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Operator: Welcome to the conference call on MTU Aero Engines AG Q3 2025 Results. For your information, the management presentation, including the Q&A session, will be audio taped and streamed live or made available on demand on the Internet. By attending in the conference call, you grant permission for audio recordings intended for publication on the Internet to be taken. The speakers of today's conference call are Mr. Johannes Bussmann, Chief Executive Officer; and Mrs. Katja Garcia Vila, Chief Financial Officer. Firstly, I will hand over to Mr. Thomas Franz, Vice President, Investor Relations, for some introductory words. Thomas Franz: Thank you, Sarah. Good morning, and welcome to MTU's 9 Months 2025 Results Call. We'll begin today's session with our new CEO, Dr. Johannes Bussmann, who would like to introduce himself and share his first impressions. Following that, Katja will highlight the most important developments of the quarter and walk you through the financials, providing a detailed overview of our segment performance and underlying drivers. To close the presentation, Katja will summarize the key takeaways before we open the floor for your questions in the Q&A session. With that, it's my pleasure to hand over to Johannes. Johannes Bussmann: Thank you, Thomas. Good morning to everyone, and welcome to our earnings call. I have been on the Board now since mid of July, so quite over 2 months already, and it was a great pleasure to meet already some of you in person. For those who don't know me yet, let me introduce myself briefly. I've spent nearly my entire career in aviation and hold a degree in aerospace engineering. And furthermore, I was part of Lufthansa Technik for over 20 years. During my first weeks at MTU, I was working closely and intensively with my predecessor, Lars Wagner, to ensure a smooth and collaborative handover and transition. Having been in my role as the new CEO of MTU, it has been really great to dive deeper into the company, our programs and find an inspiring set of people that is well positioned to capitalize on market opportunities. It actually feels like much more than 2 months. I guess the reason is that I worked with MTU for many years as a business partner already and was previously a Supervisory Board member of MTU. My priority is now to get to know MTU really in depth. That is my current visits and journey from the production sites and of course, the shops and different products and people. And I'm truly inspired by the passion the entire MTU team shows on these visits. And you can feel that everyone is really innovative driving and has a great passion for shaping the future of this company. I will be happy to share my insights and key priorities moving forward with you at the full year's release. But today, I also have the pleasure to welcome Dr. Ottmar Pfänder in the team, who will replace Michael Schreyögg as 1st of January 2026. And I would like to thank Michael for his great contribution for over 35 years with MTU, and he did a great piece of work here. Ottmar will take over his responsibilities as Chief Program Officer and has also more than 25 years of experience in the industry and with MTU. As the new Executive Board team, we will continue MTU's growth and transformation course, and I look forward to shaping MTU's future with my team from Katja, Silke and Ottmar and how we are progressing for the first month -- 9 month of this year, Katja will explain to you now. Thanks. Katja Garcia Vila: Thank you very much, Johannes, and a warm welcome also from my side. Let's briefly review our key financials before I move on to the business highlights of the quarter. Group revenues increased strongly by 19%, reaching nearly EUR 6.3 billion, in line with our full year 2025 target. Adjusted EBIT rose over proportionately by 34% to EUR 995 million, resulting in a strong EBIT margin of 15.9%. This performance was driven by a continued favorable mix in the commercial OEM segment and robust profitability in MRO. Free cash flow came in at EUR 279 million, representing a better-than-expected cash conversion rate of 39%, a strong development despite ongoing headwinds from the GTF fleet management program. Additionally, we saw strong cash contribution in the MRO segment and effects from conscious cash flow management. Based on the strong 9-month performance, we expect to achieve 2025 sales guidance in all subsegments and raise our EBIT and free cash flow guidance. I'll walk you through the details in a few minutes. Let us now move on to Page 5. The positive market trends remain intact. We see significant opportunities outweighing existing challenges. Passenger traffic rose by 5% year-to-date in August, reflecting sustained demand across global markets. Cargo traffic also showed a robust performance with a growth of 3.3% year-to-date. For the full year, YATA projects a 5.8% increase in passenger volume, a return to more normalized growth levels following the post-pandemic recovery surge. Over the mid-to-long term, global passenger traffic is expected to grow steadily by 3% to 4%, driving sustained demand for new aircraft and aftermarket services. While the supply chain continues to recover, it still remains below pre-COVID stability. That is why the production ramp-up is slower than needed to meet rising market demand. Consequently, airlines are extending the service life of mature aircraft and engines, which in turn drives strong MRO demand and results in more extensive shop visits. This also keeps demand for spare and lease engines at elevated levels with prices remaining very attractive. Global defense budgets are rising. For MTU, momentum in the Eurofighter program remains strong with new orders from core nations and international customers. Germany confirmed the procurement of 20 Eurofighter, 52 engines for deliveries between 2031 and 2034. In the U.S., demand for the CH-53K helicopter is rising. The Marines have ordered 99 units for delivery between 2029 and 2034. MTU contributes the power turbine to the T408 engine and holds an 18% program share. Recent news flows around aircraft has been somewhat sovereign. Nevertheless, we remain optimistic that governments will find a solution to ensure the program continues, given its strategic importance for future European sovereignty. Additionally, the weaker U.S. dollar-euro exchange rate poses a challenge, particularly for European aerospace and defense companies. We are mitigating this effect through our active hedging activities. In this dynamic environment, MTU remains well positioned to capture growth opportunities across both commercial and military segments. Our diversified portfolio, strong customer relationships and continued investments in technology and capacity enable us to navigate current challenges while driving long-term value creation. Let's now move on to another topic, an update on the current tariff situation. Since our last update on the topic, there has been progress between affected countries and an agreement has been reached. This agreement follows the spirit of previous arrangements in our industry and reinstates a general exception from tariffs for aviation products. This exception does not include other products such as industrial gas turbines. Furthermore, detailed rules for the application of the agreements are still in alignment between the EU and the United States. Beyond that, we are still waiting for tariff clarification for machineries, engine stands and other items. To sum that up, significant progress has been made on the topic. To mitigate these challenges, we are continuously adapting our internal processes to meet all requirements. We analyze on an ongoing basis on how to optimize our part streams to reduce any impact. In addition to that, we are also working on contractual agreements to further reduce our exposure. With that, I will now move on to our key milestones of the third quarter. Moving on to Page 7. Let me now share the key milestones of the quarter. To start with, as mentioned earlier, Germany has now confirmed the procurement of 20 additional Eurofighter aircraft. Including existing orders from the core partner nation, this brings the total firm order book to 160 new Eurofighter engines, which are scheduled for delivery over the coming years. Let's continue with the GTF fleet management plan. We made great progress in the ongoing execution of this program. Essential aspects include the improvement of parts availability, expanded MRO capacity and better turnaround times, all of which are progressing. Additionally, we support customers and airlines by providing spare and lease engines. To summarize, we are on track. Further good news for the GTF program came just last week. In October 2025, the GTF Advantage received the EASA certification. This success is the next step in the process to allow deliveries to airline customers and an entry into service next year. Recent customer orders reflect continued strength in our commercial OEM business. LATAM Airlines and [ Avelo Airlines ] have placed orders for a total of 174 Embraer E195-E2 jets, including options. These aircraft are exclusively powered by the GTF engine, underscoring continued market confidence in our advanced propulsion technology. And our partnership with GE, we also see new opportunities. Together, we are strengthening our industrial gas turbine portfolio with focus on naval propulsion, especially the LM2500 and LM6000. The LM2500 is set to play a central role in powering German Navy's next-generation F127 frigates with growing interest also from other European nations. Maintenance will be carried out at our MTU facility in Berlin, where we're currently investing in a new production center. Over the coming years, we aim to grow our MRO services for industrial gas turbines by around 30%. A key milestone for MTU Maintenance Berlin-Brandenburg was receiving the EASA certification for full MRO services on PW800 engines, which power premium business jets such as the Gulfstream G500, G600 and Dassault Falcon 6X. This makes the site in Berlin the second certified MRO provider for PW800 engines worldwide. As part of Pratt & Whitney Canada's global service network, we are strengthening our position in the fast-growing business jet segment. MTU Maintenance Lease Services has opened a new parts supply warehouse in Zhuhai, China, complementing existing facilities in the Netherlands and the U.S. This expansion strengthens our global logistics footprint and ensures rapid access to serviceable material for CF6-80, CFM56, G90 and V2500 engines across the Asia Pacific region. Now let's move on to the financial overview. Let's take a closer look at our financial performance for the first 9 months of the year. As expected, Q3 could not fully keep up with the extraordinary strong performance from the first half of the year. However, MTU reported record results for the first 9 months ahead of the expectations. Group revenues rose by 19% to EUR 6.3 billion, driven by strong growth in both commercial OEM and commercial MRO segments. In U.S. dollar, total group revenues were up 22%. Commercial OEM was supported by strong spare lease engine sales. Adjusted group EBIT rose over proportionately by 34% to EUR 995 million, delivering a strong 15.9% margin above guidance and above our own expectations. Growth was driven by a higher share of spare and lease engines in commercial OEM and solid spare part sales. Commercial MRO also contributed significantly despite higher GTF MRO share and ramp-up costs at MTU Fort Worth. Net income adjusted grew in line with adjusted EBIT and reached EUR 720 million. Free cash flow came in at EUR 279 million, an improvement of 31% compared to 2024. This figure was impacted by compensation payments related to the GTF fleet management plan. These were partially offset by higher cash contribution from our MRO business and effects from conscious cash flow management. All in all, a great set of results. Let's now take a closer look at our business segments, starting with the OEM business on Page 9. Total OEM revenues rose by 15% to EUR 2 billion, impacted by a weaker U.S. dollar. While commercial OEM revenues grew 20% to EUR 1.6 billion, military revenues declined by 2%, mainly due to delayed deliveries in new engines as well as back-end loaded repair activities. However, Q3 2025 saw a 3% increase. We expect a strong fourth quarter in revenues to achieve our full year guidance on growth in our military business. Adjusted EBIT increased over proportionally by 44% to EUR 640 million with a strong margin of 31.1%. This is higher than initially anticipated, driven by a favorable product mix in new engines and robust spare parts growth. Let me now share with you the organic commercial growth rates. Organic commercial OE revenues in U.S. dollars increased by a high single-digit percentage, driven by GTF and GEnx engines with a strong share of spare and lease engines. Q3 2025 showed similar growth compared to the first quarter of the year, but with a higher share of installed engines. In Q4 2025, we expect a higher output of new engines supporting our full year guidance. Organic spare parts revenues rose by low teens, supported by narrow-body engines and mature platforms. In Q3 2025, growth was up mid-to-high teens, in line with expectations and our full year guidance. Let's move on to the commercial MRO segment. Reported MRO revenues increased by 20% year-over-year to EUR 4.3 billion, while U.S. dollar revenues were up 24%. Major revenue drivers were narrowbody engine programs, mature widebody platforms and our MLS leasing and asset management business. The GTF MRO share reached 40%, in line with our full year expectations. In Q3 2025, we observed an increase in shop visits and higher material content, resulting in a GTF MRO share of 48% for the quarter. Adjusted EBIT increased by 18% to EUR 355 million with a stable margin of 8.3%. The margin was supported by a favorable independent business mix and strong contribution from equity accounted joint ventures and impacted by the higher GTF MRO share and ramp-up costs by MTU Maintenance Fort Worth. So before heading to the guidance, let me share an update on our current hedge book. As you can see, we were quite active in the past quarter, further expanding our currency protection for the coming years. For 2025, we are now basically fully hedged, protecting our results from currency impacts. Also, looking at the following years, we have made progress in managing our exposure in line with our hedging policy. Looking ahead, we are following the targeted hedge coverage rates as set in our hedge policy. In addition to that, we are currently updating our exposure assumptions to have the latest developments incorporated into our hedging strategy. After that, we are now coming to the outlook for the year 2025. We are upgrading our outlook based on the strong performance of the first 9 months. The Q3 results and the strong outlook for the current quarter allow us to lift our EBIT adjusted guidance. Coming from an estimate for EBIT adjusted growth in the low to mid-20 percentage range, we are now able to lift that to a mid-20s percentage number. Adjusted net income is expected to grow in line with EBIT. This substantial upgrade in EBIT also translates into a stronger cash flow. We now expect the free cash flow to reach a range between EUR 350 million and EUR 400 million, up from the previous range of EUR 300 million to EUR 350 million. We can reaffirm our revenue outlook with expected group sales between EUR 8.6 billion and EUR 8.8 billion based on an average U.S. dollar exchange rate of USD 1.13 per [ Euro ]. Within this, we anticipate growth in our military business in the mid- to high single-digit percentage range. Commercial OE is projected to grow in the mid-teens. Within that, the share of spare and lease engines is higher than initially anticipated. Aftermarket demand remains in line with our latest expectations, resulting in a revenue growth outlook of up low to mid-teens. Lately, we also reaffirm commercial MRO revenue growth outlook to mid- to high teens, supported by heavier shop visits and rising demand for GE90 engines. The GTF MRO share should remain at around 40% of the segment revenues. This upgrade again highlights the strong underlying business and our ability to generate highly attractive margins as well as our progress in generating free cash flow. Let me summarize our achievements in the third quarter 2025. The excellent first 9 months performance leads us to upgrade our guidance again. Revenues are expected to reach the previously communicated levels even in a weaker U.S. dollar environment. At the same time, we see profits and free cash flow generation well ahead of our previous expectations. The market environment for our industry and MTU remains very supportive and underpins our positive outlook. The impact of the tariff environment has been limited as described earlier, and we continue to adapt to the remaining challenges. Great business in a great industry. And finally, already as a heads-up for next year. We are planning to release our first guidance for 2026 with our preliminary full year results in February 2026. With a couple of market decisions happening towards the end of the year, like the political discussions on FCAS as one example, it will take slightly longer than in previous years before sharing our view on the year in line with most of our competitors. Now this concludes our presentation. We are now happy to take your questions. Operator: [Operator Instructions] Will go ahead with our first question. This is from Chloe Lemarie from Jefferies. Chloe Lemarie: The first one would be on the OEM performance in Q3. So Katja, you mentioned that the OE mix has started to normalize in the quarter. But could you add further color on this? Like how much of the way are we towards a normalized OE mix in Q3? Second part of that question is we've obviously seen record margin in the division this quarter. So could you help us understand the key moving parts driving that? And in particular, because it looks like spare parts accelerated, but probably not enough to explain the 450 bps of sequential increase in margin. Second -- sorry, last question for me would be on the GTF compensation payment. Could you quantify how much was paid in the quarter? Katja Garcia Vila: Thank you, Chloe, for your questions. I will try to answer them exactly as you've posted them. First of all, as elaborated in the Q3, we saw an elevated level of installed engines coming in. We don't quantify exactly the numbers, how much spare and how much installed. Anyway, what I can also state is that we have still seen a reasonable share of spare and lease engines also in the quarter, and we expect that also to move on further. What we have, in addition, seen definitely during the course of this quarter is a strong increase in our spare parts business, and this has also helped and supported the guidance expansion, not the guidance, the revenue expansion and the returns expansion. On the GTF, I can share the figure that we have paid this quarter. It was around USD 100 million for MTU, which has post, so to say, the headwind to our free cash flow generation, but which is in line with expectations. If you remember, we expect for this year in total, a compensation payment quite similar to what we have paid in 2024. That was around USD 390 million. In the first 2 quarters of the year, in total, we had paid EUR 150 million. So overall, we stand at USD 250 million right now, expecting further payments to take place in the first -- in the fourth quarter. Chloe Lemarie: Can I actually follow up on this because on the payment last year, it was all in Q4. So you have a very easy comparison based on Q4 free cash flow. So how should we think of the conservatism based in the upgraded free cash flow guidance? Because on my math, you should be having a pretty significant year-on-year tailwind in that free cash flow performance? Katja Garcia Vila: So we also had some payments during the course of the third quarter last year. I would not consider that to be now a conservative approach. As I said, we will still need -- or we still expect around USD 140 million more or less to be paid in the fourth quarter. And this is what we have also baked in when we provided the upgrade of the guidance. Operator: We will now take the next question. This is from David Perry from JPMorgan. David Perry: Yes. I guess my question was the same as Chloe, so I haven't thought of another one. But I think it is worth just repeating it. As Chloe said, the margin is just exceptional in OEM in Q3. And you seem to have said unlike in Q2, it's not because of the spare engines, but it's because of the spare parts, which is great. But just maybe if you have a bit of color about why the margin on the spares, the spare parts is just so strong in Q3? Or is there anything else at all that would explain the really good performance? Katja Garcia Vila: Thank you very much, David. And as you have stated correctly, the big driver of the margin in the third quarter are not over proportional spare and lease engines, but rather the strong performance on the spare parts. And driving the spare parts compared also to the first half of the year. In the first half of the year, we were at a high single-digit rate, growth rate, now that rate has definitely significantly expanded to a mid- to high double-digit range, which also means then strong impact on the margins. And in addition to that, we also saw pricing effects kicking into place now also in the third quarter. David Perry: I guess if I can just have one follow-up. The obvious question is, do we or don't we extrapolate this forward? I mean, is there some kind of -- is it about maturity of the mix? Is it you're taking more margin on GTF or something? Because clearly, we've never had a margin this high. I don't think you've ever had one that high in a quarter. Katja Garcia Vila: So if you're referring to the overall margin of the OEM segment, I would still not say that this is exactly the new normal that you should anticipate. You remember what we gave as guidance at the Paris Air Show, which is a little below what you've experienced now in the third quarter of this year. So the maturity definitely plays a role with regards to the mix on the spare parts. And what we will also see in the fourth quarter then on the OEM margin overall is that we will continue to see strong new deliveries. Operator: Next question is from Ian Douglas-Pennant with UBS. Ian Douglas-Pennant: I've got a few, but let me prioritize. So about your OEM EBIT guidance, by my math, it implies something like a mid-single-digit growth rate implied for Q4. Can you help us understand any kind of seasonality patterns that we should be looking for in Q4 to explain why the growth rate is going to slow down? Secondly, Pratt & Whitney on Tuesday gave a comments on the call that they revised down their expectation for how many GTF deliveries they're going to make this year. Can you help us understand why then your series growth guidance for this year is unchanged. I've got a few more, but I'll respect the 2-question rule. Katja Garcia Vila: Yes. So far, looking at the sales guidance that we have out, I cannot 100% record how you come to a limited growth guidance now on the OEM program. I think our expectation is that we will have on the OEM segment also a strong sales performance in the fourth quarter, supporting us in our full year's guidance expectations. Looking at the GTF, I think for the GTF itself, we do see better supply chain helping us also to ramp up further new output on new engines. And I think there, we are also making progress supporting also the ramp down of the situation in the market with regards to the GTFs. And also keep in mind, we do provide more than just the GTF engines in the OEM segment. We also have widebody engines where we do see good business moving forward. Ian Douglas-Pennant: I'll jump back in the queue and follow up with IR on the first question. Maybe I made a mistake somehow. Operator: We'll take the next question. Next question is from Robert Stallard, Vertical Research. Robert Stallard: I've got a couple for you. First of all, on engine leasing. This has clearly been doing very well at the moment, but these are particularly unusual circumstances. The market is very tight, very strong. How are you looking to manage this risk going forward when we do see a conditions returning to normal, particularly with regard to residual values? And then secondly, on the defense side of the business, you mentioned the strength in Eurofighter orders and backlog. How do you expect Eurofighter sales to progress and ramp from here? Thomas Franz: Rob, it's Thomas. I'm taking these 2. So engine leasing on the one hand side, yes, the market is very strong at the moment. But as you know, we have not a remarketing risk like other companies in the place that we are having a direct correlation between our leasing business and our MRO business, where we can always move things back and forth supporting the one to the other. So we feel pretty good with the outlook we gave at the Paris Air Show as well as the current situation we're in. On the Eurofighter, that's a little bit of difficult question. Yes, the order momentum is accelerating. We see a high level of interest, and we also hear and discuss with our partners and also with the OEMs, the ramp-up of manufacturing. But at the end of the day, there are some lead times in the programs, and we need to see how we can -- we can develop there further. So this is nothing that accelerates significantly in the next 1, 2 years on a revenue perspective. So we need to see how that plays out in the years thereafter. Operator: We'll take the next question. This is from Ross Law, Morgan Stanley. Ross Law: So first, just coming back on the OEM margin. The implied Q4 step down is quite material. On my math, it's something around the high teens, which would probably be the lowest Q4 margin in OEM for about 5 years. So assuming spare parts don't fall off a cliff in the fourth quarter, is this implied sequential change all driven by this variance in mix? That's the first question. And then secondly, just on FCAS, if this does get canceled, what would be the potential impact to your 2030 guidance? Katja Garcia Vila: Okay. Let me first take the margin question on Q4. As we had said already during our H1 call, we do expect not an as strong spare in these engines business moving forward in the second half of the year. And if you do the pure math there, we do expect some impact also due to the fact that the installed engines are increasing. Now, so that is the reason for the lower expectation on the margin for the Q4. With regards to FCAS, I think we are very confident that there will be a solution found to move on with the program. The politicians at the moment are in talks. So maybe, Johannes, you've been to Berlin a couple of times. Maybe you want to say something about FCAS? Johannes Bussmann: Yes. I think we are in phase IB, which is still lasting until September, so third quarter next year. And that's what we still need to work on and deliver. And that's what we also will do together with our partners in the Engine segment. And the decision time line that we hear from the political side in Berlin right now is still the end of the year. And that's, of course, something we are looking forward. And we as MTU and also with our partners, Safran and ITP are fully committed to extend and continue the program. And if the time line by the end of the year is met, we are in fine shape, and we are concentrating at the moment on delivering on the first parts that we are still working on. Ross Law: Okay. Just a very quick follow-up. Can I just check in your 2030 guidance, is there a contribution from FCAS included in that? Katja Garcia Vila: Yes, there is a contribution of FCAS included in our 2030 guidance. Operator: We'll now take the next question. This is from Sam Burgess, Goldman Sachs. Samuel Burgess: Firstly, just on the stable margin in commercial MRO. There's clearly been a shift to more GTF MRO. But can you just help us disaggregate the drivers there of that stable margin? What was work scope versus pricing versus the MLS contribution? Any color there would be really helpful. And the second one, just on the OEM side, you mentioned the pricing effects impacting in Q3, Katja. Can you just remind us in terms of in 2024, whether those pricing effects impacted at the same point? Katja Garcia Vila: Okay. Let's start with your question on the MRO business and the MRO margin. So as we have elaborated already, in the third quarter, we had really a significantly higher share of GTF MRO works compared to the first half of the year. We were short, so to say, with regards to MRO throughput in the first half of the year also due to missing parts. The supply chain has now stabilized on the GTF materials, and this is why we were able to ramp up the share of work in our shop, which then also will help to drive down the AOG situation during the course of the next coming months. With regards to pricing effect, pricing effect kicked in a little later last year in 2024. So some of the pricing was a little pre-pulled this year into the third quarter. Samuel Burgess: My question actually on commercial MRO was more about how you've maintained a stable margin given GTF is a significantly bigger share. Can you just help us think through what's been really strong there? Is it just more material intensity on widebody? Any color there would be very helpful. Katja Garcia Vila: Okay. Yes. Sorry, I didn't get that point with my first answer. Yes. So overall, what we do see is that the work scopes on the mature engines are increasing. That is one definite driver for margin expansion in our MRO shops. You know that the airplanes are flown longer. So we have more shop visits and with higher contents in the time. And on the MLS side, you know that we've provided a guidance moving forward to achieve EUR 1 billion in sales until 2030. And this business is continuously expanding also supporting our margin expansion on the MRO segment. Operator: Next question is from Christophe Menard from Deutsche Bank. Christophe Menard: I had two as well. Trying to understand the very strong OE margin in Q3 as well. The question is, is IGT also part of the strong performance? I mean you highlighted this in your presentation. So I was wondering whether that was a contributor to this. And the second question is on GTF Advantage. I mean, you will start delivering by the end of this year, if my memory is right. Has it any impact on the OE margin business first? And the side question is, there is also an upgrade program around GTF Advantage. Are you seeing some customer acceptance of this or interest? And when could it have an impact on your MRO revenues and profitability? Katja Garcia Vila: Okay. Let me take the first part. Let me take the IGT topic. IGT is part of the spare parts revenues. So there, we also do see a good business moving forward. And as I said, we will expand the business going forward in our facility, the MRO work going forward in our facility in Berlin-Brandenburg. With regards to the GTF Advantage, you want to take it Johannes? Johannes Bussmann: Sure Katja. No problem. Entry into services next year, so 2026. We're, of course, happy that we have all the approvals now under our belt and the production is now expanded and entry into service, I mentioned next year and then ramping up over time to the full load that we think is required. And of course, there is interest from a customer side for a better performance and longer on wing time for the engines. So we are quite confident that we achieve the targets and the entry to service level then is increasing, of course, over the time. Operator: Next question is from George Mcwhirter from Berenberg. George Mcwhirter: I've got two, please. The first one is just following up from Sam's question on pricing. How do you expect pricing of spare and lease engines to trend in 2026? And the second question is on the industrial gas turbines business. You mentioned that you plan to grow this business in the coming years. Can you just remind us of how big this business is in revenue terms, please? Katja Garcia Vila: Thank you, George, for your question. So the first question on the pricing, I'm sorry to say that we don't give guidance on these detailed levels and also not for 2026 now. So far, we've seen supportive pricing in the market, which has also helped us this year on the margin expansion. Depending on how the market overall will develop, pricing will be determined. With regards to the IGT, I don't -- I'm not fully aware of a share that was ever to communicated. So this is a business that we find very attractive, and this is also the reason why we are investing in our Berlin-Brandenburg facility to expand our IGT business now going forward. Operator: We'll now take the next question. This is from Rory Smith from Oxcap Analytics. Rory Smith: It's Rory from Oxcap. I wanted to follow up on Sam's question on MRO profitability as well, please, but maybe asking it in a slightly different way, given that you've talked about USD 10 billion to USD 11 billion in MRO revenues to 2030 and then that doubling of the MLS to about EUR 1 billion to 2030. Maybe if you could help point us in the direction of the split in commercial MRO profits in 2030 or thereabouts between those buckets that you've called out today, the narrowbodies, the mature widebodies and the MLS, just to give a sense of direction of travel stepping back from the sort of the particulars of the quarterly movements, that would be really helpful. Katja Garcia Vila: Yes, Rory, thank you very much for the question. So I'm sorry to say that we don't break down individual profitabilities of subsegments like this. What I can say is that we do expect a positive development in all areas of our business. So with the GE90 and also the contracts that we have moving forward, also the GEnx, I think on the widebody side that we do see continuous demand for MRO services. The same accounts for the narrowbody fleet, which still continues to grow and will continue to grow during the course of the next couple of years. And we have provided you at least with an outlook on the revenue side for the MLS business saying that it doubles its contribution to our 2030 sales figures. Rory Smith: And just a follow-up on near term, the ramp-up impact of MTU Fort Worth. Apologies if you've given this already, but have you given a sort of guidance on the dollar impact of that and when that rolls off? Katja Garcia Vila: What we have provided you with was an outlook on the expected investments in PPE that we do see connected to this ramp-up, which was USD 120 million over the course of the next coming years. MTU Fort Worth will have a first induction of an engine by the end of next year. And this will be the LEAP engine where we've invested into the license. There will be another program starting by the end of the decade. But you need to take into consideration that this will not be a material impact, for example, in the near term for 2026 with regards to sales. Operator: Next question is a follow-up from Ian Douglas-Pennant from UBS. Ian Douglas-Pennant: I have a couple of follow-ons, please. So we saw some headlines in the press, I think, from a call that you may have done earlier in the day saying that tariff costs are ahead of your initial expectations. Could you update us on what you think the number is that tariffs will cost you and whether that number has changed since earlier in the year? And my second question is, so this year so far, we've seen 13 A320neos, at least with GTF engines and at least one A220 being retired. And obviously, they're being retired very young. How do we explain that it's A320s with GTF engines and not with LEAPs that are being retired? And secondly, how do we expect -- how do we explain that those aircraft are being retired quite so young at this point. Does this put a ceiling on your ability to increase price at some point? Katja Garcia Vila: Okay. Let me start with the tariff question first. I think this must be a misunderstanding. When we started to talk about tariffs, our original assessment was that we expected the gross impact of tariffs in the high double-digit million range. That was prior to any mitigation measures, which we said we would elaborate on. When we had our H1 call, we spoke about high single to low double-digits impact that we do expect on our EBIT after mitigations. And this is also the figure that we still confirm. So the low double-digit million impact on tariffs this year is what we have currently foreseen. So there is no change in our assumptions with regards to tariff implications. With regards to the retirement rates in general, I would say that we still see very low retirement rates overall in the market. And what we also have is that we do have a very strong order book on the GTF still moving forward, which was also pointed out with the order wins that we had at the Paris Air Show. So I cannot give you a detailed explanation on specific aircraft, I have to admit. But overall, our order book on the GTF remains very healthy, also due to the fact that this engine really performs well with regards to, for example, fuel consumption, which is a significant improvement compared to prior generations. Operator: We will now take the next question. This is from Olivier Brochet from Rothschild. Olivier Brochet: I have a couple of questions, please, for you. RTX indicates that on the GTF the shop visits are heavier in -- as we get closer to the year-end. Am I right in thinking that with the 18% share that you have on the A320 engine, it helps sales, but also profit rate in OE? The second question is on FCAS. Do you have any assets that are at risk if the program is dropped? And then the follow-up on the comment you made, Katja, on the new program in Texas by the end of the decade. Do you expect a material fee to be paid at some point between now and then on that, please? Katja Garcia Vila: Okay. Let me start with the RTX shop visits or heavier shop visits. You're totally right. Our share in the program is 18%. So there might be some impact coming from more heavy shop visits, but that is also what was expected in general during the course of the program that after a certain time, shop visits will become more heavy as we've also moved away now with better material availability from quick turns, which we had to do for a certain period of time now moving to more heavy shop visits with respective impact. Assets with regards to the FCAS program. So what we have done so far in the FCAS program as we're -- and we are still doing as we deliver on the phase IB, which was ordered by the government. And this is what we're currently following on until late Q3 next year, waiting for clarification on the program to move on in the next -- in the next phase by the end of this year. And with regards to fee, Ian, what we have paid was, so to say, the entry fee into the program that was around USD 100 million that was late last year. So that has already been paid. What we have also done is we have put additional payments when the program runs that we have to do into our net debt figure in the second quarter of this year. This was EUR 100 million, but these payments are not due in the near term. They will come when the program will ramp up to certain levels. There will be some more payments. Olivier Brochet: If I may follow-up on the FCAS topic. You don't have any assets that are on the balance sheet and that would be at risk if the program is [ drop? ] Katja Garcia Vila: No, there is no relevant asset on the balance sheet. Operator: We have no further questions at this time. So I will now hand back to the speakers for any closing remarks. Thomas Franz: Yes. Thank you, Johannes. Thank you, Katja. Thank you all for the participation in this call. As usual, the IR team is online for further clarifications or questions for the coming days and weeks. Thank you. Have a great day, and see you next time. Operator: Thank you. We want to thank Mr. Johannes Bussmann and Mrs. Katja Garcia Vila and all the participants of this conference. Goodbye.
David Boshoff: Good morning, everyone, and welcome. I'm David Boshoff, and with me is our CFO, Steve Fewster. We're pleased to be joining you today for the September quarterly update. Before we get underway, I'd like to highlight that today's presentation should be read in conjunction with our September quarterly report. This is now available on our website. As we move through today's session, if you have any questions, please feel free to add it to our live Q&A tab. And then that's on the right-hand side of your screen, and we'll address those questions at the end of the session. It's been another strong quarter for BCI, marking 1 year of operations. Switching on the pumps last year, since then, we have moved more than 185 gigaliters of seawater into our ponds, with continued progress on inundation of ponds 1 to 9, ahead of the 2025-2026 summer season. Our focus remains clear, ensuring a safe and sustainable operational ramp-up as we bring more assets online and close out the final construction packages. What really stands out this quarter is how strongly our people and our partners have lived our values. A great example was our goal to achieve 90% pond inundation by the 1st of August. I was actually on the site of the day that, that happened, and the team achieved it 2 days ahead of target. They really smashed that goal. That's our we do what we say value in action, showing commitment, teamwork and pride as we are producing together. Now I'd like to take you through the highlights for the quarter. In safety, we continue to strengthen key fatality prevention controls by completing 301 critical control verifications. We also performed 640 field leadership interactions and our total recordable frequency -- injury frequency rate reflects an ongoing focus on safe operations with a 12-month rolling average at 3.1. By the end of September, the pond service inundation has reached 93%. We also introduced new technology that's giving us real-time insights into how our operations are performing. This data is helping us to make smarter and faster decisions and plan more effectively for the future. I'll share a little bit more about that later. Construction also continues to progress well. We are both on schedule and within budget, with the overall completion of the construction packages now sitting at 74%. Finally, the commissioning of the pre-KTMS pilot crystallizers, which is an important step of our sulfate of potash progress has also progressed well. We are now in commissioning. I'll now hand over to Steve to walk us through the financial highlights. Thank you, Steve. Steve Fewster: Yes. Thanks, David. With construction on budget, BCI remains in a strong financial position. During the quarter, we drew $110.9 million for our syndicated debt facility, and that brings total cash drawn to date to $347 million. In July, we also received a deferred payment of $34.1 million from the sale of Iron Valley. I'll share more on the cash flow shortly. But first, David will provide a more detailed update on our operations. David Boshoff: Thank you, Steve. I'd like now to start with a quick overview of the salt making process and how it's unfolding at Mardie. Salt production starts with the intake of seawater from the Indian Ocean, which is then transferred through 9 evaporation ponds. Our operations team then carefully monitors the density in each of these ponds to ensure the brine is moved at just the right time. This project is very important because it ensures that the impurities in seawater is precipitated ahead of the crystallizers. This enables the production of salt to our customers' specifications. As the water temperatures rise, the natural evaporation process increases salinity of the seawater and gradually transforming that seawater into brine. Once the brine reaches the target density, which is typically between 1.21 and 1.22 kilograms per liter, it's pumped into the crystallizers where industrial grade salt begins to crystallize. Once enough salt is crystallized, it's harvested. The harvested salt is then processed through our wash plant to remove the layers of impurities before it's being shipped to our customers via our Cape Preston West Port. As you can see on the map, on the left of your screen, the ponds vary in size, all the way from pond 1 to 9. As I mentioned earlier, we've achieved 93% pond surface inundation with most of our ponds at or near capacity. Our focus is now on reaching the target brine density. In particular, we're looking at pond 9 and to make sure that reaches the right density of brine before it's transferred to the crystallizers at the perfect time. To support this process, we have developed a digital twin, which is a digital model, specifically designed for operations, and this allows us to monitor in real time and make data-driven decisions. The digital twin is now fully integrated into BCI's production planning process, combining real-time operational data from the primary seawater intake all the way through to ship loading while incorporating historical weather information. The chart you can see there on the left of your screen has been created utilizing various weather scenarios from the digital twin and it illustrates the range of time of when the brine in pond 9 is forecasted to achieve the density. You can also see on the graph where the actual density of pond 9 is sitting at the end of September. The chart here, you can see, illustrates that range. And then this analysis also shows that target density is likely to be achieved during the period between January and March, and this obviously will depend on the actual weather conditions we experienced in this upcoming summer. Importantly, we continue to work towards our target of having our first production salt on ship in the December 2026 quarter. Other operational activities during the quarter included the commissioning of the Transfer Station at 6/7, also the ongoing fabrication of our salt harvester herein Perth, and the development of the Mardie salt operating system. We continue to make good progress towards our construction milestones, specifically engineering and design of the salt wash plant has reached 60% completion. Earthworks have also commenced along with other orders placed for major long-lead items. These long-lead items include centrifuge, elutriator, dewatering screen, also the screw classifier. The committed cost for the salt wash plant now stands at 30% with the remaining costs to be committed over the coming two quarters. The primary and secondary salt crystallizer were also completed, marking the conclusion of the majority of the bulk earthworks, as well as pond and crystallizing infrastructure required to support full-scale production. In April '25, we commenced commissioning the first crystallizers with seawater to test their permeability and help inform the optimal sealing solution. Sealing the crystallizers is a critical step prior to transferring valuable high-density brine from pond 9, as I described earlier. The results from these trials, the seawater trials confirmed that the use of liners as a superior solution to sealing crystallizers because firstly, it creates a more predictable harvesting environment; and secondly, it eliminates seepage, thereby creating additional ramp-up tonnes in the early years of production. Consequently, BCI is implementing a program, sealing the crystallizers where this cost expected to be fully funded within the $1.443 billion salt-first budget. Sealing of the crystallizer trials will commence in the current quarter with the first crystallizer scheduled to be ready to receive brine from February 2026 onwards. The sealing of the remaining trains is planned to occur as required to meet our production ramp-up schedule. Also now the marine package of the Cape Preston West Port has reached 93% completion, and the environmental approval for the offshore placement of dredge spoil has transitioned into the next phase with both the state -- with the state and the Commonwealth regulators. Steve will take us now through the financial highlights. Steve? Steve Fewster: Thanks, David. Total construction now sits at just over $1 billion, having spent $67 million this quarter. The largest packages of work remaining include the dredging, the crystallizer sealing and the salt wash plant. Other than the long-lead items that have been ordered for the salt wash plant, these packages will be funded from the $386 million we had in uncommitted funds. From the engineering design work on the salt wash plant, and the procurement of materials to date, we are confident the salt wash plant will come in on target and to schedule. With dredging, the tenders closed last week and based on our early analysis of this package, the costs look to be aligned with our budget. And lastly, this will be placed in order for the first package of the crystallized aligners, with the cost of this order being in line with our forecast. The progress being made on these three major construction areas supports our confidence of remaining on budget. Looking forward to the next quarter, as we prepare the site for the arrival of the materials for the salt wash plant and the crystallized aligning, construction activity at Mardie will be lower than recent quarters. Both of these work fronts will be in full swing during the March 2026 quarter, and dredging will follow in April 2026. These activities align with our construction schedule and remain on track to support our FSOS target. As mentioned earlier, we drew $110.9 million from our syndicated debt facility during the quarter. At the end of the quarter, BCI had available liquidity totaling $676 million, with approximately $441 million required to complete construction, we remain fully funded to complete the construction work as well as having sufficient working capital to be able to operate through the ramp-up. As we previously shared, our drawdown process runs on a 45-day cycle. Prior to each drawdown, we are required to undertake a project cost reconciliation and provide this in conjunction with an opinion from the lender's independent technical expert or ITE. The ITE's opinion confirms to lenders that BCI remains fully funded to complete construction, as well as having sufficient working capital. To date, we have successfully completed 6 drawdowns totaling $347 million. I will now provide an overview of what we're seeing in the salt market. You'll see the CFR prices that we quote in the quarter release are based on the price of salt as well as the weighted average cost of freight to get that salt to the customers' ports in Indonesia, Japan, Korea, Taiwan and the Philippines. As such, freight is a key component of the CFR price. The factors affecting the cost of freight include the size of the ship and the distance from the supplier to the customer's port. During the June '25 quarter, Indonesia imported proportionately more volume than other buying countries when compared to the March 2025 quarter. With the lower shipping distance from Australia to Indonesia, this reduced the weighted average freight cost and hence the CFR cost in the June quarter was $5 lower. On an FOB basis or the price that the supplier receives for their salt, the Asian market remains relatively stable. As we've previously shared, the Cape Preston West Port is a strategically valuable asset for BCI and the region. This is a multi-user port that is being designed to export approximately 20 million tonnes per annum of bulk commodities such as salt, SOP and iron ore. At nameplate capacity, Mardie's SOP and salt operational needs are around 5.5 million tonnes per annum. This gives us surplus capacity of around 14.5 million tonnes per annum. So this infrastructure could be part of the solution for some of the components in the West Pilbara region who don't have access to a port. By the end of September, construction reached key milestones marked by the completion of all the heavy lifts. This included putting the ship loading tower in place, installing a small boat landing, as well as subsequent demobilization of the jack-up barge. Works on the electrical and mechanical installation are now well advanced. Pleasingly, BCI continues to receive inquiries from potential third-party users of this facility in the region. David Boshoff: Thanks, Steve. The SOP part of our production stream is a key byproduct of our salt production, and it's a really important revenue stream for BCI in the future. This quarter we visited several potash producers in China and India to gather insights and benchmark their operating practices. The learnings from these visits are now being incorporated into our pilot plant design. We successfully commissioned the Pre-KTMS trial crystallizers as you can see on the screen on the left. And we are now operating these in line with expectations. Operations for the pilot plant construction are also progressing well, and we will commence that work early next quarter. While our focus remains on safety and ramping up our operations safely and completing construction, we continue to prioritize environmental stewardship. During the quarter, we delivered a wide range of environmental monitoring activities in collaboration with specialist consultants and our traditional owners. We also hosted our second implementation committee meeting with the Wirrawandi Aboriginal Corporation and commenced work on an updated Indigenous engagement strategy. On the community front, BCI visited Karratha Senior High School to support the positive behavior support program and the student achievement through the BCI High Value Rewards initiative. We also marked our first presence at the Resources Technology Showcase, and this showcase is Western Australia's premier mining innovation event. As we close this quarter, we do so by consistently applying our values in doing what we said we will do. We are well positioned to respond to forecast salt supply shortfalls in face of rising global demand while creating sustainable multigenerational benefits for our shareholders, local community and also for the broader Australian economy. This brings us to the end of the presentation. If you've got any questions, please add them to the Q&A tab on the left of your screen -- I'm sorry, on the right side of your screen, and we'll go to questions now. Thank you. Tammie Miller: David, can you talk to the remaining packages of construction yet to be committed? Given the salt wash plant design is still not complete, when will you be in a position to award that work and cost to complete known? David Boshoff: Thank you. So yes, the salt wash plant, as I mentioned, is 60% through design. The natural process of design would start with the earthworks design, the footings, the structure itself. And then as you move through the components that you add to that wash plant, and then eventually the electrical and engineering -- sorry, electrical and instrumentation. So the work that's complete is all our structural design, all the design for the selection of our components, as I mentioned earlier, the long-lead items. What is currently underway is piping, electrical and instrumentation, which is naturally to the back end of your process. We have already locked in and ordered a long-lead items, which means that cost is in actual cost. We've also commenced our earthworks and we are about to award the concrete and footing packages at the end of this month, so in November. The next packages will be electrical and instrumentation. And I'm expecting that will still be early in the next year. So probably around February with us then commissioning in salt wash plant in September of next year. Tammie Miller: Thank you. Steve, you mentioned in the quarterly report that the upcoming quarter will be slower in terms of construction progress on site. Does this put FSOS timing at risk? Steve Fewster: Yes. We were actually going to have a slow quarter this quarter. We're coming off the back of almost completing the jetties, the jetties at 93%. The ponds are now constructed, watering the plants, all the bulk earthworks, the crystallizers are complete, this pump stage -- stations that are closing in on completion for the crystallizers. So everything has -- is tracking to schedule. And we were always going to have this natural -- naturally -- natural quieter quarter this quarter. So for many of the reasons that David just spoke about, the schedule is always aligned to have the design work for the salt wash plant now. Dredging was always going to commence in April next year because of the dredge we know in the region. So at this stage there's nothing we see on the construction front. That puts it on a critical path for FSOS, which we're targeting at the back end of next year. Tammie Miller: Thank you. David, your decision to align the crystallizers, can you outline the cost of procuring and installing the liners, what the timing is and what the catalyst was for that decision? David Boshoff: Yes. I think this is important for me to highlight a couple of things. So when I started with BCI, we operate with a -- what I would call a static model. So basically a model that requires manual inputs to be changed. And it took us about a week to 1.5 weeks to run different scenarios. Since then, I mentioned, we've done the digital twin. So the digital twin is a fully modeled replica of our operations, it includes our size of our ponds, the amount of water we can intake, our actual weather data. What that enabled us to do is do one scenario in a couple of hours. So if I went to Steve and I ask him, what if we do this? What's the impact to NPV? What if we change that? How does it impact our cash flow in the future? It was quite hard and arduous process to determine that with a digital twin that happens in a couple of hours. So one of the things that we've looked at very carefully is what is the impact of the planned and forecasted seepage for the crystallizers on our revenue in the future. And is there a better way to do it. And so the digital twin then enabled us to run the scenario with ceiling and without ceiling. And then, of course, we included our forecast cost for the sealing in that model. And the NPV for sealing those crystallizers vastly superior than not doing that. So that then allowed us to say, well, we have to -- that's a better solution for shareholders. And we commenced with exploring exactly how we'll do it from a cost perspective and from a timing perspective. This then led us to the decision to take to the Board and that might then -- I guess, enabled us then to commence that process. So we expect the sealing prices to happen procurement has commenced. So sealing of the first train will happen between now and February. And then February is going to expect, again, the digital twin giving us this clarity. February, we expect the water in pond 9 to be ready to be transferred into the first crystallizer. So we're back -- we've worked back from that date to ensure the first train is ready to receive brine. And then the subsequent trains are then scheduled in line with when that brine volume will come from pond 9. So I see this as a great opportunity. I think the digital twin has improved our insights in how to maximize productivity and that then leads to smarter decisions for the future. I would just probably just add 1 thing -- thanks, Steve. Just 1 quick, I guess, in closure before I hand over to Steve, is the good work the team has done so far has enabled us to have headroom. And Steve will be able to share a little bit more detail on that. Steve Fewster: Yes. Obviously, I was going to emphasize that point. We've got an outstanding projects team and through getting the project to 74%, they're discipline around cost management, cost control, thinking -- digging through really effective solutions has been we've been able to build a buffer in our budget. And so when things -- when we look at opportunities to maximize the return to shareholders, as we have done with aligning of the crystallizers, we've been able to do that within that funding envelope, within that capital budget of $1.443 billion. So I think full credit goes to that project team and that discipline and managing that budget tightly. Tammie Miller: David, can you say a little bit more -- explain a bit more about the water flow from pond 1 to pond 9 is a question around, does the pond get empty 10% and then replenish? David Boshoff: Yes. So the -- I think it's important for me to just step through that. The densities between ponds are managed based on a very specific market density at its transition between ponds. So the ponds are maintained at the exact same level throughout its production cycle. What happens is you continue to transfer, call it fresher water or more -- less saline water from the salt into the pond and monitor the density. And when it gets to the required operating density, some of that water is then transferred into the next pond. At the same time, that water has been transferred is replenished from the pond just before. So imagine a total system where all the ponds are staying roughly at the same height through average operating period, but the density is fluctuating a little bit up, a little bit down based on that transition -- continuous transition over time. What that allows us then is to have a continuous stream of highly saturated brine in pond 9, that then feeds the crystallizers. Where the process is more stage -- where process where they empty and fill is in the crystallizers, so the crystallizers continuously filled until we have enough harvestable product. And then that crystallizer will be drained to make it ready so you can harvest that product, while the other crystallizers are then crystallized, and that goes into a cycle when you rotate that through your different crystallizers in the production process. Tammie Miller: Thank you. Steve, can you comment on what the possible revenue is per year for the port for non-salt products? Steve Fewster: Look, we haven't set a unit price at this stage. We have looked at other ports in the region. So bulk ports do publish their rates. And I think we can look to those rates and probably to the south of us at Ashburton Port is probably best -- is the best comparison to what Cape Preston West Port is as compared to, say, Port Hedland. And what you'll see in the published rates that it's about $9.10 per tonne that Ashburton Port is charging. Now part of the cost of -- or part of how your price will be built up will be based on what's the capital expenditure and what's an appropriate return. That is guided if you want to go and look at the Ashburton Port is, that's probably as good an indication at this stage as anything else. Tammie Miller: Excellent. David, given the seepage in the crystallizers that you've talked about, will you need to live pond 9? Is this why it isn't full? David Boshoff: No. So that -- yes, I'll clarify that. I think important point. So pond 9 is the last one that was finished. You might recall from the previous quarter. We've only just finished the -- we call it the port road or the PPA road, which is the northern boundary of pond 9. And that part is only -- the crystallizer only -- sorry, that pond is, I mean, just being commenced, filled in the last couple of months, and is steadily rising. And you also noticed in the picture that I shared earlier, pond 9 is tiny compared to some of the other ponds. So that pond, I'm expecting in the next 3 months will continue to fill. Obviously, to the seepage question, we've been monitoring the seepage in the ponds. And I'm happy to share with you that the -- any seepage in those ponds, particularly in the ones we filled at the beginning of -- or about 12 months ago, the seepage has completely stabilized in those ponds. So the natural prices of where I mentioned the impurity is dropping out, my expectation is when pond 9 gets to its required density and those natural impurities drop out, then that will continue to, I guess, get that pond into the right production capacity and allow it to operate as it should. And my final point on that would be is that these ponds are based in mudflats. So mudflats, of course, creates a natural boundary to the seepage of those ponds. Tammie Miller: Thank you. Steve, assuming you go ahead with producing SOP, will this be funded by debt or equity? And what would the timing and magnitude of the capital be that's required? Steve Fewster: Yes. So we frequently say the CapEx is probably somewhere between $150 million and $200 million, and the work that the SOP team will help inform the ultimate value of that construction. In terms of the funding, by the time we complete the pilot trials, select a design and they need to fund that construction, we would fully expect that the salt business would be generating free cash flow. Our business that generates free cash flow has a wide range of options to be able to fund that. So I think we'll be -- we'll have very, very flexible options at the time when we need that funding. Tammie Miller: Great. Thank you. David, can you comment on the status of the dredging sea dumping approvals and how they are tracking? David Boshoff: Yes, absolutely. So the -- I mentioned in my -- one of my remarks that we've progressed to the next stage. So last week, we had the EPA Board meeting for the state approval. We're currently in the consultation phase. So we received our draft conditions that included sea dumping among other tweaks in our conditions. The team is expected to respond to that today. Then that is still on track to receive our approval from the state for those conditions well ahead of our April commencement date for dredging that we spoke about earlier. On the federal side, we're also in the conditions consult period. That condition has currently been drafted, and we expect those provisions to be with us somewhere next month. And again, that team is tracking on time ahead of that April due date. So I'm pleased to say that those things are progressing, and we will have to continue to work hard that we deliver on those approvals as we did for the groundwater management plan and the other approvals in the past. Tammie Miller: Thank you, David. So at what level of strength has the pier jetty being constructed to withstand what level of a cyclone? David Boshoff: Yes. Our design specifications for the port has been a one in 500-year rain event. That, of course, is quite superior to many other ports, but is the design requirements that we've set for the construction contractor. So one in 500-year will certainly stand, I guess, the test of time. Also, it can also do a category 5 cyclone. So there are some tie down procedures for the conveyor belt itself, but the structure is designed for voluntarily above that. Tammie Miller: Thank you. That concludes our questions. David Boshoff: Thank you, everyone, and we'll see you next quarter. Steve Fewster: Thank you.
Operator: Good morning, everyone, and thank you for joining us today for Old Second Bancorp, Inc., Third Quarter 2025 Earnings Call. On the call today are Jim Eccher, the company's Chairman, President and CEO; Brad Adams, the company's COO and CFO; Darin Campbell, the company's Head of National Specialty Lending; and Gary Collins, the Vice Chairman of our Board. I will start with a reminder that Old Second's comments today will contain forward-looking statements about the company's business, strategies and prospects, which are based on management's existing expectations in the current economic environment. These statements are not a guarantee of future performance, and results may differ materially from those projected. Management would like -- would ask you to refer to the company's SEC filings for a full discussion of the company's risk factors. The company does not undertake any duty to update such forward-looking statements. On today's call, we will be discussing certain non-GAAP financial measures. These non-GAAP measures are described and reconciled to their GAAP counterparts in our earnings release, which is available on our website at oldsecond.com on the homepage and under the Investor Relations tab. I will now turn the call over to Mr. Jim Eccher. Sir, the floor is yours. James Eccher: Okay. Good morning, everyone. Thank you for joining us. I have several prepared opening remarks. I will give you my overview of the quarter and then turn it over to Brad for additional details. I will then conclude with certain summary comments and thoughts about the future before we open up to questions. From a GAAP perspective, net income was $9.9 million or $0.18 per diluted share in the third quarter of 2025. Return on assets was 0.56%. Third quarter 2025 return on average tangible common equity was 6.16% and tax equivalent efficiency ratio was 64.46%. As expected, a lot of noise this quarter. Third Quarter 2025 earnings were significantly impacted by the July 1 completion of our acquisition of Bancorp Financial and its wholly-owned bank subsidiary Evergreen Bank Group. Adjusting items impacting net income for the third quarter of 2025 include the following: as it relates to the Evergreen acquisition, we had day 2 provision on non-PCD loans of $13.2 million pretax or $0.19 per diluted share. We also had acquisition-related costs of $11.8 million pretax or $0.17 per diluted share. We also had a $389,000 MSR mark to market losses pretax or about $0.01 a share and $430,000 of BOLI death benefit proceeds recorded due to the death of retired executive, also $0.01 a share. Excluding all adjusting items, net income for the third quarter of 2025 was $28.4 million or $0.53 per diluted share. The quarter included favorable impacts of the Evergreen acquisition with a net interest margin as $1.3 million of loan purchase accounting accretion was recorded, partially offset by additional core deposit intangible amortization of $233,000 and time deposit fair value amortization of $227,000. Net purchase accounting accretion income will be a very small contributor on a go-forward basis especially relative to the size of the acquisition itself. The bulk of loan fair value adjustments were concentrated in the solar loan portfolio, which featured a very low contractual coupon. Market conditions warranted holding on to the solar book. On a core basis, profitability at Old Second improved and perhaps somewhat surprisingly, tangible book value increased this quarter despite the impacts of the acquisition. The tangible equity ratio declined by only 42 basis points from last quarter from 10.83% to 10.41% but remains 27 basis points higher than the like period 1 year ago. Common equity Tier 1 was 12.44% in the third quarter, decreasing from 13.77% last quarter, but a decline of only 42 basis points from 1 year ago. With the relatively team level of capital dilution despite the usage of $49 million of cash consideration, we now expect an earn back period associated with Evergreen to be significantly shortened from the 3 years estimated at announcement. Our financials continue to reflect exceptionally strong net interest margin at 5.05%, that is a 20 basis point improvement from last quarter and 41 basis points year-over-year on a tax equivalent basis. Pre-provision net revenues increased from both loan growth and acquisition impacts. The total cost of deposits was 133 basis points for the third quarter compared to 84 basis points for the prior linked quarter, and 92 basis points for the third quarter of 2024. For the third quarter of 2025 compared to last quarter, tax equivalent income on average earning assets increased $28.8 million while interest expense on average interest-bearing liabilities increased $10.3 million. The loan-to-deposit ratio was 91.4% as of September 30, 2025, compared to 83.3% last quarter and 89.4% as of September 30 of last year. I'll let Brad talk about this more in a moment. The third quarter 2025 reflected an increase in total loans of $1.27 billion from last quarter, primarily due to $1.19 billion of loans acquired with Bancorp Financial. Tax equivalent loan yields reflected a 67 basis point increase during the third quarter of 2025 compared to the linked quarter and a 47 basis point increase over the quarter year-over-year. The increase in yield is primarily a function of higher yielding consumer credits we recorded as part of the legacy Evergreen Powersport portfolio. Asset quality softened modestly this quarter, nonperforming loans increased only modestly, but classified assets increased $38.4 million. In general, our collateral position is very good on these downgraded credits. Provision levels relate to earnings to ratings changes primarily within the C&I portfolio as certain industries has softened, most notably, transportation and warehousing. Our office and CRE portfolios remain largely the same in terms of ratings momentum. Importantly, as a percentage of total loans, NPLs, classified and criticized loan levels are a little changed. We recorded $5.1 million of net loan charge-offs in the third quarter with the majority stemming from the Powersport portfolio and a couple of small losses related to collateral values in the struggling trucking and transportation industry. With regards to Powersports, I would say that losses given default are running a little bit higher than we expected. However, loan yields are much higher than expected, and the contribution margin is both above expectations and improving. Due to the nature of the Powersports business, gross charge-offs are anticipated to run at a higher rate than Old Second has historically experienced, especially in a higher interest rate environment like today. This is the nature of what is a very good business. The allowance for credit losses on loans increased to $75 million as of September 30, 2025, or 1.43% of total loans from $43 million at June 30, 2025, which was 1.08% of total loans. $30.7 million of the increase is associated with day 1 and day 2 allowances recorded on the acquired loans, PCD loans recorded from Evergreen increased the ACL by $17.6 million as of day 1 and the non-PCD loan credit mark recorded to provision expense for day 2 increased ACL by $13.1 million. Unemployment and GDP forecasts used in future loss rate assumptions remain fairly static from last quarter with no material changes in the unemployment assumptions on the upper end of the range based on recent Fed projections. The impact of the global tariff volatility continues to be considered within our modeling. Provision levels quarter-over-linked quarter, exclusive of day 1 and 2 purchase accounting impacts increased $6.5 million, reflecting the new consumer mix in our loan portfolio post acquisition and an increase in historical loss rates as our net charge-offs to average loans increased to 39 basis points for the third quarter of 2025 from 8 basis points in the prior linked quarter. Noninterest income continued to perform very well in the third quarter of 2025 compared to the linked quarter and prior year like quarter. Excluding $430,000 in death benefits on BOLI realized during the quarter of 2025. Noninterest income increased $2.1 million compared to the prior year like quarter as wealth management fees increased $728,000 or 26.1% and service charges on deposits increased $274,000 or a little better than 10%. Mortgage banking income improved in the third quarter of 2025 compared to both the prior linked quarter and prior year like quarter primarily due to the volatility of mortgage servicing rights mark-to-market valuations. Excluding the impact of mortgage servicing rates, mark-to-market adjustments, mortgage banking income increased nominally quarter-over-quarter and from the prior year like period. Other income increased $513,000 in the third quarter of 2025 compared to the prior linked quarter and was nominally lower compared to the prior year like quarter. Total noninterest expense for the quarter was $19.7 million more than the prior linked quarter, $11.8 million of which is related to acquisition costs, including $8.4 million of additional salary and benefits expense based on the addition of Evergreen employees. Our efficiency ratio continues to be excellent as the tax equivalent efficiency ratio, adjusted to exclude core deposit intangible amortization, OREO cost and the adjustment to net income, as noted earlier, was 52.1% compared to 54.54% for the second quarter of 2025. Our focus today is now on effective integration of Evergreen Bank and optimizing the balance sheet for its impact. We did sell the bulk of the acquired securities portfolio just after legal close. Brad will talk about that. And we continue to reduce reliance on wholesale funding as we allow the legacy Evergreen brokered CDs to run off. I'll now turn it over to Brad for additional color. Bradley Adams: Thanks, Jim. I've got a lot less work than Jim, a lot less fancy ones, too. I'll be relatively brief today. I know people have some questions here. Net interest income increased by $18.5 million or 29% to $83 million for the quarter ended September 30. It's relative to $64 million last quarter. It's also up 37% from the year ago quarter. Tax equivalent loan yields increased by 67 basis points. Obviously, that's reflective of the change in the portfolio composition with the addition of Evergreen and securities yields was effectively flat in the third quarter compared to last quarter. Overall, total yield on interest-earning assets increased 66 basis points. Cost of interest-bearing deposits increased by 61 basis points, again reflecting the addition of Evergreen and total interest-bearing liabilities increased by 60 basis points. The end result of that was the 20 basis point increase in the NIM that Jim mentioned, we're now at 5.05% for the quarter ended. That's up from 4.85% last quarter. Obviously, we feel like this continues to be the exceptional margin performance. The NIM relative to last year is up 41 basis points. I think that's a trend that's a lot different than people may have expected from us given the decline in rates that we've seen so far. Average loans increased $1.26 billion or 32% over the linked quarter. Averaged deposits increased $1.08 billion or 22%. In addition to that or underlying that, we had organic loan growth of $72 million in the third quarter compared to balances at the prior end. I guess I should say here that Evergreen doesn't really look like the deal that I had spent for the last 2 years preparing the balance sheet to absorb, it was far less dilutive to capital than the generic deal I had in my mind, but it will also be far more accretive when all is said and done. The net result of my wrongness is that we are both far better prepared for falling rates than I expected to be and far more profitable. This is the kind of wrongness that I can rally behind by the way. As we sit here today, the balance sheet remains prepared to capitalize upon strategic opportunities that may arise. I would note that systems conversions related to Evergreen are complete as of 2 days ago. And at this point, it appears to be the best we have ever done. The net interest margin is above 5%, and we're doing enough, I still feel really good about it. Capital will build quickly from here, but return on TCE is at very strong levels approaching 17%. Tangible book value per share is $13.51 and earnings have positive catalysts to push substantially above the $2 run rate over the last couple of quarters. This is all relative to a stock price that is of $18. I'll let others do that math. But it is top decile performance at this point for Old Second. Some had expressed concern that Old Second had failed to find growth opportunities in the last year or 2. I believe we have found it the right way. This is a highly cyclical industry and growth opportunities don't always come in a straight line. But if you look back over the last 7 years, our earnings per share are up 4x in terms of run rate. That's relative to a 3x growth in the bank over that same time frame. I'm really proud of how we've managed that growth. Over the last 5 years, we have more than doubled not only the size of the bank, but also earnings per share. We also just announced a 17% increase in the common dividend. At this point, we are also well reserved for our new business mix and prepared for any economic environment. Noninterest expense trends reflected Evergreen deal costs as expected. Operating costs increased $20 million over the prior quarter and $8 million, excluding acquisition costs. Much of this increase is the result of the larger bank requiring more workforce facilities and operating expenses in general. Noninterest expense is running higher year-over-year, again, due to the same reasons. Also included is the 5 branches that we acquired in late 2024 from First Merchants. Overall, we are hopeful that we can keep core expense growth in the 4% area ended 2026, exclusive of the impact of Evergreen. Much of that relates to increases in human benefits expense, particularly insurance, which we're running solidly into the high teens in terms of our expectations at this point. Cost saves related to Evergreen are still to come. We are extremely excited about how the conversion has gone and optimistic that we can achieve those ahead of schedule. I'm sure, as I said, there are a lot of questions, we've got a lot going on this quarter. What I would like everyone to know that relative to my personal baseline anyway, I'm in a really good mood. With that, I'd like to turn the call back over to Jim. James Eccher: Thanks, Brad. In closing, we're very confident in our positioning, extremely excited what Evergreen Bank transaction will add to our pro forma company with the completion of our Evergreen acquisition, data conversion and the full onboarding of the Evergreen team. We're very optimistic about the remainder of 2025 as we welcome new team members and product offerings. The 17% increase we just announced with our quarterly dividend of $0.07 a share is reflective of our continued confidence in the performance of Old Second in the markets we serve. That concludes our prepared comments this morning. So I will turn it over to the moderator and we can open it up to questions. Operator: [Operator Instructions] Our first question is coming from Terry McEvoy with Stevens. Terence McEvoy: I want to keep Brad happy here. So I don't want to use any fancy words. I guess within the press release, you talked about kind of potential runoff of exception price deposits, could you just maybe expand upon the amount when you kind of see that naturally rolling off? And is it the -- is it your view that those will be replaced with more legacy Old Second types of deposits? Bradley Adams: So I would say we've probably got a couple of hundred million dollars in what I would call pure market priced funding at this point. You can see that in its impact in overall pricing. It will be an ongoing battle. We had alluded prior to that we would like to get back to Old Second type funding. That's obviously exceptionally difficult to do organically, if not impossible. We are interested in acquiring additional deposits. Fortunately, for us, we have the balance sheet and now both the operational capacity to do that. It doesn't have to be big to make a big difference. Obviously, you can see the power of what Evergreen has added from an earning asset perspective. I have no problem with taking some of the liability sensitivity off the table that was added at the margin. It's about being the best bank you can be. And it's not that difficult for us to get even better. So yes, we would look to replace that over time. I think it's probably a 6- to 12- to 18-month type look to get that back to what we looked like before. James Eccher: Terry, surprisingly, excluding the brokered and high-yield money market runoff, we were very pleased to see that actual core deposit funding at Evergreen actually expanded in the first quarter, which was great to see. Terence McEvoy: Okay. And then as a follow-up, thank you for Slide 8 in that disclosure presentation. When you think about future originations in Powersports, is the focus diversified across that Tier 1 through 5? Or is there a bias towards maybe the 1, 2 or 3 tier given kind of the risk profile there. Darin Campbell: Terry, this is Darin Campbell. Yes, I mean, our focus is to originate all those tiers, but historically, we've been doing this for 30 years. We've been in the top 2 tiers, 75% or better. And we'll stick with that policy going forward. And if there's a change economically, we would even tighten up a little bit more at the lower end to drive more to the top end, but right now, we feel good about that mix. Terence McEvoy: And maybe since on this topic, I'll squeeze in 1 last one. Those Powersport fees that were somewhere in the release, what's a typical kind of quarter look like or yearly run rate? Is there any seasonality there? And just kind of help me understand the nature of those fees. Darin Campbell: Yes, the fees in that Powersport business could be payment fees, they could be a late fee, and that's consistent throughout all 4 quarters. Fee income would be consistent. Originations happens in the second and the third quarter, your biggest origination month with a little bit of runoff in the first and the fourth quarter, but fee would be consistent across every quarter. Operator: Our next question is coming from Nathan Race with Piper Sandler. Nathan Race: Sorry about that guys. Brad, I appreciate the commentary on 4% legacy Old Second growth expectations going forward. Just curious if you can kind of frame up kind of where you see the run rate over the next quarter or 2 as you get some of the cost saves from the acquisition and just in light of that legacy growth expectation. Bradley Adams: So I think it's basically -- my hope is that it's basically a wash between those 2 because I'm just really about making your life as easy as possible, Nate. I know you've got a lot going on with new family members being added and whatnot. So I want to make sure that you've got time at home to wake up at 2 in the morning with a baby. Nathan Race: So it sounds like it's pretty stable from kind of the core run rate right around $52 million in the third quarter. Bradley Adams: I believe that will be pretty darn close. Yes. Nathan Race: Okay. Then a bunch of moving pieces on the margin. You obviously exceeded kind of which you were thinking last quarter. Curious if you can kind of just frame up overall kind of margin expectations just in light of what you brought out with the higher-yielding book at Evergreen and then also how you see yourself positioned from a margin contraction perspective these days with additional Fed cuts on horizon? Bradley Adams: That's tough, right? Because it's not only at the absolute level of rates, it's actually the speed of NIM and what happens in terms of the overnight index swap rates, it's complicated. And you can be really wrong in terms of what you're saying with Fed fund rate not even changing. I would say this. I would say that 2 years ago, the bottom margin in a 0% rate world for Old Second probably looked like something around 3.80%. I do not believe that there's any scenario where we can go back to a 0% rate world, and we can get into a very nerdy macro discussion about why that is, but I'd rather not. But I would feel like the bottom margin for Old Second at Fed funds rate around 3% does not go below 4.50% by any stretch of the imagination and may not even threaten it. It's a different ball game now. I am very optimistic about how much money we can make even as short rates fall. James Eccher: Yes. I mean I think what we're really encouraged about with Evergreen, even in rapidly declining interest rate environment. Coupons on the Powersport portfolio will still remain relatively robust, where we maybe print new business in the 9%, 9.5%, even when rates were 0, Darin was able to still achieve an 8% coupon. So we think that's really going to help us in a down rate scenario. Nathan Race: Okay. Great. And then just thinking about the charge-off trajectory from here. I appreciate a bulk of the charge-offs were tied to the solar book and just the components around the Powersports vertical. I think last quarter, Brad, we were talking around 30 basis points of charge-offs on a combined basis. Any thoughts on just kind of the go-forward outlook. It doesn't seem like there's much loss content expected with a couple of the legacy Old Second loans that moved to nonperforming in the quarter, but would just appreciate any updated thoughts there. Bradley Adams: The movement in the nonperformers was almost entirely administrative. No real trend there to speak of. The movement in terms of classified, I would say that the substantial majority so call it, 2/3 is exceptionally well collateral protected even if things are poor. I would say that there is some level of risk on $10 million to $15 million of it, but I'm exceptionally optimistic that things will go the right way on that and may very well soon. Just in the last 3 weeks, nonperformers are down pretty significantly from what's in this print even. So I am not overly concerned about credit. As it relates to Powersports, losses this quarter are a little higher than we had modeled. But as Jim mentioned, the yields are much higher. I'm not really concerned whether losses are $150 million, $120 million or $175 million given the net contribution margin of this business. I also understand that consumer recessions, which I do believe we were in -- we are in or right on the doorstep of tend to be very shallow and very short. So I don't really care. The business is that good. So this 30 basis points feel right for both a near, intermediate and long-term loss rate for Old Second, probably. Operator: Yes. Our next question is coming from David Long with Raymond James. David Long: Brad, you had mentioned expense growth in 2026 briefly. And I think you mentioned 4%. Was that inclusive of Evergreen in those numbers, I didn't... Bradley Adams: No, it was not. David Long: That's before the Evergreen impact, you're saying? Bradley Adams: Yes. And Evergreen impact will be no impact with cost saves offsetting certainly the inflationary impact. I don't think you're going to see a lot of trend in expenses for us, to be honest, with significant inflation that's present in employee benefits expense largely being absorbed by cost save realization. David Long: Got it. Okay. And then on the growth side, can you talk maybe about what you're seeing in your just core commercial loan pipeline and what your hiring prospects are. And if there is an appetite to still bring in some incremental lenders there? James Eccher: Yes, obviously, a really good quarter this quarter, Dave, I think it was our best quarter in 2.5 years as far as organic growth. Pipelines are still pretty robust, probably at a 2-year high. So normally, the fourth quarter is a lighter quarter for us, but we're -- unless we see unusual paydown and payoffs. I think we've guided to a low single-digit growth rate in '25. I think that's still achievable. As far as looking for additional talent, that is something we always budget for and something we are always open to, particularly in the C&I world. But we have the team in-house to be a pretty consistent low to mid-single-digit growth in a normal environment. David Long: Got it. And then specifically to the sponsor finance team, what does the pipeline look like there? And is there still capacity to add people? James Eccher: Yes. That group obviously has been very high performing. The first half of the year was very soft in that industry. I think you had a lot of sponsors on the sidelines waiting for some certainty around the economy and tariffs starting in the beginning of the third quarter, we saw pretty significant growth. We expect the fourth quarter to be very meaningful. This is approved that's consistently generated between $150 million and $200 million in originations a year, might be a little softer this year, but they will have a very big second half of '25. Operator: Our next question is coming from Jeff Rulis with D.A. Davidson. Jeff Rulis: You guys touched on the credit to a degree. I wanted to ask about the acquired problem loans there. Is there any kind of low-hanging fruit or credits that have a quick resolution in place. Just trying to think about the balances of what was brought on? And do you think under your purview that maybe you could see a portion of that move along pretty quickly? James Eccher: Yes. Good question, Jeff. I mean actually, timing didn't really work for us this quarter. We had about $10 million in resolved remediation right after the quarter so that -- we're hoping, obviously, to get that in, in the third quarter is going to provide a pretty nice tailwind for us in the fourth quarter. A couple of the acquired loans were actually shared participations that we had with Evergreen. So it's just added to our existing classified list. Most of the additions to the classified are really companies that have been burdened in the trucking and transportation and logistics industry that just having the general slowdown due to macroeconomic factors. Cash flow is a little tight, but as Brad alluded to, our collateral position and most of these is exceptionally well and a lot of them backed by SBA 504 deals. So we'll continue that to have resolution on some of these into the fourth quarter, but we still feel very good about credit. Jeff Rulis: Great. And then maybe 1 other -- one last one just on obviously focused on integrating and getting this deal done, but your thoughts on any additional M&A that I think Brad sort of alluded to, certainly we look at deposit heavy or something focused in that arena. But if you could just sort of give us an update on where you're at on potential acquisitions, if any. Bradley Adams: So this is 1 of those questions where I wish the people who work here couldn't hear what I'm about to say because I just watch people sleep on couches all weekend, and I really don't want to scare them. But from a balance sheet perspective, we're ready. It's nice to have this integration done so quickly after the close. It's certainly nice not to have had what appears to be no significant customer disruption. A couple of one-offs here and there. But all in all, we've done a pretty darn good job. So I don't want to scare anybody who works here, they've done an exceptionally good job and worked really hard to do that. But from a finance perspective, we look really good right now. Jeff Rulis: And Brad, the aim would be, if you are ready -- again, would you kind of lean into the deposit would be a focus in market, what would... Bradley Adams: It always is. The Evergreen was the unusual one here. It's not very often that you get a chance as a community bank to acquire an asset generation business that is attractive. So obviously, that's exceptionally exciting to us. But in general, our M&A strategy is entirely focused around the liability side of the balance sheet, and we are usually an organic grower from asset generation standpoint. Operator: [Operator Instructions] Our next question is coming from David Konrad with KBW. David Konrad: Brad, I thought maybe another follow-up question on the NIM. You guys are helpful on the asset side, but wondering with Evergreen deal, you actually now have a little bit of room. So I was just wondering your thoughts on the deposit beta now versus you guys and other cycle over the next few quarters, what you get on a deposit beta? Bradley Adams: We're going to see some CD runoff over the next few quarters. We're going to see overnight borrowing rates pick up. So in terms of our liability sensitivity, it will increase, which obviously helps with sensitivity to forward rate cuts. You'll see the loan-to-deposit ratio will probably continue to pick up over the next few quarters until we get a chance to remix the funding a little bit. So that will help with margin sensitivity in the expected current interest rate environment. I have no issue with the loan-to-deposit ratio moving slightly higher ahead of any strategic opportunities that may present themselves. I am very happy with where we sit from a rate positioning standpoint now. David Konrad: Okay. Great. And then switching gears a little bit. Just want to talk a little bit about wealth management. I thought it was a really strong quarter. I don't know if Evergreen really helped that much into the quarter, but good sequential quarterly growth there and just wanted an outlook in the wealth management business. James Eccher: Yes, exceptionally strong quarter wealth at north of a 25% increase in fees. The team has done a great job of bringing in new assets under management. Generally, this is a pretty slow growth business. I mean, normally, we're pretty happy with 3% to 4% growth in revenue, but we've made a couple of key hires over the last couple of years and new assets under management have gone up exponentially. Obviously, the market has also helped drive additional income as well. But we like that business. We'd like to continue to growing. Operator: Our next question is coming from Brian Martin with Janney. Brian Martin: Jim, can you talk a little bit about or just give a little thought on just the loan growth outlook just in terms of what you think is sustainable? I guess I know you talked about maybe some of the seasonality where it's at, but just now that you kind of have the acquisition in hand, how should we think about that over the next 12 months or so in terms of what you think is sustainable longer term? Bradley Adams: Normally, I would tell you, the fourth and first quarter are going to be pretty soft. I can't tell you what the first quarter of next year is going to look like. But based on our third quarter pipelines, we feel pretty good that the fourth quarter is going to net some meaningful growth. We're seeing pretty good pipelines and sponsored and good pipelines in investment commercial real estate and some C&I growth. So our leasing group continues to be very consistent. We've got some opportunities in health care. So I still feel really good about low to mid-single-digit growth heading into '26. Brian Martin: Got you. Okay. And just jumping back, I think outside of the M&A with the capital, just the buyback, what your thoughts are there on, I know you talked a little bit about your opportunities as Brad did on M&A, but just in terms of how you're thinking about the buyback. Any thoughts there? Bradley Adams: It is open and on the table. Brian Martin: Okay. Would you -- I mean, given the valuation, is that more of a priority than M&A at this point or? Bradley Adams: It depends on what the M&A looks like. I can tell you that very few deals are as priced as well as our stock rate now in my mind. Brian Martin: Okay. And then just on the -- I know you talked about the charge-off outlook or just how we should think about that. Just in terms of where the reserves are today, would you expect to just kind of maintain absent some change in economics in -- macroeconomic outlook that reserve level around the 140-ish level, is that something you would expect to maintain? Or should we see that move down a bit or up? James Eccher: Yes. Brian, I think what you need to understand, as it relates to Powersport, once a loan that's 120 days, it's a full charge. And we obviously move to recovery. So we will be carrying a higher reserve in this 140 range is probably where we'll tend to manage it to. So yes, you'll see a higher reserve going forward. Bradley Adams: It can't come down over time as loss rates. Actually, I think it will come down over time because I think the loss rates are high. Right now being at least on the doorstep of the consumer recession. It also helps if we've got loss history of our own experience going forward and we can refine it going forward. But make no mistake, I believe we are very well reserved at this point. Brian Martin: Yes. Got you. And Brad, just I know, I guess, on the margin, there's a lot of moving parts here, I guess. But in terms of the biggest drivers of the margin at this point? And it sounds as if we do get a couple of rate cuts, the margin may not even go lower. So just trying to understand the biggest drivers. I know you could be really right or really wrong, but just in terms of the biggest impact on the margin here as we think about directionally, where it's going to go, what should we be watching there? Bradley Adams: SOFR, I mean it's always about SOFR. Obviously, it didn't go down even though SOFR took a nosedive with the change in terms of the expected rate cuts over the 6-month horizon. So that's pretty darn powerful. I would say the actual realized rate cuts will have a negative impact. I had spoken in the past that each kind of 25 basis points felt like at one point, it was 7, and I started to realize how wrong I was and that kind of became 4 to 5. And I guess that's still kind of what it feels like, it may be less. It's a bit of a different game now. But as I said, you can look wrong after we hang up this phone, all of a sudden, SOFR takes a 20 basis point dive. And I look like an idiot, it's not really my fault. So it's a difficult game. Brian Martin: Okay. But you -- it sounds as though you would not expect a lot of movement on the margin just in general. Bradley Adams: I don't, I don't. You put me on the spot now to take a guess. I'm guessing flat. Brian Martin: Yes. That's what it sounds like. It didn't sound like I'm not asking up or down just more or less, not a lot of movement one way or the other right now. So I appreciate the taking a stand... Bradley Adams: I don't know about you, Brian, but I haven't seen a lot of 5% margins in my 25 years doing this. So. Brian Martin: No. You guys are in a great spot. So it was a great spot before the deal, it's even better now. So I appreciate that. And Brad, maybe just 1 last one for me. On the profitability, I mean, given it sounds as though everything is better than when we looked at it before the deal got done. And if a couple of quarters ago, you were maybe thinking that the profitability for Old Second could be in the 150 ROA type of level as you go into next year. It feels like that could be higher today given the performance and what the deal has done thus far better than expected. Is that fair in terms of kind of what you're thinking then versus now the performance you're seeing? Bradley Adams: Yes. I wouldn't want to engage in a fistfight if you try to convince me of that. That's certainly the case. Operator: Thank you. As we have no further questions on the line at this time, I would like to turn the call back over to Mr. Jim Eccher for any closing remarks. James Eccher: Okay. Thanks, everyone, for joining us this morning. We appreciate your support and interest in the company. We look forward to speaking with you again next quarter. Goodbye. Operator: Thank you, ladies and gentlemen. This does conclude today's call. You may disconnect your lines at this time, and we thank you for your participation.
