I think in the fourth quarter, we are anticipating a pretty big increase from free cash flow. A lot of that is, as you can just look at how the third quarter came in, there will be some inventory reduction. It's a very strong seasonal quarter for us anyways. If I kind of go back in time, fourth quarter of '23, we generated over $250 million of free cash flow, over $200 million back in the fourth quarter of 2022 as well. So that speaks to the power and the acceleration of what we expect in the fourth quarter. And then as we move forward into next year on an increasing revenue environment, I think we will be very, very targeted on running the right inventory level. So we don't want to overshoot that as we think about managing overall working capital because I think getting into next year, the free cash flow capability should be very, very strong again for us. Operator: Thank you. At this time, there are no further questions. And this does conclude today's presentation. We appreciate your participation, and you may disconnect at any time.

88天前Insight Analytics约5分钟阅读

MMYT 2026 Q2 财报电话会议

Vipul Garg: Welcome to our fiscal '26 Second Quarter Earnings Webinar. Today's event will be hosted by the company's leadership team comprising Rajesh Magow, our Co-Founder and Group Chief Executive Officer; Mohit Kabra, our Group Chief Operating Officer; and Dipak Bohra, who has recently joined us as Group Chief Financial Officer. As a reminder, this live event is being recorded by the company and will be made available for replay on our IR website shortly after the conclusion of today's event. At the end of these prepared remarks, we will also be hosting Q&A session. Furthermore, certain statements made during today's event may be considered forward-looking statements within the meaning of safe harbor provision of the U.S. Private Securities Litigation Reform Act of 1995. These statements are not guarantee of future performance, are subject to inherent uncertainties and actual results may differ materially. Any forward-looking information relayed during this event speaks only as of this date, and the company undertakes no obligation to update the information to reflect changed circumstances. Additional information concerning these statements is contained in the Risk Factors and Forward-looking Statements section of the company's annual report on Form 20-F filed with the SEC on June 16, 2025. Copies of these filings are available from the SEC or from the company's Investor Relations department. I would like to now turn the call over to Rajesh. Over to you, Rajesh. Rajesh Magow: Thank you, Vipul. Welcome, everyone, to our second quarter call for fiscal 2026. As you will recall, Q1 was impacted by a series of exceptional external events such as geopolitical tensions post the unfortunate Pahalgam terrorist attack on tourists and the tragic airplane crash at Ahmedabad. These events impacted the consumer sentiment for travel, especially for leisure. Additionally, supply side constraints continue to impact the domestic aviation market growth in Q1. I am happy to report, however, that as we entered Q2, the broader travel and tourism demand started to rebound across travel segments despite Q2 being a seasonally slow quarter. And our diversified product portfolio covering all travel customer segments of retail as well as corporate customers helped us deliver strong overall performance in the quarter. Barring the domestic air markets slow recovery due to temporary supply constraints where we continue to maintain our market share of 30% plus levels. All other modes of transport segments like bus, rail, camps and international air witnessed robust growth. Consequently, we saw a robust growth in our hotels and [ ACCO ] business, both for domestic and international travel segments as well. Our adjusted operating profit for the quarter was at $44.2 million, witnessing growth of 18% year-on-year. Consumer sentiment towards travel remains positive, supported by high propensity of experiential getaways and short breaks. In air segment, international outbound travel from India presents a significant growth opportunity. Being an unpenetrated segment for an online perspective, we remain focused on growing this segment. in Q2 fiscal year '26, our international air ticketing revenue grew by over 29.6% year-on-year in constant currency terms, far outpacing industry growth. Similarly, our international hotels revenue grew by over 42% year-on-year. Our international business now contributes 28% to the overall revenue, up from 25% during the same period last year. On macro front, we welcome the recent fiscal and monetary policy measures to rationalize and reduce GST rates. Income tax cuts announced in the budget and interest rate reductions to further boost the consumption. These measures will provide a further boost to the disposable income and discretionary spending, particularly within urban middle income, middle income households. Analysts estimate that the combined fiscal and monetary stimulus from these measures could unlock additional consumer spending of $3 billion to $3.5 billion during the latter of fiscal year '26. This, along with increasing desire to travel more among Indians should help in growth of travel market as well. Let me now move on to share the progress on our AI journey. AI continues to be at the center of our core strategy for us to enhance customer experience and improve productivity. We launched the beta version of our AI-powered conversational travel assistant Myra in August 2025 and is currently available in English and Hindi with voice and text features and plans to expand to more Indian languages soon. The initial response has been encouraging for collection of consumer insights as travelers begin to interact with this new interface. In a short span of time, the agent has scaled to over 25,000 conversations daily. Myra is poised to redefine and help travelers explore, plan, book trips all at one place, making it super simple for new users and comprehensive at the same time for complex travel use cases. By simplifying the discovery and booking experience through natural language interaction and personalized recommendations, we plan to transform how travelers plan their journey, journeys, making travel planning faster, easier and more intuitive. We aim to make our platforms the default search engine for the travel needs of Indians. Myra is contributing to this by significantly enhancing user engagement. More than 35% of travelers begin engaging with Myra up to 90 days before their trip, using it as a space for exploration and planning. What also stands out is how the return nearly 1 in 4 users come back seeking help across multiple categories, from and visa queries to flights, ForEx, hotels and local experiences. They're not just asking where to go, but also what to do once there turning Myra into an end-to-end companion that guides them for from inspiration to action. Myra is also helping us penetrate deeper into India with voice-first engagement strategy with new user share at about 20%. In Tier 2 and Tier 3 cities, voice adoption is 50% higher than in metros. 60% of voice queries come in English compared to just 20% in text chat. When travelers speak to Myra, they speak naturally freely and confidently with over 70% of conversations now being termed good conversations. Voice-led conversations are richer and longer, users ask follow-up questions, express preferences and describe context just as they would with a human travel expert in a country where digital electricity and linguist diversity very widely. Myra's voice-led discovery is quietly expanding access, unlocking the next wave of online travelers, who are more comfortable speaking than typing. For our cabs business, we also launched our GenAI-powered presales chatbot. The bot acts as an information provider as a recommender and provides assurance to the customer. We are expanding the coverage. This bot-plus assist approach drives a high conversion rate compared to traditional agent and traditional agent-led assistance for users who interact with it. We are expanding the bot's capabilities with a new agentic seller person for advanced search and quick actions while continuously improving accuracy and chat quality. Besides, as part of our ongoing efforts to enhance customer experience and to strengthen our post-sales flow further. We recently launched GenAI voice agent for our flights and hotels customers, which is designed to handle all customer queries received via calls and offer resolutions to the consumers in the same call. This agent is successfully integrated with our telephony system, enabling the AI agent to handle calls with background noise, interruptions and accurately interpret queries including complex sections like date change, web check-in, cancellations, et cetera. Let me now turn to business segment, starting with air ticketing business. The domestic supply continues to be impacted, thus affecting the overall domestic air passenger growth, which witnessed a decline of 3% year-on-year. The outlook for domestic supply in H2 is improving with daily expected to cross 3,200-plus, which is similar to Q3 of last year. We believe these issues are short term in nature and long-term outlook for Indian aviation sector continues to be robust. Our accommodation business which includes hotels, homestays and holiday packages delivered a strong 18% volume growth year-on-year in a seasonally weak quarter, short holidays and weekend gateways continue to define travel behavior and emerge as a key theme. We continue to see new demand peaks in the long weekends. For the weekend of 15th August, we had an all-time high hotel check-in, which was about 20% higher than the last peak. It was also very well supported by robust growth of 38% year-on-year in the hotel segment of our corporate business, helping us deliver strong overall growth. The outlook for India's hospitality sector remains optimistic, supported by sustained demand and expanding supplier base and a healthy pipeline of new signings across markets. According to HBS data, domestic and international chain hotels signed over 36,400 rooms by August 2025, a 32% increase over the same period last year. We continue to expand our supply base in domestic market. We now have 95,000-plus accommodation auctions available on the platform, covering 2,000-plus cities in the country. Events are emerging as a high-intent travel driver across entertainment, sports and cultural segments. We have built specialized mapping between major events and nearby stays, improving conversion through dynamic packaging. From IPL weekends to music festivals to these moments now form predictable demand peaks. With real-time availability, we are turning spontaneous plans into structured high-yield travel opportunities so that users can book their stay near to the venue as well in advance. Our international hotel business continues to report strong growth driven by rising air connectivity and the accelerated shift from off-line to online travel purchasing behavior. We are witnessing rapid adoption and digitization in Tier 2 and Tier 3 cities as first-time international travelers increasingly use mobile platforms to book stays, flights and activities together. We continue to increase our hotel inventory across international destinations, which are of interest for Indian travelers, recognizing the influence of food on hotel selection by Indian travelers, we enhanced our restaurants section to highlight user generated insights on breakfast, calling out Indian vegetarian options and familiar menu items, further strengthening relevance for India travelers. Our holidays package business grew in line with seasonality. We continue to strengthen our product proposition. We have launched curated packages to Vietnam with exclusive direct flights starting December 9, 2025. We have scheduled multiple flights for the upcoming winter season, as Fokko currently has no direct connectivity from India. The direct service will cut travel time from around 8 hours by connecting routes to just about 5 hours, making our air line far more accessible for Indian only holidaymakers. Indian travelers today are looking for designations that offer unique experiences, easy access and great value. For cockpits, the bill, but has remained relatively underexplored due to the lack of direct connectivity. We are making this unique destination directly accessible for Indians planning their international holidays this winter. Our homestay business continues to scale well and we'll continue to build the category and expand our homestay supply. We added over 49,000-plus rooms to the overall supply during the quarter resulting in a cumulative supply growth of about 35% year-on-year. Our aim is to build a category and solve for the consumer pain points. food availability remains one of the most frequent customer queries for alternative accommodation stays with a clear guest preference for properties offering ready meals over self cooking options. To address this, we revamp the food and dining module across both supply and consumer products. The new flow enables us to provide rich details on new availability, pricing, cuisines, variety and timings, along with cook availability and associated charges for customized means. In our bus ticketing business, we witnessed strong growth in Q2, led by strong inventory addition and with all regions growing 20% plus year-on-year. Inventory addition remained strong throughout Q2 fiscal year '26. This trend of investment in new buses, among private operators is likely to continue in the upcoming quarter as well due to increased festive demand. We expect further moyancy in new bus addition with reduction of GST for procurement of buses announced in September. During the quarter, we have onboarded Gujarat and Odisha State Transport Corporation, leading to the addition of 5,700-plus services. Our growth continues to be broad-based with all regions growing in double digits with North and Gujarat, Rajasthan growing at 40% plus in Q2. We have also launched bus booking options within our Red Rail stand-alone Android and iOS applications. We continue to strengthen our customer proposition within our trains business during the quarter. We launched the food on train feature in partnership with Zomato that's expanding on our customer convenience initiatives within the trains category. The service is now live across 130 stations and is accessible to both transacting and nontransacting users. Early results have been promising with strong conversion in our funnel engagement. Notably, a significant share of users are placing orders up to 2 hours prior to station arrival, an order span a wide range of cuisine types indicating both the flexibility and variety of selections available to customers. Our corporate travel business via both our platforms, that is myBiz and Quest2Travel is witnessing strong growth on the back of new customer acquisition our active Corporate customer count on myBiz is now over 75,500 plus compared to 59,000 customers during the same quarter last year. And for Quest2Travel, the active customer account has reached 527 corporates compared to 462 customers in the same quarter last year. Before I conclude, there is a quick reminder of key leadership role changes announced recently. After a successful stint of 14 years as group CFO, Mohit has taken on a larger role of leading business and has been elevated as Group Chief Operating Officer. In his current role, Mohit will work closely with business head and will drive the future growth agenda of the company. We also welcome Dipak Bohra, who joins us as Group CFO. Dipak is a chartered accountant, comes with 30 years of rich experience in the field of finance. Dipak joins us from Wipro, where he has handled large teams and led a variety of roles within the finance function. I wish them all the best for their new roles. With this, let me now hand over the call to Mohit for financial highlights of the quarter. Mohit Kabra: Thanks, Rajesh. Welcome onboard, Dipak and hello, everyone. The last 2 months of the previous quarter that in May and June were impacted by a series of external events and the weak sentiment for domestic air travels spilled over into the reported quarter due to continued supply constraints leading to a market degrowth of about 3% year-on-year in the domestic air market. Quarter 2, which is generally a low season quarter was also impacted by excessive rainfall, particularly in some of the North Indian states and union territories like Jammu & Kashmir, Laddakh, Himachal Pradesh, et cetera, which led to a degrowth in the 20s in these regions on a year-on-year basis during the quarter. Despite these macro conditions, we leveraged our one-stop shop approach across travel services to drive growth why accommodation other transport segments like bus ticketing to make the most of the overall bounce back travel demand during the quarter. As a result, the highlights of the quarter were hotels and packages adjusted margin growth, which accelerated from 16.3% year-on-year in Q1 to 21.6% year-on-year in constant currency during the reported quarter. Within this segment, the stand-alone hotels adjusted margin growth accelerated from 18.5% in the previous quarter to 23.1%. In the nonflight transport business, bus ticketing adjusted margin growth increased from 34.1% year-on-year in the previous quarter to 44.1% year-on-year in constant currency during this quarter. Before I get into the financial details, I would also like to call out a couple of accounting items in this quarter for a better understanding of the results that we are calling out right now. You would recall that last quarter, we had raised an additional capital of approximately $3.1 billion through a mix of primary offering of ordinary shares as well as convertible sernior notes maturing in 2030. The entire net proceeds from the offerings were used for repurchase of large shares. On the second slide, 2025, we completed the repurchase and cancellation of 34.4 million Class B shares. Out of $3.1 billion raised, about $1.4 billion were raised through 2030 zero coupon convertible notes. And while these notes have no interest costs associated with them, as per IFRS, about $1.1 billion has been recognized as debt on the balance sheet and the balance of about $319 million will be recognized as an interest cost in the P&L every quarter over the next 3 years until July 2028. As a result, $24.3 million has been recognized as interest costs during the current quarter related to the 2030 convertible notes in addition to about $4 million of finance costs, which is recognized every quarter for the 2028 notes issued earlier in 2021. Please note that this active interest cost of $28.3 million will not have any bearing on the operating profitability of the company as there is no actual interest outgo whether in cash or otherwise, as these are zero coupon convertible notes. Secondly, while our operations are predominantly in INR, our reporting currency is dollars, as a result of which there are usually translation-related ForEx gains or losses. A result of the sharp weakness in INR versus the USD during the current quarter, we have recognized the foreign currency loss of $14.3 million during the quarter. Both these items that is interest in ForEx cost of approximately $28.2 million and $14.3 million have been recorded in the finance cost line in the P&L. As a result, we reported loss for the quarter of $5.7 million compared to a profit of $17.9 million during the same quarter in the last year. However, our adjusted operating profit has registered a strong growth and has reached $44.2 million during this quarter compared to $37.5 million in the same quarter last year. Moving on to our segment results. Our air ticketing adjusted margin stood at $102.8 million, registering a year-on-year growth of 10.6% year-on-year in constant currency. In the domestic air market, we maintained our market share of about 30%. Our international air ticketing business continues to grow faster than the market in market share. Volumes in this segment grew by over 16% year-on-year, which is almost 2.5x the market growth of about 6% during the period. In the quarter, the mix of international air ticketing business has reached an all-time high of 43% compared to 37% during the same quarter last year. In the hotels and packages segment, adjusted margin growth stood at about 21.6% year-on-year in constant currency terms, resulting in adjusted margin of $105.8 million during the quarter. We have witnessed strong growth despite Q2 being a seasonally slow quarter for leisure travel. The growth for stand-alone hotels was even better by 23.1% year-on-year. The mix of international hotels and packaging revenue reached 23.4% during the quarter, up from 21.4% same quarter last year. Now bus ticketing business, adjusted margin stood at $37.7 million, registering a strong year-on-year growth of 44.1% in constant currency terms. Most of our internal services such as travel insurance, ForEx, et cetera as well as other transport services such as cabs and rails have also shown good growth during the quarter. As a result, adjusted margin from the others category came in at $20.5 million, a strong growth of 29.7% year-on-year in constant currency. Moving on to the expense side. Most expenses have come in line during the quarter. Marketing and sales promotion expense for the quarter stood at 5.2% of gross bookings compared to 5.1% in the previous quarter and 4.6% during the same quarter last year. This has been in line with our segment margins being better than both the previous quarter as well as the same quarter last year. As a result, our adjusted operating margin has actually improved from 1.66% of gross booking value during the same quarter last year to 1.8% of gross booking value during the current reported quarter. We ended the quarter with cash and cash equivalents of $835 million, translating to an increase of $31 million over the previous quarter. We will continue to look for organic and inorganic investment opportunities through the year. Looking ahead, while the growth in domestic air ticketing is marked by short-term supply side challenges, we believe the GST benefits have come in at a very appropriate time, a reduction in rates for procurement of new buses as well as reduction in GST for hotel stays up to a price point of 47,500 will help reform the travel demand -- for the demand for travel services after a muted first quarter. These measures are expected to boost demand, particularly in the value sensitive segments, supporting volume growth and market penetration in key regions, including Tier 2 and Tier 3 cities. With our omni-channel platform strategy across retail, B2B and corporates and the increasing supply of services being contracted across the length and breadth of the country, we remain focused on driving growth ahead of the industry. To conclude, our diversified portfolio, execution capabilities and optional discipline continue to push on as well for sustained long-term growth and value creation. With that, I'd like to turn the call back to Vipul for Q&A. Vipul Garg: Thanks, Mohit. [Operator Instructions] The first question comes from the line of Sachin Salgaonkar of Bank of America. Sachin Salgaonkar: Can you hear me? Vipul Garg: Yes, go ahead. Sachin Salgaonkar: I have 3 questions. First question is on the air capacity issue basis. Our understanding, it looks like most of the Air India planes are back and not all Indigo planes are back. So just wanted to understand where are we on the air capacity issue? And how should we expect demand going ahead, particularly for the December quarter? Rajesh Magow: Yes. Maybe I can take that, Sachin. So as I think it was there in my script, I was reading out. So in the current quarter, what is expected is that as far as domestic air market is concerned, that the daily departures will get back to about 3,200 plus, which is similar to the same period last year. That is as far as domestic. Now this data is obviously -- this is the -- it's quite informed data this basis, the inputs that we have from the we have from the airlines, which I think it's a good start. Ideally, obviously, we wanted it to grow, but as you know, this quarter, there was a dip 2, 3 percentage points. But now if it gets back to the same level, it's a decent start, and this is also -- it is because of the -- because of what you mentioned, right? So some planes are coming back and the others are coming back slowly. But very interestingly, worth also mentioning is that this is as far as domestic air market is concerned, but for international air in this quarter as compared to the same quarter last year, the number of departures actually went up about 30 departures daily departures went up. And out of that, the two main noticeable countries where it went up significantly was actually Thailand and UA, which are effectively the sweet spot for us and also for the overall Indian travel market for outbound. So as far as international is concerned, it's doing well. It's back. As far as domestic is concerned, constraints still remains, hoping it will lift soon. Sachin Salgaonkar: Very clear. And there are 2 parts elements going into the December quarter, right? One, what you highlighted right now, which is not the entire supply is up, but on the second hand, we are actually seeing benefits coming from a GST perspective. I would love to understand from you actually, are these because on the face of it, clearly, you should see GST benefits. But in terms of advanced booking and others, are we seeing this December turning out to be slightly better as compared to, let's say, December last year, purely on the back of more money in the hands of consumers? Rajesh Magow: Yes, I would say, Sachin, I think it's a decent start, but in all fairness for our category, specifically for travel, while for the other nontravel categories, a lot of the shopping and the consumption picks up before Diwali. For travel, it picks up actually after Diwali. And therefore, we will have to just wait and watch for a little bit more time. But early signs are clearly there. Like I think we should just look at this overall consumption both story, mostly looking at an overall GST reduction that has been announced sort of across the categories, which effectively put small money into your pockets. And that coupled with the fact that there is more desire to travel. I'm quite optimistic that travel as a category will also benefit out of this overall sort of GST reduction and more disposable income in consumers hands. Mohit Kabra: Sachin, let me just add, as you know, the advanced purchase window, particularly in India on travel is not very high. And as a result, it's kind of a bit more bookings, which happened in the last week or so ahead of scheduled travel. And therefore, it's kind of slightly difficult to call out in terms of future bookings in our kind of a market. But like Rajesh called out, it's a very positive development. And if you look at it from an Indian traveler point of view, our kind of average ASP on the hotel accommodations tends to be below the 7,500 kind of price point on which the GST reduction has been announced. So therefore, this will actually benefit bulk of the bookings. So to that extent, it should be a very positive development on driving kind of travel demand overall in the coming quarters. Sachin Salgaonkar: Very clear. Second question, marketing expenses clearly increased and moved to 5.2% as a percentage of gross bookings. I just wanted to confirm that this is mainly on the back of a slower consumer spend and less to do with competitive intensity. Is that a fair observation? . Rajesh Magow: See, I'll just call out that if you -- it's also got to kind of look at the overall marketing and sales conversion spending in tandem with our kind of segment margins. And like I called out across the Board, across segments, we have actually seen margins strengthening and particularly in weaker seasonality like Q2, this tends to happen. And both on a quarter-on-quarter basis as well as a year-on-year basis, we have actually improved margins and therefore, to some extent, that's also been kind of -- that's also got deployed. But with the improved mix across segments and the improved margins across segments, this actually is kind of pretty much in line in terms of the call out that we had made. Sachin Salgaonkar: Got it. And then on this -- the improvement in margin, is it seasonal? And should it normalize going ahead? Or we should see the take rate improvement continuing both that they had and hotels going ahead? . Mohit Kabra: To some extent, it remains seasonal because depending upon high and low seasonality, there is, at times, a little bit of a variation. And then all the more so in the current fiscal year because like we have been talking, the mix of air has been reducing. I mean for unwanted reasons because the overall market is supply constrained and here is the least kind of margin in terms of segmental margins per se. Therefore, overall margins have only improved, right? And that is something that we kind of taken care of. Going forward, if fair rebounces, the blended margin might kind of go down a little bit, but across categories, we still kind of expect margins to remain largely in line with what they have been. Sachin Salgaonkar: Yes. Got it. Third question on buyback. I just wanted to understand whether you guys have repurchased any stock in this quarter. And I know historically, you guys said that there is a thought process to opportunistically look to buy back. So I was looking to understand any buyback happened in this quarter? Mohit Kabra: So Sachin, nothing that has happened through the quarter as would have got reported and therefore, we called out that we've not kind of been able to do any buybacks in the current quarter. But we made certain changes to the buyback program. One, we've kind of now made it slightly more longer term kind of extending the buyback program up to fiscal year ending 31st March 2030, so that we have a window over for the next 4.5 years. The current buyback program had a balance left of over $114 million. We've increased that to $200 million and also increase the annual limit, which was earlier about $60 million or so to about $100 million, so that we can deploy a little more on the buyback program. And we've also included the the 2030 notes, the recently issued convertible notes mature in 2030 in the program so that we could kind of also buy back the CPs, which were recently issued. So making it more comprehensive across the -- across shares as well as both the convertible note offerings, which we have done in the past. So that's what I wanted to share. So I think we'll keep looking for opportunistic buybacks across shares and notes in the remainder part of the year. Sachin Salgaonkar: And Mohit, just to clarify, is it across both Class A and Class B shares? Are you at some point in the future if you want to buy C strip shares, this could be done as a part of this buyback? Mohit Kabra: Actually, since the Class B shares handled by one investor and the strategic investor. We have not included that, so that there is absolute clarity that we're looking at repurchase program deployment in the normal course happening for Class A or for the convertible notes. Should we be kind of doing any repurchase programs on the Class B shares, we'll call it out specifically in that particular period, just like we did it in the previous quarter. Sachin Salgaonkar: Got it. And lastly, obviously, with this incremental $43 million kind of a finance cost going ahead as well, from a positive net income. Is it fair to say that going ahead, we should see sort of a negative net income, although your free cash flow doesn't change. But optically, you do see a sort of a negative net income at the company going ahead also? . Rajesh Magow: No, absolutely. And therefore, I had called out the nuance around this. And as you know, these are actually zero coupon bonds. So it's more kind of in a manner of so notional interest cost, which is kind of being charged to the P&L, basis the effective interest methodology under IFRS. But as such, there is no real interest being paid whether in cash or in any other form. So I just wanted to call that out. Vipul Garg: Next question is from the line of Manish Adukia from Goldman Sachs. Manish Adukia: So my first question is on the overall growth profile of the business now. 1/4 of your business is from the domestic air in terms of revenue contribution, and that's not growing at all for almost 2 quarters in a row. But despite that, you have 20% overall revenue growth because other segments are doing well. Now when we think about medium to long-term growth outlook, where you said Indian market grows 8% to 10% and you can go 2x you're already in line with the medium, long-term growth outlook. But as domestic air improves, shouldn't we expect that the 20% revenue growth number further accelerates from here? Or you think that the bus segment, et cetera, outbound may decelerate from the current base, so even though domestic air may improve overall growth on revenues for the company probably remains around 20% level. So just wanted to get your puts and takes around that debate. . Rajesh Magow: Happy Diwali, Manish as well. And great question. And I think one of the advantage is that we kind of keep calling out for ourselves is that we are a one-stop shop in terms of travel services or ancillary services. And what that allows us is just in days, there is kind of weakness in any particular segment, there is an ability to try and drive incremental growth through the other segments. And similarly, if you look at it on the demand side also, having kind of multiple platforms are getting, say, across retail, B2B and corporate kind of demand, there's opportunity to kind of leverage is demand segment depending upon whether there is weakness in any of them and therefore, dial up the other ones. So I think we'll continue to do that. Hopefully, if you really see, despite these tough macro conditions, we've still been able to kind of post the -- post growth in the 20s. And therefore, like we had mentioned in the last quarter also, we do remain positive and hopeful that we'll be growing in the 20s for the full fiscal year despite the the one-offs for the first half of the year. And hopefully, if we kind of air kind of domestic air in particular bounces back, we hope that we are able to inch up the overall growth from being at the low end of 20s to kind of being more closer to the mid-end of the '20s. So let's see. It's very difficult to call out how each of the segments will kind of behave whether on the supply side or the demand side, but yes, the overall strategy is to kind of keep driving growth in the 20s in medium to long term. Manish Adukia: Sure. And maybe a follow-up on that. I think you're seeing growth in the 20s for the full fiscal year and to confirm is, despite the fact that March quarter should have a very strong base because of Kumbh last year, which would have impacted almost all your segments quite positively. So despite that, for the full year, Q1 19%, Q2, 20% and you're saying overall full fiscal still should end up 20% despite this, just to confirm. . Rajesh Magow: Absolutely, Manish. And I know there are these kind of one-offs that we had in the previous quarter on the positive side, and we have had a few negative kind of one-offs in this year, particularly in H1, but we are still keeping fingers crossed and hoping that we'll kind of continue to grow in the -- to grow in the 20s. Manish Adukia: Right. My second question is on competition and at an overall level, right? I mean, used to be your largest shareholder until a few years ago, and now they have acquired a significant minority stake in one of your competitors, and at least a publicly available data on n bus volumes, of course, of a low base, they seem to have grown faster than you over the last 3 or 4 quarters. So anything to read into that? And how should we think about any new entrants ability to also maybe expand into the hotel segment and potential competitive intensity in that going forward? Your thoughts there would be helpful. . Mohit Kabra: Couple of thoughts over there. One, overall, I would say it's always good to see increasing industrial investments in the travel industry as such, right? So it's a welcome sign. In fact, if you look at it from a -- from our own kind of vantage point of view, just last quarter, we had almost done like a $3.1 billion transaction, but that was essentially to kind of repurchase Class B shares, right? And while we are initially budgeted to deploy at close to about $100 million from the balance sheet, but we didn't have to do this and we have the significant interest that we saw on the primary offerings to fund the repurchase. So I think clearly, there is increasing interest in the overall travel industry. And if you look at it, overall, India, again, is a very kind of a very large market growing well and then there is also kind of an opportunity for driving online penetration. Although I would say that the segments which kind of, I would say, initially of online penetration have changed. So 10 years back, it might have been more accommodation, which was maybe in the early single digits of online penetration. And therefore, same competitive intensity growing much higher in that segment about a decade back. But today, those segments have changed. And if you know, as we have been calling out, we have ourselves been pretty aggressive in terms of driving online penetration, adding a lot more new segments and new travel services, ancillary services on the platform. So I don't really see any big concern. And the other fact is also that over the last few years, if you look at it, we have continuously invested behind driving online penetration across segments, whether it is transport, whether it is accommodation or whether it is other ancillary travel services, we have been doing that on a consistent basis. And whenever any other players in the market have also done that, we have generally ended up gaining on account of the overall expense because ultimately, these are category driving spend. And as a market leader, you tend to gain if the overall kind of investments in driving online penetration goes up. So we think of it more on those terms and remain pretty much kind of stay on course on our own -- driving our own agenda, which is largely to say that we keep driving growth much ahead of the industry growth at a significant multiple and we continue to be market leader across kind of travel segments, whether it is transport, whether it is accommodation or ancillary services, making sure that both MakeMyTrip and Goibibo, they remain the top to OTA brands and redBus remains pretty much the top ground transport brand for all Indian travelers. So that's the broader kind of response that I would have. We don't see much of change. Rajesh Magow: No, I think you've covered it all. I'll maybe just add one more point. Manish, if you go back in history a little bit and go deeper, you would realize that the share shift, I mean, firstly, the investments have come in. It's not for the first time investment has not come in the travel and tourism market and specifically in the OTA segment have come in the past. Disruptive investments have also gone in the past. But if you really see from an OTA standpoint, you would see at least an Indian OTA market. The share shift has happened in the say between the existing players and the new or challenges that sometimes appears and not necessarily, we've seen impact on either the growth rate or the market share gain over the years. And that's because of the fact that, one, of course, we will have to continuously keep executing our strategy as well and keep innovating for consumer experience all the time. But also the fact that over the years that the brand is -- and in the consumers' mind, all our 3 brands have got established very, very firmly and which obviously gives you sort of the benefit from a sort of dealing with any of the new competition perspective, et cetera, as well. So I think we should just keep that thing also in mind I guess, both the points. One, that this is not the first time investment when investment comes in overall market grows, which is good news. And then historically, if you really go deeper, you would realize that the share shift has happened pretty much if at all, within the sort of existing players and the newcomers and then that cumulatively, it doesn't really change too much. Vipul Garg: The next question is from the line of Aditya Suresh of Macquarie. Aditya Suresh: I have two questions. So first is just on the guidance in itself. So when we speak about 20%, can you just reiterate again at what line are you speaking about it on account terms, gross working adjusted revenue, overall revenue because I think there are distinctly different kind of dynamics, which are at play, depending on which trend you're looking at because even if I look at overall gross bookings, we're now the first 6 months, sub-10%, right? So can you sort of clarify that the guidance in itself, when you speak about 20%, what you're specifically referring to? . Mohit Kabra: Yes, Aditya, while there is no -- I mean we don't necessarily kind of going to put out a guidance, but more directionally, how are we kind of seeing growth coming in. And that's in terms of the adjusted margin that we report. So if you look at through the script also, we have called out the adjusted margin growth, and it's slightly on that metric that we kind of are going to look at it. And the simple reason being adjusted margin is kind of the number, which is kind of called out in line with how kind of OTA revenues are looked worldwide across segments because we do have some segments where we report on a gross basis, say, for instance, on the package side. And similarly, we do have kind of a certain amount of customer equation spends, which are otherwise can be treated as deductions from revenue from an IFRS basis point of view. So it is an adjusted margin basis that we are calling out. And if you look at it, adjusted margin across segments, then this is broadly the trajectory that we're kind of looking at. Now this might come in in terms of different adjusted margin growth across segments. But holistically, all the segments put together is where we are kind of looking at remaining in the 20s. Aditya Suresh: And then just specifically on hotels, right? So for this quarter, when I look at this in account terms, your number of bookings up 80% gross booking value was up 13%. IFRS 7 is up 5%, right? And I appreciate there are kind of foreign currency impacts here going on as well in that 5% revenue number that you're reporting. But clearly, there seems to be both as you're seeing more bookings, yes, but the value per booking is going down and also the take rate on that said booking is also going down, right? So can you like speak through that theme which you're observing? Mohit Kabra: Actually, not Aditya, maybe I'll just kind of give you once again, as I called out in the script also there's a lot of foreign currency translation impact, particularly in this quarter. Actually, the adjusted margin growth in our stand-alone hotels business, we just called out is at about 23.1% in the current quarter. And, it ended up significantly from the previous quarter, during which it was at about 18.5%. So the adjusted margin growth has come in much stronger and generally tends to come in better than the overall volume growth. Now this does change depending upon how the ASPs are behaving and how the overall kind of margin is trending in the category. This particular quarter, actually, even from a margin point of view, we saw a margin improvement coming through both on a quarter-on-quarter basis as well as on a year-on-year basis. So actually, it's held pretty well. And therefore, maybe I'll just guide you back to those sections of the script that I just called out just from a clarification point of view. Aditya Suresh: Okay. And then in terms of the ancillary business, right, so here, obviously, kind of higher take rate segments also forth. You've had a few new product launches in this quarter. So for example, something like experiences in city, which I think is new for you all have a Visa offering as well. Can you maybe speak about some of these new kind of revenue streams within ancillary services? Mohit Kabra: Actually, on the ancillary side or the other segment, if you look at it over the last couple of years, we are continuously guiding a variety of ancillary services. So I started with, say, maybe ForEx like about 3 years back, we've dialed up in the city over the last 2 years or so, we have now also kind of in this particular year, we had called out specifically that we would be kind of focusing on adding a lot of tools and activities on the experience side as part of the other segment. So yes, we'll continue to keep adding a lot more on this segment even going forward as well. So -- and you'll see that kind of called out. In fact, I had also -- in my script kind of called out that almost all the ancillary services, whether it is travel, insurance or ForEx, et cetera, have done well. And there are 2 kind of transport-led services in the other segment, which is largely cabs and more so intercity cabs and rails, which also have grown very well during the quarter. So the overall growth in the other category this quarter came in at about 29.7%. So broadly around the 30% mark. So continues to do very well. Vipul Garg: The next question is from the line of Gaurav Rateria of Morgan Stanley. Gaurav Rateria: Congrats on resilient performance in a tough macro environment. My first question is on your comment that you made that you would like MakeMyTrip to be the default search engine for travel. It's a pretty interesting comment. And also, you shared quite a bit of interesting metric around your engagement in the AI assistant. When I look at the measure of success over time, I thought that it would be the overall traffic increasing base of new customer acquisition improving and better repeat rates. When you look at some of the early trends, how have these metrics fair? Rajesh Magow: A very good point. And thank you, firstly, and happy Diwali to you too as well. And Gaurav, I have to say upfront, and like I said, right, it's beta launch and the insights are very encouraging. And right now, the phase is only to collect insights and see how do we sort of do 2 things. One, keep fine-tuning the product and keep improving the interaction so that the experience for the end consumer is very relevant, very personalized, very to the context, et cetera. . And the other is to also keep track and see how are they adopting to this new interface, specifically this Myra end-to-end, let's say, trip-planning tool that we were talking about. And the comment around we want MakeMyTrip to be the first port of call has always been there. But even in this new interface, more from trip planning perspective. So we've been perhaps the first port of call for the transactions, but also for the trip planning is our attempt the time around with this new interface. And I think it has a lot of sort of promise that it offers, and we'll see how it goes. But in terms of the success metrics that you talked about, ultimately, those are the 2 metrics that you just called out. We will see new user acquisition because we are looking at going really deeper and pushing the adoption through voice feature as well as vernacular. And as I mentioned, right now, Hindi and a lot of the English conversations happening, but we are looking at adding more regional conversations. And this time around, as we hear some of the quality of the calls and the handling by the -- by Myra, which is a digital agent it's very, very close to or even in some cases, better to the human agent. So the LLM, this time around various models. And on top of that, the amount of work that happens with our own data to fine-tune with the grounding internally is producing fantastic results. in terms of just interaction with the consumer, even if you are like from hinterland and so on, right? So there is a lot of promise right now. but the consumer adoption journey is going to take time as it takes time for every new interface. And we will see how it goes. And as and when, like we shared some early trends already, as and when we see some meaningful impact happening on this particular new interface that we launched, we will definitely come out and share -- having said that, if you keep this aside for a minute, because this is a new -- completely new interface that has been launched, very enhanced. There are many other places where we've been leveraging AI. And there, we have started seeing the impact. We've started seeing the impact, for example, in post sales already the number of calls that are being now handled seamlessly without any human intervention, it's going up. This is over and above the current sort of automated self-serves that we already had. There are -- there is a conversion improvement that we've seen in specifically in the hotels and accommodation side with the many AI-powered features using, let's say, enhanced videos, using video LLM, et cetera, and many other interventions with which have been -- what we've been doing in our current interface that is already there in the funnel. And that has seen very minutely we go and look at whether the conversion rate, all literally on an AB framework that we've seen improvement. And it is only going to sort of continuously keep improving as we sort of not only make the right kind of interventions, but also make it a lot more relevant and a lot more sort of to the context to the consumers. So -- but on this particular one, we'll come back as and when we have more data on impact metrics, as you spoke about. Gaurav Rateria: My second question is for Mohit. You've shared in the past profitability benchmark that you look to aspire, you've already reached that 1.8%. You had talked about 1.8% to 2% range. So in pursuit of balancing growth and profitability, how should we think about next 1 to 3 years in terms of this range, meaning what you said already? Or do you think there could be an upside to this range because you have already gotten to 1.8% in the current year? . Mohit Kabra: Yes, Gaurav, at least to begin with right now, like we've been saying, we do believe there is an opportunity to kind of dial up growth, particularly as say for instance, the domestic air ticketing district kind of bounces back to good growth. So that's something that we want to kind of keep in mind. And therefore, if you would ask me, at least in the shorter term, the focus would be a lot more will tilt towards kind of driving the growth agenda because even at 1.8%, like we have always called out, one of the rationales 1.8% to 2% was that even benchmark with the best-in-class in terms of the OTA margins globally with our kind of mix of segments between transport and accommodation with accommodation at about 40% ballpark. We do believe we'll compare with the best. However, longer term, like when you say the next 3 years or so, over the next 3 years, particularly if the mix of accommodation, goes up in the overall adjusted margin pie, which is expected to, then I don't see a reason why we should not have the potential to kind of put out a slightly better number than what we've already called out. But let's see. In the next few years should be an interesting journey on that count. . Vipul Garg: We've almost run out of time. This was the last question over to you, Rajesh, for your closing comments. Rajesh Magow: Thank you. Thank you, Vipul, and thank you, everyone, once again. Thank you for your patience and good line of questioning. As always, we look forward to see you next quarter. Thank you. . Mohit Kabra: Thank you, everyone. Vipul Garg: Thank you, everyone.