Operator: Good morning, and welcome to the investor and analyst call for LSEG's Third Quarter 2025 Trading Update. [Operator Instructions] I would like to remind all participants that this call is being recorded. I will now hand over to David Schwimmer, CEO of LSEG, to open the presentation. Please go ahead. David Schwimmer: Good morning, everyone. Thanks for joining the call. I'm here with MAP and Peregrine as usual, and we are also joined by Daniel Maguire, our Head of Markets, to talk about the Post Trade transaction that we announced this morning. For this quarter, we're going to take a slightly different approach from a normal Q3 given the intense debate in recent months around our business and AI. I'll cover some key aspects of our AI strategy and the excitement we have about the current opportunities, before MAP goes through the Q3 numbers, and Dan covers the Post Trade transaction. Then, of course, we'll be happy to take your questions. It has been a really busy quarter with great progress on several fronts. Group organic growth continues to be very healthy at 6.4%, with D&A growing at 4.9%, similar to the first half. ASV growth came in at 5.6%, a little better than expected, and we anticipate it being better again in Q4. We're raising our margin guidance to the top of the original range at around 100 basis points of improvement, reflecting strong operating leverage and cost control. As you may have seen, we've launched a number of AI-related partnerships involving our data, which is valued and relied on by partners old and new as industry standard. We've announced an important transaction today that creates a strong partnership and aligned incentives for the adoption of Post Trade Solutions while also increasing our revenue share from SwapClear and extending the profit-sharing arrangement with our partner banks by 10 years. More on this in a few minutes. And on the share buyback that we announced at our half year results, the original intention was to complete that by mid-December, but we've taken advantage of a lower share price and accelerated the GBP 1 billion buyback to finish by the end of this month. And we're today announcing a further GBP 1 billion buyback to be completed by our full year results in February of next year. Our strong cash generation gives us the firepower and the flexibility to invest organically to make important strategic moves and to be active in returning cash to our shareholders. On the next slide, we have summarized our LSEG Everywhere AI strategy under 3 key pillars: trusted data, transformative products and intelligent enterprise. We'll talk more about those second 2 at the Innovation Forum in November. But let me take a minute or 2 to dive into our data and the critical and valuable role it plays now and will play in an AI-rich world. The easiest way to think about our data is that the content itself and access to it is effectively financial markets infrastructure, something we know a lot about. It is industry standard, deeply trusted, embedded in highly regulated customer workflows and supported by processes and infrastructure that are extremely hard to replicate. And we are and always have been open. We deliver data to wherever our customers want it, their screens, their servers, their cloud and, of course, through third-party providers. Let's unpack this over the next few slides. Data & Feeds accounts for a little over 1/5 of group revenues. On this slide, we've broken down these by data type. But before we get into that, I want to remind you of the scale of our data. It is the largest pool in the industry, both in terms of breadth and depth. We have over 33 petabytes of data. That is over 3x the so-called common crawl, the data set formed from the public Internet, which is used to train many LLMs. Let's begin with the 45% of our Data & Feeds revenue derived from real time. This is a business built on physics, not probability. We've built connections to 575 exchanges and execution venues globally with our own infrastructure. In the blink of an eye, we standardize and translate the exchange outputs into a single common language and deliver them directly into the world's financial institutions. Millions of hard facts per second, not probabilistic algorithms. In a nutshell, AI cannot replicate or replace our real-time data. Then we have 25% of our Data & Feeds revenue, which is specialized and enhanced by our own enrichment. By specialized, we mean proprietary. Think Tradeweb fixed income pricing or exclusive like the Reuters News agreement or contributed like our deals database. So an LLM could not access these data sets through public sources. And then on top of that, we are enriching this data with value-added enhancements and augmentation by our data experts. That is our additional value add. And then that all comes with the LSEG curation standards, accuracy, normalization and tagging. So think of this data as protected by 3 moats. It is either proprietary or exclusive. It is enriched by our own intellectual property, and it is curated, applying the LSEG standards, which have often become the industry standard. Let me give you an example to bring this to life. Our deals league tables are highly valuable to banks, advisers and law firms. These league tables are widely considered the industry standard with LSEG data obtained daily from thousands of sources co-mingled with data sourced from nearly 2,000 financial and legal advisers actively contributing their deal flow. We get up to 25,000 of these contributions per month. This input, which is from humans, is crucial to the quality, accuracy and completeness of this data. These contributions clarify and correct deal details that appear in the press. They also add additional information to public deals and supply information on other deals that are not reported anywhere. So a data set built solely on public disclosures would be both inaccurate and incomplete. We further enrich this data with our proprietary calculation of rank value, which sets the standard for deal comps, market share and pitchbooks around the world. We refine this methodology each year through roundtables with advisory firms. So in case anyone is missing the point, no LLM can gather this data from public sources, 3 moats, LSEG proprietary or exclusive data, enriched by LSEG IP and curated by LSEG, applying the LSEG standards. Let's move on to the next bucket, representing 10% of Data & Feeds revenues. It is almost exactly identical to the previous bucket. It is specialized data, proprietary, exclusive or contributed, with LSEG standards applied. So not accessible by an LLM through public sources, our aftermarket research, for example. And to carry on the analogy with the moats, this is data protected by 2 powerful moats. Next is another 10% of revenue from data that is indeed public, but to which we apply our enrichment and analysis, similar to what I was talking about with customer contributions on the league tables. And we also applied the LSEG curation standards. Examples here would be earnings estimates and sentiment analytics applied to earnings calls and other sources. So can an LLM access it? Yes, but the data will be incomplete. Here, it is 2 moats applied on public data. So 90% of our revenue is from data that is nonreplicable by an LLM. That leaves us with the last 10% of Data & Feeds revenue, which represents the data derived from public sources for which we apply LSEG curation standards, data like company filings or economic metrics. This data is rarely sold on a stand-alone basis. Here, there is still one moat, a powerful and important one, and that is our standards, which I will cover on the next slide. Now that we've established that 90% of Data & Feeds revenue is from data that is simply out of reach or inaccessible to an AI model trawling for public data. Let me take a minute to explain very concretely what I mean by that third moat, the LSEG data curation standards. There are 5 major processes in the curation of LSEG's high-quality trusted data, which are simply nonnegotiable for our customers in regulated activities. These 5 processes are the foundations of what we call the LSEG standards. Let's look at them in a little bit more detail. We do not build our data sets on probabilistic models. We have constructed them from decades of hard data, much of which is no longer retrievable. We source them from our customer community with over 40,000 customers contributing regularly. And in many cases, our own analysts and experts generate them internally. So that is sourcing. We then extensively cleanse and validate this data to ensure quality, for example, verifying its accuracy and completeness. Publicly sourced data is not reliable without this step. The third step, normalizing and mastering means creating a single source of the truth, consistent from year-to-year and from security to security, factoring in corporate actions, for example, or restatements or perimeter changes. And then concordance and tagging, which is a critical and differentiated step. This is where the universal symbology of the RIC or Reuters Instrument Codes and our use of perm IDs to tag each piece of data are so powerful. They allow full interoperability across the data estate and create logical semantic relationships between related data, for example, between a company and its directors or a bond it has issued. And the fifth step, distribution. Irrespective of technology platform, data format or channel, the data we distribute to customers is consistent and authoritative. I'll talk more about our distribution strategy in a couple of minutes. So to summarize, for those who think AI models can scoop up so-called public data from the Internet and displace us, that just does not reflect how this industry works and fundamentally ignores the nonreplicable nature of the vast majority of our data. There's also been a lot of focus on our Workflows business. We have driven a lot of change here over the last 4 years and now have our customers on a modern, modular, customizable platform where we enhance functionality week in and week out, and we're doing more and more. As we said at H1, it is not AI or a desktop. It is AI in the desktop, fully embedded in financial markets workflow. Workspace is now integrated with Microsoft Teams. We'll be launching Open Directory in the coming weeks and the full Workspace AI platform in the first half of '26, with Agentic tools coming as well. You'll see all of this at the Innovation Forum in a couple of weeks. So let's look at our Workflows revenue, the same way we did for Data & Feeds. 50% of workflows revenue comes from traders who are deeply engaged with the platform to execute their roles. They need real-time data, a network community and integration with a range of pre- and post-trade tools. Further 20% of Workflows revenue comes from ancillary trading services, such as trade routing and order execution and management. Another 15% comes from investment banking, where we have specialized content across deals, corporate actions and research, as well as integrated productivity tools. That leaves 5% of Workflows revenue from wealth and 10% from investment management. These customers benefit from our unrivaled data, exclusive Reuters News and portfolio analytics. But in these groups, there are lighter users who are mainly doing desktop research and basic charting, perhaps like many people on this call. Whether someone is a power user deep in trading workflow or a lighter user, all Workspace users will benefit from the significant AI and collaboration enhancements coming over the next few months. They will have the full functionality of some of the newer applications out there, but embedded in their existing workflow and based on data they can trust. Now over the last couple of months, you can see the pace of execution on LSEG Everywhere, delivering our data to where our customers are working as the partner of choice for financial markets data. This is no change in strategy. We have long provided data to and distributed data through our customers -- I'm sorry, our competitors and partners. For example, we are the #1 data provider to Aladdin. The industry now has new entrants, building new applications and functionality, which we believe can expand our reach and drive additional consumption of our trusted high-quality data. The economics of these deals support our growth aspirations through data licensing, new channels and the potential for usage-based revenue over time. Rogo is a specialist provider of applications to investment banking and private equity. Customers with Workspace licenses can access certain LSEG data sets through Rogo. The construct with Databricks is similar. These are attractive new distribution channels for our data. Just last week, we took a major step forward in our partnership with Microsoft, introducing certain data sets into Copilot for any Copilot subscriber, and more valuable data sets, both into Copilot and Copilot Studio for LSEG licensees. This will allow customers to build their own agents working with our data. You should expect the list of partners to continue to grow as we look to distribute our data through other major channels. That's the fundamental premise of LSEG Everywhere. A key part of many of these partnerships has been our ongoing build-out of MCP servers as we make more and more data sets available over time. Before I hand over to MAP, it has also been a very busy quarter in other parts of our business. Just to highlight a couple of significant developments. With Microsoft, we have fully replatformed our trade routing network, Autex, in Azure with Autex now connecting 1,600 brokers and asset managers via the cloud. As a result, it's faster, has much greater capacity and is even more resilient. And we have executed the first transaction on our Digital Markets Infrastructure, which is positioned to become an important new capability for trading and settlement. We're preparing to launch our Private Securities Market. More on that at the Innovation Forum. And in Risk Intelligence, we have launched World-Check On Demand with all our critical data and insight now updated in real time. That takes me appropriately to our innovation forum in a couple of weeks. In the first part of the event, MAP and I will cover our unique positioning, our end markets and execution to date. Irfan Hussain, our CIO; and Emily Prince, our Head of AI, will cover our AI strategy and engineering transformation. And then Ron Lefferts and Gianluca Biagini will talk about product strategy and monetization in DNA. We'll then have specific product walk-throughs and demos across the group. We're looking forward to showing you both the present and the future. And just to be clear, this is not a traditional Capital Markets Day. Don't expect any new guidance or anything along those lines. So with that, let me hand it over to MAP to talk about our Q3 performance in more detail. Michel-Alain Proch: Thanks, David. So just a few words on our financial performance. We have delivered another quarter of strong growth across the group. Organic growth for the quarter was 6.4% with all divisions contributing well. We had a benefit of 30 bps from the ICD acquisition of last year and a headwind of 190 bps from FX, which together translates into our reported growth of 4.8%. Within D&A growth of 4.9%, Workflows and Data & Feeds saw very similar growth to Q2 with only a slight impact from the new UBS contract that I mentioned at the H1 results. Analytics continued to grow strongly. The competitive environment is stable, and we are excited about the product pipeline. Our expectation for pricing into 2026 is for the yield to be similar to the last 3 years in the 3.5% range. FTSE Russell, as I indicated at H1, saw slightly slower growth in subscriptions with fewer account reviews in the period. But on the other hand, asset-based fee growth was strong as we lap the loss of a contract last year. Risk Intelligence had another strong quarter, driven by both World-Check and Digital Identity & Fraud. So overall, the subscription businesses delivered 6.5% growth in Q3, ahead of our expectation of 6% for the second half of the year. ASV growth came in at 5.6%, a bit ahead of the 5.4% we had anticipated. Good sales momentum partially offset the expected impact of the final Credit Suisse impact wrapped into the new long-term partnership with UBS. As I have said before, I expect this to pick up again to 5.8% as we exit the year. The Markets business continued to grow well, though at a slightly slower pace than H1 as volatility was lower and comps got tougher. Looking at the 2 main lines, OTC derivative was up 9.2%, driven by continued strength in client clearing volumes in SwapClear, and fixed income was up 9.9% as Tradeweb continued to drive growth through its innovative trading protocols and an uncertain macroeconomic outlook. Elsewhere, we have seen the IPO pipeline pick up in the Equities business with more to come heading into 2026. And we are seeing the final headwinds to growth in Securities & Reporting from the Euronext exit. Moving now to our delivery against guidance. We are absolutely on track and in some respects, ahead of our original plan. Year-to-date organic growth is 7.3%, comfortably within our guidance range, and this remains unchanged. On margin, the natural operating leverage in our business gives us confidence to raise our margin guidance to the top of the range at around 100 bps improvement year-on-year. This is a big step-up for a GBP 9 billion revenue business, and it factors significant ongoing investment in AI and new products. We are very confident of hitting our 2026 guidance of 250 bps over 3 years, taking us to 50% plus, obviously, before the impact of the Post Trade transaction, which I will cover in a moment. On CapEx, we will invest at a rate of 10% of revenue this year as planned and expect that intensity to come down in future years. One or 2 in the market have asked whether we will need to invest more in an AI future. The answer is clearly no. We have been investing at a double-digit CapEx intensity for several years, and we are now switching the mix over time from technology debt payback towards more investment for growth, obviously, including AI. And finally, we have good visibility of hitting our free cash flow guidance of at least GBP 2.4 billion. And finally, let's look at how we are allocating this cash flow. Overall, we are deploying more this year than what we are generating. That reflects the opportunities we see in front of us. So we expect to spend around GBP 3.5 billion versus free cash flow of GBP 2.4 billion. We are financing the difference with new borrowings of GBP 1.1 billion. Total dividends for the year are just over GBP 700 million, representing a 35% payout of adjusted earnings. In addition, we are deploying GBP 700 million net on the Post Trade transaction announced today, where we expect returns to be very attractive. And finally, as David mentioned, you may have noticed that over recent weeks, we significantly accelerated the GBP 1 billion buyback announced with the H1 results, and we have nearly completed it. Given our strong cash generation, low leverage and the enhanced returns we believe we will generate at this share price level, we are today committing to a further GBP 1 billion. This will start shortly and complete by the full year result in February 2026. We plan to execute GBP 500 million of this GBP 1 billion in year. This is a further demonstration of the flexibility and optionality our strong cash flow generation gives us and our very active capital allocation decision-making. Taking all this together, our leverage at the end of this year should be around 1.9x EBITDA, so in the middle of our 1.5x to 2.5x net debt-to-EBITDA range. Let's now look at the rationale of the transaction in our Post Trade business that we announced this morning. First, a group of 11 leading global banks is taking a 20% stake in our Post Trade Solutions business. The perimeter of PTS includes the recent acquisition, Quantile and Acadia, plus businesses we have grown organically, mainly SwapAgent. This transaction deepens our partnership with institutions that can benefit significantly from PTS services and allows them to help share its future and share in its growth. Second, we have agreed to alter the terms of the revenue share paid to the partner banks from SwapClear. Historically and up to 2024, this sat at 30%, reflected in our cost of sales. We are taking this down to 15% for 2025, applied across the whole year and 10% for 2026 and beyond. And finally, we are extending it from 2035 to 2045. Again, this is strategically important, and it improves our economics at a fair valuation and extends the deep relationship with our partner banks into the long term. Daniel will cover the strategic value in more detail in a moment. But the financial effects of this transaction are very positive. The impact of reducing the revenue share from 30% to 15%, which again is retroactive across the whole of 2025, will add around 250 bps to the Markets' divisional EBITDA margin and 100 bps to the group margin this year. While obviously, there are some financing costs, overall, this transaction is 2% to 3% accretive to EPS this year onwards. But beyond these financials and even more importantly, we expect this transaction to accelerate the long-term growth in PTS. Let me hand over to Daniel to recap on the playbook that has been so successful. Daniel Maguire: Thank you, MAP. So I just want to take a couple of minutes now to highlight how and why SwapClear has grown over the last 15 years, and touch on the opportunity we see forward in Post Trade Solutions. So through partnership, both through the shareholdings a number of our key members have held in LCH and the revenue share in SwapClear that continues, we have built a deep and wide global network that delivers significant value to all of its constituents. The scale shift in 15 years is extraordinary. The number of members, i.e., the banks has increased by 3.5x and the number of clients, i.e., the buy-side firms has increased by 200-fold, clearly demonstrating the network effect. Notional value registered per annum is up 10x at nearly GBP 2,000 trillion. And we have become the global destination of choice for interest rate swaps in all currencies for clearing. And this is why we are now inviting our partners into Post Trade Solutions, because we believe we can do the same again, but for the uncleared market. We built a near GBP 1 billion annual revenue business based on cleared OTC instruments across SwapClear, ForexClear and CDSClear, all of which are leaders in their markets and all of which are built on the strong foundations and the model of industry partnership. The uncleared opportunity is basically the same size as the cleared space. Our members and our clients want to manage the whole book in one place, bringing efficiency to their capital, the margin requirements and materially simplifying and standardizing processes. We are uniquely placed to do that given the assets that we've built and brought together under one roof and with our proven track record of delivering real value through long-term partnership. Acadia and Quantile give us collateral and margin workflow tools and compression tools, respectively. And SwapAgent and TradeAgent, both developed in-house, complete the current suite of services we call Post Trade Solutions. And we've got very good momentum to build on. Revenue in PTS is growing at double-digit pace. Volumes are up 70%, and the network is expanding at pace. So bringing these 11 major partners closer and giving them a role in shaping the business as well as a share in its growth sets us up for long-term success. I'll now hand back to David. David Schwimmer: Thanks, Dan. So just to recap, we have had another strong quarter of growth with year-to-date organic growth at 7.3% and all of our businesses performing well. We're executing at pace on our AI strategy of LSEG Everywhere as the AI partner of choice for financial markets data. And we are allocating capital effectively and proactively with an attractive strategic deal in Post Trade and a further big step-up in our buyback program. And now MAP, Dan, and I are happy to take your questions. Peregrine? Peregrine Riviere: Thanks, David. [Operator Instructions] And with that, I'll hand over to Pauly to manage the queue. Operator: Thank you, Peregrine. [Operator Instructions] And your first question comes from the line of Arnaud Giblat of BNP Paribas. Arnaud Giblat: Could I start with the Post Trade Solutions? So banks are paying over 50x EBITDA, 9x sales for their stake. Clearly, as you said, that comes with a significant commitment to put more business through that division. I'm just wondering, I mean, you gave a bit of detail, but if you could flesh out a bit more what sort of commitments, the time frames, what specific milestones we should be looking at for that business to grow, and what perhaps give us an indication of the potential size of that business in the medium term, from a revenue perspective? And my follow-up would be on the distribution agreements with third-party providers. Quite a lot going on there. I'm just wondering how we should think about this? Because clearly, there is a bit of a usage model you've talked about. So probably this increases significant usage and therefore, gives revenue upside. At the same time, if clients are accessing your data through a third-party vendor, then how does pricing in the long term look like if you're being -- I mean, if it interfaces somebody else? David Schwimmer: Thanks, Arnaud. Let me turn it over to Dan to answer the aspects of your first question. We're not going to get into a lot of detail on what the revenue looks like over the medium or longer term, but you can talk a little bit about how we're thinking about the construct. And then I'm happy to talk about the distribution agreements. Daniel Maguire: Okay. Yes. Thanks, Arnaud. Look, we're very strong believers in the industry partnership model, as you know. We've been using that, building that for a number of years on different services, and I think you can see the outcomes of that. Ultimately, we build core critical infrastructure for our major customers here over a long-term basis and around the basis of trust. So we're very, very pleased that we've got our major partners around the table with us and aligned not just on economics, but also on the product road map, the governance and the product adoption, of which we have a pretty high rate of adoption for all the products we build because of this model. I can't really be drawn on revenues. What I can point to is when you look at the -- which we shared in the slide that the gross market values, which essentially is a proxy for the scale of market risk and derivatives, if you look at the -- these numbers come from the BIS independent annual surveys, the gross market value is about [ USD 17.6 trillion ] and just over half of that is in the cleared space, but over half of that is in the uncleared space. So if you think about the level of risk of derivatives being transacted and risk transferred, they are very similar size. So we see the size of this opportunity very similarly as a result of that. And then in terms of milestones, we've got, as you can see from the press release, 11 major firms and important people at those firms making clear commitments to work with us to build out and deliver and adopt those services. So I can't be drawn on specific road maps and revenues today, but very confident that we've got the right support from the right firms and the right people. And the network is much bigger than those 11, and we've already got very good momentum in that. So pretty confident on that. David Schwimmer: And then your question around these partnerships or distribution arrangements. And the first point to make is that we've been doing this for years. And we have been providing our data through partners, and in some cases, as I mentioned, competitors for many, many years. And it's key when we do that, and this is a practice that we will, of course, maintain is that we protect our own relationships with our customers. And so in these kinds of partnerships, basically, the way they work is that although the initial origination of the relationship might come through one of the partners, the customer is then directed to us to establish the direct customer relationship with us. And we do that in a number of different situations and circumstances. So that protects us from being disintermediated through these kinds of arrangements. The other really important aspect that we're very focused on in these kinds of partnerships and distribution arrangements is protecting our data and making sure that our rights, our IP are protected even through any of these distribution channels. So obviously, the AI world is a little bit different, but we're still in a position to protect our data. And let me just give you one specific, I'll say, technical example. When we're distributing our data through an MCP server, because of that construct, we can control and monitor the access to our data. So in that construct, we're not at risk of a customer downloading all of our data, training their models on our data and then not needing us anymore. This MCP server construct allows us to control that in a very successful manner. So maintaining the relationship, protecting our data and data integrity, these are the kinds of relationships that we have managed very successfully for a long time, and it's great to see these new entrants and these new ecosystems, because we think it will actually expand the market and the customer base that we will be able to access our data. So we're really looking forward to this and excited about it. Operator: Your next question comes from the line of Andrew Lowe at Citi. Andrew Lowe: Thanks very much for the color on the revenue split by product in Workflow and Feeds. My question is on the Data & Feeds business. Specifically, how much of the historical revenue growth has been driven by pricing versus volume? Could you please also comment on the historical pricing trends across these different groups? So for example, it would be great to know how pricing growth in real-time data compares to the other segments, including the 10% from public data sources. And it would be great if we could hear a bit more about how much visibility you have on future pricing? And I've got a follow-up, but I'll wait until you've answered. David Schwimmer: Yes. Thanks, Andrew. So I'm not going to break it down product by product. But as we've been pretty clear over the last few years, you've seen our pricing yield on an annual basis be in that sort of 3% to 3.5% zone. And then you've seen our Data & Feeds business grow usually more than twice that. So that gives you a sense of what's going on here in terms of pricing relative to just volume growth. And we've been doing a lot of innovation in this area as well in terms of new products, new distribution channels as well. But hopefully, that gives you a sense on that. Andrew Lowe: Great. Okay. And then as maybe a follow-up to that. So are you seeing a pickup in demand for your tick history now that you've got sort of LLMs which are cheaper and more widespread? And how important is that when you're sort of selling your forward-looking real-time pricing data? David Schwimmer: So interesting question. and tick history, for everyone's benefit, is a great data set that we have that goes back to the '90s and has tick-by-tick history for millions and millions of securities and no one else has it. It was all public data when it was released by the exchanges, but we are the only ones who have stored it, maintained it and made it easily consumable. I would say the technological changes make it easier to consume and access now than it has been over the last 20-plus years. And we certainly expect to continue to see it being a very valuable content set. Historically, it has been mostly used by quant shops back testing their algorithms. But your question is a good one in terms of recognizing that with these models, you could see a lot more potential users accessing this huge data set to look for historical correlations and help that inform their trading on a go-forward basis. Operator: Your next question is from the line of Russell Quelch of Rothschild. Russell Quelch: I'd also like to focus these questions on the Data & Feeds business. Thanks for the extra disclosure on the revenue breakdown. So you disclosed that 55% of the Data & Feeds revenues come from pricing and reference services. And I believe you've gone from #6 player there to #3 player in the last couple of years, just behind ICE and Bloomberg. So my questions are, firstly, number one, how have you done that? And what's your view on the main points of differentiation in your offering, which is helping you to take share? My second question is, do you believe you can be a #2 player here? And if so, how? And the third question is a bit of a follow-on from Arnaud's question, but asked in a bit more of a direct way. Can you talk to your expectations of the size and cadence of the growth uplift from the recent and future data distribution partnerships that you mentioned relating to LSEG Everywhere? David Schwimmer: Sorry, can you say the third part again? Russell Quelch: Yes. Sorry, a bit of a mouthful. So I was thinking about the data distribution partnerships relating to LSEG Everywhere, both the current ones you disclosed and then you said about future partnerships. So I was wondering how we should think about the size and the cadence of the growth uplift that comes from those partnerships, both the ones that have been announced and potential future ones. David Schwimmer: Got it. Okay. So your first question, how have we moved from #6 to #3. It is investing in our content and investing in our distribution. And you have seen us over the last few years do a number of, I would say, pretty significant steps in a number of different areas. So for example, when we took on the Refinitiv business several years ago, it was very clear to us that, for example, talking to customers, they made it clear, fixed income evaluated pricing was a weak area. Corporate actions was a weak area. We have invested meaningfully in both of those areas and addressed those gaps, and we're now highly competitive in those areas. And so that has helped us move up the ranks. We have added new content in terms of a number of different areas, ranging from -- I guess, a good example is our inclusion of Dow Jones content alongside our exclusive Reuters News alongside thousands of other news sources. So constantly investing in content in a number of different areas. And then on the distribution side, over the last few years, we have made our content available through a number of different distribution channels. And whether that's in different cloud providers, whether that is -- there are some of our data sets, for example, they were only available in the U.S. for technology reasons. And we have now made those available on a global basis. So it's a number of things like that. But really, if I boil it down, content and distribution. Could we be #2? Sure. And we aim not to stop there. We're continuing to invest in this business. We have great data, great content, adding to that content, expanding our distribution capabilities. And then in terms of -- I'm not in a position to give you any specific guidance on the growth uplift. What I can say is that we're not done yet in terms of the different partnership arrangements. We think this is a really exciting time in terms of new ecosystems, new AI functionality that will provide lots of distribution opportunities for us. And as I mentioned earlier, into customer segments that might not have otherwise accessed our data. And for those customers that have historically accessed our data, this AI functionality enables them to access it in a, I'll say, a much deeper way. I mentioned earlier the 33 petabytes of data that we have. Historically, our customers have really only scratched the surface of the data and the content that we have. And the AI functionality is much more powerful in really consuming substantial amounts of our data. And then as we shift further down this road, we've talked in the past about evolving our model more towards usage-based and consumption-based pricing. So you put all that together, we are excited about what this opportunity holds. Russell Quelch: Okay. And maybe just as a follow-up to that, you've just seen S&P buy With Intelligence. You've seen BlackRock buy Preqin. You've seen MSCI buy Burgiss. So just wondering how you're thinking about your competitive position in private markets data? And is this something you might look to add inorganically to the offering? David Schwimmer: Yes. So we already have a lot of private market data, and that includes what we have ingested organically. It includes what we provide from Dun & Bradstreet. The Dun & Bradstreet data, by the way, currently available on the Workspace platform, but soon will be available through a feed, which I think is unique in the industry. We have our partnership with StepStone, which is enabling us to create, again, unique private asset product in our index business. And maybe the last thing I would say is we are not done in this space, and there's more to come in terms of our ability to provide incremental value-add and, in some cases, unique private markets data. So I can comfortably say watch this space. Operator: Your next question is from the line of Ian White of Autonomous Research. Ian White: Well, there's been a lot of discussion around the accuracy of general intelligence LLMs in financial services applications. And I guess sort of what advantage can you derive here from your privileged access to your own data when it comes to the training and development of more accurate models? Or kind of put differently, is it realistic that general intelligence tool can match a model that has been trained on your specific data set when it comes to generating accurate results derived from your data? That's essentially my main question. And just as a follow-up, on the Workspace rollout, which is now complete, what's the latest evidence you have regarding levels of customer satisfaction with Workspace versus the legacy desktop products, please? David Schwimmer: Yes. Thanks, Ian. So on the accuracy question, there has been a lot of discussion in the industry about a bunch of the product that is out there really maybe having some nice user interface, but not being remotely close to what this industry demands in terms of accuracy. And so I think that's probably right at this point for a bunch of the products that are out there that we have seen. We expect them to get better over time. I think in terms of our own approach, the advantage that we have is that we have the data. We have the highest quality and broadest data set that allows us to do the necessary training. It is scrubbed data. We're not training our capabilities on the Internet. And so we avoid the garbage in, garbage out problem that you see with a lot of these other models. And this gets back to the point I was making earlier that through the MCP server construct, we are able to control the access to our data. So we sometimes get questions from people worried about the fact that our data will be made too available and others will be able to, without compensating us, train their models on our data. That's not the case in terms of the way that we make this data available for AI usage or AI consumption. In terms of the Workspace rollout, we are very pleased with the outcome there, and this was a big exercise over the past couple of years. So we are seeing really good views on the simplicity, on the kind of change in the user interface, on the speed. And there are some aspects in terms of making some of the charting even better. There are a few different things that we're continuing to work on, as I mentioned earlier, sort of week in, week out. And this is going to continue. And it's one of the advantages of this product and the technology stack that we have moved on to. We've talked about how we've implemented 500 or so changes in each of the last 2 years, and that pace is continuing. So even though we have basically completed the migration, we still have more releases coming. I think we have 2 more releases coming, big broad releases coming this year. Yes, more coming early next year. So it's a continuous improvement exercise, which I think is a great opportunity to continue serving our customers better and better and better. Ian White: Got it. If I could just sort of playback and make sure I understood the first point. If anybody wants to sort of train a model on your data, that's kind of a licensable activity that you can kind of control through MCP and a model that's not trained on your data specifically probably won't be very effective or will be less effective than something that's been specifically curated for that purpose. Is that a fair reflection? David Schwimmer: I think that's fair. I don't want to claim that we have exclusive financial sector -- in other words, I don't want to claim that in the financial markets, we're the only ones who have financial markets data. There is other data available out there. Ours is the broadest, the deepest, the highest quality. And so we are in an advantaged position. But you've seen companies train their models on public data coming off the Internet. That's on the other end of the spectrum in terms of quality and accuracy. And then there are other data sets out there that you can use. They're just not as extensive and high quality as ours. Operator: Your next question is from the line of Mike Werner of UBS. Michael Werner: And just 2 questions here, one main one and then one follow-up, please. I was just wondering, I mean, you talked a lot today and very helpfully about the new partnerships and LSEG Everywhere. Just stepping back and when we think about the partnership with Microsoft and OpenAI and what you guys are doing there, what's the level of that engagement today versus 12 months ago? I think you used to talk about the number of software engineers that were operating on site on LSEG's premises that came from Microsoft. I was just wondering if you can give us an update there. And then as a follow-on to a couple of my colleagues' questions. When we think about these partnerships, particularly with the new ones with the AI engines and AI partners, is there any delta or any difference in how you think about the pricing? I know you said you protect the IP, but when you're thinking about these new partnerships, is there any change in the way that users who want to consume that data, would they see any difference in pricing than your traditional customers? David Schwimmer: Yes. Got it. Thanks, Mike. So in terms of our partnership with Microsoft, if anything, the level of engagement is higher, and I would say meaningfully higher today relative to where we were a year ago. I know what you're referring to. We've talked in the past about having hundreds of our people embedded with their teams and vice versa. That continues and, if anything, higher level of engagement. And we talked today about a few other things that the market hasn't really focused on, but that we're building with Microsoft, our Autex Routing Network, our Digital Market Infrastructure. These are not the areas that the market has really focused on, but we are actively building them with Microsoft. And then, of course, our Data as a Service, our analytics, Workspace being embedded in Teams, all the interoperability with Excel and PowerPoint. We have lots of teams working across a lot of different areas with the Microsoft team. So couldn't be happier about the level of engagement there. And then just with respect to the pricing, in some cases, it's really simple. So for example, we talked about the partnership with Rogo. If you want to access our data in Rogo, you have a Workspace license. It's very straightforward. It can be a little less straightforward if we are providing our data sets, our Data & Feeds data sets through some of these channels, but we have standard pricing for a lot of these. There may always be some negotiations around particular data sets or things like that, but we have standard contractual arrangements for these and standardized pricing for these. Operator: [Operator Instructions] And your next question comes from the line of Hubert Lam from Bank of America. Hubert Lam: I've got a couple of questions. Firstly, on D&A, how should we think about revenue acceleration in the next year? So just given the upward momentum on ASV, should we think 6% or more could be achievable for revenue growth in D&A next year? Second question is, I guess, last results, there was concerns about intensifying pricing competition from a couple of your biggest competitors. Just wondering if you've seen any normalization in terms of pricing? Or was the competition we saw a few months ago a bit of a one-off? David Schwimmer: Sure. MAP, why don't you take the first question? I'm happy to take the second one. Michel-Alain Proch: Yes, sure. So on D&A, we indeed forecast a revenue acceleration next year. We haven't given precise numbers, but we have given one precise number, which is for our subscription business altogether, reaching 6.5% -- circa 6.5% next year. And obviously, D&A in this number is playing its part, and it will be accelerating '26 and '25. David Schwimmer: And then on your second question, Hubert, first, just to remind people, when we talked about some of the competition dynamics at the half year, that was a very small number of cases, a couple in each of the different business areas. And I would say where we are today, we're not seeing that kind of dynamic. It feels a very stable market environment at this point from a competition perspective. Operator: Your next question is from the line of Ben Bathurst of RBC Capital Markets. Benjamin Bathurst: My questions are on Post Trade. Firstly, could you help us better understand how interrelated the 2 transactions announced this morning are, if at all? For instance, how different is the list of the founding members of SwapClear from the investing banks in Post Trade Solutions? And then secondly, how significant is the decision to extend the revenue surplus share from 2035 to 2045? Was there always a presumption that, that would be extended? Or was that kind of an incremental sweetness in the deal? Daniel Maguire: Thank you. Yes. So in terms of the construct of the overall deal, there are 13 banks involved in the swap business today. And in the investment in PTS, there are 11 investing banks, just to be clear around that. Decisions to invest in the new business ventures very much down to sort of individual circumstances of each of the banks there. So not really appropriate to speak on behalf of those in the 13 that aren't in the 11. But what I'll say is super strong engagement across the industry, level of participation in this and interest is very material from all the material players there. So we're very, very happy with that. And in terms of the extension that you asked about, yes, I think may be different opinions on whether that would have been extended or not, but the fundamental point is this is something that's been in place since 2001. We're here in 2025. It was rolling to 2035. And as part of the overall structure, those 11 banks that are investing in PTS will be extended for a further 10 years to 2045. So a 44-year enduring partnership between the major players in the OTC derivatives space on the sell side with ourselves there. So I think it's part of the overall construct rather than breaking it down into the exact sort of elements of the negotiation. Benjamin Bathurst: Okay. Great. So if I understand it rightly, it's just those that are participating in Post Trade Solutions that will have the extension for 2035 to 2045? David Schwimmer: That's correct. Daniel Maguire: And just to be clear, '25 to '35 remains already existing 13. So existing 13 until the maturity of the existing arrangement and the extension of 10 years is to the 11 that are also investing in the Post Trade Solutions franchise business. Operator: Your next question is from the line of Julian Dobrovolschi of ABN AMRO. Julian Dobrovolschi: I have 2. Maybe the first one regarding the Microsoft product development such as Open Directory and Analytics API and some other things that you're trying to roll out together with Microsoft. Just wondering, are they offered broadly across all the tiers or restricted to premium users and as such as an upsell vector? And then the follow-up is on ASV growth. Just wondering how confident are you regarding the, let's say, reacceleration of this in the Q4? I think you've been hitting towards 5.8%. And can you please elaborate on the impact of the UBS multiyear contracts and the Credit Suisse revenue crystallization? And perhaps if you can see some leading indicators suggesting a bit of a rebound in ASV growth in the Q4. David Schwimmer: Thanks, Julian. So I'll take your first question, and MAP can touch on your question on ASV. So on each of these different products, some of them -- the different products that we have built in partnership with Microsoft, some of them are separate products that have separate pricing, separate licenses, separate arrangements. Some of them are embedded in existing products. And so if we talk about Open Directory and we talk about what's coming in Workspace, you'll see us charge for that over time really through price realization in the core product. I think then in some of the products that we have rolled out in analytics, the Analytics API, for example, that's a new product, and there's separate charging for that. And we've seen some of that in the uptick in the growth rates in analytics, for example. And let me just -- I'll mention one other example where you can see this very clearly. The arrangement that we announced with Microsoft 1.5 weeks, 2 weeks or so ago, where we are making our data -- we are making some of our data sets available to all users of Microsoft Copilot. So if you have a Copilot license, you can be outside the financial services sector, you have a Copilot license and you're doing something in Copilot, you will get access to certain of our data sets. And that's an arrangement that we have with Microsoft. And then we have other data sets that you can license directly with LSEG and then have access to them through Microsoft Copilot and Copilot Studio, if you are building, for example, agents using our data. So that gives you an example where some of them are embedded -- some of the pricing arrangements are embedded in existing products. Some of them are new, and we are charging incrementally for them. Let me turn it over to you, MAP. Michel-Alain Proch: Yes, sure. So first of all, before addressing your question, I'd like to point out that we have outperformed our previous guidance on ASV. And remember, in H1, we were expecting that the Q3 ASV would fall to 5.4% with 40 bps of impact of UBS. So excluding UBS 5.8%, so comparable to Q2, and we posted 5.8% in Q2, 5.4% was what we were expecting in Q3. We actually outperformed this to 5.6%. So ex UBS, 6%, an acceleration from the 5.8% we were at the end of Q2. And when I look forward for the end of this year, we're very confident into accelerating again to 5.8%. And here, it's the same thing. It's 5.8%, including of the 40 bps for UBS. So actually, excluding it, 6.2%. So 5.8%, 6%, 6.2%. That's basically the message today. Operator: Your next question is from the line of Enrico Bolzoni of JPMorgan. Enrico Bolzoni: I wanted to ask you, you now revised your EBITDA guidance a couple of times, even excluding the newly announced deal. So I just wanted to ask you, what are you doing particularly well or better than you expected that basically drove the consecutive revision in guidance? So that's my first question. And partially related to that, just some small clarification. So one, you are clearly now spending just over GBP 1 billion to in-source this additional revenue from SwapClear. Can you just clarify whether this will be capitalized and whether the amortization of that will be above or below the line? So that's one question. And another related question to numbers. You're clearly issuing some debt, you're guiding for EPS accretion in 2025. What about 2026? I know you talked about margin expansion for EBITDA in 2026. Can we say that we will also see a similar EPS uplift for next year? Michel-Alain Proch: All right. So I begin with EBITDA margin. So yes, just to remember for maybe those of you who didn't see it, we began with 50 to 100 bps of EBITDA margin guidance for this year, we then improved it to 75 to 100 bps. And finally, we are now confident to reach 100 bps. It's really an acceleration. So what we have implemented in the last 2 years at LSEG is a full cockpit of cost discipline, addressing all the different components of our cost base. So mostly people, we're talking a lot of people, obviously, but it's true for cloud costs, on-premise costs, travel expense and so forth and so on. And basically, this acceleration is coming from the fact that what we have put in place is more efficient and is producing more results and quicker, if you want, than what I expected at the beginning of the year. The second reason, which is maybe -- so that's an acceleration. Second reason which is more structural is -- and maybe you remember what I was telling you at the earnings of 2024, the different automation solution that we have put in place at different places in the company. So in QAS, meaning our customer service, in our content ingestion, we were putting it in place, and I was expecting to see the first materialization into savings next year. And actually, it's happening as early as this year. So that's the combination of the 2. Now to answer your second question about the GBP 1.15 billion, that represents the alteration of the SwapClear revenue share. So we're considering this as an acquisition. So we are creating an intangible asset exactly as we would do as a traditional acquisition. And we are going to amortize it over 10 years below the line as the rest of our acquisition. And then your final question, which is the accretion. So accretion of 2% to 3% in 2025, because I want to be clear on the fact -- I hope I was clear in my script that this revenue share alteration is retrospective to the 1st of January of '25, okay? So it means that we benefit from the full accretion in terms of EBITDA margin that I have mentioned of 100%. And in terms of EPS taking into account the financing cost. We said 2% to 3% in '25, and we'll have pretty much the same thing, 2% to 3% in '26. Operator: And your next question is from the line of Tom Mills of Jefferies. Thomas Mills: I think we've skirted around it a few times on the call. I just wanted to clarify that you are sort of reiterating you're expecting to deliver around 3.5% price increase on the 1st of January is kind of [indiscernible]. Michel-Alain Proch: Absolutely. Absolutely. We've just sent -- the price letter was sent in September. On the basis of the first reaction from this price letter and our experience, we are confident we will derive the same type of yield around 3.5% in '26 as the one we had this year in 2025. Operator: And your next question is from the line of Oliver Carruthers of Goldman Sachs. Oliver Carruthers: Oliver Carruthers from Goldman Sachs. Thanks for a lot of the incremental KPIs around D&A. I just have one quick modeling question on the FTSE Russell subscription revenues. I think you're calling out the more modest growth in subscription growth here in Q3 was to do with this mandate renewal cycle that you think is going to normalize next year. So just what's reasonable to assume in terms of the pickup in growth rate? I think you're running at around 5% on a constant currency basis year-over-year for Q3. And the reason I ask is if we go back to 2024 levels of around 10%, on my math, this adds something like 70 basis points to your ASV. So just any parameterizing of that would be very helpful. David Schwimmer: Yes. Thanks, Oliver. So you're right. This year, a much quieter period in terms of renewals during which we would typically see incremental revenue associated with either regular price rises or bigger, broader business relationships and broader engagement. I think hard to give you specific numbers as to what that's going to look like in '26 and beyond. You've seen how this business has performed in years past in that kind of higher than mid-single-digit zone. So I think I'm probably pretty comfortable, and MAP, feel free to weigh in here as well. I think we're pretty comfortable in that zone, but I don't want to be giving you any sort of specific guidance on what that looks like at this point. Operator: And there are no further questions on the conference line. I will now hand the presentation back to David Schwimmer, CEO of LSEG, for closing remarks. David Schwimmer: Great. Well, thank you all. Thanks for joining us today. As I said upfront, a little bit more substance in this one rather than a typical Q3 update. We hope you all have found it useful. And if you have any questions, you certainly know where we are. We'd be happy to take any further questions through Peregrine and the team. Thanks again.
Sandra Åberg: Good morning. Welcome to Essity's presentation of the Q3 results. We will start with an overview of the financial highlights and the business highlights and Ulrika will present the business highlights. Following that, we will have a session with our CFO, who will take us through the financials. Ulrika will then present the initiatives that we announced this morning, initiatives launched to accelerate Essity's profitable growth. We will, as usual, end today with a Q&A session where you have the possibility to engage directly with us. [Operator Instructions] With that, let's dive into the quarterly performance. Ulrika, over to you. Ulrika Kolsrud: Thank you, Sandra, and welcome also from my side to this presentation of Essity's Q3 results. And to summarize the quarter, we continue to deliver positive organic sales growth. We also strengthened our profit margins. We delivered a strong cash flow and a result above SEK 5 billion. Price, volume and mix all contributed to the 0.9% organic sales growth, with price being the most significant contributor. And we had organic sales growth in all our 3 business areas. Once again, we delivered record high gross profit margins and this quarter, it flowed through down to the bottom line. So the call to action that we had in July to pull the brakes on our SG&A cost development really made a difference. And we ended up at a profit margin of 14.6%. Setting aside the quarterly results now for a moment. This quarter has also been about how to set ourselves up for future success. As I shared in the Q2 webcast in my -- during my first month in this new role, I have done an extensive review of the business. And then together with the leadership team worked on what to change, what to improve, what to prioritize in order to accelerate our progress towards our financial targets and towards our vision. As a result of that, I am today launching 2 initiatives, that will improve our performance. The first one is the reorganization designed to sharpen our focus to become more fast and also more agile. And related to that, the second one, a cost-saving program that will reduce our organizational costs. More about that later, but let's now dive into the Q3 results, and we start with Health and Medical. Q3 now, for '25, marks the 18th consecutive quarter of growth for our Medical Solutions business. We are growing across the 3 therapy areas; Wound Care, Compression Therapy and Orthopedics. And what is very important for future growth and profitable growth in the medical categories is innovation. That plays a key role. There are still so many unmet needs, both for healthcare as well as for patients and consumers to innovate on. One example is for people with wrist fractures. Today, it's difficult for them to keep up with hygiene and keep up with the daily activities of lives with wrist braces that exist commonly in the marketplace. And with the launch of Actimove Manus Air, we are solving that problem. This wrist brace that you see now on the page here has a lot of advantages. It's water resistant so that you can wash your hands. It's food-grade resistant so that you can cook and keep up hygiene. It doesn't restrain the movements of the fingers and the hands, so you can keep on working if you work by the computer. Also, it has an open design. So if you're a health care professional, you can inspect the wound and change wound dressings with the brace on -- and all of this, while providing that stabilization that is needed in order to heal in a fast way. So certainly, this innovation is a very good addition to our offer in Orthopedics. Then if we move to incontinence care in health care, also in Incontinence Care, we were growing sales and volumes in the quarter. You might remember last quarter, then I talked about the challenging market conditions that we had in some markets, and that is still the case. However, we have very strong underlying growth in many other markets that is compensating for this. And in times where health care funding is under pressure, it's even more relevant to have products and solutions that are saving time for caregivers. And with the launch that we had this quarter with TENA, a new product concept, we are addressing exactly that. The TENA Pro skin stretch day and night is a unique product concept that we have put to market now that makes it easier to put on and take off the product. When it's in a closed fashion, then it is just as a TENA pant, you can pull it up and down just like normal underwear, making it easy for the wearer to use the product. The challenge with the pant though is that it's not so easy for a caregiver to apply the product. And this one is reopenable. You can open and close it, and that means that the caregiver can also very easily apply the incontinence protection. And that saves time for the caregiver. Now this is not the only impactful innovation that we are launching in the quarter. We're also launching a new product in the lighter range of our assortment, and that is the TENA Discreet Ultra. It's a very discrete product, super discrete to wear, yet it does not compromise on the superior TENA protection. And why is it then important to have a superior product in this part of the assortment? Well, this is where we attract consumers where we bring consumers into the category. And we, of course, want the women to experience the first little leaks to choose purpose-made products and to choose TENA as their purpose-made products. And many consumers do that. They choose TENA. And we see that because our incontinence sales in retail is continuing to grow at a very good rate. This is especially true for the U.S. And if you might remember that in U.S., we are investing to grow, and those investments are paying off. So in the quarter, we could enjoy a 21% growth of incontinence in U.S. retail. In Feminine Care, we're also continuing to grow in a very good way with high growth rates. Here, Mexico is an important market for us. We are clear market leaders, and we will continue to strengthen our position in Mexico by launching a new night product, SABA Noches. And also here, it's a very important segment to be superior in because not only do we provide a good night sleep for the wearer, but also it's a quality stamp for the brand. So as you can hear, we are continuing to grow strongly in the 2 higher yielding categories in consumer goods. So Feminine Care and Incontinence Care. On the other hand, in Consumer Tissue and in baby, we are declining. In Consumer Tissue, we are suffering in the branded sales from the weaker consumer sentiment. And also, we see a price competitiveness increasing across the consumer tissue business. The good news is that if we look at Mexico, we are growing very well in our Regio brand during the quarter. And also now we are really gearing up for the sneezing season making sure that we have the right hankers in the shelf to be ready for the sales boost that will come during the next quarter. And also, we continue with our efforts to have a high promotional pressure and to focus a lot on the value segment so that we can fuel growth in Consumer Tissue. Then what about baby? Well, you all know that we have had a period where we have had declining volumes on the back of lower birth rates and also very intense competition. We're still declining in baby, but we have improved. In the quarter, we turned around Libero in the Nordics big time. We had the actions of higher frequency rate, of promotions, of a limited edition. I was going to say that is called Wildlife that you see on the picture here and also stronger marketing campaigns. And all of that paid off. So the Libero consumers have found their way back to their brand. Another category where we can report a big improvement is in Professional Hygiene. Also here, we continue to see a challenging market situation, of the least in the U.S. in the HoReCa channel. However, we are improving volume sequentially in Professional Hygiene. And that is thanks to the activities that we have done with selective price adjustments and also more focus on the value segment that we talked about last time. What's also very good to see is that we continue to grow our premium products, so our strategic segments as we did also previous quarter. This is, of course, very important for us short term, but it's also important to fuel future profitable growth. And speaking about that, what's super important to fuel future profitable growth is that we are -- really have strong relationships with our customers. What's happening right now in the customer landscape in Professional Hygiene is that a lot of our distributors are consolidating. And then it's even more important than ever to be the preferred supplier. And therefore, it's so nice to see that one of our customers, Impacts, have this quarter named as the best supplier. And with that positive news, I hand over to our CFO, Fredrik Rystedt. Fredrik Rystedt: Thank you so much, Ulrika, and I will give a little bit of numbers background to what Ulrika just mentioned here. So I'll start with our sales. And as you've already heard, we are continuing to grow organically with 0.9%, so just under 1%. Now if you look at the absolute sales number, it is down by 4.5%. But of course, this is just due to the fact that the Swedish kroner is strengthening. So if you actually look at our sales in constant currency, we actually grew with a bit over SEK 300 million. So it's basically currency impact. So turning a bit back to the organic sales growth of 1%. As you see, the volume growth was 0.2%. And this is exactly what it was also in Q2 and similar to what it was also in Q1. So we've had this volume growth level now for a few quarters. It is, however, a bit different. And so you remember perhaps that we have struggled a bit with professional hygiene with baby and degree also with Inco Health Care. And those have all 3 improved this quarter. But on the other hand, that improvement has been partly offset by lower volume development in consumer tissue. So it is a bit different. We are happy to see the improvement in those areas that I mentioned. So to give you a little bit more flavor, if we start with Health and Medical, generally speaking, volumes picked up actually. So it is still challenging when it comes to Inco Health Care markets in general. But despite that fact, a bit as we expected, we have picked up volumes and it looks clearly a bit better at this point of time. Medical continues to grow, especially in the wound care, and we've seen that growth for so many quarters now. So it's a very, very good and continuous development for medical in general. It's wound care as I said, but it's also this quarter, actually a lot in compression. So good development overall in the volume sense. Now if I go then to consumer goods, geographically, we are growing everywhere when it comes to incontinence and feminine. So it continues with strong growth in both of those areas. Ulrika mentioned earlier that baby is looking a bit better. And of course, this is due to a much better performance in our Nordic branded area with Libero. So we've taken market shares there. It's still challenging on the European market for the retail branded European market for baby and that will also remain for a few quarters to come, most likely, but it's looking a lot better. So you may remember that we had a volume decline of about 4.5% or in that vicinity, volume decline in baby in Q2 and a similar decline also in Q1. And this quarter, it's been about 1% decline. So it looks clearly better. On the other hand, as we have already talked about here, Consumer Tissue is a bit more down, negative growth, and this is because we have prioritized margin rather than growth in volume. And we do continue to see actually a down trading in that market. So volume is not so good in consumer tissue. Finally, Professional Hygiene, looking a lot better, and the volume decline is still there, it's minus 1% roughly. And of course, that's a lot better than what we saw in Q1 and Q2. So clearly, looking better. As before, it is a base assortment that is declining and the premium products or strategic products as we sometimes call them, dispensary base is continuing to do quite well in terms of growth. So overall, mix is actually continuing to behave very, very well in professional hygiene. So turning a bit to price and mix. As you see, 0.7%, this is basically most of it actually related to price. And you can see from the slide here that Consumer Goods and Professional Hygiene, both performing well in terms of price performance. And Health and Medical is slightly down. This is all actually Inco. So this is selective price declines that we have -- that we have done. We did talk and Ulrika mentioned it earlier that we also have sequentially a little bit lower prices in professional hygiene. This is deliberate. We wanted to -- on top of expanding our value offering in Professional Hygiene, we also wanted to grow more generally by selective price decreases. So if you look at just sequential price decreases, we also see a little bit of that in Professional Hygiene, deliberate. So that's pretty much it on the volume and an organic sales side. So turning to our margin, that is improving both sequentially and year-on-year. So if we look at -- decompose the year-on-year improvement, you can see that a lot of is coming, of course, from the gross profit margin. And most of it, as we've already talked about, relating to obviously price to a smaller degree on mix and volume, but it's -- a lot of it is price. We also actually have a positive development in our COGS. And this is no surprise. Raw material is performing better, and so is energy. And -- but we also have other cost items there. One thing that we have talked about a lot is, of course, the savings that we do. In this particular quarter, we had about [ 115 ] or so in savings, which we were happy about. Generally speaking, it has been a tough year when it comes to saving in COGS. And we still aspire to reach our annual target range of about EUR 50 million to EUR 100 million. We're not there. We aspire to get into that range for the full year, but it is challenging, and this is, of course, due to the relatively low volume development that we have in our production. So that makes it a bit more challenging to get to our target range. A&P, not surprising. We've increased the absolute spending level and also as a percentage of sales. And this is a profitable proposition. We know that the return of A&P spend is attractive. So this is why we do that. We talked a lot about SG&A previously, and we've also announced measures to actually -- to make the growth rate become much lower. And there has been a lot of success there. So clearly, when you look at our SG&A development, is much better now than we have seen in the previous quarters. The growth in particularly IT and personnel cost is lower now. Let me just point out, though, that there is a portion -- a smaller portion, I should say, of the improvement that relates to lower bonus provisions. So the improvement is not as strong as you see here, there is a smaller portion that is due to that. But I'll come back to the future in a second. But generally speaking, if you disregard that, underlying performance of SG&A is much lower than the inflation rate. So the measures we've taken have clearly paid off. Now finally, there's a bit of other here. This is just a one-off in last year actually. We had an insurance payments last year and we didn't have it this year. So that's the final part. So overall, a very, very good quarter, I should say for the group in terms of margin. And basically, you can see year-on-year, that health and medical and professional hygiene are still slightly down and consumer goods up. But if you look at it sequentially, which we're happy about, both Health and Medical and Professional Hygiene have turned a little bit and actually now improved. So all in all, a good margin development. Turning to cash flow, a bit -- just some short comments, generally speaking, quite a good quarter, both in terms of underlying cash generation, but also in terms of working capital. We were not so happy about working capital in the second quarter, much better looking this quarter. So when you look at accounts receivables or accounts payables in working capital, the days are roughly about the same. It's still a bit too high when it comes to inventory. We are working our way down to that. So hopefully, we'll see a good development in working capital also as we go forward. And finally, the balance sheet as a consequence of that strong cash flow generation. We have been able to, in comparison to the 6 months balance sheet, we have been able to reduce our net debt with about SEK 3 billion or so, and of course, our net debt-to-EBITDA ratio is now down to SEK 1.2 billion. I think this is a good -- perhaps opportunity to give you a little bit about the flavor for what we expect for Q4. I mean, again, we don't give that much of forecast, but let me just give you a little bit. Strating with COGS. Perhaps, we expect to -- that COGS will actually, from a year-on-year -- compared to Q4 of 2024, we expect COGS to be lower this quarter coming up in '25. And the reason is mainly driven by input cost or and particularly so [indiscernible] cost. So we expect COGS to be lower. When it comes to A&P, we also -- we expect it to be flat to higher compared to last year. So Q4 versus Q4, we expect to spend more in A&P. As I said, this is a good return on those investments. And finally, when it comes to SG&A, this is worth mentioning that we will have, also in comparison Q4-Q4, a fairly low growth rate. So clearly, we will retain that lower growth rate than we've had in the previous year. But just worth noting that from a sequential standpoint, Q4 SG&A, excluding A&P is always much higher. So sequentially, you should expect higher cost but year-on-year, a quite a low growth rate. So finally, I guess, just a reminder, perhaps, we have our financial targets. They remain intact. So more than 3% in organic sales growth and more than 15% in EBIT margin, excluding items affecting comparability. As you know, as you've seen here in Q3, we're close to our margin target. And of course, we got some work to do when it comes to our annual organic sales growth. And that, Ulrika, I guess, you will talk more about. Ulrika Kolsrud: Yes. Thank you, Fredrik. So question then, of course, is how to deliver on those financial targets. And you all know this, but I think it's worth repeating. We will deliver on our targets by prioritizing the categories segments, market and channel combinations that has the highest potential for profitable growth and where we have a clear right to win. We will deliver on our financial targets, not the least by delivering differentiated innovations that are driving market share development and pricing power. Also by having the most effective and efficient go-to-market. It should be easy to do business with Essity. Also to really find efficiency savings across our full value chain and not the least to continue to grow our people and to continue to build that winning culture that we have. Now I've said before that this strategy is highly relevant and is something that we continue to execute on. My focus has been how do we accelerate the execution on this strategy because I see significant potential for us to fuel growth and improve our performance. For example, we could unlock the full potential of our portfolio by sharpening our focus on the most attractive categories and segments. Also, I see opportunities for unleashing the full power of our organization by creating more end-to-end accountabilities, by decentralizing decision-making and reducing our operational complexity in the organization. And we could, by freeing up resources to reinvest in A&P and in our growth initiatives, we could become -- drive profitable growth more forcefully and also be more competitive. And those are the reasons why we are now then launching 2 initiatives. The first one is the reorganization to become faster, to become more agile and also to sharpen our focus. What we will do is that we will create 4 new business units that are global and based on our product categories. They will have the full P&L responsibility and also have the end-to-end accountability, and that is what is different from before. Those 4 business units will be Health and Medical, Personal Care, Consumer Tissue and Professional Hygiene. And consequently, we will start reporting financially in these segments as from 1st of January, 2026. Now the benefits with doing this is that we are decentralizing decision-making. We are cutting out duplication, and we are becoming more consumer and customer-centric. And by that, we will be faster in our decisions, we will be faster in our execution, and we will be faster in responding to evolving consumer and customer needs. We will furthermore sharpen our focus then on the most attractive categories and segments. Now what I've explained now is how this organization will become more effective, but it will also drive efficiencies since we are simplifying the structure. And those efficiency gains is the key component of the cost saving program that we're also launching. And this cost-saving program is expected to generate a saving of SEK 1 billion and had full effect in the run rate by end of 2026. It's primarily SG&A we're talking about, and that is on top of the COGS saving program that we have that Fredrik was alluding to before, and that is generating SEK 0.5 billion to SEK 1 billion annually. Market A&P, so market investments are excluded. In fact, it's important that we maintain -- at least maintain both A&P as well as R&D investments in order to fuel growth. And we want to reinvest the savings that we generate into our growth opportunities in higher-yielding areas where we also have a proven track record of high return on investments. So with these 2 measures, we will unleash the full power of the organization, we will free up resources that we can invest in profitable growth, and we will unlock the full potential of Essity's product portfolio. Now let's summarize the quarter before we move into Q&A. In the quarter, as you have heard, we delivered positive organic sales growth. We strengthened our profit margins, had a good cash flow and delivered a profit above SEK 5 billion. We also launched 2 measures to improve performance and fuel growth. And needless to say, looking forward now, 2 of our key priorities will be to implement this organizational change as well as to achieve the SG&A and COGS savings that we have been talking about. In parallel with that, of course, a priority is for us to continue with our efforts to drive volume growth and profitable volume growth in a challenging market environment with the ambition to perform while we transform. Thank you. Sandra Åberg: Thank you, Ulrika, and thank you, Fredrik. We will now move into questions. [Operator Instructions] And please try to limit your questions to one at a time because that will give Ulrika and Fredrik, the possibility to give you the best answers. Are you ready to start with the questions? Ulrika Kolsrud: Yes. Sandra Åberg: So let's move into questions. So we have a first question from Aron Adamski. Aron Adamski: Sandra, Ulrika, Fredrik. My first question is on the divergence between lower COGS picture and the prices which are higher. In that context, it would be great to hear why your expectations for pricing across your biggest categories over the next couple of quarters? And also, are you currently seeing any pressures from retailers to roll back prices or maybe the competitive pressures accelerating? Ulrika Kolsrud: If I start, I could say that, as I mentioned, when it comes to Consumer Tissue, there is a high price competition across that business. And of course, also in other parts of our business, it's a high price competition. And we always look at ways to balance, of course, volume growth with having a good pricing performance. We've talked before in Q2, but also this quarter about the selective price adjustments that we do in Professional Hygiene, which is to fuel growth and to adapt to the market situation that we have there. Anything you want to add, Fredrik? Fredrik Rystedt: No, not really. I mean we didn't specifically talk about sequential price movement now in our presentation here, but we've seen a bit of price decline sequentially in Inco Health Care and Professional Hygiene and baby as you alluded to, and these are deliberate basically. I think it's fair to say -- we also saw a very, very tiny price sequential decline in Consumer Tissue. And exactly as you say that, of course, there is more room for that potentially when [indiscernible] comes down even further. But again, it's very difficult to discount. We always try to maintain a very solid price management. So it's difficult to comment in advance. Ulrika Kolsrud: I hope that answered your question, Aron, did it? Aron Adamski: Yes. Sandra Åberg: Thank you, Aron. So now it's time for Oskar Lindstrom, Danske Bank. Oskar Lindström: Good morning. A couple of questions from me. First off, on the cost savings. Of the SEK 1 billion, how much should we expect to sort of drop down to the bottom line or to EBIT? And how much will be reinvested in increased A&P spending. That's my first question. Should I go on with the other? Ulrika Kolsrud: No. Let me answer that one first because as I said, primarily, we are going to reinvest that saving into profitable growth. And then you will see the effect on margin as we grow volumes and then we'll have the operating leverage of margin. Oskar Lindström: Right, and about the timing here, should we expect the sort of reinvestment into A&P then to sort of come at the same time as the cost savings are being implemented or before? Or what's the timing going to look like? Essentially, what I'm looking for is, is this going to have a positive and negative impact on EBIT margins during 2026. Ulrika Kolsrud: If I start with the way we will work with this is that as the savings materialize, we will then have freed up resources that we can reinvest. So it will coincide to a big extent. Fredrik, do you want to comment on margin development in light of that? Fredrik Rystedt: No. I think one thing, Oskar, maybe just to remind you, is that we've always said that what will bring our margins higher is basically operating leverage, so it's volume. So what we are now doing is using the freed up -- as Ulrika just said, we are using the funds that we free up to fuel volume growth, and that volume growth in its turn will enhance margin. That's the plan. So it's not our intention to boost, if you say, the margin with the cost saving program, but rather to reinvest it as the savings occur. Does that make sense? Oskar Lindström: Yes, thank you. And just a final question on the sort of balance between lower-end private label and your own branded or higher-end branded product. I mean a lot of other consumer segments have seen this deteriorating from the producer's perspective in that consumers are down traded and you've also mentioned this during the past -- how is that developing? Are you seeing any -- is it worsening the same signs of an improvement? Ulrika Kolsrud: It's -- I would say, if we talk -- I mean we're talking consumer tissue, it's pretty much the same. I mean we see that there is a down trading, and that is what we see in our branded business is declining and the private label market is increasing. And I don't see any major movements. It's quite similar to what it's been. Sandra Åberg: Thank you, Oskar, for your questions. [Operator Instructions] And as I can see, Patrick Folan from Barclays, you have a question. Patrick Folan: I just joined some -- sorry, from repeating question already asked, but 2 for me. On health and medical, can you maybe walk through any kind of contracts that were gained or lost during the period? And maybe how you see kind of the outlook for the segments you're considering your experience there? And maybe more specifically kind of looking at the reorganization and the change in structure, I mean what was behind the decision to strip out personal care and tissue from the Consumer Goods unit? Is there more focus trying to go into certain segments? Or is it just trying to have more disciplined cost strategy in terms of how you allocate resources? Ulrika Kolsrud: Thank you, Patrick, if I start with the first question, I think if you look at Health & Medical, it's a lot of contracts, especially on the medical side, but also on the Inco side, it's a lot of contracts. So we don't necessarily talk about all those individual contracts and what we have gained and lost and so on over time. I think in the Incontinence Care, health care arena, it's quite stable when it comes to our contract base. And in Health and Medical, as you can see, we are continuing to grow. So we are growing with new contracts and taking new business as well as with growth within those contracts that we have. Then if we move to the organization, there is the intention, as you heard me -- or maybe you didn't hear explain, you said you came on a bit late. But we want to create this end-to-end accountability. And to do so, we want to work then with the different product categories more separated because then that allows us to have that end-to-end accountability with the business unit and the one P&L responsible is responsible for innovation, marketing, supply chain and sales. So that is one reason. Another reason is that it allows us to focus on the most attractive categories and segments. Both that Personal Care comes more in the limelight, and that will drive performance and focus on Personal Care, but also in Consumer Tissue, it allows us to focus more on the most attractive segments within that category. And then I would say thirdly is that Personal Care and Consumer Tissue, our businesses that have quite different character. And by running them separately, we can optimize the way we work based on the specific business drivers in those 2 businesses. Patrick Folan: Okay. Clear. And just a follow-up on that. In terms of the benchmarking exercise, for the SG&A kind of cost program. How did you guys arrive at that kind of SEK 1 billion number, I suppose? Fredrik Rystedt: Maybe I can try and answer that, Patrick. So 2 things. We looked at the reorganization if we start in that end and we looked at what kind of savings potential, that organizational change actually brought with it. So that was a starting point. We also looked at our other buckets of SG&A, and we looked at where we could optimize that spend. So as an example, our IT spend as we go forward, you will perhaps remember that we've had a very, very significant increase of our IT spending for various reasons over the course of a couple of years. We now feel it's appropriate to actually reduce that as an example. So there are many different things that has gone into that analysis. But the main part is actually related to the reorganization that we have described here today. Sandra Åberg: Thank you, Patrick. I hope you have your answers to your questions now. Then we will move to Niklas Ekman, DNB Carnegie. Niklas Ekman: Can I ask you about use of funds because you are now generating cash flow in the range of SEK 12 million, maybe SEK 13 billion, you have dividends that are slightly below SEK 6 billion and buybacks of SEK 3 billion. So you're essentially now improving your balance sheet significantly. Can you elaborate a little bit about -- on your thoughts here on M&A potential? Are you saving for future M&A potential? Is there scope to increase either the dividends or buybacks? Or what's your thoughts here on the use of funds? Ulrika Kolsrud: Well, if we start with the dividends, we stay with our policy to increase our dividends over a year and stay true to that. Then we see buybacks as a recurring way to allocate capital so that we will continue with as well. Then the good thing is that we have, as you say, a strong balance sheet. So we can both invest in organic growth and deleverage, and we can have the funds to invest in an M&A, should we find something that is value creating. Niklas Ekman: And just how is that market now and the potential for you to do M&A and also considering the valuation of your own shares at the moment? Ulrika Kolsrud: Well, I think we talked about that last quarter as well, right, that, of course, we want to be careful in making sure that our M&As that we potentially do are value creating. And then there has to be the synergies to bridge that gap between the valuation of a potential acquisition and our own valuation. Niklas Ekman: Very clear. Can I also ask about U.S. tariffs? That was not a big, but still an issue in the Q2 results. What is it looking like now? How is it impacting you? Fredrik Rystedt: Maybe I can take that, Niklas. We've had this quarter, Q3, SEK 110 million roughly and we are looking at a lower number, about SEK 70 million in Q4. And the reason between -- the difference between these numbers is simply that the Canadian government has actually taken out the tariffs on our exports from the U.S. to Canada. So this is the difference. So as I said, Q3, SEK 110 million, roughly about SEK 70 million in Q4. Sandra Åberg: The next question comes from Antoine Prevot, Bank of America. Antoine Prevot: A question from me on Latin America, I mean, continue to be strong compared to, I mean, maybe some of the part of Staples, which have been a bit weaker there. Anything specific you want to flag? Is it you mainly continue to gain market share there? And do you expect that to continue in the coming quarters? Ulrika Kolsrud: I don't know want to necessarily comment on the coming quarters because we don't know how that will play out. But what we can say is that we are doing well in what is a quite challenging market now in Latin America, where the consumer sentiment is changing and so on, but we are growing very nicely. We talked earlier now this morning about the feminine brands, for example, that is doing very well. And also in our Consumer Tissue business, we are growing in, for example, Mexico. Also, our incontinence business is growing very well in Latin America. So overall, it's looking good for us in Latin America. Antoine Prevot: Perfect. Just to follow up. I mean, it's more like innovations led to that market share? Or is there something else there? Ulrika Kolsrud: Can you repeat, sorry? Antoine, can you repeat your question? Antoine Prevot: Yes, sorry. Is it just -- what's driving these different strong performance in North America in the different categories you defined? Have you launched new product there? Or what has been kind of like backing that? Ulrika Kolsrud: It's a combination as in many cases. If we look at Consumer Tissue, it's been -- we've had quite good promotional season that has helped to boost growth in that category specifically. In feminine, as I shared, we have a new launch, and we have a very strong offer that we continue to invest behind, and we get the payoff from those investments. So -- but in most cases, it's a combination of really marketing our attractive offer, adding on new innovations and upgrades to fuel growth and then also promotions. Sandra Åberg: Let's now move to Charles Eden, UBS. Charles Eden: Just wanted to clarify your comments because I think there is perhaps an incorrect interpretation this morning, looking at how the share price has developed during the call. You said the cost savings are not going to improve the margin of the group, which one could conclude means your cost of business is going up and that you need to spend more just to stand still. Am I correct? What you're trying to say is you will reinvest these SEK 1 billion cost savings into the business with the aim of driving superior volume growth and market share gains. And then these factors should contribute to stronger margins over time as opposed to just trying to cut cost to drive the margin improvement? Is that the right way to look at it? Maybe that's been misinterpreted. Ulrika Kolsrud: Exactly. Charles Eden: Because I think people have sort of interpreted you saying we need to spend more just to stay where we are on the margins and that's not what you're trying to say, right? You're trying to say, look, we want to drive it through market share gains to push the margin higher rather than we have to spend more to stand still. Ulrika Kolsrud: Exactly. Charles Eden: Thanks for the clarification. Ulrika Kolsrud: Thank you for clarifying for us. Very helpful. Sandra Åberg: Then I think that we have another question from Aron Adamski, Goldman Sachs. Is that right, Aron? Aron Adamski: I have 2 very quick follow-ups. Firstly, on Baby Care. I think clearly, the business performance improved sequentially, but it's still below the midterm outlook that I think you laid out at the CMD last year. I was just wondering, since your targets were formed initially, do you think there has been any fundamental shift in the category fundamentals, specifically in Europe that could perhaps make the initial goals more difficult to achieve in the longer term? And then the second follow-up is very quick, just on Consumer Tissue and sorry, if you mentioned this already. How is your private label business performing both on volume and pricing. Is that still a significantly accretive part to this category? Ulrika Kolsrud: If I start with the first one, I'm not so sure, but the time horizon here what we are referring to. But generally speaking, I could say that we do see the lower birth rates and that is something that continues to develop. That has an impact on the fundamentals of the category. When it comes to weaker climate that we see and that some consumers are more price sensitive, that is more of a temporary situation. So that we expect to change over time. Then with the private label division, I mean that is still a value-creating part of our business, even if we now have lower -- we have lower volumes in that business in the third quarter. As we said, it's a high price competition in this category. Fredrik Rystedt: And there, we mentioned it earlier, Antoine, that we have maintained a margin protective stance a bit. So we have been eager to do that. And of course, with high price competition, it is a bit challenging on the volume side. But once again, this is more, you can say, normal fluctuations in that business. So nothing dramatic. Sandra Åberg: So I think that we are out of questions. So do we have any more questions? [Operator Instructions] No, I think we're out of questions. That means that we can wrap up. Any closing remarks, Ulrika, before we end? Ulrika Kolsrud: Yes. I think we are leaving -- we are leaving a positive quarter behind us now. And we are launching initiatives that will fuel our profitable growth going forward. And just on the previous discussion that we had, I think it's important to point that out that we have a lot of belief in our growth platforms that we have. And looking forward to freeing up resources so that we can continue to accelerate growth in those areas. And that will drive also margin improvement by operating leverage and mix improvement. So that I want to leave you with. Thank you for listening. Sandra Åberg: Thank you, Ulrika, and thank you, Fredrik. And thanks to our audience for listening in. And if you have any further questions, you know where to find us. Have a good rest of the day. Bye.