88天前Insight Analytics约5分钟阅读

CARR 2025 Q3 财报电话会议

Operator: Good morning, and welcome to Carrier's Third Quarter 2025 Earnings Conference Call. I would like to introduce your host for today's conference, Michael Rednor, Vice President of Investor Relations. Please go ahead. Michael Rednor: Good morning, and welcome to Carrier's Third Quarter 2025 Earnings Conference Call. On the call with me today are David Gitlin, Chairman and Chief Executive Officer; and Patrick Goris, Chief Financial Officer. Except where otherwise noted, the company will speak to results from continuing operations, excluding restructuring costs and certain significant nonrecurring items. A reconciliation of these and other non-GAAP financial measures can be found in the appendix of the webcast. We also remind listeners that the presentation contains forward-looking statements, which are subject to risks and uncertainties. Carrier's SEC filings, including our Form 10-K and quarterly reports on Form 10-Q, provide details on important factors that could cause actual results to differ materially. With that, I'd like to turn the call over to Dave. David Gitlin: Thanks, Mike, and good morning, everyone. Q3 was generally in line with what we shared in mid-September. At the Laguna Investor Conference, we indicated that North American resi softness would create about a $500 million sales challenge and a $0.20 to $0.25 adjusted EPS headwind in the quarter. The actual impact was consistent with that. Partially offsetting this was better-than-expected performance in Commercial HVAC in the Americas, which was up 30% in the quarter, continued aftermarket traction, cost containment and a discrete tax benefit. . We also drove continued double-digit sales growth across multiple parts of our business, including CSE residential heat pumps, container and our businesses in India and the Middle East. In addition to driving strong growth across many parts of our portfolio, we are taking aggressive cost actions to reduce overhead, including the elimination of about 3,000 indirect positions, which is on top of footprint and direct labor actions required to rightsize for demand in our factories. Given confidence in our strategy and our track record of execution, our Board approved a new $5 billion share repurchase authorization. Turning to Slide 4. We are laser-focused on our strategic priorities and continue to gain traction on our key initiatives. Our 3 vectors of growth: products, aftermarket and systems are all progressing very well. With respect to our first vector, which focuses on gaining share through differentiated products, brands and channels, we booked our largest order ever earlier this month, securing another major win with a key hyperscaler. We also converted a top U.S. homebuilder to Carrier, further enhancing our leading position in the new home construction sector. In Europe, we were again recognized for our market-leading Viessmann heat pump products. In addition, our newly introduced Toshiba VRF product line and energy-efficient container units are both contributing to share gains in their respective markets. On aftermarket, we delivered 12% growth in the quarter and remain on track for our fifth consecutive year of double-digit growth. Connectivity and digital differentiation remain foundational. Connected chillers were up 30% in the quarter. And last week, we had a major multiyear software win in the Middle East with Abound, our digital platform for buildings. Paid subscriptions for Lynx, our digital platform for transportation, were up 40% in the quarter to about 210,000. Last on systems. Field trials for our carrier energy HEMS offering in North America are progressing well, and we remain on track for market introduction mid next year. We also continue to make significant progress on our Quantum Leap integrated system offering for data centers with customer discussions advancing well. In our CSE RLC business in Germany, we continue to qualify additional systems Prophy installers. Certified installers realized growth of 15% to 20% in the quarter, far above the average installer. Turning to CSA resi on Slide 5. Though we are, of course, not pleased with the unexpected decline this year, this is a best-in-class business. We hold the #1 market position and our share continues to grow. Our products and brands are second to none. Our extensive distribution and dealer partnerships help provide competitive differentiation. All of this results in great margins and cash flow in this business. We are working with our channel partners to collectively take all of our medicine this year. We are, therefore, being very purposeful about rightsizing field inventory levels as we head into 2026. At the end of Q3, field inventories were down 12% compared to last year. As of today, field inventory levels are down another 10 points since the beginning of the month and are down about 20% versus last year. By year-end, we expect inventory levels in the field to be down 30% versus last year, the lowest level since 2018. We will continue to play offense and given continued investments and our aggressive cost takeout, we expect to realize outsized returns as this business recovers. Turning to CSE's RLC business on Slide 6. The good news is that electrification across Europe is accelerating, and we are realizing the mix-up benefit from heat pump adoption. Our residential heat pump sales in Europe were up about 15% in the quarter with heat pump sales in Germany up about 45%. We expect this trend to continue. For example, we have seen heat pump subsidy applications in Germany increase and expect them to double versus last year to 300,000. Nevertheless, in the category of controlling the controllables, we run the business to be successful independent of subsidies. This is why we have been focused on significantly reducing product and installation costs for our heat pumps to incentivize the continued transition to electrification independent of government subsidies. More broadly, we continue to see a desire across European countries to become less reliant on gas and key leading indicators of continued heat pump adoption remain positive. Just last week, the EU gave another vote of confidence for ETS 2 to become effective on January 1, 2027, which as a reminder, is the system for increased pricing on carbon in heating and transport, supporting the continued transition to electrification. However, for the past couple of years, the strength that we have seen in heat pump unit growth has been more than offset by overall market unit declines driven by boilers. With heating units in markets such as Germany at 15-year lows, these markets are poised for recovery. Importantly, we continue to make key investments in market differentiation and expansion while taking significant cost out, positioning us well for 2026 and beyond. Turning to Slide 7. Our commercial HVAC business in CSA has had best-in-class performance over the past 5 years. At the time of our spin, this was the one area within our portfolio where we were underinvested. We said we would invest, gain share and increase margins, and we have. Our investments in technology, know-how, capacity and talent are paying off. Not only has the total business more than doubled in 5 years, but also our applied business, aftermarket opportunity to further accelerate our share gains, as you see on Slide 8. Data centers remain a top priority for us, and our traction has been excellent, especially on orders in the past few months. We remain on track to double our sales from $500 million last year to $1 billion this year. We expect to see continued growth in this vertical next year given that we project our backlog entering 2026 for 2026 to be up about 20% year-over-year. Relationships with all the hyperscalers and our colo customers are very strong. Our win rate and size of wins have continued to increase. For example, in addition to multi-hundred million dollar wins with hyperscalers, we recently secured a win with a colo customer in the Americas exceeding $100 million. Our overall backlog has increased quite a bit over the past few months and now extends into 2028. Before I turn it over to Patrick, some high-level perspectives on Slide 9. We are very well positioned to create outsized value for our customers and our shareholders. Through a purposeful transformation, we created a focused yet balanced portfolio with leading positions in targeted geographies and verticals. We like that we are not overly exposed to any one geography or vertical and in fact, have balanced exposure to the right geographies and verticals. As we look ahead, we expect the parts of our portfolio that have been strong to remain strong, particularly commercial HVAC and our aftermarket business, which together constitute just under 45% of our sales. And we expect that those parts that have faced near-term headwinds, particularly RLC in the Americas and Europe and Global Truck Trailer to be positioned for a return to growth. And when they do, we stand to have outsized benefit given our market-leading positions and the aggressive cost actions that we're taking this year. In terms of controlling the controllables as we always do, you know our formula from our Investor Day, share gains through differentiation, sustained double-digit aftermarket growth and investing in systems to drive unique value for our customers and TAM expansion. You can always count on us to drive cost out of the system in a programmatic and aggressive manner, and we will be disciplined with capital allocation with a near-term focus on share buyback. With that, I will turn it over to Patrick. Patrick? Patrick Goris: Thank you, Dave, and good morning, everyone. Please turn to Slide 10. For the quarter, reported sales were $5.6 billion, adjusted operating profit was $823 million and adjusted EPS was $0.67. The year-over-year decline in these financial metrics largely relates to much lower volumes in our CSA residential business. The results are largely in line with what we outlined in September with the exception that we saw a $0.07 benefit from a lower tax rate, about $0.05 of which timing between Q3 and Q4. Total company organic growth was down 4%. The 2024 exit of commercial refrigeration was also a 4% headwind, partially offset by a 1% tailwind from currency. Adjusted operating profit was down 21%, primarily due to lower volume in our CSA resi business. Tariffs were net neutral in the quarter. Adjusted EPS was down 13%. We included the year-over-year adjusted EPS bridge in the appendix on Slide 19. Free cash flow of about $225 million reflects lower operating profit as well as higher working capital levels given the sudden reduction in sales. Moving on to the segments, starting on Slide 11. Organic sales in the CSA segment declined 8%. Commercial delivered another exceptional quarter with sales up 30%. Residential and light commercial sales came in right about where we expected per our September update. Resi sales were down 30%, driven by a roughly 40% decline in volume, offset by double-digit regulatory mixup and pricing. Light commercial sales declined 4%. Aftermarket sales across the segment increased mid-teens with particular strength in controls. Segment operating margin was 19.7%, down 560 basis points, reflecting the impact of much lower resi volume. Moving to the CSC segment on Slide 12. Residential and light commercial sales were down low single digits, reflecting continued heating market unit declines in the region. As Dave mentioned, heat pump sales growth across Europe remains strong. Commercial declined mid-single digits, reflecting some large project timing that we expect to partially recover in Q4. Segment operating margin declined 110 basis points, driven by lower organic sales and mix, partially offset by productivity, including cost synergies. We are accelerating additional reductions in headcount and other cost actions in this segment. Turning to the CSAME segment on Slide 13. Organic sales declined 2%. Continued double-digit growth in India and the Middle East was more than offset by ongoing weakness in resi and light commercial in China. Within China, our resi and light commercial business was down mid-teens, partially offset by commercial, which was up mid-single digits. Segment operating margin of 11.6% was primarily driven by strong productivity gains, offset by lower volume. Finally, moving to CST on Slide 14. Organic sales were up 6%, led by continued very strong growth in container, partially offset by mid-single-digit decline in Global Truck and Trailer. North America Truck and Trailer was flat. Segment operating margin of 15.4% expanded by 80 basis points year-over-year, primarily driven by the 2024 exit of commercial refrigeration. Turning to Slide 15. Total company organic orders were down high single digits for the quarter. Excluding CSA resi orders, which were impacted by last year's elevated preordering related to the refrigerant transition, total company orders were up low single digits. CSA residential orders were down about 40% compared to orders up 30% last year. As expected, commercial orders in CSA have been and will continue to be lumpy given large data center wins. In CSA, residential and light commercial orders grew low single digits and are up mid-single digits year-to-date. We expect commercial orders in CSE to pick up in the coming quarters given a strong pipeline, including data center projects in this region. Orders in CSAME were flat with strong growth outside of China. CST orders were exceptionally strong, led by container up about 100% and Global Truck and Trailer, which was up about 25%. Shifting to guidance and moving to Slide 16. The updated guidance primarily reflects market weakness in our residential and light commercial businesses in the Americas and Europe. We now anticipate CSA resi to be down high single digits versus our prior outlook of up mid-single digits. In Europe, we now anticipate our RLC business to be down mid-single digits versus the prior outlook of about flat. Partially offsetting these headwinds, the Americas commercial business is expected to grow over 25% this year, an outstanding performance. Overall, we now expect about $22 billion in sales for 2025. About $700 million of the reduction versus our prior guide relates to CSA resi. Moving to profit and cash guide on Slide 17. We are revising our full year adjusted operating margin guidance. Our updated margin expectation for CS Americas and CS Europe reflect volume declines in the RLC businesses in both segments. In addition, we are adjusting our margin outlook for transportation given stronger expected container sales and lower NATT sales. We are adding to the cost reduction actions we initiated earlier this year to rightsize the business and now expect carryover savings in 2026 to amount to over $100 million. The net full year tariff impact in our current guide remains 0 in terms of operating profit. We expect full year adjusted EPS of about $2.65, including a lower adjusted effective tax rate closer to 21% and expect free cash flow of about $2 billion, reflecting lower earnings and higher anticipated cash restructuring costs of about $150 million. Finally, we continue to expect about $3 billion of share repurchases this year. Additional full year guide items are in the appendix on Slide 21. With respect to Q4, we expect CSA resi sales down approximately 30% and volumes down about 40% and continued significant headwinds from under-absorption as the channel continues to destock. Before moving to Q&A, let me make a few comments on how to frame 2026. First, we expect to end 2025 with CSA resi destocking behind us. Obviously, we expect a difficult compare in the first half of 2026 in CSA resi, which will have an impact on total company performance, particularly in the first quarter. Second, we are executing on significant cost actions, which we have spoken about previously. This should amount to roughly $0.10 carryover adjusted EPS tailwind next year. Third, we expect about a 100 basis point ongoing benefit from a lower tax rate. In total, we therefore expect about $0.20 of adjusted EPS tailwind in 2026 from the combination of carryover restructuring benefits, tax and share repo. It is too early to comment on the levels of 2026 organic growth, but it's fair to say that we target about 30% conversion. For planning purposes, given heightened levels of uncertainty, we are running the business assuming low single-digit organic growth in 2026. In addition, the net carryover impact of pricing and tariffs is expected to remain dollar neutral based on tariffs and pricing in place today. With that, I would like to ask the operator to open the line for Q&A. Operator: [Operator Instructions] Your first question comes from the line of Jeffrey Sprague of Vertical Research Partners. Jeffrey Sprague: Just obviously, a couple of questions around resi. Just first of all, Dave or Patrick, looking at your consolidated inventories, they're up sequentially in the quarter, typically down. Clearly, you've pointed to more work to do to clear the channel. But can you unpack that for us, the volume decline that you're expecting in resi plus what other moving pieces might be going on in inventory? And maybe as part of that, obviously, getting the channel where you want it to be depends not only on your actions on production, but really how sell-through is progressing. So maybe just a little bit of color on what you think kind of sell-through or movement might be as we... Patrick Goris: Sounds good, Jeff. I'll take the first part of the question. So far, on a consolidated level, our inventories are up about $500 million. Of that, about $400 million is in our CSA resi segment. And of the $400 million increase in our CSA segment, the resi element is about $350 million of that increase. And basically, it's a reflection of 2 things. One, a sudden decline in residential volume. And so it takes some time for our supply chain to adjust to that. The second element is we have purposefully increased inventories a little bit this year related to our components replacement business to ensure that we can satisfy demand over there. We do expect this inventory to start reducing. Actually, it started reducing already. And the inventory levels will come down by the end of the year. They probably won't come down exactly to where we would like them to be. And the reason for that is we're really balancing within our factories, the levels of ongoing production with taking out a lot of labor that we just have them to rehire the first quarter of the year. And so there's a little bit of a balance there between operating profit and free cash flow and ensuring that we can meet demand -- expected demand in the first quarter of the year. So you can expect that increase to start coming down by the end of the calendar year. David Gitlin: And Jeff, it's Dave. In terms of field inventory levels, we are going to great lengths with our distribution partners to try to start next year with a clean slate, take all of our medicine this year. I mentioned that our expectation is that field inventory levels ending this year will be down 30% year-over-year. In terms of your question on movement, movement was down about 30%, it looks like in October, and we expect movement to be down in the mid-20s for November and December. Now remember, movement was very strong in 4Q last year. It was up about 30%. And then it started to get weaker as we got into Q1 of this year. So movement starting in Q1 of this year was negative. So we'll start to see some easier comps on movement. So when you end this year at inventory levels at 2018 levels, we feel like that's the right number. We don't feel like that destocking will be a further headwind as we get into next year, and then we'll have to see what movement does as we get into Q1. Jeffrey Sprague: And maybe just a follow-up. There's like 27 other questions, but I'll just ask one and pass the time. Patrick, in your answer, you mentioned kind of repair. Where do you guys stand on what's going on in the repair versus replace dynamic and just sort of the health of the consumer and kind of managing through price and the question of price elasticity? David Gitlin: Yes. As you know, Jeff, we get this a lot, and there's really no exact way to measure that. Our parts are up quite a bit, but we've been very purposeful about increasing our share of wallet on part sales. So we would expect that to be up given the initiatives we're driving. When we talk to our distribution partners, they do not see an outsized growth on discrete part sales, compressors or other key components where that would be indicative of a repair versus replace. Having said that, it's hard not to imagine that there is more consumers opting for repair over replace, and we're hearing some sporadic pickup of that in certain locations. So I would have to believe it's happening in the system, although it's really hard to dimensionalize just how much. Operator: The next question comes from the line of Scott Davis at Melius. Scott Davis: Just to follow up a little bit on Jeff's question. Has the inventory destock and kind of the reset, does that impact your ability to get the price that you wanted to get for 2026 when you think about -- you're still working off a little bit of a higher cost base overall. So does that change the price dynamic at all? David Gitlin: We'll have to see, Jeff, as we think about '26 pricing -- I mean, Scott, when we think about '26 pricing, we'll announce a mid-single-digit price increase here for next year. We'll probably announce that in the next couple of weeks. And we would expect to yield in the low single-digit range. When you think about this year, we've said that the combination of mix and price have both been around in that 10% range. That will continue here for 4Q. We'll get a little bit less of the mix benefit in Q4 here because we started shipping some of the 454B in the fourth quarter of last year. But in terms of price, I think this year has been probably closer to mid-single digits and next year is probably closer to low single digits. Scott Davis: Okay. That makes sense. And then if you don't mind, David, just giving us a little bit of detail on the restructuring. Are you talking about -- or you didn't say structuring, you said cost containment. But is there structural cost out versus kind of just kind of the usual cut in discretionary spend? Is there actual structural cost out that we can count on lingering not just into '26, but going forward? David Gitlin: 100%. I mean that's the entire purpose is to take out structural costs. This is not -- we're not just trying to squeeze short-term costs. We're focused on indirect headcount. We're looking at about 3,000 heads. And then the whole goal is to make sure that we are very disciplined about not adding those heads back in. And it's not just giving out targets and having people take the heads out. We're trying to do things like using Patrick's CBS organization to do things differently in terms of how we deal with collections or payables or do things much more efficiently. Bobby and our IT department using AI in groups like our legal department or elsewhere to make us more efficient in how we do things in the back office. So we're trying to do things a lot smarter, a lot more efficiently. We have 20,000 Copilot licenses that are starting to cascade across carriers. So the answer is 100% focused on structural cost takeout that comes out and stays out. Operator: Your next question comes from the line of Julian Mitchell of Barclays. Julian Mitchell: So just running off the initial thoughts or comments on next year, Patrick, I suppose one could surmise you get to something like a 2.90s of EPS or something maybe high single-digit EPS growth and mid-single-digit profit growth based off the low single-digit sales and 30% incremental placeholders. Within that framework, just trying to understand maybe a little bit deeper how you're thinking about CSA resi in terms of the outlook as you think about sell-out or movement dynamics and the recoupling of sort of sell-in versus that. Maybe flesh that out a little bit, please, as you think beyond December. Patrick Goris: Sounds good, Julian. So first of all, in my comments, what I was saying was that we expect to see a $0.20 adjusted EPS benefit just from the restructuring benefits, from tax and share repurchases. That is without any organic growth. And we said for internal planning purposes, just as to how we run the business that we're assuming low single digits of organic growth. If you look across our portfolio today, and Dave mentioned this, a little over 40% of our sales has been growing double digits and would expect that to continue next year. That's our aftermarket business and our global commercial HVAC business. That would get you to about 4% organic growth next year if that continues with the rest of the company flat. And so the question really is what happens with the balance of the company and a big part of that is CSA resi. At this point and still very early, our estimate is it may be flat to slightly up from a volume perspective. And in Europe, as Dave mentioned, it has been quite weak for a long period of time. Our largest market, Germany, the market there is at 15-year lows. We see a hard time that getting worse. And so we think flat might be a safe assumption, maybe it gets better. Julian Mitchell: That's very helpful. And then just maybe my quick follow-up would be looking at the CSA commercial HVAC businesses in terms of light commercial as well as the larger applied business. How are you seeing the non -- the demand in the nondata center verticals there? I understand orders are lumpy. I think they were down in CSA commercial in the third quarter, but a big data center Q4 order. But if we think about the nondata center demand in CSA, light and Applied, how is that looking? David Gitlin: Yes, Julian, if you look at the commercial HVAC business, non-data centers were up and from a sales perspective, in the low teens. So the data center business in our commercial HVAC business was up about 250%. Non-data centers up in the low teens. So total was up 30%. So our applied business in commercial HVAC in the Americas was up 60% Non-data centers, it continues to be a bit of a mixed bag. We're doing very, very well in things like the mega projects, health care, even more so in commercial than light commercial. But surprisingly, commercial real estate was even up again this quarter over last quarter. We don't see that as a trend. ABI is quite low. But for whatever reason, we've seen growth in commercial real estate 2 quarters in a row. Higher ed and K-12 are weak, both for commercial HVAC and light commercial. Patrick Goris: Actually, I believe that in Q3, within CSA Americas for commercial, the non-data center orders were actually up year-over-year. It's the data centers that were down given the lumpiness. Operator: Your next question comes from the line of Steve Tusa of JPMorgan. C. Stephen Tusa: Always for the details. Just on this resi, so you said you're getting mid-single-digit price this year. I guess when you think about the low double digit or whatever it was for the price mix, I guess, how much was mix and how much was price? I know there's like in the beginning, you were getting a bit more price than mix. But how does that break out in resi for the third quarter? David Gitlin: Yes. For 3Q, it would have been 3 and 8. C. Stephen Tusa: Okay. Got it. That's super helpful. And then when you guys talk about the 30%, I guess, back to Julian's question, I think that includes services. So I guess the applied business, if non-data center was -- or data center was up 250 and your applied was up 60%, that still implies that kind of the -- just getting more specific, the applied CSA was up? Or was the applied -- you said it was a mixed bag. Was that actually up, the applied CSA equipment. David Gitlin: I'm sorry I was just saying the mixed bag was around which verticals were strong and which wasn't. When we look at total CHVAC in the Americas was up 30%. The applied business, the equipment was up 60% aftermarket was up mid-teens and the controls business was up a little over 20%. C. Stephen Tusa: Okay. So that still implies the non-DC applied equipment was still up in the quarter? David Gitlin: Yes, up in the low teens. . Operator: Your next question comes from the line of Nigel Coe of Wolfe. Nigel Coe: Just a quick one on the data center backlog, Dave. I think you've mentioned you needed to kind of build that backlog to kind of grow in '26. I just want to make sure that the $0.9 billion of backlog you're expecting at the end of this year is kind of where you expect to be for 2026, and therefore, we should see nice growth next year. And can you just confirm that we're still on track for about $1.1 billion of revenues this year? David Gitlin: Yes, I would say $1 billion for this year, Nigel, in revenue and... Patrick Goris: Always was $1 billion. David Gitlin: Always $1 billion. So it was $1 billion, still is $1 billion. And I will tell you, in terms of -- we just discussed data center orders in 3Q, and we also mentioned that we've gotten really strong orders here in October. So I've been very pleased. We wanted to go into next year with a backlog that was higher than the backlog, of course, that we had coming into this year. This year, we came in with around $700 million in backlog for the year. Obviously, the total backlog is much higher. I'm talking about backlog just for deliveries in that following year. So we came in with $700 million for this year, and we'll do about $1 billion. We wanted to end close to $900 million, so we could drive nice growth for next year. And we're on track to end with backlog in that $900 million range. We're a little bit north of $700 million today. We got some -- a lot of very strong irons in the fire. And there's just a lot of exciting activity. Frankly, I just got back late last night from Tokyo. So we were over there. We've been working with our Japanese host. We've been working with the administration, had a number of meetings yesterday with Secretary Lutnick. So we signed this morning, we had one of my colleagues, Michael Gerges was over there signing an MOU. There's going to be investments here in the Americas for infrastructure and data centers. So we're continuing to push every angle with hyperscalers, colos and some of the unique opportunities that are out there, and we feel very well positioned for continued growth in this space as we go into next year. Nigel Coe: Okay. You sound surprisingly fresh considering you just got back from Japan. But in terms of the movement numbers you just threw out, incredibly weak. So I understand channel inventory is expected to be down to 2019 levels by the year-end. But I'm just wondering with end demand this week, is that enough channel burn? Are you confident that we are going to move into 2026 on a clean slate? David Gitlin: I am about as confident as we can be with kind of the soft movement market that we've been over these last few months and continue to be in. So we we've tried to plan 4Q in a way to avoid surprises like we had in 3Q. So 4Q and 3Q, we've assumed are effectively the same with total sales down about 30%, movement down -- I mean, volume down about 40%. And we've tried to handicap movement continuing to be weak throughout the rest of the year. So -- and that is even with a price increase that will become effective in January. So we're working very hard with our distribution partners. So when we wake up in January, we're not talking about further destocking. Obviously, we are going to see -- we can't have movement stay at these levels forever. We will have a little bit of year-over-year compare issues as we get into 1Q and that lightens, of course, as we go into 2Q and through the year. But even with a bit of a rebound on movement, we think we'll be very, very rightsized on field inventory levels starting in January. Operator: The next question comes from the line of Joe Ritchie of Goldman Sachs. Joseph Ritchie: So look, I really appreciate all the color you've given already on 2026. I'm trying to really understand like the interplay between your own inventories, organic growth and margins in the early part of the year because typically, you guys build inventory from the fourth quarter to the first quarter. Are we to assume that, that does not happen in 2026? And then how do we kind of think about like the decremental margins associated with the early part of the year given you guys do have tough comps and you have elevated inventory levels on your own balance sheet? David Gitlin: Okay. Joe, let me start and then turn it over to Patrick. Let me tell you how we're kind of dealing operations because we saw such a sudden and extreme shift in our forecast and our demand. So as we think about 4Q, we fundamentally had a decision to make. We frankly could have stopped production in a couple of our key lines and frankly, sites. And we decided to keep them going. A cold start is very, very difficult for operations. You'd have to have a drastic reduction in headcount, then you're suddenly hiring as you start to gear up for the season. So we've kept operations going in places like Tennessee and Monterrey at very low levels, but continued levels. So what that means for us is we've had a big absorption hit as we've gone 3Q into 4Q. We've seen some of our inventory levels a little bit higher than we'd like. We're pretty disciplined on working capital, but we've purposely made that trade-off to keep operations going, which means as we get into the season in the March time frame, we won't have as big a ramp in production, which might have a slight impact on absorption as we get in towards the end of 1Q. But I don't think anything major there, but we won't have the usual significant ramp as we get into season. Patrick? Patrick Goris: And then just on the incrementals or decrementals in Q1, Joel, the first quarter of this year, CSA, which had very strong resi volume, and of course, we had significant production levels as well. Our incrementals were 69% -- and so clearly, that's -- it's going to be a tough comp. And I would expect the decrementals in Q1 on the resi side to be similar to what we're seeing in Q3 and Q4. Joseph Ritchie: Got it. That's helpful. And then my quick follow-up. You've given the accretion from the buyback. Like any thoughts just given kind of the weakness in the stock this year, like any thoughts on an accelerated share repurchase program? Patrick Goris: At this point, Joe, we're focused on repurchasing about $3 billion for this year. And then the new authorization, our expectation is that it will take us into 2028, but nothing I can share at this point in terms of ASR. Operator: Your next question comes from the line of Andrew Kaplowitz of Citigroup. Andrew Kaplowitz: Dave, can you give a little more color into RLC Europe and what you think is going on over there? I think you recently said that the German heating market could bottom at 600,000 units. And the obvious drag on your results has been boilers. So maybe just how you see that market playing out in '26? What's the conviction level that we will mark a bottom this year? And maybe you can elaborate on what you're doing to get the margin up in that segment? David Gitlin: Yes. Let me do the first one first. I think it's a bit of a fool's in to call a bottom. But I will say that we saw such strong growth in 2022 -- so the market there has just taken a whole lot of medicine since. So the market this year, we thought would be closer to 650,000 or so. It's going to end up being in that 600,000 range. I'm talking about Germany specifically. So it does feel like when you look at any kind of chart over the last 40 years, the German market does seem to be getting to historic lows and prepared for some level of recovery. Now in Europe versus the United States, United States is almost all replacement. In Europe, you will see some planned replacement and a lot of that has been put on hold waiting for some things to settle out. The new German government is having more fiscal stimulus, which is positive. We'll see what happens with the heating law and subsidy levels, probably a little bit more clarity as we get into the end of this year into early next year. The good news is that if you look at the ratio in Germany between heat pumps and boilers, it's almost getting closer to parity. So in terms of what we saw this year with a big decline in boilers in the 30% range and a very unique thing around very expensive floor standing boilers, which we don't expect to be talking about again next year, we do think that if we can continue, which we expect to see that strong growth in heat pumps, remember, we're seeing subsidy levels up 2x this year versus last, about 300,000 subsidy applications. And we see a little bit more muted decline in the boilers, Germany should be poised for strength as we go into 2026. And then you've seen a mixed bag outside of Germany. Certain countries like France and Poland were weak. We saw strength in places like U.K. and even Italy was a little bit better than we had thought. So I think throughout Europe, we see continued heat pump adoption. We see really good traction on our initiatives, things like air conditioning sales and some of the system level sales. And we're just going to have to watch the market dynamics, but we've taken a lot of medicine over the last couple of years. So hopefully, we've seen bottom. Patrick Goris: And then Andy, very quickly on the cost out in Europe. Dave mentioned earlier, about 3,000 positions, overhead positions that we're in the process of taking out. Of that, about half of that is in European segment in CS Europe. Andrew Kaplowitz: And then I think you had suggested recently that CSAME and CST would return to organic growth in Q3. And while transportation did, CSAME still lagged a little bit. Can you give more color into the outlook? Is that just China still being sluggish? Patrick Goris: That is really China, Andy. And it goes back to resi, China. And so it's not on the commercial side. The one thing we're doing in China as well, and that's going to carry over a little bit in Q4 and so embedded in our guide is we are also looking at the field inventories in our China residential business. They have been somewhat elevated, and we are in the process -- our team over there is in the process of working with our partners there to reduce the inventory levels in the field there as well. Operator: Your next question comes from the line of Deane Dray of Royal Bank of Canada. Deane Dray: I was hoping to circle back on the destocking. And Dave, if you could put some of this into context, most of these decisions on the destocking are being made by your independent dealers. So I know if you could just kind of collectively their mindset in being aggressively taking inventory down to 8-year lows. And then once this is done, is there a risk that just you get a normal seasonal demand in the spring, a couple of hot days, and then we'll be back talking about inventory shortages and just how quickly can it ramp up, assuming normalized demand in the spring? David Gitlin: Well, look, Deane, that would be a tremendous problem to have. We -- what we have learned about this business is that it is very short cycle, and you can see sudden swings. And you can see sudden swings for a whole bunch of variables. So I will say that we've looked hard at our forecasting model, too, that we had a model that's kind of withstood the test of time in a short-cycle business over many, many years, but it clearly failed us over the past 5 months or so. So we've looked at it. We're using AI to see if we can get more correlations between certain variables so we can have a bit better. It's going to take a couple of quarters to figure out whether the new forecasting tool has some better correlation to some of these variables. But having said that, I do think that our independent distributors are being very clear-eyed about making sure that they start the year with inventory levels that they feel are balanced, and we're working very closely with them, distributor by distributor to make sure that they have what they feel they need, but not a single unit more than what they need. Could we see a nice influx of orders as we get into the spring, driven by whether it's weather or by consumer sentiment or by a rebound in new home construction, for sure. But right now, as we think about our own internal forecasting and quite honestly, our external forecasting, you'll see us err on the side of conservatism. Deane Dray: Understood. And then as a follow-up, the discussion about Applied, we see vertical -- if you take us through the verticals, you said they were mixed. Obviously, data center is at the top, but just kind of take us through the rest of them. And anything on the government slowdown, project pushouts, delays, anything you would comment there? David Gitlin: Yes. I'd say on the second part of your question, Deane, the only -- I'd say the only real impact we've seen on the government shutdown has -- we've seen it a bit in our light commercial business. That business is weaker than we thought going into 4Q. We thought 4Q would be flattish. We're now saying down about 15%. And part of it is even though rates seem to be coming down a bit for some of the small businesses, they've been a little bit limited on lending and credit. And some of that is loans processed by the SBA have been put on hold. So that's the one area with the shutdown that we've seen that we can directly correlate to a business has probably been in our light commercial business. I would say, overall, the verticals of strength vary by region a bit. Like, for example, in most parts of the world, health care has been very, very strong. And it's gotten a little bit weak over the last quarter in China. In China, renewables has been weak. But I would say if you're looking for trends globally, #1, 2 and 3 is data centers. That is strong in the Americas, and it's very strong globally. We're seeing pockets of strength in the Middle East and Southeast Asia. We're winning orders in India. We have our sales folks in China diverting from projects they had been on focused clearly on data centers. A lot of industrial production has been strong globally, including reshoring in the United States, some of the mega projects. Retail has been a mixed bag, but that's been an area of strength. Education K-12 is generally weak globally, certainly here in the United States. So -- and another area that you'll be hearing us talk a lot more about is mods and upgrades. So where we see limited new construction and commercial real estate in key parts of the world and especially in some very dense populations in certain cities, we're very, very focused on modifications and upgrades. So that's a whole new vector for us. We've been at it for a while, but we're doubling down on that area as well right now. Operator: Your next question comes from the line of Andrew Obin of Bank of America. Andrew Obin: Just a question on magnetic bearing chillers. Just where is the industry capacity? Where are you? Because our channel checks are picking up that overall, the industry sort of was a bit too successful in getting orders, and there's not a lot of capacity out there. So what's your ability to take market share? Or do you need to add capacity yourselves? David Gitlin: We're in great shape, Andrew. And it's been very purposeful. We've built a whole new facility in North America. We've expanded the existing facility that we have in Charlotte. So if you look at our capacity, just since 2023 in North America, our capacity for water cool chillers is up 4x total chillers, when you include air cooled is up 3x. And I think, look, that's been contributing to a lot of the share gains that we've seen on commercial HVAC. Some tremendous wins on the data center side. I could not be more proud of the team. And part of it is having the capacity now, and we have a lot more capacity to go -- not capacity to go, we have a lot more capacity to continue to grow without further investments. And part of it is the way we're interfacing with our customers. We said to our team and we said to our customers, if you have confidence in us, we will never let you down. We will track deliveries by the hour. We'll make sure that we're always there for you, not only on the delivery side, but technically in terms of installation, in terms of start-up. So a lot of our orders are coming from customers that we've proven that we are in their corner. And then part of it is the investments that we've made in the technical portfolio. We have a new air cooled chiller that has mag bearings. That's coming out right now, huge interest from our data center customers. So a lot of great wins and the investments that we've made over the last 24 months in the additional capacity are paying off. We don't need any more CapEx. We may do a little bit more in certain countries where that's a part of the win process, and we'll see how that plays out. But right now, we're well set in North America. Andrew Obin: And just a little bit more pace on resi coming back in '26. Should we be saying first -- because you sort of said flat to slightly up. So should we be saying Q1 down and then it gets positive after second quarter? Or is it first half, second half story? Patrick Goris: Clearly, the first half will be very difficult given the very strong first half we had this year. And so I think it's fair to say that we would expect resi first half, especially Q1 to be down year-over-year from a volume perspective. Operator: Your next question comes from the line of Chris Snyder of Morgan Stanley. Christopher Snyder: I wanted to ask about Americas margins into next year. It seems like the guide, if my math is right, puts Q4 at maybe a low double-digit to low teens exit rate. And if the company is, I guess, effectively underproducing to maybe about Q2 of next year, I would think the absorption headwinds drag through maybe around midyear. I guess, should we expect Americas margins down next year, just given how hard these first half comps are even if the segment can collectively grow in '26? Patrick Goris: Obviously, quite early to comment on 2026 margins, but I think that CSA margin this year will be around 21% or so, unless for some reason, resi would be significantly down next year, which we, at this point, do not expect, I would not expect the CSA margins in -- to be down next year. Actually, I would expect them to be up. Christopher Snyder: I appreciate that. And then just a follow-up on the price. I think you guys said expect low single-digit realization on fresh '26 price. I guess kind of how do you think about balancing the need to cover cost inflation, which is still evident versus just potential demand destruction. We have seen these price increases get multiplied as they work their way through the channel and on to the homeowner. And I think the risk would be that this just keeps the market in repair mode for longer. Any thoughts on how you guys balance that as an industry even? Patrick Goris: I think it will be important for us next year. And Dave mentioned that we expect to announce a price increase. We do expect to realize low single-digit price next year. Input costs are going up. And of course, we haven't spoken about this yet, but should there be any additional tariffs, this might impact the requirement -- the need to further adjust pricing. And so we certainly expect to realize additional pricing next year, though it will be much more modest, of course, absent any additional new tariffs. David Gitlin: And we do watch the elasticity curves. So we are sensitive to not taking actions that drive that dynamic between replace and repair and we'll continue to watch our curves. But even watching those quite carefully, we're confident we'll get some level of price next year, albeit more modest than this year. . Operator: Your next question comes from the line of Nicole DeBlase of Deutsche Bank. Nicole DeBlase: Can we just start with CST? Orders were up pretty significantly. Do you think we're starting to see this market rebound off the bottom? Or is it more about just easier prior year comps? David Gitlin: I would say on the good side, the container business has been tremendous. I mean, up 50% in the quarter. The year is going to be very strong, probably up 30%. And that's been share gains. It's been share gains the right way through our new product introductions. So that has been just a very, very good news story for us. It's hard to say with the North American truck trailer business, we've seen -- we expect that to have some good growth here in the fourth quarter. It was flattish in the fourth quarter. So the trends there are right, but it's too early to call a strong rebound, but we are seeing it move in the right direction. And I would say European truck trailer was a little bit down. It was down a few percent in Q3. It will be down another couple of percent here in Q4. So I kind of think of it similar to some of our resi businesses. Truck trailer, we're #1 player, very good margins, very well positioned. So as these markets, which have been a little bit depressed in Europe and the Americas, as they start to come back, and it's not clear exactly when, but as they start to come back over these next couple of quarters, that will drop through very well. Nicole DeBlase: Okay. Got it. And then can we just talk about Europe commercial as well? I think it was down mid-single digits in the quarter, and you had expected something a bit better than that. Orders were also down a bit. Can we just unpack what's going on there? Is this more of a comp issue as well? David Gitlin: Yes. I'd say it's -- I honestly would call it more of a timing issue than much of anything else. We see that even though orders weren't even great, orders tend to be lumpy, especially when we're pursuing some key data center customers. I think that this quarter will be up double digits. Internally, we're shooting for a fairly strong number, but it should be up double digits here in Q4. We expect to have good backlog going into next year. The data center pursuits have been very strong. There's a couple of unique things happening where, for example, in Q3, our rentals business was down more than 20% with year-over-year comparison with the Olympics in Paris. So there are some things kind of at the margin within the factories and within aftermarket. But overall, demand very strong, team very well poised for double-digit growth, and we expect very strong growth in this space for next year as well. Operator: Our last question for today comes from the line of Amit Mehrotra of UBS. Amit Mehrotra: Maybe just a couple of quick ones for me. One is not to beat a dead horse on pricing, but any movement on pricing related to tariffs over the course of the year? I know you guys took a price increase on May 1. Pricing discipline, obviously, very strong. So no questions there. But just with respect to any movement related to tariffs specifically vis-a-vis rebates or anything like that, just given how tariff have evolved over the course of the year? Patrick Goris: Yes, Amit, good memory. We implemented incremental pricing earlier this year related to some of the new tariffs. That was at the time of our Q1 earnings, we said it was about -- it would require about $300 million of incremental pricing. We updated that back in July with some of the additional actions we were taking, the pricing requirement was only closer to $200 million this year to offset tariffs. That number has not changed. So we're still in that $200 million range. And as I mentioned earlier, the carryover impact of tariffs, pricing and the cost equation of that is expected to be net neutral in 2026 based on tariffs in place today. Amit Mehrotra: Right. And then, Dave, just a quick follow-up. We're all trying to figure out the drivers of the weakness in residential HVAC this year and just a lot got thrown at the market this year, whether it was the prebuy, the slower -- shorter selling season, the refrigerant shortage, just a lot of stuff happened this year. You made an interesting comment, I think, last month where you talked about 1/3 of existing home sales translates to new HVAC shipments. It just seems like -- I understand that dynamic, but that number just seemed higher than I would have anticipated. So as you think about your demand models and the input to those demand models, we're all trying to answer this question about what volume looks like next year. What are the main kind of levers you're watching from a leading indicator perspective that may inform kind of how that market evolves? David Gitlin: Yes. Let me just start by clarifying that when people buy new homes, our experience is that usually 20% to 25% of the time, that results in a change to their HVAC system. So I think seeing the depressed new home construction, but also the sale of existing homes has been a double hit to demand. I think if you just step back and you think about resi as you go into next year, I would say the good news is that overall comps this year will be down high single digits. As Patrick said, we have much easier comps in the second half than the first half. We are taking a lot of actions to get field inventory levels ending this year at a level where we feel like destocking should not be a further headwind as we go into next year. On the positive side, interest rates hopefully will decline, and that should help both new home construction and the sale of existing homes, which, as we just discussed, does result in changes typically to HVAC systems and 20% to 25% of the time. And I think those that have been opting to do some level of repair over replace, there will be pent-up demand there. The things that we got to watch is we do have tough comps in the first quarter, perhaps a bit into 2Q as well. And it will all come down to the strength of the consumer, and it's just too early to say how that's going to play itself out. We won't get too much of a mix benefit next year. It's probably in the $20 million range or so. So it's going to come down. There's some reasons for optimism. There are some watch items, and we'll just have to see how next year plays out. Thank you. And let me just close by thanking you all for joining the call, and thanks to our 50,000 colleagues globally. This is a time where people are working extremely hard to control the controllables and support our customers. And I could not be more proud of our team and how energized and how hard they're working to make sure that we provide best-in-class support to our customers. So thanks to all my colleagues, and thanks to all of our shareholders. Operator: Thank you for attending today's call. You may now disconnect. Goodbye.