Operator: Good day, ladies and gentlemen, and welcome to ASUR's Third Quarter 2025 Results Conference Call. My name is Latanya, and I'll be your operator. [Operator Instructions] As a reminder, today's call is being recorded. Now I'd like to turn the call over to Mr. Adolfo Castro, Chief Executive Officer. Please go ahead, sir. Adolfo Castro Rivas: Thank you, Latanya, and good morning, everyone. Before I begin discussing our results, let me remind you that certain statements made during the call today may constitute forward-looking statements, which are based on current management expectations and beliefs and are subject to several risks and uncertainties that could cause actual results to differ materially, including factors that may be beyond our company's control. Additional details about our third quarter 2025 results can be found in our press release, which was issued yesterday after market close and is available on our website in the Investor Relations section. Following my presentation, I will be available for Q&A. As usual, all comparisons discussed on this call may be -- will be year-on-year and figures are expressed in Mexican pesos, unless specified otherwise. Before discussing our results, I would like to begin today's call with an important strategic development. As recently announced, we entered into a definitive agreement to acquire URW Airports for an enterprise value of $295 million. This transaction marks a significant step forward in ASUR's international expansion strategy, building our established presence in the U.S., which began with the operation of San Juan Puerto Rico Airport in 2030. URW airports managed commercial programs are 3 most iconic and high-traffic airports in the United States. URW airports manage commercial programs at 3 of the terminals -- 3 of the airports in the United States, Los Angeles International Airport with 6 terminals, Chicago O'Hare International Airport at Terminal 5. And in the case of John F. Kennedy International Airport covering terminals 8 and the upcoming new terminal 1. Together, these terminals process around 14 million enplanements annually. This acquisition provides ASUR with a strategic foothold in the 3 of the largest U.S. air travel markets and strengthens our position in the high-growth nonregulated commercial segment in the U.S. airport industry. The acquisition will be financed by JPMorgan Chase. As with all our strategic decisions, we are approaching this opportunity with a financial discipline and operational rigor that has long defined ASUR's execution. Closing is expecting during the second half of the 2025. Subject to customary regulatory approvals, we look forward to keeping you updated on our progress in the quarters ahead. Now turning to our third quarter performance. We serve over 17 million passengers across our airports, with traffic remaining practically flat as continued growth in Colombia and Puerto Rico helping to offset persistent headwinds in Mexico. Starting with Colombia, passenger traffic rose 3% to close to 5 million, supported by a solid 11% increase in international traffic and a modest growth just under 1% in domestic volumes. In Puerto Rico, total traffic was up 1%, reaching over 3 million passengers. Growth was driven by international passengers, which increased nearly 12% year-on-year, offsetting the 0.5% decrease in domestic traffic. In Mexico, traffic declined 1% to nearly 10 million passengers for the quarter. The decrease reflects softer demand, domestic traffic, which was down nearly 2% and international which saw a slight contraction of 0.3%. Passenger volumes from the United States, our largest international source market decreased just 0.2%, while South America contracted 7.2%. On the positive note, Canada and Europe increased 9.3% and 1.3%, respectively. Looking ahead, we anticipate a more balanced operating environment across our portfolio. In Mexico, we expect traffic to gradually stabilize over the next year as aircraft ability improves. In Puerto Rico and Colombia, we expect continuous positive momentum supported by the healthy international demand and improving productivity. Now turning to review our financial results. As a reminder, all figures exclude construction revenues and costs, unless otherwise noted. Comparisons are all year-on-year unless otherwise noted. Total revenues increased in the mid-single digits, reaching over MXN 7 billion, driven by growth in Puerto Rico and Colombia. Mexico at 70% of total revenues posted a slight low single-digit decline with aeronautical revenues practically flat and non-aeronautical revenues down in the mid-single digits. Revenue growth was limited by softer passenger volumes and the stronger peso, which continues to weigh on the U.S. linked revenue streams. Puerto Rico at nearly 18% of total revenues reported revenue growth in the high single digit driven by increases in 5% in aeronautical revenues and 10% in non-aeronautical revenues. This performance reflects positive passenger traffic trends and sustained demand across commercial activities. Colombia, which accounted for a total of [ 30% ] of the total revenues, delivered revenue growth in the high single digits, reflecting a mid-single digit increase in aeronautical revenues while non-aeronautical revenues were up in the high teens. This good performance was supported by passenger traffic growth and solid -- partially offset by the strong Mexican peso. Continue our ongoing focus on commercial development. We added 45 new commercial spaces across our airports over the last 12 months, including 31 in Colombia, 8 in Puerto Rico and 6 in Mexico. This supported a low single-digit increase in commercial revenues as solid growth in Puerto Rico and Colombia was partially offset by a weaker performance in Mexico. On a per passenger basis, commercial revenue rose 1% to MXN 126. By region, Colombia led a 14% increase followed by Puerto Rico, up 10%, while Mexico posted a 4% decline, reaching MXN 144 per passenger. Turning to costs. Total expenses were up nearly 17% year-on-year. By region, Mexico posted a 4% increase, largely due to higher maximum -- minimum wages and service costs. Puerto Rico reported expense increase of nearly 8%, reflecting inflationary pressures and higher operating activity. While Colombia cost increased 76%, mainly driven by an adjustment in amortization method of the concession. Without this increase would have been 5.4%. Lastly, in Puerto Rico and Colombia cost benefited from depreciation of Mexican peso against the U.S. dollar. On the profitability front, consolidated EBITDA declined just over 1% year-on-year to MXN 4.6 billion in the quarter. Puerto Rico and Colombia delivered EBITDA growth of nearly 5% and 10%, respectively, while EBITDA in Mexico declined close to 4%, mainly reflecting lower traffic and higher operating costs. The adjusted EBITDA margin, which excludes construction related revenues and costs under IFRIC 12 declined by 157 basis points to 66.7%. This reflects lower margin contribution from the Mexican and Puerto Rico operations, where the margin contracted 152 and 151 basis points, respectively. In contrast, Colombia reported an 81 basis points margin expansion. On our bottom line, this quarter was negatively impacted by depreciation of the Mexican peso against the U.S. dollar, which resulted in a foreign exchange loss of nearly MXN 1 billion compared to the reverse effect during the third quarter of last year. Profitability was also affected by the MXN 333 million adjustment in the concession amortization method in Colombia that I just explained. Now moving to our balance sheet. We closed the quarter with a solid cash position of MXN 16 billion, down 19% from December 31, 2024, primarily reflecting dividend payments made during the period. Our net debt-to-EBITDA ratio remained at healthy 0.2x. In terms of capital deployment, in September, we paid an extraordinary dividend of MXN 15 per share funded from retained earnings. Note that in November, we will be paying an additional dividend of MXN15 per share. Lastly, we invested close to MXN 1.9 billion during the quarter, primarily directed to projects our Mexican airports, including the reconstruction and expansion of Terminal 1 at Cancun Airport, and the terminal expansion in [indiscernible]. In Puerto Rico, we are progressing on the new pedestrian bridge for Terminal A, while in Colombia, we invested in maintenance CapEx. In closing, our third quarter results reflect the resilience of multi-country platform and the value of our disciplined execution amid a more tempered demand environment. While traffic in Mexico continued to face near-term headwinds, we are encouraged by the ongoing momentum in Puerto Rico and Colombia. We remain focused on advancing on our commercial strategy, investing in infrastructure and maintaining a strong financial profile. These conclude my prepared remarks. Latanya, please open the floor for questions. Operator: [Operator Instructions]. The first question comes from Rodolfo Ramos with Bradesco BBI. Rodolfo Ramos: I have a couple, if I may. The first one is in regards to the URW acquisition. Can you shed a bit of light on the economics, revenue per pax, how much EBITDA contribution you're expecting from these assets on an annualized basis? And the second is on Colombia. Can you elaborate on this adjustment to the concession amortization method that we saw during the quarter, was this a one-off? Or should it be a new level going forward? I don't know if it has to do something with the economics of your concession title there? Adolfo Castro Rivas: Thank you for your questions. In the case of URW, I cannot yet share numbers with you until [indiscernible]. In the case of Colombia, basically, what we have done is to change amortization method because in accordance with our estimates, during 2027, we will not receive regulated revenues anymore, and the concession should be over by 2032. So we are aligning amortization in accordance with revenue generation there. And it's going to be not one-off. It's going to be from now the same level. Operator: The next question comes from Emst Mortenkotter with GBM. Ernst Mortenkotter: I wanted to follow up a little bit on URW. I understand you cannot discuss the financials. But leaving that aside, it seems like a great way to gain some strategic insight into the consumer that goes from your airports to the U.S. I just was wondering if you could discuss a little bit what kind of synergies do you see? Or what is the strategic rationale behind this acquisition? Adolfo Castro Rivas: Thank you, Anton. Well, basically, the most important for us is to get -- to put a foot in the U.S. market. The U.S. market represents 22% of the aviation market of the world. And these terminals are extremely important for the U.S. market. So pulling our name there is extremely important, and this should be the platform for future growth in the United States, probably in the same kind of contracts that we are entering right now. That is the most important thing. Operator: Our next question comes from Andressa Varotto with UBS. Andressa Varotto: I have 2 here on my side. The first one is about Motiva Airports that are for sale. We've been seeing the news source that ASUR is [indiscernible] interested in this airport. So just wondering if you could provide some more information, if you're looking, for example, at all of the airports are just a subside of them. And how would the company finance this? And my next question is regarding the traffic trends that you've been seeing for Mexico. We've been seen recently on news as well that Tulum airport has been facing some cancellations. And if you think that this could help Cancun airport in the near future. These are my 2 questions. Adolfo Castro Rivas: In the case of Motiva, I cannot comment. In the case of the traffic trends, what I see today, it's a slow recuperation in the domestic market because of Pratt & Whitney engines, something that should improve in my opinion during the next year. For the moment, the traffic is really weak and the demand is weak in the case of the region. If we see Cancun and Tulum together for the first 8 months of the year, and I'm saying that months because that is the latest public figure or the case of the airport of Tulum. The traffic for the region is a decrease of 3.1%. If we go to the latest month that has been published for the case of the airport of Tulum which is the month of August this year. August versus August last year, the traffic of the region was a decrease of 5.1%. So the traffic is soft. Nevertheless, what you are saying in terms of the recent cancellations to the airport of Tulum. Operator: [Operator Instructions] Our next question comes from... Adolfo Castro Rivas: Sorry, could you repeat? Operator: Our next question comes from Pablo Ricalde. The next question comes from Pablo Ricalde with Itau. Pablo Ricalde Martinez: My question is related to the [indiscernible] Cancun? Is it still expected to be open around Q3 2026 or there are delays on that construction of that one? Adolfo Castro Rivas: What we are expecting is to open this new facility during the third quarter 2025 -- 2026, sorry. Pablo Ricalde Martinez: Okay. So as expected. Operator: The next question comes from Gabriel [indiscernible] with Deutsche Bank. Unknown Analyst: [indiscernible] Just 2 questions. First, is there any way or some how that capacity allocation from carriers has been shifting from Cancun? And the second one is the decrease in traffic could somehow make the pace of writing the tariffs towards the maximum tariff faster for either this year or next year? Adolfo Castro Rivas: Well, in terms of capacity, we are not -- we're not seeing a shift in capacity. What we are seeing basically is a weak demand, as I said, from the domestic resulted from Pratt & Whitney and some other elements. And in the case of the U.S., the numbers for the quarter is 0.2% decrease, which is small, but it's the largest market we have. Let's see how the winter comes. And I hope that the winter will be very strong in the north part of the Americas, and then they come. Positive side is the case of Canada, which is up for the quarter, and I thought that it will be up during the fourth quarter as well. Unknown Analyst: And in the case of the traffic that has somehow decreased, that could accelerate the pace on which tariffs are increased up to the maximum tariff? Adolfo Castro Rivas: No. I don't see that. Our maximum tax compliance this year should be similar of what it was last year, so more than 99%. Operator: [Operator Instructions] At this time, we'll turn the call back over to Mr. Adolfo Castro for closing comments. Adolfo Castro Rivas: Thank you, Latanya, and thank you all of you again for joining us on our conference call for the third quarter 2025. We wish you a good day, and goodbye. Operator: Thank you. This does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation, and have a great day.
Fredrik Ruben: Okay. Good morning, and welcome to this earnings call, where we will cover the third quarter, summarizing our business from July, August and September of this year. And I'm Fredrik Ruben, I am the CEO of Dynavox Group. Linda Tybring: Hello. I'm Linda Tybring. I'm the CFO of Dynavox, and I will cover the financials later on. Fredrik Ruben: Great. So for those of you who have been participating in these calls before, you will be familiar with that. We will start by a quick recap about what Dynavox Group is about. And then we will summarize the main takeaways from the quarter. We will then dive deeper into the financials, and thereafter, there will be a Q&A session. And you can submit your questions during this call in the function here, in Teams, in the chat function. Or you can ask them live if you have asked -- or if you've been given prior notice to our team. We, of course, always welcome offline questions sent over e-mail to the above e-mail address linda.tybring@dynavoxgroup.com. But a brief overview of Dynavox Group. First and foremost, it's important to reiterate our mission and our vision, which I know is very dear to not only our over 1,000 colleagues around the world, but also to our ecosystem of partners and investors. And our vision is a world where everyone can communicate, and we contribute to this via focusing on our mission, which reads: To empower people with disabilities to do what they once did or never thought possible. And this also summarizes 2 of our main user stories. The first one, the do what you once did, that may refer to a person who led a normal life until a diagnosis such as ALS, which rendered her then unable to control the body and communicate like before. And the other, the never thought possible can refer to the child diagnosed at an early age with a condition such as autism, cerebral palsy or so where thanks to our solutions, he can now do much more than the world around him ever thought possible. On the picture here to the right, we see [ Lyn ] from Lawrenceburg in Kentucky. She is one of our amazing users diagnosed with cerebral palsy and is a great example of this. The market that we serve is hugely underserved. Some 50 million people have a condition so grave that they simply cannot communicate unless they have a solution like ours. And every year, we estimate some 2 million people are being diagnosed and yet only some 2% of those are actually being helped and the rest remain silent. And the main reason for this spells lack of awareness and also among the professionals and the prescribers who are tasked to assist these users and a poor health care reimbursement system. We operate this with a global footprint. Today, some 3/4 of our business stems out of the U.S., and that's largely because of a reasonably well-functioning funding system established some 20, 30 years ago. But our products are sold in some 65 markets around the world, of which the U.S., Canada, U.K., Ireland, Denmark, Sweden, Norway, Australia, New Zealand and France; most recently, Germany, are markets where we sell directly; while the others are served by a network of some 100-plus resellers. Our staff is distributed in a similar way as the revenue. That means some 60% of our staff are based in North America with our U.S. headquarters in Pittsburgh, Pennsylvania. And our second largest office is here, our headquarters in Stockholm, but we have branch offices in several European countries as well as in Suzhou, China, Adelaide, Australia. As of today, we are about 1,000 employees in total. We provide a comprehensive portfolio of solutions that ranges from -- if you start from the left, the content and the language system, such as the world's leading library of communication symbols called PCS and the leading solutions of off-the-shelf or custom-made synthetic voices of the highest quality and with a large diversity in terms of languages, ages, ethnicities. We then offer highly sophisticated communication software, which is tailored to the type of user, which can vary greatly based on the needs. We then develop and design devices with cutting-edge technology and medically certified durability, and that includes communication aids controlled via eye tracking and accessories such as the Rehadapt mounts. We have a services portfolio to help our users through the complexity of obtaining and getting funding for the solutions. And last but not least, we're there to help our users, the therapists and the caregivers through our global teams and support resources. We operate this model globally, and it's important to note that each piece here is critically important and also a significant differentiator for us, making us absolutely unique. Our go-to-market model is predominantly as prescribed aids, and that means that some 90% of our revenue comes from public or private insurance providers. And this also means that we have solid paying customers and have always been resilient towards changes in the overall economic climate. But now I will go back at focusing on the main topic of today, namely the earnings report for the third quarter 2025. So, if I look at the highlights, we had another strong quarter when it comes to revenue growth. The growth compared to the same quarter previous year sums up to over 35% after adjusting for currency effects. And this marks a further acceleration of the already strong trajectory over the past 3 years. The demand for our solutions remains high, proving the solidity of our underlying business, and we see robust growth across all markets. In this quarter, a particular highlight is the outstanding performance in our direct presence markets outside of North America. We continue seeing increased growth in our touch control product portfolio, and they are typically serving younger users with autism. However, in this quarter, we also saw very good traction in the eye-gaze controlled solution area, serving users with more complex needs. Our investments in systems, infrastructure and organization to support our long-term ambitions continue according to plan, and I will come back to that shortly. EBIT came in at SEK 64 million in the quarter, but this includes nonrecurring costs of some SEK 26 million in this quarter and implying then a strong underlying profitability. And on September 1, we completed the previously announced acquisition of our long-standing German reselling partner, RehaMedia. Coming back to our investments. So strategic investments are an important part of our growth strategy and a way for us to scale and build an efficient and resilient company. So in 2025, we expect to invest some -- approximately SEK 100 million in total in of nonrecurring nature in 2 main projects that are progressing well and according to plan. The first one is the rollout of a new ERP system in North America and an establishment and a consolidated product and development hub here in Stockholm. The ERP successfully launched on July 1. And despite almost a week long freeze period, we have been able to keep up deliveries and even deliver more voices to our customers than in Q2. And during Q3, the nonrecurring spend totaled some SEK 9 million or SEK 40 million spent year-to-date on that. The second topic, the consolidation of our product and development organization into a central hub in Stockholm continues according to plan. All managers are in place since a while back and the majority of all functions have been recruited and have started. And since April of this year, all new product releases have been handled from the Stockholm hub. During Q3, the nonrecurring spend totaled SEK 14 million on this with a SEK 33 million spent year-to-date. But now I will hand it over to you, Linda, to take us deeper into the financials. Linda Tybring: Thank you, Fredrik. So let's talk Q3 financials. Revenue for the third quarter came in at SEK 606 million, a 35% year-on-year growth after adjusting for currency effects. Recent acquisition contributed with 3% and the organic growth was a solid 33%. This marks another chapter in our 3-year strike of robust growth and consistent execution. Currency fluctuations had 10% negative impact on our revenue. Sales continued to grow across all markets. However, this quarter, our direct market outside North America delivered outstanding performance, exceeding already high expectations. As we have talked about in prior quarters, we continue to see growth among younger users with autism. At the same time, there is a good traction in eye-gaze control solutions, serving users with more complex needs. The gross margin ended up at 70%, an increase of 0.8 percentage points. The margin was improved by increased sales, also by further strengths in addition to having more direct market contributed to an extra layer of gross margin. Gross margin also had slightly help from currency this quarter. We had some negative impact of increased cost of freight, and this is mainly related to using air freight, which has been driven by strong sales momentum, and we wanted to ensure that we are delivering on time. EBIT for the quarter was SEK 64 million, and the EBIT margin was 10.6%. It was negatively affected by nonrecurring costs totaling some SEK 26 million in the quarter, lowering the profit margin temporarily by 4.3 percentage points. Our OpEx increased by 30% organically. The OpEx increase was affected by factors such as continued investment in staff, increases in the sales and marketing. In total, we added more than 200 FTE, including M&A, of course, also adding normal salary adjustments. During the quarter, we continued to invest in new systems ands tools to strengthen scalability. The total nonrecurring spend related to this in the quarter was SEK 9 million. As of July 1, we are live with our new ERP in our largest market, North America. Operating expenses was also affected by nonrecurring costs related to our restructuring cost in the product and development organization. The total nonrecurring spend in the quarter was SEK 14 million. Both these 2 investments are according to our strategic plan. The recent strong development of the Dynavox Group share price has rendered an increased cost for employee long-term incentive program of SEK 3 million compared to the third quarter last year. All in all, nonrecurring costs in the quarter sums up to SEK 26 million. In addition, EBIT was negatively impacted by currency of SEK 6 million in the quarter. Net R&D costs increased by SEK 23 million, SEK 10 million of this relates to nonrecurring restructuring costs within the research and development organization. If we look at the basic earnings per share, it totaled to SEK 0.36 per share to compared with last year's SEK 0.43 per share. For the quarter, cash flow after continuous investment was positive with SEK 20 million. Cash at the end of the quarter was SEK 172 million and net debt was SEK 924 million. The total used credit facility and term loan at the end of the quarter was SEK 900 million. The net debt after last 12 months EBITDA was SEK 2.0x. And also note that during the quarter, Dynavox signed a new refinance agreement with Swedbank totaling to SEK 1.2 billion. And this is classified as a social loan as our prior agreement. And this agreement reflects our continued commitment to advancing sustainable social initiatives that a positive impact on society. The credit facility includes a SEK 900 million term loan and a SEK 300 million revolving credit facility, which means -- which can be used for both working capital and strategic acquisitions. The facility has a 3-year term with 2 optional 1-year extensions. For end of September, we have unused revolving credit facility of SEK 300 million. So back to you, Fredrik, to conclude the earnings call. Fredrik Ruben: Thank you, Linda. So before we open up for questions, I'd like to reiterate the main takeaways from the third quarter. So first of all, we continue our strong growth trajectory, a trend that started in the early spring of 2022 and just keeps accelerating. We grew revenue by 35% adjusted for currency. Sales continue to grow across all markets, but with direct presence markets outside of North America exceeding expectations in this quarter. We continue to see growing adoption among younger users with autism, but at the same time, we also see really good traction in the eye-gaze control solutions area that serves users with more complex needs. Our profitability was negatively affected by nonrecurring costs totaling some SEK 26 million or 4.3 percentage points related to these long-term investments focused on building a more robust company. The current uncertainties in the macroeconomic climate or policy changes has not had any direct effects on our business, but we experienced some indirect effects through elevated freight costs in the aftermath of various tariffs announcements. The currently ongoing U.S. government shutdown poses no immediate execution risk, but we are monitoring the development here closely. Given the continued and sustainable growth, we continue to grow in term -- the team, while investing in systems and tools to enable future business growth that is much bigger than today. Our financial targets are expressed where -- and they were communicated in February 2024 with a time horizon of 3 to 4 years. And the first target was to, on average, grow revenue by 20% per year adjusted for currency effects, and that includes contributions from acquisitions. And in local currencies, the third quarter growth was 35%, which means that we have found a revenue growth momentum to build on. The market we serve remains hugely underserved. And with the example of growth levers such as sales teams expansion, adding direct markets and operational excellence, we continue to build on our growth journey. The second target is to deliver an annual EBIT margin that reaches and exceeds 15%. We feel that we have proven to build a strong growth with incremental improvements in profitability. We need to continue to invest in future growth with improvements in scale, but the recipe is rather simple. We want to maintain continued revenue growth, high and stable gross margins and then total operating expenses that increase at a lower pace than our revenue growth. And as a consequence, we see good opportunity to further leverage how revenue growth translates to reaching and exceeding an EBIT margin of 15%. Lastly, we have a dividend policy. We feel that we have an attractive cash flow profile. And given the growth opportunities, we need to maintain a capital structure that enables strategic flexibility to pursue growth investments, including then acquisitions. But it's still expected to, over time, generate excess cash, and our policy is, therefore, to distribute at least 40% of the available net profits to shareholders via dividends, share repurchases or similar programs when time so allows and it's deemed the right prioritization for us. With that said, I am taking a step to the left, and I invite Elisabeth Manzi, our Corporate Communications Director, who will help to moderate and enable us to take questions from the audience. Elisabeth? Elisabeth Manzi: Yes. Well, thank you. We have a lot of questions here today. So I will start with a question from Daniel Djurberg, who is asking about the nonrecurring outlook for ERP and R&D for 2026. Linda Tybring: So I mean our goal, when it comes to our product and development organization is that it should be completed by the end of the year and that we are geared for starting to execute in 2026. When it comes to ERP, we are still in the transition of getting all our legal entity over into the new ERP. And our goal is that we will be completed somewhere during next year. Fredrik Ruben: Yes. But -- and to the last point, I mean, we, North America represents some 3/4 of our business, and that's what we started with. It's obviously the most complex area and also by far the most costly area. So, we definitely see that's going to… Linda Tybring: It will gradually, yes, decrease over the next year. Elisabeth Manzi: So, following up on the North America and the U.S. situation, Daniel is also asking if there are any hiccups to the funding systems or to Medicare organizations due to this shutdown? And also, is the Nairobi Protocol still valid? Fredrik Ruben: The short answer to your first question, Daniel, is no. We have no current impact on our ability to get paid basically in North America. That might change, and we don't know exactly what's going to happen in the future. But as of today, no. Our assessment on the Nairobi Protocol is that there are no suggestions or paths where the tariff-free import on our types of products will be changed just because of recent announcements. So, we -- the best guess right now is that it will remain in force. Elisabeth Manzi: Good. And then I do believe that we also have someone calling in. So, let's see if we have Ramil on the line. Ramil Koria: I have a bunch of questions actually. I'll try to contain myself. But maybe if we start on like the progression you've made throughout 2025 with younger users within autism. It sounds very much like a TD Navio type of sort of use case. So, do you think that the launch of TD Navio in mid/late 2024 was sort of the driving element behind sort of the organic growth acceleration in this year? Fredrik Ruben: It's a good question. And the answer is yes and no. What is actually the main product that is benefiting that customer group is a software called TD Snap, and that's a software we had in our portfolio for quite some year, but it's obviously been refined over time. That software is the software that you run on TD Navio. So, with the launch of the TD Navio, which is simply a better version of a very similar product that we had prior to that, that was what we can see that has sparked a really strong growth momentum. But as such, it's the software that actually makes the bigger difference. TD Navio is the can that holds a very good soup, if I would use that analogy. Ramil Koria: Yes. Makes sense, Fredrik. And then on the topic of direct sales outside of North America improving, could you -- because you've acquired several distributors in the last say, 2 years. Could you elaborate a little bit on what markets you are seeing the pick up in? And if that pertains to the new acquisitions, France, Germany or older ones? Fredrik Ruben: It's actually quite a strong growth across the board. So, there isn't one country that kind of stands for the majority of the growth. It's a very strong growth across many markets. But one clear trend that we see is the markets where we have no middle layer, no middleman, where we go directly. And those obviously includes the markets that we recently acquired. But we should also remember that we were already direct in a number of other markets prior to that. But those - if we see some sort of trend of the kind of across-the-board growth, it's definitely those markets that are in the lid. Ramil Koria: Okay. Makes sense. And then I mean, I can see the notion of like margin expansion being visible ahead as per your financial targets. But if you take Q3 isolated, organic growth in OpEx is 31%, so just 1 percentage point lower than organic growth on top line. The phasing of margin expansion, how should we think of that, say, for Q4 and into 2026, perhaps? Fredrik Ruben: Do you want to address that? Linda Tybring: Yes. First of all, you need to consider the significant investments that we are doing this year. Both the restructuring cost is impacting our organic OpEx increase and that we will not see next year. Over time, that means also our R&D spend will go down in relation to revenue over time. So, you will have that kind of improvement. We will also start to see gross margin. You will slightly see some improvement when we go direct in more markets. And then over time, the more efficient we will get with the systems that we are now implementing, we will not -- we don't need to invest as significant to actually continue our growth journey. So, you talk about the crocodile sometimes. So, we will gradually see an improvement of OpEx slowing down growth and revenue continue. Fredrik Ruben: We want to spend as much money as we see reasonable in sales and marketing because that really drives growth, whereas we want to see a very moderate increase in all other OpEx areas. Ramil Koria: And just one final one perhaps on like outlook as well. I mean, in connection with Q2, you said that the first and the last week of Q2 were really strong. Could you shed any light on how Q3 progressed throughout the quarter? Fredrik Ruben: Yes. I think you're absolutely right. So just to reiterate, we said both in Q1 and Q2 that the first week of Q1 or Q2 was as good as the last week of Q1 and Q2. That was actually not the case in this quarter because we had a planned -- how should I put it, standstill in the very first week or so in North America due to the ERP change. So, there was a little bit more of a catch-up effect, which could argue that we had an accelerating growth throughout this quarter. But on the other hand, that was a little bit kind of artificial because we kind of -- we created that problem, I should say, ourselves. So good momentum is probably the short answer. Elisabeth Manzi: And actually, both Jessica and Daniel also had questions relating to the Q4 and if we could see any seasonality outlook for Q4? Fredrik Ruben: Without being too detailed, we should just remember that we have a fairly consistent seasonality effect in our business, where Q1 is the weakest; Q2, a little bit better; Q3, a little bit better; and Q4 is our best quarter, both in terms of absolute top line revenue, but obviously, spreading out the larger top line over almost the same OpEx will hopefully have a bigger kind of drop-through. We see no difference here. The reason for this is that the -- a lot of our clients and customers have a big incentive to get their orders shipped and delivered before New Year's Eve before the so-called co-pays or deductibles in insurance systems resets on January 1. So, no change. Elisabeth Manzi: Good. So, let's continue with some questions -- more questions from Jessica Grunewald at Redeye. She's asking if we could walk us through the working capital buildup and how you see it developing going forward, particularly with the increased share of direct sales. Linda Tybring: Yes. So, what happened when we get more direct sales is, of course, then that we need to build up more inventory because we get an extra additional layer of inventory. So now we've seen in the last couple of quarters, one is related to Tobii that we have increased inventory, but also the second part is that we go direct in more markets, which means that we are building up more inventory. But over time, we will balance this and we'll be able to get more release also part of us that we have grown this year, we needed to adjust because making sure it's more important for us at the moment to make sure that we deliver on time than to build up slightly higher inventory. But over time, we will see the evidence of that. Also in this quarter, we should also know what Fredrik mentioned that we also saw some of the sales coming in, in the later part of the quarter, which means we build up some of the accounts receivable as well. Elisabeth Manzi: And a last question from Jessica here. She's asking, what are your expectations regarding the RehaMedia acquisition and the market dynamics in Germany? Fredrik Ruben: We should just remember that these acquisitions, when we acquire our research, they're quite small in the grand scheme of things. With that said, Germany is one of the most exciting and interesting markets, not just in terms of share size or funding system. It's also a market where we believe that there is a lot of growth potential. So having our own feet on the ground in Germany is going to be instrumental for the slightly longer run, and we feel it's off to a very good start. Linda Tybring: And Germany is actually very -- Germany funding is actually very similar to the U.S. Fredrik Ruben: Right. Elisabeth Manzi: Good. So Oscar from SEB is asking if you can elaborate on the increased freight cost and how many basis points that would be a pressure on the gross margin? Linda Tybring: It's very small effect on the gross margin, but that is, of course, related to that we needed to get inventory in the warehouse as soon as possible because we saw the need from a sales perspective. Over time, that will go down, and we will be able to ship much more with both because we are able to balance the sales momentum that we'll have. Fredrik Ruben: Yes. I would say it's more of an opportunity of actually improving it going forward when we are -- when we can plan a little bit more ahead. I think it's fair to say that this announcements of tariffs and the new policies that come out specifically from the U.S., have an actually profound effect on supply chains and freight chains across the world because it's quite bumpy. Elisabeth Manzi: Good. And a follow-up question on the performance and North America. We said that markets outside of North America was performing very well. So what about North America? Did they underperform the expectations in Q3? Any color would be helpful. Fredrik Ruben: Okay. I will provide color. North America did fantastic. And some of those markets outside of North America did amazing. That's the amount of color I can provide. It's hard when everybody is performing personal best to say that someone didn't perform. It was very strong across the board, but simply even better out in those direct markets outside of North America. Linda Tybring: But I think it's also a strength from us that it's not one country or one product. We are actually across the board growing our company. Elisabeth Manzi: And this was actually the same question as Mikael at DNB Carnegie had. So, we will move on to bringing in another voice. So, I'll ask [ Philip from SB ] to join. Unknown Analyst: So, you mentioned in the report that you witnessed good traction in touch control devices during the quarter. What is the sales split between touch control and eye-gaze devices? Fredrik Ruben: The split. Linda Tybring: It's around, I would say, touch is today probably slightly over 50 and eye tracking slightly below, but we should also remember the ASP. So, from a quantity perspective, touch is significantly higher than eye track. Fredrik Ruben: It's almost -- it's an ASP difference of 2. So, an eye tracking device costs twice as much as a touch device. Unknown Analyst: Yes. And do you anticipate it to be kind of the similar split going forward? Fredrik Ruben: I think past performance is a good predictor of future performance. That's how much we can say right now. Unknown Analyst: And I remember you mentioning -- I don't know if it was at the end of last year or beginning of this year that around 10,000 prescribers have ever prescribed a Dynavox device. Has that number increased during the year? Or how should we think about that? Fredrik Ruben: I don't have that number. It's my honest answer, but we can definitely look into it. My gut feeling says that it's increased slightly. But what I do believe is that the prescribers that prescribe 4 or more that has a little bit more traction, that group has grown -- yes, quite strong. Unknown Analyst: And what measures do you use to increase like the revenue per prescriber for those people. Fredrik Ruben: So, what kind of measures we take to increase that? Unknown Analyst: Yes. Why do you see that the people that prescribe several devices increase their prescribing rates? Fredrik Ruben: The simple answer is because it's one of our focus areas. We believe that it's better to spend our time on taking the ones who have done something and make them become more self-sufficient and better at the jobs rather than just trying to pull more new prescribers into the loop. But it's a balancing act. Elisabeth Manzi: And a follow-up on that last conversation here then on the eye-gaze controlled solutions. Could you describe what's driving that momentum? Fredrik Ruben: And I believe it's Daniel or was it Mikael Laseen. Elisabeth Manzi: Yes. Fredrik Ruben: It's a very good question, Mikael. I think that there is a combination of where the market had focused quite a lot on what was then a year ago a new device, the touch devices from the Navio device. That is -- that's now yesterday's news, and we could potentially see that it's normalizing a little bit. So, it might be almost like an internal effect, but it's hard to say. Elisabeth Manzi: Good. And then let's see if we have another one here from [ Matt ]. Does your strategic investment currently holding back reported margins then into 2026? The market seems to focus on the lower-than-expected U.S. sales. Any worries for 2026 U.S. organic development? Fredrik Ruben: No. Linda Tybring: No. Elisabeth Manzi: That was short. Good. So let me just double check here. There was a little bit of a follow-up from Daniel as well on the freight cost and the impact on gross margin in Q3 and if this will turn substantially tougher ahead? Fredrik Ruben: Quite the contrary. Linda Tybring: Yes. Fredrik Ruben: I think we are in a position now where there is less interruption, less uncertainty, and we obviously feel quite confident with the momentum, which will enable us to not necessarily get lower freight costs. We can choose freight by sea, for example, which is significantly cheaper. We have a better ability to plan right now. Elisabeth Manzi: Good. I believe that was everything. Fredrik Ruben: All right. Fantastic. I'm happy to see that the technology work with some of the call ins, that's great. But also thank you, everybody, who participated and submitted questions in the chat. We are looking forward to seeing you all back again on February 5. So next year, when we will summarize the business for the full year of 2025. Thank you very much. Linda Tybring: Thank you.
Linda Hakkila: Hello all, and welcome to follow Konecranes' Q3 2025 Results Webcast. My name is Linda Hakkila. I'm the VP, Investor Relations here at Konecranes. And with me today, as our main speakers, we have our President and CEO, Marko Tulokas; and our CFO, Teo Ottola. Before we proceed, I would like to remind you about the disclaimer as we might be making forward-looking statements. Here, you can see our agenda for today. We will first start with a presentation from our CEO, and he will give us a market update and guide us through the group performance. After that, our CFO, Teo Ottola, will guide us through the business area performance and talk about the balance sheet topics. Before we start with the Q&As, our CEO will still summarize the main points of the quarter. But now, without any further comments, I would like to hand over to our CEO. Marko Tulokas: Thank you very much, Linda. I'd like to start by saying that I'm extremely pleased with our performance in quarter 3 and throughout the year 2025. Konecranes' team delivered a very strong quarter in continuation to our solid half year performance. Under the prevailing market conditions, this is an excellent achievement. This is -- with this kind of market uncertainty, an order intake, a growth of 23% year-on-year is a very good starting -- start for the quarter 3 or is a very good quarter 3. Our demand environment has remained stable despite the market uncertainty and our sales teams have been able to close well despite the timing-related hesitation. Our orders are up now by 23% year-on-year in comparable currencies and our order increased more than 7% -- order book increased, sorry. The order intake increased in all business areas. Our sales amounted to nearly EUR 1 billion in the third quarter. This means a decrease of 5.5% year-on-year in comparable currencies. Despite the decrease in sales, we reached a record high EBITA margin of 16.7%. That is an increase from second quarter level of 14.3%. Our profitability in the third quarter was supported by good execution, as well as some one-off items. We will go through the performance by business area later in this presentation. The next, I will again go through some words to our general market environment. Let's start with our Industrial segment. In general, our demand environment remained good despite somewhat weaker macroeconomical data. The capacity utilization rates are the best macro indicators that describe these conditions for Industrial business area. And from the data, we can see some weakening year-on-year, but still our order intake in Industrial Service and Industrial Equipment grew in quarter 3. That was really driven by good activity in our standard equipment business, as well as some significant modernization and process crane projects. At the same time, within our industrial customers, we have seen somewhat cautious behavior, both in timing of new orders, as well as delay in project delivery acceptance. Our operating environment continues to be impacted by geopolitical tensions and volatility, especially related to tariffs. Now let's then talk about the market environment for Port Solutions. And in Port Solutions markets, we continue to see good activity. The Container Throughput Index, which is the main indicator here, continued at a strong level in the third quarter compared to the historical readings. It is now up by 3% year-on-year. And as we say in our demand outlook, the long-term prospects related to container handling or container traffic remain good overall. Now we will now next take a look at our sales and order intake development. In the third quarter, the group order intake grew by 23% year-on-year in comparable currencies, and that is an increase in all 3 BAs. Looking at geographical markets, we saw some improvement in our order intake in Americas and APAC region, as well as some weakening in EMEA. Our sales in the third quarter decreased both in reported terms and comparable currencies, which was mainly driven by the lower order book in Port Solutions. And in the third quarter, we saw a decrease in net sales for Industrial Service and Port Solutions, but very strong delivery performance in Industrial Equipment after a less strong quarter 2. On a group level, we saw a decrease in net sales in all regions. Moving on to the order book. And our order book reached its highest level since quarter 1 of 2024 and amounted to over EUR 3 billion at the end of the third quarter. We saw an increase in Industrial Equipment and Port Solutions, while there was a decrease in Industrial Service. Our book-to-bill has been positive throughout the year. And looking back to our long-term performance, our order book continues to be on historically good level. And then finally, looking at the EBITA margin development, which reached also a record high level. In the third quarter, we generated EUR 165 million of EBITA. This translates to very strong EBITA margin of 16.7%. And this performance came from really solid execution, as well as some one-off items. And EBITA margin increased year-on-year in all BAs. Industrial Equipment reached its all-time high margin of 14.1% in the third quarter. And Industrial Service and Port Solutions also had very good margins of 22.7% and 11.8%, respectively. Then let's move on to the performance towards our financial targets. Last year was very good for us, and our performance has continued strong also this year. This graph shows the rolling 12 months figures for our sales and EBITA margin and progress towards our long-term financial targets. Our group sales remained flat whilst our comparable EBITA margin increased when comparing the last 12 months to full year 2024. The group profitability in the rolling 12 months, we are at the lower end of our profitability target range of 13% to 16%. Of course, we consistently continue to work towards those targets. While increasing our EBITA margin, we also aim to continue to grow our sales faster than the market. In Industrial Service, our steady progress over the last 5 years continues and the sales in the rolling 12 months remained relatively stable, but our EBITDA margin increased to 21.5%. We are already today well in line with our target range, but naturally still closer to the lower end of the bracket. And in Industrial Equipment, sales in the rolling 12 months remained flat. And also our EBITA margin for the same period decreased compared to full year 2024. That is mainly due to the weaker H1 and particularly the weaker quarter 2. While the quarter 2 performance for Industrial Equipment left room for improvement, our performance in quarter 3 was, in turn, exceptionally strong. Also here, we will continue to work to strengthen the over-the-cycle performance of the Industrial Equipment business. Then moving on to the Port Solutions. We have continuously improved our financial performance during the last 3 years, as you can see from the graph, and we will also continue to so in -- we continue to do so in quarter 3. Our sales increased in the rolling 12 months compared to 2024, which is already a very good year. And our EBITA margin for quarter 3 remained at a high level, which resulted in an EBITA margin of 10.8% for the rolling 12 months. Needless to say that I'm very pleased with this progress. Now, I will hand it over to Teo Ottola, our CFO, for some time, and then I'll return back in a moment. Teo Ottola: Thank you, Marko. And let's move on in the presentation. Actually, before going into the business area numbers, so let's take a look at the comparable EBITA bridge between Q3 of this year and Q3 of last year. As we have seen, the margin improvement is large in a year-on-year comparison. And when we take a look at the euro, so this turns into EUR 22 million improvement. And if we unpack this next a little bit. So first, starting with pricing. So our prices were somewhere between 2% to 3% higher than a year ago, maybe closer to 3% than 2%. But nevertheless, this improvement or increase in prices is somewhat less than what we have been having in the beginning of '25. When we combine this price increase to the fact that our sales declined more than 5% in a year-on-year comparison. So actually, we are looking at quite a significant underlying volume decline in the third quarter in comparison to the situation a year ago. And this, of course, creates a negative operating leverage impacting the profits as well. But there are then several positive things supporting our profits. First of all, net of inflation pricing, so that was slightly positive in a year-on-year comparison, even though the positive impact comes primarily as a result of tariff-related price increases, so we have increased prices in line with the tariffs. But then as a result of the inventory turns being slow, so actually, the benefit comes first and then the cost will be flowing in a little bit later in terms of material consumption. In addition to that one, we had a clearly better mix now than a year ago. But the biggest explanation of all is very good execution that we had. So the performance of the business was excellent, particularly in the project execution, which is visible primarily in the ports, but also in the other business areas. When we combine into this one that our fixed costs actually were lower than what they were a year ago, we were able to create this improvement in the EBITA despite lower sales. When we take a look at the performance a little bit more in detail, so we can note that our performance this time was helped by some one-off type of levers, things. One of them was that we actually received an R&D grant in Finland in the amount of roughly EUR 4 million that was booked in the third quarter. This is, of course, visible in the fixed cost, and that is one of the reasons why fixed costs are now lower than what they were a year ago. I already mentioned the tariff-related price increases and the tailwind that we got there. So that was less than EUR 5 million, but several millions anyway. And then we had also some provision releases within the Industrial businesses. And altogether, these are, let's say, roughly EUR 10 million or so. Then the next one I'm going to discuss is not like a one-off topic. It's normal business practice. But as a result of the good project execution within Port Solutions, in particular, we were able to release provisions and that impacted positively our result in the third quarter. So normal business as such, but this quarter was better than average definitely from that point of view. So they are some of the topics explaining the profitability and the profits within the third quarter. Let's then move into the businesses and start with Service, as usual, maybe here worth noting that exactly as in the second quarter, so also here, the FX impact is quite big. So let's more focus on the numbers with the comparable currencies. In Service, order intake grew by almost 9%, 8.7%. This is clearly higher growth than we have had in the first half of '25. This growth was actually supported by some large modernization orders that were already mentioned by Marko as well. But even if we excluded those ones, or the delta as a result of the modernizations, we still would be having growth even if the majority of the growth is created by these modernization orders. When we take a look at the field service, so actually, our order intake declined in a year-on-year comparison. And in parts, it was an increase. Then taking a look at the regions, we had increase in the Americas and EMEA, but a decrease in APAC, and it's worth noting that the modernization deals took place primarily in the Americas. Agreement base continued to grow more than 5% with comparable currencies and order book was slightly lower than what we had a year ago. Net sales grew only by 1.2%. And this is, of course, less than the price increases have been. So the underlying volume actually was lower than what we had a year ago. There, the reason is basically the slowness of order intake in the field service, and we had a decline in sales in field service within the Service. Spare parts were basically stable in a year-on-year comparison. And then from the region point of view, stable in EMEA, whereas decrease in the Americas and Asia Pacific. Comparable EBITA margin improved by more than 1 percentage point to 22.7% despite the somewhat sluggish sales development. This was primarily driven by very good cost management within the Service business, but to some extent, also by pricing, which was partially in relation to these tariff-related price increases and the timing tailwind there. So then Industrial Equipment, very good order intake, close to EUR 350 million. That is as much as 26% growth in external orders when comparable currencies. When we take a look at this by the business units, so we had actually growth in process cranes and components, but we had a decline in standard cranes. And then of the regions, decrease in EMEA, whereas the other 2 regions saw growth. Then the sequential picture, which is important as well. So in comparison to the second quarter, actually, we saw sequentially a significant increase in process crane orders. Components were more or less flat in a sequential comparison and standard cranes declined slightly. Order book is higher, clearly higher than what we had at the same time 1 year ago. Sales grew very nicely, 6.3%, again, with external sales in comparable currencies after a little bit, let's say, lower first half. We had increase in standard crane and component sales, but a decrease in process cranes, which then also, at the same time, meant that the product mix was somewhat better than a year ago. Then when taking a look at the margin, so excellent EBITA margin, 14.1%, a very big improvement in a year-on-year comparison, of course, driven partially by volume. So the underlying volume improved here in Industrial Equipment quite a bit. There were also some of the one-off items that we already discussed. For example, the R&D grant is mostly visible in the Industrial Equipment. But then also good execution otherwise, as well as the optimization program that we have been running has been giving benefits also for this quarter. And the mix also was slightly better than a year ago. Port Solutions, good order intake or excellent order intake here as well, more than EUR 450 million, that is 36% growth in a year-on-year comparison. We had very good order intake in yard cranes. This would mean primarily RTGs and ASCs. If we take a look at the regions, Americas and APAC improvement, EMEA, a decline. And here also, again, taking a look at a little bit of the sequential topic, but also the so-called short-cycle product categories within Port Solutions. So lift trucks, there we had year-on-year growth in the order intake, but sequentially down. And then from the port service point of view, we had growth both year-on-year as well as sequentially. Sales was clearly down by almost 19%. This was, of course, known from the point of view that the order book was lower for the third quarter than a year ago. So order book overall is in good shape, 10% higher than a year ago, but the same thing continues now for the fourth quarter as we had for the third quarter as well. So we have less order book for the fourth quarter now than what we had 1 year ago for the fourth quarter. So the order book is more beyond this year or beyond the current year than what we had the situation 1 year ago. Comparable EBITA margin developed very well, 11.8%, 2.2% improvement. This is, obviously, not driven by volume because the volume declined very much, but primarily because of the very good execution, supported by some of the provision releases, like I said, and then also the product mix, particularly in Port Solutions was clearly better than a year ago. Then next, a couple of comments on the net working capital, cash flow. We actually had net working capital of only EUR 285 million at the end of the third quarter. That's only 6.7% of rolling 12-month sales. This is very well in line with our target of being below 10%. If we take a look at the, let's say, delta to the situation a year ago, it is primarily inventories where the decline has come. And then in sequential comparison, it's maybe more accounts receivable. This net working capital development, together, of course, with the good result meant a very good free cash flow on record levels, this one as well, more than EUR 200 million, which is then, of course, consequently leading to this slide where we now actually, during the third quarter, have moved from being in net debt situation to being in net cash position, not much, but negative gearing anyways at the end of the third quarter. On the right-hand side, we can then see the return on capital employed, which is 21.7%, and this is a comparable number, but also the reported number is more than 20%. We have added actually a slide on the U.S. tariffs as well because that, of course, continues to be a relevant discussion topic. On the right-hand side of the slide, we have the Konecranes exposure. So these are the numbers that we have already given earlier. So the internal volumes from Europe to the U.S. is EUR 180 million or less than EUR 180 million. And then on top of this internal volume, we obviously then also have deliveries of fully assembled port cranes and lift trucks. We are, of course, subject to the normal reciprocal tariffs of 15% in, for example, in the complete cranes. But then many of our components, particularly spare parts are also subject to so-called steel derivatives where we are then subject to a 50% tariff. And also the tariff codes added now to the steel categories in August was impacting us as well so that we have now more components and parts within the 50% category than what the situation was before. What we have done is that, we have increased prices, more or less, in line with the tariffs. We are, of course, monitoring the situation. We are monitoring what the competitors are doing, how the customer demand is developing. We are discussing with the suppliers to be able to define the steel content of the components because, of course, that can help us to, in a way, get the tariff, particularly the steel derivative tariffs on the right level if we can prove that what is the share of actual steel in the components. So all in all, we have been able to manage the pricing well. This most likely will become somewhat more challenging going forward so that maybe not all of the tariff increases are possible to put into the customer prices. We do not expect this to be having any major impact on the margins, but the situation may be in the future, a little bit more tighter than what it has been so far. This actually was the last slide that I had, and now I invite Marko back to the stage. Marko Tulokas: Right. Yes, let's see how this works. So we had some issues with the first slides earlier. So now this should be now working again. So now let's look at our demand environment, demand outlook. So our demand in the industrial customer segment has remained good and continues on a healthy level. However, the demand-related uncertainty and volatility, due to these geopolitical tensions and trade policy tensions remain, particularly in North America. This translates into higher uncertainty, both in the timing of the order, as well as some postponement of maintenance activities within industrial customers or Industrial Service customers that, of course, may impact also the delivery performance or delivery acceptance of customers. Our sales funnel remained on a strong level and funnel development during the quarter was stable. Comparing against the previous quarter, the numbers of new sales cases is slightly down. Then to our port customers, the global container throughput continues on a high level and long-term prospects related to global container handling remain good overall. And our pipeline of orders is good and contains projects of different sizes. And I'll reiterate our financial guidance for this year. Our net sales is expected to remain approximately on the same level in 2025 compared to 2024. And we continue to expect that our comparable EBITA margin is -- to remain approximately on the same level or to improve in 2025 compared to last year. Now, before we start the Q&A, I'd like to go over 3 themes that we are leveraging to build on our strong foundation and to -- continue to drive the long-term profitable growth. Historically, looking at in the long-term -- long run, these have been and are the fundamentals behind our success, and they are the ones that are still very relevant today and will continue to provide us further runway also into the future. First of all, our Konecranes customer base is diverse and global. Our dual channel market approach gives us the most comprehensive access to customers globally and to different segments. Our broad product and service life cycle offering continues to give us an advantage when catering to the customers' wide needs and create stability against customer segments demand volatility and helps us to address specific customer segments within those markets. This approach to the market, our offering and our customer excellence culture is critical, but personally this -- but it's also personally something that I'm passionate about and I want to continue to foster. And then secondly, I would like to emphasize the life cycle approach of Konecranes. Developing a service and life cycle approach over decades has been and is very much in the Konecranes' DNA. We are not only providing equipment to our customers, but also taking care of them during the lifetime. That long-term customer relationship and focus on servicing all makes and moves -- feeds our service -- sales funnel continuously with equipment and service products. That -- this cornerstone in our operating model has served us well, but it continues to provide us further runway for growth and efficiency. The life cycle approach is naturally our way of doing business, but it's also the only sustainable way to operate in today's world. And thirdly, it is the technology leadership. So Konecranes has been the innovator in this market and reinforcing our technological leadership continues to be crucial. So focusing on technology innovation and development allows us to differentiate our offering versus our competitors. It creates more value to our customers and helps us to leverage the life cycle approach even more in the future. So in conclusion, we have a strong foundation and great teams in place to build on our success and drive for expansion and growth. And I thank you very much for your attention. Now we move on to the Q&A. So Linda? Linda Hakkila: Thank you, Marko, for the presentation, and thank you, Teo also. So now we are ready to start the Q&A session, and we will first start taking questions through the conference call lines. So, operator, we are ready to start taking questions. Operator: [Operator Instructions] The next question comes from Daniela Costa from Goldman Sachs. Daniela Costa: I want to ask on 2 things. First, I guess, starting with the growth in Industrial Equipment, given you mentioned sort of like the capacity utilization figures in the beginning, which haven't sort of yet started any big recovery. Can you talk about sort of what drove -- was there any particularly -- particular verticals? Was there some prebuying on the components? Or what has -- or market share gains or something, what has kind of caused really the strength there and how sustainable you see that going forward? That's first. And I'll ask the other one after. Marko Tulokas: Yes. I mean, maybe the key reason there or the main point is to say -- you refer to the segments or the verticals. And, of course, that is -- although the general capacity utilization may not be yet more on the contraction, not reinvestment level, but there are several verticals that are quite strong at the moment and drive demand. I'd just name a few. The obvious one, I guess, on everybody's lips is the defense segment. So that has been, of course, a topic for quite a while already. And in the third quarter, we not only saw more opportunities in the funnel, but we started to also see quite a few actual orders in that segment. That is a clear example. There are other areas where the long-term investment trend for other reasons than just productivity or capacity utilization are strong and maybe aviation is another example of where there's quite a lot of investment activity. And there are a few others. And that, of course, is one of the key reasons why we continue to have a solid order intake there. And then, of course, finally, I would also say similarly in the Port segment, when we talk about larger investments or bigger projects, particularly in the process crane side, they tend to take quite a while to decide and for the customers to make the investment decision and then place the order. And therefore, it is not always exactly easy to forecast or predict. And secondly, not always exactly in line with the macroeconomical indicators. Daniela Costa: And the second one just on Port Solutions. I think in many calls before, you've talked about sort of the opportunity or on the whole STS situation in the U.S. with replacement of Chinese cranes and tariffs there. But the U.S. is just proposing an even bigger scope of what they could be putting in terms of tariffs on China. I know about a year ago, you said that you were building the supply chain domestically there for the STS. Can you talk a little bit about, let's assume, this 100% on STS and the 150% in the remaining port equipment would go through? Where do you stand now in terms of building the capabilities to supply and to get a share of this opportunity domestically? And are there any side effects elsewhere in the world where you're seeing any increase in competition from the Chinese? Just give us a picture of how this has changed given the scope seems to be changing of what will be included there? Marko Tulokas: Maybe I'll start and then you complement in case I forgot some part of the question. First of all, the recent development in those tariffs that was early -- announced in early October, they're, of course, not yet, in our understanding, completely clear on what is the scope of application. And secondly, what is actually how much tariffs are being applied. So there is a certain uncertainty and, of course, what will be the final solution. And that, of course, is for us and also the market, something that needs to be and must be clarified in the end. But that doesn't take away the essence of your question, which was that have we been preparing? And the answer is that, yes, we continue to prepare for the possibility to manufacture in the States. And we have been looking, mainly based on subcontractors and utilization of our own existing facilities and the industrial team that we have in the States, which is more than 2,000 people today in several manufacturing sites. So we have an opportunity to explore that, too. But that is the local U.S.-made scope. There is that, let's say, gradual up parcel or move to that direct -- to that eventual outcome, which means that there are products that would be manufactured in Europe or other parts of Asia. And there, we have even more activities going on and readiness for supplier as it is already today. I recall that your last part of your question is that, do we see increasing activity elsewhere? Then to some extent, might be the right answer, and that is maybe more towards the other parts of Asia as well as in the Southern Hemisphere. Teo Ottola: Yes. Maybe to add on this competition elsewhere topic that, of course, if we talk about the STS', so we will need to remember that the market share for the Chinese competitor is also globally very high. So that this, of course, in a way, it may increase the competition elsewhere, but the market share already is there for the competition also outside of the U.S. And then if one takes a look at the RTGs, so there the situation is that the, let's say, our relative market share in the U.S. is significantly bigger than what it is for STS'. So there, on the other hand... Marko Tulokas: And it would be the same elsewhere also. Teo Ottola: Yes, and would be the same elsewhere. So that these 2 products are from this geographical split point of view, a little bit different. Marko Tulokas: Yes. Operator: The next question comes from Panu Laitinmäki from Danske Bank. Panu Laitinmaki: I have 2. Firstly, on the margin outlook. So, obviously, Q3 was strong and had some one-off positives that you mentioned, and it was above your long-term target. But how should we think about kind of Q4 and going forward, given that you kept the guidance where the low end of having margins at the same level as last year would imply quite, let's say, lower margin for Q4, if I would read it kind of directly? So, yes, could you explain how should we expect margins to develop going forward? Marko Tulokas: Maybe you start with this, Ottola. Teo Ottola: Okay. I can. So, yes, the short answer to the question that do we expect the fourth quarter margin to be equal to the third quarter margin? So no. So we are expecting fourth quarter to be lower than the third quarter. Third quarter was high. And, of course, there are these topics that we were discussing, there is about EUR 10 million or so, let's say, clear one-offs, one can say the product mix was very good. So this is maybe not a one-off, but doesn't necessarily repeat itself as such. And then the productivity or efficiency or execution, whichever word we want to use, was particularly good in the third quarter. So maybe from that point of view, Q3 was a little bit of exceptional. Other than that, of course, unfortunately, other than what we have in the guidance and what now concluded between, let's say, our expectation on Q3 versus Q4, we are not -- or we have -- we do not communicate more on that, unfortunately. Panu Laitinmaki: Okay. Maybe another one is on the order intake outlook. So, I mean, it's a bit mixed if I listen to you, you say that there are less new cases coming to the pipeline and you flagged increased uncertainty in the market. But on the other hand, we saw pretty good orders in Industrial Equipment and you mentioned these strong verticals. So, I mean, what should we expect going forward? So is it kind of driven by these strong verticals better than the macro implies? Or are you seeing some pressure from macro going forward? Marko Tulokas: Yes. Of course, when we look at these new sales case trends and so forth, that tends to fluctuate a bit month after month, so that's maybe something not to put too much attention. But generally speaking, the -- and it's good to remember that we operate in so many customer segments that quite well kind of evens out these fluctuations in the different segments. And now we are held with certain strong segments that are making up for that, let's say, general somewhat more fluid picture. But what can just be simply said that our sales funnels in the industrial side, and I understand you were more referring to that are stable and they are on a good level on average. Teo Ottola: And maybe to build on that one, I mean, like you pointed out, so the sales funnels are basically stable and the number of new cases is slightly down. I mean, if there's nothing major there. But actually, the average size of the case is slightly up. And that's why the funnel as a whole looks fairly stable despite all macro discussion and topics that there are. Operator: The next question comes from Antti Kansanen from SEB. Antti Kansanen: It's Antti from SEB. A couple of questions from me as well, and I'll start with something that Teo, you said on the EBITA bridge that you flagged that you had maybe a temporary benefit from tariff-related price hikes. So I didn't fully understand what you mean by why would you benefit first? And what were you referring then on the cost impact that might come later? So a bit more clarity on that one, please? Teo Ottola: Yes. The reason is that, when we are increasing the prices at the time when we start to import the goods to, for example, in this case, to the U.S. So first of all, we have old inventory in the U.S., which is with the old prices. That's one thing. And then the other thing is that, when you are using average price in the inventory, so it tends to be so that the material consumption comes through at a different time when the sales number actually comes. And this may create a mismatch, which we are here also seeing. So that's good when it works like this. But then the reality is that, as we have not tried to gain anything on the tariffs as such. So, of course, the disadvantage will be coming a little bit later. It can take a while, depending on the component that we are talking about. In Service, it will come quicker. In Equipment, it will come a little bit later, but it will balance itself over time. Antti Kansanen: Okay. But it doesn't sound like this would be a kind of a major driver for any margin fluctuation that we're seeing, for example, on the Industrial Equipment side, which was obviously a big step-up from the second quarter and maybe there will be a bit of a step down, but this is not a massive driver on the margin? Teo Ottola: The overall number, like I said, is less than EUR 5 million, and it is split basically between Industrial Equipment and Service. So from that point of view also, it's not a massive driver. Plus it will not probably vanish in 1 quarter. Marko Tulokas: Right. Teo Ottola: So it will take a little bit -- it's like a rolling in a way, impact because of the average price that we, in practice, have from the inventory management point of view. Antti Kansanen: Okay. And maybe a second kind of clarification, the EUR 10 million or so that you're kind of flagging as say, EBITA one-offs this quarter. That's mainly on Industrial Equipment, impacting mainly the Industrial Equipment division. Am I correct? Teo Ottola: That is correct. So actually, the tariff-related price tailwind that we just discussed is more in Industrial Equipment than in Service, exactly because of this thing that the impact comes through quicker in Service and slower in Industrial Equipment. And the R&D grant, which is the other big topic is primarily within Industrial Equipment. Antti Kansanen: Okay. And then the second question, maybe this is a similar topic, but project execution on the port side. If I remember correctly, I mean, the previous quarter margins on the ports were very good as well compared to the history. I didn't remember that you flagged mix back then, but that was also kind of a good execution and now continues on the port side. Is there something that we should maybe see as kind of a structural improvement, something that we can extrapolate going forward? Or are we still kind of wait and see whether this is sustained? Marko Tulokas: Well, I'll start again then. First of all, in the ports execution, I mean, always one thing that happens, these are big projects. And when you deliver a big project, of course, you make certain provisions for that project risks. And this execution in this particular quarter, some of those provisions were released. And hence, that's also relative to the sales. So the volume impact wasn't as big. It has some mix impact. But the underlying reason is the same that our project execution has been on rather conditions. There isn't or hasn't been recently any significant, let's say, difficult projects. That, of course, in the nature of the business cannot guarantee that that would not happen at all. But I think our project management capabilities already over the last few years have been improving kind of consistently. And in that way, we are kind of confident that we can do that quite well now. But it doesn't remove the fact that, I mean, in that sort of business that there is some risk involved also. Teo Ottola: Yes. The main point from our point of view is, of course, to be able to have this improvement trend so that, of course, every now and then a quarter is better and then maybe also worse. But when the trend is in the right direction from the project execution point of view, so then things are good from our point of view. From the mix point of view, there probably isn't anything structural that would need to be taken into consideration. We have, of course, consistently been saying that we want to grow more in port services than in other areas there. But as long as we have good order intake from the Equipment point of view, so this will not be visible in 1 quarter or maybe even in 1 year so that this is a much longer sort of project to change that structure. Antti Kansanen: Okay. Then last one for me is on the order side. I mean, I guess there was a couple of bigger ones that you flagged both on Industrial Services, on the process crane side, obviously, on the ports as well. Was this a bit of an active quarter in terms of big projects? And is there something explaining the timing? Or am I just reading too much into it? You also mentioned that the average case size is growing. So was this a particularly active big project quarter for some particular reason or just a coincidence? Marko Tulokas: I mean, coincidence is maybe not the word that I would use, of course, it's part of a consistent and continuous work and working on the funnel and the timing of the orders because the customer-related reasons sometimes, of course, happens. It's not entirely under our control for sure. Maybe I'll answer that mainly related to the process crane business, and you see that the process crane business orders particularly was good. And in that case, I'd say that we had, in the same quarter, several quite successful larger projects, whether it is in power or aviation, or to some extent, also elsewhere. So that is maybe a slightly larger than usual quarter, but that doesn't take away that both in the ports and in the industrial process crane side, there are still further opportunities in the funnel also. This is just timing-wise, particularly in process crane good quarter. Teo Ottola: I would say that it would be a little bit difficult to find the connection between the decision-making timing and something that has happened in the world from the macro point of view or even from the macro point of view to us so that coincidence is not the right word, but there is probably not a big scheme behind that would explain this timing. Marko Tulokas: If you find, please least let us know. Antti Kansanen: I'll do that. Operator: [Operator Instructions] The next question comes from Tom Skogman from DNB Carnegie. Tomas Skogman: This is Tom from DNB Carnegie. Sorry for asking about the margin guidance, but I mean, the January to September margin is already 1 percentage point higher than it was 1 year ago. So is there any reason you did not change the guidance in group that we should be aware of as a risk element for Q4? Marko Tulokas: Maybe, Tom, since they asked the previous related question also, you can start on this, too. Teo Ottola: There is -- we are not expecting anything dramatic in the fourth quarter that would be somehow deviating from the normal course of business significantly. I guess that it is rather that we would be saying that the third quarter was a little bit on the higher side because of the topics that we have been discussing. So fourth quarter -- this year's fourth quarter, like many other years' fourth quarters as well. So it is a combination of primarily of mix and then, of course, the underlying volume. And this balance is then, of course, very important from the margin development point of view as well. Tomas Skogman: Okay. If then looking at kind of building blocks for 2026, I would just like to get a bit of clarification when I do my own EBIT bridge. So to my understanding, there is no cost-cutting kind of program ongoing for next year. So what do you -- what would you like to guide when it comes to fixed costs? And this modularization of products, is that kind of rather a negative or a positive next year as you have indicated you have both the new and the old generation of products in manufacturing next year? Marko Tulokas: I didn't quite get the last part, so I'll let Teo answer that. But the first part when it comes to the fixed things, we first -- we don't guide the fixed cost per se, but there is some tail end of this industrial restructuring program also remaining. And, of course, when it comes to fixed cost, we are closely observing the demand environment. And we have also, during this year, made adjustments to the organization as needed based on the demand environment. Teo Ottola: I guess the other question, if I understood Tom correct, was that is the product renewal/launch in Industrial Equipment going to be a positive or a negative for '26 in comparison to '25? Marko Tulokas: Sorry, Tom, I didn't quite get that. So yes, first of all, those launches are now progressing basically to the second launch year. And during this year, the launch has been towards the second half proceeding all the time better. So I mean the amount of products that we are converting is catching up is probably a good way to say it. So that is proceeding quite satisfactorily, I would say. And now we have in all 3 regions, the new viral posts available also. So in that sense, the readiness is there. It is -- as I think I explained also last time when you have a new product, you run in manufacturing for some time, you will run 2 products in parallel. And that, of course, has the tendency to increase manufacturing cost. And secondly, you have some product cost, variable cost-related timing to catch up with the old legacy product that has been in the market for quite a while. In both accounts, we have still next year, some costs on the new product that are higher than the existing product. But we are moving ahead quite well on that, and we are -- we have been kind of preparing for that for the most part. So I wouldn't take that as a very significant consideration. Tomas Skogman: Okay. And then the big tariffs on RTG cranes, I don't understand why we discussed so much the STS cranes. I mean, isn't the RTG crane the big opportunity for you in the U.S. I mean, that is much more high-margin products than STS cranes and the Chinese companies have been very strong there as well. And in that product, you have already set up to deliver quickly basically. Marko Tulokas: Yes, that is true. At the same time, it is -- although we don't exactly comment on the competitors' market share in the region, but the Chinese competition in this case is not as big on the RTGs as it is on the STS. That's maybe the main reason to your -- or the main answer to your questions. Tomas Skogman: But do you expect kind of a clearly increased market share in RTG crane orders in '26 and '27 if the current tariffs are holding up basically? Marko Tulokas: No, I think, like I said, the Chinese competition where this is facing, of course, is not big on RTGs in the same way as they are on STSs. That's probably as much as we can say on that market topic. Tomas Skogman: You don't want to disclose at all what -- I understood that the Chinese have not 50% of the market, but 30%, 40% of the market in the U.S. Isn't that right? Marko Tulokas: Not in the RTGs. Not on the RTGs. Tomas Skogman: Okay. Then finally, on electrification, it's like a big theme. Do you have -- all companies that operate within electrification show pretty good growth at the moment. But what of these ones are big end customers to you that you see that they are expanding and ordering cranes from you? Marko Tulokas: Did you say -- I think the line is a little bit bad. Did you say what are the big customers... Tomas Skogman: Electrification -- just generally, electrification is a very strong sector when we look at the engineering. And you have a lot of sales -- I mean, it could be Hitachi, it could be ABB or Siemens or whatever, but what type of products do you see strong demand? Marko Tulokas: Okay. So you're asking our demand from that segment that benefits from the electrification. Sorry, I misunderstood. I understood our electrification of the products now I heard that, of course. Yes. I mean, of course, that is one demand driver that when the whole world is more moving towards electrification, automation and in that way, more sustainable, then that drives demand in different ways, more directly and indirectly. And this indirect demand that is coming from the investments to the more sustainable machines and so forth is driving also demand in these customer segments. They are, however, generally speaking, not as large or as big crane users as many others. But it is true that we -- you can see that positive demand in also in those segments and in some cases, also quite large pieces of equipment. So, I guess, the answer to your question is that, yes, that is certainly a one demand driver also. Tomas Skogman: And what about gas turbines? They are investing massively at the moment, for instance, the gas turbine manufacturers. Marko Tulokas: Gas turbines is one way, of course, I mean, besides wind and nuclear and hydro and a number of other things are one way of generating the electricity. We have seen it historically also that demand moving from one technology to others. And now it is more maybe on that gas and, of course, the wind and nuclear and so forth. So that is true. But on the other hand, it is then being -- there is a reduction on the other side at the same time in the other technologies. And those are typically the users for those sort of equipment for gas turbines, there are other large pieces of equipment or bigger projects because of the technology involved. Operator: The next question comes from Mikael Doepel from Nordea. Mikael Doepel: Just a follow-up on the order intake here. So, I guess, what you're saying is that you had a few big orders in the quarter across the key segments -- basically across all segments actually. But you're also saying that you have a fairly good pipeline of projects, both in Ports and Industrial. Just trying to get my head around looking at the numbers in Q3, EUR 1.1 billion, how would you describe that? Is that normal in your view? Or is it exceptionally strong? Or how should we think about the level of orders in the quarter and when we think ahead from here? Marko Tulokas: I mean, you're referring to quarter 3 now or the following quarter… Mikael Doepel: Yes. Exactly. Marko Tulokas: Yes. I mean that was the same topic that we discussed a moment ago. So I would maybe reiterate, first of all, the really strong funnel is maybe not what we said earlier. So we have a stable funnel and there are opportunities, large opportunities also in the funnel as there has been on the first half of this year. So that hasn't per se changed. And it's a timing question when those actually realize. That is not something extraordinary. They have always existed there and it's just more -- are kind of timing-related topic that when they actually mature and so forth and now particularly for the industrial side of things. So it is -- it was a good quarter also from a bigger project point of view and hence, the large order intake. But as it was stated by Teo also earlier, we had a rather stable order intake in the other -- very stable order intake in the other areas, broadly speaking, too, and growth in the agreement base and growth in basic service, too, which is in that way, many way, the very important thing also or most important thing. Mikael Doepel: Okay. And on that topic, actually, I missed what Teo said in the beginning on Industrial Equipment when you talked about the sequential order intake increase. If you just could repeat that, please, in Industrial Equipment? Teo Ottola: Yes. Sequentially, we actually had a very big increase in process cranes. So in the heavier side, we were more or less flat on the components. So -- and then the standard cranes were slightly down. So standard cranes were actually down both sequentially and year-on-year, whereas then process cranes this time have done well in the third quarter. So it was up both year-on-year as well as Q-on-Q. Marko Tulokas: With not a very good year last year. Teo Ottola: With -- maybe against easier comparables, that is correct. And components, which is maybe the most important one, taking a look at it from the demand point of view, has been, let's say, up year-on-year and flattish sequentially. So, I mean, very hard to conclude anything significant from that one either. Operator: There are no more questions at this time. So I hand the conference back to the speakers for any closing comments. Linda Hakkila: Thank you very much for all your questions. We have covered a lot of different topics, but I would still have one question left here in the chat. So, can you please talk about the ship-to-shore cranes opportunity? Where can you produce outside of China? And do you need any additional CapEx to start new production? Or is it possible to use the existing plants? Marko Tulokas: Well, for the STS cranes, we have and we have had also the possibility to produce those products also in this time zone in several places. And there are 2 locations in APAC and Southeast Asia, where we have also working on a subcontracting-based model to produce STS cranes. So that is nothing new as such. So that is a typical thing for us that we have to make sure that we have several kind of channels in place all the time. Now because of this situation, we have been, of course, accelerating those activities or those projects to find the subcontractors. Linda Hakkila: Thank you, Marko. I think this concludes our session today. So I want to thank you all for following our webcast, and I want to thank Marko and Teo and wish you all a lovely evening. Thank you. Marko Tulokas: Thank you very much. Teo Ottola: Thank you very much.