88天前Insight Analytics约5分钟阅读

DHI 2025 Q4 财报电话会议

Operator: Good morning, and welcome to the Fourth Quarter 2025 Earnings Conference Call for D.R. Horton, America's Builder. [Operator Instructions] I will now turn the call over to Jessica Hansen, Senior Vice President of Communications for D.R. Horton. Jessica Hansen: Thank you, Paul, and good morning. Welcome to our call to discuss our fourth quarter and fiscal 2025 financial results. Before we get started, today's call includes forward-looking statements as defined by the Private Securities Litigation Reform Act of 1995. Although D.R. Horton believes any such statements are based on reasonable assumptions, there is no assurance that actual outcomes will not be materially different. All forward-looking statements are based upon information available to D.R. Horton on the date of this conference call, and D.R. Horton does not undertake any obligation to publicly update or revise any forward-looking statements. Additional information about factors that could lead to material changes in performance is contained in D.R. Horton's annual report on Form 10-K and its most recent quarterly report on Form 10-Q, both of which are filed with the Securities and Exchange Commission. This morning's earnings release and supplemental data presentation can be found on our website at investor.drhorton.com, and we plan to file our 10-K in about 3 weeks. Please note that we are now posting our supplementary data presentation at the time of our earnings release. After this call, we will also post our updated investor presentation for your reference. Now I will turn the call over to Paul Romanowski, our President and CEO. Paul Romanowski: Thank you, Jessica, and good morning. I am pleased to also be joined on this call by Mike Murray, our Chief Operating Officer; and Bill Wheat, our Chief Financial Officer. This year, the D.R. Horton team had the privilege of providing homeownership to nearly 85,000 individuals and families, including approximately 43,000 first-time homebuyers. In total, our homebuilding and rental operations provided more than 91,200 households a place to call home during fiscal 2025. We work every day to use our industry-leading platform, unmatched scale, efficient operations and experienced employees to bring affordable homeownership opportunities to more Americans. New home demand remains impacted by affordability constraints and cautious consumer sentiment. Our teams continued to respond with discipline during the fourth quarter, driving a 5% increase in net sales orders while carefully balancing pace, price and incentives to meet demand. The D.R. Horton team produced solid fourth quarter results to finish the year, highlighted by consolidated pretax income of $1.2 billion on revenues of $9.7 billion, with a pretax profit margin of 12.4%. For the year, our consolidated pretax income was $4.7 billion, with a pretax profit margin of 13.8%. Our homebuilding pretax return on inventory for the year was 20.1%. Return on equity was 14.6% and return on assets was 10%. Over the last 10 years, D.R. Horton has delivered a compounded annual shareholder return of more than 20% compared to the S&P 500's compounded annual return of 13.3%. Also, our return on assets ranks in the top 20% of all S&P 500 companies for the past 3-, 5- and 10-year periods, demonstrating that our disciplined, returns-focused operating model produces sustainable results and positions us well for continued value creation. We remain focused on capital efficiency to generate strong operating cash flows and deliver compelling returns to our shareholders. In fiscal 2025, we generated $3.4 billion of cash from operations after making homebuilding investments in lots, land and development totaling $8.5 billion. We leveraged our strong cash flow and financial position to return $4.8 billion to shareholders through repurchases and dividends. Over the past 5 years, we've generated $11 billion of operating cash flow and returned all of it to shareholders. Over the same time frame, we grew consolidated revenues at an 11% compound annual rate, reflecting consistent, efficient execution and disciplined balanced capital allocation. We strive to offer our customers an attractive value proposition by providing quality homes at affordable price points. We will continue to tailor our product offerings, sales incentives and number of homes in inventory based on demand in each of our markets to maximize returns. Mike? Michael Murray: Net income for the quarter was $905.3 million or $3.04 per diluted share on consolidated revenues of $9.7 billion. For the year, net income was $3.6 billion or $11.57 per diluted share on revenues of $34.3 billion. Our fourth quarter home sales revenues were $8.5 billion on 23,368 homes closed. Our average closing sales price for the quarter of $365,600 is down 1% sequentially, down 3% year-over-year and is down 9% from our peak sales price of more than $400,000 in 2022. Our average sales price is lower than the average sales price of new homes in the United States by $140,000 or almost 30%. Additionally, the median sales price of our homes is $65,000 lower than the median price of an existing home. Bill? Bill Wheat: Our net sales orders in the fourth quarter increased 5% from the prior year quarter to 20,078 homes and order value increased 3% to $7.3 billion. Our cancellation rate for the quarter was 20%, up from 17% sequentially and down from 21% in the prior year quarter. Our cancellation rate is in line with our historical average. Our average number of active selling communities was up 1% sequentially and up 13% from the prior year. The average price of net sales orders in the fourth quarter was $364,900, which was flat sequentially and down 3% from the prior year quarter. Jessica? Jessica Hansen: Our gross profit margin on home sales revenues in the fourth quarter was 20%, down 180 basis points sequentially from the June quarter. 110 basis points of the decrease in our gross margin from June to September was due to higher incentive costs on homes closed during the quarter and 60 basis points of the decrease was from higher-than-normal litigation costs. On a per square foot basis, home sales revenues were down roughly 1% sequentially, while stick and brick costs per square foot were flat and lot costs increased 3%. For the first quarter, we expect our home sales gross margin to be flat to slightly up from the fourth quarter. We anticipate our incentive levels to remain elevated in fiscal 2026 with both incentive levels and home sales gross margin for the full year dependent on the strength of demand during the spring selling season, changes in mortgage interest rates and other market conditions. Bill? Bill Wheat: Our fourth quarter homebuilding SG&A expenses were flat with the prior year quarter, and homebuilding SG&A expense as a percentage of revenues was 7.9%. For the year, homebuilding SG&A was 8.3% of revenues. Our annual SG&A expenses increased 3%, primarily due to the expansion of our platform, including a 13% increase in our average community count. The investments we have made in our team and platform position us to continue producing strong returns, cash flow and market share gains, and we remain focused on managing our SG&A costs efficiently across our operations. Paul? Paul Romanowski: We started 14,600 homes in the September quarter and ended the year with 29,600 homes in inventory, down 21% from a year ago. 19,600 of our total homes at September 30 were unsold. 9,300 of our unsold homes at year-end were completed, including 800 that had been completed for greater than 6 months. For homes we closed in the fourth quarter, our median cycle time measured from home start to home close decreased by a week from the third quarter and 2 weeks from a year ago. Our improved cycle times enable us to hold fewer homes in inventory and turn our housing inventory more efficiently. We expect our sales pace will increase in the first half of our fiscal year in preparation for the spring selling season, and we will continue to manage our homes and inventory and starts pace based on market conditions. Mike? Michael Murray: Our homebuilding lot position at year-end consisted of approximately 592,000 lots, of which 25% were owned and 75% were controlled through purchase contracts. 78,000 or roughly half of our owned lots are finished and the majority of our option lots will be finished when we purchase them over the next several years. We are actively managing our investments in lots, land and development based on current market conditions. We remain focused on our relationships with land developers across the country to allow us to build more homes on lots developed by others. Of the homes we closed during the quarter, 65% were on a lot developed by either Forestar or a third party, up from 64% in the prior year quarter. Our fourth quarter homebuilding investments in lots, land and development totaled $2 billion, of which $1.3 billion was for finished lots, $540 million was for land development and $120 million was for land acquisition. For the year, our homebuilding investments in lots, land and development totaled $8.5 billion. Paul? Paul Romanowski: In the fourth quarter, our rental operations generated $81 million of pretax income on $805 million of revenues. From the sale of 1,565 single-family rental homes and 1,815 multifamily rental units. For the full year, our rental operations generated $170 million of pretax income on $1.6 billion of revenues from the sale of 3,460 single-family rental homes and 2,947 multifamily rental units. Our rental property inventory at September 30 was $2.7 billion, down 7% from a year ago and consisted of $378 million of single-family rental properties and $2.3 billion of multifamily rental properties. We remain focused on improving the capital efficiency and returns of our rental operations. Jessica? Jessica Hansen: Forestar is our majority-owned residential lot development company, and our strategic relationship is a vital component of our returns-focused business model. Forestar reported revenues for the fourth quarter of $671 million on 4,891 lots sold with pretax income of $113 million. For the full year, Forestar delivered 14,240 lots, generating $1.7 billion of revenues and $219 million of pretax income. 62% of Forestar's owned lots are under contract with or subject to a right of first offer to D.R. Horton and $470 million of our finished lots purchased in the fourth quarter were from Forestar. Forestar's strong, separately capitalized balance sheet, substantial operating platform and lot supply position them well to provide essential finished lots to the homebuilding industry and aggregate significant market share over the next several years. Mike? Michael Murray: Financial services earned $76 million of pretax income in the fourth quarter on $218 million of revenues with a pretax profit margin of 34.7%. For the year, Financial Services earned $279 million of pretax income on $841 million of revenues with a pretax profit margin of 33.1%. As we now post the supplemental data presentation to our investor website prior to the call, we will no longer review detailed mortgage metrics during our prepared remarks. Bill? Bill Wheat: Our capital allocation strategy is disciplined and balanced to support an expanded operating platform that produces attractive returns and substantial operating cash flows. We have a strong balance sheet with low leverage and healthy liquidity, which provides us with significant financial flexibility to adapt to changing market conditions and opportunities. During fiscal 2025, we generated $3.4 billion of operating cash flow, representing 10% of our total revenues and 95% of our net income. During the fourth quarter, we repurchased 4.6 million shares of common stock for $689 million. For the full year, we repurchased 30.7 million shares for $4.3 billion, which reduced our outstanding share count by 9% from the prior year end. We also paid cash dividends of $118 million during the quarter and $495 million during fiscal 2025. Our fiscal year-end stockholders' equity was $24.2 billion, down 4% from a year ago. However, our book value per share was up 5% from a year ago to $82.15. At September 30, we had $6.6 billion of consolidated liquidity, consisting of $3 billion of cash and $3.6 billion of available capacity on our credit facilities. We repaid $500 million of our 2.6% senior notes in September, and debt at the end of the quarter totaled $6 billion. We have no senior note maturities in fiscal 2026. Our consolidated leverage at fiscal year-end was 19.8%, and we plan to maintain our leverage around 20% over the long term. Based on our strong financial position and cash flow, our Board declared a new quarterly dividend of $0.45 per share, a 13% annualized increase compared to the prior year, making fiscal 2026 our 12th consecutive year of dividend growth. Jessica? Jessica Hansen: Looking forward to fiscal 2026, we expect new home demand to reflect ongoing affordability constraints and cautious consumer sentiment. As outlined in our press release this morning, for the full year of fiscal 2026, we currently expect to generate consolidated revenues of approximately $33.5 billion to $35 billion and homes closed by our homebuilding operations to be in the range of 86,000 to 88,000 homes. We forecast an income tax rate for fiscal 2026 of approximately 24.5%. We expect to generate at least $3 billion of cash flow from operations in fiscal 2026. We currently plan to purchase approximately $2.5 billion of our common stock during fiscal 2026, in addition to paying dividends of around $500 million. For our first fiscal quarter ending December 31, we currently expect to generate consolidated revenues in the range of $6.3 billion to $6.8 billion and homes closed by our homebuilding operations to be in the range of 17,100 to 17,600 homes. We expect our home sales gross margin for the first quarter to be in the range of 20% to 20.5% and our consolidated pretax profit margin to be in the range of 11.3% to 11.8%. Finally, we expect our income tax rate for the quarter to be approximately 24.5%. Paul? Paul Romanowski: In closing, our results and position reflect our experienced teams, industry-leading market share, broad geographic footprint and focus on delivering quality homes at affordable price points. All of these are key components of our operating platform that support our ability to aggregate market share, generate substantial operating cash flows and return capital to investors. We recognize the current volatility and uncertainty in the economy, and we will continue to adjust to market conditions in a disciplined manner to enhance the long-term value of our company. Looking ahead, we have a positive outlook for the housing market over the medium to long term. Thank you to the entire D.R. Horton family of employees, land developers, trade partners, vendors and real estate agents for your continued efforts and hard work. Let's continue working to improve our operations and provide homeownership opportunities to more individuals and families during 2026. This concludes our prepared remarks. We will now host questions. Operator: [Operator Instructions] The first question today is coming from John Lovallo from UBS. John Lovallo: The first one is when we think about the walk from the 20% gross margin in the fourth quarter to the 20% to 20.5% in the first quarter. I mean how do we sort of think about incentives, land, labor, material costs? And is the warranty litigation costs expected to remain a 60 basis point headwind? Or how should we sort of think about that piece? Bill Wheat: Thanks, John. The 60 basis points unusual impact from litigation this quarter is not expected to persist into Q1. Our baseline would be that we have a more normal impact from warranty litigation going forward. And so if you take our 20.0% reported margin this quarter, pro forma for the litigation, we would be 20.6% this quarter. And so our guide of 20% to 20.5% would be down slightly from Q4 to Q1 gross margin. And that just reflects the environment we're in and the level of incentives that we're seeing and our exit gross margin at the end of the quarter was a bit lower than we anticipated coming into the quarter. And so that's what was reflected in the Q1 guide. John Lovallo: Makes sense. I mean it's also the slowest quarter of the calendar year. So that would make sense. But okay, if we think about the starts pace in the quarter, it seems like it was down fairly meaningfully. I mean, rough math, maybe 30% per community. I guess how quickly can you ramp this to meet demand if it exceeds your expectations, even to get to that sort of 87,000 deliveries at the midpoint? Paul Romanowski: John, our starts were lower certainly in the quarter, and that was intentional as we look to get our inventory in line with where it is also in response to our continued improvement in our cycle times. I feel like we don't need to carry as much inventory and also an opportunity for us in a slower starts environment to go into the market with our vendors and try and find reduced stick and brick as we move into the spring season. And we're going to need to increase our starts as we go through the quarter and into the spring, but feel very good about our ability from a labor base and from our positioning of our communities and our lot supply to respond to the market as it comes at us. Operator: The next question will be from Stephen Kim from Evercore ISI. Stephen Kim: I guess my -- looking at your guide on 1Q, the gross margin, I think you've explained it pretty well here. But the consolidated pretax still seemed a little lighter for us. And I was curious as to whether or not your outlook in 1Q is anticipating maybe just some seasonal lightness or something in profitability from either rental or Forestar, financial services? Or is there something else maybe below the homebuilding gross margin line that you might want to call out? Jessica Hansen: Yes. We would expect rental to be a little bit softer quarter. We delivered a lot this year. And so rental is lining up to be back end or back half of the year, heavier again for us this year. And so that certainly would have an impact on our consolidated op margin. And then to your point, we'll just have less leverage on SG&A from the lower closings volume on the homebuilding side. Stephen Kim: Got you. That's very helpful. I appreciate that. Second question relates to your free cash flow guide, which was healthy. You had talked about, I think, in the past, being able to achieve free cash conversion, I think, about 80% to 100%. I just want to make sure that I remember that correctly. Is that kind of in line with what you are looking for still on a go-forward basis? Bill Wheat: Yes. We expect to be more consistent in our cash flow conversion going forward. This year, cash flow as a percentage of revenues was between 10% and 11% overall, and we expect to be in that range. The guide is roughly in that range as well. Operator: The next question will be from Sam Reid from Wells Fargo. Richard Reid: A few quick follow-ups on the gross margin. I just want to drill down a little bit deeper on that sequential step-up in warranty expense, just to make sure I fully understand kind of some of the puts and takes there. Why you expect it to normalize into the first quarter? And then I'm sorry if I missed, but could you also just remind us what's embedded in Q1 on lot costs and stick and brick. Bill Wheat: Sure. On the litigation, we had several large settlements that settled this quarter, nothing outside of the ordinary course of business, but they were larger than normal just in terms of size. And that has an impact on some of the factors that we use in our litigation reserve model. So we had to increase a few of those. And so that drove the change in the quarter. Those are elements we don't expect to repeat going into the going into the next quarter. And then as we look at margin going forward, our base expectation is we do expect our lot costs and our home closings to continue to increase incrementally. And we're certainly going to be striving to offset that as best we can with stick and brick savings as we move into the year. Richard Reid: That helps. And maybe drilling down a bit more detail on the incentive line item. So it does look like incentives stepped up sequentially. Can you just break out the difference between step-up in price discounting versus rate buydowns? And then I know you do buy down to some very below market rates in certain communities/units as low as 3.99%. Just curious whether the proliferation of those significantly below market buydowns stepped up in Q4? Jessica Hansen: Yes, Sam. So as we anticipated on our last call, we did expect to lean in more heavily to the offering of 3.99%. That is something that we've been doing, and we saw the mortgage rate in our backlog come down. It's actually below 5% today coming into this quarter. And we also saw a slight increase in the percentage of buyers sequentially that received a rate buydown overall. So that accounted for about 73% of our total closings in Q4, which was up from 72% sequentially. Operator: The next question will be from Alan Ratner from Zelman & Associates. Alan Ratner: And apologies in advance, I got disconnected for a moment. So if I repeat the question, I'm sorry. But first question, just a pretty solid order number, especially considering kind of the start pace way down. And just curious if you can kind of talk a little bit about how demand trended through the quarter and whether you feel like that year-over-year order growth is any indication of maybe a little bit of an improvement in demand as rates were coming down? Or was there perhaps a little bit of a shift in incentive strategy? I know incentives were up a bit for the quarter. Just curious if you kind of increased them in the back half of the quarter that might have driven some of that order increase. Michael Murray: I think we did see a decent demand throughout the quarter. It was choppy as rates were a little bit volatile, and that will push people off the couch and back on to the couch. It seems like with the headlines. But we did lean into the incentives pretty hard in the quarter, as we talked about, and we expected to. We did start a fair number of homes in our June quarter, and those homes were going to sell and close in September. And we have a few more in the backlog that will be closing out as well. But we moderated the starts pace to reflect a sales environment, as Paul says, to rightsize our inventory position and leaning into our production improvements, the ability to compress the cycle time will allow us to deliver homes faster from start sale to delivery at closing. Jessica Hansen: And so in today's environment, we'd expect our starts in the first half of the year to be up from our recent starts pace that we've had. Alan Ratner: Got it. Okay. That makes a lot of sense. And then second question, just looking at your closing guide for '26 up slightly year-on-year. Obviously, your homes under construction are way down. It doesn't feel like there's anything today that would point to '26 being an up year from a demand perspective. So I'm just curious how you're thinking about kind of the -- maybe the upside and downside risk to that closing guidance. Obviously, it will be dependent on the spring. But is this more you taking a view of, hey, we've got the communities opening. We want to put homes on the ground and kind of keep the machine running? Or is that actually your expectation that maybe lower rates a little bit, still solid economy that you feel a little bit more positive about the demand outlook heading into this year's spring versus last? Paul Romanowski: Alan, I would say that we are absolutely in position to deliver on the units in the guide. When you look at our community count being up 13%, and that's been increasing double digit for some period of time. So we're not assuming increased absorption per flag to achieve this guide. We have the production capacity throughout the industry, we think, to deliver on that. And we have what I would characterize as solid traffic in our communities today. There's some uncertainty and consumer confidence certainly is keeping people on the fence. So ultimately, it's going to depend on the spring selling season and the strength of the market. But we believe we're in position to deliver on our guide and feel good about our positioning today. Even with our inventory, total housing inventory at a lower number, that's been purposeful because we believe we have the ability to deliver the units in a timely fashion. Operator: And the next question will be from Matthew Bouley from Barclays. Matthew Bouley: I have, I guess, a similar question to what Alan just asked, but I want to add a little more to it around the gross margin side. And so obviously, guiding to growth in a housing market that is not growing at the moment, and I hear you loud and clear on the community growth supporting that. But maybe in the context that the gross margins came in a little bit below the guide, even excluding the unusual litigation. So I'm trying to understand if there's any signal there, kind of any conceptual change to that balance between growth and gross margin? And perhaps are you actually willing to maybe sacrifice a little bit of gross margin here in order to drive those volumes higher this year? Michael Murray: I think we're continuing to respond to the market that's in front of us on a day-to-day and week-to-week basis at each of our communities. The growth in the community count and the lots that are available to us today in our portfolio that are ready to start homes on is probably unprecedented in the company's history relative to our outlook for the year. So we feel like we have a lot of flexibility to lean into the strength that materializes in the market. And at the same time, we can't -- you cannot continue to run the machine to a 0 profit margin. That makes 0 sense whatsoever. Matthew Bouley: Yes. Got it. Okay. Understood. And then maybe just zooming in to the lot cost. So I guess it sounded like there was still a little bit of inflation sequentially. I'm just curious that kind of the very front end, whether it's development costs or kind of renegotiating with your land counterparties, et cetera. Is there an outlook to either flattening or eventually improving lot cost? And when may that begin to benefit you guys? Paul Romanowski: I think, Matt, given the mix of our overall lot portfolio and different age, I don't think you're going to see much of a shift in that over the next 12 months. We are seeing on the front end from a development cost perspective, some flattening there and some reductions that we expect to take advantage of in new lots that are going on the ground either for us or through our third-party developers. Not as much movement on the overall land valuation, but we are seeing favorable opportunity to renegotiate on terms and time to control our lot position and the number of lots that we own based on market conditions. Jessica Hansen: And I think an even better opportunity that we look at in '26 is renegotiating our stick and brick costs. Lot costs continue to be sticky, and we're doing everything we can on that front, but we would expect our stick and brick costs to come down as we move throughout the year. Operator: And the next question is coming from Rafe Jadrosich from Bank of America. Rafe Jadrosich: I just wanted to ask on the second half -- the delivery outlook seems like it's more second half weighted. Can you talk about like the starts pace and community count that you're assuming? How do we think about the cadence of that through the year? Paul Romanowski: I think overall, our starts pace needs to move up, right? I mean at 14,600 starts this quarter, well below what we need to be doing on a quarterly basis. But again, that's been intentional to get our inventory in the pace that we're looking for and feel good about our capacity and ability to start into the market, but our starts are going to have to keep pace with or exceed our sales pace a little bit as we look at the first and second quarters into this year. Bill Wheat: And with respect to community count, we've been seeing double-digit year-over-year increases in community count. We do expect that to moderate at some point more to the mid- to high single digit. But right now, as we go into the year, we are up double digits. So that positions us well to not have to plan for higher absorptions in order to achieve our volume and our business plan. Rafe Jadrosich: And then just following up on the last question. Can you just tell us what the year-over-year increases on lot cost? And then what you'd expect that to be through 2026? Jessica Hansen: Yes. I think we were up 8% on a year-over-year basis on a per square foot for lot costs. And I think as we've said, we do expect that to remain pretty sticky, at least on closings for the next year or so. And so it's probably best case mid-single, but it could continue to be high single as well as it takes a little bit longer for that ultimately to flow through in our closings. Operator: The next question will be from Trevor Allinson from Wolfe Research. Trevor Allinson: First question is on demand in Texas. We've heard a couple of builders call out Texas as being among the weaker markets here, but your South Central orders were up 11% year-over-year. So can you talk about what you're seeing there? Is the strong order performance, the decision to lean more into volumes? Or you've got really strong community count growth? Did you see a lot of that come through in Texas? Just any commentary on what's driving the good order growth there relative to some weaker commentary from others? Paul Romanowski: Trevor, I would describe Texas like a lot of markets and areas and geographies, and that's choppy. It's kind of market to market. We did lean in, as you saw in our margins, the incentives to drive the absorptions that we were looking for in the fourth quarter. Still have certainly bright spots throughout the state, but others that we still have an elevated inventory level that we and the industry need to work through in the coming months. Trevor Allinson: Okay. And then second question, you've talked about getting your inventory lower in the quarter. You're also now talking though about increasing your starts pace here. So perhaps that suggests that you feel good about where your inventory is at. What about for the industry more broadly relative to demand? Do you think that the reduced starts pace here recently has brought inventory more in alignment with current demand conditions? Or do you think, especially in some of these weaker markets that there's still room for inventory to move lower here early -- late in 2025 and early in 2026? Michael Murray: I do think the reduction in starts has helped to balance inventory market by market. Again, it is market by market as you look at that. Across the board, our slowdown in starts also gives us the opportunity to work on repricing some of our stick and brick costs and the ability for us to sell houses and start houses. And increase our starts pace is predicated upon the sales environment and the ability to reduce our vertical construction costs so that we can start houses. So I expect to see that the inventory balance helping support a backdrop of increasing starts into our December and March quarters. Jessica Hansen: I think we've had a lot of chatter about builders just being more rational today, right? And so we are seeing the industry, by and large, adjust their inventory overall, so we don't end up in an oversupply situation in most of our markets. Operator: The next question will be from Anthony Pettinari from Citi. Anthony Pettinari: Your repurchase guide, $2.5 billion, I think, is kind of significantly below what you'll probably end up doing in '25 despite cash generation could be somewhat similar year-over-year. Is that just caution early in the year or before the year starts? And then maybe more broadly, can you just talk about potential capital allocation priorities in '26 in terms of step-up in land purchase development or any other thoughts there? Bill Wheat: Yes. We repurchased $4.3 billion in fiscal '25. The guide of $2.5 billion is lower. It's all governed by our cash flow. This year, we have said several times in fiscal '25, we had a unique situation coming into the year. We had a higher-than-normal level of liquidity coming into the year. So we felt like we had some cushion there to utilize it, and we took advantage of when our price was much lower to buy shares with that. We were also coming into fiscal '25 below our leverage targets. So we had some room on our balance sheet, and we did increase our leverage a bit and utilize that cash in our share repurchase as well. So we had some unique opportunities in fiscal '25 to lean in a bit, take advantage of the dislocation in our stock price. But going forward and over the long term, consistently, our share repurchases and dividends will be governed by our level of cash flow. And right now, going into the year, every year has potential upside and downside relative to our business plan. But right now, our baseline is we expect to generate $3 billion of cash flow and essentially distribute it to our shareholders, $2.5 billion of share repurchase, $500 million of dividends. And so that's our baseline going into the year. And then we will adjust as necessary depending on what the market shows us in the spring and ultimately what our cash flow generation is. Anthony Pettinari: Okay. That's very helpful. And then when I look at your net sales order growth year-over-year by region, it looks like you have relatively strong sales order growth, except in the Southeast. And I'm just wondering if you can give any kind of additional color on the Southeast, if there are MSAs that are stronger or weaker or particular inventory challenges? Or just any kind of color you can give on that region and kind of where you are in terms of visibility into inflection there? Michael Murray: Generally, within the Southeast, Florida is a big component of the company, and that's a huge component of the Southeast region we report. There are some markets within Florida that have struggled with some inventory balance issues. Notably, Jacksonville and Southwest Florida have had some excess inventory and demand has been a while coming to absorb that. So that's kind of what you're seeing in the current quarter's results in the Southeast for us. Operator: The next question will be from Michael Rehaut from JPMorgan. Michael Rehaut: First, I wanted to circle back to the gross margins for a moment, but look at it from a perspective of we've highlighted and discussed the outlook for continued land cost inflation and the hope that, that could be offset by lower labor and material costs. I'm trying to get a sense for, theoretically, let's say, if from here on in, so from the 20% to 20.5% gross margin expected in the first quarter, if land costs are going to be up, let's say, mid- to high single digits, what type of reduction would you need in construction costs to offset that so that gross margins would be flattish without any help from better pricing? Paul Romanowski: I think absent of any pricing or reduction in incentives or breaks on the cost of our builder forward and financing, I think you need to see that somewhere in the 3% to 5% range. And we'll see how that comes in over the year, but I have certainly seen our vendors interested in the starts pace increasing as are we. I mean that's good for the industry, and they recognize that and have been at the table with us to help do what we can to replace the homes that we're selling today with a more affordable home. And that's really the ultimate goal is to open up homeownership to more people. So we do see the opportunity to balance the reality of the increased lot cost that we see over the next 12 months. Michael Rehaut: And -- I appreciate that, Paul. And what was -- what were construction costs on a year-over-year basis for the fourth quarter? Jessica Hansen: We were down 1% year-over-year and flat sequentially. And for the full year, we were down about 1.5%. Michael Rehaut: Okay. That's helpful. And then I guess, secondly, on some of the regional commentary. I guess we've heard that Texas remains kind of choppy, I believe you said, and Florida, some pain points. I guess I'm interested in if those are the 2 markets today that you'd consider broadly speaking, the most challenged across your footprint? Or how does California and Pacific Northwest fit in there? And then if you've seen any change for the better or for the worse, marginally better, marginally worse, where you sit today versus 3 months ago? Paul Romanowski: I think California has also been a bit of a struggle. I think we're seeing some strength or at least stability, if you will, across the Midwest and into the Mid-Atlantic. I think gauging it today compared to 3 months ago, I would say similar. And it truly is choppy. I mean -- and there's a lot of headlines and noise, and we would have expected to see a little bigger bump out of the reduction in mortgage rates that we've seen, and we've seen them come down a little more here recently. And hope that, that turns into more people getting off the fence and into the buy box. But we do see interest in our sales offices, and we do see people out there looking for homeownership. Operator: The next question will be from Ken Zener from Seaport Research Partners. Kenneth Zener: I want to take a step back, if we could, just to -- because your orders are up. It's a big deal, right, in a market that is challenging. But could we start -- first question, 20% gross margin guidance, while it's down sequentially, it's actually kind of in the range, if you take the historical view of the industry, that's pretty normal. So do you think that, in fact, this could be the more normalized rate given how much you've improved your asset efficiency in terms of upwards of 2/3 of your lots being bought finished, A. And also, can you talk to -- a lot of the homebuilders describe consumer confidence. The way I look at it, we describe it as job growth in Dallas is kind of half what it was historically. Phoenix has been kind of flat the last 6 months. Vegas has been a bit negative. And I'm asking this because are we actually kind of in a more environment where the consumer -- while interest rates matter and affordability matters, there's just not a lot of job growth. So it's more of a traditional economic slowdown. Paul Romanowski: I think that job growth certainly, I mean, absolutely has an impact on new household formations and consumer confidence. And where you see that flatness in those markets, that is going to have an impact on go-forward demand. Do still feel very good about our positioning across our markets and at the affordable price points and the need for housing. But ultimately, yes, Ken, we need to see consistent sustainable job growth to drive growth in the housing market. Kenneth Zener: And the 20% question? Jessica Hansen: I think we feel pretty good where our margin profile is based on the disruptions we've seen in the housing market over the last year or 2. And we've adjusted accordingly. And the bottom line op margin, we're still producing generally better than what our old historical norm would have been. Not ready to call a bottom on anything right now, but we do feel good still over the long term about running on average sustainably higher pretax profit margins. Kenneth Zener: Okay. And then I guess you said incentives went up 120 bps. I know you guys haven't quantified it in the past. I think it would be good if you did. But you said high single digits in the past. Are we in -- at the -- does the 120 bps increase now bring us into low double digits in terms of incentives? Jessica Hansen: No, it was a 110 basis point sequential increase, and we're still a high single-digit percentage overall. Kenneth Zener: And no specificity, I take it, correct? Jessica Hansen: No. I mean we give you the gross margin detail that shows kind of our core lot level gross margin and then the things that also impact our gross margin below that, that we've already talked to in terms of the outsized litigation costs. We also did in our supplemental presentation, break out external broker commissions now. So you'll see of the 110, 10 basis points was related to increased broker commissions, which is to be expected when we're trying to drive incremental sales. Operator: The next question will be from Susan Maklari from Goldman Sachs. Charles Perron-Piché: This is Charles Perron in for Susan. First, I would like to discuss the performance of operations in smaller markets where you have a large market share. You've been successful in those markets in the past few years. Can you talk about the opportunities you're seeing there relative to your larger markets and how this influences your ability to outperform the market next year? Paul Romanowski: Yes. I think we have seen when we just kind of look at the beginning expectation or budget for some of those divisions, a higher level of able to achieve their intended absorptions. And when we're in a lower competitive environment and we can react to the market, whether that's up or down and control some of those inventories a little better, we have seen a pretty solid performance in some of those and feel good about our geographic footprint. We've expanded quite a bit into some of those secondary markets over the last couple of years and happy to see our divisions and our teams maturing in those markets. Charles Perron-Piché: Got you. That's helpful. And second, I want to drill down on the ASP a little bit. Considering the 3% growth in closings and flat revenue guide for next year, this suggests the potential for ASP pressure continuing into fiscal '26. I guess, first, is this a fair assumption? And more broadly, how do you expect the ASP to trend in 2026, should market conditions persist? And how much of that would be driven by like-for-like pricing versus mix relative impact? Bill Wheat: Yes. I mean we continue to try to focus on affordability. That's one of the constraints in the market today. And so our ASP has been trending down caused both by mix in terms of smaller homes and the mix of homes that we're providing as well as the incentive levels that we're providing. So our base assumption is that we will continue to see a net decline in ASP in fiscal 2026 for those same reasons. Operator: The next question will be from Mike Dahl from RBC. Michael Dahl: I had another follow-up on kind of starts and inventory dynamic. You guys did a great job on really significantly reducing inventory in the quarter. Now at the same time, you're acknowledging that you do have to ramp starts pace consistent with how you've guided for the year. So that's still absent market improvement suggests that you are going to ramp specs back up, which I understand is normal seasonally, but I'm trying to get a better handle on what exactly we should be thinking about in terms of your comfort level on ramping specs specifically back up into 1Q given the current market dynamics? Paul Romanowski: I would say our preferred path is to sell the homes earlier in the process and be building more backlog. We are going to need to see an increase in starts, whether those are for specs or sold homes. But we just -- with the speed at which we're building homes and the ability to deliver with predictability of delivery date and rate even on a new start. We just don't need to carry as many total specs and feel comfortable with the spec count that we have, and we'll be managing that to the market as the sales come. Michael Dahl: Got it. Okay. And then as a follow-up, you did just close on the acquisition of SK Builders in South Carolina. I was wondering if you could comment a little bit more on how much contribution you expect from that? And then taking a step back, you've done a number of these kind of tuck-ins to help bolster market share at a local level and kind of firm up the growth. Maybe give us a broader view on how you're seeing the kind of the M&A and bolt-on and for yourselves? Michael Murray: I think the SK acquisition helps our positioning in the Greenville, South Carolina market quite a bit. We picked up about 150 houses in inventory, another 400 lots on the ground today and then sales orders on those homes in construction, about 2/3 of them are sold. And then we got control of another 1,300 lots in good communities throughout the Greenville market that will help further leverage our operating platform in Greenville. And with what happened there, we continue to look at those tuck-in opportunities to accelerate the pace of delivery of homes into those markets across the country. We tend to operate with our capital structure, cost structure at a higher pace than some of the smaller builders do with some of the limitations they have on capital and cost. So it's very accretive to our platform, and we look to see people that are really good at the small local homebuilding are also generally very good at the local entitlement and some development operations and kind of decoupling their operations from entitlement development from homebuilding and splitting it between us and them works out really well for a long-term win-win for both the seller and the D.R. Horton. Jessica Hansen: And if anyone is not familiar, that was an October transaction that didn't happen during the quarter. So it was subsequent to year-end. Operator: The next question will be from Jade Rahmani from KBW. Jade Rahmani: I wanted to ask you about your view on interest rates and if you think a step down in mortgage rate will translate into further mortgage buydowns. In other words, if you will pass on that improvement to buyers in the new home market to maintain relative standing with the existing market? Or if you think those lower rates will actually alleviate some of the incentive pressure? Paul Romanowski: Jade, we're still solving for a monthly payment across most of our communities. And so the ability to offer a lower rate than market and to solve for a monthly payment that it allows people to move forward with the purchase is what we will continue to do. In the current environment, the reduction in rates generally has meant a little lower cost for us in the rates that we're offering. We're still largely at the low end, about 3.99% rate that we're offering. And we'll just see as it comes. I think it's probably going to be a combination of both. In other words, if we need to step down some more to drive to the monthly payment to open up the absorptions that we're looking for at a community level to drive the returns that we want, then we'll continue to do that. And if rates drop down and we are allowed to reduce our incentive in terms of the cost of that BFC, we'll take advantage of some of that. So I would expect it to be a balance as we look forward. Jade Rahmani: And in terms of buyer preferences, on the incentive package, have you seen any shift toward outright lower home base prices or savings in other areas over mortgage buy-downs? Paul Romanowski: I think for our buyer, again, it still comes back to the monthly payment. And the most attractive monthly payment we can put them in is with a lower rate. And I think it's a benefit to the homeowner over time in terms of they're paying down more of their principal. And I think just overall, it's been a solid incentive and probably the most that people have taken and had interest in is still at the lower range. Operator: The next question will be from Jay McCanless from Wedbush. James McCanless: So I just wanted to follow up on your comments. I think it was Bill, you said that the exit rate on gross margins at the end of the quarter was lower than you guys expected. I mean, was that more incentives, higher lot costs? Maybe talk about that a little bit? And what have you seen so far in October? Bill Wheat: On a like-for-like basis, we landed about 40 basis points below the low end of our guide for Q4. And really, most of that we would put at the feet of incentives. What it took in order to get the sales for the closings that needed -- that we needed to generate the volume and generate our returns. For fiscal '25 was -- ended up being a little bit more than what we anticipated as we went into the quarter. And so as we go into Q1, we'll be trying to strike the balance as best as we can, but we are starting Q1 at a lower entry point than we did when we entered Q4. James McCanless: Got it. Okay. And then I can't remember who made the comment about this, but about lower rates seeming to drive some traffic, but maybe not conversions. I guess what are you all hearing from the field? Why aren't people willing to go ahead and pull the trigger? I mean I know we've all talked about confidence ad nauseam at this point, but are there other things that you're hearing from the field that are keeping people from going ahead and stepping up and buying the home? Michael Murray: In some cases, it's -- they want to buy the home, it's a qualification issue for what payment they can afford. So as Paul said, we're solving back for a payment. And when we can align that payment that's attainable for them that they are compelled to do that and make that move. Other buyers with rates bouncing around being volatile, they're thinking, well, maybe I should wait for them to drop, maybe I should -- I can't afford now because they're spiking up. I think we'll see rates -- if rates drop, we'll see an increase in the transactions in the existing home side, which helps relocate people and shuffle them around a little bit and those folks then will be looking for different housing options other places. And we see a lot of people with house-to-sell contingencies that come in that want to buy a house, but they can't get their house sold. Operator: And the next question will be from Alex Rygiel from Texas Capital. Alexander Rygiel: What percentage of your buyers are using adjustable rate mortgages? And how has that changed over the last 12 months? Jessica Hansen: Sure. It's come from essentially 0 to mid- to high single-digit percentage on closings this most recent quarter. And as we have introduced some new ARM products tethered to a rate buy down, I do think our base case would be that percentage continues to drift up, but it won't move sharply. Alexander Rygiel: And then secondly, as you reaccelerate starts, can you comment on the average square footage of the floor plans? Have you changed it much at all? Or do you expect sort of modestly smaller homes kind of for the foreseeable future? Paul Romanowski: I would say modestly smaller. Our square footage has continued to drift down slightly, but not a significant change over the last 12 months. I think where we are today and where we have starts coming, it will be on the smaller end in the community, but we'll respond to the market as it comes. So the good news about having the ability to sell early in the process is it opens up us to be more responsive to the market and not just responding with the inventory that we've already selected. Operator: Thank you. This does conclude today's Q&A. I will now hand the call back to Paul Romanowski for closing remarks. Paul Romanowski: Thank you, Paul. We appreciate everyone's time on the call today and look forward to speaking with you again to share our first quarter results on Tuesday, January 20. Congratulations to the entire D.R. Horton family on a successful fiscal 2025. Due to your efforts, we just completed our 24th consecutive year as the largest builder in the United States. We are honored to represent you on this call, and we look forward to everything we will accomplish together in fiscal 2026. Operator: Thank you. This does conclude today's conference. You may disconnect your lines at this time. Thank you for your participation.