Essi Lipponen: Hello, and welcome to Fiskars Group's Q3 Results Webcast. My name is Essi Lipponen, and I'm the Director of Investor Relations. I'm here with our President and CEO, Jyri Luomakoski; and our CFO, Jussi Siitonen. Jussi Siitonen: Hello. Essi Lipponen: Here is our agenda for this webcast. Jyri will start with key takeaways of the quarter. After that, Jussi will walk us through the financials and then back to Jyri for business area specific performance and guidance. After the presentation, we will have plenty of time for your questions. We will take questions both through the phone line and through the chat. You can type in your questions in the chat already during the presentation. Before diving deeper into Q3, I still wanted to highlight the news that we shared last week. Jyri Luomakoski has been appointed as the President and CEO of Fiskars Corporation following his interim role in the same position. But with this piece of information, I will hand over to you, Jyri. Jyri Luomakoski: Thank you, Essi. It's a pleasure being here. If the numbers would be better, the pleasure would be even bigger. But let's go into the quarter. Key takeaways, some things went well and some clearly less good. And if we start with the positive ones, our net sales turned to growth, and this was very much driven by several of our Vita brands, actually, most of our Vita brands. And Vita grew in Q3 in the magnitude of 8%. The other positive thing is that we had actually a solid growth in the U.S. The market, which has been in some kind of a turmoil as a consequence of the tariffs, consumers becoming uncertain what's happening there, it seems that our value proposition to the consumers has been such that it's continued to appeal and we've had good development there. What didn't go well is certainly the decline of our comparable EBIT in the quarter. And this is much driven by our additional costs in the supply chain and many of them are self-inflicted. Why? Last year, the inventories started to grow, and that was still happening in the beginning of this year in our BA Vita. And we started very determined actions to take down the inventory levels by curtailing production. As a consequence, when you curtail production, your supply chain costs are partly fixed and there is less volume to absorb those costs. So it was a kind of a premeditated action from our side to prefer cash flow and go into '26 without too much of excess baggage from the inventories. What I will soon come back when we get to the BA updates, but in our Fiskars business area, the innovation pipeline actually over the last 1.5 years or so has been more than doubled. And that's very important to stay relevant to the consumers, but soon getting back to that. And then as a consequence of this, we specified actually our guidance. Comparable EBIT range was narrowed to EUR 90 million to EUR 100 million from the EUR 90 million to EUR 110 million. And currently, as we see the market picture, that is pointing us to the lower end of that range for the comparable EBIT for 2025. Turning over to Jussi, please. Jussi Siitonen: Thank you, Jyri, and hello, everyone. So I continue with this positive news what we had in Q3, i.e., top line growth, solid 4.1% growth, so that Vita was up 8.2%, then Fiskars BA came down slightly, 0.9% negative there. Actually, this is the first quarter since Q2 2022 that we were able to deliver this kind of mid-single digit solid growth. There are a couple of good news also where this growth is coming. So the fundamentals are in place. It was very broad-based. If we take our top 15 countries, which represent more than 90% of our sales, 12 out of 15 countries were growing in Q3. Also same for brands. If we take our top 12 brands, 97% of sales, 10 out of 12 brands were also growing in Q3. So it was very broad-based. EBIT, EUR 13.9 million came down EUR 10.4 million from last year for 2 main reasons. Jyri already mentioned the supply chain issue, what we have there of under-absorption of fixed cost when it comes to our production volumes. Another one is our SG&A cost. When it comes to SG&A part, it's mainly phasing between Q3 and Q4. On gross margin, EUR 46.7 million. It was down 140 basis points from last year, so that Vita was down 380 basis points, 3.8 percentage points there. And Fiskars BA was actually up 110 basis points. On cash flow and I will go a bit deeper to that after a couple of slides, it was up from last year, around EUR 7 million, but still negative of EUR 10 million. If we dive a bit deeper about this EBIT bridge here and where the difference versus last year were coming from. So as said, group was down this EUR 10.4 million, so that Vita was down EUR 7.5 million and Fiskars was down EUR 1 million. The rest is from other operations there. Focusing first, what we have here on the right, i.e., Fiskars BA. So you can see that underlying gross margin was quite significantly up there and only partially offset by tariffs. For the actions we have put in place there, as we said after Q2, are now impacting positive results there and are mitigating the tariff impacts in Fiskars BA. Same what I mentioned already about SG&A, you can see here. So Fiskars BA, SG&A slightly up versus last year, but that's also mainly phasing. On the middle, you can see Vita bridge, which is down to EUR 7.5 million, as I said. Here, you can see the impact of the supply chain challenge, what Jyri explained. So that was one biggest -- big driver there. And also in Vita, it's mainly SG&A phasing what we have there, showing quite strong negative numbers in Q3, but we assume based on what we have seen that that will be somewhat offset in Q4. Overall, when we are talking about SG&A here, I would say that year-to-date SG&A, which is flat versus last year, it's a better proxy for full year than just looking our Q3 numbers. And then, of course, the group as a summary of those 2 BAs down this EUR 10.4 million so that even at the group level, our underlying gross margin was improving. But then as a total, it was more than offset by those tariffs. Moving then to cash flow. As I said, cash flow was negative EUR 10.2 million here. Even though it improved from last year, it was still negative. And of course, this is the topic we are not very happy with. The actions we have been put in place or already put in place or Jyri also explained here are the ones we are focusing now also for the rest of the year 2026 to get cash flow back on track. Here, you can see the impact. I would focus more on year-to-date cash flow here to avoid this kind of seasonal volatility. The challenge what we have is well illustrated here. Inventory is up some EUR 46 million, whilst last year for the same first 9 months period, it was down similar type of number. So we had significant delta, negative delta there when it comes to our inventory situation. And then quite naturally being a component of net debt and EBITDA, the net debt continued increasing due to this negative cash flow as a main single reason there and then that we are behind last year with EBITDA. The fact is that net debt EBITDA went up from last year being now 3.7x. Our target maximum 2.5x is still valid and we remain committed to this target. And therefore, this is one example why we have initiated those actions to mitigate inventory inflow and make sure that actually we get back on track with this net debt EBITDA. But with that, giving back to you, Jyri, on BAs. Jyri Luomakoski: Thank you, Jussi. And briefly on our 2 business areas, starting with Vita, which is approaching its annual high season, which is the fourth quarter. And here, we've seen, as earlier mentioned, a broad-based net sales growth. So if 10 out of the 12 top brands are growing, that I think we can call a broad-based and geographically also broad-based. It's not just one market which is booming and the others not performing. And the inventory-related actions, we've touched quite much upon. And when we look at the growth, and Jussi mentioned, it's several years back when the group was reporting this magnitude of growth numbers and I think it's over 2 years you need to look back till you saw a growth quarter in Vita. And this is extremely important for us driving our performance that we have the underlying growth, have used the kind of a comparison or parallel to steer a ship that does not have any propulsion is very difficult. And the same applies to company growth being kind of the propulsion for the business too. Actions that we started to look upon in the summer already recognizing the inventory levels that the only way to solve the 2 big inventory issue is really to curtail the inflow and, of course, start to boost the outflow. When you look at the comparable EBIT margin, really the big delta is coming from the supply chain aspect and the phasing-related SG&A. The underlying -- preempting maybe a very logical question that would be arising out of the numbers, the underlying gross margin or in terms of pricing, we do not see anything that would be alarming us, and that's extremely important. So when we have the propulsion, i.e., growth and the brands are loved by the consumers, then I think we have the ingredients to improve our position. And that's what the guidance also implies. A few highlights, leveraging our assets -- production assets in the more complicated glass production, which economically industrial logic is more of a process industry logic. Royal Copenhagen, one of our biggest brands, very successful brand has now actually next to the hand-painted porcelain launched also high-end glassware with crystal and mouthblown glass. And those are manufactured in our crystal factory in Rogaska in Slovenia and in our Iittala factory in Finland. So good both for the supply and complementing the offering towards our consumers to have a complete Royal Copenhagen tableware and glassware set. Iittala has expanded now to the scented candles. And when you look at those before you even light them up, you see a form or shape that we all can recognize. So it's the Aalto silhouette. And this is something that appeals as a decoration item and now getting into the darker, less light time of the year, what is then nicer to than have a beautiful scented candle lighted up and you can enjoy all the effects. And actually, the fire is bringing one of those, it's the elements of glass that are the 3 scents, water and sand and air that are in this offering. When we talk about desirable brands, you might recall that historically and I still read in many reports about luxury. We have actively dropped the word luxury. We recognize that to be luxury, there are certain characteristics that many of our brands actually would fulfill, but not all of them. But our brands are very desirable. And one of the kind of manifests to that desirability, Moomin Day in the early August time frame. It was a few days -- a few hours online. We actually sold out the Moomin Day celebration mug. When the sales started, there were about 50,000 people queuing online. And interesting, when I bypassed our store at the Helsinki Airport at the Schengen side, the store opens at 5:00 a.m. Normally, our stores open at 9:00. And at 5:00 a.m., according to our colleagues there, actually there was a queue outside of that. So there were some happy ones who got 4 hours before others their Moomin Day mug. So I think that's a clear manifest to the desirability of a brand, but describes what we have in many of our brands. Moving over to Fiskars business area, relatively stable top line. And as you saw in the bridges, EBIT bridges Jussi just showed, the gross margin improvement and the tariff cost, the incremental tariff costs have been pretty well matching each other, which is a remarkable achievement by the team in terms of managing the situation, which is complicated. It's still fluid situation, as we know. Tariff announcements are still in the air and how those -- some of them will settle, we don't know yet. But a decrease of 0.9%. And when I look at many peer companies who have recently published their numbers, I think we've been weathering this storm extremely well and implicitly indicates -- and I don't have the proof in any formal statistics, but indicates that we've been actually able to capture some market share and have remained definitely relevant to our consumers. In terms of how to capture the market share, there are a few keys, but one of them is also continued distribution gains, which we also see that we still have a clear pipeline of distribution gains coming for this business. Looking at the highlights, many know Fiskars as either the scissor or the axe, or the garden business. Now here highlighting the latest generation, the Fiskars Ultra axe range, which is, again, how the world's best axes have been made even better. And there is a established heritage and know-how and this is a product family now we all are proud of having been able to launch it. Innovation focus. As I mentioned earlier, our Fiskars business area has more than doubled its innovation pipeline in the last 20 months. And this is not only nice picture and promises on November 11, actually, we are arranging for institutional investors and analysts an investor event that will be then broadcast or webcasted, get to know business area, Fiskars. Last spring, we had a similar event in Copenhagen for our BA Vita and the feedback from analysts covering us, some fund managers attending that was very positive that we really show what we are doing, who is doing it, and we are proud to show what will be there available soon also in the stores coming out of the innovation pipeline. So it's not only talk, but there will be a chance to get a look and feel and the touch of these new products that are coming partly later this year, partly in the coming year. Our sustainability targets, we take them extremely serious and continue our commitment there. And when we look at certain environmental criteria, circular products and services, we've been able to grow the share by 300 basis points from last year's September level of last year's first 9 months, but there is still a way to go towards our 2030 target that half of our sales comes from circular products and services. What might not look too ambitious currently is when we have reached minus 61% on our Scope 1 and 2 emissions from our own operations, 7 percentage points improvement year-on-year. The target was 60. So it looks quite favorable that we are reaching -- actually have now reached that target. Then how to tackle our -- the fact that our Scope 3 emissions is defined by us as a percentage of suppliers spend, how many percent have spent to vendors who have committed to science-based targets. And there we've been moving sideways and still have some way to go towards our target. So we are currently at 65%. And in our H1 reporting, in that context, we also flagged out that the rebasing of some of the sourcing for our U.S. business might actually take us a small step back short term before the new vendors can be qualified and submit their science-based targets. But it's not a target that we want to give away. On the social side, the zero harm target remains in force. We have 3.5 as our lost time accident frequency per million hours worked. It is a notch up from a number of a year ago, which is very unfortunate, but the work continues. Health and safety of our people is extremely important to us. And then finally, inclusion experience. We have a target in a comparison with global high-performing companies of 80 and we are currently kind of moving sideways, just shy of that 80 at 77. So not yet there. The split of our businesses, our BA, so separation into subsidiaries is advancing. The legal entity structure will be in our current assessment, finalized by the end of first quarter '26. The operational structure has been in force since last spring, but that's kind of the relatively easy part of it. We are operating in about 30 countries, have had more than 30 legal entities and then having those split and put under basically subgroups for the Fiskars BA and for the Vita BA under the holding company, which is Fiskars Corporation, i.e., the parent company. So that work is ongoing. We had the first wave of a number of countries that went well because that has to do also with IP things, et cetera. The next one is beginning of November. And this step by step, we will get there by the end of the first quarter. What do we want to achieve with this separation? Of course, full business accountability. So we have 2 colleagues who are running these 2 business areas and they have operational end-to-end accountability for their business. So there is no scapegoat of a group supply chain. They could say that, yes, we would have sold, but the factories didn't deliver, et cetera. So it's all under one hat, which improves flexibility. It improves the speed of decision-making. The closer to the consumer we are making decisions, I think the more relevant they are and more timely they are. The independent legal entities as subgroups under the holding company, that's very self-evident. Then when we talk about the transparency and measurability, once this is completed, we have already committed to the financial markets that we can provide and we will provide more transparency into the numbers. Currently, we have the income statement pretty well already covered by BA, but not the entire balance sheet. So there is potential. And by transparency, we hope that these individual businesses are also getting with their different type of characteristics in terms of financial dynamics and asset utilization, et cetera, the fair valuation, which then is reflected into the aggregate, basically some of the parts as Fiskars Group's valuation. And when we have this structure, there is definitely a different level of dedication and this is to accelerate, of course, to tap to the growth opportunities into which these 2 businesses have available to them. In terms of the guidance, already addressed it in the very beginning, we narrowed down the range. And also openly pointed out that we have the most important quarter of the year ahead of us and the current visibility indicates more towards the lower end of the range. I know that many analysts have calculated what does it imply in terms of growth in the fourth quarter that is needed to achieve these numbers. And I'm happy to share that while we do not share regularly kind of mid-quarter or monthly business updates or anything like that, but as of today, having the visibility, how sales has progressed also in October, i.e., the fourth quarter has started, that has been well consistent with the expectations and projections that are needed to get there. Consumers make the decision. And actually, it will be after New Year's Eve when we close the stores, when we actually will, in the end, know how the fourth quarter been. Our D2C share increased a notch in the third quarter. And traditionally, the fourth quarter is more direct-to-consumer heavy. So both our own e-com and our stores play a relatively seen bigger role, which means that the visibility is really at the point of sale that takes place. We have in the background, certain assumptions and definitely actions also and those relate to the supply chain variances, which we have addressed. Those 2 published factory curtailments or mothballing as somebody would call them, are both related to 90 days furloughs and that means that they will span also into the fourth quarter. The tariff impacts, direct tariff impacts are way easier to calculate. Of course, the indirect impacts on demand is very much then visible again on the point of sale. And we expect this Vita's positive net sales trend to continue in the fourth quarter. And as I mentioned, we are on track on that. And the tariff mitigation efforts continue as some parts of the tariff landscape are still effectively open. So in brief summary, what is really delightful here is that we've returned back to growth. Especially the Vita part and this is the year -- time of the year where that growth is relevant and super-needed. And the U.S., where we've had certainly many aches and pains with the very volatile tariff situation, we've remained relevant and been able to remain relevant also to our customers, i.e., the distribution and gain some more traction on that side. The actions to reduce inventories, they continue. It is not acceptable from my perspective to see inventory numbers as we currently have and that's something we need to fix. Innovation pipeline, more on that in a few weeks and guidance I already touched. And relating to a guidance longer-term topic, last spring when I took over as interim CEO, there was a date penciled into the calendar in this autumn for a Capital Markets Day. We all know that our long-term financial targets are basically expiring end of this year. That's clearly recognized. But at that time, I personally felt that it would not be right to go out and make promises about the future and then somebody else might be then bailing out those promises. That's not the style we want to kind of enforce in our company. In H1 '26, we will arrange a Capital Markets Day. The timing is still open. And in that connection, we also plan to issue then our new long-term financial targets. So this as a promise and now being able to bail out those promises, it feels way better to be standing here and announcing this and we will be back on the timing of this. That concludes my part of the presentation. So thank you for your attention so far and we are shifting to the Q&A session, I guess. Essi Lipponen: Yes. And let's first take questions through the phone line. But if you want to ask questions through the chat, just please write your questions in and we will take them afterwards. But let's see if we have any questions through the phone line. Operator: [Operator Instructions] The next question comes from Calle Loikkanen from Danske Bank. Calle Loikkanen: And first off, congrats, Jyri, on the new appointment. Then starting on few questions, if I take them one by one. First, in Vita, the inventory-related actions and the scaling down of production, for how long will this continue to impact profitability? Jyri Luomakoski: As I said, the current announced furloughs are 90 days furloughs. And with regards to Barlaston, that's a 90-day block kind of a mono block, I would say. And with respect to Iittala, it's phased and part of that is in '25 and part of that will be in the winter season of '26. And we are, of course, continuously looking at do we see the development. We had a notch of inventory reduction now in Vita already in Q3 with the bigger demand anticipated in Q4. Of course, we expect more. And it is very much a steering where we want to clear the baggage from the past, have a clear slate forward for the business and manage the cash flow and implicitly through that also the indebtedness or the net debt position. So timing, difficult to say, but it's not ending in Q4 already based on what we have announced with respect to Iittala. Calle Loikkanen: Okay. But you're not expecting a similar kind of impact on EBIT anymore from these actions as we saw in Q3? Jyri Luomakoski: Into our guidance, we have certainly factored in what we know for the actions for this current year. And at this stage, we are not yet going to guide any income statement or any other element of '26. So we are managing that situation diligently and carefully balancing between the cash flow optimization. And of course, we are in the business of making profits and delivering profits and that's even our legal obligation to do that and manage the situation between these 2 aspects. Calle Loikkanen: Yes. Okay. Got it. And then secondly, I mean, now looking at year-to-date adjusted EBIT, EUR 46 million roughly. So you need about EUR 44 million in Q4 to reach the lower end of the guidance. And last year, you did EUR 43 million of EBIT in Q4. So in practice, you need EUR 3 million more now in Q4. And so I was just wondering, I mean, you mentioned that you expect Vita to continue to grow top line in Q4, which should, of course, help. And -- but I was wondering, I mean, if you have these -- still these kind of inventory-related actions ongoing, probably a bit of negative EBIT coming in from those then or at least negative impact on EBIT. So can you elaborate a bit perhaps more in details on what levers there are for you to grow EBIT in Q4 to really reach the guidance? Jyri Luomakoski: Two critical aspects. Of course, the top line growth, as indicated, is vital for that. That's the prerequisite. With respect to the cost side, SG&A, where we had a uplift in Q3, which relates to phasing relates to some accruals. So they were accrued last year comparing year-on-year and some accruals when like with respect to variable compensation, short-term incentives, et cetera, apparently, and I was not there in this role, but as a former audit committee chair, you remember some of the facts from the history when the visibility went a bit sour last year, some of those were reversed, creating a benefit into last year's Q3, which makes the current comparison also somewhat unfair in terms of the Vita Q3 EBIT performance and that type of a ugly comparison doesn't reoccur in Q4. So that's -- so it's revenues and costs, which I know sounds like a very simplistic answer, but there are very targeted items. And of course, we are careful and very cautious in terms of other costs and expenditures in the fourth quarter. Calle Loikkanen: Okay. That's very helpful. And then lastly, before handing over to others. And I know there's still plenty to do this year, but what sort of initial thoughts do you have for 2026? Anything that you kind of are looking forward to or expecting from next year? Jyri Luomakoski: Next year, we hope that there will be a kind of stabilization of the tariff situation because now it's been waking up in the morning and checking the social media, what is the new situation, and that's been keeping our organization extremely busy. That's also time off the consumers and customers. It's time that has been spent in rebasing our sourcing and relates now to the U.S. Fiskars business predominantly. The team has done a tremendous job in terms of finding new sources, qualifying them, testing them and negotiating that we can move and base our sourcing into already settled down tariff environments and so forth. So that's the only part actually, given that we will issue our '26 guidance in early February in connection with our Q4 full year reporting that I can share at this stage. But that remains like a wish that we could concentrate on some more productive or progressive topics instead of fighting the situation here. Operator: The next question comes from Maria Wikstrom from SEB. Maria Wikstrom: Yes. Maybe continue a bit with the soft topic that Calle raised as well. So I mean, just getting a little bit of more color, I mean, as Q4, I mean your guidance, I mean, reaching the low end of the range indicates that you need to record some 8% growth in the EBIT, which in light of, I mean, today's results, I mean, something needs to change. But I mean, is the thinking right that, I mean, given that it seems that in the Fiskars BA, I mean, you have been able to get these price increases through and the EBIT is stabilizing -- more stabilizing year-over-year so the lift that we are going to see -- we would need to see is coming from the Vita segment? And then here, I mean, you think that the Q3 was somewhat extraordinary, so it should be better in the high season. Is that, I mean, rightly summed up? Jussi Siitonen: So Calle's math worked well. So if you take our year-to-date numbers here, you can see that we are EUR 25 million behind last year when it comes to EBIT on the first 9 months, making our guidance, we need to be roughly EUR 5 million better than last year in Q4. What I said in my part here is that we have some technical tailwind there coming from SG&A phasing. So therefore, I would say year-to-date change in EBITDA would be better proxy to give direction there for full year SG&A. So you can figure out how much upside we -- technical upside we are expecting there. And then exactly like Jyri said here, we do need demand, which as of today looks pretty good there for Vita that we are following the plans what we had in place. And then when we are prioritizing the cash flow here, so the decisions are very much ours here, what to do with production to ensure that we can continue improving cash flow. So these are the items what we have in place. This time, Q4 is a bit different from last year. So you might remember last year, we were struggling with demand when it comes to Q4. I would say, at the very moment, we have one problem less versus last year. And then we have this kind of technical tailwinds. But as said, all this needs to work very much with in plans what we currently have to make a guidance. Jyri Luomakoski: And your analysis on BA Fiskars' role in the fourth quarter is also correct. It's not really the gardening season. Yes, some craft things happen for the holiday season. And of course, from our perspective, we wish a lot of snow to the Nordic countries. The snow season is always something we are cheering while the traffic in the cities is kind of not happy about snow. Maria Wikstrom: Perfect. This is very helpful. And then wanted to touch upon -- on the geographical sales development as it seems that, I mean, the demand is better in Americas as well as in the Asia segment versus, I mean, Europe is still lagging behind. Is there any like lead indicators or some bright spots, which would indicate that Europe would join the crowd what comes to the demand? Or do you see that Europe is likely to remain muted also for the last quarter? Jyri Luomakoski: Of world economy, Europe does not currently have a big contributing factor to world economic growth and consumers in Europe are typically more cautious than in many other geographies. In the Nordics, we've had good tailwinds with our Vita business. So when we commented broad-based, both brands and market-wise. So Nordics, we have been able to remain very relevant and very much a desired way to bring some joy and making the everyday extraordinary with our products. But your analysis is correct that it's both North America, U.S., especially and Asia where the consumers are more happy to consume. Maria Wikstrom: And then finally, touching upon the tariff situation and your mitigating actions. I mean, personally, I was very surprised, I mean, how well, I mean, you were able to, I mean, to get the price increases through for the Fiskars segment, I mean, during the Q3. So would you say that, I mean, the tariff risk has now winded down? Or is there still, I mean, many unknowns that we should consider as a risk going forward? Jussi Siitonen: Yes, we are very pleased with the Fiskars BA team here, how they have succeeded to mitigate those tariffs. As you might remember, we got some extra burden there late August when those steel tariffs came in and we are still -- we are still mitigating also those there. We are now leaving the last 2 weeks, if I'm right, this last 90-day extensions, which is given to Chinese tariff. So let's see where it goes after 8th of November there. So no one knows at the moment. So we are, as Jyri mentioned, following on a daily basis what's the current mood when it comes to tariffs and trying to tackle it. More fundamental-based, the actions we have put in place, price increases are only part of the story, mainly focusing on our own footprint, what we have in sourcing there to find alternatives for those high tariff countries, how we are able to make some re-footprinting in that sense. So can't promise that we have tackled all the problems because we don't know them. But as the ones we know at the very moment, we are very pleased with our BA Fiskars execution capability. Jyri Luomakoski: And with respect to the re-footprinting that implies basically products that we have historically sourced out of China, we have qualified suppliers, brought tooling into some of the neighboring countries, which already have settled down tariff deals with the United States. And those tariffs are clearly at a lower level than the current China tariffs are and gives a kind of a planning horizon for us going forward. Maria Wikstrom: And then I had one more question in mind, which reflects to the Gerber division as I recall that Gerber was the one that had faced some difficulties or faced lower demand during the summer period. So what are currently the trends you are specifically seeing for the Gerber brand in the U.S.? Jyri Luomakoski: Gerber has been hit in some geographies by restrictions, whether you can advertise knives or multitools, which are then qualified also as knives because they are in some jurisdictions like weapons. And from that perspective, the push towards the consumers has been a more difficult struggle. Our efforts, and I visited in the summer Portland and the Gerber team, similarly as in the rest of Fiskars BA, innovation and remaining relevant to the consumer is extremely important. And I think it's fair to say that we have neglected that. It's been a few years where we haven't had too much of innovation flow, new products and happy to see that that pipeline is also well equipped with new ways to charm the consumer, to have the outdoor people, the fishermen and the women and the hunters and campers and all those with new need stuff equipped and that is the key to tackle this issue. So what we can't advertise in public or what needs to go beyond a locked cabinet in a outdoor store in some states in the U.S., we have now other ways in the pipeline to make us relevant and again, wanted. Jussi Siitonen: Yes. Maria, when I said that 10 out of 12 brands were growing in Q3, Gerber was one of the growing ones there in Q3. Operator: There are no more questions at this time. So I hand the conference back to the speakers for any closing comments. Essi Lipponen: Yes, we do have questions in the chat. Thank you, Calle and Maria, for the questions through the phone. But maybe if we start with the question related to top line. And Jyri, if you take this one. Was there any impact of timing between quarters supporting the top line development in Q3? Jyri Luomakoski: Not that I'm aware. We have potentially between Q2 and Q3, we have the load-ins for the back-to-school season in North America. That's traditionally been something that either happens last week of June or first weeks of July and then you get big swings. But we are not here in that type of phasing the holiday season load-ins, which holiday season as reminding for Vita, less than half of our sales is through distribution, more than half, clearly more than half is through our D2C channels. Those load-ins are happening now in October anyhow. So those have not been moved forward to September. No signs of that. Essi Lipponen: Great. Let's see what we have next. Related to production, maybe Jyri, if you can continue. Given the current demand situation and production curtailments, how do you view the current production footprint, especially in Vita? Are you considering any adjustments? Jyri Luomakoski: A prudent and careful manager of a business always considers adjustments. I know this is kind of a rounded answer, but that's our obligation to see how we can best perform and serve our customers and in the end, make money for the company. Those always being in the background, but now here in terms of some concrete that there is a site that we would need to kind of permanently mothball or so, such plans are currently not on the table. And of course, demand situation is dictating. We are here for the customers, for the consumers. That's dictating in the end the footprint, how we are set up and how we operate that. Essi Lipponen: Thank you. Maybe, Jussi, related to working capital and inventories. How large working capital release are you expecting in Q4? Have you considered other actions than reducing inventories? Jussi Siitonen: Yes. Well, following our historical pattern, what we typically have had in Q4 is that working capital is coming down. And typically, cash flow has been improving versus Q3 and Q4 is happening now, we can't confirm it yet. The actions we have put in place at the moment are exactly ones Jyri already explained there with a high priority target of continue reducing inventories. This inventory challenge is very much on Vita side, less on Fiskars side. Essi Lipponen: Yes. And maybe to both of you, but maybe if Jyri starts. When comparing Q4 and Q3, are you expecting higher under-absorption of fixed costs in Vita related to the inventory? Jyri Luomakoski: We have implicitly guided for Q4, the EBIT or comparable EBIT number, not individual line items and not individual line items within our cost of goods sold where the supply chain variances would be ending. Certainly, we have our plans how and we will operate our different production sites during the fourth quarter. And based on that calculated and factored in into the mathematics, how we have arrived at our forecast, which are supportive of our guidance. Essi Lipponen: Great. Then about tariffs. And Jussi, if you start. Given the U.S. tariffs and additional steel tariffs, how much headwind are you expecting for 2026? And how much of these have you been able to mitigate as of now? Jussi Siitonen: Yes. Steel tariffs, as said, is something new there started or announced in late August. So there the steel tariff impact is mainly in 2026, whilst the other tariffs what we have for country-specific, they have been already since April this year. So there, this kind of year-on-year change is not expected to be significant. So it's mainly the new one, i.e., steel tariffs impacting more in 2026 than in 2025. We haven't announced any specific numbers how much they are impacting, what's the direct impact of tariffs on our gross margin, only say that when it comes to direct impacts there, we do have toolbox to mitigate them, including this re-footprinting what we are referring prices and the likes. And of course, we are now looking for category expansions there when it comes to offering what we have, which will also help to create new demand and therefore, tackling it not only by cutting costs, but also expanding our portfolio and top line there. So toolbox is quite broad. How much still left for 2026, that we haven't yet commented. Essi Lipponen: Yes. We still have a couple of questions and let's see if there are any new ones coming. It might be that we have already covered this, but maybe just to remind, how quickly can inventory levels in Vita be normalized? If you want to comment on that? Jyri Luomakoski: It is not a sprint. It consists of 2 factors. One is the one which is more really in our control, and that's curtailing the supply or the input into the inventories, both relating to sourced items and own manufacturing. And those we can tackle and those we have started to tackle very clearly. At the same time, the output from inventories, so clearance sales type of topics, that's also needed. Now we are heading to the seasons where you have, as we know, the Black Fridays of this world, they are, to some extent, also created for clearing some inventories and -- but it's definitely not done in the fourth quarter of this year. It's -- if not a marathon, but it's still long distance activity that we have there. So working on both ends, input and the output. And as we progress, the output, of course, requires always the willing purchaser, consumer or distributor. And once we have more to share on that front too, not only those actions that are under our control, we will, of course, be back and updating on those. Essi Lipponen: Thank you. And then maybe the final question for Jussi. With net debt at over EUR 600 million and leverage at 3.7x, what is the deleveraging plan for 2026? Jussi Siitonen: Very good point. First of all, it's just an outcome, what Jyri just explained. So that's the main driver there what we have on short term and then I'm moving to 2026. Typically, historically, we have come down when it comes to net EBITDA towards the end of the year after Q3. So that's our historical pattern there. More important than how much we are now coming down is to turn the trend. So we need to get a declining trend there when it comes to our net debt EBITDA and then impacting on both components there, net debt and then improving our EBITDA. I'm not expecting any rapid overnight improvement there. As I said, more important is now to have fundamentals in place to turn the trend, getting it on the lowering trend there. And then what we said that this max 2.5x net debt to EBITDA remains our target. It might take a bit more time than probably someone might expect to get it there, but it clearly remains our target. Jyri Luomakoski: And we work in a very determined way on both elements of this EBITDA -- Jussi Siitonen: Yes. Yes. Jyri Luomakoski: -- and the net debt where really the main lever is inventories. Jussi Siitonen: Yes. Essi Lipponen: Thank you. It seems that we are out of questions. So thank you for the active participation, and I wish you all a nice end of the week. Jyri Luomakoski: Thank you very much for joining, and happy shopping in the year-end holiday and gifting season. Jussi Siitonen: Thank you.
Operator: Hello. My name is Megan, and I will be your operator this morning. I would like to welcome everyone to the Garrett Motion Third Quarter 2025 Financial Results Conference Call. This call is being recorded, and a replay will be available later today. [Operator Instructions]. I would now like to hand the call over to Cyril Grandjean, Garrett's Vice President, Investor Relations and Treasurer. Cyril Grandjean: Thank you, Megan. Good day, and welcome, everyone. Thank you for attending the Garrett Motion Third Quarter 2025 Financial Results Conference Call. Before we begin, I would like to mention that today's presentation and earnings press release are available on the IR section of Garrett Motion's website at investors.garrettmotion.com. There, you will also find links to our SEC filings, along with other important information about the company. We note that this presentation contains forward-looking statements within the meaning of the U.S. federal securities laws. These statements, which can be identified by words such as anticipate, intend, plan, believe, expect, may, should or similar expressions represent management's current expectations and are subject to various risks and uncertainties that could cause our actual results to differ materially from such expectations. These risks and uncertainties include the factors identified in our annual report on Form 10-K and other filings with the Securities and Exchange Commission and include risks related to the automotive industry, competitive landscape and macroeconomic and geopolitical conditions, among others. Please review the disclaimers on Slide 2 of our presentation as the content of our call will be governed by this language. Today's presentation also includes certain non-GAAP measures which we use to help describe how we manage and operate our business. We reconcile each of these measures to the most directly comparable GAAP measure in the appendix of our presentation and related press release. Finally, in today's presentation and comments, we may refer to light vehicle diesel and light vehicle gasoline products by using the terms diesel and gasoline only. With us today are Olivier Rabiller, Garrett's President and Chief Executive Officer; and Sean Deason, Garrett's Senior Vice President and Chief Financial Officer. I will now hand the call over to Olivier. Olivier Rabiller: Thank you, Cyril. Thank you all for joining the call today. I am pleased to report that Garrett delivered another set of strong financial results in the third quarter, thanks to increased sales in a more stable production environment and disciplined operational execution. Net sales for the third quarter were $902 million, up 6% at constant currency. This growth reflects outperformance over the industry in light vehicle turbo sales for both gasoline and diesel applications. In fact, our gasoline sales grew by 10% in the quarter, driven by our share of demand gains. Thanks to continued productivity and higher volumes, we achieved another quarter of very solid operating performance. Adjusted EBIT was $133 million, and our adjusted EBIT margin was 14.7%, which includes a 20 basis point dilution of the margin rate from tariff recoveries. We also delivered strong adjusted free cash flow of $107 million for the quarter. These results, combined with an improved forecast for the automotive industry for the second half of the year, has enabled us to raise our 2025 outlook midpoint. In addition, we continue to allocate capital in line with our stated framework and our commitment to delivering value to shareholders. During the third quarter, we accelerated our share repurchase activity, buying back $84 million of common stock. We also paid a $12 million quarterly dividend. Moreover, our Board of Directors just approved a 33% in our dividend raising it to $0.08 per share for the fourth quarter. Now let me move to Slide 4 to share more about Garrett's continued success across our differentiated technologies. We continue to see growing interest in developing turbochargers for hybrids and range-extended electric vehicles. This quarter, we secured several additional awards for these technologies. In addition, we obtained several awards for commercial vehicles and industrial turbochargers in various regions including over $40 million for products supporting stationary power generation or gen sets. Demand for subunits continues to grow, fueled by the global expansion of data centers in which gen sets are installed for backup power generation. Sales of these products are expected to exceed $100 million in 2025 and represent an important growth opportunity for Garrett. This quarter, we also continued to make progress in developing our differentiated 0 emission products. We secured additional proof of concepts with 2 OEMs in Japan and China for our high-speed 3-in-1 E-Powertrain. In addition, on the E-Cooling side, we progressed with the development of our oil-free centrifugal high-speed compressor technology for industrial and mobility applications. We see strong momentum with customers for our E-Compressor technology, which is driving significant efficiency gains when tested against current industrial technologies. All in all, I'm extremely pleased with our ability to deliver strong financial results while continuing to position the company for years of growth. I will now hand it over to Sean, who will provide more details on our financial results and outlook. Sean Deason: Thanks, Olivier, and good morning, everyone. I will begin my remarks on Slide 5. As Olivier highlighted, we delivered strong financial performance in the third quarter. Our net sales were $902 million, driven by new gasoline launches and ramp-ups across key regions, favorable foreign currency impacts and tariff recoveries, partially offset by continued weakness in aftermarket. We delivered $133 million of adjusted EBIT in the quarter, equating to a 14.7% margin. This represents both a year-over-year and a sequential increase resulting from ongoing operational productivity gains that help to offset an unfavorable product mix. And finally, adjusted free cash flow was $107 million as the business continues to convert earnings into cash. Now moving to Slide 6. We show our Q3 net sales bridge by product category as compared with the same period last year. In the quarter, net sales increased by $76 million versus the prior year or 9% on a reported basis and 6% on a constant currency basis, reflecting favorable foreign currency impacts. We continue to experience strong gasoline growth, outperforming the industry. This growth is driven by continued share of demand gains and new launches and ramp-ups across Europe, China, India and Brazil. Within diesel, we experienced strong performance in both Europe and North America. This was partially offset by lower demand for aftermarket applications, primarily in North America. Additionally, we recovered $12 million of tariffs within the quarter. Turning to Slide 7. During the quarter, we generated $133 million in adjusted EBIT, representing a $16 million increase from the same period last year. This represents a margin rate of 14.7%, which is a 50 basis point improvement year-over-year. The increase in adjusted EBIT was primarily driven by increased volumes and the continued benefits of sustained fixed cost actions and variable cost productivity taken in the current and prior year. These increases were partially offset by an unfavorable mix driven by the strength in light vehicle gasoline applications. In the quarter, the impact of newly implemented tariffs drove a 20 basis point decline in the margin rate. Additionally, we benefited from a $9 million contribution or 60 basis points from favorable foreign currency impacts year-over-year. Turning now to Slide 8. I'll walk you through the adjusted EBIT to adjusted free cash flow bridge for the quarter. We delivered a strong adjusted free cash flow of $107 million. This was due primarily to increased volumes and efficient conversion of earnings into cash, which was partially offset by changes in working capital, driven by timing of payables and higher inventory due to increased volumes. Cash taxes, capital expenditures, depreciation and cash interest were all in line with our expectations. Now moving to Slide 9. We ended the quarter with a liquidity position of $862 million, consisting of $630 million in undrawn capacity from our revolving credit facility and $232 million in unrestricted cash. I am pleased to report that during the quarter, both Fitch and S&P have upgraded Garrett's ratings by 1 notch for their corporate family rating considering not only our reduced net leverage but also acknowledging the substantial reduction in private equity ownership due to recent sell-downs by some of our top equity shareholders. Additionally, as announced today, we made an early voluntary repayment of $50 million on our term loan, reducing gross leverage. Moving to Slide 10. In the third quarter, our strong cash generation allowed us to repurchase $84 million worth of shares, including 5 million shares directly from Oaktree, our largest shareholder. We continue to target distribution of 75% of our adjusted free cash flow to shareholders over time through dividends and share repurchases. The latter of which will vary over time and will depend on various factors, including macroeconomic and industry conditions. As Olivier mentioned earlier today, given our strong financial position, our Board approved an increase to our quarterly dividend for the fourth quarter rising 33% from $0.06 to $0.08 per share, which will be payable in December of 2025. I'll now transition to Slide 11 to discuss our 2025 outlook. We are raising our midpoint outlook for 2025 to reflect the improved forecast for the automotive industry in the second half and the impact of tariffs on sales and adjusted EBIT margin net of recovery. This revised outlook now implies the following midpoints. Net sales of $3.55 billion, flat to plus 1% at constant currency, net income of $280 million, adjusted EBIT of $510 million, net cash provided by operating activities of $415 million and adjusted free cash flow of $385 million. With that, I'll now turn the call back to Olivier for his closing remarks. Olivier Rabiller: Thanks, Sean. Now let's turn to Slide 12. Our strategic priorities remain clear and consistent. We aim to identify and deliver on customer needs by leveraging our capabilities to develop differentiated, high-speed and highly efficient technologies. In doing so, we generate robust returns for our shareholders. Let me wrap this up on our final slide, Slide 13. First, we delivered strong Q3 results, fueled by share of demand gains in gasoline outperforming the industry, and this coupled with disciplined operational execution. We also generated $107 million of adjusted free cash flow in the quarter and $264 million year-to-date. This strong cash flow generation allowed us to invest in growing our turbo and zero-emission technologies. To date, we continue to win greater than 50% of our new Turbo business awards as we have done over the last 5 years. Additionally, we see increased interest in stationary power generation, and we are expecting over $100 million of sales this year from these industrial applications. I am also very pleased with the progress we have made this year on our zero-emission technologies with the first series production award for our high-speed E-Powertrain, which demonstrates the substantial potential of this technology. Momentum and interest continues to build for our high-speed oil-free e-cooling centrifugal compressor with customer testing, demonstrating significant efficiency gains compared to current technologies. This year, we refinanced and repriced our term loan, lowering our interest by 75 basis points and repaid $50 million of this debt this month. We also initiated a quarterly dividend of $0.06 per share in Q1 and announced an increase to $0.08 per share for Q4. In addition, we repurchased $136 million of our common shares through Q3. These actions demonstrate our continued commitment to return capital to shareholders. I am very proud to highlight these achievements, positioning us extremely well for the remainder of 2025 and beyond. Thank you for your time. And operator, we are now ready for Q&A. Operator: [Operator Instructions]. Our first question comes from Edison Yu with Deutsche Bank. James Mulholland: James Mulholland on for Edison. Congrats on the good quarter. Just looking at the volumes for the quarter, they were good, but they were fully offset by the mix. I was wondering if you could double-click on what you're seeing in there? Is it geographic based? Or is it something you're expecting to continue as diesel penetration falls relative to gas? Is there anything we should be specifically thinking about there? Olivier Rabiller: So let me pick that up. That's a very good question. It's an opportunity for us to clarify. The mix that we see the impact is much more coming by 2 things. First, commercial vehicle versus growth in gasoline and gasoline turbos. And second, some weakness we keep on seeing on the aftermarket. So let me explain that. We are seeing, as we have said, a huge growth on the gasoline side, 10%. Obviously, we know that those products, especially when they come from China. When they go for China are not exactly at the same margin as the rest of the business. So this is the first mix impact. We are -- we keep on seeing continued weakness on the commercial vehicle side in some regions, although I would say it's stabilizing, we are seeing some green shoots which makes us a bit more confident for the future. And last but not least, we said that aftermarket was also subject to some weakness. And in aftermarket, the piece that so far has been weak this year is commercial vehicle off-highway aftermarket, where there is some destocking going on at some of our customers. And as the activity stabilize, we expect that this will still go on for some time and then at some point, recover. So these are the 3 drivers. The first driver at the end of the day is a very good driver for us because it's meaning that we have -- we are quite successful versus the rest of the industry, especially in a region that is extremely demanding in terms of competitiveness. The 2 others, obviously, for us, it's much more cyclical effects that are impacting ourselves. And obviously, like any cycle at some point, they will recover. James Mulholland: Got it. Okay. And then just as a quick second question, and then I'll hop back in the line. On that commercial vehicle green shoots comment, is that going to be geographic based? Is it -- are you seeing some strength in certain areas or on off-highway versus Class 8? Is there any more detail that you can give there? Or is the outlook still pretty soft broad-based? Just some high-level thoughts on that, if you wouldn't mind. Olivier Rabiller: It's pretty sub broad-based. But we have seen some signs of stabilization in China, which is a big region for us. And we should expect some stabilization, although at a low level. And then at some point, I guess it's marking the bottom of the cycle on off-highway and when I say off highway, it's mostly agricultural and construction equipment. Operator: Our next question comes from Nathan Jones with Stifel. Nathan Jones: I'd like to talk a bit about the 0 emissions technologies and the progress there. I know you guys have targeted $1 billion of revenue in 2030. Obviously, that number is quite low these days or today as you're in development. Can you maybe talk about the path that you're expecting to take from here to that $1 billion of revenue in 2030? And how we should think about kind of you announcing project wins that actually turn into the platform revenues and just kind of how we view the path of that over the next few years? Olivier Rabiller: So that's a good question and giving me an opportunity to one more time to explain what we do there. First, we have 3 technologies that are counting towards that goal of the zero emission technology revenue. The first one is fuel cell compressors. So although the fuel cell compressor industry is impacted by the slowdown that we've seen on fuel cell compressor in terms of ramp-up, that's already something that we are doing. Quite frankly, it was not the major part of the $1 billion that we had announced and therefore, the slowdown that we have seen so far is just having a marginal impact on that. Most of the $1 billion is coming from the 2 other technologies, the first one, E-Powertrain. As you have seen, we have announced wins and the biggest one being the -- and I say Hande and not Hande for some people that would make the confusion. Hande is a commercial vehicle player that belongs to the Weichai Galaxy. It's the biggest maker of axles and electric axles, not only for China but also for exports. In China, the industry already exists for electric trucks and is growing. So we are not subject to the slowdown of BEV passenger vehicle that we have seen in North America, and the slowdown of the growth that we have seen in Europe. So we are pleased with that. It keeps on growing. We have more to come for both passenger vehicle and commercial vehicle, knowing that the first launch, which is associated to the first award will come in 2027, ramp up from there. From the beginning, we've said that on E-Powertrain, we would start into 2027 and ramp up from there. So we are fully aligned at this stage with the trajectory that we had laid out. Obviously, we are monitoring very closely the developments of penetration in countries subject obviously to the end markets in which we are playing. And then the last one, which is E-Cooling compressors, which we are quite positive about. At the beginning, we are really betting a lot on what we call mobile application, which is equaling compressors for electric vehicles, mostly commercial vehicle for both battery cooling and also vehicle cooling. When you think about buses, we are still seeing a strong traction there. But what we have seen over the last few months, that's what we wanted to highlight in our earnings today is that we have seen an increasing interest from the industrial world. So think about air conditioning systems that are on rooftop, up to some of the systems that are used in some data centers, where we have demonstrated that the technology we bring is having superior performance to what is existing and is using some innovation that are quite unique for us because we leverage the maturity that we have achieved on fuel cells to address fuel cell compressor to address a new vertical. So we are coming with the strength of the size of the auto industry and we are coming from the strength of the maturity that you need to achieve in auto industry when you start production. So I'm extremely positive about this one, which is getting us into the industrial world out of the automotive world. And we cannot say much more than that at this stage, but results are extremely promising, and the interest of customer is quite high. Nathan Jones: In terms of the predevelopment contracts that you've got going on there, is there any color you can give us on timing of when you expect those to become actual awards and what the timing might be on the start of production on those kinds of things? Olivier Rabiller: Usual timing, when you start on preproduction, yes. It's about I would say it depends on the customer, but it can be a few months to 1.5 years, 2 years before we decide to go into production. You may remember that we've announced already some preproduction award already some time ago. So obviously, there are some of them that are getting now much more mature. Although we are not ready to announce any yet. And obviously, for the rest, it will come later on. What's important is that when customers get into these programs with you, they are already committing energy, resources and money to help you assess and develop the technology. So that's already first, a very good sign. Nathan Jones: And then maybe just one more on that. The margin profile for these products as they ramp up, do they start off maybe below corporate average and as volume improves, you get them to a higher level? Or will they be immediately accretive to the company? Just any color you can give us on the margin profile of the 0 emission products. Olivier Rabiller: So the way we measure that is what we call material margin. So the margin we make between the material cost of the products and the price. And what we have always said and we'll keep on repeating that because we have more and more proof points around it, that on average, it's about the same or accretive to what we have on the turbo side. Operator: Our next question comes from Hamed Khorsand with BWS Financial. Hamed Khorsand: Could you just elaborate on the recovery you saw in diesel, please? Sean Deason: So yes, that was a year-over-year recovery, mainly in Europe and North America. But again, diesel overall is trending down slowly over time, but not nearly to the magnitude we saw back a few years ago. So diesel still is a very strong business for us. And again, we will be last man standing on the turbos for diesel. It's a vertical that has basically 100% penetration on turbo. And it's a business we like very much. Olivier Rabiller: But let me add to what Sean is saying. The big decrease we've seen on diesel was basically linked to the shift on passenger vehicles from diesel to other technologies like gasoline and hybrid. We are more and more as we have been reducing that share of the business. We have been more and more coming to the end of it and with volumes of diesel remaining much more focused on what I would call light commercial vehicle application. So think about delivery vans, pickup trucks, especially in Asia, all these vehicles are diesel, even in China. And today, the trend is that most of it will stay in diesel for the long run due to the specifics of diesel, which are associated with range gas consumption as well as I would say the truck that you need to move diesel. Hamed Khorsand: Okay. And then, Olivier, if I heard you right, you said there's about $100 million this year from industrial use. Is that going into data center? If not, when does that get implemented and helping your sales? Olivier Rabiller: So that's a good one because we introduced that information for this quarter. So let me explain what we mean by that. Even before we launched the main line of turbochargers, the big line that we launched about 1 year, 1.5 year ago, we were already doing a lot of very big turbochargers according to our range that we are fitted on gen set. And what we've isolated this quarter is this number to give people a little bit of a view that already today, even at the start of the GEM ramp, the mag ramp-up. We are already doing $100 million in that field, supplying those turbos that are ingested that most of them are going already today to the backup power for data centers. So we are not just venturing into something from scratch. We are extending our range with bigger turbos, but we are already doing a significant business in that field to our customers, whether in China, Europe or the U.S. by way. Operator: [Operator Instructions] Our next question comes from Jake Scholl with BNP Paribas.. Thomas Scholl: Congrats on a great quarter. I appreciate you guys providing the color on your stationary power revenue. So as that business continues to ramp for you guys and especially as we see more demand in things like data centers and you roll out the potential industrial applications of E-Cooling compressor, what could that business look like if we out to 2030 or even 2035? Olivier Rabiller: That's a very good question. I may not give you right away and I'll start with the number on this one. But let's keep in mind that first, it's growing and it's growing fast, obviously, from a smaller base. We've mentioned the $100 million for stationary power application. It's already a significant increase. It's already a double-digit increase versus last year and more to come. And including that's also a little bit premature to tell you exactly the numbers as we are really working on that with our customers. But if we were consuming, we expect it to be significant. I don't think it will represent 50% of the sales of the company by any means, but that will be significant in the bond scheme up since. Thomas Scholl: Yes. Got it. And you guys delivered some very impressive capital returns this quarter, between dividends and buybacks totaling nearly $100 million. Is that what we should expect to see going forward, obviously, with some quarter-to-quarter variability? Sean Deason: Yes. Again, as I highlighted in my prepared remarks, we remain committed to 75% or more over time. But again, that will vary, as you noted, especially on share buybacks quarter-to-quarter depending upon macroeconomic and industry conditions. But that's -- we continue to focus in on returning the cash that we're generating to shareholders. That's a core part of our financial framework. Operator: Our next question comes from Eric Gregg with Four Tree Island Advisory. Eric Gregg: Tremendous quarter, everyone. Two questions. One is on the E-Cooling technologies for data center and industrial. What are the performance or form factor potential pricing attributes that you think will make this technology potentially very appealing to potential customers? And the second question is forgive this, but a little bit more on capital allocation. I echo the points made by the prior caller about how strong a quarter it was. But this year, you're down a little bit year-to-date on stock and purchase versus last year and you have a lot more liquidity than you did last year. So should we be looking forward to potentially another very strong quarter in stock repurchase specifically or more weighted towards debt payback even with the $50 million debt pay down? Olivier Rabiller: Yes. So Eric, I'll answer your first question, and I'm sure Sean will answer your second one. So back to E-Cooling question, what makes our product differentiated versus what already exists. A few things. First, we are using high-speed electric models. We are compressing at a high speed. With high speed in compression comps efficiency. We have an expertise into high speed and our concept shows extremely low level of noise. So at the end of the day, weight, efficiency, noise, and we are leveraging a technology. Now I'm getting a little bit technical where the system rotates on the cushion of air that we call air foil bearing that we have developed for the automotive industry. We have developed that for fuel cell compressors and we are uniquely positioned in the industry because we have the scale of the automotive industry. We have the maturity from a manufacturing standpoint. It's a very complex, high-volume manufacturing to achieve that. So from a design, from a manufacturing standpoint, we have an edge with the system. So if you think about the capabilities of the company, high speed, high-speed electric motors, and then everything that revolves around rotating technology, in this case, this famous air cushion bearing are key points for our product that has to provide the benefit to our customers at the end and back to what I've said, it's weight. Sometimes these systems are on the roof of building. So weight is important. More importantly, efficiency. Any kind of percentage you can save on electric consumption, especially nowadays with the pressure that everybody has to reduce their energy consumption is a bit and the maturity of our product versus some others, putting all that in the context of the world that is evolving when it comes to low global warming refrigerant that needs to be used moving forward. So we are coming at the right point in time where the industry is looking for improvements in the face of a change that is driven by this low global warming refrigerant and it shares the benefits that we bring to mobile applications are obviously extremely applicable to the buildings and the industrial applications as well. Now on the question about capital allocation. Sean Deason: Okay, Eric. So look, as everyone knows, there are some -- it's a volatile industry that we're in right now with new news every day, both from governments and the supply chain. But we are committed to returning capital to shareholders. But we're not going to commit to any specific number. But again, we've just raised our dividend, we had a very strong quarter of share buyback, and we repaid a little bit of debt. So those are the -- those are our 3 levers, and we expect to continue to use them going forward over time. Olivier Rabiller: And to get to our goal on average to return 75%. Sean Deason: Correct. Operator: Thank you for joining Garrett's Q3 earnings call. This concludes today's session.
Operator: Thank you for standing by, and welcome the Lloyds Banking Group 2023 (sic) [ 2025 ] Q3 Interim Management Statement Call. [Operator Instructions] Please note, this call is scheduled for 1 hour and is being recorded. I will now hand over to William Chalmers. Please go ahead. William Leon Chalmers: Thank you, operator, and good morning, everyone. Thank you for joining our Q3 results call. As usual, I'll run through the group's financial performance before we then open the line for Q&A. Let me start with an overview of our key messages on Slide 2. We continue to make great progress on our strategy. In doing so, we are creating value for our customers and wider stakeholders through improved propositions, targeted growth and enhanced operating leverage. In Q3, we delivered a robust financial performance, supported by healthy growth across the business, driving continued income momentum. We maintained our cost discipline and strong asset quality, reflecting stable credit performance in the period. Taken together, this is driving strong capital generation. As you know, in the third quarter, we've taken an GBP 800 million additional charge relating to the FCA consultation process on motor commissions. Clearly, we are disappointed by this outcome, and I'll talk more about it later in the presentation. Accordingly, we've revised our 2025 guidance to reflect the motor provision. Excluding the charge, we are beating our prior targets. We remain highly confident in our 2026 guidance. Before turning to our financials, a brief update on 2 important strategic developments. Firstly, I'm delighted to say that we have completed the full acquisition of Schroders Personal Wealth to be renamed Lloyd 12. This is an exciting step forward for both our customers and shareholders. who will deliver full control of a market-leading wealth management business that has GBP 17 billion of assets under administration, more than 300 advisers and 60,000 clients. Embedding Lloyd's Wealth into the broader group will advance our end-to-end wealth ambitions, delivering clear benefits and proposition and journey for our customers. Secondly, we've taken significant steps forward in our digital asset strategy. Earlier in the year, we partnered with Aberdeen Investment to deliver a U.K.-first FX derivatives trade collateralized with tokenized digital assets. Alongside, we're co-chair and the U.K. finance project to deliver GB tokenized deposits. Retail and commercial pilot use cases in programmable digital money are due to deliver in H1 of next year. These developments will ultimately drive material customer opportunity and maintain our commercial leadership. We look forward to elaborating on this alongside other areas of our technology, digital and AI strategy in an investor seminar on the 6th of November. Let me now turn to the financials on Slide 4. The group demonstrated a robust financial performance during the first 9 months of the year. Year-to-date, statutory profit after tax was GBP 3.3 billion with a return on tangible equity of 11.9%. Excluding the motor provision, return on tangible equity was 14.6%. Looking at the full year, we now expect RoTE to be around 12% or around 14%, excluding motor. We are pleased with the group's continued income momentum. In the first 9 months, net income of GBP 13.6 billion was 6% higher than the prior year. This was driven by further growth in net interest income, alongside a 9% year-on-year rise in other operating income, led by customer activity and strategic investment. Within the quarter, net income was up 3% versus Q2. This was supported by a net interest margin of 3.06% and in line with our expectations for a gradual increase, again, alongside ongoing OOI growth. Looking forward, we now expect net interest income for the full year to be circa GBP 13.6 billion slightly ahead of our previous guidance. We remain committed to efficiency. Year-to-date operating costs of GBP 7.2 billion were up 3% year-on-year, in line with our expectations for this stage. Credit performance meanwhile remains strong. year-to-date impairment charge of GBP 68 million equates to an asset quality ratio of 18 basis points. Given our performance to date, we are upgrading full year guidance on the asset quality ratio to circa 20 basis points. Meanwhile, tangible net assets per share increased to 55, up 2.6p in the year-to-date and 0.5p in the quarter. Our performance delivered strong capital generation of 110 basis points year-to-date or 141 basis points, excluding motor. Our losing CET1 ratio is 13.8%. I'll now turn to Slide 5 to look at developments in our customer franchise. We have seen good growth across both the lending and the deposit franchises so far this year. Group lending balances of GBP 477 billion are up GBP 18 billion or 4% year-to-date. Focusing on Q3, lending is up GBP 6 billion or 1% versus Q2. Within this, retail lending grew GBP 5.1 billion. This was driven by an increase in the mortgage book of just over GBP 3 billion, reflecting both market growth and a completion share that remains at around 19%. So far, we are seeing no sign of a slowdown in mortgage applications ahead of the budget in November. Elsewhere in the retail business, we saw continued growth across each of our cards, loans and motor businesses as well as growth in European retail. Commercial lending balances meanwhile, are up by GBP 1.3 billion in Q3. As has been the case throughout the year, we saw growth in CIB across our targeted sectors, including in institutional balances. In BCB, balances were broadly stable with new lending in mid-corporates, offsetting the net repayments of government-backed facilities. Turning to liability franchise. Year-to-date deposits have grown GBP 14 billion or 3%. In Q3, we also saw a good performance, up GBP 2.8 billion quarter-on-quarter. Within retail, PCAs grew by GBP 1.2 billion, driven by income growth, subdued spend and lower churn during the quarter. Alongside the reduction in savings balances of GBP 0.9 billion, was largely due to some fixed rate savings outflows following our post ISA season pricing decisions. Commercial deposits are up by GBP 2.4 billion in Q3, driven by growth in targeted sectors across both CIB and BCB. Pleasingly, NIBCA balances were up in the quarter. Alongside deposit developments, we continue to see steady AUA growth in insurance, pensions and investments, with circa GBP 3.3 billion of open book net new money year-to-date. Let me turn to net interest income on Slide 6. Year-to-date and in Q3, we are seeing sustained growth in net interest income. And for the first 9 months was up 6% year-on-year to GBP 10.1 billion. This included GBP 3.5 billion in Q3, up 3% quarter-on-quarter. Income growth continues to be supported by positive momentum in the net interest margin. The Q3 margin of 306 basis points was up 2 basis points on Q2, driven by a growing structural hedge tailwind. Net interest income was further supported by average interest earning assets of GBP 466 billion in Q3, up GBP 5.5 billion versus Q2. The increase was driven by sustained lending growth, particularly in the mortgage book. Looking ahead, we now expect net interest income for 2025 to be around GBP 13.6 billion. This incorporates the healthy volume developments we have seen alongside a slightly more supportive rate environment. We remain very confident in the trajectory for net interest income growth. Let's turn to other income on Slide 7. We continue to demonstrate strong and broad-based momentum in other income. Indeed, our diversified franchise has supported consistent high single-digit growth over the last 3 years. Year-to-date OOI is GBP 4.5 billion, up 9% year-on-year. In the third quarter, OOI was GBP 1.6 billion, up 3% versus Q2. This was particularly driven by growth in motor and LPG investments. It also represents a good performance in protection, boosted by improving mortgage take-up rates. Other income growth continues to be supported by investment and strategic progress across the business. I spoke earlier about 2 specific areas of delivery, the slide shows a number of other proof points to testify to our progress, including, for example, the launch of the Lloyd's Ultra card in retail as well as further scaling of capabilities in our commercial franchise. Looking forward, the full acquisition of Schroders Personal Wealth will further support OI growth. We see an opportunity to meaningfully grow the business in the coming years as part of our integrated wealth proposition. Briefly turning to operating lease depreciation. The Q3 charge of GBP 365 million was up slightly, in line with growth in the fleet, driving other income. Moving to costs on Slide 8. The group continues to maintain strong cost discipline. Year-to-date operating costs of GBP 7.2 billion are up 3% on the prior year, in line with our full year expectations. Excluding growth in severance, operating costs are up 2%. Business growth and inflationary pressures continue to be mitigated by savings driven by strategic investment. Within the third quarter, costs of GBP 2.3 billion are down 1% compared to Q2. This is partly helped by investment timing. And looking forward, Q4 will see higher operating costs due to the usual seasonal factors and added costs from the full acquisition of SPW. We will meet our GBP 9.7 billion full year guidance, excluding these additional SPW costs or modestly above this, including them. Remediation was GBP 875 million in the quarter. This reflects low levels of non-motorbased charges alongside the GBP 800 million incremental motor finance provision. I'll now spend a moment on that on Slide 9. The additional GBP 800 million provision for the potential motor commission remediation costs takes our total provision to GBP 1.95 billion. The recent FCA proposals are subject to consultation and so the final outcome differs. However, as it stands today, they represent an outcome that is at the adverse end of our previously modeled expectations. Based on the proposals, there are a high number of cases determined to be unfair. Resumptions a unfairness do not apply the legal clarity provided by the recent Supreme Court judgment. And the address calculation is less linked to harm than it should be. We will, of course, be making representations to the FDA on our points of concern, and we look forward to engaging in a constructive dialogue. Our total provision of GBP 1.95 billion still using scenario-based methodology includes both redress and operational costs. It represents our best estimate of the potential impact of this issue. Moving on to asset quality on Slide 10. Asset quality remains strong. Neutral arrears are low and stable across our portfolios. Early warning indicators also remain benign and again, very stable. The year-to-date impairment charge is GBP 618 million equivalent to an asset quality ratio of 18 basis points. The charge of GBP 176 million in the third quarter represents an asset quality ratio of 15 basis points. This is the result of a low underlying charge, reflecting our prime customers, a prudent approach to risk and stable macro conditions as well as some one-off model benefits. It also incorporates a small MES charge of GBP 36 million in the quarter. Our stock of ECL on the balance sheet meanwhile, is GBP 3.5 billion, which remains around GBP 400 million above our base case expectations. Given the strong performance year-to-date, we now expect the asset quality ratio for the full year to be circa 20 basis points. Let me turn to our returns and tangible equity on Slide 11. Lloyd Group delivered a return on tangible equity of 11.9% year-to-date or 14.6%, excluding the motor provision. This benefits from strong business performance, cost control and low impairments. Below the line volatility and other items were GBP 157 million in the 9 months or GBP 109 million in Q3. The third quarter charge driven by negative insurance volatility and market developments and the usual fair value unwind. Tangible net assets per share at 55p are up 2.6p since year-end. This continues to be driven by profit build and the unwind of the cash flow hedge reserve partly offset by shareholder distributions. Looking ahead, we expect material TNAV per share growth in both the short term and in the medium term. Including the motor charge, return on tangible equity for the year is now affected at around 12%. Excluding Motor, the RoTE is expected to around 14% and upgrade versus prior guidance. Turning now to capital generation on Slide 12. Our business performance has driven strong capital generation in the year-to-date. Within this, total RWAs ended the quarter at GBP 232 million, up GBP 7.7 billion year-to-date and GBP 0.9 billion in the third quarter. This increase reflects strength in lending, partly offset by optimization activity. Q3 also saw the full reversal of the remaining GBP 1.2 billion of temporary RWAs that we have previously highlighted. Note that while we've taken no new additions for CRD 4 secured risk weightings in the year so far, we do expect to do so in the full quarter. Year-to-date, our strong banking profitability has driven capital generation of 110 basis points in the first 9 months or 141 basis points, excluding motor. Expected full year capital generation is now circa 145 basis points or circa 175, excluding Motor. Our closing CET1 ratio is 13.5%. This is after a 74 basis point accrual for the ordinary dividend. We still expect to pay down to around 13% by the end of 2026, with this year a staging post towards that target. I'll now wrap up on Slide 13. To summarize, group demonstrated a robust performance in the first 9 months of 2025. We are building momentum in income growth whilst retaining cost discipline and strong asset quality. Together, this is delivering meaningful operating leverage. The business is performing as we expected, if not a little better in some areas. While the motive provision is obviously unwelcome, the underlying business continues to drive strong, growing and sustainable capital generation. This financial performance results in improvements to our underlying 2025 guidance, including net interest income, asset quality and return on tangible equity ex motor. Alongside, we remain confident in our 2026 targets. Guidance for both years is laid out in full on the slide. Overall, the business is in good shape to deliver for all stakeholders. Third quarter represents another step in this journey. That concludes my comments this morning. Thank you for listening. Now I open the lines for your questions. Operator: [Operator Instructions] Our first caller is Benjamin Toms from RBC. Benjamin Toms: The first is Motor Finance. The provision post top-up leaves you with the [indiscernible] just below GBP 2 billion. That's based on a weighted average scenario calculation. If the consultation paper does not get softened and the FCA is correct with their 85% claim rate, how material would the provision top-up be from here? Just some sensitivity around that would be useful. And then secondly, on NIM, I think before you said you expected NIM to build faster in Q4 than Q3. Is that still the case? And can you give us some indication about whether you'd expect NIM to continue to build through 2026. I think the hedge will continue to be additive and mortgage margin compression deposit mix shift should fade. So it's hard to see how NIM doesn't increase materially next year? Is there a missing moving part like asset mix shift that we need to consider? William Leon Chalmers: Thanks, indeed, Ben. Just to take each of those in order, the start point and perhaps the end point is to say GBP 1.95 billion in respect of motor represents our best estimate of the cost of this issue. It is, as you say, a scenario-based estimate and those scenarios or sensitivities, as you called them, represent what we think are reasonable FCA responses to the issues that we raise, and I assume the issues that others raised. And those will be principally around things like the calculation of dress, which is set, we think is best tenuously linked to [indiscernible].The termination of fairness, which we think is too broad. And these types of things will be part of our response to consultations. And when we look at scenarios, that's what's figuring into those scenarios, some slide amendment around those. But to be clear then, the FCA proposals, as currently proposed, represent the heaviest weighting in our overall scenario analysis. My script at the adverse end of our expected outcomes, i.e., they are all DCAs, most of the commission that we get -- that we received gets handed back, and it is a very high response rate. That all means that with the FCA being the heaviest weighted component in our overall provisioning analysis suggests that even if the FCA proposals come out exactly as they are today, then our overall position is not going to move by that much. So we are not far off then in short. On your second question, Ben, in respect NIM has said, has had a tick up in the course of Q3 by a couple of basis points. We're now at 3.06. And it is our expectation that we see continued, if you like, growth in that earn interest margin over the course of Q4. As I alluded to, I think at Q2 and possibly before that in Q1, we do expect to see a bit of a back-end loaded step-up in Q4, and that is predominantly because of the structural hedge contribution, which is slightly more heavily weighted in Q4. It is somewhat offset by the usual headwinds that is to say bank base rate and deposit effects, predominantly deposit effects as our -- rather our next bank beta is now not expected until next year. but then also at the mortgage point. So the mortgage headwinds, as you know, has a little further to play out, that includes quarter 4, and it includes '26. But summing all of that up, then you should expect to see that interest margin expansion in the course of Q4. There will be a step up there. And it will be a little greater than what we have seen Q2 to Q3. In respect to '26, Ben, your analysis is right. We should expect -- you should expect -- we do expect to see continued margin expansion during the course of '26. It is predominantly because of the factors that you've identified, that is to say the structural hedge makes a meaningful contribution, GBP 1.5 billion increase in structural hedge expected earnings for is what we've guided to earlier on this year, and that still remains more or less the case as we go into '26. And then there is some offset from that in the context of, again, base rate decisions and indeed some continued level of deposit churn off the back of a slightly higher rate environment. And then alongside of that, the playing out of the mortgage refinancing headwind. So those factors are still at play. But nonetheless, the net of it for 2026 is continued and reasonably meaningful margin expansion. That is our expectation. Ben, maybe I'll just finish off with the point. As you know, we have moved from kind of large AIA and nonbanking net interest income guidance to net interest income guidance in its totality. And we've upped that guidance for the remainder of this year, i.e., circa GBP 13.6 billion. We will be guiding to what that means for 2026 in due course, but it is the combination of net interest margin expansion as well as AIA growth that we expect will deliver meaningful NII growth in 2026. And that, in turn, is what will help us deliver our greater than 15% ROE. Thank you, Ben. Operator: Our next caller is Jason Napier from UBS. Jason Napier: Two, please. The first, I wonder if you could just talk about how Lloyd's sees wealth as a sort of a banking business in the U.K. the Schroders Personal Wealth business today, you might, as you read your slides, about the 300 advisers and the funds that they advise and look after but then the bullet point on scaling to mass affluent and workplace might suggest that this is really just an integrated mainstream client type offering. The backdrop for this is, as you recognizes that the market is quite interested in whether you might be interested in inorganic expansion in IFA led businesses. And so if you could just talk about what we can learn from the buy end of the half of the SPW business? And then the second, I don't want to steal the thunder from your upcoming tech event, but the slide on tokenized assets does, I think, invite further inquiry. At a very high level, I just wondered whether you could talk about the work that you've done so far and where you think things like tokenized assets and deposits. What that does to banking industry revenues in total. At a high level, people are somewhat concerned that we might see compression in things like payments and remittances and a bunch of the CIB revenue lines that we actually can't see from the outside as the sort of technology takes through. So any early thoughts you might have on the outlook for [indiscernible] William Leon Chalmers: Thank you, Jason. On both questions. First of all, in respect to the wealth question, a couple of comments there on SPW and then a couple of comments on how we see the wealth opportunity. it's worth me just repeating that we are really pleased to see the conclusion of the SPW -- now Lloyd 12 transaction. It brings us full control of what we think is a great business. So you've heard the statistics, but at the risk of repeating them, 17 million assets under management, 60,000 clients, 300 advisers. It is a really promising start, if you like, for a business that we hope to grow into, frankly, an awful lot more. So there is a great business there that we think we can really grow and help profit going forward. It is part of an integrated proposition as we see it. That is to say it will sit alongside our direct-to-consumer self-serve proposition. It will also sit alongside the building digital proposition that we are currently creating. But it is important to have alongside those more or less self-service facilities, an advisory capability. And that's really what Schroders Personal Wealth now Lloyd's Wealth will deliver for us. It is important in the sense that we can make our customer journey seamless with those other capabilities, EG, the digital direct-to-consumer offering. Likewise, we can, if you like, bring the benefit of the group to bear here, not just in terms of group infrastructure, cost synergies and the like, but also in terms of plugging it into our 3 million affluent customers, and then there's a third really important part of that integration, if you like, which is around the workplace proposition. At the moment, at least, we have a very strong workplace proposition in the context of our insurance, our [indiscernible] business. But at the same time, we really want to build the advisory component of that as people's pensions plans mature so that we can advise them properly on what to do with those proceeds, which at the moment, is a source of leakage from our perspective to other third-party providers, we'd much rather keep it within group. And that's what SPW now Lloyd's Wealth will allow us to do. So there is something with the Lloyd's Wealth acquisition, the SPW acquisition, which itself is in good shape as we speak today. And my statistics earlier on, then testimony to that. But hopefully, you can tell from my comments that we think it can be, frankly, a lot more going forward. You asked in that context about inorganic, Jason. I obviously shan't comment on that explicitly. Safe to say that we've got a lot to do with what we've just done. The acquisition of Lloyds Wealth is a tremendous step forward for us and the franchise. It enables us to develop and enhance our existing customer propositions in what we hope will be a very compelling way which in turn, most importantly, will create customer value, but in doing so, we think, create quite a lot of shareholder value, including benefits to our other operating income over the course of Q4 and looking forward into 2026 and growing thereafter. So I think for now, at least, we're very happy with what we've done. We're going to focus on the organic integration of it, and we're going to build our customer propositions and shareholder value as part of that. The totalized deposits topic is a very interesting one. It's a topic which I could probably talk for ever on, but I won't. I'll try to [indiscernible] my remarks somewhat. In essence, there's a couple of things going on right now. First of all, as you mentioned, in respect of our strategic update, I just mentioned that we've done what was a really exciting partnership with Aberdeen, where we effectively delivered an industry first tokenized assets use case, i.e., using tokenized assets as collateral for a market-based trade. That was the industry first. It was more or less a proof of concept, but it offers illustration of the potential. When we look at the landscape right now as it's developing, there are a couple of things going on. One is, obviously, the rise of stable kind, which is much commented on. And indeed, it seems to us that in the international sphere it may be that by virtue of speed of payments, for example, and by virtue of low costs, it may have something to offer in respect of international transactions. But actually, if you bring that back to the U.K., much of what is offered by stable coin is already effectively offered in the context of things like faster payments. That is to say they're instantaneous and they're very low cost. So really what excites us actually in the context of tokenized assets is an opportunity that goes well beyond stable coins, which is around programmable currency. And we're currently sitting at joint chairs with U.K. Finance, in a project, which is called GB tokenized deposits, GTD is the acronym. It used to be called regulatory liability network. But GBTD is essentially building of a programmable and exchangeable currency in the U.K. that is part and parcel of the existing commercial money framework. That is to say it is interchangeable between digital money and if you like, analog money. We think that has the potential to offer customers tremendous amounts of value in terms of programmable capabilities. And at the moment, we're running use cases in respect of wholesale use cases, particularly digital gilts, in respect of mortgage use cases, i.e., programmability around that capability and an exchange of effectively payment on receipt capabilities from a consumer point of view. So there's 3 use cases that will land in early part of next year. The reason for just briefly commenting on that detail, Jason, is because we see that as an example of tokenized deposits, digital assets, offering a tremendous customer opportunity. And if it can be brought in the sterling monetary framework, if you like, and be interchangeable with analog money and the way that we're proposing, I think there's a lot more that we can do with our customers to offer them value. And if you like, far from this being a threat, it's an opportunity. Operator: Our next caller is Perlie Mong from Bank of America. Perlie Mong: William, so just a couple of questions. One is on distribution. So it sounds like you're pretty comfortable with the motor finance charge or any top-up if necessary. So clearly, you've talked about paying down to 13% next year. But as you think about full year distribution at '25, would you think of it as there is no more uncertainty in your mind regarding to [indiscernible]? And then while we are on that topic, clearly, one of your peers have moved on to quarterly buybacks. You're still on annual buyback. So is there any thinking about maybe moving to a more frequent distribution cadence? And then secondly, on mortgage margins, again, your peer reported yesterday talked about 5-year mortgages rolling off next year. And that cohort had a relatively high margin. So I presume that is already in your guidance and in the way you think about '26 mortgage margins. But as we come into this period, do you expect competition or behavior of competitors to change in any way, given this is something that is happening across the board. William Leon Chalmers: Yes. Thank you, Perlie. There's -- perhaps 3 questions there, at least that's how I'll interpret it. And you'll have to let me know whether I'm responding appropriately. First of all, in respect of motor, as said, our current revision, GBP 1.95 billion, best estimate, to the extent there's a worst case, we can't be far off simply because, as I said, the FCA case is most heavily weighted in scenario-based planning. Alongside of that, the FCA case captures a pretty adverse outcome, all DCAs, for example, most of the commission will be received being handed back a very high response rate. Those 3 things tell us that the FCA case, the proposals, if currently enacted are, as I say, at the adverse end of the spectrum and most heavily weighted in our overall provisioning. So not terribly far off. When we look at distributions for 2025. A couple of points to make there, really. One is we remain very committed to distributing excess capital. Two is, as per the comments earlier on, we are generating strong capital generation over the course of this year. We put forward guidance now of 145 basis points, which that is post motor to be clear. When we look at our expectations for the full year in terms of distributions, we also have the reduction in CET1 ratio that we have previously advised you of and we expect it to reduce our CET1 ratio from about 13.5% end of last year to about 13.25% or thereabouts, give or take towards the end of this year before landing at circa 13% at the end of '26. So that is an additional 25 basis points of capital there, which if you add it to the GBP 145 million that we're guiding to is 170 basis points in total. Perlie, you'll be able to tell from our numbers today that the dividend will be about 100 basis points of that. We've accrued 74 basis points year-to-date. So therefore, a full year is about 100 basis points of that 170 that I just mentioned, which in turn, leaves about 70 basis points of excess. Against what will probably end up being about GBP 234 million, GBP 235 billion of risk-weighted assets, something like that. And all I'm doing is simply taking Q3 outcomes in RWAs and adding on a bit for our continued lending performance. and indeed a CRD4 add-on in the quarter of quarter 4. So that gives you an idea of 70 basis points against that GBP 234 million, GBP 235 billion of RWAs. It gives you an idea of the excess capital that will be available and up for consideration by the Board as to what it chooses to do with it towards year-end. Clearly, you asked about buyback and whether we should move to a more frequent buyback. The I guess what I'd say to that is, first of all, capital distribution, not just the quantum, but also the form, if you like, is always going to be an outlet for the Board. And we'll, of course, respect that. What we've done to date, of course, is once per annum. And our view is that, that has allowed clarity in terms of our guidance, number one, and it has been appropriate as we reduce our capital ratio, number two. As we look forward, there are some advantages from considering a switch. Lower CET1 over the course of the year is one of those. The timing benefits, obviously, from a shareholder point of view is another. There are also some considerations taken into account, which is to say a lower capital base implies a slightly lower level of flexibility either for dealing with contingencies or alternatively, take advantage of opportunities. So these are the types of things, probably that we'll have to consider when we look at the buyback. But every year, we consider not just the quantum, but also the form in which we make distributions. And this year, in that respect will be no different, and we'll have a conversation with the Board at the end of the year to that effect. The 1/3 of your topics earlier around 5-year merges, in a sense, it's welcome to the club. We've been talking about a mortgage refinancing headwind for about 2 years now. Our expectation was that, that will continue during the quarter of '25, and that it will continue into '26. And we said that before, and that remains the case. What I am pleased to say though is that our guidance in that respect has not changed. And when we've talked about in the past, our expected increase in net interest income, including in response to Ben's question later on, that incorporates our expected headwind from a mortgage point of view over the quarter '26. So we do expect continued growth in net interest income and indeed margin. And that does incorporate the headwind that we see from the type of 5-year mortgages with the spreads written at that time as they mature in '26. So yes, it is all integrated into guidance for sure. In terms of what effect that might have, it's obviously a little hard to say, but at the risk of speculation, maybe there is a chance that as these higher spreads roll off, people reconsider the spreads that they're currently writing business at today. And maybe, therefore, there is a marginal benefit to spreads being written during the course of '26. Partly, that is, of course, speculative. But as these higher spread mortgages come off, will that cause people just to reconsider the rate at which they or rather spread at which they write new mortgage business and cause them to revise up what I think an appropriate spread is for mortgage business? Possibly, yes. And if it does, we'll obviously welcome it. Operator: Our next is Jonathan Pierce from Jefferies. Jonathan Richard Pierce: Got 2 questions. The first is on structural hedge, again, some about that. I wondered if you could help us a little bit scale the contribution from Q4, you talked previously in that significant increase this year and the contribution to the movement has been was 4 basis points in the latest quarter and 10 basis points in the first quarter. Maybe you could put Q4 in the context of that for that would be helpful. And just a supplementary on the hedge. I wondered if you could -- just talk a little bit about what happens to '26 in terms of timing because I'm still entirely -- sure, I understand how are you thinking about that? I mean it's rose that the '27 tailwind is probably more about the full year impact of the '26 in the trend then we get as a lot of the [indiscernible] starts to roll through be helpful just to get a little bit more on that. [indiscernible] an idea what will be next year and how fast forward you will be looking in the sort of metrics you will be updating or distribution so on and so forth. But will this be sort of 2028, '29, look forward. William Leon Chalmers: A couple of questions there. First, on the structural hedge. Second on strategy and what we'll be talking about and where the next year. In respect to the structural hedge, maybe just a kind of a mark-to-market. The Q3 yield on the structural hedge is about 2.3%. As you rightly said, the contribution to the margin of the structural hedge in respect of Q3 was about 4 basis points. And we've previously highlighted and maintained still today that the contribution of the structural hedge going into Q4 will be meaningfully greater. We've put a precise number on that, but just maybe help the discussion. The expectation for the yield as a whole during the course of '25 will also be around 2.3%. I'll come back to '26 in just a second. . But the expectation is, as I said, is that the structural hedge contribution to the margin will meaningfully increase in the course of quarter 3 and I would expect in that context, Jonathan, again, without putting too precise number on it, the structural hedge contribution to the margin will more than double in quarter 4 versus what it was in quarter 3. And as I said, that all leads in combination with the deposits headwind and mortgages headwind to an expectation that the margin in totality will step up in Q4. Will step up in a way that is more significant than what we saw Q2 to Q3. So I know I'm not putting precise numbers on it, but hopefully, that gives you some steam. When we look at 26% on the structural hedge, the expectation for the yield in '26 is consistent with our previous discussions, actually, on average, about 2.9%. You cut that out, obviously, from the circa GBP 6.9 billion guidance that we've given you for structural hedge earnings off the back of about a GBP 244 billion structural hedge, you'll get to 2.9% through that path, too. But that gives you a sense for the year as a whole. There is obviously a bit of a journey in respect to the structural hedge. At this point in the year, I'm not going to kind of go through it on a quarterly basis. But it isn't all delivered on quarter 1. It isn't all delivered at quarter 4, and it won't be perfectly linear in between. But overall, that is the contribution of the structural hedge, i.e., GBP 6.9 billion in total, an incremental circa GBP 1.5 billion versus what we got over the course of '25 as we look forward. It is important to say in this content section that structural hedge then continues to build over the course of future years. And I would -- again, I won't give precise numbers on it. but you should expect continued build, most notably in '27 and then continue building the years thereafter '28, '29 and so forth, but at a slightly lower level. We'll talk more about that in the course of the year end, give you more specificity. In respect to strategy, Jonathan, our focus right now is very clearly on delivering '26. We set out some very explicit, some very clear and I think some very important commitments in respect to what we're going to do in '26. Cost-to-income ratio less than 50%, ROTE in excess of 15% and capital generation in excess of 200 basis points we are going to deliver on those '26 commitments. And so that is very much our focus. Now it's a very fair question for you to ask having said that, about where do we go from there? Our expectation is that we will also update in the course of next year as to '27 and beyond. It will probably be around the middle of next year when we come to market with that update. So that gives you a sense of timing. Then in terms of the look forward period, that's something which we'll probably discuss actually over the course of next year. But these things often end in round numbers, and maybe I'll leave it there. Operator: Our next caller is Aman Rakkar from Barclays. Aman Rakkar: I actually had 2, please. I wanted to query on nonbanking funding costs. I think that's actually [indiscernible] a touch lower than your commentary previously around up GBP 100 million year-on-year. So I was wondering if you can give us an update for that. And I don't know if that's contributed in any way to slightly firmer outturn for this year. But if you could just kind of update us on that particular line item within NII, that would be great. . Just another one on other operating income, actually. So obviously, the headline rate is good again. It's quite divergent trends within the division. So I think it looks like retail has kind of reaccelerated again in Q3. The insurance business is, it looks like it's actually tapering off, if I look at the year-on-year trends through the course of this year, and then commercial continues to be quite soft. So could you give us a bit of a kind of steer on how to think about these divisional trends going forward? I'm just trying to work out how we arrive at a similar kind of run rate next year. And if there's anything kind of episodic or lumpy that we should think about or one-off elements that might kind of unwind into next year, that would be very helpful. William Leon Chalmers: Thank you, Aman, both of those questions. The -- taking them in turn. In terms of NB NII, nonbanking net interest income. Q3 as we disclosed today, GBP 136 million, that is running at about 10% ahead of where it was last year. So year-to-date, I think it's about GBP 372 million thereabouts. That's about 10% up versus where it was -- and what's going on there, as you know, it is very much about the funding of the other operating income -- income streams insofar as they're not related to banking. So LDC is an example of that. Lloyd's living in is an example of that. Of course, Motor is an example of that, but so is the insurance pensions and Investments division. And so is commercial banking activity. It is probably running a little bit more slowly, i.e., slightly slower growth rates versus what we previously thought. That is, if anything, partly attributable to commercial banking activity, which has been a little bit less in that space, at least than we previously expected. I'll come back to that in a second. But overall, what's going on within the nonbanking net interest income that is most important is that we are seeing the takeover of volumes rather than rate rises driving it. So if you look at the trend last year in nonbanking net interest income, it was probably about half and half to do with volumes, number one, but also increased rates in refinancing number two. But if you look at it this year, it's more like 15% or thereabouts in terms of rates and 85% in terms of volumes. So volumes is really making the running in terms of the increases in nonbank net interest income that we see over the course of this year. And of course, looking forward, what that means, Aman, is that if you believe in other operating income growth, which we do, and I'll come back to in just a second, you should expect that nonbanking net interest income to continue to grow over the course of 2026 but continue to grow from very much a volume-driven perspective as opposed to a rate perspective. Rates won't be 0 because there is some term financing going on, in particular in relation to Motor, which has got about a 3.5-year average life. So it won't be 0, but it will be predominantly a volume-led story within long bank net interest income. Before moving on, it's worth just wrapping that up in the context of the net interest income guidance that we have given you and will give you for 2026 and beyond. That is including, obviously, nonbanking net interest income in all of that. So that is wrapped up in the guidance that we give you for net interest income, GBP 425 million this year, circa GBP 13.6 billion now. And indeed, for the guidance, we will give you next year of '26. In respect to other operating income, maybe just to start off with the core point that as you know, when Charlie and I launched the strategy in February 2022. It was very much focused upon trying to ensure that we diversified the business from an undue dependency on rates. Looking to avoid being, if you like, pressured by a downward trend in rates during the next cycle and also achieve the benefits of what is a strong and very highly present franchise right the way across the U.K., across the retail the commercial sector and indeed within insurance, pensions and investments. So the other income -- the other operating income strategy was a strategic diversification, which is intended to benefit from the strength of the Lloyds Banking Group franchise. It's that combination that led us to deploy significant strategic investments in this area. And then we've seen the benefits of customer activity, if you like, picking up on those strategic investments and helping us drive the operating income now for about 3 years of high single-digit growth. And that's again what we've seen during the quarter 3, whether you look at it year-to-date or whether you look at it year-on-year [indiscernible] introduction, Aman, but before getting into your question, I thought it's important to highlight those points. The individual business components within other operating income, as said, up 9% in total. What are we seeing year-to-date? We're seeing strength within retail. I've talked about transportation there, but it is also about PCA offering. It is also about protection offering increasingly to mortgage customers and it is also about cards year-to-date. So a retail offer that is growing significantly. It's transportation, but it's also those other factors. Within commercial, commercial has been a slightly slower pattern over the course of the year-to-date performance, and that is partly because low markets performance has been probably slower than we would have perhaps expected but it's been somewhat offset by things like cash management and payments, number one, it has been also the case that the comparative period benefited from valuation adjustments on a year-to-date basis, which, of course, inherently don't repeat during the course of '25 so there's a slight comparative issue there, which has meant that commercial has been slower year-to-date versus where you would normally expect it to be. And indeed, our expectation looking forward is that, that is going to change as those comparatives come out of the analysis. I'll come back to that in just a second. Insurance pension investments up about 5% year-to-date. That is off the back of long-standing strength. It is also off the back of GI strength and things like share dealing. But to be clear, if you look at it on a quarterly comparison basis, weather in respect of substance, the back of dry weather hits a little bit in the course of Q3. So insurance is still growing for sure. But the reason why you're seeing it at 5% in part at least, is because of that weather during the course of quarter three, which, of course, we wouldn't expect to be repeated on a BAU basis. And then finally, Aman, the strength in investments is clear to see. That is the living LDC has been a significant contributor to the business on a year-to-date basis and again, on a look-forward basis. When we put that together, Aman, first of all, we would expect those growth streams to continue to build over the course of the remainder of this year and certainly into next. And that is a combination of strategic investments landing, if you like, and increased customer takeup. Allied to that, we now are adding in previously -- that is going to contribute in Q4, and it's going to contribute during the course of 2026 more meaningfully. We haven't given precise numbers around that. Our expectation is that, that is going to boost other operating income for the course of 2026 at least, by around GBP 175 million or so beyond what you would have previously seen in the other operating income line. Now of course, our ambitions in respect of Lloyds Wealth go meaningfully beyond that. And so we would expect it to build in the years thereafter, but that gives you a sense to what we expect it to contribute in '26, which, of course, will be added to the contributions from the other income streams that I've just been highlighting. Hopefully, that's useful, Aman. Operator: Our next caller will be Sheel Shah from JPMorgan. Sheel Shah: The CIB business has been particularly strong this year. I want to stand out performance, I think, at least when I look at your balance sheet momentum, could you talk a little bit about this business? What's actually happening? How much of this is market driven? How much of this is an active strategy to maybe target share gains and what are the margins looking like in this business? And then secondly, to come back to your less than 50% cost-to-income ratio for 2026. Just looking at consensus, it sits at 51% at the moment. You've just mentioned GBP 175 million coming from the Schroders Wealth business into OOI. What do you think the market is missing either on the revenue line or the cost line to get to this cost-to-income ratio target? William Leon Chalmers: Thanks, Sheel. Two questions there. One relation to commercial bank in CIB in particular and one in relation to costs. Just before getting into CIB, just to step back, as you know, our commercial banking business consists of both business and commercial banking BCB and the CIB business. And we are engaged in quite a bit of transformation in respect of each of those 2. When I look at the BCB business, as I mentioned in my comments earlier on, we've seen some really constructive signs in terms of BAU lending growth, which is great to see. When you look at it externally, that is offset by the government repayments that have been going on in respect to bounce back loans. And so the net, if you like, is affected by that. But we are encouraged by some decent positive signs, if you like, our ongoing BAU growth. And that is alongside of creating a much broader digitalized proposition to our customers, which in turn is going to help us drive other operating income growth going forward. When we look at CIB, again, that is going through a significant period of transformation, but it is about product broadening and product deepening. There have been some areas that have probably been slower than we might like to have been, for example, the loan markets area. There have been some areas that have been successful, particularly successful over the course of this year. I mentioned cash management and payments, for example, capital markets have shown some strength alongside working capital. And actually, the indicators that we've got on an early Q4 basis have been really promising in respect of CIB. Now CIB comparatives, as I mentioned a second ago, have been a little bit weighed down by strong valuation adjustments in the course of '24. So kind of bear that in mind. But the underlying momentum in CIB we're really encouraged by. We think it's really positive, and it's really -- it's a big part of our transformation story going forward. In respect to your second question, Sheel, on costs, the cost shape for 2026, as said, remains very much a commitment to sub 50% cost income ratio. Within the cost/income ratio, it is clearly composed of 2 elements. One is to say income strength. We've talked a bit about that during the course of this call, so I shan't repeat those points. But your specific question is around the cost part of that equation. And how do we see that developing? I guess a couple of points, really. One is we spent quite a lot of money on various strategic initiatives, which in their orientation are cost focus. As we go into 2026, we see the full year run rate benefit of those investments take place. Whether those are around the business units are alternatively around the functions, including things like our systems and, of course, our various other risk, finance and other support functions, those strategic investments engineer rather help us engineer a lower cost base going forward and '26 represents a full year run rate for a number of those. At the same time, our cost growth in respect of OpEx is slowing somewhat. And that in part is because of some of the investments in things like the FTE reductions that we have made over the course of this year. You'll remember earlier on this year, we talked about our severance budget being higher for '25 than it had been previously. And that has been the case, said in turn, that helps us address OpEx growth over the course of '26. The result of that is that we expect 26 costs to be flatter than you have seen recently. I won't commit to absolutely 0, but nonetheless, you should expect to see them be flatter than they have been previously. And that, in turn, or rather in conjunction with the income developments that we talked about is what helped us deliver a cost/income ratio of sub-50%. Now to be clear, Sheel, it is not going to be sub-50% by much. And we've said that before, it's worth repeating. But nonetheless, it will be delivered and it will be sub-50%. Operator: Our next call is Chris Cant from Autonomous. Christopher Cant: I had one on stable coin and tokenized deposits and one on motor, please. So on the former topic, I mean, obviously, lots going on and you're involved in this U.K. finance initiative in terms of tokenized deposits. In terms of time scales and relative regulatory burdens, I guess the question is, can the industry move fast enough to deliver tokenized deposits ahead of stable coin providers potentially trying to get a foothold? And what sort of time lines do you think we're talking about to move beyond the use cases? I know there's a few things that are moving outside the sandbox in terms of remortgage, for instance, what sort of time line are we talking about to move beyond the use cases currently envisaged by the U.K. finance initiative. And on programmable money, could you give us an idea of the use cases that you see? I guess, it's corporate clients that are more interested in these options. Could you give us some examples of use cases that corporate clients are looking for? That would be interesting. And then on motor, the FCA consultation, obviously, you're going to feed into. One of the points from the FCA's perspective, I suppose, is that if we don't capture the majority of cases through a redress program, and it goes through the courts, then administrative costs would be potentially materially higher. Is that something that you agree with? i.e., you would be pushing for a narrower scheme potentially or for less redress and taking then some risk that the administrative burden of more cases remaining in the court system would push costs in that area. William Leon Chalmers: Yes. Thanks for those questions, Chris. First of all, on stable car and tokenized deposits. A couple of points to make there. What is about the path forward on that? And then the second is around use cases. Said earlier on, the rise of stable kind has obviously been notable in recent periods. And it's been particularly notable in the context of international payments where, as I said, there may be some advantages in terms of speed and cost. What we think in the U.K. is that the GB tokenized deposits, GTD that we are constructing together with the industry is effectively commercial bank money in its current form, which allows interchangeability between a digital point, if you like, an analog coin the current coin that is there in the market. And that has tremendous advantages. It has tremendous advantage from a customer point of view because it is basically one and the same, and they should be able to move freely between digital money and, if you like, analog money. And that makes it a much more kind of customer-friendly approach. It also means that we, as banks can offer that to customers as our money effectively together with all of the security and indeed, insurance benefits that are currently in place and of course, from a regulatory point of view, together with all of the KYC and so forth that we currently have in place. So it is -- it goes hand in hand with today's money in a way that is, as I say, very user-friendly from a customer point of view. And in that sense, has material benefits over what stable coin has to offer, which is clearly not interchangeable with commercial bank money. It is not one and the same thing. In terms of timetable, Chris, I think your point -- your question rather, is a good one. We need to move quickly on this. And indeed, use cases, as I said, landing in the first half of next year, we would expect off the back of that to be able to get something out in a workable customer proposition format, I hope by the first half of 2027, if not before. Now what we really need to fall into place in order to secure that progress, if you like, is a regulatory framework that is consistent with the ambitions of the industry and indeed is consistent with how the Bank of England would like to see this play out. As a form of digital money in the U.K., it is important that in place in a supportive manner. So that's really what we need. But if that is in place, then the speed of this is very much within the sex hands, and we would expect to play a leadership role in securing that, making progress and indeed getting to the customer benefits that we think are promising as a result of this. In terms of use cases, you mentioned hotel and for sure, there are wholesale use cases here, Chris, but I don't think it's just that. That is to say, digital money offers use cases, both in the wholesale and in the retail space. Wholesale, we've just started an example with Aberdeen using basically tokenized assets as collateral that offers meaningful efficiencies in the context of collateral management and need speed and pace and indeed cost of collateral alongside transactions. Likewise, the digital kill is an innovation that is being sponsored in terms of one of my use cases and again, offers meaningful speed, cost and efficiency benefits from a customer point of view. And then, of course, transacting with each other. I say corporates can transact with each other in digital asset format. Again, that is going to offer speed and transaction cost benefits. But as I said, these are also [indiscernible] benefits. So 2 out of 3 of our use cases are in the retail space, one being effectively cash on delivery to meaningfully cut fraud in the retail space and the other being effectively reengineering the home buying journey off the back of programmable money for just that journey. So I think there are meaningful retail benefits there, too, Chris. We've got a lot to do in this area in digital assets. But as I said, if we get it right, there's an awful lot of customer value to be created. On the second topic, Chris, on Motor. It is our view, as I mentioned earlier on, that the motor proposals as put forward by the FCA are currently disproportionate. And they're disproportionate as for 3 main reasons. One is because we believe the determination of unfairness is too broad who is because we build the judgments that are inherent in these proposals do not align to the Supreme Court clarity that was provided earlier on this year. And 3 is because we think the redress calculation as said, is at best tenuously linked to harm. Now what that all means, Chris, is that, indeed, if the proposals remain as broad as they are. In many respects, at least, we would expect to see better outcomes in the context of litigation because presumably, the courts will take into account the Supreme Court rulings in the way in which they were made. And presumably, the courts will take into account the linkage between address and harm. So in that sense lease, I would expect litigation outcomes to be better than much of what is in the FDA proposals right now. Now having said all of that, Chris, we clearly want to move on from this. We clearly want the business to move Ireland to focus on customer value creating propositions we have today just as we expect to be in the future. So as a result, that is why we've taken a GBP 1.95 billion best estimate for the provision which in turn is not far away from what it would be if the FDA were to enact their proposals in full. It's very much in the spirit of saying, okay, look, we don't agree with them. We're going to do what we can to change them and get them into a better place. But we are provisioning on the basis that a large part of them is going to stay in place, and we want to move on, and that's what this provision is designed to do. Operator: Our next caller is Guy Stebbings from BNP Paribas. Guy Stebbings: Had a couple of questions back on net interest income. The first one is around volumes. The interesting asset growth was quite strong in the quarter, a couple of billion ahead of consensus on average nearing assets and the end of period position at [indiscernible] Q4 in a good place. If you could talk about sort of broad expectations for the outlook from here, I made your contractor comments on mortgage volumes probably being out of our better-than-expected performance in Q2. So it sounds like we're talking to a positive trajectory, which given your Q4 NIM which takes quite a promising picture. And then related to this, on mortgage spreads. So interested in your comments in response to Perlie's questions and perhaps the market reacts to the headwind from mortgage spread shown on upcoming maturing cohorts by lifting new spreads. I wondered within that, your comment signal that maybe current spreads have drifted a little bit lower in recent months on new lending and perhaps you're getting to levels you're a little bit less comfortable [indiscernible] just reading too much into the remarks there. I guess I'm really trying to work out on the upside versus downside on your initial expectations. You had the visibility clearly on the maturing yields for quite a while, but where the new lending spreads are coming in better or worse than what you'd initially envisaged. William Leon Chalmers: In respect of AIA, first of all, the Q3 performance, as you know, saw a meaningful jump in terms of AIs off the back of what has been increased lending over the course of the year as a whole and continued into the third quarter. So maybe taking a step back before getting to AAAs. As you know, we've had GBP 18 billion growth within the lending book year-on-year, which, of course, contributes to meaningful IA growth on a kind of realized basis, if you like. And within that, we've had cards year-to-date up 7%. We've had personal loans up 13%. We've had Motor up 5% over the course of the year. We've had mortgages up GBP 8.7 billion or 3%. It's a really decent loan performance for the business. in total, GBP 18 billion, up 4% up on assets for the year. And as you say, that is now translating into AIA growth, 65.5% in the -- we're seeing continued growth in the course of quarter 4 across the asset. So of course, it is a slightly shorter period because of seasonal factors but [indiscernible] you should expect to see growth within assets within quarter 4 that will be perfectly respectable. And off the back of that, deliver continued strength in AIA for the remainder of this quarter and looking into '26 and it will be that combination, i.e., AIA growth, together with the step-up in the margin that I mentioned a second ago, which in turn sets the stage for 2026 and gives us a lot of confidence in our 2026 guidance. So that's a picture of AIA's guy, which I hope is helpful. On mortgage spreads, it's interesting. I mean, we've seen now 70 basis points Q1, Q2, Q3. It is fair to say that we've seen perhaps a basis point or 2 of erosion within that over the course of these successive quarters but we are still rounding to circa 70 basis points in the course of quarter 3 and comfortably rounding to circa 70 basis points in quarter 3 to be clear. A couple of points to make within that. One is -- when we look forward, my comment earlier on about whether there will be a bit of repricing of the back of 5-year charities and therefore, people feeling a bit more pressure in their mortgage books. We're not banking on that to be clear. When we put forward our guidance for in excess of 15% ROTE and the guidance we'll be giving you next year for the component of net interest income that will make up or contribute to that outcome. We have never been and are not banking on any uptick, if you like, in mortgage spreads that is driven by that 5-year maturity pattern that I talked about earlier on. So we're not banking on it. If it comes, so much the better, and you'll see that in the context of our interest income at the time. The second point I wanted to make is the business or rather the spreads at which we are writing business right now, contribute to ROE attractive mortgages for us. And that's certainly true on a stock -- on a marginal basis. It is also true, albeit at a lower level on a fully loaded basis. So you're seeing very attractive marginal returns even at the current spreads. You are seeing, if you like, fully loaded returns that are still above the cost of equity. So we're happy to write them. We're particularly happy to right and bearing in mind a couple of other factors. One is that we are increasingly able to contribute protection alongside the mortgage product as our insurance and our retail businesses work increasingly closely alongside of each other. We're now up to about 20% protection penetration for mortgage products and so this is a strengthening relationship that we're seeing, not just a one-off mortgage relationship. And then the second is that we see an increasing share of our mortgage coming through the direct channel. And that is a more profitable product for us to write. It is also one that more closely aligns us to the customers, to be clear. But at the moment, at least, we're seeing about 24% of our mortgages coming through the direct channel. That is, frankly, more than we've had for a long time, and it is a result of a very deliberate strategy that we are embarking on. So in that context as well, Guy, we were able to write mortgages which are attractive to us on a stand-alone basis. But off the back of the, if you like, relationship that we're developing and the channels through which we're distributing is a more attractive position. Operator: Our next caller is Ed Firth from KBW. Edward Hugo Firth: I had 2 questions actually. The first one was just the sort of -- I guess, I don't know what the right way is cadence, I guess, if you like, or the growth rate of NII. I mean if I look at your -- you're talking about around GBP 13.6 billion for the year. And year-to-date, it's 10.1%, which would suggest somewhere around 3.5 in Q4, even my analysis, I can do that. We suggest that to a slightly slower growth rate than you saw in Q3 rather than a higher growth rate. So I'm just trying to think -- is there something I'm missing there? Is it something about nonbanking income? Or is the GBP 13.6 billion really a number that we should take us up as a sort of very safe space that actually all other things being equal, we could see something better than that. So I guess that's my first question. And then the second one was, I think you were saying that we should put another GBP 175 million in for next year for the buyout in revenue, other income for the buyout of the SPW joint venture. Is there a cost offset on that? Or is that just like straight through the bottom line? I mean, obviously, you talk about modestly higher for the little bit for this year. I'm just wondering what sort of cost numbers might equate to that GBP 175 million or is that just a straight number we should just put in straight [indiscernible] William Leon Chalmers: Yes. Thanks, Ed. In respect to net interest income growth, first of all, the easiest way to explain it is I think the following. As you know, we've upgraded to circa GBP 13.6 billion from GBP 13.5 billion. That is intended to be, and I hope very clearly is a sign of confidence in terms of our net interest income trajectory. It is -- as you pointed out, hopefully, as is evident in the guidance, the circa word, the C is very deliberate. That is to say 13 points is not intended to be a cap. It is saying circa GBP 13.6 billion. So I'll kind of leave you to move around from that. But it is -- now that in how things develop will be around GBP 13.6 billion, including numbers that go above GBP 13.6 billion provided that they are within the circa range. . The -- stepping back, net interest income in quarter 3 was, what, GBP 3.45 billion. It's up about GBP 90 million growth versus Q2, which we, as you know, is about 3%. Some of that Q2 growth that we saw in Q3 is day count increase. And so a slightly lower amount of that is underlying increase. If you look forward into Q4, we expect to show continued progress in NII with to be clear, probably a similar absolute income growth in Q4 as we saw in Q3, a similar absolute income growth in Q4 as we saw in Q3. But to be clear, none of that will be daycount benefit. And that is to say the daycount in Q4 same as the daycount in Q3, which if you translate that, that means that growth is actually strengthening, not weakening. So growth is strengthening in Q4 rather than weakening, and that is off the back of the factors that we discussed before, which is the step-up in the margin, which is, as I said, more pronounced in Q4 and then the AIA progress that I was discussing with guidance just a second ago. And now it's coming off the back of the fire. So all of that, hopefully, helps can illustrate the point. And in turn, we have a lot of confidence in that number. So hopefully, that's helpful. On the SPW point, when we -- unfortunately, all good things come into price, I guess. So when we look at the GBP 175 million incremental That, in turn, comes with costs, which are probably going to be about GBP 120 million in excess of what you saw previously there. Now you didn't actually see them previously because they were all consolidated in the OI line. So it's probably about GBP 120 million adding costs to procure that circa GBP 200 million which, in turn, the OOI is about GBP 175 million ahead of what we'd have previously seen. So I hope that's clear. There's a couple of other points that maybe I should make in the context of the SPW transaction, [indiscernible] transaction, which are important to us, one is we did it at 0 capital cost. As you know, we had to give up our 20% share in [indiscernible] in order to get that. But the benefit that we're getting from that casino share was a modest annual dividend that you saw in Q4 and frankly, this feels to us like -- from our perspective at least, a really positive trade, but it was done at 0 capital cost. And then the second point is we'll have to work at it to make sure that it comes within our cost income ratio. But as I said, that's consistent with our sub-50% cost income ratio guidance. But at the same time, you can probably imagine, as with many of these wealth businesses, this is a materially RoTE positive transaction, and we'll deliver an RoTE that is well above not just our cost of capital, but probably well above the types of IoTs that we'll be delivering on a kind of group aggregated basis. This is a net positive contributor to the ROTE of the business. Most importantly, Ed, it's a very important strategic development and indeed, a very important part of our customer proposition. Operator: As you know, this call is scheduled for 1 hour, and we have now exceeded the end of the allotted time. So this is the last question we have time for this morning. If you have any further questions, please contact the Lloyd's Investor Relations team. With that, our final caller is Amit Goel from Mediobanca. Amit Goel: So 2 relatively quick questions from me. One, just on the deposits -- the real deposits. So some positive trends there on the back of the pricing decisions. Just curious whether that's largely done now or whether we could continue to see a little bit of that shift and whether or not that can benefit the hedge capacity. And then the second question, just curious how engagement with the government is going ahead of the budget and also whether or not they kind of recognize the motor costs when also thinking about banking sector taxation? William Leon Chalmers: Yes. Thanks, Amit. The -- in respect of each of those, as you say, deposit performance has been pretty good over the course of this year, GBP 14 billion up in total, 3% year-to-date increase. So a good performance in deposits. And within that, retail is up GBP 4 billion year-to-date. And what we saw within retail in the third quarter was a little bit of outflow within the U.K. retail savings area, and that was very much within the fixed-term product, off the back of effective pricing decisions that we had taken, given the fact that we performed so strongly in Q2, in particular, in the ISA season, which we highlighted at the time. So this was a kind of, I suppose, inevitable reaction to very deliberate pricing decisions that were taken in the course of quarter 3. It was good to see that it was offset by PCA performance in the course of we were up GBP 1.2 billion, which is a good performance. And as you know, leads us to a year-to-date performance within PCA is up around GBP 0.5 billion or so. I think a couple of things are happening there, Amit, which are pretty constructive on the whole. We're seeing continued wage inflation with respect to our customers. Importantly, we are also seeing reduced levels of churn out of the PCA product into savings products and into fixed term in particular. And so that falling churn is down about 33%, i.e., down about 1/3 in Q3 versus Q2. That's a material reduction in churn, and we expect to see that pattern more or less continue going forward. But it's good to see. As said, PCA is an incredibly important customer product from our point of view. It's an incredibly important product from a structural hedge point of view. And so the solidity of the PCA performance has been good to see. As we look forward, I think we do expect churn to continue to add Q3 was particularly marked, but nonetheless, we continue to see -- we continue to expect it to add going forward. PCAs, we are seeing other trends slowing government payments, for example, probably over time saying wage growth as well. And so PCA performance, I don't think we expect to see it be particularly exciting, maybe more or less static might be a reasonable way of looking at it. We'll see how it goes. Going into next year, I think that starts to change as things pick up perhaps a little bit more. Our expectation for the structural hedge to be clear and it insofar as it relates to this issue is we're not banking on significant increases in structural hedge balances. So all of our forecasts for you, the GBP 1.5 billion growth in structural hedge income, for example, going to next year, GBP 6.9 billion revenue in total from the structural hedge. That is built on a steady hedge. And so if we see performance within PCAs, instant access and other hedge eligible deposits, including NPCA within BCB, which has shown an uptick actually in Q3, if that performs more positively than we expect, that would represent structural hedge upside and opportunity. At the moment, we're expecting flat structural hedge performance. On your second question, Amit, in respect to budget, a couple of points to make, really. One is the business has been really only very modestly affected, if at all, by budget concerns. So I mentioned earlier on that we've seen mortgage performance being very strong. As you know, GBP 8.7 billion year-to-date, GBP 3.1 billion of that in the third quarter. We've seen applications up 19% over the course of the third quarter. We've seen completions up 23% over the course of the third quarter. And so no meaningful sign, if you like, of insertion because of budget in the third quarter mortgage performance. And then within the pensions business, another area that conceivably might be affected. We've seen a little bit of an increase in individual pension encashments, but no material change to be clear within Workplace. And in any case, any change in volumes that we have seen in the pensions area have been well below what we saw last year. So really nothing to report effectively in terms of the, I suppose, hesitation that might be induced by the budget overhang in respect to the business as usual. In respect to tax, I mean, I think those are really decisions for the government, obviously, and we'll leave them to make those decisions as and when they see fit. From our perspective, at least, the most critical thing is that we have a stable and a predictable tax regime and one that is competitive. That is to say, at the moment, we're a material taxpayer as you know, GBP 1.5 billion of corporate tax all in, including things like NII and BA and so forth about GBP 2.5 billion of total tax paid. We see ourselves a meaningful tax contributor. We see a stable and competitive tax regime and indeed a predictable tax regime as essential, frankly, to the continued prosperity in the financial services sector and by extension, all of the things that we can do for the U.K. economy as a whole. So I think that's really all we'd say on the tax front, Amit, which I hope is useful. Operator, we're going to call it a day for now on the questions. I just want to say thank you to everybody for joining the call today and your interest in the stock and the company is, as always, greatly appreciate it. Thanks very much, indeed. . Operator: Thank you. This concludes today's call. There will be a replay of the call and webcast available on the Lloyds Banking Group website shortly. Thank you for participating. You may now disconnect your lines.