88天前Insight Analytics约5分钟阅读

NXPI 2025 Q3 财报电话会议

Operator: Hello, and thank you for standing by. Welcome to NXP's Third Quarter 2025 Earnings Conference Call. [Operator Instructions] I would now like to hand the conference over to Jeff Palmer, Senior Vice President, Investor Relations. Please go ahead, sir. Jeff Palmer: Thank you, Towanda, and good morning, everyone. Welcome to our third quarter earnings call today. With me on the call today is Rafael Sotomayor, NXP's President and CEO; and Bill Betz, our CFO. Also on the call with us is Kurt Sievers, who will act as a special adviser to Rafael through the end of 2025. The call today is being recorded and will be available for replay from our corporate website. Today's call will include forward-looking statements that involve risks and uncertainties that could cause NXP's results to differ materially from management's current expectations. These risks and uncertainties include, but are not limited to, statements regarding the macroeconomic impact on the specific end markets in which we operate, the sale of new and existing products and our expectations for financial results for the fourth quarter of 2025. NXP undertakes no obligation to revise or update publicly any forward-looking statements. For a full disclosure of forward-looking statements, please refer to our press release. Additionally, we will refer to certain non-GAAP financial measures, which are driven primarily by discrete events that management does not consider to be directly related to NXP's underlying core operating performance. Pursuant to Regulation G, NXP has provided reconciliations of the non-GAAP financial measures to the most directly comparable GAAP measures in our third quarter 2025 earnings press release, which will be furnished to the SEC on Form 8-K and is available on NXP's website in the Investor Relations section. Now I'd like to turn the call over to Rafael. Rafael Sotomayor: Thank you, Jeff, and good morning. We appreciate you joining our call today. Our overall performance during the third quarter was solid. Our revenue exceeded guidance by $23 million. We experienced sequential growth driven by broad-based improvements across all regions and end markets. We maintained good profitability and controlled operating expenses, resulting in healthy fall-through. Turning to the specifics. NXP delivered third quarter revenue of $3.17 billion, a decline of 2% year-on-year and up 8% sequentially. Non-GAAP operating margin in the third quarter was about 34%, 170 basis points below the same period a year ago and 10 basis points above the midpoint of our guidance. The lower operating margin versus the same period last year was due to lower revenue and gross profit, partially helped by flat operating expenses. Taken together, we drove non-GAAP earnings per share of $3.11, $0.01 better than guidance. Distribution inventory was flat at 9 weeks, consistent with our guidance, while still below our long-term target of 11 weeks. From a direct sales perspective, we believe our shipments into the Tier 1 automotive supply chain has approached end demand. We estimate that aggregate inventory levels of NXP-specific products at our major Tier 1 partners are below NXP's manufacturing cycle time. We believe this reflects a continued cautious approach in the automotive supply chain due to the uncertain macro environment. Overall, during the quarter, we did not experience any material customer order pull-ins or pushouts. Now I will turn to our expectations for the fourth quarter. Our outlook reflects the continued strength of our company-specific growth drivers and signs of a steady cyclical recovery in our automotive and industrial markets. We do not yet anticipate direct customer inventory restocking as one might expect off the bottom of a cyclical trough. From a channel perspective, our guidance assumes distribution inventory may fluctuate between 9 and 10 weeks as we are selectively staging additional products in the channel to be competitive. We are guiding fourth quarter revenue to $3.3 billion, up 6% versus the fourth quarter of 2024 and up 4% sequentially. At the midpoint, we expect the following trends in our business during Q4. Automotive is expected to be up mid-single digits versus Q4 2024 and up in the low single-digit percent range versus Q3 2025. Industrial and IoT is expected to be up in the mid-20% range year-on-year and up 10% versus Q3 2025. Mobile is expected to be up in the mid-teens percent range year-on-year and up in the mid-single-digit range on a sequential basis. And finally, Communication Infrastructure and Other is expected to be down in the 20% range versus Q4 2024 and flat versus Q3 2025. In summary, NXP third quarter results and guidance for the fourth quarter reflect a growing confidence in the company-specific growth drivers and that our new up cycle is beginning to materialize. This is based on the several signals we track regularly. These include continually growing customer backlog placed with our distribution partners, improved order signals from our direct customers, increased short-cycle orders and a growing number of product shortages leading to customer escalations. At the same time, we do not yet see material customer restocking due to the uncertain macro environment. Now an update on our pending acquisitions of Kinara and Aviva Links. We have received all regulatory approvals. We have closed both Aviva Links and Kinara. We are extremely excited about the long-term benefits these acquisitions will bring to our customer engagements and market position. As we have previously shared, in the short term, these acquisitions will have an immaterial impact on the revenue and financial model of NXP. We do believe the revenue impact will be material in 2028 and beyond. The 3 recent acquisitions, TTTech Auto, Kinara and Aviva Links will enable NXP's vision to be the leader in intelligent edge systems in the automotive, industrial and IoT markets. As this is my first earnings call, I would like to assure you that the strategy we laid out during our November 2024 Investor Day stays firmly in place. This includes our product innovation focus in our financial and capital return model. For the last 6 months, I've traveled globally, engaging with our customers, suppliers and development teams. My key takeaway is that NXP's strategy is compelling. We are focused on the most important customers and thought leaders. Our highly differentiated product road maps position us well to achieve our long-term goals. I will continue to work closely with the cross-functional leaders throughout NXP to accelerate our innovation and time-to-market efforts. Overall, we remain focused on disciplined investment and portfolio enhancements to drive profitable growth while maintaining control over the factors we can influence. And now I would like to pass the call to Bill for a review of our financial performance. Bill Betz: Thank you, Rafael, and good morning to everyone on today's call. As Rafael has already covered the drivers of the revenue during Q3 and provide the revenue outlook for Q4, I would like to move to the financial highlights. Overall, Q3 financial performance was solid with revenue, gross profit and operating profit all above the midpoint of our guidance range, while operating expenses were a touch above the midpoint of our guidance due to slightly higher variable compensation. Taken together, we delivered non-GAAP earnings per share of $3.11 or $0.01 better than the midpoint of our guidance. Now moving to the details of Q3. Total revenue was $3.17 billion, down 2% year-on-year and $23 million above the midpoint of our guidance range. We generated $1.81 billion in non-GAAP gross profit and reported a non-GAAP gross margin of 57%, down 120 basis points year-on-year and in line with the midpoint of our guidance range. Total non-GAAP operating expenses were $738 million or 23.3% of revenue, flat year-on-year. From a total operating profit perspective, non-GAAP operating profit was $1.07 billion, and non-GAAP operating margin was 33.8%, down 170 basis points year-on-year and 10 basis points above the midpoint of our guidance range. Non-GAAP interest expense was $91 million, while taxes for ongoing operations were $173 million or a 17.7% non-GAAP effective tax rate. Noncontrolling interest was $15 million and results from equity accounted investees related to our joint venture manufacturing partnerships was a $2 million loss. Taken together, the below-the-line items were $6 million unfavorable versus our guidance, primarily due to a slightly higher tax rate driven by improved profitability. Stock-based compensation, which is not included in our non-GAAP earnings, was $118 million. Now I'd like to turn to the changes in our cash and debt. Our total debt at the end of Q3 was $12.24 billion, up $757 million sequentially. We issued 3 new tranches of debt totaling $1.5 billion with a combined weighted cost of debt of 4.853%. During the quarter, we reduced our net commercial paper outstanding by $735 million. Additionally, we plan to retire 2 tranches of debt due in March and June of 2026, totaling $1.25 billion with a weighted cost of debt of 4.465%. Our ending cash balance was $3.95 billion, up $784 million sequentially due to the cumulative effect of commercial paper reduction, capital returns, equity and CapEx investments offset against the new debt and cash generated during the quarter. Resulting net debt was $8.28 billion with a trailing 12-month adjusted EBITDA of $4.65 billion. Our ratio of net debt to trailing 12-month adjusted EBITDA at the end of Q3 was 1.8x, and our 12-month adjusted EBITDA interest coverage ratio was 15.9x. During Q3, we paid $256 million in cash dividends and repurchased $54 million of our shares, representing a 12-month total shareholder return of $2.05 billion or 106% of non-GAAP free cash flow. After the end of the quarter and through October 24, we bought an additional $100 million of our shares under a 10b5-1 program. Now turning to working capital metrics. Days of inventory was 161 days, an increase of 3 days versus the prior quarter, with inventory dollars up modestly due to prebuilds and wafer receipts from our foundry partners. Days receivables were 31 days, down 2 days sequentially and days payable were 58 days, down 2 days sequentially as well. Taken together, our cash conversion cycle was 134 days. Cash flow from operations was $585 million, and net CapEx was $76 million or about 2% of revenue, resulting in non-GAAP free cash flow of $509 million or 16% of revenue. During Q3, we paid $225 million towards the capacity access fees related to VSMC, which is included in our cash flow from operations. Additionally, we paid $139 million into VSMC and $15 million into ESMC, our 2 equity accounted foundry joint ventures under construction with the payments reflected in our cash flow from investing activities. Now turning to our expectations for the fourth quarter. As Rafael mentioned, we anticipate Q4 revenue to be $3.3 billion, plus or minus $100 million. At the midpoint, this is up about 6% year-on-year and up 4% sequentially, better than our view 90 days ago. We expect non-GAAP gross margin to be 57.5%, plus or minus 50 basis points. Operating expenses are expected to be about $757 million, plus or minus $10 million or about 23% of revenue, consistent with our long-term financial model. Taken together, we see non-GAAP operating margin to be 34.6% at the midpoint, bringing NXP back into our long-term financial model. In addition, our guidance includes about 2 months of operating expenses for the close of Aviva Links and Kinara acquisitions. Now turning to the below line items. We estimate non-GAAP financial expense to be about $103 million. We expect the non-GAAP tax rate to be 18% of profit before tax. Noncontrolling interest expense will be about $14 million and start-up expenses related to our equity account investees will be about $3 million loss. For Q4, we suggest for modeling purposes, you use an average share count of 254.3 million shares. We expect stock-based compensation, which is not included in our non-GAAP guidance to be $118 million. Taken together at the midpoint, this implies a non-GAAP earnings per share of $3.28. Turning to the uses of cash. We expect capital expenditures to be around 3% of revenue below our 5% target as we execute our hybrid manufacturing strategy. This includes consolidating our 200-millimeter front-end manufacturing factories, investing in our 300-millimeter joint ventures with VSMC and ESMC. These investments will result in margin expansion, supply resilience and access to a competitive manufacturing cost structure. As shared at our Investor Day, we will continue to substantially invest in VSMC in Singapore during Q4, including a $250 million capacity access fee payment and a $350 million equity investment. When VSMC is fully loaded in 2028, it will drive a 200 basis point improvement in NXP's total gross margin. Additionally, we will make a $45 million equity investment into ESMC in Germany, enabling additional 300-millimeter supply resilience. Lastly, we will pay approximately $500 million for the closed acquisitions of both Aviva Links and Kinara. And furthermore, we have restarted our buybacks at the beginning of September, and we will continue to buy back stock consistent with our capital allocation strategy. And finally, I would like to extend my personal thanks to Kurt as he transitions to a new and exciting chapter of his life. He's been in an inspiration to all NXP team members and a personal mentor and valued partner to me as a CFO. We will miss his infectious humor, timely counsel and thoughtful insights. With that, I would like to now turn it back to the operator for questions. Operator: [Operator Instructions] Our first question comes from the line of Ross Seymore with Deutsche Bank. Ross Seymore: Congrats to both Kurt and Rafael. I guess my first question, a big picture one. Bill, you just mentioned that the guidance for the fourth quarter was better than you expected 90 days ago. But the details Rafael gave, while positive, didn't seem like much had really changed. So what specifically got better over the last 90 days, either by end market, inventory, region, et cetera? Rafael Sotomayor: Yes. Let me take that one, Ross. So we -- the way we think about Q4 is we're guiding Q4 sequentially 4% up. And so what we said last time, we said we're going to -- I mean, we did provide a soft guide of Q4 that we said we're going to be flat to slightly up. So I think what I would say is the things that we expected to go, maybe potentially the risk that we have, they didn't materialize. And the signals -- the signals with respect to a soft recovery continue to get -- continue to be there, right? And our order book continues to be strong. The end customer backlog our distribution partners continues to be healthy. And so if you look at the quarter-to-quarter guide, what is driving a slight improvement, I would say, over seasonality, pre-COVID seasonality, is Industrial and IoT, where I think we see signs now of slight demand improvement. Ross Seymore: Great. I guess on that front, you mentioned about the inventory staying in the 9- to 10-week level, not quite getting to the 11 that's your target. If you go from 9 to 11, any sort of rough dollar amount that, that contributes that we should think about? And is there any specific trigger that you're looking at to let that inventory get back to its normal level, whether it be in the fourth quarter, which it doesn't sound like or in, say, the first half of next year? Rafael Sotomayor: Yes, Ross, so I understand in the past, I mean, we apply a math that it was -- that we said it's about 1 week of inventory equals to $100 million. And I understand the math. But what I would like to kind of for now, think of -- I think it's more useful to look at how we are managing the channel strategically and so kind of shift a little bit of how you look at our channel inventory. If you look at today, given the current environment that we have, where visibility is limited, orders come late, the one thing I want to leave you with is important to have the right product mix in the channel to be competitive, especially when you think about our competition that has significantly higher inventory in the channel than us. And so -- and as you know, we're not a catalog company. So getting the right product mix is really important for us. Now today, right now, we're being selective. We stage in additional products that have -- that we have high conviction of sell-through. And so that one, that's the reason I state that the inventory may fluctuate between 9 and 10 because what I want to leave you with is, in today's environment, weeks of inventory is not static, right? Orders are coming late. Now I would say that your question with respect to when 11 weeks, I would say that as our visibility and confidence continues to improve, and I will confirm your point, we still see the optimal level moving towards 11 weeks. And that may or may not happen in Q1 as we see improvements in the business conditions. Operator: Our next question comes from the line of Francois Bouvignies with UBS. Francois-Xavier Bouvignies: My first question is on maybe your comment, Rafael, you said that you think inventories are, I mean, low in automotive, for example, and things are getting better broad-based, but you do not expect to increase inventories in the channel, I mean -- or even -- sorry, not in channel, but in the direct channel. So I was wondering if we look at Q1 in terms of seasonality, I think you are down high single-digit percentage quarter-on-quarter for Q1. Should I read this comment as today, with your visibility, you are comfortable with seasonality, assuming there is no stockpiling and demand is stabilizing. Is that the right way to look at it? Rafael Sotomayor: So you're asking about Q1? Francois-Xavier Bouvignies: Yes, Q1 like in a way, directionally based on what you just said, like are you comfortable with the seasonal trend? Rafael Sotomayor: Yes. Well, let me just kind of -- before I get into -- I give you a slight answer on that one, I would say that if you look into what we feel good about is the setup into 2026. If you look at how we finished Q4, I think that we are now entering a phase of inventory normalization in auto, and we've seen signals of, I would say, demand improvement in Industrial and IoT. I think we like the setup. I'm not going to guide Q1 for you, Francois, but I think if you're going to model -- I think modeling seasonality, and I would say, using pre-COVID seasonality, which is high single digits decline would be reasonable. Francois-Xavier Bouvignies: I appreciate the color. Maybe the second question is for Bill. I mean, gross margin is going up in the next quarter. I assume it could be because of mix, but I would be happy to have your view here. But more generally, I mean, your inventories is still fairly high, days a bit higher, dollars a bit higher. So I assume your loading is still -- you keep loading quite high. So how should we think about the gross margin direction after this Q4? Are you going to decrease the loading at the expense of gross margin? Or do you think you can manage this level of gross margin or even increase from here? Just some moving parts would be very helpful. Bill Betz: Sure, Francois. As you could see, as you mentioned, we are guiding gross margins up approximately 50 basis points into Q4. And this is driven by the higher revenues, Francois, improved operational costs and also, yes, higher utilizations, which is actually offset with unfavorable product mix. And then, of course, we have the normal plus or minus 50 basis points on what that mix tends to ultimately be in the quarter. For Q1 2026 and the full year of 2026, we are not guiding; however, please consider our normal seasonality that Rafael just talked about in revenues for Q1, along with our annual low single-digit price negotiations that typically impact us in the first quarter, and we always work to offset those throughout the year through cost reductions and operational efficiencies. So for full year 2026, I would say we expect to be in our long-term model of 57% to 63%, driven by a function of revenue levels, improved utilization, cost reductions offsetting the price gives and the normal product mix fluctuations in any given quarter. I would say, as stated before, please continue to use that rule of thumb for every $1 billion of revenue on a full year basis drives approximately 100 basis point improvement to gross margin. For example, I shared in the past, at $15 billion, we should be at 60%. And then remember, as I mentioned in my prepared remarks, beyond 2027, we also see another lift to our gross margins by approximately 200 basis points driven by our hybrid manufacturing strategy. And again, overall, I think we're very pleased with the trajectory of our gross margins and how we manage this. Related to your inventory question, you're right. In Q3, we finished inventory at 161 days. That was up 3 days. And we're staging inventory to support our growth into Q4. Proactively, we are holding more inventory to support the continued increase of late orders that Rafael talked about, which are coming in below lead times. And of course, the customer escalations have grown quarter-over-quarter, as Rafael shared in his prepared remarks. And as I mentioned last quarter, we started our prebuilds for the 200-millimeter consolidation plans, which by the end of the year will be worth about 6 to 7 days of our total NXP days of inventory. Also remember, we're holding approximately 14 days of inventory on our balance sheet versus our distribution partners, again, that assumes 9 weeks. And with the positive signals we are seeing and from lessons learned from the past, I'm quite comfortable and pleased with the internal inventory positioning. As we mentioned many times, we have long-lived inventory in die form, preventing obsolescence risk. So if you had me to call inventory into Q4, I would say similar levels from a days perspective, plus or minus 5 days is the best view I can give you at the moment into Q4. Operator: Our next question comes from the line of Joe Moore with Morgan Stanley. Joseph Moore: I also wanted to touch on automotive customers' kind of view on inventories. And I guess, can you just talk to us a little bit about what those conversations are like? Understanding there's not much overlap between you and Nexperia at this point, I would think stuff like that is a reason to want to hold more inventory and kind of buffer yourself from these geopolitics issues. Just are you seeing any indications that, that is happening or will happen? Rafael Sotomayor: Yes. Joe, I mean, that's a great question. And I think it really -- I think the issue with Nexperia really shows that the current level of inventory at the end customer is not sufficient to have any ripple of business continuity. We don't see restocking with our direct customers. And now I would say, I mean, the good thing, right, if you look at the business dynamics of auto highly related to inventory, the normalization and also already a very nice -- already -- we consider a very nice tailwind. And you would expect the next phase to actually be a restocking of inventory, but we have not seen it happen. And so the conversations are pretty much about how they are being very conservative with respect to how they manage their working capital. So no restocking so far. Bill Betz: Yes. Maybe I'll add, Nexperia itself, just to add to it because I think your question, does it impact NXP in any way from a direct standpoint, the answer is no. And as Rafael said, we're still in the early phase and seeing customer escalations, the signals improved. The restocking has not happened nor has price increases that happened, which you typically see during a supply crisis. But those are other signals that we wait to see. Joseph Moore: Okay. And is there any impact potentially on automotive production from all of that on the negative side that you could see if they have shortages of other components that it slows production? Rafael Sotomayor: Joe, we don't anticipate that. I think the products that are associated right now with Nexperia, these are products that could be second source. I think the qualification process is -- it could be relatively benign for OEMs. But so far, our orders will not indicate any impacts into the production of auto. Operator: Our next question comes from the line of Stacy Rasgon with Bernstein Research. Stacy Rasgon: My first one, I wanted to drill into gross margins a little more. So you are guiding it up sequentially, but it's flat year-over-year even on a pretty decent revenue increase. I guess that's mix, but I'm struggling to see where the mix issue is. It looks like your industrial mix is higher, auto looks about the same. Like what is going on with gross margin? It sounds like utilization, I'm not even sure they don't sound like they're lower year-over-year. Like why aren't we getting more gross margin leverage like on a year-over-year basis? Bill Betz: Yes, Stacy, I think the factor that we see going into Q4, again, what we talked about is from an end segment, our gross margins tend to be much closer to each other to the corporate average. But you can see the -- not the industrial, the comm and infra is down quite a bit year-over-year. And then the other one is you could see we're having record quarters in our mobile space, which, again, you kind of slightly below our margin corporate mix. So those 2 end markets are kind of impacting our mix. From a utilization standpoint, we are in the high 70s or plan to be in the high 70s into Q4 related to it. And so we do have kind of inventory at the high end internally. So of course, that also has an impact of how we run total -- our material throughout the line, just not in the front end, but also in the back end and so forth. So -- but really, those are help offsetting that unfavorable mix that we see at the moment. Stacy Rasgon: Got it. I guess the inventory also helps the depreciate -- the distribution stuff is higher margin as well. Bill Betz: Yes, there's 2 sets of it. So remember, the distribution and what you'll see is actually our distribution sales will be up quarter-over-quarter, but let me remind you that a portion of that or a large portion of it is driven by our mobile business where we drive and use the distribution partners in that mobile end market. And so that's what's driving the increase from a quarter-over-quarter perspective. Stacy Rasgon: Got it. For my follow-up, I just wanted to level set. So it sounds like there is some disty fill into Q4. So if I say half a week, I guess, is that -- do I just like roughly think of that as $50 million of income on the -- impact into the Q4 guide? And I know you said Q1, you were comfortable with seasonal, but does that incremental channel fill in Q4 influence how we might think about Q1 seasonality? Are you sort of implicitly assuming that you are going to be putting more into the channel in Q1 for a seasonal guide? Rafael Sotomayor: Okay. There were several questions on that one, Stacy. Let me grab that one. So you made a comment again on the -- on trying to kind of equate where we're going to end up in the channel. And I mean you mentioned $50 million. And again, I mean, I wouldn't see it that way. I mean we gave a guidance of $3.3 billion. The demand -- again, the visibility that we have right now is low. Orders are coming late. And so where the weeks of inventory end up in the channel, like I said, it may fluctuate between 9 and 10. It's not going to be more than 10, it may be 9. And so to put a formulaic kind of way of looking at how much revenue is going to come from weeks of inventory staying in the channel, I don't know if I can really kind of go there given how fluid the demand is. Again, we're putting products that we have high conviction of sell-through, right? And so I don't see it... Stacy Rasgon: But you must have a scenario that's baked into the guidance for Q4, right? Rafael Sotomayor: Yes. And the scenario says that it depends -- the inventory may fluctuate between 9 and 10 weeks. The scenario is what material we put in the channel. Operator: Our next question comes from the line of Tom O'Malley with Barclays. Thomas O'Malley: The Industrial and IoT business seems very strong to close the year, kind of particularly versus where expectations were. You guys have been helpful in the past about kind of laying out where you're seeing that strength, whether it's the core industrial side or more on that IoT side. Could you give us a little bit of a feel of what's moving into your Q4? Rafael Sotomayor: Yes, Tom, let me just step back. I mean, if you look at our Industrial and IoT business, at a high level, 60% is core industrial, 40% is consumer. And even within that, 80% of the revenue flows through distribution. So it just kind of gives you kind of step up. Now what we've seen in IoT, the end customer backlog through the channel continues to improve. So we see really strong signs of demand improvement. On the consumer side, this is where we continue to benefit from company-specific drivers. And this, for instance, I'll give you an example that there's a new category of wearables. There's smart glasses that have high demand. They require high-performance, low-power processing. And this is an area where our portfolio is strong. So we're seeing some tailwinds on that side. And the core industrial, we're seeing broad-based improvements across regions and products. And for us, if you were to drill into a little bit of the application specific, it will be driven by -- for us, it is driven by energy storage systems and building automation. Now let me put a caveat here. I don't think we will be -- the first one to tell you, we don't see ourselves as bellwethers for Industrial and IoT. And so what we see, it may be that this is very company specific. Thomas O'Malley: Helpful. And then a similar question just on the automotive side because it's useful to kind of see what's moving here is just on the S32 portfolio, like you've seen some really strong growth trends. And like part of the reason many think that you guys have handled this a lot better is just the growing portion of your business that is levered to processors. So maybe again, what happened in the quarter, maybe the processor business versus the rest of auto? And then into the fourth quarter, any kind of color on if there's a divergence there, how we should be thinking about just the entire auto business with those 2 pieces? Rafael Sotomayor: No. I think, Tom, I mean, we were encouraged about the direction that auto is taking, right? I mean if you were to take just Q3, in Q3, we were only 3% below our prior peak. And so I think that's encouraging. Now with respect to what is driving the performance in the business, I mean, it continues to be what we deem -- what we term calling accelerate growth drivers. And these are in the software-defined vehicle, which is the 32 franchise that you mentioned, is radar, is connectivity. And so if you were to ask me what is driving this, that is exactly what is -- I mean the secular shift to software-defined vehicles is driving the performance of auto. Bill Betz: And Tom, if I could add, we'll provide a full year kind of update on where we're at with our accelerated growth drivers on our Q4 call. But directionally, I'd say we feel very good about how the accelerated growth drivers are playing out intra-quarter. Operator: Our next question comes from the line of Vivek Arya with Bank of America Securities. Vivek Arya: Best wishes to both Rafael and Kurt. So Rafael, let's say, if '26 plays out the way '25 did with China OEMs and EVs growing, but the rest of the world not growing or flattish, what does it mean for NXP? So in an overall flattish auto production environment, what kind of lift can content provide net of any pricing movements? Like can your autos be conceptually within your long-term model for next year? Rafael Sotomayor: So Vivek, I think the one thing I want to maybe reframe the way we -- the drivers of our business, right? Car production is not the driver of our business. We're not SAAR related. I mean if you were to look at the production, the production has been stable for years. I mean it varies 1% here and there, but it stays pretty flat at [ 90-ish ] million a year. Content growth dwarfs SAAR growth. And so -- and then what you have in auto is the production is quite stable. But you have a very complex supply chain. And that complex supply chain is the one that creates either bubbles in inventory, but or vacuums that create shortages. And that -- the supply chain is the one that creates the cyclical aspect of our business. If I just say -- the way I see it is we see normalization in inventory. If you already get behind the content growth of auto, normalization of inventory is something that we see as very, very positive for the direction of auto. And so I just want to kind of basically reframe the way I think you posed the question a little bit and the way we see it. Content growth and normalization of inventory provides for us an optimistic view of our business in auto in 2026. Vivek Arya: And for my follow-up, Bill, on gross margins, is it just volume that takes you from the kind of the lower end of the 57% to 63% range right towards the middle of the range? Or are there any new products, any new kind of mixing up of your portfolio that can provide benefits on top of any volume benefit? Bill Betz: Absolutely. As we said in the past, our new product ramps are accretive to the company, and they go through their normal growing pain, of course, as they ramp and other parts of our products roll off. I mean, mix is really the one that what orders we get, what orders we serve. We serve over 10,000 SKUs or products every quarter. And so we have to adjust and either accommodate for it and offset those or vice versa, let them fall through, and that's why gross margin improves as another factor related to it. But really also our hybrid manufacturing strategy as we move more to 300-millimeter and as we're making all these investments, that will start to yield benefits beyond 2027, as I talked about. But short-term levers, again, it's -- I think we're doing a really good job offsetting any price gives that we give through our cost efficiencies and productivity internally on test time reductions and so forth. So those -- that's really what we're supposed to go do day in and day out. And I think the team is doing a good job. And you can see this by just our variability in our gross margins through this last cycle. So I think as we become less fixed cost, that will just improve with that variability going forward. As I mentioned today, we're 30% fixed. And my guess is in about a couple of years from now, once we finish our consolidation efforts, so I think 5 years and so we'll probably below 20%, which will reduce that variability. Operator: Our next question comes from the line of Chris Caso with Wolfe Research. Christopher Caso: I wanted to go back to some of what you said with inventory levels, particularly at your direct automotive customers. Where do those inventory levels stand now? And you quantified a bit on what the impact would be as the distribution channel -- increased inventory. Is there any -- I mean, help us with the magnitude of what would happen if those direct auto customers finally decided that they didn't need to restock. Rafael Sotomayor: So Chris, what we see right now that we are starting to shift to end demand. And I think that normalization and we can see it in our orders. And we did say indeed that we don't see the restocking. Now the specific question of what the levels are, I think we don't have visibility at a granular level per customer per Tier 1, that will be a complex. But it's very clear to us that is way below our manufacturing cycle. And that's what I mean by is I think that is just eventually not a healthy level to be able to manage sustainable business. I can't comment whether this will happen or not in the next few quarters or in even 2026. But that is a potential scenario of restocking is indeed a tailwind for our business that is something that will provide benefit for us. Bill Betz: Maybe I could add a little bit, Rafael. Chris, as you know, for about the last 8 quarters, we've been undershipping into the Tier 1 supply chain and actual end production. So it's actually been a headwind to us. I'd say over the last 2 quarters and in our guidance into Q4, we started to see that headwind subside. And so we think the inventory levels at the Tier 1 are where they, the Tier 1 players, believe are normalized for the current environment. They are still very cautious on the macroeconomic outlook. And so as Rafael said, we've not seen that next lever of restocking occurring. But when you go from a headwind of undershipping to at least shipping to end demand, that's the new growth in the short term. Did you have a follow-up, Chris? Christopher Caso: I do. I wanted to come to your comment on buybacks that you mentioned in your prepared remarks. Could you give us a little more detail on what the intention is going forward and what we should expect now that you're resuming the buybacks? Bill Betz: Yes. No change to our capital allocation strategy, Chris. As shared in our prepared remarks, we restarted our buybacks. As I mentioned, we have a lot of cash going out. And so we just wanted to make sure we had all the cash to continue to return and make all the investments we want to make inside NXP, but also balance that with healthy returns to our owners. And so if you look at the last 12 months, we returned 106% back to our owners, and we're going to continue to go do that. Operator: Our next question comes from the line of Blayne Curtis with Jefferies. Blayne Curtis: I just want to ask on the kind of cyclical tailwinds versus seasonality. I mean, I guess if you look at December, it's really just industrial that maybe you could argue is above typical seasonality. And then I think you said just soft guidance for March, normal. I think a lot of people have talked about just the slowing down of cyclical recovery. I mean your comments were pretty positive, Rafael. So I'm just kind of curious if you can just kind of assess -- if you're just looking at seasonality, I guess, is there -- is the cyclical tailwind slowing? And I guess maybe you can look at the different markets and if you feel differently about them. Rafael Sotomayor: Yes. I think if you look at the Q4 numbers, you clearly stated industrial and IoT was above robust seasonality. I would say that automotive was slightly better than seasonality, right, pre-COVID levels. And the drivers are -- they have one common driver that is, I think, is inventory digestion is almost done. I think that is one normalization is a big deal. And we're starting to shift to true end demand in automotive, and we're starting to see some company-specific drivers in industrial and IoT that are helping us. With respect to whether seasonality is going to change, are we calling an up cycle, I think we're careful with that because, one, we do have the inventory digestion done as a factor for an up cycle. We do see some specific areas of growth in industrial, and we see an encouraging signs of true demand in industrial and IoT. And so we do see the elements of a soft up cycle. And that's the reason why I would say that like that if you were to ask me today, are you more optimistic than you were last quarter? I would say that we are slightly more optimistic than last quarter. Blayne Curtis: And then I wanted to ask you on mobile. I mean, if I have the numbers right, it might be a record. I'm just kind of curious the drivers behind that. Rafael Sotomayor: Blayne, in mobile, we're a specialty player there, mostly driven by the wallet and a little bit of custom analog that we do for a Tier 1 customer there. I see the moves of Q2 to Q3 and Q4. And I think you got to take Q3 and Q4 together, is purely, in my opinion, it's just a seasonal move and some strength in some of our customers. Operator: Our next question comes from the line of Joshua Buchalter with TD Cowen. Joshua Buchalter: Congrats to both Rafael and Kurt and good luck. I know it's still early in earnings season, but your comments and outlook on the Industrial & IoT segment, were certainly better than your peers who have mainly talked about decelerating trends. We've kind of touched on it a little bit, and I realize you're not going to comment on peers. But would you say the difference in what you're seeing versus peers is because of inventory management or more product cycle driven? And what gives you confidence in the sustainability of sort of the up cycle that you're starting to see signs of with orders still coming in late and with the lead time? Rafael Sotomayor: Yes, Josh, so I can speak -- speak of NXP's situation with respect to Industrial and IoT because for us, Industrial and IoT has indeed been one of the more challenging end markets since 2022. And as of Q3, our business is still 20% below our peak, right? And again, I do remind you that we're not the bellwether for Industrial and IoT, so the comparisons to other, you can say, peers may not be, I guess, relevant. But I would have to say that we did manage inventory in a different way. We were very disciplined in the way we manage our business in the down cycle. And I think I would say that we will be similarly disciplined managing what we see, and I would say as a soft up cycle. And again, I mean, we are having some company-specific drivers there that are driving demand that is true new demand. And we have exposure to a few company-specific design wins in the core industrial that is driving some of the improvement. But I don't know how you will take that as a bellwether for the industry. Joshua Buchalter: Understood. Helpful color. And I was maybe also hoping that you could provide some color on the China auto market, what you saw there intra-quarter and your expectations into 4Q. I believe a good amount of that is actually served by the disty. So our inventory levels there lean as well? Rafael Sotomayor: Yes, China -- I mean, listen, I was in China a few months ago with Kurt, and we did a customer visit to both China, Taiwan and actually Japan. China specifically, China continues to be strong. It continues to be a very dynamic market, themselves, the auto industry there is very competitive, and they continue to actually push for innovation, push for product. Our -- I would say our inventory situation there is also lean -- is also, but it's a business that is driven, that is driving is strong. We have good customer traction. So we feel very optimistic about our position in China. Bill Betz: And Josh, if I could just add as a reminder, in the Asia market, specifically in China auto, we service the majority of that through our distribution channel. And it is in the Western markets in North America and Europe, where we do it on a direct basis. So our approach to channel management, which I'd say is probably best-in-class, we take a heavy hand there even in Asia with the channel. Operator: Our next question comes from the line of William Stein with Truist Securities. William Stein: First, I'm hoping you can remind us about the strategic purpose of the recent acquisitions? I think TTTech closed recently, but then you have the 2 new ones as well. Can you just frame that as it relates to the rest of the autos business? And then I have a follow-up. Rafael Sotomayor: Yes. William, these acquisitions are actually directly aligned with the strategic direction of bringing intelligent systems at the edge of industrial and automotive. If you look at TTTech is a company that is a software company that is going to help us accelerate our move of the system-defined vehicle and around S-32s and around a system approach. And so quite excited to have them. It's a capability that would have been very difficult to obtain organically. And it's a company that brings IP-specific also in functional safety at a system level. Aviva Links is a company that has a really, really, I would say, innovative technology on a SerDes technology that is a standard. So it's a standard SerDes. And that is critical to standardize sensors think of our radar, think of cameras, think of LiDAR around a core processor, which, in this case, will be our S32. So we're quite bullish on Aviva Links. And Kinara brings AI capabilities, especially GenAI capabilities, high performance, low power that is going to also accelerate our portfolio of intelligent into the edge. William Stein: And then as a follow-up, there's been some discussion about some elevated competitive dynamics in the infotainment part of your autos business. Can you remind us how big that is in your autos business and maybe update us on that competitive situation? Bill Betz: Will, I'll take that one. So if you think about IVI in vehicle infotainment, there's kind of 2 parts. There's the visualization what you see on the dashboards and there's the what you hear the audio portion. I'd say on IVI auto, we continue to be a dominant player there. On the visualization, our performance is maybe a little below some of our peers, but I think that's very well known at this time. And I think with that, Towanda, I think we're going to need to move back to Rafael for closing remarks, if we can. Rafael Sotomayor: Well, thank you, everyone, for joining us today and your thoughtful questions. This quarter marks both a leadership transition and a reaffirmation of NXP's consistent strategy, focus on profitable growth, disciplined execution and predictable returns. We are encouraged by the gradually increasing signs of a cyclical recovery across our automotive and Industrial and IoT end markets and by the continued strength of our company-specific growth drivers. Our priorities remain clear: deliver on our commitments and manage what is in our control and position NXP to continue to grow profitably. I want to express my gratitude to Kurt for his outstanding leadership and for the partnership we have built over many years. In his 30-year career at NXP, he has left a lasting legacy, navigating us through various challenges and positioning NXP as a leader in the markets we serve. I am truly humbled to follow his footsteps. It is a privilege to lead this company and this team. I am excited about what we will achieve together. Thank you. Operator: Ladies and gentlemen, that concludes today's conference call. Thank you for your participation. You may now disconnect.