Operator: Ladies and gentlemen, welcome to the DSV A/S Q3 2025 Interim Financial Report Conference Call. I am Hillie, 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 Jens Lund, Group CEO. Please go ahead. Jens Lund: Good morning, everybody, and welcome to our Q3 results call. We look forward to a good session where we go through the presentation. We will -- the format will be the same as usual. Michael and I will say something in the beginning, and then we will do the Q&A session. We will quickly go to the forward-looking statements. Please take your time to read it. It gets longer and longer. We will soon need 2 slides for that one we've been discussing. But I'll skip that one and move on to the agenda, which is the same agenda as we normally use. And also, therefore, I will quickly move on to the next slide and talk a little bit about the highlights of the quarter. So I think it's very clear that we are basically seeing good momentum on the Schenker integration. It's, of course, the most important topic that we have right now. It is to ensure that the integration continues to gain momentum. And I think that's also what we see. I'm particularly fond of the fact that we've sort of done really well in relation to the customers. So I think the feedback that we've received on the integration is very positive. And we've seen that there's been very little attrition. So that's definitely an outcome that we're very pleased with. On the financial performance, I think the numbers, they speak for themselves. Of course, it's now with a full quarter of Schenker numbers in there as well. There's still a lot of ground to cover, but I think we are off to a really good start when it comes to the combination of the company and the financial performance. On the deleveraging, yes, I think we've now started to reduce our debt and just shows that we generate cash flow, and that means that there's substance in what we are doing. And then, of course, our guidance, we now have narrowed our guidance. Michael will talk a little bit more about it. But I think it's basically good to see that we stay within the range that we guided at the beginning of the year. And then lastly, I would just say on the execution of the synergies. I'll come on to that on the next slide. But of course, at the end of Q1, we saw that we had a plan, and we presented also a time line we had a lot of uncertainties in this plan. We've managed to reduce the number of uncertainties and also basically then been able to update the plan so that you can see there are new time lines. And I think I would just like to mention that we said we would be done with 15% at the last call. Now we say we will have 30% done before the end of the year. And also the next column is increased from 50% to 70%. Not all plans are finalized yet. So as a consequence, we might -- this is what we know. This is what we have confidence in. We, of course, are working on doing it faster, and that might be the case. But this is what we know for now. So we're very comfortable showing you this as well. I think if we look at the integration itself, I talked about that we set the organization. It's very, very stable, the organization. We are pleased with that. I think, as I said, the customer dialogue, it's something that is really rewarding because it's something that we put extra effort into this integration. I think if we measure the previous integrations, we saw that we needed extra focus on this. And then I think the Country go-lives, they are progressing really well. We are live now in 13 countries. This is where we physically move the people in together that we -- both in the offices, but also in the operational side. So it's a lot of work that needs to get done. It's actually steered by Michael, who is doing a wonderful job on this together with the team. And then, of course, I think the back office functions, here, we also consolidate the functions. It's going really well. And then, of course, we can see that on the white collar side, we've reduced more than 3,000 headcounts as a result of the sort of the combination as well. I'd just also like to mention that we expect to go live in Germany on the 1st of January, as we stated also the last time. And I'm really proud about the work that is being done by the team there, both on the DSV side, but also the Schenker side and the constructive approach from the employee representatives, where we basically have an ongoing, of course, what can I say, open dialogue, but still in a constructive way so that we find results. Yes. I think the finance figures you could probably read yourself and the transaction costs and the expected synergies, they remain unchanged. I think if we look at the financial highlights here, we see the GP is up. I mean, at the end of the day, this is really what it's all about that we produce some more GP. We see that the EBITDA is down, and it is because the productivity, what can I say, needs to increase as well. There's one thing that I would like to say, and I'll also point that out when I come to some of the divisions. The transaction size that we are handling, it gets smaller when the economy has a difficult time. So the volumes sort of that are shrinking a little bit when we are down trading, it doesn't necessarily mean that there's fewer shipments. So we need more shipments to flow through the system, and we have a certain number of transactions per person per day. So on the productivity side, we're actually doing fairly okay, I would say. So it's just a little bit complex to see through some of those numbers here. But when we look at it on the management side, it's under control. We're doing a great job. And I'm very confident that we will see when the synergies start to kick in that we will also see progress on the EBIT side. If we move to the next slide, we come to the Air & Sea division. Here, I think we've always said it's GP that matters. we need to produce some gross profit here. And that's also what our focus has been in this quarter. If we look at it, we can see that the GP is up. The EBIT is down. And here, if I look at both air freight and ocean freight, we produce more shipments than we did last year even if the volumes have evolved as they have. And of course, it puts a little bit of pressure on the conversion ratio as well as the lower productivity we see out of the Schenker organization. Not that we're not going to get the Schenker productivity up, but it's just when you combine, it takes a little bit of time before we get there. And that, of course, has a consequence for the operating margin as well. But once then the conversion gets up, the productivity gets up, of course, the margin will adjust itself. If we look at the air freight, I think we are actually pretty pleased with the developments in the GP. It's really been solid for us. It's the last quarter where we can separate the DSV and the Schenker volumes because, as I said, we are now live in 13 countries, and it means that we cannot separate the hot and the cold water anymore when we do the reporting. So we give you these numbers, and you can see we've had the yield discussion many times, and it's actually holding up pretty well. One of the reasons why it's also holding up is, of course, as I mentioned, and say, you do more shipments in order to achieve, what can I say, the tonnage that we are talking about here. And we all have to remember that, let's say, you do an air freight shipment of 400 kilos or one of 800 kilos. It's the same work that the forwarder needs to do. So really on the productivity side, I think actually, if we measure on the KPIs internally, we can then have aspirations that we need to drive the productivity even higher, which we also have. But I'm very satisfied with the productivity measures that we have. And we're monitoring these all the time. If the market develops differently, of course, we will need to react on it. On the ocean freight, of course, that's the toughest market that we're in right now. It's crunch time. We see that basically GP is down. Of course, there's some FX impact in that as well, which goes for all our numbers. Michael will come back to that, but there's quite a bit of headwind on that. Also here, we've had the yield discussion many times. We've been discussing the value-added services that we produce on a shipment. And I think it speaks for itself that now we do more transactions per TEU. We've also had a lot of focus on the LCL market now for years as well in order to protect what can I say, our GP and have a value proposition where we are in control of the infrastructure. So I think this is very clear in the numbers as well. When you look at it, that this is now what is playing out as well. Then we come to Road. And of course, it's nice to see that in absolute figures, we are making progress. Schenker's road organization is a really good road organization, strong footprint in the Asia Pacific and also a solid footprint, a very strong footprint in Europe here, we are the market leader. So if we sit and look at this, then of course, there's a lot more to come, but we are on the right way. If you look at these numbers, they include both July and August, which if you have a large scoopage network means that you will have a lot of fixed cost and not as much income generated in each month. So delivering a result of there to round it up to DKK 800 million, it's actually quite an achievement from the road organization that I'm very happy about as well. On the shipment side, also here, we are flat. It's flat neutral, what we are seeing here as well. So it's really also well done, I would say. Then we come to CL. And here, we have produced almost DKK 1.1 billion. So definitely quite a bit up compared to what we've seen before. Here, we see that the Schenker contribution is impressive as well. Actually, we've been doing fairly well on the EBIT side on the DSV anyway previously, as you can also see from the comparable figure, which only includes DSV. But the Schenker is definitely also contributing with both footprint, with skills, with competence. And in combination, we have a really solid value proposition. And then we have the problem that which is something that we have a ton of focus on, we need to increase the return on the capital that we deploy because, of course, it benefits the other divisions that we hold cargo that is being moved in our air freight network, our ocean freight network or our road network. But we need to generate, what can I say, a higher return. We simply -- it's unacceptable where we are right now. But the division is really taking this into consideration when doing the integration, and I feel very confident that they are doing something about it that soon also will be visible in the numbers. So with that said, I would really like to hand over to you, Michael, so you can give a little bit of details to some of the numbers as well. Michael Ebbe: Thank you very much, Jens. And then if we look at the Page #12, which some highlights of our P&L. Like Jens mentioned, we have a stable performance in the quarter. And of course, Schenker contribution positively. It's also -- if you look at our -- the net result is, of course, impacted by our special items of DKK 1.1 billion. This is, as we've announced also related to the Schenker integration. Then I know that we have been talking with some of you guys at earlier occasions. We have, you can say, moved our Road activities, legacy Schenker that we have acquired that was moved to discontinued operations for the ones that are really into details in the spreadsheets. Another thing that Jens mentioned, and I will also touch upon that in the next couple of pages, maybe it's the FX headwind, which is, of course, impacting predominantly in our Air & Sea business. Next is also worth mentioning is that our tax rate is very high these days, which is due to the integration of Schenker. It's a little bit higher than what we have anticipated previously is because as we can see with the synergies and so forth, we move a little bit faster than what we did last time. So we are really picking up in pace, and that's reflected in the tax rate. Our diluted EPS is stable as compared to last year. But if you look at compared to last quarter, it's actually kind of picking up. And if you then even there to see if you can adjust for the tax rate, then we would actually already be in a positive mode on that one. It's clear that the ratios is, like Jens also mentioned, it's impacted by the dilution impact of the acquisition of Schenker, but we are working on getting that improved. Once again, on the next page, on the cash flow. Once again, we have actually a strong cash flow, more than DKK 4 billion, cash conversion ratio of 96%. We're very pleased to see that. Our net working capital has improved quite a bit as well. It's below 2%. I cannot promise you guys. Of course, I will do whatever I can to maintain that low level. But as we said earlier, it might be, you can say, to calculate around 2% in anything. We've also been able to reduce the debt by the strong cash flow that we have. So we have reduced our debt with DKK 4 billion. So that also seems to be nice. It is nice and that we are on the right track, as you can see. So that is great as well. Then the next page, 14, is on the guidance, we are very happy that we are able to keep guidance and, of course, lowering the upper range of our guidance. So now we will expect that we will land in DKK 19.5% to DKK 20.5% for the full year. Jens started out by saying that in this number, of course, we have to bear in mind that we have sale -- headwind, sorry, for the FX of around DKK 500 million as a headwind on that one. We also increased our expected synergies for the full year to around DKK 800 million from previous DKK 500 million to DKK 600 million. That's a change in there as well. And also given the pace that we have also means that we increase our expectations of special item costs in our P&L. And again, reflecting the pace on integration, the tax rate will be a little bit higher. It's because, yes, there are tax consequences when we do these kind of integrations. So long term, for the tax rate, we expect that we will be back in 24% area next year, hopefully. Then for the -- you can say the market outlook, it's still impacted by the macroeconomic and geopolitical landscape. So we still expect that uncertainty to persist for the next quarter. So we expect to see, you can say, growth below GDP for the next quarter. That's what we have embedded into this guidance that we have. But overall, again, we are very pleased that we are able to keep our guidance in the way that we have. And then, of course, on the Road and on the Contract Logistics, as Jens already said, it's a stable performance that we expect to continue for the remaining part of the year and hopefully also in the next couple of years, even better. And then back to you, Jens. Jens Lund: Yes. As Michael said, on the key takeaways, I think one of the things is when we take the Schenker integration, it's really all the experience that we have, all the support that we get from the various parts of the organization. They know what they need to do. It's really well done what is in there. But I think it's also a playbook that we've now done many times that everybody feels comfortable with and also to you, investors that have support us, thank you for that. That's really what comes out of it. At the end of the day, this momentum that we now see on the integration, it's really good to see. Then, of course, as an investor at the end of the day, what you get is earnings per share. That's our focus. Right now, of course, we are driving the earnings per share up. And of course, at a certain point in time, when we also delever the company, we'll probably also use the normal tools on the capital allocation to support that thing. This is our core focus that we drive the EPS up. And I think we are looking into a very interesting period when it comes to EPS development. Then, of course, the guidance, I think Michael talked enough about that, so we should quickly go to the Q&A session because I hope that you have many good questions for it. So please go ahead with that. Operator: [Operator Instructions] The first question comes from the line of Dan Togo Jensen. Dan Jensen: Congrats with this report here. Maybe if you can elaborate a bit on your expectations here for Q4, especially the low end of the guidance range of DKK 19.5 billion I mean you need to make DKK 5.5 billion in the fourth quarter on my math, and you made DKK 3.9 billion last year. So that's a bridge of DKK 1.6 billion. Schenker contributed DKK 1.3 billion in Q3. Probably this will be more in Q4 and due to seasonality. And then you have synergies on top, which you have just lifted. So in my mind, this alludes to a somewhat negative contribution from the organic business in Q4 for DSV. And bearing that in mind, I seem to remember you have quite easy comps, at least in the Contract Logistics and in the Road business. So there must be something weighing significantly down in Q4 for you to maintain the DKK 19.5 billion. Just to understand your thinking of the low end. Jens Lund: Yes. It's basically volume, isn't it, on what can I say in particular within Air & Ocean that we are talking about. That is -- I think the yield will be okay. You've seen that we are a little bit down on volume, I don't see that trend really change. So compared to the original guidance, we probably had anticipated that we would have a growth in volume now we have a decline. I think that's the major contributor, I would say, Dan. The other things that you're talking about that we are doing well on -- yes, of course, the FX side is big as well. I think that's important to mention. But on the CL on Road, we're doing okay. And I think basically, if you say volume and FX, that's sort of the main explanation when we look at it. Yes. Michael Ebbe: And lastly, for -- sorry, then for the -- yes, I fully agree, of course. But last year also, we need to take the seasonality of the legacy Schenker into consideration. Dan Jensen: Yes. But shouldn't that pick up a bit in Q4 given the Road business, I mean, where Q3 usually is. Jens Lund: That's one thing you have to remember that they have big group network. So there are many days where there's no production in December. And that's -- I can tell you, we are also learning something new about fixed cost when it comes to that. So we're really trying to figure out how we can organize this in the best possible way in how many days we produce, et cetera, and what's the optimal outcome on that. We're putting significant effort into that. It's going to be less than what we've seen before, but it will probably take a couple of quarters before we really get that structured in the right way. So it is on the Road side, it's a hard one, I would say. It's going to be good in Road here in October and November, really good. And then we're going to get a tough December. But whether we -- the range is the range then. It's from DKK 19.5 billion to DKK 20.5 billion. So if you are a little bit more optimistic than the people that are -- there's a middle of the range as well, if you know what I mean. And I think I won't say more than that. Dan Jensen: Understood. And if I'm allowed, just maybe another question here, digging into the verticals. Could you maybe elaborate a bit which are the strong verticals for you here? Is it firm the growth you see, for instance, in technology, in pharma, maybe aerospace, defense and are yields holding up in these verticals? Jens Lund: I would say that yields are definitely holding up in the verticals you're talking about. It's probably also some of these verticals that do the best. You would perhaps have more, what can I say, we are a big player in Europe. So of course, automotive is a tough one for us also knowing that Schenker is a German company as well, very involved with those companies as well. That's, of course, something that is a little bit tough these days and also some of the industrial areas, the capital goods also a little bit under pressure. I would say. So -- but the verticals, of course, are tech vertical, very strong vertical out of Schenker. We had focused on it as well. But in combination, it's -- we have the broadest service offering of all the players in the market. So of course, we are making good progress there. And it's really good to see. It's helping us a lot when we then see troubles in other verticals. Operator: The next question comes from the line of Patrick Creuset from Goldman Sachs. Patrick Creuset: Congrats on the strong front also from me. Just a couple of questions. The first, just on synergies. I mean, it seems like you're harvesting the DKK 9 billion ahead of schedule. And perhaps can you talk a little bit about some other sources of opportunity, let's say, that you see within the DSV business? I mean, updated thoughts on procurement synergies, for example, and also the latest thinking on Star and Tango IT system rollouts. And then, Michael, you mentioned the strong cash flow leverage reducing. I think you previously talked about bringing the buyback back perhaps in H1 '27 and I appreciate it's early to talk about it, but any thoughts there, updated thoughts on time line on when you might be in a position to return capital again depending on how you continue to progress? Jens Lund: Good. I think I'll take the first couple of questions. Michael, he will talk a little bit about the buyback as well. So I think if we look at the synergies right now, I think what you are alluding to, Patrick, is basically when we do an integration, then we make an initial plan like we're doing now, then we combine the companies. Then once you have it combined, and I think this is what you're thinking about, then you're thinking there's actually a little bit of things we should adjust on top of that. These are not sort of in the plan, but they will come sort of once we've done the other work. I think it's a little bit too early days to say something about that. But let's say, 2 quarters down the road, we should have a much better view on how the combined DSV will look because then we will have done, as you can also see from the plan, quite a bit of the work combining the countries as well. So I think that's what we can say on that. But of course, we really working hard just to obtain the synergies we get right now, and then there's going to be a next step. If we take the Star or the Tango CargoWise One debate, I think the plan is that we now to harvest the synergies roll a lot of countries onto the CargoWise One, but also keep some volume on Tango. Basically, we can backfill both systems with data from each other. So we're not necessarily losing a lot of productivity on that. Then, of course, we have then to have a debate which direction are we going in. And I think we will have to come to a conclusion on that as we go along. So -- but so far, we're producing the volume and we are shifting. We have a data platform where we can exchange data between the platforms seamlessly. So it's not a lot of productivity that we are losing. It also helps us a lot on the customer integrations actually that we can do them, what can I say, in a more what kind of plannable way I would call it. Yes. Then Michael, short term. Michael Ebbe: Yes. Thank you, Jens. And Patrick, also thank you for the question from my side. Of course, the cash flow and how we can return into share buyback area is something that we follow up very, very closely. Believe me, I also want to go there as soon as I can. We have to look at the next couple of quarters. And of course, if we continue the strong cash flow as well, then we will, of course, like we always do, take a look at it quarter-on-quarter and then see how is our gearing ratio, how is the rating agencies consider it. And then we will have to take a relook hopefully, within a couple of quarters. Operator: We have now a question from the line of James Hollins from BNP Paribas. James Hollins: Michael, if I could start with you, if I could just get some, if possible, clarity on the synergies within 2026. I know a lot of investors are crying out for it. If we do some basic math on 30% integration end of this year, 70% end of next year. We took the midpoint, that will be something like DKK 4.5 billion of the DKK 9 billion. I was wondering if you could just give us your thoughts on synergies within 2026 that will impact full year '26 EBIT? And secondly, Jens, you talked about very little attrition in your customer or basically customer retention is strong. Is it sort of better than expected? Is it as thought? And I know you talked previously about you've done the top 275 customers. Maybe to run us through how that's going with the, I guess, smaller customers in terms of attrition? And if I may, are you planning at Capital Markets Day anytime soon? Michael Ebbe: Yes, I will take the first one, and then Jens will take the second one. In terms of the synergies, what I think that you can expect is that like we also have written for the phasing, if you do some math and try to predict it, you would see that 2026 should be around DKK 4 billion, you can say, in synergies that will have an impact on that one. Jens Lund: Yes. Then I can talk a little bit about what can I say, the customers. I would say that, yes, it's correct that, let's say, on the last call in -- after Q2, we sort of initially focused on the larger customers. Of course, that's cascaded down now into the organization so that there's basically a focus, what can I say on what we call A, B, C and D customers where we go and basically have a conversation with all those customers depending on their size and service requirements, et cetera, explain them what is -- the customers, they want to know what does this mean for us. Do we get new rates? Do we need a new contract? Do we need a new integration? Who's my new contract person? What does the team look like? Where is the office, all these questions we have to answer for the customer. If you are proactive and do this, then very soon, we can start to explain them what is it that the combined company can do for them. And this is, of course, where we are much stronger than we were before being now the global market leader. Of course, we have a strong offering to present to them. And actually, we've seen that they've responded very well on that, that we have a very structured approach on this. And I think it's also visible in our numbers that you see that in reality, we've managed to keep the customers, yes. We are down trading because the shipment size, what can I say, on volume in TEUs or tons because the shipment size has decreased. But apart from that, I think we've really stood our ground on this integration. And I think it's thanks to the efforts, what can I say, of the whole organization that wanted to prove to the market that we could up our game a little bit on this one. So I think that's all been very good. If we look at the Capital Markets Day, yes, there's going to be a Capital Markets Day. We need to come out and explain better what it is that we're doing, what's our strategy, what's our plan, what's our thinking, both on generative AI, for example, which is a big topic, what's our thinking on the integration and the strategies for the divisions. So we're really looking forward to that. And I know that our IR team, they are already working hard on planning it so that we will have a very good agenda for you. Operator: The next question comes from the line of Alex Irving from Bernstein. Alexander Irving: Two from me, please, both on Road. First of all, you pointed out the implementation of uniform digital platform. What is it specifically that Star can do for you that Roadway Forward could not? Second, you suggested at one point, it might have been last quarter that if you really excel in Road, a double-digit EBIT margin might be achievable. Is that still achievable? And if so, what would be the path to that? We're talking just structural cost reduction? Does it require a change in the business mix, say, more groupage? Jens Lund: If we take Road and Star, I think when you have to create a system like this, it's very much -- it's not a technical problem. It's a governance problem. How do you want to operate your business? I think Schenker has been on that journey on the groupage side and also managed to divide their business perhaps sooner than we did, whether it's a system freight, groupage, as we also call it in Europe. But let's say, shipments between 30 kilos and 2.5 ton or 2 tons or something like this, so larger than a parcel, but not, let's say, a real LTL shipment where you go direct to the customer. You will then also have the FTL business, which is like the full truckload. We call that direct. Schenker had separated that harder than we had in DSV. So we try to solve both products in the same structure, whereas Schenker really focused on the groupage. And that's really how Star came about. And then they have done a lot of change management in the countries where they're rolling it out because there's a lot of local habits that we have to weed out so that we basically work on one platform. Then you will have what we call, it's like for Air & Sea, you will have a single file system where you don't have, what can I say, different systems with different types of data. at both end different conventions for data and then you need human intervention. And then all of a sudden, what can I say you produce fewer shipments per person per day. It also gets harder to plan. And there are many things that are very difficult, the more complex system landscape you have. So this drives lower productivity. We replicate the same process over and over again. So we have also to say that Schenker, they have done better than separating these 2 things. Actually, we can also do the other stuff on the Star platform as well, the direct business, but it's perhaps supported a little bit less than on DSV, but it's still workable compared to what we have. And of course, if you have these things, then you can actually go to the next stage as well where you start to consolidate some of the efforts so that you go to a more domain-driven approach where you will say, listen, there's a quoting domain. There's a booking area where we handle this kind of could be called customer service. You could also then go to the Westmark cargo events, whatever you want to call it also customer service at the end of the day because now you'll have all this data in one system. And then, of course, on top of this, with a new technology, which was not what I was sort of factoring in at that stage. But of course, here, that will drive a ton of productivity to go into domains. But on top of that, you can probably put more agents in than we are using today. So that can drive the productivity even further. So it's really the technology is there. It's how much change can we impose on the company. This is the limitation. So it's a governance issue like it always is, there's nobody within our industry that has access basically to technology that the other people don't have. So it's how you run your company that decides what the financial outcome will be. Operator: We now have a question from the line of Alexia Dogani from JPMorgan. Alexia Dogani: If we start just on the synergies, you talked about DKK 300 million of impact in the third quarter. Can you just confirm it's all cost and there's no dis-synergies based on your customer attrition point? And then subsequent to that, at what point will you have more certainty that the dis-synergies that are within the DKK 9 billion are no longer valid, and we could be looking kind of at a better outcome? And then if Michael could just clarify, when you talk about -- you mentioned DKK 4 billion of synergies in 2026. Is that right? Because before we've talked about the midpoint of the exit rate, 30% in '25, 70% in '26, midpoint is 50% of 9% is 4.5%. So I don't know if you were thinking year-over-year or absolute. I think that's worth clarifying. And then my second question is on Road. Can you discuss a little bit more fundamentally the operating leverage in this business? Clearly, you're taking a lot of cost out at the moment as we have seen through the D&A reduction you've reported. And how will that kind of improve operating leverage when volumes start to recover and pricing starts to go through? And yes, giving us a little bit of color of the actions you've actually taken to really reshape the cost base of that business or I guess you're starting to make. That's it for me. Michael Ebbe: I can start with the synergies. Maybe just to be clear, you said, it's right that we say 30% for end of year. That means for the full year next year, we'll have DKK 3 billion. Then that's -- you can say that one. And then we have the synergies that we already have right now, which is DKK 800 million-ish. And that you can say, DKK 3.8 billion. And then you have -- you're right about the midrange. I though I would say that the synergies that we harvest the first might be the easiest. So I don't think necessarily you can take a linear approach on that one. But I can't promise you that we will deliver at least the DKK 4 billion, and we will work whatever we can to make that faster and higher, of course. Jens Lund: Yes. Then we talked about the dis-synergies. I think we will really know through the tender season, how that is all playing out. Normally, we've seen actually quite some attrition right now in a normal integration, which we are not seeing. And then, of course, it's the tender season. It's the second test, if we want to call it like that. So I think if we look at it right now, we are off to a good start, and I actually think we have to have the aspiration that we also make it through the tender season and then we can really start to focus on the growth. So of course, all the competition is focusing on us. Right now, we are the market leader. We also did that when we were chasing. So I think -- but I'm comfortable, as you can hear. Then I think the operating leverage on Road. if you look at, let's say, the road network, it's both a physical network, but also a back office thing that we're seeing. And as an example, Schenker, they can produce basically all DSV volume in most countries in their network. So of course, there was too much capacity available. There might even be areas where we still have too much capacity even if we've combined entities. So we are rightsizing that right now. Then, of course, we are looking at whether we need to produce all 100% of the volume in our own network or whether there might be some areas at very remote destinations where we could ask somebody else to do that. That would then limit the physical infrastructure quite a bit. In the offices, we also need to operate at plus index 90 on the capacity side, even if we are where we are right now. And then when we get price increases, I think there's only so much volume we will be able to produce. We might then need to might need to -- what can I say? We might need to say that we can grow a little bit less because we need to take some of those fluctuations out of it and then just increase the prices a bit more because today, we've actually had way too much capacity, so we could handle the peaks, but it's way too expensive in the troughs. So that's in reality what we are focusing on right now on the Road side. Operator: The next question comes from the line of Ulrik Bak from Danske Bank. Ulrik Bak: So in terms of the synergies and the integration process, what is it specifically that has progressed faster than planned? And have you identified other areas where we could potentially see a further acceleration of this synergy harvesting? And then also the DKK 300 million in synergies in Q3, DKK 800 million for the full year as well as '26. If you can provide some guidance on how this is split among divisions, that would be great. Michael Ebbe: Yes. I think if you look at the speed of the integrations, I think if you see what we have moved last time, we said 15% end of this year, and you can say 50% end of next year. Now we have increased to 30% this year and 70% next year. I think it's not that unusual. Remember the size of Schenker that we have acquired. I don't think it's that unusual that you need to kind of get a little bit of a grip on what it is that you have acquired and how you can plan for it. It's a complex thing to migrate 85,000 people in more than 80 countries into our infrastructure. legally as well as organizational and IT as well. So it takes a little bit of a time. That's also maybe why you said last time that it was progressing slower than at least for some of you guys have anticipated. I think what we have found out now, we know what we are dealing with. We have identified all the different scenarios from a system perspective, organizational perspective. So now we have put that into a plan that we are executing on, and this is where we are doing fairly well in execution in DSV. So that is why we are moving faster than what we initially thought through actually. And then in terms of finding, I think Jens already touched upon that in whether there are more synergies elsewhere to come. Right now, we stick to the plan that we have promised to deliver the DKK 9 billion in yearly savings, and we are very committed to deliver that. And of course, to be there as fast as we can. Operator: We now have a question from the line of Kristian Godiksen from SEB. Kristian Godiksen: A couple of questions from my side as well. So first of all, maybe could you comment on the stabilization you've seen in growth that you comment on in terms of what to expect going forward, both in terms of margin progression and maybe also in terms of which kind of price increases you expect to -- you in the market to implement in this quarter? And then secondly, just a household question. Wondering if you could comment a bit on why the legacy Schenker yields are down more, both in terms of sea and air freight than the legacy DSV yields? Jens Lund: If you take the yield question, I think Schenker had, what can I say, a tradition where they were a little bit longer on the procurement side. In certain markets, it had benefited them. And as you can remember, last year, perhaps that was a situation like this. Now if you are longer in this market, of course, then it's -- when the rates are going the other direction, then it's perhaps a different scenario. So I think that will be the explanation to that. I think on the operational side, it's fairly similar volume that we are producing. Then I think if we look at the road side, I think we need to think we don't want too much capacity. We want to have the capacity that is required in the market. This is a journey where you have a ton of infrastructure that you have to rightsize so that you get there. It's part of also certainly, it's also part of me having said that on group, we need to make much more money. Then I think the price increases that we go out with today, perhaps DSV stand-alone, Schenker stand-alone had an aspiration that we need more and more volume. Actually, we got sufficient volume now to have a European network. So we can sit and then look at what's the service, what's the quality of our product. And then, of course, we can then go out to the customers and say, listen, this is a quality product. And this is the SLA that we can deliver to you, and it comes at this price. So we've been out now to our customers basically because also there's pressure from the subcontractors, they want more money. So that with the service catalog, this is a service you get. This is what the price is. And it's, of course, always market driven by the subcontractors at the end of the day. But this in combination then is what we present to the customer. Then I think on the smaller account, if we sit and look at it, of course, we can present that because we don't necessarily have a long-term agreement. But on the customers that we have a longer-term agreement with, it's going to come when we have, what can I say, the freight negotiations basically for the renewal of the contracts. And that's typically happening into the new year. So there's still some bound to cover. But we are off to a good start, and I can see Michael has something he will add. Michael Ebbe: I think also one thing that I don't think that you should underestimate when we talk about stabilization. Remember that legacy Schenker has a huge road organization. And like we also touched upon last time, we have now set the management team, both globally, regionally clusters in the countries. And the team has also worked dedicated to find some of the recovery plans as we call them. So I think that's where we can see that now we are getting hold and grip of these kind of things that also pays into the frame of why we can say that it is stabilized. Kristian Godiksen: Okay. That makes good sense. And just a very quick follow-up on the impact from the longer procurement of volumes from the legacy Schenker. When will we see that impact fade away? Jens Lund: I don't know. It's hard to quantify. I think basically that it's an ongoing exercise that we're talking about. So I don't necessarily -- I don't think we're going to move backwards on the profitability on the road side. We're going to move -- make progress, consolidate and take idle capacity out that is not needed. I think that's -- on the procurement side, we're going to drive, of course, that very efficiently as we've always done and make sure what can I say, we have wholly procurement, let's say, the terminology that was used and think it was wholly management. I mean these 2 words, they are quite different, aren't they? Because it is a procurement exercise for us. We have to deliver the right cost to the customer as well. Michael Ebbe: And of course, it will follow the normal, you can say, renewal of the contracts. So... Operator: The next question comes from the line of Muneeba Kayani from Bank of America. Muneeba Kayani: Firstly, I just wanted to ask around yield mix at Schenker. So Jens, in the past, you've kind of given us a breakdown of the value-add mix for your -- for DSV stand-alone ocean and air yields. How does that look like in Schenker? And kind of along the lines of the previous question on Schenker yields, kind of how do we think about that mix and movements with freight rates going forward? So that's the first one on yield. Secondly, around cost cutting. So your competitor today announced a cost-cutting program. I think what you've said is you need to -- you're looking at it, but haven't really kind of pushed that kind of on top of what you're already doing with the Schenker integration. So what do you need to see to do more of that? And kind of how are you thinking about that? And just a quick one on real estate sales. You've talked about that in the past. Where are you in that process? Can you give us a sense of the time line and potential amount from Schenker real estate sales? Jens Lund: I think if we look at the Schenker yield, it was lower. I don't necessarily think that Schenker had the same focus on selling, what can I say, upselling the services than we had. They had perhaps more an approach where they were also a little bit long short in the market depending on their expectations. We have a clear way forward where we basically don't take positions as a company. And you've seen this play out in the industry as well. That also then leads to some companies then having, what can I say, to make certain decisions on capacity as well when you perhaps have some focus on the yield side that drives what can I say, financial outcomes that are not desired. If we look at our company, we rightsize the company all the time. There's natural attrition. And right now, we can stick to that. We have our performance KPIs, as I talked about when we run the company. So how many shipments, how many transactions per person per day. This is something that our organization, they look at all the time. And we can see what we do on the Schenker integration and with our expectations for the number of shipments we have to produce and the productivity expectations that we have that we don't need to do anything else on top of this right now, which is great. Our staff, they know exactly what we're doing. We're focusing on the Schenker integration and then the normal course of business. We then -- if there's an area here or there where we need more or less capacity, this is adjusted as a normal part of operation. And Michael will talk a little bit perhaps also about this, but also about the real estate as well. Michael Ebbe: I think just a last comment on the -- you say the cost cutting. Now you referred also to one of our competitors. I think you also maybe need to look at the starting point from a conversion ratio perspective and then see what that brings. And like you said, Jens, we are actually looking into, of course, the measures that we normally would take on that one. And for the Schenker real estate, it's correct that we -- that they have been a little bit more asset heavy than what we have. So we are, of course, looking into getting that to fit into our asset-light model and hence, there will be some divestment of real estate. Remember, this is not something that we have, you can say, taken into our business case. So we are looking into that. And, yes, I think we have also mentioned that in the earlier case, it could be around DKK 1.5 billion that we're looking into. And for timing and stuff like that, we need to go in and find a plan for that one before we can say more about it. Operator: We now have a question from the line of Lars Heindorff from Nordea. Lars Heindorff: The first one is on the logistics part of the business. Very strong revenue growth in the third quarter, apparently, a sale of a terminal property. I don't know exactly where and the timing of that. So maybe if you could just give a bit of detail how much impact that has on the top line and also on the gross profit in the organic business? That's the first one. And then secondly, I'm sorry, coming back on the yield questions here. I clearly understand your answer for some of the previous questions on the sequential decline in yields when rates go down in sea freight and how -- depending on how Schenker has been sourcing their capacity. However, in air freight, where we've seen a very, very significant decline in Sinker on a stand-alone basis, we haven't seen a similar decline in rates. So maybe just an explanation why we see that both in sea and in air. And also, I don't know if you can go that far and maybe give us an indication where you think that yields will continue to decline combined into the fourth quarter compared to the third quarter? And then the last one is just a housekeeping question on USA Trucking, the Q2 EBIT impact now that I'm looking for that, now that you've taken it out as a discontinued business. Jens Lund: Good. I think Michael will start, what can I say by answering some of the questions. Michael Ebbe: Yes. If we go to the Contract Logistics side, it is, as always, Lars, and you are aware that we have had some property projects, which we also have talked about in connection with our net working capital and so forth. And we have realized one here. And as always, it doesn't really have an impact on our EBIT and our GP, to be honest with you guys. So that's on that one. For the U.S.A. truck, it's also household, like I said, it's correct that we have now, you can say, classified it as divestment, noncontinued business. We said DKK 90 million on a quarterly. That's the net result, as you most likely know and can see. I think for EBIT impact, it was around DKK 60 million in the quarter. Jens Lund: And then you talked about the yields in ocean freight and air freight as well. I think if you look at the market, what can I say, rates, it's also very different for the 2 products, isn't it? Where it's been declining quite a bit on ocean freight and where it's quite stable, at least the way we see it on the air freight is, of course, declining, but not necessarily at the same pace. So I think this is what drives the difference in outcome, Lars. I think that was basically -- we are at the end of the session. So I would like to thank you all for your interest and look forward to have some conversations bilaterally after this call. But most of all, I would actually like to thank our employees that are listening in on the call for all their hard work, all their efforts and their dedication. We would never ever have been able to pull this off at this pace and with these results if it hadn't been for all your hard work and all your efforts you've overachieved and just continue that. It's really great fun to be at the company right now. Thank you very much. Bye-bye.
Operator: Ladies and gentlemen, welcome to the Kuehne + Nagel Q3 2025 Results Conference Call and Live Webcast. I am Valentina, the Chorus Call operator. [Operator Instructions] The conference must not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to Stefan Paul, CEO of Kuehne + Nagel. Please go ahead. Stefan Paul: Thank you very much, Valentina, and good afternoon, and welcome for the presentation of Kuehne + Nagel's 9 months 2025 financial results. I'm CEO, Stefan Paul, joined today, as always, by our CFO, Markus Blanka-Graff. We go through the slides first. And then as Valentina said, we focus on the Q&A in about 15 to 20 minutes from now. Let's go into Page #2, the 9 months results 2025. Overcapacity and softer demand in the third quarter of 2025 made the logistics market environment more challenging. Even so, we significantly expanded our global market share in Air Logistics and also in the SME segment in Sea Logistics. Year-to-date, group EBIT declined by 13% year-over-year, excluding currency effects as yield came under greater pressure. This was centered in Sea and Air Logistics, which combined year-to-date EBIT down 16%, again, excluding negative currency effects. The combined sea and air conversion rate was 28% over the first 9 months of the year. The consolidation of IMC has reduced the combined conversion rate by about 100 basis points since January of this year. Group EPS declined 18% year-over-year or 15% excluding currency effects. In addition to our expanding market share, plus in the Q3 result is the further improvement of our free cash flow conversion. It reached 105% in Q3 alone, the first time it has exceeded 100% since Q3 in 2022. Conversion over the first 9 months of the year was 66% versus 33% last year. In response to the Q3 financial performance, we are announcing measures to reduce recurring operation costs by at least CHF 200 million over the coming quarters. Markus will provide you with more details shortly. But first, let's turn to the usual review of the performance by business units. Page #3, we start as always with Sea Logistics volume in container units on the left, GP per TEU and then EBIT per TEU always in Swiss francs. Sea Logistics headline, overcapacity puts pressure on yields. Underlying Sea Logistics volume grew by 2% in Q3, while the addressable market was flat. This growth did not meet our aspirations. However, after we have achieved 5% underlying growth in the first half of the year versus addressable market growth of plus 2%. Trade was weakest in the transpac; however, we have relatively large exposure, followed by European and North American export markets. In contrast, European imports were quite strong. Overall SME share expanded Q-over-Q in Q3. Deployed capacity in Q3 far exceeded demand and intensified pressure on margins. This is evident in the central chart on this slide, where the average yields declined 10 percentage points Q-on-Q. The Q3 EBIT was CHF 111 million, reflecting the near full effect of the yield pressure as operating costs were down only 1% Q-after-Q. With this result, Sea Logistics conversion rate stands at 24% in Q3 or 25% on a net basis. Let's move quickly to Air Logistics, Page #4, ongoing market share expansion. In Air Logistics, volume grew by 7% in the third quarter, well ahead of the estimated 4% market growth. This is consistent with 7% volume growth in the first half of this year. Perishables and semiconductors, including hyperscalers, drove volume expansion in Q3 with the latter accounting for about half of the overall year-over-year growth. Average Air Logistics yields also came under pressure. They declined by 6% Q-on-Q due to excess capacity. E-commerce demand contracted sharply following the elimination of the U.S. de minimis exemption. An absolute reduction of operating costs by 3% quarter-over-quarter offset about 1/3 of the yield pressure. This resulted overall in a Q3 EBIT of CHF 92 million and a conversion rate of 23%. We also announced today that Partners Group exercised its option to put its 24.9% equity stake in Apex to Kuehne + Nagel. The transaction is expected to be settled in cash during Q4 against the recognized liability of CHF 886 million in our balance sheet. The transaction will be financed by bank loans. Let's have a look at Page #5, Road Logistics. Over proportional exposure to weak European market, we achieved a net turnover growth of 6% in Q3, excluding currency effects or 2% excluding the contribution from TDN. That's our recent Spanish acquisition, which we consolidated for the first time in Q3. We continue to expand our global customs activities in an environment of fast-changing tariffs, mainly in the U.S. but as well in Europe. Our core European road markets remained under pressure in Q3, which is also seasonally the weakest quarter over the year, July and August. Demand levels are still below the last year's level. We continue to mitigate these challenging market conditions effectively by focusing on pricing, capacity management and cost control. Road Logistics overall delivered an EBIT of CHF 20 million in Q3, which is a decline of 9% year-over-year versus an underlying 23% drop year-over-year. The conversion rate of 6% was 1 percentage point lower than last year in Road Logistics. Now Contract Logistics, Page #6, steady growth momentum. Contract Logistics produced an EBIT of CHF 62 million in Q3. This is the second strongest quarterly result ever and reflects 9% year-over-year EBIT growth or 12% excluding currency effects. Net turnover grew by 5% year-over-year in Q3 on a constant currency basis, in line with the growth over the first half of the year. This reflects continued market share expansion, which gains, as always, centered in health care and e-commerce. The conversion rate of 7% in Q3 is also comparable to recent quarters an improvement versus Q3 last year. This concludes my comments on the performance of the business units. With this, I now hand over to Markus for a closer look at the financials and in particular, our cost reduction program. Markus Blanka-Graff: Thank you, Stefan, and good afternoon, everyone. Thank you for your interest once again in Kuehne + Nagel and taking the time today to review our latest financial results. On the income statement, I would like to draw your attention to the most significant developments in the third quarter, which relates to yield pressure and ongoing currency headwinds. Yield pressure in both Sea and Air Logistics intensified in Q3, contributing to the net CHF 80 million decline of group gross profit. This includes a 4% negative currency impact in the third quarter alone, which equates to CHF 85 million. I will come back to this topic when reviewing our updated outlook in a few moments. Before that, let's take a quick look at working capital. Working capital, we can see some increase of the net working capital intensity to 5.1% at the close of the third quarter versus 4.8% at midyear and 5.1% for the same level at the end of Q1. Both DSOs and DPOs came under pressure over the most recent quarter with DSO up 1.6 days and DPO down 0.6. This development and volume growth contributed to a 6% quarter-over-quarter increase in the net working capital. I will elaborate a bit more on the working capital development with the review of free cash flow generation. Continuing with cash and free cash flow. In the third quarter, we produced CHF 226 million of free cash flow, which equates to a conversion rate of 105% versus 82% last year. For a better illustration, let me move on to the next slide. And in Q3, overall net working capital generated a net positive inflow of CHF 10 million despite the expansion of our core net working capital. This is the first inflow since the fourth quarter 2023. On a year-over-year basis, this represents an improvement of CHF 131 million. This contributed to the significantly improved third quarter cash conversion of 105%, as I mentioned before, which compares to the 82% of last year. However, that is below the historical average for a third quarter, as you can see on the slide, and we attribute the gap, which continues to close to relatively robust air freight volume and Contract Logistics turnover growth. We expect this to continue and note that the fourth quarter is typically the strongest quarter of the year when it comes to free cash flow generation. Now as Stefan mentioned, let me talk about our actions and how we are taking action to mitigate the impact of a challenging market environment. This comes in the form of a cost reduction program, targeting at least CHF 200 million of annualized savings. We estimate just over half of these savings are linked to staff-related costs, including FTE reductions. The balance of savings is split almost equally between facilities-related costs and a basket of other variable expenses. We anticipate achieving the full run rate of these savings by year-end 2026 or in other words, they should be fully reflected in the first quarter 2027 result. The costs associated with this program should not exceed a mid-double-digit million and are to be booked in the fourth quarter 2025 and the first quarter 2026. Before we move on to the updated outlook, let me emphasize that these measures will not impede our ability to grow in line with our already communicated strategy. So from today's perspective, we anticipate a fourth quarter recurring result comparable to that of the third quarter. Based on that expectation, our year-to-date financial performance and the challenging market conditions, we are reducing recurring EBIT guidance to greater than CHF 1.3 billion. Note that our guidance excludes nonrecurring items, such as the CHF 16 million charge in the second quarter and the items that we plan to book in the fourth quarter associated with our cost reduction program. Lastly, the Apex transaction will result in significantly expanded net debt by year-end 2025. And note that long term, we continue to prefer a small net cash position. We can also confirm that this transaction will have no impact on our dividend policy. With this, I would now like to close our prepared commentary and presentation with a summary of key takeaways. We are launching a sizable cost reduction program in response to the challenging market environment. The tough conditions are putting heavy pressure on sea and airfreight yields. At the same time, we maintain our long-term focus on market share gains in attractive sectors and continue to make progress. The expansion of our stake in Apex will be accretive to our EPS basis. And lastly, we are adjusting our outlook for recurring EBIT in 2025. With this, I want to thank you all for your attention and hand back to Valentina to open the Q&A session. Operator: [Operator Instructions] The first question comes from Alex Irving from Bernstein. Alexander Irving: My 2 are on the cost reduction program announced this morning. First of all, what functions would you be eliminating? Are you scaling back to calibrate to lower volumes? Or is there additional structural change? You also say the measures will not impede your ability to grow volume. What gives you that confidence? Secondly, what facilities are going? I noticed there was CHF 50 million of facility reduction expense in the release this morning. Are there services that will disappear either entirely or in certain geographies? A little more color here would be helpful. Markus Blanka-Graff: Alex, it's Markus. So let me do the cost reduction pieces. So first, your question on the cost reductions on the functions. I think currently, we are looking into trimming, I would call it, structural cost, taking out structural costs that can be management layers, but also locations connected to the second point, operating locations. And of course, we are adjusting our operating workforce according to our progress in being more efficient automation and out for -- putting work out into global services and shared service centers. I think it's a combination, but it's an acceleration very clearly. And let's say, a deeper cut into the cost structure of not only operational but also structural and overhead cost. So it's not a single function that will be untouched. Everybody will have a clear focus on the cost reduction program. On the facility side, the major savings are coming from putting operational locations, so network locations, be it international or domestic, putting them together, improving network density by reducing locations and operational locations. Something that I think in the industry when volumes are reduced is a common practice to consolidate locations and hence, reduce not only staff, but also location cost. Stefan Paul: Yes. Alex, Stefan speaking, maybe a little bit more caveat on the sales side, right, because you were alluding as well on -- what do we do on the commercial side in order to be still confident to grow the business. So we are not reducing commercial stuff, in particular, not in the SME sector. So in the meanwhile, seafreight has 45 customer care locations, around 700 SME people or dedicated small, medium-sized enterprise-focused hunters. We will not reduce there. We will, of course, intensify our efforts into the hyperscaler market. We talked about it now a couple of quarters already. You see that is paying off already to a certain degree in airfreight, in particular, where we have gained market share even more so in the third quarter, but we will definitely look into verticals which are not growing at present, for instance, automotive and certain industrial and solar panel activities from Asia into the U.S. But overall, commercial people will not be as affected as the operational side, as just mentioned by Markus. Operator: The next question comes from Uday Khanapurkar from TD Cowen. Uday Khanapurkar: This is Uday on for Jason Seidl. Maybe on the cost again, you've described it as at least CHF 200 million in cost out. Are you guys reserving upside there in case the market environment worsens further? Or is it more that you're starting out with a conservative number and could exceed it irrespective of the market? Markus Blanka-Graff: Uday, it's Markus. Clearly, this is our ambition and our target that is reachable from today's perspective with the program that we have launched. If there is -- assume for a moment, there might be a further deterioration coming through the year 2026, we will, of course, not stop. This is not all we have to give. If there is a further deterioration or more adverse commercial environment or whatever else could happen, we can continue doing that, and we will continue doing that. Stefan Paul: And to add a little bit to caveat on that as well from my side is we are talking about cost efficiencies now in the program. We are looking pretty much as well into the digital ecosystem. I mentioned that a couple of times already. We are at the very early beginning, but looking at the large language models and the digital agent capabilities from the software coming to the market or already available in the market, we will identify -- have identified and will further identify areas where we can leverage digital agents, and that should as well help us to reduce our cost to serve. Uday Khanapurkar: Okay. That's helpful commentary. And maybe for my follow-up on sea. Can you give us your expectations maybe on ocean capacity trends in 2026? And maybe like what magnitude of an ocean demand recovery do you think is needed to start seeing maybe a firming up or a recovery in ocean rates off of these depressed levels? Stefan Paul: Yes. So we all see and know that the carriers add significant more capacity into the marketplace, which is not helping the yield position overall pretty clearly. So maybe to give you a little bit of a number, China to the U.S. in the third quarter was down approximately, I would say, 25%, 26%, more so in the large customer base, less in the SME and smaller customer base. So what definitely needs to come back is this 20%, 30% down in the key account space. So we need to have a significant uptick in terms of volumes in the market in order to reverse the current pressure on yields. So the capacity as well to give you a precise number, which is growing or coming into the marketplace is roughly between 6% and 9% of the overall capacity, which is added now into 2026. So we need to have a significant uptick in demand, especially in the U.S. in order to reverse the situation from a yield perspective. Operator: The next question comes from Muneeba Kayani from Bank of America. Muneeba Kayani: Just continuing on this question around sea yields. So in the scenario that ocean freight rates remain under pressure over the next year, should we expect kind of your ocean yields to continue to decline? Or do you have any mechanisms in there to kind of protect the yield within the context of your strategy to gain market share? And then secondly, on the road segment, your competitor today talked about the road market stabilizing. It seems like you don't see that. Am I right? And kind of what are the trends you're seeing on the road side? Stefan Paul: Muneeba. Stefan, I'll tackle the road question first. I think what we have seen is now that we -- over the year, we had 6% to 7% less volume in the large domestic networks, particularly in France, U.K. and Germany. Germany was the worst, and that is not a surprise. It is stabilizing a bit now. It was stabilizing at the end of September, a little bit more uptick than expected in October. But is that a tipping or turning point? I would say, no. There is still less volumes in the networks versus the previous years. I would say, if it's not 6%, it's still 3% to 4% less. It's stabilizing a bit, but it's not a tipping or turning point as we see it right now. Markus Blanka-Graff: And maybe on the seafreight yield side, I think we have already a situation today where rates are on a very low basis. I think our portion of the gross profit that stems from the capacity is already heavily compressed under current conditions. And from that perspective, we believe that's pretty much at the bottom range of a potential corridor in that cycle. I mean, let's not forget it's still a cyclical business we talk about. So -- but that is our current feeling. What we are focusing on clearly is on expanding our SME share with higher yields, and we are successful in doing that, and we expanded on a quarter-over-quarter basis. And we are focusing on more services per shipment. You remember our strategy on the land side, value-added services that we have completed and extended at the beginning of the year with IMC is one of these steps. And these are the areas we can focus on. These are the areas that are, from a yield perspective, fully under our control, and we are going to expand on that. So from that perspective, I think I would not necessarily expect a further deterioration as you put into your question. Operator: The next question comes from Marco Limite from Barclays. Marco Limite: So just a follow-up on the last question you just answered. So when we think about Q4, I think you mentioned that we should expect Q4 flattish versus Q3. I mean by looking at the different moving parts, I guess you're sort of guiding for a GP TEU not deteriorating further versus the Q3 levels. Does that mean also that the headwinds from FX now are fully in the base, we are not going to see any further FX pressure, would be my first question. And my second question, again, on the gross profit per TEU point, you have just said that you think you are getting to the bottom in a way, but we are still at quite higher levels versus pre-pandemic. I know a lot has changed in terms of volume mix, [ IMC ] acquisition but at the same time, also 20% currency devaluation. So again, what gives you the confidence that also the service part of the GP, not just the procurement part of the GP is going to be stable and won't go down in the future? Stefan Paul: Marco, so we're just looking at each other. So I take the second one. What makes us confident? I think, first of all, the yields are already very much compressed. And what we have just shared again is that our focus and the results in terms of our NVOCC SME volume is getting traction slowly, but more and more getting traction. So we are growing double digit in SME growth, which is helping us to maintain a certain yield position. Unfortunately, our large customers in the sectors I have just described are declining massively into the U.S., which we have not a huge influence over. But what makes us confidence is that we get more and more traction into the SME market. It took us quite a while, right? Now with the 45 new customer care locations with the highest sales force or largest sales force ever in history of Kuehne + Nagel and with a share of SME then which is north to 50% in the meanwhile, that makes us confidence that we have at least a chance to maintain a certain GP level which is not going down further significantly in the fourth quarter and the quarters to come. But there is, of course, no guarantee. We do not know the market dynamics completely. But anticipating what we see currently, that should help us to maintain a certain position. Markus Blanka-Graff: And maybe just completing it for the first question on the fourth quarter outlook, I think adding to what Stefan just said on the additional services component on the origin and destination services. From an FX perspective, we will continue to see a pressure on the FX for another quarter because in the consolidation, we consolidate standard with average exchange rates over the year. And obviously, as long as the U.S. dollar predominantly, that is the currency that impacts here the most is residing at a level of $0.8 or $0.79 towards the Swiss franc, we will continue to see for another quarter an impact. Marco Limite: And sorry, on the Q4 in airfreight, I guess in the past, we're talking about peak season. What's the view now also in terms of GP per tonne in air, if you can add any color. Stefan Paul: What we see currently is that the volume, the market share gains will continue in the fourth quarter, especially in the area of the hard cargo where we have been more successful than in the first. E-commerce is going down further. So no support from e-commerce to be expected, but there are 2 main verticals where we see nice growth, which is the perishable and the hyperscaler semicon market, which is going to continue. But what is clearly -- and that is what we said as well during the last Q call, there is no peak season to be expected. So no additional support in the marketplace, but we would estimate the same growth pattern in the fourth quarter, which we have seen in the last 2. On yields, I would say, stable yields and no further deterioration in terms of the GP per unit is concerned. Operator: The next question comes from Alexia Dogani from JPMorgan. Alexia Dogani: Just firstly, on the cost saving program. Can you please discuss why CHF 200 million is the right number? Because when I look at the addressable cost base that you have, this represents just around 3%, which could be seen as just covering inflation. And so can you just little bit explain why you think this is enough. And when I look at a very high level, the run rate of profitability of this business, given what you delivered in Q3, we are looking at numbers very close to 2019 levels. And so why have things kind of unwound so quickly in the past few years? And what can you do to regain some of the more positive trajectory you have seen? And then secondly, on financial leverage, obviously, you talk about the commitment to the dividend, the fact that you want to go back to net cash neutral. But when we look at net debt-to-EBITDA, including leases, you're already at a range of around 1.5 to 2x. How high are you willing to let this metric go before you have to, I guess, take more urgent action. Stefan Paul: Yes. Alexia, Stefan, I will tackle the first question, the cost savings and the basis of the cost savings. So I think what we have to do is here, we need to distinguish between the freight forwarding side, so Sea, Air and Road logistics, where our cost base is roughly CHF 4 billion. And we focus pretty much on this CHF 4 billion, right? So then the cost reduction is significantly higher than the 3%. Because in Contract Logistics, the cost is always related to the execution of the customer contracts and as more we win, as more we add, but this is a little bit independent from what we have put forward in the cost program, cost efficiency program, and this is pretty much focusing on the network side of the house. And we have a starting point, a cost position of roughly CHF 4 billion. So that's the reason why the percentage point is a little bit higher. And as Markus said a couple of minutes ago, there is a need for further cost reduction or cost saving measures, then we are able and willing to take them, right? So this is only what we have identified so far since August this year. Markus Blanka-Graff: Let me answer on the debt position. I think you're right, it's 1.5x what we currently look at from a debt perspective. And yes, we have said we prefer a small net cash position going forward. So that means we're going to focus even more on our free cash flow generation going forward. Our current net working capital is expanded, is expanded more than what we usually would require for that business. Our net working capital intensity corridor 3.5% to 4.5%. So we are at 5%. Clearly, that speaks for a certain business pattern that we currently experience, namely in the airfreight arena on the charter businesses that are taking a larger portion than what we have experienced in the past. So there's a couple of moving points there, but I think something that we will manage even closer, and that gave us the confidence to go out with this confirmation of the dividend policy as well as our long term, it's nothing that's going to happen next year or at the end of next year that we will get back to a net cash position. But it's something that clearly remains in our strong focus. Alexia Dogani: And do you mind if I just follow up on the point about the cost savings. I appreciate that it's 5% of the kind of the more forwarding side. Is there something that you can do on the revenue, do you think? Or really the only lever you have is the cost base to improve profitability? Stefan Paul: No, the revenue side, you mean the GP side, right? So it's more the GP side... Alexia Dogani: Yes, just help on GP... Stefan Paul: Yes, it's more the GP side, of course, right? So it's how do you do the pricing, where do you focus? SME, we touched already quite intensively and airfreight is the mix basically, less growth basically in perishables, but more growth in the semicon and the hyperscaler and the industrial side of the house or in the hard cargo because here, the yield per 100 kilo is much higher. So that is what you can do and what you do on a constant basis with our sales force, focusing on the high yield business and look into additional services, so the so-called value-added services before and after port-port or airport to airport, and we have certain examples for that, the customs clearance piece, the transloading piece, the white glove service, the value-added service in the U.S., for instance, right? So there are a couple of things which you can expand, which we do in order to offset the pressure on port-port or airport-airport rates. Operator: The next question comes from Marc Zeck from Kepler Cheuvreux. Marc Zeck: Just a couple of quick ones on your recent acquisitions, to put that way. Can you give us a feeling of what you expect for Apex in Q4? I believe it's very much geared towards the transpacific and probably also there's a bit of e-commerce business. So you might say all the wrong places to be in right now. What will be kind of the rough EBIT contribution from Apex that you expect? Then on IMC, could you give us an update what IMC is currently doing in terms of profitability and what ocean yields will look like ex IMC? Are we still above CHF 400 million with excluding MSC or already in CHF 300 million? And then just a quick follow-up on the free cash flow and working capital development. It was my impression that in the past, you talked about elevated working capital being kind of a relic or artifact of the pandemic and high freight rates. Now obviously, freight rates came down quite a bit. Why is free cash flow or working capital lagging and normalizing above and beyond what you said on the airfreight charter business? That's from my side. Stefan Paul: Yes, I'll start a little bit with Apex, right? So you're absolutely right, Marc. So Apex is transpac in particular, and it was more focusing on e-commerce, where we see a certain reduction in terms of volume is concerned. But we leverage Apex as Kuehne + Nagel pretty much as the carrier. So to give you one example is we have now 14 charter operations out of Hanoi, Vietnam, purely on the high-tech side, on the hyperscalers, semicon and high-tech customers, which is operated by Apex, and we jointly leverage the capacity towards the U.S. So we get the best out of both worlds, so to say. But of course, Apex margins are currently more under pressure based on the business mix and the situation. They are focused more on the U.S. and general cargo basis. But nevertheless, we utilize them as the carrier with their 747 charter operations for both legacies, which will add future value to the growth of the hyperscaler market. Markus Blanka-Graff: Marc, it's Markus. On IMC, I think strategically, we talked about it a bit before. I think the right thing to do, quite happy with the land side operation, how we can also consolidate operation KN with IMC and so on. Your specific question on the gross profit per TEU, when -- the first answer is do not forget we have CHF 22 on currency headwinds on that. So what you can clearly see is a deduction of, say, roughly CHF 50 for IMC contribution into gross profit per TEU brings you to a CHF 370 number plus the CHF 22 on the FX headwinds. I would say from a U.S. dollar perspective, we are still around the $400 -- sorry, correcting for the U.S. dollar impact, we are still on the CHF 400 line. You have the full transparency on the breakdown as well in that books that we have published. But that is from a quick calculation on the back of the envelope that is the reality. Free cash flow and working cap, I think, yes, the pandemic situation was extraordinary in many ways, one of which obviously was also on the rates and on the working capital needs. But again, that has passed some time ago. Currently, we are looking predominantly on the portion of charter business in the airfreight arena versus the business that was on belly regular carrier business, what it was in the past, and that is still the main driver for -- that is still the main driver for the extended net working capital intensity. There's nothing else out there. We will continue to manage DPOs and DSOs and at the same time, try to optimize the business model as it stands today. Operator: The next question comes from Michael Foeth from Vontobel. Michael Foeth: Two questions from my side. Can you just remind us what the basis for the Apex valuation was in the deals, Partners Group now, and in hindsight, what the benefits of selling the stake to [ PG ] now taking it back has been for Kuehne + Nagel, both financially and strategically. And the second question, just a clarification. You said that the yields on the hyperscaler data center part of the business is much higher, much higher than perishables, I think you said, is it above the group average as well, the yield on that business? That would be those 2 questions. Stefan Paul: Then I answer the last one. And yes, the overall semicon high-tech, in particular, hyperscaler margin end-to-end is higher than the average on group level. So significantly higher than group -- perishables, sorry. Markus Blanka-Graff: And Michael, on the Apex, maybe just for transparency, Apex, Partners Group had a put option. So it's not so much about us selling. So they exercised the put option at the back end of the summer. I think what we have certainly taken out from that cooperation and that partnership is an excellent view into further growth opportunities on the M&A side at Apex, the way how to operate and look at business, I think from a highly professional partner like Partners Group in managing the business in Asia. So there's a lot of things, I think, that we have positively learned and taken away experience. From that perspective, I think we can be strategically very happy that we had this partnership in place. From a valuation point of view, I think we have disclosed that since the put option was in place in our financial statements. In principle, it is a multiplier on the financial performance of the company. Operator: The next question comes from Gian-Marco Werro from Zürcher Kantonalbank. Gian Werro: One question also on Apex and the terminated partnership there with Partners Group. So can you anyhow, despite this termination of the partnership, tell us about the pipeline for bolt-on acquisitions there in Asia? How did it evolve over this partnership? And how does it look at the moment? Does it look less promising now compared to 1 year ago? And the second question is on DSV, and the volumes from the DB Schenker integration that might come to the market. Do you see already some volumes coming into your direction? Could you benefit in the last quarter now from some clients who have diversified their portfolio of freight forwarders? Markus Blanka-Graff: Gian-Marco, it's Markus. Let me take the Apex since we talked about it already before. So clearly, the visibility that Partners Group had to potential targets, it's much higher quality than what we have had internally. I think that is clear. And the pipeline for potential acquisition objects or targets is there. And I think without giving away anything over the next 12 to 24 months, we will see some actions there. In a bolt-on acquisition type, of course, we have not changed our view on that, but it's something where I think we get extremely good value for money. Going forward, I think it has proven to us that, that can be a future model for developing business in areas where a partner is really of substance and help to us. Stefan Paul: Yes, Gian-Marco, Stefan. I tackle the DSV Schenker question. Yes, in particular, in seafreight and airfreight we have seen significant volumes on the market. And if you compare now Q3 volumes in seafreight on both companies, you see that it's a head-on-head race. It's not so clear anymore that one is larger than the other one, which we need to take as a sportive race like soccer, right? So you have to have fun sometimes as well in business life. So overall, I can confirm that we have taken advantage out of that merger, as I said, in airfreight, now road as well is helping us with the white glove service with the value-added services, particularly in the U.S., which we hadn't had before. So overall, it has benefited us and look at the -- again, at the numbers, compare the numbers in seafreight third quarter in total, both companies and us, then you see that is almost equal now. And it will be interesting to see in the next couple of quarters and years to come who can leverage the customer side for its own benefit. Gian Werro: Just maybe one small follow-up. What is the hurdle to not also gain volumes in seafreight from the DB Schenker? Stefan Paul: The airfreight market is much quicker. And customers -- so in seafreight, you have 1 or 2 RFQ cycles, it's mainly 1 RFQ cycle for the Westbound and for the transpac a year, and you have to wait for the RFQ cycle and the airfreight customers in particular, decide more on a monthly or quarterly basis and the share of wallet needle has moved much quicker in airfreight than in seafreight. So the risk or the purchasing guidance is more obvious in airfreight than in seafreight, but that can come and should come during the next RFQ cycle. Operator: Next question comes from Laura Bucher from Octavian. Laura Bucher: More of a follow-up really. You've mentioned expanding SME as a way to potentially increase the GP. I'm interested in knowing how that flows to EBIT per TEU. I think you once mentioned that SME offered, I think, was 1.8x the average GP per TEU, but that it also had much higher costs. So I'm interested in how has that developed over time? And if you're addressing any of it with the CHF 200 million cost-cutting program. Markus Blanka-Graff: Laura, it's Markus. Good to hear you after we met a couple of months ago. So SME, clearly, 2 factors, and you're absolutely right, 2 factors, higher GP, but also higher cost to serve, and I can [indiscernible] to the end. Our cost reduction program that we have started today, and I think Stefan has also put a lot of color around which areas are lesser impacted like on the sales side. So to be absolutely clear, we maintain and focus our service quality and our ability to grow. That also means for SME customers, we will continue that high-level service that we are able to deliver. So there is not going to be an impact on the service quality. We save costs on areas where we think we can do that without impacting this service levels. 1.8x, that is still the correct number, at least from our experience that we see that also returns with a conversion rate or with a conversion rate in line with our ambition. So that is between 30% and 35% towards the bottom line. So as long as we maintain the service quality, then the customer loyalty is going to be the SME section will expand. So we are going to continue that journey. Nevertheless, when we automate or digitize or eliminate process steps, tasks within the execution, that will also benefit for the profitability of SME customers, for sure. But that's nothing that a customer will feel as a change or if a change then to be better for his customer service. So optimization, efficiency gains are also still be valid for SME. But overall, your business case is still very valid. Operator: The next question comes from Cedar Ekblom from Morgan Stanley. Cedar Ekblom: Just one for me. On the cash return, I wonder, would you ever consider going from a dividend to a buyback considering where shares are? Do you think that there is any opportunity to express a view that shares are maybe undervalued, particularly if you believe that you can deliver your medium-term targets that you set at the Capital Markets Day only a couple of months ago? Markus Blanka-Graff: Sure, Cedar. Fair question, and I think a fair consideration. I can only reflect what the Supervisory Board is sharing with us, and clearly, their preference is on the side of dividends. Not much more that I can say for that. Operator: Ladies and gentlemen, that was the last question. I would now like to turn the conference back over to Stefan Paul for any closing remarks. Stefan Paul: Yes. Thank you very much for your questions, for listening in, your interest. Stay tuned and have a good winter. So the weather here is getting really now more to the skiing season. Thank you again for your interest, and talk to you soon. 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.
Operator: Welcome to the Oceaneering's Third Quarter 2025 Earnings Conference Call. My name is Tina, and I will be your conference operator. [Operator Instructions] With that, I will now turn the call over to Hilary Frisbie, Oceaneering's Senior Director of Investor Relations. Hilary Frisbie: Thanks, Tina. Good morning, and welcome to Oceaneering's Third Quarter 2025 Earnings Conference Call. Today's call is being webcast, and a replay will be available on Oceaneering's website. Joining us on the call are Rod Larson, President and Chief Executive Officer, who will be providing our prepared comments; Alan Curtis, Senior Vice President and Chief Financial Officer; and Mike Sumruld, Senior Vice President of Finance. After Rod's remarks, we will open the call up for questions. Before we begin, I would like to remind participants that statements we make during this call regarding our future financial performance, business strategy, plans for future operations and industry conditions are forward-looking statements made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Our comments today also include non-GAAP financial measures. Additional details and reconciliations to the most directly comparable GAAP financial measures can be found in our third quarter press release, which is posted on our website. I'll now turn the call over to Rod. Roderick Larson: Thanks for joining the call today. In the third quarter, we surpassed the high end of our guidance range, generating consolidated adjusted EBITDA of $111 million marking our highest quarterly performance since the fourth quarter of 2015. These results were largely driven by the ongoing conversion of higher-quality backlog in manufactured products, continued high activity levels and a favorable project mix in our Offshore Projects Group, or OPG. Progression in Aerospace and Defense Technologies or ADTech as they onboard personnel and subcontractors to support large-scale programs and sustained remotely operated vehicle, or ROV pricing and performance. Today, I'll focus my comments on our results for the third quarter of 2025, our outlook for the fourth quarter of 2025. Our consolidated EBITDA and free cash flow guidance for the full year of 2025 and our initial full year 2026 guidance. Starting with our third quarter 2025 consolidated results as compared to the third quarter of 2024. We generated revenue of $743 million, representing a 9% increase and operating income rose 21% to $86.5 million. We made meaningful progress in free cash flow generating $77 million after utilizing $24.2 million for investments in the business. We continue to return capital to shareholders, repurchasing approximately $10 million worth of our common stock shares, resulting in an ending cash position of $506 million. Now let's look at our results by business segment for the third quarter of 2025 also compared to the third quarter of 2024. Subsea Robotics, or SSR revenue and operating income were essentially flat as was the EBITDA margin of 36%. ROV revenue per day utilized increased to $11,254 from $10,576 offsetting the effects of lower but still solid ROV fleet utilization of 65%. Fleet use of 63% in drill support and 37% in vessel-based activity was similar to the same period last year. The revenue split between our ROE business and our combined tooling and survey businesses as a percentage of our total SSR revenue was 77% and 23%, respectively, consistent with last year. As of September 30, 2025, we had 60% of the contracted floating rig market with ROV contracts on 78 of the 131 floating rigs under contract. We maintained our fleet count of 250 ROV systems. During the quarter, we sold a vessel which was underutilized in the survey market. We believe this will yield positive results in our survey business by reducing costs and focusing our efforts on delivering increased efficiencies through the enhanced simultaneous operations capabilities of the Ocean Intervention II. Manufactured Products operating income of $24.7 million and operating income margin of 16% doubled on a 9% increase in revenue. These results were driven by the continued execution of higher-margin backlog through our umbilical manufacturing plants as well as pricing improvements in our Grayloc and Rotator product lines. Order intake during the quarter of $208 million was solid, and our backlog on September 30, 2025, was $568 million. Our book-to-bill ratio was 0.82 for the trailing 12-month period. OPG operating income increased 17% to $23.7 million on a 16% increase in revenue, with the operating income margin flat at 14%. These results reflect healthy vessel utilization in the U.S. Gulf and a favorable mix of intervention and installation projects for the quarter. For Integrity Management and Digital Solutions, or IMDS, operating income and operating income margin improved on a slight decline in revenue. These results reflect the absence of a onetime noncash charge associated with the divestiture of our Marine -- Maritime Intelligence division in the third quarter of 2024. ADTech operating income significantly increased by 36% to $16.6 million on a 27% increase in revenue with operating income margin improving slightly to 13%, driven largely by increasing activity levels associated with contract wins in our defense business. Unallocated expenses of $46.3 million were in line with our guidance for the quarter. Turning to our outlook for the fourth quarter of 2025 as compared to the fourth quarter of 2024. We expect revenue to be lower as improvements in ADTech and SSR will only partially offset the reduction in international OPG projects. Consolidated EBITDA is projected to be in the range of $80 million to $90 million. By segment, for SSR, we anticipate increased revenue and operating income with the EBITDA margin expected to be in the mid- to upper 30% range. Our expectation for improved results is based on continued progression of ROV revenue per day utilized and improved utilization in our survey group with projects starting in the fourth quarter in the U.S. Gulf, Europe and West Africa. For Manufactured products, we expect significantly improved operating income on lower revenue with continued conversion of higher-margin backlog and cost reductions associated with our nonenergy products. For OPG, we project revenue and operating income to decrease significantly due to the absence of large-scale international intervention and installation projects that favorably impacted the fourth quarter of 2024, lower vessel activity levels in the U.S. Gulf and the project timing. With respect to our leased vessel fleet, we have one charter in the international market that is expiring during the quarter that we do not intend to renew due to our expectation for seasonally lower activity and allowing us to better match lease costs to future projects. For IMDS, we forecast revenue to decrease in operating income to decrease significantly due to lower activity. For ADTech, we anticipate significant increases in both revenue and operating income on higher activity levels in our Defense business. We project unallocated expenses to be in the $45 million range. For the full year of 2025, based on our fourth quarter EBITDA guidance, combined with our year-to-date EBITDA results, we expect to generate adjusted EBITDA in the range of $391 million to $401 million. Our strong free cash flow generation in the third quarter gives us confidence to maintain our full year guidance range of $110 million to $130 million. Now looking forward, I'd like to provide you with our initial outlook for 2026. As we announced yesterday, we are initiating consolidated EBITDA guidance in the range of $390 million to $440 million, driving similar levels of free cash flow as we expect to generate in 2025. This is based on our expectations for significant growth in ADTech and stable activity levels across our energy-focused businesses. In particular, for SSR, we forecast similar ROV utilization levels since 2025 at improved pricing levels together with increased volume from survey will generate slight increases in revenue and operating income and stable EBITDA margins. For Manufactured products, we project significantly improved operating income and improved operating margins on decreased revenue due to the continued conversion of higher-margin backlog as well as improved performance and cost reductions from our nonenergy product lines. For OPG, we expect revenue and operating income to decrease on changes in project mix, while significant opportunities exist, customer schedules have not yet finalized. For IMDS, we forecast increased revenue and operating income. And for ADTech, revenue and operating income are expected to increase significantly and operating income margins are expected to be similar to 2025 levels as we execute large-scale projects that have been ramping up throughout the year. Our 2026 forecast is based on the expectation that the government shutdown will be resolved in 2025. We plan to continue share repurchases in 2026 with approximately 5.8 million shares remaining under our existing repurchase authorization. We will provide more detailed guidance for 2026 during the year-end reporting process. In summary, we continue to see growth opportunities in each of the markets we serve beyond 2025, driven by supportive long-term commodity prices improving visibility into an increasing number of contracted floating rigs in the second half of 2026 and beyond. Stability in ROV revenue per day utilized, our ability to optimize our revenue mix between our customers' CapEx and OpEx spend, growth in global defense spending and increased market demand for our mobile robotics technologies. Now before we take questions, I want to take a moment to acknowledge an important milestone. As we previously announced, Alan plans to retire from his role as CFO on January 1. During his 30 years with Oceaneering and 10 years as CFO, Alan has been more than a financial steward. He's been a trusted adviser, a steady hand and a thoughtful leader. His ability to challenge assumptions while remaining open to the perspectives of our employees, customers, investors and other stakeholders has helped us to shape our strategy in meaningful ways. More than that, Alan is a true Oceaneer, embodying our culture of innovation, collaboration and a relentless commitment to excellence. His steady presence to shape not only our financial direction but also the way we lead and work together. Alan, on behalf of all Oceaneers' and our Board of Directors, thank you for all you've done for our team and for Oceaneering. We look forward to your continued contributions as you transition to an advisory role. I'm also happy to introduce Mike Sumruld, our Senior Vice President of Finance, who joined the call today. Mike brings deep industry experience, and we look forward to his contributions to Oceaneering's continued growth. And we'll now be happy to take any questions you may have. Operator: [Operator Instructions] Our first question comes from the line of Josh Jayne with Daniel Energy Partners. Joshua Jayne: First one for me, just when I think about the business moving forward toward the Ocean Intervention II, I think it was in August, and it was helpful to see the scale and capabilities of the vessel. One of my takeaways from the upgrades was how you'll ultimately be able to perform simultaneous autonomous survey operations. Maybe you could speak to that a little bit more, the advantages that's going to provide and how we should think about that -- those capabilities and the business moving forward? Roderick Larson: Sure. I think, Josh, I mean, you saw some of that in the tour, but the main takeaway is being able to do more with less. So you decrease the service expression, you decrease fuel usage, you decrease personnel on board. So much more efficient, not just from a cost standpoint, but also from a time standpoint, being able to do more. The other thing that isn't necessarily intuitively obvious because we're doing these things simultaneously and we're gathering this data, you're actually cross-checking data. So you're getting data from 2 different sources at the same time, you get a better idea early about your data quality. So I think all in all, it just provides the customer a more robust solution and getting that data into their hands sooner. Joshua Jayne: Okay. And then also this quarter, you announced a significant Subsea Robotics contract with Petrobras. I think it was $180 million. Could you speak to that market in 2026. How you expect it to hold up versus other geographies? And do you expect your market share in Brazil to increase moving forward for your other energy business lines? Roderick Larson: Sure. I would just say, first of all, I was down there just about a month ago and got to meet with customers, including Petrobras. And the market is really robust. I mean they've got some pretty significant plans. They've got -- they've got Pelotos, which is coming up. They've got the -- we just got an approval, I think some of you might have seen in the news. They just got approval to drill up north near the mouth of the Amazon, which kind of puts them in that at Atlantic margin along with Suriname and Guyana. So I mean, very exciting stuff up there. So it is ever forward in Brazil. They're looking really hard at what they have ahead of them. And these are as big opportunities we've probably ever seen in Brazil. I think market share continues to increase. My conversations certainly led me to believe like I would say, even more in the past, but coming back recently, their interest in technology is really big. And they are first adopters of a lot of the most interesting things we do. We've got things like we've got a riser inspection that will actually fly and do riser inspections. And we've done mooring line inspections and some of the things. So both -- I think both those things that drive them to exploration places, but also with an aging infrastructure, the ability to continue to work in places and exploit those investments they've already made in the existing fields. So I just think Brazil is a very exciting market, and we're well positioned there. Joshua Jayne: Okay. And then maybe just one more quick one. Just on the ADTech business, which continues to grow from a number of the awards you announced and you highlighted in your '26 guidance. It sounds like there's confidence it will be an increasing portion of your business going forward. Can you just speak to how that business is expected to compete for capital moving forward and where you ultimately see it as a percentage of your business over the next 3 to 5 years? And then I'll turn it back. Roderick Larson: Sure. I think the nicest thing about it is that business grows, it's really low capital intensity. And so that's one of the most exciting things about scaling up that business. It's a lot of engineering know-how. It's a lot of products we build. It actually allows us to sweat the footprint we already have currently. I've talked a lot about this that people ask about we've got this defense business and we've got this energy business. They're really hard to separate. We do a lot of robotics. We do a lot of vehicle work. And all of those things happen throughout Oceaneering, right? So some of the things those customers want are really well aligned with our IMDS business, for example. Some of them are really well aligned with the SSR business, obviously, with vehicles. But I think that's the exciting part is we are able to scale that up significantly without a lot of capital. The other thing that we're starting to see more and more, as you see NATO spending increase, you see some of the other areas of the world, bearing more of the cost and more of the responsibility for defense. We're seeing more international opportunities come up as well. And that's everything from things we've seen in Taiwan, things that we've seen in -- with August, the Australian, U.K. and U.S. submarine build. So it's growing on all fronts. The big beautiful bill really put a lot of money back in the coffers for this work to go forward. Alan Curtis: Yes. I'll just add one quick comment. It was -- we had management meetings last week and just to see the whole team rallying around this growth aspect of ADTech and all of the people from the energy side of the business. It was just nice to see 80 people sit there and rally around how can we get there faster. Operator: Our next question comes from the line of Scott Gruber with Citigroup. Scott Gruber: I wanted to get some more color on one of the segments in 4Q of Manufactured product, that's been a big source of growth this year. You mentioned the continued strength on a year-over-year basis in 4Q on operating income, but on lower revenues. It looks like it's implying maybe a double-digit decline on revenues. What do you think that means for margins? And kind of what's driving the revenue decline? So maybe I'll pack that for us a bit more. Alan Curtis: Yes. Give me one second here, Scott. I'm looking at -- I don't know if we're implying double-digit decline in revenue. And I think it's really the quality of earnings is where we see the increase in the operating income and EBITDA for the segment. So a lot of the backlog we've been talking about for the last 2 years where we received the improved pricing, a lot of that is starting to flow through as you witnessed this year. There's a good part of that still in backlog that we expect to execute in '26. And at the same time, we've taken some I'll say, operational excellence focus in this area as well and continue to look at how we can improve our cost structure across the board. And I think we're expecting to realize some additional benefit in '26 there. Roderick Larson: Yes, Scott, maybe just while they're doing the calculations, I mean, we're running the plants. The plants are booked. We -- I mean, we've got a great -- we've got a great runway for both what we did in '25, but through '26 as well as I think Alan has mentioned it before, having good backlog in all 3 of the umbilical plants. We've got good throughput at Grayloc and Rotator. Rotators having some of their best quarters ever. So I don't think there's a -- the revenue thing is not to imply that we're not going to have a large book of work. I think it's really just a matter of how that timing happens. I would say the sales funnel looks good. So we're booking into '27. So it's just a matter of when those larger projects hit, but I'm not I'm really -- I mean, Manufactured products is a good story for next year. Scott Gruber: Yes. Yes, yes. I was just a bit surprised that the revenue would be declining sequentially here in the fourth quarter relative to last year. So moving on to ADTech, obviously, another great source of growth for you guys. Can you just give us some additional color on the kind of cadence of ADTech growth that's embedded in the '26 EBITDA guide? Alan Curtis: Yes. I would kind of start with -- we've been talking through, we are adding additional contractors, subcontractors and personnel for the large-scale project that we announced in Q1. The team continues to onboard those subcontractors and looking at how we exit '25. I think, is a good beginning to how we think we'll start '26, but we expect to still continue to ramp up some of the revenue throughout the remainder of '26 as well. So we expect good progression year-over-year really with the new program that we have been awarded. Roderick Larson: And that's just that program because it ramps through '27, but we've got some other things coming on as well, new opportunities yet to be determined. So there's just a lot, lot of excitement in ADTech. I think we talked on the previous -- to Josh as well. There's -- it's firing on all 3 cylinders actually in that business. So it's hard to really quantify until we get those other pieces booked. But we just talked about that one big project. Alan hit it well. It will ramp through '26 and into '27. Operator: And with no further questions in queue. I will now turn the call back to Rod Larson for closing remarks. Roderick Larson: Well, since there are no more questions, I'd like to wrap up by thanking everyone for joining the call. This concludes our third quarter 2025 conference call. Have a great day. Operator: Thank you again for joining us today. This does conclude today's conference call. You may now disconnect.
Operator: Hello, everyone, and thank you for joining the Univest Financial Corporation Third Quarter 2025 Earnings Call. My name is Claire, and I will be coordinating your call today. [Operator Instruction] I will now hand over to Jeff Schweitzer, President, Chairman and CEO of Univest Financial Corporation. Please go ahead. Jeff Schweitzer: Thank you, Claire, and good morning, and thank you to all of our listeners for joining us. Joining me on the call this morning is Keim, our Chief Operating Officer and President of Univest Bank and Trust; and Brian Richardson, our Chief Financial Officer. Before we begin, I would like to remind everyone of the forward-looking statements disclaimer. Please be advised that during the course of this conference call, management may make forward-looking statements that express management's intentions, beliefs or expectations within the meaning of the federal securities laws. Univest's actual results may differ materially from those contemplated by these forward-looking statements. I will refer you to the forward-looking cautionary statements in our earnings release and in our SEC filings. Hopefully, everyone had a chance to review our earnings release from yesterday. If not, it can be found on our website at univest.net under the Investor Relations tab. We had a strong third quarter, reporting net income of $25.6 million or $0.89 per share. This was an increase of $7.1 million or 38% compared to the same quarter in the prior year, primarily due to continued growth in our net interest income and margin, combined with prudent expense management as expenses are only up 2% year-to-date compared to the prior year. While loan outstandings contracted slightly during the quarter by $15.7 million, production has remained solid through the first 9 months of the year. However, we continue to be impacted by early payoffs and paydowns. Year-to-date, new commercial loan commitments through September 30 were $808 million compared to $659 million in the prior year. However, this has resulted in contraction in loan outstandings year-to-date of $41.1 million compared to growth of $163.5 million in the prior year. Deposits increased significantly during the quarter by $635.5 million during -- predominantly due to the seasonal build of public funds deposits of $473.2 million. Excluding the build in public funds deposits, deposits increased $162.3 million during the quarter. During the second quarter of this year, we recorded a $7.3 million charge-off related to a commercial loan relationship that had been placed on nonaccrual and had a $16.4 million carrying balance as of June 30, 2025. As of September 30, 2025, the carrying balance of loans and other real estate owned related to this relationship totaled $13.9 million and $1.4 million, respectively. The $13.9 million of loans is secured by commercial real estate, which is under the control of a court-appointed receiver. The receiver has entered into an agreement to sell the property, which is subject to court approval. If the sale is approved by the court and consummated in accordance with the executed agreement, we expect the proceeds will adequately cover our carrying balance, resulting in no further charge-offs. With regards to the $1.4 million residential OREO asset, the carrying balance is supported by an appraisal and eviction proceedings are underway. Before I pass it over to Brian, I would like to thank the entire Univest family for the great work they do every day and for their continued efforts serving our customers, communities and each other. I'll now turn it over to Brian for further discussion on our results. Brian Richardson: Thank you, Jeff, and I would also like to thank everyone for joining us today. I would like to start by highlighting a few items from the earnings release. First, reported NIM for the quarter was 3.17%, down slightly from 3.20% last quarter due to increased excess liquidity during the quarter from our seasonal public funds build. However, core NIM of 3.33%, which excludes the impact of excess liquidity, expanded by 9 basis points compared to the second quarter. We expect core NIM to be relatively flat in the fourth quarter. Second, during the quarter, we recorded a provision for credit losses of $517,000. Our coverage ratio was 1.28% at September 30, which was consistent with June 30. Net charge-offs for the quarter totaled $480,000 or 3 basis points annualized. Third, noninterest income increased $1.8 million or 8.8% compared to the third quarter of 2024. This includes $987,000 increase in BOLI death benefits. Fourth, noninterest expense increased $2.1 million or 4.4% compared to the third quarter of 2024. The increase was primarily driven by compensation costs, specifically annual merit increases and variable incentives. Additionally, we saw increases in bank share, tax and loan workout fees. As Jeff mentioned, through the first 9 months of the year, expenses were up 2% as we remain focused on prudent expense management. I believe the remainder of the earnings release was straightforward, and I would now like to provide an update to our 2025 guidance. First, for the full year, we expect loans to be relatively flat when compared to December 31, 2024. We expect net interest income growth to be 12% to 14% compared to 2024. Second, we expect our provision for credit losses to be $11 million to $13 million for 2025. However, the provision will continue to be event-driven, including loan growth, changes in economic-related assumptions and the credit performance of the portfolio, including specific credits. Third, 2024 noninterest income totaled $84.5 million when excluding the $3.4 million gain on sale of MSRs and $245,000 of BOLI death benefits. For 2025, we expect noninterest income growth of approximately 1% to 3% off the $84.5 million base. However, there is a risk to this guidance if the government shutdown continues and we are unable to originate and sell SBA loans during the fourth quarter. Fourth, we reported noninterest expense of $198 million for 2024. For 2025, we expect growth of approximately 2% to 3% -- as it relates to income taxes, our guidance remains unchanged at 20% to 20.5% based on the current statutory rates. This concludes my prepared remarks. We will be happy to answer any questions. Claire, would you please begin the question-and-answer session? Operator: We have our first question from Tyler Cacciator from Stephens. Tyler Cacciator: This is Tyler on for Matt Breese. If you could just walk me through the public funds, commercial and broker deposit inflows, what's going to be there versus coming out going forward? And then I guess, kind of the same question for cash balances. Mike Keim: Yes. We would expect that normal seasonality would be $75 million to $100 million of outflows of public funds per month in the fourth quarter, and then we see that trend continue into the first quarter. And the commercial deposit build that we saw, there were a couple of one-timers in there that are transaction-based where we'll see some of that flow out as well. So we'll see kind of consistent with prior years, we'll see that excess liquidity start to diminish potentially cut in half, call it, through the fourth quarter and then see it continue to wind down in the first quarter. Tyler Cacciator: Great, thank you and then my next question is just on the margin. If you could add some more color on the NIM outlook, the NIM and the outlook from there, I would also love to hear about incremental loan yields and where you think the cost of deposits settle out once the seasonal items roll off. Mike Keim: Yes. So as it relates to NIM, as I said, I'd expect the core NIM to be relatively flat and then reported NIM just based on the timing of excess liquidity outflows and the like, that will be within a couple of basis points of where we were here in the third quarter. We continue to see strong new loan yields hovering around just below the 7% range on the commercial side. Those have been north of 7% for the last several quarters. But with Fed rate action and the like, you start to see those ticking down a little bit. And on the cost of fund side, I mean, we still have the opportunity for CDs to be repricing as they mature and come through. So that's an opportunity that will continue to lead to a little bit of benefit there. And then again, as we see the higher cost public funds run out, you'd expect that to tick down a little bit as well. Tyler Cacciator: Great. And then if I could just squeeze one more in. You may have talked about it a little bit in the prepared remarks, but if you could just talk about the loan pipeline a little bit, what expectations are there for the next few quarters and kind of what the main drivers are there? That will be it for me. Mike Keim: Sure. Loan pipeline is healthy at this point in time, as Jeff referenced in the opening remarks, commitment and new activity actually exceeded last year. But this year, we're in a decline versus the growth last year. We are expecting some level of growth consistent with the guidance that Brian provided in the fourth quarter. It's always subject to what happens on the prepayment activity, but we feel good with the activity that we have in front of us and as we move forward here in the fourth quarter. We need to continue to match our loan growth with our deposit activity to keep our loan-to-deposit ratio in the range that we're targeting. So that continues to be the governor. And the other part of what's going on in our loan growth story is from a CRE perspective, we're much more focused on construction commitments. So those are going to ebb and flow based upon draw activity, whereas in the past, we are doing permanent takeout finance as well. So we're actually churning the same dollar of capital for construction activity multiple times and generating increased fee income, which is actually leading to some of the rationale behind our improvements in our profitability ratios. And on the mortgage side, we have returned over the last year plus back to more traditional mortgage banking, which has also led to a decline in the level of residential mortgages we're putting on our books. So there's a balance as we move forward here, but pipelines on the commercial side are healthy and continue to be strong. Operator: Our next question comes from Emily Lee from KBW. Emily Noelle Lee: This is Emily stepping in for Tim Switzer. Congratulations on the quarter and thanks for taking that questions. So I wanted to kind of ask about -- you mentioned the -- in terms of the cost of funds and opportunity for CDs to reprice as they come through. I was wondering what amount of CDs are set to reprice over the next few quarters? And also more generally, how has deposit competition been looking in your markets? I know last quarter, you mentioned it's been a little fierce. So I was wondering if you're still seeing that and if there's any opportunity to bring down those deposit costs further outside of CDs, too. Brian Richardson: Yes. This is Brian, Emily. On the CD side, we have a couple of hundred million dollars a quarter of CDs that are maturing and churning. And we had that throughout this year, and that continues to be the case for the foreseeable future. As it relates to rates, competition continues to be fierce, while at a lower absolute level just based on the interest rate environment, things still remain very competitive on the deposit pricing side for attractively and cost-effective deposits. Yes. And what we're seeing on the CD side, specifically from a competitive nature is that a lot of credit unions are -- we would offer that rate for maybe a 7-month term, and they're extending that into 24 months and beyond terms. And given what we're seeing and anticipating subsequently from Fed movements, that's just not realistic and not good for us from a net interest margin perspective. So that's where you see the biggest and strongest competition. Emily Noelle Lee: Understood. And also in terms of the NIM and as it relates to Fed rate cuts, how -- what's the exact impact or I guess, the range of the impact for each 25 basis point rate cut that would have on NII and the NIM? Mike Keim: So from a -- for the first -- the next couple of cuts, we'll call it, not expected to be overly impactful. There may be some timing within a quarter depending on when your variable rate loans and deposits may reset and the expectations of that leading up to a cut. But all things equal over a couple-of-month time horizon be relatively neutral for the first couple of cuts here. As you get deeper into a cut cycle, you'd start to see potentially a little bit of pressure. But again, that all gets back to the competitive environment at that point in time and what occurs. But our balance sheet model is out relatively neutral at this point. Emily Noelle Lee: Okay. Got it. And can you also remind us what portion of the loan book is floating rate? I believe a few quarters ago, it was roughly 1/3 of the book. And so I was wondering if that was still correct. Mike Keim: Yes, correct. It continues to be right in that range. Emily Noelle Lee: Okay. Got it. And then just two more questions, if that's okay. On capital deployment, you been, you've continued to be active on the buyback front. And I was just wondering how we should think about the buyback story going forward. And if you anticipate kind of sticking around the $6 million to $7 million range quarterly or if you kind of intend to pull back a little bit? Brian Richardson: So this is Brian again. As it relates to capital deployment, as we've said in the past, we're not looking to meaningfully grow our regulatory capital ratios, and we look at any capital that we do generate, we look at deploy and return it to shareholders via things like the buyback. So we look to toggle our buyback activity based on our forward forecast of earnings growth and balance sheet growth accordingly. So there's no anticipation at this time to cut back from that $6 million to $7 million per quarter, but we would look to opportunistically deploy. If we're in a position where capital is going to be growing, we would potentially be deploying more via buybacks. Emily Noelle Lee: Okay. Understood. And then also just wondering how you kind of think about M&A given kind of a regulatory easing environment and if your appetite for M&A has changed at all? Mike Keim: Yes, Emily. So our appetite really hasn't changed at this point. Part of the problem is when we look at the landscape, given that we're at the $8 billion range to buy something to bump up right to the $10 billion doesn't make a lot of sense. And also when we look around, there just isn't much that we're seeing out there that we feel is something that we would really want to go after at this point, especially considering we have a lot of internal initiatives we're doing on the efficiency front and with digital that we really don't want to take our eye off of the ball on what we're accomplishing there and what we're working on because we were basically doing an M&A transaction, we would have to put a lot of that on pause, and we see some good efficiency paybacks continuing to go forward as we continue to lower our efficiency ratio. and manage expenses, we don't really want to take our eye off that ball and we'd like to continue to work through those projects before we really start meaningfully looking at M&A. We're always open to it. If something popped that was very interesting and look like it could be really helpful to our franchise, but it's not one of our, I would say, top strategic priorities at this point. Emily Noelle Lee: Okay, understood. Well, congratulations on the great quarter and thanks for taking that questions, Jeff. Operator: We currently have no further questions. So I'll hand back to Jeff for any closing remarks. Jeff Schweitzer: Thank you very much, and thank you to everybody for participating today. We're excited about the quarter that we were able to print for the third quarter and look forward to finishing the year strong and talking to you in January. Have a good day. Operator: This concludes today's call. Thank you for joining. You may now disconnect your lines.
Operator: Hello, and welcome to Inchcape's 2025 Q3 Trading Update. We are now joined by -- today by Duncan Tait, Group Chief Executive; Adrian Lewis, Group Chief Financial Officer; and Rob Gurner, Head of Investor Relations. [Operator Instructions] I would now like to hand the call over to Duncan. Please go ahead. Duncan Tait: Very good. Thank you, [ Sergey ], and good morning, everyone, and thank you for joining us. I'm here with our CFO, Adrian Lewis; and our Head of Investor Relations, Rob Gurner. I'll give an overview of trading and strategic execution during the quarter before handing over to Adrian for more detail on our regional performance and the outlook, which has remained unchanged since March. We'll then take your questions. Our performance in Q3 was supported by market growth, distribution contract wins and ongoing product launches. However, headwinds remain in Asia. We delivered strong organic revenue growth in the third quarter of 8% and reported growth of 7% against softer comparators and in the context of a market growth of 5%. This reflects the underlying strength and diversification of our business as well as consistent operational execution by our teams. We also continue to make progress against our Accelerate+ strategy. We further scaled the group through the acquisition of Askja in Iceland, an exciting new market for Inchcape, where we are now the market leader. This bolt-on acquisition also helps to further strengthen and diversify our global portfolio of OEMs. Our progress in optimizing our business is perhaps most evidenced with the disposal of a retail-only business in Australia, which generated annualized revenue of around GBP 100 million. As we have said before, optimizing our retail network is a core pillar of how we operate as a distributor in providing the most efficient route to market. Our execution against Accelerate+ is also highlighted by our successful track record in winning distribution contracts, including the recent addition of GAC AION in Greece. We're also continuing to optimize our distribution contract portfolio. And in this quarter, we have, in collaboration with our OEM partners, decided to exit 4 immaterial contracts in certain small Americas markets, which are unlikely to provide the opportunity for mutually viable commercial operation. So to sum up, Inchcape's performance during the third quarter was in line with our expectations and demonstrates our ability to execute against our Accelerate+ strategy. This supports our confidence for another year of growth in 2025, in line with our medium-term target to deliver EPS CAGR of more than 10%. And with that, I'll hand over to Adrian. Adrian Lewis: Thank you, Duncan, and good morning, everyone. During the period, the group generated revenue of GBP 2.3 billion, up in Q3, 7% in constant currency and on a reported basis. Reversing out the impact of disposed noncore retail assets and the impact of recently acquired businesses, organic revenue was up 8%, with distribution contract wins contributing around 1/3 of this organic revenue growth. Before looking at the regional detail, at a headline level, the market trends were as expected. Underlying Inchcape TIV was up 5% compared to the first half of the year where industry volumes in our markets were down 2%. This is in part due to softer comparators in Q3, but also a continuation of the improving trends we have seen in the Americas and a strengthening rate of growth in Europe. We outperformed the market with our volumes up 13% to around 91,000 cars in the quarter. And we spoke earlier in the year about the need to see a step-up in volumes in H2 versus H1 as well as improved growth rates. This is a good indicator of the step-up in absolute performance as we anticipated. Summarizing the regions, starting in the Americas, the market environment continues to improve with our performance ahead of the market. Colombia and Peru continue to see very strong growth and Chile, on an underlying basis, is showing positive trends. And it is worth noting that in Chile in September, we saw a very strong market due to regulatory changes, pulling demand forward. This will normalize in Q4. Some markets like Costa Rica remained weaker. We are seeing the usual seasonality in the region this year with our performance underpinned by new product launches and contract wins. Turning to APAC. The macro and competitive dynamics that proved to be a headwind for us in H1 continued with the premium segment remaining weak. The Singapore market continues along the certificate of entitlement up cycle, but remains a highly competitive market as does Hong Kong. Australia returned to growth in the quarter. Our performance in the region is supported by new product launches, such as the Subaru Forester in Australia and a number of Toyota products in key markets. Demand for these is on track, and we expect this to be supportive of an improving performance in comparison to H1. And finally, our business in Europe and Africa continues to show positive momentum and market outperformance, especially so in Romania and Bulgaria, where we have seen strong growth. Growth was enhanced by the contribution from the contracts announced in recent years across the region as well as a first contribution from our Icelandic operation. While only a revenue update, as expected, we have seen reducing inventory levels since the position at the end of June. And as Duncan mentioned, we have maintained our disciplined approach to capital allocation. And alongside the acquisition of Askja, we have now acquired approximately GBP 200 million of our own shares, equating to 8% of the shares in issue as part of our GBP 250 million share buyback program that will be supportive of EPS growth. In relation to acquisitions, we see these as a crucial part of our growth strategy, and we remain disciplined on valuation as we look across a healthy pipeline of bolt-on acquisitions. And finally, on to outlook. Reiterating our position through the year, we have -- we continue to expect another year of growth at prevailing currency rates, including the impact of tariffs. Our outlook for this year is based on our expectation for a stronger second half of the year compared to half 1, and our performance in Q3 is supportive of this. Our performance in the second half continues to be driven by product launches in a number of markets. And so far, these are progressing in line with our expectations. Additionally, we continue to manage costs, inventory and working capital, and you have seen us take further steps in the optimization of our retail network. We continue -- we expect to deliver a higher rate of EPS growth relative to profit growth this year, driven by our operating performance and capital allocation and in line with our medium-term target of greater than 10% compound annual growth rate. So now let's take your questions. Operator: [Operator Instructions] First question is from Arthur Truslove from Citi. Arthur Truslove: First question just on capital allocation. Can you just remind us how you think about the scenario in which there would be another buyback at full year? And second question from me, obviously, your price mix element is slightly sort of negative 5% or thereabouts in the quarter. Are you able to just talk about how that likely impacts margin and things like -- how the price mix likely impacts margin, please? I know that's something that has been a concern to people in the run-up to this. Duncan Tait: Good morning, Arthur. Adrian, over to you both, please. Adrian Lewis: Thank you, Duncan. Thanks, Arthur, for the questions. So I'll start with capital allocation. And I think our policy, Arthur, is really clear. What we said in our medium-term guidance that was issued in March is that on the back of a very highly cash-generative business, turning profit after tax into cash at around 100%, we'll pay dividends with 40% of EPS, and then we will do share buybacks and M&A. And the balance between those 2 with the cash that we generate will be around -- will be decided based on a disciplined approach to valuation, and that's in the context of our own shares and a very healthy pipeline of bolt-on acquisitions. As I said in my words, we are super excited about expanding the scale of this group. We were very pleased to find value in the Askja deal and continue to look at a pipeline of bolt-ons that were very -- that I think can add scale to this group. But as we have done this year, you can expect us to be disciplined about how we do that in 2026. On price mix, what you've seen -- and absolutely, you've got it right. So look, 13% volume growth in the context of a market growth of 5% and an organic revenue growth of 8%. So what you're seeing there and that delta between the 13% and the 8%, is really about a faster-growing Americas region, a faster-growing Europe and Africa region, where we play in segments that have a lower average selling price in comparison to Asia, which in proportion to the rest of the group is smaller in proportion than it was in previous years. 1/3 of our Americas business is Chinese brands, and 1/3 of our growth rate this year has come from new contract wins, which, as you know, is skewed towards Chinese brands. What that's doing is bringing down the average selling price. We've been pretty consistent around our view on margin and how we think about margin as we look forward at around circa 6%. And I wouldn't -- and I don't think you should think about that price mix and changing mix within the business as a headwind to margin. We're about driving scale through this organization, leveraging our overhead, and that's what's going to underpin margins as we look into the medium term. Arthur Truslove: Just one follow-up. Obviously, about 18 months -- well, 12 to 18 months ago, you presented some data on the profit progression in new contracts. Is it reasonable to think that these contracts that are growing very nicely are progressing in line with what you presented that in the Driving Seat episode? I think it was in May 2024, if I remember correctly. Adrian Lewis: Yes. I think Arthur, great question. I'll take this one, Duncan, if I may. Yes, look, you started to see us disclose the contribution that they are making to our overall growth. It's around 1/3 of the 8% has come from contracts that have been signed over the recent few years. And I think net-net, we're at about 50 contracts in aggregate that we've signed over the last few years. And the vast majority of them are still in year 1 and year 2. And that 5-year time line that we presented back in that in the Driving Seat webinar, how the average contract evolves, I think we're still pretty consistent with, and we're seeing those 2022 and 2023 contracts starting to climb up that curve. I'd say one thing we have noticed it sometimes takes us a little to get from the moment of signing through to products in the market. Sometimes it's getting through homologation process, getting all the right vehicle specification documents into local governments where we're working with brands that aren't necessarily used to working in export markets and international markets. That's taking us a little bit longer to get out of the blocks perhaps, but the trajectory of maturity continues to be on that archetype as we presented in May last year. Operator: Our next question is from Abi Bell from UBS. Abi Bell: Just wanted to ask 2 questions about the growth building blocks. So firstly, your comment that 1/3 of the growth was from contract wins, so this is about 2.7% of organic revenue growth. Should we assume that is the rough contribution you'd expect in Q4 and at the start of next year? And you've won a lot [Technical Difficulty] you mentioned. So any help on timing of the ramp-up, that would be [Technical Difficulty]. And then secondly, your markets were clearly strong this quarter. I mentioned there were some markets like Chile, and it sounds like you expect Q4 to be slightly softer, but the contract wins and end markets, do you expect Q4 to see positive growth at this stage? Duncan Tait: Thank you so much, Abi. Adrian, you again. Adrian Lewis: Yes, so 1/3 of our growth absolute [Technical Difficulty] contracts, we're really pleased with that. Those contracts, which I referred to earlier as sort of 2022 and 2023 beginning to hit their straps as we expected to, as we -- when we look at the maturity curve that we expect to see. We expect them to provide a contribution into Q4. And I think I'd point you to our medium-term guidance framework, which talks about a market outperformance. Market is growing at around 1% to 2%, 2% to 3% outperformance to give a 3% to 5% volume growth. That's the sort of framework and how you should think about rolling forward, the contribution from these contracts that we've been running over recent years. As I said, a lot of them are still in the foothills of their growth maturity curve, and we've got work to do to make sure that they contribute as we expect them to over the '26, '27 and '28 time period. On growth rates, looking into Q4, as we've said in the statements and in our words, Q3 had some softer comps. So I would expect Q4 to be a growth quarter for us, but I wouldn't expect it necessarily to be as strong as we have seen in Q3, in part due to the comparators. Duncan Tait: Is that helpful, Abi? Abi Bell: Yes, that's great. Just a quick follow-up. Do you think you'll be disclosing the contract contributions going forward in your remarks or materials? Adrian Lewis: I think we've heard investors and our analyst community loud and clear that a greater level of disclosure in this regard is helpful. So you should expect to see us to start to talk about how it contributes to the group, both strategically and in the near-term results. Operator: We'll now take our next question from David Brockton from Deutsche Numis. David Brockton: I also have 2 questions as well. Firstly, could I just return to the price/mix headwind from the first question. I guess one element there that's been contributing has been a softer premium market, particularly in Asia. And as you look towards next year for the business, can you just comment on whether those pressures should ease as you lap this year? Or is that on a worsening trend in that segment, please? The second question relates to Australia. Just a clarification for me. Can you confirm you're now completely out of retail activity in Australia? And is the sort of strategy evolved there? Or am I missing something because I thought there was a benefit to the partially integrated model there? Duncan Tait: Very good. Thank you, David. Look, I'll take those. So specifically about Asia, look, we we've seen 2 dynamics in Asia this year. One is more pressure on the premium segment, and we've seen those declines, which we referred to at our interims of a 40% decline in the premium market in Indonesia as an example. And then generally across Asia, it's a really, really competitive environment. Do I expect 2026 to see a big step-up or an improvement in that environment in Asia? Look, I think our teams are executing pretty well. But we -- do I expect the premium segment to bounce upwards or for the competition and the competitive environment to reduce? No, I don't. So I think we will continue to execute well, but Asia is super competitive and the premium segment is still quiet. But what I would say going back to the way Adrian is encouraging us to think about 2026 is we should apply our medium-term growth framework to how we think about 2026. Then just in terms of Australia and retail, so let's be clear about what we're trying to do. We have had a program over the last half a decade or so of reducing our exposure to pure retail. So like the U.K. business where we don't have distribution contracts, but we had end retail, and in Australia, what you see us do is take those dealerships in Brisbane, which are supporting OEMs where we're not the distribution partner, that is the business we've sold. So it's exactly like you've seen us do in the U.K., the way you saw us exit Russia and other businesses in that regard. In terms of our distribution business, retail is super important. We don't need to own and control all of it. And in fact, in Australia, we own about 20% of the retail, physical retail that supports our distribution contracts in that country. And I would remind you, we've just launched Foton in Australia also. Operator: Our next question is from Akshat Kacker from JPMorgan. Akshat Kacker: A couple of questions, please. The first one is on the mutual exits from the small contracts in Americas that you've talked about. I see that 3 of them are with Geely. And obviously, this comes on the back of the exit from Chile at the end of last year as well. And I do remember that you have a global cooperation agreement with Chile -- with Geely, sorry. So just a question on Geely still is an important distribution partner and how are your discussions actually evolving with them? If you could just share some more details, that will be helpful. The second one is on Asia, and I appreciate it's a Q3 trading call. You've talked about a very competitive environment. There are continuous headwinds. Could you talk about the margin recovery potential for that region going into the second half, please? We've obviously come down from the 8% to 9% margins in the last few years to 6.5% in the first half, but now we have higher volume contribution and positive momentum from product launches. Could you just talk about Asia margins, please? Duncan Tait: Yes, sure. Akshat, let me clarify your second question. Are you talking about the Americas region? Akshat Kacker: Asia. Duncan Tait: It's Asia, okay. Very good. Thank you very much. I do want to clarify that. Look, I'll take the first question and Adrian on the second. So look, let's put this in context. We've won over 50 contracts over the last few years, many of them in our Americas business, with OEMs from Europe, from Japan and from China. And we did sign a global relationship with Geely just a few years ago. So if you look at the Geely brand itself, yes, we have now exited the contracts that we signed in the Americas. We have done so in a highly collaborative basis with our OEM partner. And we genuinely wish them all the very best as those contracts move to other third parties. But actually, let's not forget, we've also signed a whole bunch of contracts with smart, which is a Geely joint venture with Mercedes. We have our Volvo business also in the Americas, and I'd hope that we would have some more Volvo businesses over time. So in terms of our relationship with Geely group, I think that's in super shape. And those particular brands that we've exited, look, they're better off with other parties running those distribution contracts in those small markets in Central America. Adrian Lewis: And in respect of margins, Akshat, and you took the words right out of my mouth. This is a trading update, so I won't comment very specifically. Safe to say, you're absolutely right. This descaling effect we saw in the first half of the second half skew of volumes weighed on margins. We've seen that scale come back in the third quarter and expect to do so with product launches in the fourth quarter. We launched Subaru Forester into Australia. We've got some product going into Singapore and Hong Kong, EV going into Hong Kong with the bZ3X started this month. And we've got some -- the Noah product going into Singapore. They play in certain segments, which will be helpful to us, particularly in MPV, fleet and taxi. So we should see the -- we expect to see the rescaling effect in Asia. Save to say that, that premium segment continues to be weak. And referring to Duncan's comments around it being a very competitive environment. We've seen an improved performance in Q3 in the context of a market that is now flat and in the context of our half 1 performance. But I want you to sort of hear the words of caution of Asia being a difficult environment for us, but that rescaling effect will be supportive of a better margin profile in half 2. Operator: Our next question is from Andrew Nussey from Peel Hunt. Andrew Nussey: A couple of questions from me as well. First of all, given the significance of the new contracts in terms of the growth profile, can you just give some color around the pipeline in terms of signing up new contracts, whether that's sort of OEM or region? And secondly, we cast our minds back to the disposal of the U.K. retail operations. I think from recollection, you retained some of the liabilities from any potential misselling of consumer products and commissions and what have you. Given the recent FCA paper, do you see any exposure for the group there in terms of that historic disposal, please? Duncan Tait: Very good. Andrew, I'll take one. Adrian will follow up on number two. So in terms of contracts, so we've won a lot, as I keep on saying on this call and in our previous engagements, and they're starting to come through in our revenue growth in the second half, which I am pleased about. And generally, I've said this group will win somewhere around high single into double digits contracts annually. This year, so far, gross number is 9. Do I think we'll sign a few more contracts before the end of the year? Most likely. And then, look, are we going to hit 10-ish every year? This is a bit of a lumpy business in terms of contract wins. But the teams are doing well, and we're talking to key OEM partners across our 3 regions. So in summary, you should expect us to sign a few more before the end of the year. Adrian Lewis: And Andrew, in relation to the U.K. retail disposal, your recollection is absolutely correct. We did provide an indemnity in certain circumstances where that FCA investigation was going to come back to us as was appropriate at the time. Now the FCA is in their redress scheme, is in a consultation period. So it wouldn't be appropriate for me to comment on how that would conclude before that does conclude. And I'd just point you back to what we said in our half year statements, we had an unquantified contingent liability set in our disclosure schedules, and we'll have to reconsider our position post the consultation period as that plays through for consumers through the third and fourth quarter, and you'll see more in our full year financial statements in the spring. Operator: [Operator Instructions] And we will now take our last question today from Sanjay Vidyarthi from Panmure Liberum. Sanjay Vidyarthi: Just one for me. I'm just looking at the TIV data that you provided. Just a couple of ones that I'd like to go on, Hong Kong. Is there anything in terms of phasing there in that being up 43% in Q3? And then just across Europe, there's been remarkable strength, double-digit growth across most of the markets. What's driving that? Duncan Tait: Good morning, Sanjay. Over to Adrian for both. Adrian Lewis: So Hong Kong data, yes, look, you remember last year, we talked about tough comps in the first half and weaker comps in the second half. And what you see in Hong Kong data was a little bit of that playing through. Hong Kong is 10,000 units, 10,000 to 11,000 units a quarter business. We're lapping an 8,000 unit quarter in Q3. And that's because there was a pull forward into Q1 last year -- sorry, Q2 last year with some regulatory changes where they changed the taxation rates applied to EVs on imports. That's what skewed the market. 12,000 cars in the quarter is a pretty decent quarter in what is a highly competitive market. There's nothing in this year's phasing that would indicate that's a pull forward, but we see that market as being a broadly 40,000 unit market and pretty stable at that level through the year. In relation to Europe, yes, look, absolutely, we've seen a very strong market performance. There are some nuances in there, both slightly weaker comp, and you can see that in the historics. Romania has a slight inflated number, I would say, because of some -- again, some regulatory changes there. We expect that to level out a bit into the fourth quarter, and you can see some fairly spiky quarterly data in Romania, big negative, big positive. I'd encourage you in the circumstance for Europe to look at a full year rate of growth for the market as a barometer for momentum in the region. David Brockton: Okay. Understood. Is there any kind of distortion there from EV sales? Or is there anything to think about on that not just Romania but across Europe? Duncan Tait: I would point to Bulgaria -- sorry, Belgium and Luxembourg as being a market that is shifting towards EV very quickly in relation to some taxation changes that came into effect at the start of this year, and that's a market that is shifting quite quickly to EV and BYD, where we're distributing for them has been -- we've been real winner in that space in that regard. And that's -- when we talk about some of the momentum we're seeing in those contracts, that BYD Belgium contract is one of those early ones that where we're seeing that business gather pace. That's the only EV point I would make. And obviously, you can see the market data there was fairly flat, but it is a market that's shifting to EV. I wouldn't read the other market growth rates as an indicator of an accelerated curve. Operator: It appears there are currently no further questions. With this, I'd like to hand over back over to Duncan for closing remarks. Over to you, sir. Duncan Tait: Thanks very much, [ Sergey ]. So thank you for joining us this morning, everyone. To summarize, our performance in Q3 was supported by market growth, distribution contract wins and ongoing product launches, while headwinds remain in Asia. We reiterate our outlook for 2025, and we remain well placed to deliver on our target of greater than 10% EPS growth over the medium term. That's it from us. Please get in touch as well if you'd like to follow-up on anything we discussed today. Bye.
Operator: Welcome to the FTI Consulting Third Quarter 2025 Earnings Conference Call. [Operator Instructions] Please note, today's event is being recorded. I would now like to turn the conference over to Mollie Hawkes, Head of Investor Relations. Please go ahead. Mollie Hawkes: Good morning. Welcome to the FTI Consulting conference call to discuss the company's third quarter 2025 earnings results as reported this morning. Management will begin with formal remarks, after which they will take your questions. Before we begin, I would like to remind everyone that this conference call may include forward-looking statements within the meaning of the Private Securities Litigation Reform Act, including the company's outlook and expectations for the full year 2025 based on management's current beliefs and expectations. These forward-looking statements involve many risks and uncertainties, assumptions and estimates and other factors that could cause actual results to differ materially from such statements. For a discussion of risks and other factors that may cause actual results or events to differ from those contemplated by forward-looking statements, investors should review the safe harbor statement in the earnings press release issued this morning, a copy of which is available on our website at www.fticonsulting.com as well as other disclosures under the heading of Risk Factors and forward-looking Information in our annual report on Form 10-K for the year ended December 31, 2024, our quarterly reports on Form 10-Q and in our other SEC filings. Investors are cautioned not to place undue reliance on any forward-looking statements, which speak only as of the date of this earnings call and will not be updated. FTI Consulting assumes no obligation to update these forward-looking statements whether as a result of new information, future events or otherwise, except as required by applicable law. During the call, we will discuss certain non-GAAP financial measures, the discussion of any non-GAAP financial measures addressed on this call and reconciliations to the most directly comparable GAAP measures are included in the press release and accompanying financial tables that we issued this morning. Lastly, there are two items that have been posted to the Investor Relations section of our website for your reference. These include a quarterly earnings presentation and an Excel and PDF of our historical financial and operating data, which have been updated to include our third quarter 2025 results. With these formalities out of the way, I'm joined today by Steve Gunby, our CEO and Chairman; and Paul Linton, our Interim Chief Financial Officer and Chief Strategy and Transformation Officer. At this time, I'll turn the call over to our CEO and Chairman, Steve Gunby. Steve Gunby: Thank you, Mollie. Welcome, everyone, and thank you all for joining us today. As I hope you've seen this morning, this morning, we reported once again, record results, with EPS and adjusted EPS of $2.60 per share, which is up over 40% over a year ago. As always, there are onetime factors that influence these numbers, and this quarter, they overall did happen to cut positively. So as we always say, during good quarters and in not-so-good quarters, one should never take one of our quarters and multiply it by 4. But even normalizing for the onetime factors, this was a record quarter, a quarter I would call spectacular and a set of results that to me was particularly gratifying given that we delivered these results in the face of major headwinds in two of our businesses and while continuing to invest in all of our businesses. So there are different ways that one can tell the story of this quarter. One is to go business by business to talk about the terrific performances we had in Corp Fin and FLC and Strat Com and how those performances more than overcame these areas of shortfall, and Paul will review the business in that way. With your permission, I'd like to see if I can put a higher-level lens on the quarter, a bit of a more holistic, integrated lens and try to tie the results of this quarter, some of the topics that we have talked about over the years, some of the underlying philosophies, the set of strategies that our teams have been driving not only business by business but as a whole, and not only quarter-by-quarter but now for close to a decade. Over the years, you've heard us talk a lot about organic growth, about focusing on high-valued areas where we believe we have a right to win. The problem with those words is that they could just be slogans. What we have tried to do in this company is to turn them into much more than slogans. What we've tried to do is to turn them into core philosophies, into approaches and approaches that have teeth, teeth that require actions in times that are sometimes comfortable but also operate in times when adhering to those values might not be so comfortable. For example, when adhering to those values might hurt the earnings for a particular business in a particular quarter. This goal of ours for organic growth reflects several core beliefs that we are committed to, that are tied to what we believe is necessary to deliver for all three of the critical stakeholders, the stakeholders that matter in our business. One is making a fundamental difference for our clients. The second is building a place where great people want to be at where great people can build great fulfilling careers. And doing both of those while, at the same time, delivering real value for you, our shareholders. There are a number of tenets underlying them. Let me summarize the key one. The first one is the easy one. It's the most obvious one. We are a client service business, which means at our core, we have to target being the best at helping our clients. That's a general statement for professional services. In our case, it means helping clients in key matters in high-stake situations. Aspiring to be the best in times of crisis or urgency requires us to make sure we have the right leading expertise. And it's important to define leading expertise right. It's not only defined as people who intellectually know what could be done or intellectually know what needs to be done, but people who have been on the front line of major crises and opportunities have actually been able to help clients deliver in those situations. The third point is maybe less obvious, but it's a consequence of those first two points, which is the core determinant of our growth and our experience is rarely whether there's a market out there. It almost always is. The challenge almost always is much more around eliminating supply side constraints which, in turn, means continually committing, continually in good quarters and bad quarters, committing to enhancing our team, supporting the growth and promotion of core committed professionals and making ourselves over time increasingly the most attractive place for terrific folks outside the firm. And of course, it requires not only getting the folks in or promoting the folks, but making sure when you do that, they feel supported, investing behind them as they have conviction about where they can double down on our core business or where they see they can find new adjacencies they can believe they can win in or where they find geographies they think they can seize. These principles, as we've discussed, are far from rocket science and they are easy to mouth. They're also easy to commit to when businesses are soaring. The rubber hits the road is what you do when the businesses are not soaring, when a business is down in a quarter or struggling. Let me take those principles and see if I can give some insight into what I think drove the quarter, first, for the businesses that soared this quarter and then for the two businesses that had some challenges. When you look at the results this quarter for Corp Fin, FLC or Strat Com, you can talk about the great things that happened in the quarter, the jobs won, the market conditions that helped and, of course, there are those. What that sort of short-term lens misses is just how much the current quarter reflects the activities and, I believe, the courage that was shown by key leaders in those segments and subsegments, not only this quarter or this year but last year and 2, 3 and 4 years ago, in quarters where certain businesses weren't soaring, but where the leaders and the individuals involved had conviction about the propositions we are driving and had confidence in the teams leading those efforts. Let me see if I can illustrate that first with Corp Fin. Corp Fin had another record quarter with multiple sub-businesses delivering double-digit growth year-over-year, and those results obviously reflect some things that happened this year. But importantly, at its core, my belief is that Corp Fin's powerful results, first, primarily reflect major convictions and did decisions made in quarters past, bold bets that the leaders bet behind in businesses that weren't performing at that time or on adjacent businesses that, at that point in time, we're unproven. There are so many examples of that in Corp Fin I can't possibly do them all justice, but let me touch on a few. In the U.K., we've always had a great Creditor Rights business, and we always support that business. But the team there also had a set of people there who believed they could add an adjacent business, a leader insolvency business. And they bet on that team, a set of bets that has turned out to be a great growth engine for us this quarter and, we believe, going forward. In Germany, it was around committing to and supporting and building on a terrific team in Andersch, which as you may remember, shortly after they came, faced significant headwinds when the German government launched the moratorium on bankruptcy during COVID. That confidence is being rewarded right now, yes, in terms of the terrific restructuring results in the quarter, but also with Germany now becoming a platform for a broader set of businesses that we can grow behind. We've talked about Australia a number of times, the transformation that happened there because we had confidence on the quality of the people on the ground and the vision they had, a vision that saw a way to get us from a distant player in restructuring to the #1 or 2 player in restructuring, but also that they saw that was a way to turn FTI as a whole into a destination of choice across segments for great professionals, a vision that I believe is fully underway to being fulfilled. These bets are in adjacencies and businesses that were struggling, the quarter's results also reflect the bets we've made in the last several years to continue to invest in businesses where we've always been strong. The teams have avoided the risk of being complacent or sitting on their laurels. They've doubled down in core businesses like restructuring, adding talent in verticals where we thought we could even be stronger like health care or airlines, all of which has led us to winning some of the biggest jobs in both of those industries over the last few years. There are so many other examples I could go to, but let me just pick one last one for Corp Fin, which is the key bets we've made in transactions, which were bets behind a terrific leadership team, and a belief that the quality of that team would allow us to gain significant market share in a market where we weren't as well-known as we thought we should be. As a result, that business has not only grown significantly over the last 4 or 5 years, it even grew in the first half of this year when transaction volumes generally in the markets were down. A point I think is important. None of those businesses, decisions in those businesses was automatically profitable. In the quarter, they were made. Most of those decisions actually cost us money initially. They were, of course, not decisions made lightly. We have disciplined teams that were made with discipline, with focus on questions like, do we have the right proposition? Do we actually have the right team that will take accountability and be able to deliver on those propositions? But where we had those teams and the right proposition, our leadership had the courage to bet and support those bets, yes, in good quarters, but also in the quarters that were not so good. The results we are showing this quarter reflect those commitments. And in my mind, they celebrate the commitments that these folks made. Let me talk about some analogous moves that the FLC leadership team has made. Some of you will remember that FLC's adjusted EBITDA was essentially flat for a while or rather it was zigzagging around a relatively flat line for a fair number of years. And during those years, we often talked on calls like this about investments we are making, overseas in certain businesses and in the United States. And during many of those years, it was hard to see the effect of those investments on bottom line performance. The reality was that within those investments were some investments that didn't work, and we had to take corrective action. What I think it was harder to see, however, was that within those investments were also powerful investments that were working, that were building on the historical strengths of FLC and helping liberate and make more visible to the market some of the underlying power of what we have always had in FLC, for example, the buildup of a much more prominent and much more well-known financial services practice, which today is not only winning some of the biggest jobs in the market but is now also a key destination for leading people who want to join us, including 15 new SMDs and MDs this year. We're continuing to build on our cybersecurity practice, not only in the U.S., but now also overseas and to broaden it into adjacencies where we believe we have the right to win such as the national security practice. We're building our risk and investigations practice more generally, not only by investing in great promotions and terrific lateral hires to enhance our capabilities, but also by figuring out ever better ways to link our deep R&I experts with our experts in financial services and other regulated industries and leverage one of our most critical assets, our core data and analytics team that has always been on the leading edge for core data and analytics services and increasingly is on the leading edge with respect to AI. Year-to-date, FLC's revenues are up double digit, and adjusted segment EBITDA is up more than 60%. Some of that is due to great things that happened in the quarter. Most of it, to me, is due to the vision, the power and the courage of the investments that FLC has made not just this year or last year but in the last 2, 3 and 4 years. Turning to Strat Com. Strat Com, as some of you may remember, was the first business that we had to turn around a decade ago. And the team, if you want to -- if you don't remember, it turned it around almost immediately. And it has been a great growth story since. But of course, just because it's a great growth story doesn't mean there haven't been zigs and zags. And Mark and the team will note we've had a lot of zigs and zags over these 10 years, including a slow period in '24. This year, Strat Com's revenue is up also double digit and its segment EBITDA is up 34%. Some of this year's results have to do with disciplined action Strat Com took in areas where it didn't think it had all the ingredients to win. But a huge amount of the growth has to do with the team's multiyear commitment to increasing our power in the core areas that aspires to win at high stakes areas like public affairs or corporate reputation, places like crisis communications or cyber communications. Strat Com has had multiple ways it's invested behind that vision over the last few years. But the primary one has been to add talent wherever it is founded a bit from the outside but actually a lot inside committing to promote that talent. When the talent was ready, even if that happened to be in a quarter that was slow. If you look at the SMD headcount in Strat Com today, 2/3 of the SMDs are new within the last 5 years, promoted during good times but also with conviction during slow periods. It is that sort of conviction that has allowed us through the various flat periods and the zags to always return this business to its powerful growth trajectory and why we have so much conviction in it going forward. Let me try to take the same principles and apply them to the businesses that have faced challenges this year. As you know, Tech is having a tough year and the Compass Lexecon business and E Con has been hit substantially this year on the top line but even more on the bottom line. The questions we look at always when we have base businesses like that or two. First, do we have confidence in the team? Do we have confidence in the propositions that, that team is driving? And then second, depending on the first one, what did we do? And when Andersch was struggling in Germany, we looked at it. And we ended up saying, wow, this is a great team. Yes, okay, there's moratoria in bankruptcy. This is a great team. So we move to second question which is, okay, how do we support this great team and get it back on the growth trajectory that it deserves? And we have the same sort of discussions and questions when we looked at Australia and many of these other situations I talked about. So we applied those lenses to these businesses. When you look at the Tech business and you apply that lens, you say, wow, we've had the fastest organic growth in the industry in the last 5 years. You find a team that for a long time has been an early adopter of the most advanced technologies, machine learning and AI technologies, topics that are critical for the future. When you talk to our clients, particularly our most prominent clients, you hear people and they see us ever more as their go-to partner for the highest stakes, most complicated investigations, litigation, M&A-related second requests. I walk away from those thoughts and those conversations with the sense that this is a business that even if a quarter is slow, we should be not only investing in but be excited to invest in. When you look at Compass Lexecon, you see, yes, we look lots of rainmakers this year. But you also say that Compass Lexecon is still by far the leading brand in the industry. I think just 3 weeks ago or 4 weeks ago, we had 66 Compass Lexecon professionals named to Lexology's 2025 competition guide, of course, once again, by far the most of any firm. We see that no firm has the global scale that we have, not only in the U.S. and Europe but in Latin America and China. And when I talk with Dan Fischel in the European and American and Asian leadership teams, people acknowledge, yes, we've lost some rainmakers. I think collectively, the belief is that today, we have the best set of experts that this firm has ever had. We believe we do, by the way, we need to get out there and introduce some of these experts to the market, something Compass Lexecon has never been that focused on. But I think everyone in Compass Lexecon is extraordinarily excited about the talent we've been able to attract to the firm and its prospects. And so when we looked at these two businesses, we come to the conclusion that these are businesses, these are teams of propositions that are worth investing in. And so then you have to figure out what those investments look like. In the Tech business, it's meant first that we continue to go after talent. A number of our competitors in this industry are stressed and that always creates a good opportunity to go after talent, and use that talent to support geographical expansion or further movements into AI topics or other relevant business expansions. But in this case, at this point in time, it is clearly also meant continuing to make sure we are investing in Tech's leadership position in AI. And so this year, we've done those sorts of investments. We are on the course of the year, and we will continue to do so. In Compass Lexecon, the most important initial investment was in retaining our staff in the face of competitive pressures. More recently, what we found is a lot of terrific people wanted to join us. And so in addition to retaining the bulk of our staff, we've announced 28 new senior hires in Compass Lexecon this year, by far a record for Compass Lexecon. And a move that, of course, is a very positive thing for the medium term, but we also all know how that works out in the near term, which is the cost comes first and the revenue comes later. the set of results that you clearly see reflected in this quarter's P&L. We make these sorts of investments in Tech and Compass Lexecon and previously in Corp Fin and FLC and Strat Com for multiple reasons. We have three core constituents we have to make sure we'll keep in our minds. And so we make these investments for all three. First of all, it's important for our clients. Our brand position is to be the leaders serving our clients. So we have to continue to invest behind leading experts in leading-edge technologies. So we make our investments for clients. We also do it because it's important that our best professionals who are killing themselves in the market, know that we're willing to support them not only when the quarters are good, but during quarters that are challenging. We also do it with a view towards our shareholders, where we believe we have fabulous businesses or sub-businesses, where making these sorts of investments will allow them over time to resume what they've been in the past, great businesses who do have zigs and zags, but have zigs and zags around fundamentally upward sloping lines. Paul is eager to do his first CFO report, so let me close in a minute here. And let me close by coming back to the quarter if I can. $2.60 of EPS. $2.60 in the face of all the investments we are making and all those headwinds I talked about. Guidance for the year that suggests notwithstanding all those investments, notwithstanding all those headwinds, unless something goes unexpectedly wrong in the fourth quarter, this team will deliver the 11th year in a row of adjusted EPS growth. It's, of course, great to have a great quarter and it's nice to have another up year. As nice as those results are. And they're nice in and of themselves, of course, right? To me, what's far more significant is when you think about what we just discussed, the mechanisms that allowed us to get here. Because the power of those mechanisms that we've now seen across all of those segments, and not just this year but across all of those years and across multiple geographies, to me, suggests more than a good quarter or a year. They suggest resilience. They suggest underlying power and they suggest lasting power and extendability. To me, they leave me ever more convinced and, probably I didn't need that much convincing, but ever more convinced about the incredible potential of this enterprise going forward. It leaves me, and I hope, you believing that we are so much closer to the beginning of this journey that the company can be on than we are to the end. With that, let me turn this over to Paul. Paul? Paul Linton: Thank you, Steve. Good morning, everybody. I am pleased to take you all through a record quarterly performance during my first earnings call as interim CFO. But before I do that, before I turn to our results and updated guidance, I want to take a moment to thank my talented colleagues across the globe for their tremendous efforts that contributed to the quarter. And I also want to thank our strong finance team for their support and for making my transition quite smooth. As Steve said, we delivered spectacular results, record results on the top and bottom line at the company level with record performance in Corp Fin and FLC and solid -- as well as solid revenue growth in Strat Com, which more than offset year-over-year declines in E Con and Tech. You may recall in February when we shared our initial revenue guidance, we said that to meet the midpoint of our range, we would need to have strong revenue growth in each of our four other business segments because of the headwinds we expected in E Con. This quarter, we delivered on that. We reported double-digit year-over-year organic revenue growth when you combine revenue across Corp Fin, FLC, Tech and Strat Com. Year-to-date, we have delivered record top and bottom line performance in Corp Fin, FLC and Strat Com. And despite the headwinds Steve described in E Con and Tech, our adjusted EPS and adjusted EBITDA are up 9% and 8.3%, respectively, year-to-date, demonstrating the breadth and resiliency of our platform. Turning to our third quarter results in more detail. Revenue of $956.2 million increased 3.3% compared to the prior year quarter. Earnings per share of $2.60 increased 41% compared to the prior year quarter. Net income of $82.8 million increased 25% compared to the prior year quarter. SG&A of $199.5 million compared to SG&A of $206 million in Q3 of 2024, the decrease was primarily due to lower compensation and the gain related to a legal settlement, which was partially offset by higher bad debt. Year-to-date, our SG&A has fluctuated quarter-to-quarter due to some onetime benefits, particularly in the first quarter of 2025 and to a lesser extent this quarter. We currently expect our Q4 SG&A to be more in line with Q2 2025 level. Third quarter 2025 adjusted EBITDA of $130.6 million or 13.7% of revenue, compared to $102.9 million or 11.1% of revenue in the prior year quarter. Our third quarter effective tax rate of 25.9% compared to 25.1% in Q3 of 2024. For the full year, we expect our effective tax rate to be between 22% and 24%. Weighted average shares outstanding, or WASO, for the third quarter ended September 30, 2025 of 31.8 million shares compared to 35.9 million shares in the prior year quarter. Billable headcount decreased 3%, and non-billable headcount decreased 0.8% compared to the prior year quarter reflecting, in part, headcount actions we took in the fourth quarter of 2024 and the first quarter of this year. Sequentially, billable headcount increased 4%, which included 331 new joiners from university campuses, our largest class ever. Now I'll share some insights at the segment level. In Corp Fin, revenue of $404.9 million increased 18.6% compared to the prior year quarter. The increase was primarily due to higher demand for restructuring and transaction services and higher realized bill rates for our transformation and strategy services. We delivered double-digit revenue growth across all three of Corp Fin's core businesses with restructuring up 18%, transactions up 30% and transformation and strategy up 10% compared to Q3 2024. Adjusted segment EBITDA of $96.4 million, or 23.8% of segment revenue, compared to $57.9 million or 17% of segment revenue in the prior year quarter. This increase was primarily due to higher revenue, which was partially offset by an increase in variable compensation and SG&A expenses. In the third quarter, restructuring represented 46%, transformation and strategy represented 27%, and transactions represented 27% of segment revenue. This compares to 47% for restructuring, 28% for transformation and strategy and 25% for transactions in Q3 of 2024. Sequentially, Corp Fin revenue increased 6.8% driven by double-digit top line growth in transactions and transformation and strategy, while restructuring revenue was up 1%. Adjusted segment EBITDA increased by 18.1%, primarily due to higher revenue, which was partially offset by an increase in variable compensation and SG&A. Notably, year-to-date, our restructuring revenue is up 11% as our long-term commitment to investing behind the best professionals has allowed us to extend our position as a global leader. We are winning major mandates in key geographies, including the U.S., U.K., Germany, Spain, France and Australia, among others. We're also seeing increased activity with commercial banks and other types of lenders as some recent alleged fraud has created pockets of stress. These are situations where our strong restructuring relationships and leading investigation position in FLC mean that our experts get more than our fair share of calls for the largest, most complex mandates. Equally important, our transactions revenue was up 16% year-to-date, even though transaction volumes globally are down slightly. And because of the investments we've made over the last 5 years, we have broadened our services, and we are seeing, on average, much larger engagements than we had even a couple of years ago. Turning to FLC. Revenue of $194.7 million increased 15.4%, compared to the prior year quarter. This increase was primarily due to higher realized bill rates for risk and investigations, data and analytics and construction solutions services and a higher demand for risk and investigation services, which includes particularly strong growth in our EMEA region. Adjusted segment EBITDA of $42.6 million, or 21.9% of segment revenue, compared to $20 million, or 11.8% of segment revenue, in the prior year quarter. The increase was due to higher revenue primarily driven by higher realized bill rates and lower SG&A expenses, which was partially offset by an increase in variable compensation. Sequentially, revenue increased 4.4% primarily due to an increase in risk and investigation revenue. Adjusted segment EBITDA increased 36.6%, primarily due to higher revenue and lower SG&A. Year-to-date, FLC revenue is up 11% and adjusted EBITDA is up 62%. This improvement has been driven by leadership team efforts to bring a broader set of product offerings, including our ability to analyze complex data sets for our clients' most pressing problem. This is a leadership team that is committed to investing behind the best people, a team with an incentive structure, which you may recall we introduced last year that's closely aligned with driving profitability and, most important, a team that is partnering side-by-side with our clients as they navigate major disruptions that are often found on the front page. Our E Con segment revenue of $173.1 million decreased 22% compared to the prior year quarter. The decrease was primarily due to lower demand for non-M&A-related antitrust and M&A-related antitrust services, which was partially offset by higher realized bill rates for non-M&A-related antitrust services and higher demand for financial economic services. Adjusted segment EBITDA loss of $4.6 million compared to an adjusted segment EBITDA of $35.2 million, or 15.9% of segment revenue, in the prior year quarter. The decrease in adjusted segment EBITDA was primarily due to lower revenue and an increase in forgivable loan amortization, which was partially offset by lower variable compensation and salaries, which includes an 8.2% decline in billable headcount. Sequentially, revenue decreased 9.7%, primarily due to lower M&A-related to antitrust, international arbitration and non-M&A-related antitrust revenue. Adjusted segment EBITDA decreased $18.7 million, primarily due to lower revenue. We issued $18 million in forgivable loans net of repayments this quarter following $72 million and $162 million in forgivable loans to existing and new employees and affiliates net of repayments in Q2 and Q1, respectively. The majority of these loans are in our E Con segment. Forgivable loan amortization generally ranges from 3 to 6 years. As Steve said, our E Con business has faced significant headwinds this year. And 9 months into the year, the headwinds have been even more challenging than we expected at the start of the year for several reasons. First, the cost to retain professionals was even more competitive than we anticipated. Second, we attracted even more great professionals, which had a larger cost impact than we expected. Third, the antitrust market has been weaker than we expected this year, particularly in EMEA, where we have had some large jobs continue to wind down, but we have not been impacted by competitive pressures. And fourth, we have legacy revenue that continues to ramp down at a time when revenue from new professionals is ramping up more slowly. From a cost perspective, we believe we have stabilized the business as the cost of retaining and attracting new professionals is now reflected in our P&L. In Tech, revenue of $94.1 million decreased 14.8% compared to the prior year quarter. The decrease was primarily due to lower demand for M&A-related second request and information governance, privacy and security services. Adjusted segment EBITDA of $13.6 million, or 14.5% of segment revenue, compared to $16.5 million, or 14.9% of segment revenue, in the prior year quarter. The decrease was primarily due to lower revenue, which was partially offset by a decrease in compensation, which includes lower as-needed consultant costs, as well as lower SG&A expenses. Sequentially, revenue increased 12.5% as we saw an uptick in demand for M&A-related second request services. Adjusted segment EBITDA increased $8.4 million, primarily due to higher revenue and lower SG&A expenses, which was partially offset by an increase in compensation. Worth noting, nearly all of the revenue decline year-to-date in our Tech segment has been driven by lower demand for M&A-related second request services. As a reminder, we delivered record second request services in the first 3 quarters of 2024 before we saw a sharp drop-off of activity in Q4 2024. Revenue in our Strat Com segment of $89.4 million increased 7.4% compared to the prior year quarter. The increase was primarily due to higher demand for corporate reputation services with particular strength in our crisis, people and transformation and cyber services, reflecting increased demand for our expertise during these times of disruption and pain. Adjusted segment EBITDA of $16.9 million, or 18.9% of segment revenue, compared to $12.1 million, or 14.6% of segment revenue, in the prior year quarter. The increase was primarily due to higher revenue and lower SG&A expenses, which was partially offset by an increase in variable compensation. Sequentially, revenue in Strat Com decreased 12.9%, primarily due to an $8.3 million decline in pass-through revenue and lower financial communications and public affairs revenue. Notably, adjusted segment EBITDA only declined $1.6 million as the decline in revenue was largely driven by lower margin pass-through revenue. This was partially offset by lower compensation and SG&A expenses. Year-to-date, Strat Com has delivered record revenue and adjusted EBITDA. Let me now discuss key cash flow and balance sheet items. Net cash provided by operating activities of $201.9 million for the quarter compared to $219.4 million for the prior year quarter. The year-over-year decrease in net cash provided by operating activities was primarily due to lower cash collections and an increase in income tax payment, which was partially offset by lower operating cost expenses. During the quarter, we repurchased 1.426 million shares at an average price per share of $164.18 for a total cost of $234.1 million. After quarter end, we repurchased 469,610 shares at an average price per share of $160.23. As you may have seen in our earnings press release, our Board of Directors authorized an additional $500 million for share repurchases. Cash and cash equivalents of $146 million at September 30, 2020 compared to $386.3 million at September 30, 2024 and $152.8 million at June 30, 2025. Total debt, net of cash, of $364 million at September 30, 2025 compared to $317.2 million at June 30, 2025. The sequential increase in total debt, net of cash, was primarily due to share repurchases. Now turning to our guidance. Given the stronger-than-expected performance in the third quarter, we're updating our full year 2025 guidance for revenue and EPS as follows. We now estimate revenue will range between $3.685 billion and $3.735 billion, which compares to our previous range between $3.66 billion and $3.76 billion. We now estimate EPS will range between $7.62 and $8.12. And we now expect adjusted EPS will range between $8.20 and $8.70, which compares to our previous range of $7.80 to $8.40. The variance between EPS and adjusted EPS is related to the special charge in the first quarter of 2025. Our guidance is shaped by several key considerations. Fourth quarter is typically a weaker quarter for us because of a seasonal business slowdown as our clients and professionals may take time off during the holidays, especially after such a busy year in many of our segments, particularly Corp Fin and FLC. Second, while we believe we have stabilized our E Con business from a cost perspective and we expect a gradual return to revenue growth over the next several quarters, the timing of this improvement is not yet certain. Third, we continue to welcome top-notch senior professionals, and we expect to build teams behind them. Year-to-date, we have announced 79 SMD and affiliate hires, which compares to 33 and 39 announced hires in 2024 and 2023 over the same time period, respectively. And finally, our assumptions define a midpoint and the range of guidance around that midpoint. We recognize that actual results can be beyond that range. Before I close, I want to reiterate four key themes that I believe continue to underscore the strength of our company. First, as the result this quarter demonstrate, we have a set of businesses that are uniquely diverse and resilient. Despite the major headwinds we've had this year in E Con and Tech, our company as a whole delivered not just strong but record performance this quarter. Second, we believe that the deep expertise of our professionals is what sets us apart. The expertise of our people allows them to be ever more in demand by our clients as they navigate complex and ever-increasing dislocation globally. Third, we remain committed to attracting the best people when they are available, irrespective of short-term headwinds. These key senior hires span across the company including antitrust, transactions, financial services, cybersecurity, risk and investigations and corporate reputation. And fourth, our balance sheet remains strong. We have the ability to boost shareholder value, first and foremost, through organic growth, as we have shown, through acquisitions when we find the right fit and, of course, by repurchasing shares as we have done this year. With that, let me turn it back over to Steve. Steve Gunby: Thank you, Paul. Before we go to the questions, just in case some folks on the call don't know Paul. Paul has been here for 11 years. He's been a key member of the Executive Committee, one of my right-hand folks. We hired him in 11 years ago, shortly after I joined, I guess, as the Head of Strategy, and he's been a key contributor in 11 years since as this company has soared. I was so pleased that he volunteered to serve as Interim CFO, although he does claim I voluntold him. But either way, Paul thank you for taking on the role. Let me also take one moment to thank Ajay Sabherwal for 9 years of real dedication here at FTI. He has contributed a lot and his commitment to this firm and helping it reach its potential was always evident. I'm looking forward to seeing him tonight and seeing him going forward, and all of us wish him best in his next endeavors. With that, let me open the floor for questions. Operator: [Operator Instructions] Today's first question comes from Andrew Nicholas with William Blair. Andrew Nicholas: I wanted to start on Economic Consulting, and I apologize, a multi-parter here. I guess trying to understand if you could unpack how much of the top line performance in the quarter was maybe market-driven versus some of the talent dynamics that you mentioned. Also with costs having now stabilized, is there still conviction in EBITDA for that segment bottoming in the second half of this year? And then lastly, any impact that you expect from the U.S. government shutdown? Steve Gunby: Okay. Let me -- got the U.S. government shutdown, EBITDA bottoming. Remind me the first one there, Andrew, by the time I wrote it... Andrew Nicholas: Yes. How much of the revenue kind of decline you'd attribute to just broader market conditions versus some of the talent transition going on this year? Steve Gunby: Yes. If I had to guess on the first one, it'd probably be, I'm guessing, 2/3 to the talent transition and 1/3 towards market conditions, but that's a guess. We can -- if I'm way off, we'll correct that, but I think that's close enough to I guess in a different place, Paul. U.S. government, very hard to say. We are getting in our businesses still leads for things. I think whether that is because people believe that government will not be shut down long or whether -- so if there's an extended shutdown, you have to believe it starts to affect things. But so far, we haven't seen much effect is what I would say. Has the EBITDA bottomed out? I think you correctly got a sense that the bulk of the costs are now reflected in this. I think what we have is a war going on between the runoff of the legacy work and how fast we can generate new work and how fast the markets that were slow come back. I would say I'm cautious about that. I don't think we can commit to this having been a bottoming out yet. I think we've done a great job of adding talent. It turns out that Compass Lexecon has never really marketed itself before. And so we're finally starting an effort to make sure that the market knows all the talent is out there. And then the market has to know that the talent is with us now and then you have to get the initial lead and then there's senior time, and then eventually you get the big work with the junior time that you make a lot of money on. And so that's a multi-quarter type of thing to get the realization on all the new people. I would say a lot of the legacy work has run off, but there's still stuff to run off. And so the war between those two, I'm not quite sure. It could be trumped by whether the markets come back faster or slower than us. So I think you don't want to count on an immediate turnaround in EBITDA, although there's always fourth quarter effects also in Compass Lexecon because the law firms collect at the end of the year and we get collections and so forth. So there's a lot of noise in the fourth quarter. The way I'm thinking about this business is I am fundamentally really positive over it in the multiyear time frame. Now what the first half of next year looks like and how fast it starts to turn around is still a question where we're working through. Does that at least give you a sense, Andrew? Andrew Nicholas: Yes. No, that's helpful. I appreciate you handling or responding to all the different pieces of my question. Next one is just on the transactions practice. Could you unpack that strength a bit further? How much is market-driven versus some of the operational or execution momentum that you described in your remarks, because I think that's one of the higher quarters in that practice that certainly we've seen. So any more color there would be great. Steve Gunby: Yes. That one, and maybe Paul has better data than I do. My sense qualitatively is the bulk of that is our bloody team. I got to tell you, it's really fun to see. And certainly, the bulk of it over the last few years, when the markets weren't growing and we were is because of really good leadership and just leadership throughout the ranks of the team, not just the guy running it was terrific, but also throughout the ranks. Just it's a great team that has conviction in their propositions. They've been out in the market. And where we've gotten trial with people, people want to buy more. And then as I think Paul mentioned, what we have done is, as we first -- years ago, we had no credibility in this space. And then you build credibility. And as you have credibility, it gives you the opportunity to introduce other services. And so that's what's happened this year. I mean, I'm not sure whether the jobs are up as much as the size of the jobs because we're now credible with people, and we introduce other services. And people say, wow, you're good at that too. Look, there's going to be zig-zags in that business because it's driven by market, but I am fundamentally bullish about that over the next years. Andrew Nicholas: Great. And then maybe last one for me. Just on FLC, another really good quarter despite what I think are maybe some more challenging end market conditions. As I understand it, some of that is incentive driven and some of the changes that you made internally, also price realization. On the price piece specifically, is that something that you think can continue into next year or even multiple years from here? Or should we think about that kind of rate increase dynamic being more kind of specific to '25? Steve Gunby: Let me answer that two ways. I think, look, we have rate potential across our business, across every segment still there. I mean, if you look at the major law firms that we have been working with, they over the last 5 years have raised their rates way more than we have. And so we are engaging in catch-up. Having said that, I would say the FLC team this past year made a major catch-up. So I wouldn't want people to say, oh, that sort of catch-up is something that we can do every year. What we can do is to continue to build on it, but it would be more likely in a more modest way than it's shown up in the numbers this year. Does that help? Andrew Nicholas: Yes. Operator: And our next question today comes from James Yaro at Goldman Sachs. James Yaro: Steve, I wanted to touch a little bit on the impact of AI on your business. Perhaps you could just touch on which businesses are impacted. And then if you could possibly maybe differentiate between positive and negative impacts when you discuss the various businesses. Steve Gunby: Yes. Look, can I maybe frame that a little bit at a higher level and then come back to your question? Look, I've gotten into AI as any CEO has. And one of the most interesting quotations I ever saw was by Bill Gates about all new technologies. And what Bill said 30 years ago was that every new technology -- fundamental technology has followed the same pattern. It's ignored for a while, then there's immense hype. The hype is overhyped for a lot of people. It's going to change your life, James, and how you raise your children in the next 2 weeks. And then the disillusionment sets in 18 or 24 months later. And I think we're seeing that pattern with AI. Now the other point that he made is, and it's when the disillusionment sets in that the real revolution begin. And you saw that in the Internet when the initial Google and Facebook and Uber, these were not things in the first few years. These were things for people who persisted and rethought and rethought and rethought that created the world. It's a big -- I think this is what's happening with AI now, the disillusionment setting in. It's obviously been transformative for NVIDIA. But I think the standard statistic is for 80% of companies out there right now, they're not seeing any impact, positive or negative from their investments in AI. We are seeing impact and we're seeing positive impact. We haven't found much tremendous impact yet on our internal operations and cost out, that sort of stuff that people search. Where we're finding it is in our client work. And it's different types of things. We've developed some tools that are powerful tools that help enhance our position in large-scale investigations. These are tools that we call Ariadne and IQ.AI, and that's just really part and parcel of us being able to deliver on what we've historically been able to deliver and just do it in superior ways. We have started to get some major new work, some of it is small, but some of it is major new work, where we have been called on to help investigate where AI algorithms have potentially been used by major institutions in ways that violate regulatory stature. And I think we are leading edge in our ability to do that sort of work. And we've had some pretty big assignments in that. And then we are being called more smaller early-stage things to help do like either communications around AI strategies or early-stage assessments of what AI could do to the strategies of various businesses. It's not yet, I would say, cumulatively across the whole enterprise. It's not transformative as a part of these economics, but I think it is the prelude for transformative going forward. And we're pretty excited about our position in -- by making sure we're staying attached to it, but also as our Tech team has done really well of trying to position ourselves as the people who can demystify it and find the real applications, the real use cases that make a difference and avoid the pitfalls. And I think that's where we're trying to take it. Does that help, James? James Yaro: That's really helpful. Just maybe one clarifying question there as this is a question that I do receive a lot. So I think you walked through a lot of the positives that AI could potentially generate for the business over time. I just want to make sure that I understand and get your thoughts. So you're not seeing today or expect in the future much in the way of any sort of negative impact on billable hours across the business. Steve Gunby: Look, I think you would expect, of course, look, I think back in the day, and this is before your time but also before mine, James, when accountants were totaling up spreadsheets and then Excel was created, the number of accountants needed to total down the column and across went away. Any new technology changes the work required and changes some of the commodity elements of the work. And we are constantly monitoring that across our business. I will say that I would feel more worried about that if I had 25:1 leverage businesses with primarily junior people. Our business is experts in court testifying or experts doing like the Red Adair stuff, flying on a -- Doyle -- I think it was analogous to Red Adair, the guy who flew on oil derricks when they're on fire and put out the fire. That's not a commodity while maybe building an oil derrick is. And so I think we're going to be positioned really well. But of course, we're always looking for ways to substitute technology for hours and create efficiencies and figuring out ways to price those things for our clients. Does that address that part of the question, James? James Yaro: That's really helpful. Just one last one for me. Maybe just on the restructuring side of things. I think if I calculate it correctly, you reached another all-time high this quarter, which is obviously very positive. Maybe you could just help us think about the outlook for this business going forward. Bankruptcies have continued to tick up modestly off admittedly a low base and your business continues to grow. Paul Linton: Yes, maybe I'll take that one. So yes, quarter-over-quarter, we were up about 1%. So the business continues to be quite strong and we continue to see, as I said, strength in multiple geographies, which we think will continue to position us for some of the larger mandates, both creditor side as well as company side. So I think we think the market will continue to benefit us as we continue to maintain or grow share there. Operator: And our next question today comes from Tobey Sommer with Truist. Tyler Barishaw: This is Tyler Barishaw on for Tobey. I want to go back to Economic Consulting. How should we be thinking about the margin level for next year in that business? Steve Gunby: We should think about it hard. This is what I would say, Tyler. Look, there's so many dynamics of that business. I can't give a prediction next year. I mean, I don't think we typically give predictions at the segment level and certainly not now for next year. I think it's so much the right question. I think what I would say is I have a lot of confidence in the multiyear trajectory of that business. We wouldn't have been making all these investments this year. How quickly we turn it around is a real question. And I wouldn't get overly bullish. But I wouldn't be overly cautious about the multiyear trajectory for that business either. Does that at least help a little bit, Tyler? Tyler Barishaw: It does. What about headcount growth? Should we expect similar levels of headcount growth across the whole business for next year as well? Or maybe some trends you're seeing into fourth quarter would be helpful. Steve Gunby: Look, I think this year, the headcount growth year-over-year is lower than we have historically done. I mean, we are -- we have had the same strategy, but different years, different things happen. And if you remember here in the fourth quarter and the first quarter, we stressed some certain underperforming positions and so forth. And so I think our headcount growth year-over-year here is among the lowest since I've been here. We haven't changed our fundamental headcount growth story. I think if you heard my -- I hope you heard my opening and I hope you communicated a sense of conviction and bullishness about the future of this company. So we have to grow heads. Now how we differentiate that among segments and subsegments by geography depends a lot on individual circumstances and whether we're long in some headcount or short in some headcount. So I probably can't go into the individual subpoints. But if you wanted to go back to our longer-term history to project headcount growth for the majority of the world, that's probably a better prediction than using the last 12 months. Does that help, Tyler? Tyler Barishaw: It does. Steve Gunby: Let me say thank you all. I think we went over a couple of minutes. Thank you all for your continued attention, and we look forward to taking this company forward. Thank you. Operator: Thank you. This concludes today's conference call. We thank you all for attending today's presentation. You may now disconnect your lines, and have a wonderful day.