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UHS 2025 Q3 财报电话会议

Operator: Good day, and thank you for standing by. Welcome to the Third Quarter 2025 Universal Health Services Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I'd now like to hand the conference over to Darren Lehrich, Vice President of Investor Relations. Please go ahead. Darren Lehrich: Good morning, and welcome to Universal Health Services Third Quarter 2025 Earnings Conference Call. I'm Darren Lehrich, Vice President of Investor Relations. With me this morning are our President and CEO, Marc Miller; and our Chief Financial Officer, Steve Filton. Marc and Steve will provide some prepared remarks, and then we'll open it up to Q&A. During today's conference call, we will be using words such as believes, expects, anticipates, estimates and similar words that represent forecasts, projections and forward-looking statements. For anyone not familiar with the risks and uncertainties inherent in these forward-looking statements, we recommend a careful reading of the section on Risk Factors and -- forward-looking Statements and Risk Factors in our Form 10-K for the year ended December 31, 2024, and our Form 10-Q for the quarter ended June 30, 2025. In addition, we may reference during today's call, measures such as EBITDA, adjusted EBITDA, adjusted EBITDA net of NCI and adjusted net income attributable to UHS which are non-GAAP financial measures. Information and reconciliations of these non-GAAP financial measures to net income attributable to UHS can be found in today's press release. With that, let me now turn it over to Marc Miller for some introductory remarks. Marc Miller: Thank you, Darren. Good morning, everybody. Thank you for your interest in UHS. I also want to take this opportunity to welcome Darren to the UHS team. We look forward to having him in a dedicated Investor Relations function for our company. . Turning to our third quarter 2025 results. We reported adjusted net income attributable to UHS of $5.69 per share representing a 53% increase from the third quarter of 2024. Revenue growth for the third quarter of 2025 was 13.4% year-over-year. Our third quarter performance reflects continued growth in our acute care operating environment, modest volume improvement in our behavioral health segment and solid pricing across both segments. The third quarter included $90 million of net benefit from the recently approved supplemental Medicaid program in the District of Columbia. Steve will cover the details of this approval and other supplemental Medicaid program updates. Based on our operational performance year-to-date and the increased supplemental reimbursement in the District of Columbia, offset somewhat by additional professional and general liability reserves, we are increasing the midpoint of our 2025 adjusted EPS guidance by 6% to $21.80 per diluted share from $20.50 per diluted share previously. During the quarter, we experienced progress in our 2 most recent acute care hospital openings, West Henderson Hospital in Henderson, Nevada and Cedar Hill Regional Medical Center in Washington, D.C. Specific to Cedar Hill, we achieved accreditation in early September. As a result, the financial drag from our certification timing delay and start-up issues began to subside during the third quarter, and we expect to exit this year at breakeven or better, putting us in a stronger position at this facility heading into 2026. We believe the long-term outlook for Cedar Hill remains favorable due to demand for services and strong support within the community, as well as our long-standing presence in the district at the George Washington University Hospital. Our next de novo acute care hospital opening will be the Alan B. Miller Medical Center in Palm Beach Gardens slated for 2026 -- slated for the spring of 2026. This project remains on track, and we are encouraged by significant interest in the new medical campus by members of the community and the health care professionals that serve patients within this fast-growing market. We have a long track record of expanding presence in core markets with new state-of-the-art hospitals and are excited to build on our existing presence on the East Coast of Florida. Separate from these new hospital projects, we've also been active on the outpatient side within our acute care segment, where we operate 45 outpatient access points, including freestanding emergency departments, surgery centers and other ambulatory services. On a year-to-date basis, we've opened 4 freestanding EDs, bringing our total to 34 and we believe our FED strategy is highly complementary to our acute care operations by allowing us to capture incremental higher acuity outpatient volume within our markets. Within our behavioral health segment, we've taken a disciplined approach to new bed capacity growth, which has allowed us to focus on the highest potential expansion and de novo projects while we increasingly devote resources to accelerate our outpatient behavioral strategy. On the outpatient side of our behavioral segment, we operate approximately 100 access points, including step-down programs closely aligned with inpatient and residential operations as well as step-in programs that allow us to reach patients in convenient community settings. We are on track to open 10 of these step-in programs this year under local brands, as well as our new 1,000 branches wellness brand in a model that supports outpatient services through both virtual and in-person settings. Our strategies are designed to accelerate our outpatient growth rate, diversify our payer mix and allow us to be the provider of choice within the behavioral marketplace that continues to have strong demand across the continuum. The behavioral health care we provide serves an important need within the health care system and our society more broadly. With that, I will now turn the call over to Steve Filton, for a financial review of the third quarter. Steve Filton: Thanks, Marc. I will highlight a few financial and operational trends before opening the call up to questions. The company reported net income attributable to UHS per diluted share of $5.86 for the third quarter of 2025. After adjusting for the impact of the items reflected on the supplemental schedule, as included with the press release, our adjusted net income attributable to UHS per diluted share was $5.69 for the quarter ended September 30, 2025. We recognized approximately $90 million of net benefit during the third quarter of 2025 from the District of Columbia supplemental Medicaid program, which covered the time period from October 1, 2024, through September 30, 2025. Approximately $73 million of this benefit was recognized in our acute care results while the remaining benefit was recognized in our behavioral results. During the third quarter of 2025 on a same facility basis, adjusted admissions in our acute care hospitals increased 2.0% over the third quarter of the prior year. Acute care volumes were consistent with trends in the first half of 2025 with solid growth in both inpatient medical admissions and outpaced services during the third quarter and surgical volumes that increased slightly as compared to the prior year. Same facility net revenues in our acute hospital segment increased by 12.8% during the third quarter of 2025 on a reported basis as compared to last year's third quarter and increased 9.4% after excluding the impact of our insurance subsidiary and the prior period net benefit from the District of Columbia supplemental Medicaid program. Acute care same-facility revenue per adjusted admission increased by 9.8% during the third quarter of 2025 on a reported basis and increased 7.3% after excluding the impact of our insurance subsidiary and a prior period impact of the District of Columbia supplemental Medicaid benefit. Operating expenses continued to be well managed across labor, supplies and other expense categories. We have not experienced any noteworthy impact from tariff trade policies. Total operating expenses per adjusted admission increased by 4.0% on a same facility basis over last year's third quarter after excluding the impact of our insurance subsidiary. For the third quarter of 2025, our solid acute care revenues, combined with effective expense controls, resulted in a 190 basis point increase year-over-year in same-facility EBITDA margin to 15.8% after excluding the prior period impact of the District of Columbia's supplemental benefit. Turning to our behavioral health results. During the third quarter of 2025, same-facility net revenues increased 9.3% on a reported basis and were up 8.5%, excluding the prior period impact of the District of Columbia supplemental Medicaid program. Same-facility revenue growth was driven by a 7.9% increase in revenue per adjusted patient day as compared to the prior year. Excluding the prior period impact of the District of Columbia supplemental, same-facility revenue per adjusted patient day increased 7.1% during the third quarter of 2025. Same-facility adjusted patient days increased 1.3% as compared to the prior period's third quarter with volume growth modestly improving as compared to 1.2% in the second quarter and 0.4% during the first half of 2025. We expect further volume improvements during the fourth quarter, although we now believe a reasonable expectation for same facility adjusted patient day growth should be in the 2% to 3% range with our near-term expectations at the lower end of this range. Expenses in our behavioral health segment continued to be well managed with relatively stable margins during the third quarter leading to a 7.6% increase in same-facility EBITDA as compared to the third quarter of 2024 after excluding the prior period impact of the District of Columbia supplemental benefit. We continue to experience labor tightness in some markets, although hiring trends have improved steadily throughout the year. Our cash generated from operating activities was approximately $1.3 billion during the first 9 months of 2025 as compared to approximately $1.4 billion during the same period in 2024. We expect to collect the $90 million of District of Columbia supplemental payments during the fourth quarter of 2025. During the first 9 months of 2025, we spent $734 million on capital expenditures, close to 30% of which related to the new hospital in Florida and a replacement facility in California. During the 9 months ended September 30, 2025, we also acquired 3.19 million of our own shares at a total cost of approximately $566 million including 1.315 million shares purchased during the third quarter of 2025. Today, our Board of Directors authorized a new $1.5 billion increase to our stock repurchase program, bringing our total authorization to $1.759 billion, including amounts remaining under the previous authorization. Since 2019, we have repurchased approximately 36% of the company's outstanding shares and paid approximately $340 million in dividends to shareholders. In the absence of compelling acquisition opportunities over the near term, we expect to continue to prioritize our excess free cash flow for share buyback and dividends. As of September 30, 2025, we had approximately $965 million of aggregate available borrowing capacity pursuant to our $1.3 billion revolving credit facility. Turning to an update on Medicaid supplemental payment programs. Our current projected 2025 full year net benefit from various previously approved programs is $1.3 billion. This figure includes amounts recorded during the third quarter for the previously mentioned District of Columbia program and additional amounts related to this program that are expected to be recorded in the fourth quarter of 2025, but it does not include programs pending CMS approval. As we discussed during our second quarter 2021 earnings call, the OB3 legislation includes several significant changes in the Medicaid program, including changes to state-directed payment programs and provider taxes. At this time, assuming no changes to our Medicaid revenues or other changes to related state or federal programs, we estimate that commencing with the 2028 fiscal years, our aggregate net benefit will be reduced on an annually increasing and relatively pro rata basis by approximately $420 million to $470 million in 2032. This cumulative impact range has been increased to reflect recent supplemental program approvals. Given various uncertainties, including the evolving state-by-state interpretations and computations related to this legislation, our forecasted estimates are subject to change potentially by material amounts. Operator, that concludes our prepared remarks, and we're pleased to answer questions at this time. Operator: [Operator Instructions] Our first question comes from Justin Lake with Wolfe Research. Justin Lake: Steve, appreciate all the details. I was hoping you could give us an update in terms of I know there's a couple of states pending approval, Florida, I believe, Nevada. Maybe you can give us some color on the potential DPP there that could benefit the company if those are approved? And then maybe give us a quick rundown on -- or an update on where the exchange contribution looks like? What's the kind of run rate on the exchange volume in revenue year-to-date? And any updated thoughts on if those subsidies expire, what do you think that estimate is? Steve Filton: Sure, Justin. So as far as any new potential Medicaid supplemental benefits, we've been disclosing for I think several quarters that there is approval of a pending plan or expansion of the pending plan in Florida that we estimate would result in about a $47 million annual benefit to us. As I said that program remains pending CMS approval or the state of Florida seems confident that it will be forthcoming at some point. Additionally, I think we learned this quarter, and we'll include this in our to-be filed 10-Q for the quarter that there's another maybe $30 million approximately of Nevada DPP increase, again, pending CMS approval. So on a combined basis, these 2 states would represent somewhere in the $75 million to $80 million range. To the best of our knowledge, there are no other material programs or approvals pending. As far as your second question about exchange contribution, the percentage of our total adjusted admissions, acute care admissions that are exchange patients is in the 6% to 6.5% range. That number has been ticking up. Most of those patients are in 2 states in Texas and Florida. And so I think all the public companies have been reporting increases and we have a smaller footprint in those states than some of our peers, but our numbers have been picking up as well. We have previously given an estimate assuming that the exchange subsidies don't get extended about $50 million to $100 million negative impact on us annually. Given the increase in exchange volumes, we're probably trending towards the higher end of that range. As far as, I think, sort of any prediction about how the exchange subsidy issue is to be resolved, I don't think we have any particularly pressing insight into that and what we're watching how this develops in Congress along with everybody else. Operator: Our next question comes from Jason Cassorla with Guggenheim. Jason Cassorla: Great. Just wanted to check in on '25 guidance. You increased the midpoint by a little over $90 million. Can you just walk through the bridge to the updated guidance, how that's split between the 5 quarters of D.C. DPP, the malpractice reserve increase, the legal settlement in the quarter and outperformance? And then you have about a $50 million guidance range at the low and high end, not significant range by any means, but just thoughts on what you need to see to trend towards the high end or the low end of guidance at this point. Steve Filton: Yes. So Jason, I think you largely captured the components of the guidance increase. As you said, at the midpoint, it's in that $90 million to $95 million range. That's made up of $140 million of increased DPP. The biggest chunk of that, of course, is the D.C. number. That's $90 million that we recorded in the third quarter and another $25 million that we expect to record in Q4. So that's $115 million of new DPP. There's another $25 million of miscellaneous increases across a variety of space, none of which are singularly materials to get us to the $140 million increase in DPP. And then we deduct from that the $35 million malpractice increase that we described in our press release and another $18 million in a legal settlement that we described in an 8-K that we filed a few weeks ago and that gets you to that sort of low to mid-90s number. Effectively meaning that we're assuming from a core business perspective, the trends that we expected when we increased guidance last quarter will continue. When you talk about sort of what it takes to get us to maybe the higher end of that, we're talking about, I think the 2 businesses running same-store revenue increases in the 5% to 7% range. And what gets us to the higher end is if we land at the higher end of that range, either through volumes or pricing. So I think all that is pretty consistent with what we've said previously. Jason Cassorla: Okay. Maybe just as a follow-up, just checking in on managed care activity and state budgets in relation to your behavioral health business. I mean it looks like behavioral health length of stay continues to hold on. Pricing remains favorable. I guess are you seeing any different behavior as it relates to managed care at this juncture for behavioral? And we're hearing multiple states enacting budgets that are reducing behavioral rates. Just any thoughts on the state budget situation across your markets stepping into 2026 would be helpful. Steve Filton: Yes. I mean I think we have consistently found that managed care players are aggressive in their utilization management and their management of length of stay and their management of where patients are treated, meaning in inpatient or outpatient settings. I don't know that that's changed materially. As you point out, our length of stay has remained fairly constant. A lot of that is I think, a function of our aggressive behavior in terms of documenting the medical needs of patients, et cetera, which we are very much focused on. And so we, again, have not seen, I think, significant changes in payer behavior to date. We understand that payers are under -- or any number of payers are under some pressure, but we also understand that their subscribers do need behavioral treatment. And I think given our market presence, given our clinical reputation, et cetera, we continue to be, I think, a preferred provider for many of those managed care companies. As far as state budgets are concerned, the only state budget that I'm aware of where there have been actual Medicaid cuts is in North Carolina for behavioral. It's not a state that's material to us. I think about 2% of our behavioral beds are in the state of North Carolina. Other states have talked about state budget cuts for Medicaid, and we're sort of tracking that. But at the moment, I've not seen anything that affects us in any sort of material way. Operator: Our next question comes from Whit Mayo with Leerink Partners. Benjamin Mayo: I'm just curious how West Henderson is performing now and any cannibalization of that on overall volumes within the quarter? And then my second question is just on Cedar Hills, whether or not you think it can offset the headwinds. So if it was, let's say, a $50 million drag with start-up losses this year, that $50 million will reverse itself. But any thoughts on maybe the growth next year? Steve Filton: Yes. So I think as Marc commented in his remarks, West Henderson has been performing well. It's had positive EBITDA really ever since it opened, which is really quite remarkable for a startup hospital. It does, I think, affect our same-store numbers and particularly our same-store volumes that we've talked in the past that there's probably -- and again, this is difficult to quantify precisely, but we would estimate maybe a 50 or 60 basis point impact on our same-store adjusted admissions meaning without Henderson or West Henderson in the mix, our same-store adjusted admissions might be 50 or 60 basis points higher because of the cannibalization because some of their admissions or adjusted admissions are coming from our existing hospitals in the market. The West Henderson is doing well, and we would expect we'll continue to improve into 2026. Cedar Hill, as we identified last quarter, lost $25 million in the second quarter. We projected they would lose $25 million in the back half of the year. They did lose that $25 million in the third quarter. And I think as Marc pointed out, we expect them to break even in Q4 and improve into next year. So obviously, the $50 million loss that we incurred in 2025 should be a tailwind going into 2026, assuming that worst case Cedar Hill breaks even. We assume they'll do better than that, and they will be profitable in 2026, although I think our general sense and we'll give more detail on this when we give our guidance in February is that any incremental improvement over breakeven will largely help to offset any opening and start-up losses from the ABM Medical Center in Florida. Operator: Our next question comes from Ben Hendrix with RBC Capital Markets. Benjamin Hendrix: I appreciate your commentary on your outpatient surgical initiatives. I was wondering if you could give us a little bit more color on what you're seeing in terms of surgical trends, both inpatient and outpatient and what case mix is looking like in the quarter and just how that's contributing overall to the volume growth for the acute care hospital segment? Steve Filton: Yes. So I think in our prepared remarks, we made the comment that outpatient surgical trends increased slightly over the prior year in the quarter, and that actually was an improvement over the first half of the year when I think they were actually down. So we're encouraged by that. And I think we've noted that I think some of the, call it, surgical softness or softness in surgical volumes, I think, it's been difficult comparisons with prior years where we were seeing some benefit from the catch-up of deferred and postponed -- procedures that have been deferred and postponed during COVID. I think we're starting to anniversary that and we kind of get behind us. And it feels to us like surgical volumes are returning to sort of more normal levels. Again, I'm sorry, was there a second part to your question? Unknown Executive: Case mix... Steve Filton: Case mix. Yes, case mix was up slightly in the quarter, not a big driver of improvement, maybe 30 basis points. Operator: Our next question comes from Raj Kumar with Stephens. Raj Kumar: Just on the BH side, maybe just trying to kind of understand overall supply/demand dynamic. You've seen kind of like SWB growth of high single digits on a same-store basis or while volumes have kind of been slightly negative to slightly positive throughout the year. So maybe just trying to understand what the dynamics are in terms of your kind of increasing staffing and we should expect kind of better volume growth kind of in subsequent quarters. Or is this kind of more just in order to maintain capacity that you're kind of push into these SWB trend? Steve Filton: Yes. Raj, I mean, I think that we've talked at some length in previous quarters, if there are 2 broad sort of overarching dynamics that I think have muted behavioral volumes. One, as I think we mentioned in our prepared remarks, has been a labor scarcity issue. It's not pervasive. I think it exists in maybe 1/4 to 1/3 of our hospitals where we struggle to fill all of our vacancies, whether that's nurses, whether that's therapists, whether that's nondegree professionals, the people that we describe as mental health technicians. But I do think that in those specific facilities, volumes are often muted. I think as we said in our prepared remarks, our hiring numbers are increasing incrementally, albeit. And I think you see a little bit of that in the salary and wage data that you're referring to. I think the other piece of this is what we're finding, and I think we read through what a number of the managed care companies say is that behavioral utilization broadly and nationally is up across the board. A lot of that seems to be on the outpatient side. And I think that's being delivered in a very -- I'll describe it in a sort of fragmented way, meaning those -- that outpatient care is being delivered in all sorts of settings, including hospital emergency rooms and urgent care centers and retail pharmacy clinics and mom-and-pop operations. We think we can do a better job of capturing more of that outpatient activity through, frankly, better focus as well as new and additional dedicated outpatient facilities. Obviously, that focus and those facilities require additional staff, and we've been staffing up for that. So to some degree, I think the increase that you're alluding to in salaries and wages is something that's preparing us to be able to treat and absorb more patient volume. Raj Kumar: Great. And then maybe as a quick follow-up. You had a step-up in kind of acquisition spend in the quarter, and I'm assuming that's kind of more on the outpatient behavioral acceleration that you've kind of spoken to. So maybe what could we kind of expect forward from a capital deployment on M&A on that front? Steve Filton: Yes. So the acquisition spending that you referred to is actually mostly it's about $35 million or $40 million in the U.K. in the quarter, and that's mostly honestly on the inpatient side. I think we've talked about the fact on the outpatient side in the U.S. creating a greater presence in the outpatient space really doesn't require a tremendous amount of new capital. It's probably $1 million or $2 million on average to create one of the step-in outpatient clinics. So again, I think the bigger challenge in those places is finding the appropriate number of therapists more than it is a significant capital spend. Operator: Our next question comes from A.J. Rice with UBS. Albert Rice: Maybe a couple of quick things here. I think in your updated guidance, there's about $25 million of sort of miscellaneous DPP payments. And it seemed like in the back half of the year that are incremental, is that more in the third quarter? Or was that something that will be booked in the fourth quarter? And on the litigation settlement in Nevada, was that booked in the third quarter? Or is that going to be booked in the fourth quarter? Steve Filton: Yes. So the litigation settlement was recorded in the third quarter, and it's reflected in our non-same-store acute results. The additional DPP, I think, is spread pretty ratably between the third and fourth quarters. Albert Rice: Okay. I know you -- your pricing on both businesses, actually, even if you ex out the DPP payments was pretty strong by historic standards. Anything to call out there? Any -- is that a sustainable level of year-to-year pricing gains? Any thoughts on that? Steve Filton: So taking it segment by segment, I think on the acute side, we said that our revenue per adjusted admission was close to 10% increase. Half of that, I think, is DPP related, which means 5% is sort of from core results. That's on the high side for sure. I think we think that sustainable acute care pricing is more in the 3%, maybe 3-plus percent range. I think the excess in the quarter is a result of some revenue cycle initiatives that we've undertaken to ensure that our billing is clean and complete that our denial appeals are as appropriate and aggressive as they should be, dispute resolutions with a number of payers, all that sort of stuff. There's a few small onetime items in terms of an opioid settlement, and we've disclosed our accountable care organization profits, but yes, I think our general sense is that acute care pricing in the 3% range is sort of that sustainable level. On the behavioral side, we've been in the 4% to 5% range when you adjust out, I think the DPP impacts. We've been running that and probably in the quarter, we're again at the higher end of that range, because of, I think, some of the things we've discussed already, some pressure from Medicaid state reductions. I think we believe that the sustainable level of behavioral pricing is probably a notch below that, maybe 3.5% to 4.5%. But still it should continue to be quite positive and a good tailwind for that business. Operator: Our next question comes from Craig Hettenbach with Morgan Stanley. Craig Hettenbach: On the behavioral side, you mentioned kind of a slight improvement in hiring. Can you just talk about more broadly how you think about capacity versus demand in behavioral and kind of what that means for volume growth? Steve Filton: Yes. I mean we've said that I think we think a reasonable level of volume growth in the behavioral business in the intermediate and long term is sort of 2% to 3% adjusted patient day growth. We're still a little shy of that and feel like there's a chance we can get there exiting this year. But if we don't, I think it's a reasonable target for next year, particularly at the lower end of that range. . To get there, we need to continue to be able to fill our vacancies and reduce our turnover, things that have been happening, and I think we can improve. But I think we can see that, that process has been somewhat slower than we expected. But we continue to make incremental progress and expect that we'll continue to make incremental progress. Craig Hettenbach: Got it. And then just a follow-up on capital allocation on the back of the increased buyback authorization. Your net leverage is at kind of the low end of history. Just how you're thinking about that? And any targets there and how that might influence capital deployment going forward? Steve Filton: Yes. I mean we've been an active acquirer of our shares for a number of years now. We' said in our prepared remarks that since 2019, we've repurchased more than 1/3 of our shares. We continue to view share repurchase, particularly at the current stock price levels as a compelling use of our capital. We have seen an elevation in our activity in share repurchases, largely, I think, tied to the increase in our free cash flow. And I think our expectation is that at a minimum, we'll continue to devote most, if not all, of our free cash flow to share repurchase, absent any other compelling opportunities. Might we choose to increase that and lever up even more to do that? We might. That's something that will make that judgment as we move along. Operator: Our next question comes from Kevin Fischbeck with Bank of America. Kevin Fischbeck: Great. Maybe I'll ask a behavioral question again, maybe slightly differently. I guess like when we've historically thought about this long-term supply-demand imbalance within behavioral, you at least had a competitor who is growing very quickly now. It seems like they're slowing, they're closing down capacity in certain locations. Is there anything else that you're seeing more broadly? Because 2% to 3% isn't a Herculean number, I don't think, but it also is easier to underwrite when someone else is growing much faster. Is there a competitive dynamic that's going on that's maybe skewing things as a part of the market that we don't see every day? Or anything else that you would kind of point to that might say that the broader market is, in fact, growing faster than we can see from the outside? Steve Filton: Yes. I mean, so Kevin, the first thing is it's difficult for us, I think, to comment on operating trends in a competitor. We just don't have access to enough detail to really have, I think, useful insight in that regard. In terms of sort of what -- maybe I'm rephrasing a little bit, the question you asked in terms of what gives us confidence that there is increasing demand out there. I did reference before. I think I'm not going to say every single managed care entity, but a great many of the managed care entities over the last several quarters in explaining an increase in their medical loss ratios and utilization have cited behavioral care as a significant chunk of that. And we obviously don't have access to their data, but we do have access to claims data and things that we look at fairly carefully. And what we see is increased behavioral utilization, as I said earlier, on the outpatient side, in particular, being delivered in a lot of -- I'm going to sort of call them nontraditional, some not necessarily dedicated behavioral facilities, but in emergency rooms and urgent care centers and nursing homes, et cetera. And I think given the clinical product that we can offer in our in and outpatient facilities, given our in-network position with many of these managed care companies, et cetera, we believe that there's an opportunity for us to capture an incremental amount of that. And as you point out, it's not a Herculean effort. We're at 1.3% patient day -- adjusted patient day growth in the quarter. We're sort of targeting 2%. That's obviously not a huge gap to fill. Marc Miller: Let me just add also, Steve's made the point. I mean some of the limitations have been on staffing. And as that stabilizes, we do think that there are significant opportunities that we can take advantage of. We've been very responsible for the last few years in our growth. And other competitors, multiple competitors have been a little bit more aggressive and now probably didn't make sense some of the moves that they've made, and they're having to temper that and go backwards. So we're on the same path that we've been on. We've been responsible in the way we've looked at it. We've held on some supply increases. So adding beds because of maybe a lack of staffing in some of those markets. And as that stabilizes, we're going to have even more opportunities to grow going forward. So we feel really good about where we are with that. Kevin Fischbeck: Okay. Then maybe just then follow-up on the outpatient side of the equation because to your point, you do have some advantages here as far as your in-network location position and contracts and things like that. But it sounds like you're not capitalizing or you haven't capitalized on it historically. Can you talk a little bit about the barriers? Is it just lack of focus? Are there markets where you are doing it well and that are blueprint? I mean, how can we get confidence that you're going to get that if hiring has been the issue because hiring has been kind of an issue for a while now. Why will you be able to kind of capture that volume going forward? Steve Filton: So what we've talked about, I think in the last couple of quarters, Kevin, is I think 2 things. One is just an increased focus. We have conceded that for most of our decades-long history as a behavioral health provider, it has been a very inpatient-centric business. And while we have always had in most of our markets, outpatient programs, they just haven't been a focus. And what we've done, that I think will wind up being quite effective is we've reorganized such that throughout the organization now, there's really dedicated personnel or personnel that are dedicated to developing clinical programs, business development, referral sources, et cetera, that are dedicated outpatient focused. And I think that's going to make a big difference because historically, when you have inpatient-centric facilities that have sort of on the side, outpatient programs, the outpatient programs just don't get the attention that they need. So I think focus reorganization of personnel, et cetera, will be a big help in that regard. The second piece, which we've talked about quite a bit in the last few calls is there's really 2 components of behavioral outpatient. One is what we describe as a step-down business. These are folks who are generally discharged from our facilities, but who require follow-up care, either partial hospitalization or intensive outpatient therapy. We've always had that. And again, I think that business will benefit from increased focus. But where we haven't really had much of a presence historically is what we described as step-in business. These are patients who enter the behavioral system in an outpatient setting and often are not comfortable doing that and entering the system on a hospital campus, they much prefer to get that care in a freestanding outpatient setting. And I think that's where Marc was referring in his prepared remarks to our 1,000 branches, branded program. We brand it that way because we don't want to necessarily associate it with an existing inpatient hospital, but again, as you said and/or repeating what I have said, we have advantages. We already have existing referral relationships, referral source relationships. We have existing managed care contracts, et cetera, that should help us establish a footprint in that step-in freestanding business a lot faster than a competitor might be able to do. Operator: Our next question comes from Matthew Gillmor with KeyBanc. Matthew Gillmor: I wanted to ask about the acute performance. As you think about the volume trends and the expense trends that Steve discussed, is there any geographic variation to call out to highlight, particularly in some of your larger markets like Las Vegas? Steve Filton: Yes. I mean, obviously, there's always some variation in performance. We've been asked, I think, about the Vegas economy in the last couple of calls. I think it's fair to say that our Vegas or the results in the Vegas market are very similar to our overall results. And again, as we pointed out, I think West Henderson in particular, is ramping up quite nicely. We do acknowledge that there's been a lot of data that suggests that tourist volume is down in Las Vegas. It's something we're watching. If that decline in tourist volume starts to have a ripple effect on the Vegas economy and unemployment rises, et cetera, that, I think, could be challenging in the future. At the moment, we're not seeing those impacts. Unemployment honestly, I think it has remained relatively stable at the moment in Vegas. And again, I think our performance in that market is remaining pretty stable and pretty consistent with our overall portfolio in the acute care business. Other than that, no, I don't think there's anything real significant from a geographic perspective. Matthew Gillmor: Okay. Fair enough. And then a quick follow-up on the pending SDP approvals. You mentioned Florida and Nevada. Is there a way for us to think about how that breaks down the net benefit between acute and behavioral? Steve Filton: Well, first of all, I would say that the Las Vegas number is predominantly acute. I don't have a breakout in front of me, Matt, for the Florida number. We can provide that in the future. Operator: Our next question comes from Benjamin Rossi with JPMorgan. Benjamin Rossi: Just wanted to touch on operating cash flow development. You noted that some of the drag year-to-date has been coming from unfavorable changes in AR. I know you're expecting to get some of that back next quarter as you collect on the D.C. approval, but do you have any theories as to the drivers behind this unfavorable trend? And then is it fair to attribute some of this to a broader payer utilization management trends? Steve Filton: Yes. I think our belief, Ben, is that the increase in our AR is almost exclusively a function of the $90 million of D.C. DPP that we intend to collect or expect to collect in the fourth quarter. And then the new receivables, both in D.C., we didn't get our Medicare certification and ability to bill until early September. So there's virtually no collections in -- at Cedar Hill in the third quarter. And even West Henderson, as its business continues to grow, its AR continues to grow. I think once we sort of factor in those dynamics, we're finding our days in receivables to be quite consistent with historical levels. Benjamin Rossi: Okay. Appreciate the confirmation. I guess just a follow-up on some of your acute volume commentary. Specific to your self-pay category, how did volumes trend during 3Q? And then how your self-pay volumes developed year-to-date relative to your expectations coming into the year? Steve Filton: I think as we said in our previous comment, the one sort of identifiable change in payer mix is we saw an increase in exchange volumes. That seemed to come at the expense or as a shift from Medicaid. So exchange volumes are up a little bit on an overall basis and Medicaid volumes are down. In terms of our other payer classes, Medicare, commercial and self-pay that you're asking about specifically, we haven't seen any major changes in those other payer classes. Operator: Our next question comes from Stephen Baxter with Wells Fargo. Stephen Baxter: I think you touched on this a little bit, but just hoping you could elaborate more on the change in surgical you saw in the quarter going from down slightly as of last quarter to up slightly this quarter. I guess where are you seeing that improvement come from? And I think this has kind of been bounced around a little bit, but just wondering if you feel like there's been any kind of pull-forward evidence that we've seen of that for maybe like exchanges, other populations where coverage loss is a bit of a concern going forward. Steve Filton: Yes. I mean I think we've seen the improvement in surgical volumes relatively across the board. I would say cardiology and cardiac services has been particularly strong. As far as sort of pull through, which I think the crux of that question is, does it seem like exchange patients are sort of accelerating care in anticipation of potentially losing their coverage. I don't think we -- I don't think that we're really seeing that. I think we've made the comment before that, that exchange population seems to behave or their utilization behavior sort of mirrors or is more closely tied to the Medicaid population, meaning it tends to be emergency room centric as opposed to a lot of elective cases. So I don't -- we don't think -- I think that there is this significant pull-through impact. Operator: Our next question comes from Michael Ha with Baird. Hua Ha: On behavioral volumes, I just wanted to confirm, you're now expecting 2% to 3% growth in fourth quarter, but closer to the low end. And then should we expect next year to be consistently in that 2% to 3% range? And then on acute pricing strength, even excluding the D.C. DPP, 5% is pretty strong, especially off a tough prior year comp. I know, Steve, you mentioned case mix, revenue cycle initiatives, other one-timers, but how much did exchange volumes contribute to pricing? And I know you mentioned 2% to 3% is still a pretty good long-term target. Just to confirm, you're still confident on 2% to 3% even in the face of exchange volume declines over the next couple of years. Steve Filton: Yes. So you threw out a lot of numbers, Michael. I'm not sure that I follow all of them. Again, I'll repeat I think that our view of the sustainable acute care model is 5%, 6% revenue, same-store revenue growth, split pretty evenly between price and volume. So 2.5% to 3% price, 2.5% to 3% volume. I think on the behavioral side, maybe 6% or 7% same-store revenue growth, 2% to 3% volume, 3.5% to 4.5% price. Operator: Our next question comes from Ryan Langston with TD Cowen. Ryan Langston: I appreciate the commentary on capital deployment, but the leverage ratios just keep coming down despite the share repurchase activity. I know you mentioned the new Florida Medical Center. But have you sort of contemplated any additional areas you could increase capital spending or sort of absent M&A and again, additional spending, are you just kind of comfortable letting those ratios decline? Steve Filton: Yes. I don't think we anticipate our leverage ratios getting any lower than they currently are. Obviously, we're not looking for ways to spend capital just to increase our leverage ratios, whether that's acquisition-type opportunities or CapEx. We'll continue to invest where we think we can earn a compelling return. I think we've intentionally kept our leverage ratios low in an environment where there has been some level of uncertainty at the sort of policy, regulatory legislative level. I think that's been a prudent approach. As I think we sort of start to experience and hopefully, we do start to experience more certainty, we may be more comfortable increasing those leverage levels. Operator: Our next question comes from Joshua Raskin with Nephron Research. Joshua Raskin: Yes. I guess one that just left maybe an updated view on where you think margins can trend in the next few years, sort of think about prepandemic levels versus the progress you guys have made since the pandemic? And maybe specific areas where you think there's opportunity to expand margin in each segment? Steve Filton: Yes. I think just sort of mathematically, Josh, the general sense is if we can achieve the revenue targets that I just outlined in my last response, 5%, 6% on the acute side, 6%, 7% on the behavioral side. Clearly, costs at the moment are not rising faster than that. They're rising more at the 4% range. And so as I think has been the case with the historical model for these 2 businesses for many years, there should be an opportunity for EBITDA growth and margin expansion. And again, in an environment of relatively stable operating costs and I think relatively stable demand and pricing, we're looking at margins in both businesses able to continue to improve. Joshua Raskin: And maybe the follow-up, and it's probably a silly question, but how do you go back -- I know let's exclude some of the government segments that are paid. But when you're negotiating with managed care companies, if you're seeing that revenue number, I think the core acute number of 5% that you guys are throwing out, if you're seeing numbers in that ballpark and costs are not going up as high, what's sort of the conversation with the payers and the justification around above-average rate increases that we've been seeing lately? Marc Miller: So the point that I would make on this is not exactly what you're pointed to. But when we sit down with these managed care companies, we've got much better information these days than maybe we had years ago. So even though we feel like we're doing well in a number of our areas, we still see some of our pricing lagging competitors in certain markets. And that's what we really point out and hone in on. And that's where we're able to have a positive effect for ourselves, because we're still behind what they're paying some of our competitors. So that's one big area that we bring up in our negotiations. Operator: That concludes today's question-and-answer session. I'd like to turn the call back to Darren Lehrich for closing remarks. Darren Lehrich: Thank you, everyone, for participating in today's call and also for your interest in UHS. Hope you have a great rest of your day. Thanks. Operator: This concludes today's conference call. Thank you for participating. You may now disconnect.

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