Jutta Mikkola: Hello, everyone, and welcome to Stora Enso's Third Quarter Results Presentation. I'm Jutta Mikkola, Head of Investor Relations, and I'm joined today by Hans Sohlstrom, our President and CEO; and Niclas Rosenlew, our CFO. The theme for today is good progress in a challenging market environment, which indeed we have done. We'll start with Hans, who will walk us through the key highlights and strategic focus areas. After that, Niclas will take you through the financial performance, and we'll wrap it up with the main takeaways and key focus for the rest of the year '25. Once we are done, we'll open the floor for your questions. Thank you for being here with us today. Hans, over to you. Hans Sohlstrom: Thank you, Jutta. In the third quarter of 2025, despite ongoing challenging markets and subdued demand, we remain focused on the areas within our control, driving progress where it matters most. However, before looking more closely at the third quarter highlights, I would like to announce changes in Stora Enso's Group leadership team. Micaela Thorstrom has been appointed Executive Vice President, People and Legal, General Counsel, as of 1st of January 2026. Micaela has been part of our group leadership team since 2023, serving as Executive Vice President, Legal and General Counsel. Furthermore, Niclas Rosenlew, our Chief Financial Officer, will assume additional responsibilities and represent the Communication and Brand organizations on top of his current duties. I want to congratulate both Micaela and Niclas for their new and extended roles. Then we are ready to look more closely at the quarterly highlights. We have taken important steps to build a stronger and more competitive Stora Enso. A major milestone in the quarter was the completion of the divestment of approximately 175,000 hectares of forest land in Sweden, representing 12.4% of our total forest holdings in Sweden. The transaction with an enterprise value of SEK 9.8 billion, equivalent to approximately EUR 900 million and in line with forest book value, strengthens our balance sheet and improves our financial flexibility. The deal includes a long-term wood supply agreement to Stora Enso. This strengthens our cash flow and reduces net debt, which is a key priority for us. We also made progress on the strategic review of our remaining 1.2 million hectares of Swedish forest, including the assessment of a potential demerger and public listing. This review is central to unlocking further value for our shareholders, as well as strengthening our growth and business focus in both forest and renewable packaging businesses. We'll share updates as that process moves forward, aiming at Capital Markets Day later this year on November 25. On profitability, we continue to act proactively to improve margins. These measures are essential as we navigate challenging market conditions and subdued consumer sentiment. Adjusted EBIT for the quarter was EUR 126 million. Excluding the EUR 45 million impact from the Oulu consumer board ramp-up, profitability would have been comparable to the same quarter last year, reflecting a stable underlying performance despite persistent market headwinds. And finally, on sustainability, we launched a science-based framework together with IUCN to advance nature-positive forestry practices. This is an important step towards our long-term environmental goals. As we all know, market conditions have been challenging. Therefore, we have intensified our actions to improve profitability. But it's important to emphasize that these efforts are not new. We have been acting on these priorities for a good while now. Since 2023, we have been very clear on our strategic focus; improving profitability, driving performance and shaping the portfolio for long-term strength. This has been our new way of working proactive, not reactive, so we can stay ahead of market turbulence and rapidly changing global trends. On fixed cost reduction, we launched significant cost-saving programs in 2023 and 2024, totaling over EUR 230 million of savings. These include structural efficiency measures, site closures and divestiture across business areas and the group. Operational efficiency has been another key focus. We have implemented FTE reductions, cut external spend and driven value creation initiative across the whole company to streamline processes. Building a strong performance culture has been critical. More than 4,000 improvement measures have been identified with around 800 initiative team leaders, meaning that thousands of our employees are actively driving continuous improvement and cost savings initiatives across the company every day. We have also strengthened cash flow and working capital discipline, reducing operating working capital by about EUR 700 million and improving cash flow from operations. Going forward, we remain committed to disciplined capital allocation. Finally, on portfolio actions. On top of earlier closures and divestments, we completed the sale of 12.4% of our Swedish forest assets and continue the strategic review of the remaining assets in Sweden. At the same time, we are ramping up Oulu consumer board line and De Lier corrugated site to secure cost efficiency and competitiveness. This approach gives us resilience and flexibility. By acting early and decisively, we have not just reacted to market challenges, we are shaping our future and positioning Stora Enso to thrive in a rapidly changing world. And with that, let me give you an update on the Oulu consumer board line ramp-up. Stora Enso's new consumer packaging board line at the Oulu site in Finland has entered the production ramp-up phase earlier this year. While the project remains on track in terms of its original time line and the EUR 1 billion budget, the ramp-up process has progressed slower than initially anticipated, resulting in production volumes somewhat behind the original schedule. Nevertheless, we remain focused on reaching EBITDA breakeven by the end of 2025, which continues to be an achievable target. However, due to the slower-than-expected ramp-up, the EBIT impact for Q4 is now projected to be higher than previously anticipated, estimated at about EUR 15 million to EUR 35 million. Consequently, the full-year EBIT impact is expected to be in the range of EUR 120 million to EUR 140 million. It is important to emphasize that the Oulu investment is a long-term strategic move that will deliver substantial value for Stora Enso over time. This transformation of the Oulu site into a state-of-the-art consumer board production facility is a cornerstone of our strategy to lead in renewable packaging. This investment is not just about near-term volumes, it is about building a competitive platform for the next decade and beyond. As the ramp-up continues, we remain confident that Oulu will become a key driver of profitable cost competitive growth and a benchmark for sustainable packaging innovation. This year, we have seen some remarkable recognition for our design and innovation. Winning the Red Dot Design Awards 2025 underscores our ability to combine aesthetics, functionality and sustainability in everything we create. Our craftsmanship was showcased on the global stage at the World Ski Championships where we designed official medal boxes crafted from renewable materials, fully recyclable and even featuring braille for accessibility. This is not the first time we have been recognized by Red Dot. Earlier this year, we also received the award for our collaboration with Marimekko on a scalable, recyclable gift packaging portfolio. One of the most exciting milestones is our contribution to Atlassian Central in Sydney. Once completed, it will be the world's tallest hybrid timber tower, and the heart of this achievement is massive timber solutions. It's a powerful demonstration of how engineered wood can transform urban skylines while reducing carbon emissions. Closer to home, October brought us the Finlandia Prize for Architecture for our new headquarters at Katajanokan Laituri in Helsinki. This award celebrates not only architectural excellence, but also our leadership in sustainable building practices. Together, these achievements highlights how innovation and responsibility go hand-in-hand in shaping the future of construction. That concludes our review of the key highlights for the quarter. And I'll hand over now to Niclas, who will take you through our financial performance. Niclas Rosenlew: Thank you, Hans, and hello, everyone. During the third quarter, as Hans already mentioned, our own actions resulted in good progress in a market with subdued demand and low consumer confidence. Delivery volumes were relatively low, particularly in containerboard and biomaterials. Sales increased by 1% to EUR 2.3 billion, mainly due to the contribution of the Junnikkala acquisition and the consumer board line ramp-up at the Oulu site. While market conditions continues to be volatile with low demand, we focused on the areas within our control. On that note, adjusted EBIT for the quarter was EUR 126 million. And as Hans mentioned, excluding the EUR 45 million impact from the Oulu ramp-up, profitability would have been comparable to the same quarter last year, reflecting a stable underlying performance despite persistent market headwinds. This we can see clearly when looking more closely at the EBIT bridge for Q3. Overall, adjusted EBIT decreased by EUR 49 million compared to last year, primarily due to the ramp-up of the new line in Oulu. As said, Oulu had a negative impact of EUR 45 million. In the other bar, where you can see the Oulu impact, you can also see the absence of a EUR 10 million insurance compensation that was received last year in the Wood Products segment, along with some other smaller movements. Looking at the other components, the picture is relatively stable. Given how volatile the markets have been, we are quite pleased with this, as it reflects the result of disciplined execution of our strategy and profit improvement actions. Price/mix contributed positively with EUR 12 million, partly offset by a smaller negative impact from lower volumes. Variable costs were flat as higher fiber costs were offset by lower energy and chemical costs. Fixed costs decreased by EUR 30 million, driven by strong cost control and lower maintenance compared to last year. And FX had a negative impact of EUR 20 million. If we then turn the focus to cash flow, despite the challenging market environment, we managed to safeguard profitability and improve cash generation. Cash flow after investing activities turned positive as expected, following the gradual completion of the investment phase in Oulu. I want to note that in this picture, which shows the operational cash flow after investing activities, the proceeds from the Swedish forest divestment, so the 12% divestment are not included. These proceeds were received in Q3, but they are recorded further down in the cash flow statement under divestments. And on that note, let's take a look at the net debt. Net debt decreased by almost EUR 800 million to EUR 3.2 billion during the third quarter, reflecting the positive impact of the forest asset divestment. The ratio of net debt to the last 12 months adjusted EBITDA is now at 2.7x after being above 3 for most of the past 2 years. As the intensive strategic CapEx phase of the last 2 years nears finalization and profitability gradually improves, net debt levels and the ratio are expected to improve further. Operating working capital to sales was around 8%. That is at similar levels to the last few quarters. We intend to keep operating working capital at these lower levels and decrease it when possible. So, let's move on to the segment performance. Starting with Packaging Materials, where we continue to implement value creation actions during the quarter to mitigate the impact of the challenging market conditions. Sales declined mainly due to slightly lower consumer board prices and adverse currency effects from a weaker U.S. dollar. Adjusted EBIT decreased year-on-year by EUR 37 million, primarily due to the adverse impact coming from the Oulu ramp-up. In addition, fiber costs remained high and logistics expenses and trade tariffs increased, adding further pressure on profitability. These headwinds were, as said, partly offset by value creation initiatives. As order inflow weakened further during the quarter, we continued to manage capacity and cost levels in line with demand. In Packaging Solutions, we had a similar development, with market headwinds being offset by own actions. Sales increased slightly, with improved product mix offsetting a small decline in volumes. Adjusted EBIT increased year-on-year, supported by higher sales and improved margins driven by value creation initiatives. Despite persistent overcapacity, actions to enhance product and customer mix, combined with continuous cost efficiency improvements helped protect margins. So moving from packaging to Biomaterials. In Biomaterials, market conditions stabilized at low levels during the third quarter. Demand for hardwood pulp strengthened in both Europe and China, while softwood pulp demand in Europe remained weak. Sales decreased driven by lower prices and adverse currency movements, somewhat offset by higher volumes. Adjusted EBIT decreased year-on-year, primarily due to lower prices, but as said, stabilized at low levels. Cost reduction measures also helped mitigate part of the negative market impact. If we then move on to Wood Products, protecting margins has been a key priority mitigating the increase in raw material costs. Sales increased, driven mainly by higher prices and stronger volumes for sawn wood. However, EBIT declined, primarily due to increased sawlog costs in Central Europe and the absence of last year's EUR 10 million insurance compensation, which affects comparability. That said, price increases and value creation initiatives helped cushion the impact and protect margins. The construction market remained weak overall, but we did see improved demand for both traditional wood products and building solutions compared to the previous year. In Forest, sales increased, driven mainly by higher volumes and wood prices. However, EBIT declined slightly due to slightly higher costs. So in sum, Forest continued its stable and strong performance. I'll now hand it back to you, Hans, for the key takeaways and our focus for 2025. Hans Sohlstrom: Thank you, Niclas. Today, we have focused on profit, performance and portfolio, 3 pillars that guide our actions as we navigate a challenging market and position Stora Enso for long-term success and improved profitability. Profitability and cash flow remain top priorities, supported by company-wide initiatives in sourcing, operational efficiency, commercial excellence and cost optimization to ensure resilience and agility. We are finalizing the strategic review of our Swedish forest assets, including evaluating a potential separation and public listing to unlock value and sharpen our focus on core businesses. At the same time, we are ramping up production and leveraging the EUR 1 billion investment in new packaging board line at our integrated mill in Oulu, Finland, strengthening our competitive position in renewable packaging and advancing our ambition to lead in sustainable solutions. These actions are critical steps towards delivering shareholder value and navigating in tough markets. We look forward to sharing more at Capital Markets Day on the 25th of November in London. Thank you for listening. And we are now ready to take your questions. Operator: [Operator Instructions] Our first question will come from Cole Hathorn with Jefferies. Cole Hathorn: Could I start with the cost positioning that you -- well, the improved costs in the Biomaterials and Packaging Materials division. The cost per tonne has come down. You talk about efficiencies. Are we right to assume that this is your internal actions that have supported the lower cost per tonne rather than lower pulpwood or wood costs feeding through into the business sooner? So that's just the first question, if it's internal actions. The second one is around the Packaging Materials business and particularly consumer board. We've got a lot of oversupply in the market. And I'm just wondering how Stora Enso is thinking about that strategically. You are the market leader. How do you think about improving operating rates as you ramp up Oulu versus the price dynamics of the market? Are you still considering, or are you evaluating capacity out in the industry? Hans Sohlstrom: Yes. Thank you very much, Cole. So first of all, about the cost improvement actions, they are internal actions throughout the whole company. And we have started this very proactive systematic work on reducing our cost base, both variable as well as fixed cost since 2 years back. We are going to give some updates about this in the CMD on the 25th of November, some tangible examples of the way we are working, but it's significant cost reduction results throughout the whole company. And this is not a project. This is our new way of working. This is a continuous improvement work. It's our new culture where basically we have identified over 4,000 profit improvement actions throughout the whole company in every unit, every middle, every single part of the organization. And we have 800 project initiative team leaders working on these. So, we have thousands of people actually actively working on cost improvement actions and profit improvement initiatives as we speak. It's not a project. It's our new culture, and it's a continuous way of working. When it comes to your question, Cole, about consumer board, we know that there is in Europe alone, 1 million tonne of higher cost consumer board capacity than our most expensive, most highest cost line. We also know that we have in consumer board, the most cost-efficient capacities in Europe today. So currently, we don't have any plans to consolidate or close capacity. I'm sure there is considerations in our industry for those who have negative cash flow, for instance. Cole Hathorn: Then maybe just as a follow-up. I'd like some color on what are you seeing from a demand and order book perspective? And could you give some color between containerboard? And then within consumer board, what you're seeing the difference in kind of the traditional folding boxboard as well as your liquid packaging? Hans Sohlstrom: Yes. So first of all, year-to-date, we have increased our top line by 5%. So, we are growing as a company. And also in the last quarter where demand was rather subdued, we grew 1% and we are quite determined to continue growth. We have invested in growth in the Oulu consumer board line, as well as also we have the De Jong corrugated site, which is in a ramp-up phase still. So, thanks to earlier investments, we have cost competitive state-of-the-art capacity that we are ramping up in order to ensure also continued growth for the future. And when it comes to consumer board versus containerboard, I would say that our operating rates in containerboard are quite high. And as you also know, from a global supply and demand perspective, especially kraftliner, which is our strength, our core area in containerboard, that is actually a market where the global supply and demand situation is the best. The market is the tightest. And when it comes to consumer board, we have very cost-efficient, high-quality capacity that we are currently utilizing and then also ramping up in Oulu. Operator: Our next question will come from Andres Castanos with Berenberg. Andres Castanos-Mollor: Can you please help me understand why did you book a gain of EUR 140 million with the forest asset sale, if this was a sale that was done in line with book value? And also, what is your current view about the deferred tax liabilities associated to the historical appreciation of the assets that you sold? What will be the treatment in your view? Niclas Rosenlew: Sure. And it is a bit of a complex accounting issue, but the sale of the 12% was in line with book value. And there was a portion in the book value, which is deferred tax liabilities. As you said, the sale was tax-free according to local tax rules. We sold the company, not the assets. And therefore, from an accounting perspective, we then kind of canceled the deferred tax liability and that portion was then going into the P&L. So it's more of an accounting technical topic. Operator: Our next question will come from Charlie Muir-Sands with BNP Paribas Exane. Charlie Muir-Sands: There's been quite a lot of talk in the industry about falling pulpwood prices and some mixed messaging around log pricing. I just wondered what you're seeing specifically yourselves at the moment and how soon you would anticipate it manifesting, in your opinion, if there are movements? Secondly, I appreciate you're going to give us an update on the possible forest spin-off at the Capital Markets Day. But can you share any early thoughts on what you see as the relative pros and cons of making such a transaction? And then just on De Lier finally. The ramp-up there, you haven't quantified what the profit drag is unlike Oulu. I wondered if you could put any numbers around that? And also, is the constraint for the De Lier ramp-up technical? Or is it that it is constrained by market demand conditions? Hans Sohlstrom: Thank you very much, Charlie. So first of all, wood costs have come down in the Nordics, both in Finland and Sweden since the peak in the summer. However, before they are visible in our P&L, there is a time lag. And actually, in the beginning, there is a negative impact because the inventory values of our wood inventories comes down. But there will be with a time lag of a few months, there will be, of course, a positive impact of lower wood costs in the Nordics. Concerning the forest, the Swedish forest spin-off, 1.2 million hectares in total. I would say that the clear plus is -- and that's also one of the main objectives, shareholder value creation. I mean, we clearly see that now after the sales of 12% of our Swedish forest land, the total value of all our forest holdings is EUR 10.50 per share. And the whole idea here is to unlock value for our shareholders, as well as also being able to focus on the very different businesses of creating value and profits in a forest business, as well as creating value and profits in industrial activities, renewable packaging and biomaterials businesses. Regarding the De Lier markup, the bottleneck is the market. So it's demand. We are gradually increasing volumes there. But of course, in an oversupplied market, it takes time. Charlie Muir-Sands: Got it. So far, you've not identified any cons in terms of the possible price spinoff. Hans Sohlstrom: Can you think about any, Niclas? Niclas Rosenlew: I can't immediately at least. We'll think about it. Operator: Our next question will come from Pallav Mittal with Barclays. Hans Sohlstrom: Very quiet. Maybe we take the next question then. Operator: Our next question will come from Andrew Jones with UBS. Andrew Jones: Can you hear me okay? Hans Sohlstrom: Yes. Andrew Jones: Excellent. A few of my questions have already been answered, but just a bit of color on 4Q first of all. You mentioned that the fixed costs were down EUR 38 million in 3Q, mainly on seasonality. I'm curious like how much of that should come back in 4Q? And taken together all the other moving parts on costs, I'm guessing that the wood costs don't make that much of a difference in the 4Q given the lag. But can you talk us through like wood, energy, some of the other moving parts as to how you see costs evolving into the fourth quarter? And then separately, I've just got a question on FBB sales to the U.S. I mean, is that profitable now? Like how should we think about margins on sales there? Have you changed your sales mix as a result of the tariffs and the currency moves? Like how are you looking at the different markets for your boxboard at the moment? Niclas Rosenlew: All right. Andrew, I'll take the first one. So fixed costs, very much as we said and we've said before, I mean, we are working a lot on cost scrutiny. And this is nothing new. We've been on it for some time, but there's still a lot to do. So, not commenting specifically now on Q4, but even kind of further out. And that absolutely will continue. Specifically in Q4, we continue with the normal maintenance. Maintenance stops should be roughly similar cost to Q3. And then on wood cost specifically, very much, as Hans said, we have seen some downward trend. And now we talk about the Nordics, Finland, Sweden. It's different in Central Europe. But again, very much as Hans said, it comes with a delay and we talk about a quarter or 2 or so. When it first goes into the inventory valuation, inventory value actually goes down. It has a slight negative impact on the short-term result. But then, of course, over time, it should start to help the result. So in that sense, it takes a while and don't expect any major impact or positive impact in Q4. Well, I mean, logistics has gone up a bit, chemicals down a bit, energy down a bit. So it's a bit more of a mixed bag. Andrew Jones: So flattish sounds like the interpretation. Niclas Rosenlew: Flattish, yes. Well, again, not commenting specifically on Q4, but more what we've seen up until now and in Q3. Hans Sohlstrom: And when it comes, Andrew, to your question about folded boxboard and the U.S.A., I mean, we have been increasing prices in folded boxboard sales to the U.S. We have been able to compensate a clear majority of the 15% import duty. But on the other hand, of course, also, as we know, during this year, the U.S. dollar has weakened against the euro quite significantly. We are making positive margins on our business to the U.S., but very thin margins. That's where we are today. However, having said that, I do want to underline that if you consider our packaging materials, our board grades, our main board grades, so consumer board various grades as well as kraftliner and then I exclude recycled fiber-based testliner because that's a very local business. But if you look at consumer board and kraftliner, it's good to remember that the U.S.A. is a 4 million tonne net exporter around the world of these products. So if profitability of sales to the U.S. is challenged, there are also other opportunities around the globe to develop businesses. So, I think one of my favorite sayings is that every challenge is an opportunity. You need to also find the new businesses and the new opportunities, but we have not given up on the U.S. We continue to develop our business there. But of course, in order to improve margins, we need to increase prices further. Operator: Our next question will come from Linus Larsson with SEB. Linus Larsson: First, just to double check here, so we're not missing anything on Biomaterials. It was sequentially somewhat better in the third quarter, although prices were lower and I think your volumes were lower as well. So if you could just maybe elaborate just a little bit about what happened in the third quarter? I think we may have touched on part of it already. And just to make sure that we're not missing anything, any benefits which might not be there in the fourth quarter, please? Niclas Rosenlew: Yes, I'll start at least, Linus. And I mean, what we saw in Q3 was a stabilization at low levels and so stabilization. So, I would say no major movements there, volume, price that I can think of at least in terms of what to miss now going forward. Hans Sohlstrom: If I can build on that, Linus, so I think it's important when you consider our Biomaterials business. So, our market pulp business, we have -- the majority is cost-efficient eucalyptus from Veracel and Montes del Plata, as you know very well. And they are among the world's most cost-efficient pulp mills in the first quartile when you take, for instance, Safra's cost competitive -- cost capacity competitiveness considerations. So, great cash machines in every situation. And then the market pulp mills we have in the Nordics, so Skutskar in Sweden and Enocell in Finland. They are producing specialized niche pulps. So Skutskar, the majority is fluff pulp, where we are clearly the largest producer in Europe. Most of the fluff pulp in Europe is imported from the U.S.A. So it's a specialty pulp grade. And also in Enocell, we are gradually increasing the amount of specialized pulp grades, among others, unbleached kraft pulp for electrotechnical end uses and other special niches where you can get a better price compared to the volume grades. So, that perhaps also explains somewhat our position in Biomaterials. Linus Larsson: And if you compare the various units within Biomaterials, is there a material profitability difference in, say, the third quarter? Or are they all doing pretty well? Niclas Rosenlew: Again, we haven't really split out the profitability of every mill. I mean, as we've commented before, I mean, we very much look at -- I mean, each and every component, mill needs to be profitable, goes without saying, deliver positive cash flow. But of course, as Hans said, I mean, the South American operations are kind of absolute cost leaders. So no answer, Linus. No direct answer, at least. I hope it's okay. Hans Sohlstrom: Building on that, I would say that based on this product differentiation and specialization in the Nordics, I'm pretty sure that there are lots of pulp mills in the Nordics producing standard volume grades that are not doing as well as we are doing. Linus Larsson: That's helpful. And then just one more follow-up on Oulu. And maybe if you could just briefly touch on or give an update on your commercial plans for the output from Oulu, 750,000 tonnes, that's a big amount of paperboard. Where will you allocate those volumes? And have plans possibly changed from your original plans? Hans Sohlstrom: Well, Linus, first of all, I think it's important to remember that the line will be, as we have said from the beginning, fully ramped up and in full capacity in 2027. So also next year will be a year of gradually increasing production and sales volumes. Quality is good, really good. We have received very good customer feedback. It's also important to remember that that Oulu is not producing only folded boxboard. It's also producing CKB, for instance, where there are only 2 producers in Europe. We are producing CKB on 3 production lines, and then there is a competitor producing on only one small production line. So it's not only folded boxboard. We also have some other consumer grades in the Oulu production unit. Then also, I want to remind everyone that Oulu is not only for us an increase in carton board capacity because we are also transferring carton board volumes from our liquid packaging board mills, for instance, Skoghall into Oulu, which gives us an opportunity to grow in liquid packaging board. So basically, Oulu is providing opportunities for us to grow in all the product areas we have within consumer board, both carton board, liquid packaging board, food service board and so on. And when it comes to our sales plans, so, of course, I mean, our job is to maximize profitability. Our job is not to follow a certain plan, but to maximize profitability in every situation. And therefore, as we discussed before, it's clear that the margins in the U.S. because of the 15% import duties are thinner than what we anticipated before the tariffs came in place or the plans for import tariffs came in place. And we are actively looking to maximize profitability by optimizing our market mix and our customer mix as well as product mix. So, we really look to place those volumes wherever we can maximize profitability and value. Niclas Rosenlew: So it's not any board, it's the best board. Hans Sohlstrom: Well said. Thanks, Niclas. Operator: Our next question comes from Pallav Mittal with Barclays. [Operator Instructions] Pallav Mittal: Can you hear me? Hans Sohlstrom: Yes, we hear you, Pallav. Good to hear you. Pallav Mittal: Sorry about that. Some technical issues at my end. A couple of follow-ups on some comments that you've already made. So firstly, on Oulu, I appreciate all the commentary that you have made and clearly, volumes you have highlighted are currently running behind schedule. So, what gives you confidence that you are still on track to reach full capacity by 2027, especially given the overcapacity issues in Asia? And then secondly, in the third quarter, EBIT, you have almost 30 million-odd fixed cost savings, and these are your cost savings program over the last couple of years. Can you help us understand how much of those 2 programs is already in the numbers so far? And how should we think about further improvement in Q4 and also in 2026? Hans Sohlstrom: Yes. Thank you very much, Pallav. So if I take the first question and Niclas, the second one. So first of all, Oulu, I mean, we are ramping up. And I would say that especially the last months have been very encouraging in terms of optimizing the production processes there. And that gives us really confidence that we will be able to reach the full capacity from a production perspective in 2027 as we have forecasted. Then, of course, with a relatively weak oversupplied market that also, in a way, restricts the speed of ramp-up and ramping up the volumes. Then you mentioned China. We were just last week in China. We know that what is happening in China is that, for instance, there is a lot of the local folded boxboard, which is called Ivory board, taking market share from higher cost recycled fiber-based grades, so what they call Duplex there, which we call testliner in Europe. We can see similar trends in Europe, folded boxboard, virgin fiber-based top quality carton board, taking market shares from recycled fiber-based white-lined chipboard. You can, for instance, with our folded boxboard, you can basically with 30% lower basis weight, you get better characteristics, product folding characteristics, printing characteristics, a cleaner sheet, better looking board than with white-lined chipboard. So, we see also migration there from the European 3 million tonne annual white-lined chipboard market into carton board. And in China, there is a 6 million tonne of white-lined chipboard or Duplex market that is gradually being substituted with the local folded boxboard. So, we cannot only look at the specific product segments as such. There is also important movements happening between these product categories. But now over to you, Niclas, for the second question. Niclas Rosenlew: On the costs, so what comes to the previous programs, more than EUR 200 million, they are done. But as I said earlier, we are very active in terms of looking at our competitiveness, our cost base throughout. So, we'll continue with scrutinizing fixed costs. We'll continue with scrutinizing variable costs. We have, as discussed earlier, we have the programs with more than 4,000 initiatives, 800-plus initiative owners and they continue. And they are now -- it's not a program. It's more of a culture. And that we intend to keep up and if anything, speed up. At the same time, -- as you know, we made a big organizational change in the summer, 1st of July. We have 7 P&L responsible BAs, 22 P&L responsible BUs. And then we moved some of the functions to cut across the company. And now there, we are taking the next step and looking at how do we make this new kind of construction to make all it so more efficient. And there's been some articles or some press picking up on some of our actions we are doing across, but that's just some of the actions we are doing a lot under the hood. And that's the whole idea. These are not programs per se, but we are day in, day out looking at how we make sure that we are competitive and create value for our customers. Operator: Our next question comes from Lars Kjellberg with Stifel. Lars Kjellberg: I got thrown out earlier due to power cut. Not helpful, but back on again. So essentially, a couple of questions for me still. Coming back to wood markets. Obviously, there's been an exceptionally tight market now in the Nordics. Now the industry certainly from the pulp and paper industry is not running full. Prices are starting to get a bit. But what is your thinking in an upturn in this market again in terms of the wood supply that is available? And in that context, coming back to what you said earlier, Hans, about maximizing profitability. can you operate everything, including your new assets from a wood supply standpoint on a competitive level? The other thing that you mentioned earlier was disciplined capital allocation going forward. I just wanted to understand what does that mean? You put in a lot of money on growth. You continue to talk about growth. And if I'm looking at some of the markets you serve, in particular the consumer packaging, there's no growth in this market since 2016. The volumes are the same. So, how should we think in that context, your focus on growth versus what's happened in the market and in the context of capital discipline what does it really mean? And the final point then. Holmen earlier today talked about stable generally prices on consumer boards for the contract business. But if you try to go after new volumes, there's a tremendous amount of pricing pressure. So the question is, what are you finding on that incremental volume that you're trying to place relative to the contract business in terms of pricing pressures? Hans Sohlstrom: Yes. Thank you very much, Lars. I'll let you take the second question, but a couple of comments. First of all, starting from your last question about pricing, yes, we see consumer board prices or board prices in general, stable. When we are now introducing our own new volumes to the market, very much we gain business, we gain volumes with yield advantage. Our folded boxboard, for instance, from Oulu has a 30% to 40% yield advantage compared to white-lined chipboard or SBS, some of the other board grades. So also with a higher price point for folded boxboard, you can basically prove to customers that the total cost of ownership goes down when they move to our grades instead of what they are using currently. Then regarding -- and also one point on growth. If you look at Stora Enso during the last 10 years, you will notice that our core packaging business has been growing an average 5% per year. That's the growth we can demonstrate since 10 years back in our packaging business. So yes, our top line has been about unchanged, around EUR 10 billion, but we don't have basically any printing papers anymore and we have a significantly bigger packaging business. So, 10 years ago, packaging and printing papers were roughly equal size, representing almost 40% of our total turnover each. And today, packaging is representing 60%, whereas printing paper is almost 0. When it comes to the wood costs and the supply and demand situation for wood in the Nordics, I think that we have seen here this year that the wood costs have reached the pain point, the pain levels. There has been significant curtailments in pulp capacity without mentioning any names of our competitors, but there have been very long curtailments, showing that when you are producing standard volume bulk pulp grades, it doesn't make sense to run at these higher wood cost levels. So, I think the proof is in the pudding, and we have seen that these levels basically forces the volume producers of pulp to take curtailments and shutdowns, extended shutdowns. And as I said, since the summer, we have seen wood costs now moving downwards. But then over to you, Niclas, for the other part of it. Niclas Rosenlew: Yes. So Lars, on capital allocation, and this is something we'll come back to as well in the CMD, but as we all know, I mean, we've had over EUR 1 billion CapEx now for a couple of years. This year, we'll go down to some mid-700s and likely down from there somewhat. We've done a lot of work internally, thanks to great efforts by the team to kind of create -- really kind of categorize our assets, run for cash assets, key growth assets and so on. And we see that we can become more disciplined by just doing internally being very structured, having criteria, return criteria, of course, but also other criteria for where to allocate the capital when talking about CapEx. So, there has been a lot of work going on recently on this, and we'll come back and explain a bit more what it means in detail. But CapEx is now on a downward slope. And as Hans said here earlier and as you know, we have made quite significant investments. Oulu is one, of course. De Lier, De Jong is another. And now going forward, we, of course, need to show the results of these and reap the benefits of them. So, essentially kind of no major CapEx kind of initiatives here in the near horizon. We have what it takes essentially to -- sorry, we have what it takes to grow essentially. Lars Kjellberg: Yes. So in '26, what does that mean for CapEx? What do you think you're going to land roughly? Niclas Rosenlew: Let's come back to that. As you know, we are typically in the beginning of the year in connection with Q1. We'll give an idea of next year, but down from where we are this year. Operator: We have reached the end of the time for the Q&A session. I shall now hand back to Hans Sohlstrom and CFO, Niclas Rosenlew, for closing remarks. Hans Sohlstrom: Well, thank you very much for your attention. Thank you for joining this call. And just -- we are powering ahead. We are focusing on profit, performance, as well as our portfolio to maximize shareholder value. That's our ultimate goal to create the best possible value to our shareholders. Thank you very much. Looking forward to meet with you then in the next quarter. Bye-bye.
Operator: Good morning, ladies and gentlemen, and welcome to the Live Oak Bancshares Third Quarter 2025 Earnings Conference Call. [Operator Instructions] I would now like to turn the conference call over to Greg Seward, General Counsel and Chief Risk Officer. Please go ahead. Gregory Seward: Thank you. Good morning, everyone. Welcome to Live Oak's Third Quarter 2025 Earnings Conference Call. We are webcasting live over the Internet, and this call is being recorded. To access the call over the Internet and review the presentation materials that we will reference on the call, please visit our website at investor.liveoakbank.com and go to the Events and Presentations tab for supporting materials. Our earnings release is also available on our website. Before we get started, I would like to caution you that we may make forward-looking statements during today's call that are subject to risks and uncertainties. Factors that may cause actual results to differ materially from our expectations are detailed in the materials accompanying this call and in our SEC filings. We do not undertake to update the forward-looking statements to reflect the impact of circumstances or events that may arise after the date of today's call. Information about any non-GAAP financial measures referenced, including reconciliation of those measures to GAAP measures, can also be found in our SEC filings and in the presentation materials. I will now turn the call over to Chip Mahan, our Chairman and Chief Executive Officer. James Mahan: Good morning, all, and BJ is going to kick us off. William C. (BJ) Losch III: Good morning, everybody. Let's get started with a big shout out to all of Live Oakers and our customers on Slide 4. We're proud to be recognized as the #1 SBA 7(a) lender for 2025 and by an impressive margin. Not only did we provide over $2.8 billion of loans to small businesses, but we also increased our production by 44% over last year, and our market share increased from 6.4% to 7.7%, and yet we still have plenty of room to grow in the program. Turning to Slide 5. We know what we are good at, and we're keeping the main thing, the main thing by ensuring our existing vertical lending and deposit gathering activities are our #1 priority. This performance is top of the class from a growth perspective. Loan production up 22%, loan outstandings growth up 17%, customer deposit growth up 20% and PPNR up 24%. These results reflect the hard work all our teams have done to create outcomes that are more consistent and sustainable over time. That's our goal. To ensure our profitable growth trajectory continues over the medium term, we are extending our customer product offerings by adding checking and small dollar SBA loan capabilities. Both of these efforts launched in early 2024. And in a little over 18 months, our teams have made significant gains in winning customer checking relationships and serving more small business borrowers. On the checking front, we ended the quarter with $363 million of checking balances or 4% of our total deposit base, up from only 2% this time last year. This increase is even more impressive when you consider that our total deposit base grew 17% year-over-year. We have about 1/3 of our new loan customers opening a checking account with us each quarter, and we expect that percentage to increase as we add more capabilities such as merchant services. At the beginning of 2024, only roughly 6% of our customers had both a loan and deposit relationship with us. Today, that percentage is 20%. All this is leading to deeper relationships with customers, better insight into customer cash flows and meaningful reductions in the cost of deposits, both now and over time. On the small dollar 7(a) front, what we call Live Oak Express, production is ramping up meaningfully and will continue to do so. These loans are also very desirable on the secondary market and are leading to a nice gain on sale increase. We are continuing our efforts to make it simpler, easier, faster and more efficient for our people to serve our customers. And in Live Oak Express, we will be piloting an AI-enabled loan origination solution to do just that, which will significantly improve our speed to close for the borrower and the efficiency of our process from the lender all the way through to servicing and loan operations. The tangible result of our efforts is showcased on Slide 6. As you can see, the true earnings power of the company is strong in PPNR, revenue and pretax income on both a quarter-over-quarter and year-over-year basis. We continue to be very focused on building more consistent and sustainable profitability. Healthy revenue growth continues and with appropriate supportive expense growth, operating leverage is strong. With credit impacts moderating in line with our expectations, a significant improvement is evident in our pretax income results. In short, our momentum continues with more to come. So with that, Walt, how about running through some of the financial highlights. Walter Phifer: Thanks, BJ. Good morning, everyone. Diving into the quarter on Page 8. Our Q3 earnings per share of $0.55 increased 8% linked quarter and almost doubled compared to Q3 of 2024. This outstanding growth was aided by the 7% linked quarter and 24% versus prior year increase in core operating leverage that BJ just highlighted as well as a lower quarterly provision expense. The 7% quarter-over-quarter improvement in core operating leverage was driven by a 6% quarter-over-quarter increase in net interest income, aided by $551 million or 5% linked quarter in loan balance growth and 5 basis points of margin expansion to 3.33%. On the growth front, our small business and commercial banking lenders as well as our loan support teams continue to generate high-caliber loans while replenishing their pipelines. Our deposits business continues to fund the bank in an extremely competitive market. As BJ mentioned, we continue to be encouraged by the momentum in our 2 focused initiatives of growing noninterest-bearing business checking balances and originating small dollar SBA 7(a) loans via our Live Oak Express product. Quarterly provision expense was $22 million and was lower for the fourth consecutive quarter. Our reserve and resulting quarterly provision expense continue to be driven by strong loan growth and our navigation of the small business credit cycle that we have discussed over the past few quarters. Lastly, on the capital front, we successfully raised $100 million with our inaugural preferred offering, generating quality Tier 1 growth capital to support our growth aspirations. Next quarter, we will have another earnings and capital accretive event with Apiture agree to sale, which will result in a $24 million onetime gain while also removing approximately $6 million of annual pass-through losses from our income statement. Page 9 provides a financial snapshot of our Q3 earnings results on the top left with quarter-over-quarter demonstrated improvement across all major profitability and growth metrics highlighted on the bottom left. I'd like to briefly highlight 2 other items on this page. The first being the bottom right corner of this slide, where we capture notable noncore items each quarter as they arise. Specifically, in Q3 of 2025, these items collectively had an estimated negative impact of approximately $1.5 million on our reported earnings. The second item is the tax expense line. Similar to last year, we had seasonal increase in the third quarter effective tax rate that was driven by compensation-related accounting treatment in the tax calculation. Slide 10 highlights our loan originations by vertical and business units. A few things to note here. As shown on the right-hand side of the page, our Q3 2025 loan originations totaled approximately $1.65 billion, an 8% increase linked quarter, driven primarily by our Commercial Banking segment. Production momentum in 2025 remains strong across our spectrum of verticals with approximately 2/3 of our verticals originating more production year-to-date in 2025 than they did in year-to-date 2024. Lastly, the bottom right of the page highlights the linked quarter-over-quarter and year-over-year loan portfolio growth trends by lending segment, with both segments providing double-digit year-over-year growth rates. Slide 11 illustrates quarter-over-quarter loan and deposit balance growth, highlighting the strong consistent growth trends on both fronts. Our total loan portfolio grew approximately 5% linked quarter with year-over-year loan balances increasing approximately 17%, outstanding durable growth that you don't often see across the current industry landscape. The approximately 3% linked quarter increase in customer deposits was consistent with Q2 2024's customer deposit growth rate, while our year-over-year customer deposit growth rate was an outstanding 20%. As you can see in the second half of 2024's growth rates on the bottom of the page, we typically experience a slower seasonal growth rate in the second half of the year on the customer deposit front and expect the second half of 2025 to be no different. Year-to-date growth in customer deposits has primarily been driven by our consumer and business savings products as we remain competitively priced in the market to support our aforementioned loan growth and via our business checking growth, which we highlight on our growth trends on Page 12. We saw a nice ramp in business checking in Q3 of 2025, with checking balances increasing 26% linked quarter to $363 million. Our total low-cost deposits, including noninterest-bearing checking balances as well as low-cost collateral construction and loan reserve accounts, now totals approximately 4% of our total deposit basis, a 2% -- or 2x increase year-over-year. As BJ highlighted, adding noninterest-bearing deposits to our primarily competitively market priced customer deposits and wholesale deposit portfolio is substantially accretive to our earnings profile. These deposits not only enhance our margin efficiency, but also strengthen the overall resilience of our funding mix with deeper customer relationships. As such, they remain a key strategic priority for us as we head into 2026 and beyond. Net interest income and margin trends are highlighted on Slide 13. In Q2 of 2025 -- sorry, Q3 of 2025, we saw our quarterly net interest income increased $6 million or 6% linked quarter and $23 million or 19% compared to Q3 of 2024. Our net interest margin also expanded another 5 basis points to 3.33%, our third consecutive quarter of margin expansion, aided both by growth as well as continued deposit repricing as highlighted on the bottom of the table in the middle of the page. As the Fed cut in September, and we expect more cuts to come in the very near future, perhaps as early as next week, here is a general reminder of how this impacts our net interest income and margin trajectory. The first is we have an asset-sensitive balance sheet with approximately 2/3 of our loans being variable and tied to either SOFR or prime. The second is our funding base is predominantly in liquid savings accounts, short-term customer CDs and broker deposits. Since the Fed began easing last December, our blended savings cumulative downward beta is approximately 44%. This is largely a result of us not pricing to the top of the market while the Fed was tightening. And as such, we have blended the top of the market reprice down towards us through 2025. Ultimately, we monitor both deposit market and funding levels closely, ensuring that we continue to support our loan growth appropriately while also adjusting pricing to support margin aspirations and profitability. Our current outlook is that the Fed cuts 25 basis points in October and December of 2025, followed by 3 additional 25 basis point cuts in March, June and September of 2026. Yet Fed forecasts vary and as such, we so do net interest income and margin outlooks. We evaluate a gauntlet of forward-looking scenarios to assess the potential tone of net interest income and margin outcomes. And generally speaking, larger or more frequent Fed cuts provide more margin compression in the near term, while flat interest rates less cuts and less frequent cuts provide more margin opportunity. Ultimately, assuming that the deposit market is rational and reprices appropriately, our margin typically recovers relatively quickly due to the short-term nature of our funding base. Ultimately, what really matters, however, is not simply the margin but the net interest income generated. And our net interest income performance is more resilient due to our strong growth. To drive this point home, over the last 6 years, 24 out of 26 quarters experienced stable or growth in net interest income despite our net interest margin peaking at 4% and valuing at 2.56% over the same time frame. Moving to guaranteed loan sale trends on Slide 14. The secondary market continues to provide consistent earnings while acting as a good source of recycled liquidity. We added some depth to this page this quarter to provide insight to our gain on sale composition and to highlight the accretive contribution we are already realizing from our small loan SBA origination efforts. Our quarterly gain on sale remains primarily driven by our typical larger SBA loan sales, which have provided a consistent $13 million to $15 million a quarter of gain on sale at an average premium in the 106 to 107 range. We've now had 2 consecutive quarters of USDA loan sales, which is encouraging, yet ultimately, the timing and execution of these sales is driven by the completion of the underlying projects, rate environment and investor demand. Similar to my comments on growing checking balances, our focus on ramping our Live Oak Express origination is providing immediate results with our small loan SBA sales providing for $12 million in year-to-date gain on sale, approximately 4x or $9 million more compared to year-to-date 2024, while also providing for approximately 20% of our year-to-date total gain on sale compared to only 8% in year-to-date 2024. To help ramp this product going forward, we remain focused on both filling the top of the funnel through partnerships and lender referrals while also leveraging AI to make the origination and servicing more efficient for our people and our customers. Expense trends are detailed on Slide 15. Q3 reported noninterest expense of $87 million decreased approximately $2 million or approximately 2% linked quarter. We remain focused on supporting our growth via good costs while also working to improve efficiency. This renewed focus on growing revenues faster than expenses and improving operating leverage really began back in the third quarter of 2023. You can see the results of that focus on the right-hand side of this page with loan production, core operating leverage and revenue growth, all significantly outweighing our expense growth as compared to the third quarter of -- comparing the third quarter of 2025 to the third quarter of 2023. We are keenly focused on improving both our customer and employee experiences, embracing the automation and AI wave across our entire business and enhancing our current technology stack, all with the resulting goal of creating internal and external raving fans, improving efficiency and providing for a solid mature foundation that will support our growth. Turning to credit. Slide 16 provides insight into the portfolio with a view of key credit ratio trends in the table at the top with visualization of over 30-day past dues, nonaccruals and provision trends on the bottom. Our over 30-day past dues remained low for the fourth consecutive quarter with $16 million or 14 basis points of our held-for-investment loan portfolio past due as of September 30. The amount of nonaccrual loans increased to $85 million or 73 basis points of our unguaranteed held for investment loan portfolio in Q3. Nonaccrual balances remain very manageable as our servicing team continues to support SBA customers impacted by the small business credit cycle. Provision expense of $22 million improved in Q3 and was influenced by strong $551 million quarter-over-quarter loan growth, what we often refer to as good provision and portfolio performance. While quarter-over-quarter provision will fluctuate based on growth and portfolio activity, we remain comfortable with our reserves. Last page for me on capital -- our capital strength was bolstered in Q3 of 2025 with our preferred issuance as shown on Page 17. The $100 million issuance added approximately 90 basis points of total risk-based capital and approximately 70 basis points of Tier 1 leverage, excellent Tier 1 growth capital. Our equity method investment in Apiture will provide for an additional capital accretive event in Q4 with Apiture's recent sale closing in October. In addition, the removal of approximately $6 million of pass-through losses going forward will largely help fund the annual preferred dividends on the preferred issuance. Thank you again for joining this morning. And with that, I'll turn it back over to BJ for his closing comments before we head to Q&A. William C. (BJ) Losch III: Great. Thanks, Walt. Momentum is building. We're focused on the biggest and best opportunities, and we're modernizing our activities to take full advantage of the AI-driven possibilities that are right in front of us. So with a big thank you to all Live Oakers and our customers, let's take some questions. Operator: [Operator Instructions] Your first question is from Dave Rochester from Cantor. David Rochester: Can you just -- just to start with credit. Can you give a little more color around the increase in the NPAs this quarter and talk about the new default trends as well? And then just on charge-offs, I would imagine you're expecting those to decline, but if there's any reason why those remain elevated, I would love to hear. Michael Cairns: Yes. This is Mike Cairns, Chief Credit Officer. Happy to take that. So I look at this quarter as just a continuation of where we were last quarter. Fortunately, not all credit metrics always move in a perfectly linear way. So we saw some nonaccrual balances tick up a little bit, but still a very manageable balance there and not -- this all kind of came from our SBA portfolio. Nothing caught us by surprise. These are loans that we've been tracking and are related to similar the stress that the small business owners have faced over the last few quarters, which we've talked about quite a bit. So I think about nonaccruals as far as balances, not all nonaccruals are created equally. So when you look at default count, it's also up as well, but not in a dramatic way. The other things I look at are past dues. So with an SBA portfolio as large as ours, having 14 basis points worth of past dues is something I'm incredibly proud of and how our team has managed that. To me, that's an indication that our servicing team is on the portfolio and taking care of it. Reserve levels came down. So not all nonaccruals turned into charge-offs to your question. And so while that has ticked down, we still have really healthy coverage on the portfolio. I feel good about where we are in reserves. And so there's a lot of economic uncertainty out there that has been discussed by other banks. And what we control is -- or what we focus on is what we can control, sound underwriting, which we continue to have. I talked about that last quarter, and we continue to focus on not stretching on credit quality, which we have not done and heavily servicing the portfolio. So for example, we are now going through our annual risk rate process for the entire SBA portfolio, and we will have a servicing team member and a credit officer assessing the risk rate for every meaningful balance within that portfolio. And that's above and beyond our day-to-day servicing that we do, which is interacting with our customers, collecting financial information, spreading that, talking through that with our customers and doing site visits. So a lot of hands and eyes on the portfolio. And I think as I sit here today, I think what we're finding is that while there has historically been a little bit of a cycle in the SBA industry, our small business owners have remained relatively resilient in the face of that. David Rochester: Appreciate that. And then how are you thinking about the potential for an extended government shutdown and what that can do for -- on both the loan side in terms of loan growth and then credit. And when do things start to potentially get rough? What are you guys worried about on this front? Walter Phifer: Hey, Dave, this is Walter Phifer, CFO. I'll start on the loan growth side and secondary market side and then Michael can jump in on credit. Unfortunately, government shutdowns is something we've had practice with over the years. So we have a pretty extensive playbook that we pull out when these things happen. And the first and pretty much kind of the initial action that we take any time there's a potential for a shutdown is we look at our pipeline, especially our SBA loans and start to pull PLPs to reserve that SBA funding. Coming into this shutdown, we've -- our team really pushed in September. We had about $900 million of PLPs pulled so that we can continue to operate business as usual and get that capital out to the small businesses. So from a growth standpoint, that feels really good. Now obviously, the longer the shutdown, you kind of get in through the end of the quarter. The PLPs there, a bunch of run out and then Michael and his team will assess bridge loans as appropriate. The other big impact for us is on the secondary markets. Now we typically don't sell any of our loans in the first 30 to 45 days of any given quarter. So right now, we haven't seen an impact at all of the current shutdown. Once the shutdown ends, we -- the secondary market opens up pretty quickly and we get our loan sales out, we settle. I'd say right now, the shutdown extended past Thanksgiving. That may impact us here in the near term in the Q4 in terms of secondary market sale execution. But once the market opens, we get back out there and we'd catch up later in the quarter or going into Q1 of next year. David Rochester: Appreciate all the color there. Maybe just one last one, if I could. Just switching gears to the AI enhancements you've been talking about in terms of processing times and whatnot. Can you just quantify what those benefits could be? And then it sounds like you guys just overall look very favorably at what AI can do to the expense base and how you can potentially keep that more stable. If you could just talk about that a little bit, that would be great. Michael Cairns: Sure. The history of Live Oak and the gentleman sitting next to me is one of innovation and looking at what's coming down the pike in terms of technology, technology enhancements and the art of the possible. And AI, we think, could be bigger than any of the meaningful step changes in technological advancement from the Internet to cloud computing. They were big. We think AI is even bigger. And so what we're doing is we're spending a significant amount of time educating our people on all the tools available. So developers are all using cursor and understanding how to code in AI. But the rest of our organization is learning to use prompts and build agents for specific processes. And we have people in our insurance group that are literally building their own agents to automate a lot of the follow-up that we have to do with insurance companies to ensure that our borrowers have the appropriate insurance. And that's being done at an individual level, not just an institutional level. And then Renato Derraik and his technology team are way out in front of what a lot of others are doing, and we're building significant Agentic AI solutions, both in-house and with partners to drive across the company. And I think a unique opportunity that we have at Live Oak is that we are growing so fast. I think there's a lot of both excitement and trepidation about what AI might do and how that impacts the employee base and what that means for them. And I think because we have so much growth opportunity over the next several years that what that will mean is AI will help the productivity of our people over time and maybe we have to grow our employee base and our expense base a lot less to generate the same level of revenue as opposed to maybe some others, particularly in our industry that aren't seeing nearly as much top line growth and have to use AI to reduce cost. And so I think our operating leverage because of our use of AI could exponentially grow our profitability while also making our -- make it easier for our people to do business, have more capacity to serve customers and make the customer experience far better. So the world of opportunity is endless out there, and we're already working on capturing a lot of it. I know I've talked a long time, but very excited about this. I did mention we're doing a lot of piloting, particularly around our loan origination platform, starting with our small dollar loans and looking at a platform that is completely AI-driven and incredibly, incredibly easy to use all the way from the lender back to servicing and operations. And so a little bit more to come on that, but that's just one example where we're already ahead and putting major things in practice that are going to help us over the long term. David Rochester: Sounds like that will be a pretty solid competitive advantage for you guys. Operator: Your next question is from Tim Switzer from KBW. Timothy Switzer: First question I have is on the trajectory for the margin. We're reentering the rate cut cycle. And I think you guys are long-term beneficiaries from rate cuts as long as assuming we get a steeper yield curve. But assuming we get 1 or 2 more in the back half of this year and maybe another one next year, how does that impact the near-term NIM? And then maybe what's the time line for when we start to see it rebound and inflect back higher? Walter Phifer: Hey, Tim, this is Walt. I'll jump in on that one. I think you got to leverage a lot of the comments I made kind of earlier. I think if you look at kind of the models you see out there, I think they were perfect coming into this before there's an October cut. Now there's an October cut, so you have to kind of flush that through. But from a margin specifically, being an asset bank, you see some margin variation with -- and you take that plus our growth, it limits what you do in terms of quickly repricing deposits. We tend to take the approach of we see where the market goes and then we slot ourselves appropriately to make sure that we can continue to fund that growth, but obviously help with profitability from kind of long -- as you think about when it recovers, I mean, I think if you look at the past few years and any time we've had the Fed ease, it's pretty quickly, right? And I think you can see even on the page on 13, kind of in the middle of that page, you saw the same thing where NIM compressed and then it recovered pretty much next quarter, start to grow again and got back there within a year. And that's really a testament to, one, our deposit team as well as our treasury team, but as well as our kind of our short-term funding nature. So most of our CDs and our brokered deposits are within a year in terms of near kind of terms. So it recovers pretty quickly. But again, as I mentioned, I kind of reorient you to net interest income and growth, right? BJ always has this saying that you can't spend margin, that kind of always stuck with me. And at 3.30% margin -- 3.33% margin is pretty healthy. And if you can grow your net interest income quarter-over-quarter despite that margin kind of variation, that's a fantastic story in my mind. So we kind of think about that margin but also think about on the net interest income side. Timothy Switzer: Got you. That was very helpful. And I also want to ask about kind of the competition you're seeing broadly in the SBA space with, I guess, the government shutdowns impacting things. You obviously have the credit cycle that seems to be hitting some of your competitors harder than you and all the rule changes that were implemented, I guess, almost 2 quarters ago. So have you seen easing competition at all? And has that created some opportunities for you? William C. (BJ) Losch III: Yes. Tim, this is BJ. The way I would describe it is this is what we do. This is how we grew up, and we know the SBA market, we think, better than anybody. And we've seen tons of things. We've seen SOP changes. We've seen government shutdowns. We've seen nonbank lenders come into the market. We've seen nonbank lenders go out of the market. We've seen big banks try to do SBA. We've seen them pull out of SBA. All the while, all we're doing is growing the number of verticals and the number of customers that we serve through the SBA. So we don't believe that we have a peer in SBA lending. We will see different pockets of competition in different verticals and some competitors are better than others in those verticals. But by and large, we actually just control what we can control in terms of making ourselves better all the time every day. And so I think, obviously, it's showing up in our results and in our numbers, and we'll continue to do that. Timothy Switzer: Got it. And then the last question I have is, it seems like previously most of your commentary around the credit performance was that it was pretty broad-based and more related to certain vintages rather than industries. But now that we're a little bit longer time for the kind of the impact of tariffs and everything else going on, have you seen any industries that are maybe struggling or under a little bit more pressure than others? William C. (BJ) Losch III: Yes. I think, Tim, on the tariff side, really very little, I'd say. It's a little bit more, yes, the rise in rates and the vintages from '21 and '22 showed some significant stress. I think where we see more stress than not -- and by the way, it's not broad-based across all of our verticals. It's a handful is where they don't have as much pricing power, yet their cost of goods sold are going up. And so the struggle of trying to just maintain profitability, and that's where we've seen a little bit of stress. But as Michael kind of talked about, there isn't anything that is surprising us at this point. We kind of know where that tension is. And everything is kind of performing relative to our expectations. Operator: Your next question is from David Feaster from Raymond James. David Feaster: I wanted to talk about the kind of the credit and tech side in one sense. You talked about maintaining strong underwriting and that you guys are going to be going through the risk weighting, updating some of those. I'm just curious, given the broader uncertainty and pressures that we're seeing, again, you talked about the tariffs and all these different things. Have you adjusted underwriting standards or your criteria at all? And then using technology and AI, is there -- we talked about the growth side and improving profitability, but is there opportunities to use tech or AI or whatever it may be to help underwriting or earlier credit identification and just kind of help mitigate the credit risk? William C. (BJ) Losch III: Yes. Hey, David, I'll start. Michael, I'm sure will jump in. On underwriting standards, to be pretty consistent with our customers so they understand kind of -- and our lenders so that they understand what we're interested in and what we're not. With that said, though, there will be times when we'll modify the credit box, let's say, for instance, we'll say we really want to require direct management experience or direct operating experience in a certain vertical if we're going to end credit in that vertical. That's an example of how we might "tighten" underwriting is to make sure that we have borrowers that are going to be able to operate their businesses successfully. So we're constantly tweaking that across our 40 verticals, and we've always done that. And I think that, that will continue. In terms of AI, absolutely. So for instance, one of the things that we're looking at in pilot from a new loan origination and servicing platform is the ability to actually ingest documents and have them read by AI and started to do spreads and create a credit memo. So imagine we've got all this documentation from an HVAC company. And AI is ingesting all this information specifically on this HVAC customer in a certain market. But at the same time, it's going out and using Copilot or ChatGPT to actually build a business analysis around what that market looks like, what the demand in the market looks like, what the overall industry doing and how it's performing, how that looks relative to the financials that we're ingesting, how that looks like relative to our existing HVAC or service contractor portfolio that we have in credit. That's what we're piloting. Those are the types of things that we're looking at in terms of using AI. So it doesn't replace the human aspect of reviewing all that. But in terms of streamlining the ability to analyze, do data entry, ingest information, do competitive analysis and understand trends, it's going to be incredibly impactful for our ability to get loans closed, approved, not approved, and it's just going to make us a lot better and give customer a lot better experience. David Feaster: Okay. That's helpful. And then I was hoping you could maybe elaborate a bit on the government shutdown and kind of how all this works. I appreciate your commentary on this already. But it sounds like assuming that this gets figured out pretty quickly that you think that you're still going to be able to kind of sustain this pace of organic growth quarter-over-quarter. I mean, does that imply that the SBA works through the backlog of loans pretty quickly once we get back up and running? Or do you backfill maybe some of that gap with more conventional lending in the short term? Or just do we -- is it kind of just a timing issue and maybe this quarter might be a little bit weaker and we see some slippage into 2026? Just kind of curious how you think about all -- there's a lot of uncertainty. So just any help on how you think this kind of plays out is helpful. Walter Phifer: Hey, David, it's Walt. I'll start. I think you -- from the SBA's perspective, once the government opens, they're pretty quick to catch up. I don't really see if it wraps up here in the next, call it, week or 2, I really don't see an impact really government shutdown driven on our SBA growth or production for the quarter, largely because of pulling the PLPs towards the end of September, like I mentioned... David Feaster: You might want to explain what pulling the PLP. Walter Phifer: Yes, pulling the PLP. So the SBA has a certain amount that they'll allocate each year in terms of funding. Pulling the PLP reserves, it's -- every SBA loan has an SBA PLP number. It's a reservation for that funding from the SBA program. So you can't originate an SBA loan without that SBA number, that authorization. So -- but you have to be a preferred lender, yes, that's PLP, preferred lender program to find acronym, which I'm known to use quite a bit of acronyms. But yes, from -- David, from kind of growth standpoint, really don't expect much of a change here in the last quarter if they wrap it up here in the next, call it, week or 2. I don't think we'll need to tap into the conventional side. That's always something we do for a much more extended shutdown if we run out of those kind of SBA reservations, and that's where Michael and his team come in, and we'll look at small short-term bridge loans. But overall, this is, like I said, unfortunately, something that we've kind of gotten used to on how to deal. And the other -- last thing I'd say is we have government relations manager that sits up in D.C. Her name is Dawn Thompson, she's fantastic. She lets us know kind of what's going on, as it's going on. So we kind of feel like we are always kind of in the know on how things are progressing, and she's keeping us up to date daily at this point. David Feaster: Okay. That's helpful. And then maybe just kind of staying on some of the exciting parts about the business. You guys -- I wanted to get an update on kind of where we are with the embedded finance build-out, how that's going and the growth potential there? And then just maybe on -- you guys are kind of ahead of the curve on most things. How do you think about -- like just given the market expansion of stable coin, how do you expect to play there? Are there opportunities like just kind of curious what you guys are looking at? Is that a potential opportunity for some deposit growth for you all? Just want to touch on those 2 topics. William C. (BJ) Losch III: Sure. David, it's BJ. So embedded continues to be built out, and we think it's one of our moonshots. So something that really could be meaningful over the next 3 to 5 years. We did do a pivot on how we were building it out earlier in the year. We were doing a lot of in-house building. But again, with AI and what's going on in the marketplace, and we found a partner that was quite a bit ahead of where we were, and we thought that we could leverage that partnership to accelerate our embedded banking growth. So we kind of moved to a different platform, which slowed down our pipeline building in terms of relationships. But we've got one live. We've got several in the hopper. And we think over time, we'll talk about that a little bit more. I'd rather actually put points on the board from an embedded banking perspective and then tell you about it as opposed to tell you it's coming. So that's kind of where we are on embedded. It's still very much on our road map. On stable coins, it's very interesting. We have a new Board member, Patrick McHenry, who you would have seen in press release that when he was in Washington and Congress, he was incredibly involved in the GENIUS Act and what's going on with stablecoins. And so we kind of have an inside view, so to speak, of what's going on, how that could impact things and what -- how people are looking to use it. So we are actively studying how we would participate in stablecoins, and we want to stay ahead of that curve as much as we can as it continues to evolve. Operator: [Operator Instructions] And your next question is from Steve Alexopoulos from TD Cowen. Bill Young: This is Bill Young actually on for Steve. Just to circle on the credit mini cycle topic one more time. In recent quarters, you've spoken of being more aggressive on getting ahead of problem loans and writing them off with more aggressive charge-offs in your book. And we did see a bigger step down in net charge-offs this quarter despite the increase in NPAs. So can you speak to your visibility on kind of the future loss trajectory and your confidence level in terms of how far ahead you've gotten on these issues so far this cycle? Michael Cairns: Yes. I think that -- it's Michael here. I'll take that. So I think in past quarters, we had discussed the fact that we had changed our philosophy on being more proactive in charging off loans. Our special assets team is -- in spirit with the SBA program does everything that we can to help our business -- our borrowers navigate whatever challenges are in front of them. So we will hold on with our customers longer than most and do everything we can to help. In the past, we had held some of those in nonaccrual and not charged them off. We changed our philosophy. We're charging them off when we feel like it's past the point of getting back to repayment quickly. While even though those loans are not charged off, they're not out of mind. We track those loans. We still work with our customers. But -- so I would say that we are right on top of where we should be as far as charge-offs. We'll continue to be proactive in dealing with that and not let them linger on our balance sheet. But I think we're doing a good job there. Bill Young: Okay. Great. And then it was nice to see the return on tangible common equity return back to double digits this quarter. So can you just maybe lay out what you see as kind of a sustainable path for returns can move to in the next year or 2? Michael Cairns: Yes. I think, Billy, what we talk about a lot here is getting to a 15% and 15%, which is consistent and sustainable 15% returns on equity with 15% or more EPS growth a year. And to do that, you've got to make sure that your business model can sustain that kind of performance, which means doing things around the checking portfolio to provide more of a balance for your funding costs. It is always having growth initiatives like Live Oak Express that are going to incrementally move your fee income line up further. It looks like expense discipline and a moderation of credit. All of those things, the senior leadership team talks about constantly is how do we get back not only to those levels, but consistently build a business model that stays at those levels. And so I'm highly confident that we're going to be able to get there in the near term, near medium term, let's say, over the next 18 to 24 months. Bill Young: Great. And my last question, with your pending Apiture sale and some activity among your peers such as MVB with their Victor sale, as you think about Live Oak Ventures and some potential percolation of activity in Silicon Valley, are you beginning to see a bigger opportunity in the near term to harvest some of your investments? Michael Cairns: I'll talk a little bit about ventures, our ventures portfolio specifically, but Chip knows more than any of us about broadly what's going on in ventures. So I'll let him talk about that. But Apiture was one of the 2 largest portfolio companies that we had in our ventures portfolio. And obviously, we just exited with a nice gain there. The other largest that we have is Greenlight Technologies, which is a fantastic company. The other ones are smaller and still in growth mode. And so I think Apiture was probably kind of the largest in terms of harvesting. And the portfolio will probably stay the way it is for quite some time. In terms of -- in terms of exits, I think that we'll continue to incrementally add venture portfolio companies as we continue to look at new technology that we want to use inside the company. That's always been what we use Live Oak Ventures for. And so you'll probably see more of that from us. But Apiture was probably the largest exit that you'll see in a while. Chip, what are you seeing more broadly? James Mahan: Well, I think most of this relates to Canopy. We look at probably 4 companies a day in Canopy. So that gives Live Oak a sneak peek before anybody else if there's anything interesting there that we may want to invest in. I would say that the euphoria of the pricing in that business after COVID has reinstated itself with artificial intelligence. Venture firms are throwing enormous amount of money at these companies where they're fundamentally pre-revenue. And we're trying to take a bit of a circumspect view there because as you know, at Canopy, we raised $1.5 billion from 70 banks and our bank LPs are right there by our side as we look at interesting opportunities on a daily basis. Operator: There are no further questions at this time. I will now hand the call back over to Chairman and CEO, Chip Mahan, for final comments. James Mahan: As always, thanks for attending, and we'll see you in 90 days. Operator: Thank you, ladies and gentlemen. The conference has now ended. Thank you all for joining. You may all disconnect your lines.
Operator: Good day, everyone, and welcome to the Arca Continental Third Quarter 2025 Conference Call. [Operator Instructions] Please note, this call is being recorded. I will be standing by should you need any assistance. It is now my pleasure to turn the conference over to Melanie Carpenter of IDEAL Advisors. Please go ahead. Melanie Carpenter: Thanks, Nicky. Good morning, everyone. Thanks for joining the senior management team of Arca Continental to review their results for the third quarter and the first 9 months of 2025. Their earnings release went out this morning, and it's available on the company website at arcacontal.com in the Investor Relations section. It's now my pleasure to introduce our speakers. Joining us from Monterrey is the CEO, Mr. Arturo Gutierrez; the CFO, Mr. Emilio Marcos; and the Executive Director of Planning, Mr. Jesus Garcia. They're going to be making some forward-looking statements, and we just ask that you refer to the disclaimer and the conditions surrounding those statements in the earnings release for guidance. And with that, I'm going to go ahead and turn the call over to the CEO, Mr. Arturo Gutierrez, who is going to begin the presentation. So please go ahead, Arturo. Arturo Hernandez: Thanks, Melanie. Good morning, everyone, and thank you for joining us today to review our results for the third quarter and to share some important recent developments. Let's begin with our consolidated results. I'm pleased to report another quarter of solid execution and sequential progress across our territories, even as the broader economic environment remains challenging. Our teams continue to navigate market headwinds with agility and discipline, driving robust profitability. Total consolidated volume declined 1.8% in the quarter, while consolidated revenues grew 0.5%, supported by effective portfolio mix and revenue management, partially offset by unfavorable FX impacts. Consolidated EBITDA grew 1.2% in the quarter, reaching a margin of 20.4%. This achievement marks a significant milestone with third quarter EBITDA margin at its strongest point since the acquisition of our U.S. operation in 2017. These results underscore our relentless execution, the strength of our portfolio and our continued focus on driving profitable growth. Let me expand on the results across our geographies. In Mexico, unit case volume, excluding jug water, declined 2.9%, largely reflecting the impact of heavy rains and below-average temperatures across much of our territory. Despite this temporary weather-related pressures, still beverages grew 2.2%, led by tea, juices and nectars and energy drinks, capitalizing on the positive momentum in the supermarket channel. Coca-Cola Zero continued to outperform delivering sequential double-digit growth, supported by the introduction of the new 450-milliliter format, which continues to resonate with consumers seeking convenient and affordable options. Santa Clara brand continues to deliver strong performance in Mexico, achieving double-digit volume growth rates, supported by robust momentum in flavored and specialized milk. We continue to gain value share in the value-added dairy category, reflecting the strength of our innovation and disciplined execution. Net sales grew 2.8%, with average price per case, excluding jug water, up 6.4%, underscoring our strong revenue management capabilities. EBITDA decreased 3% in the quarter, resulting in 23.9% margin, reflecting our disciplined commercial execution and solid revenue management capabilities in a softer demand environment. In South America, total volume declined 0.6% in the quarter, primarily due to softer performances in Ecuador and Argentina. This was partially offset by growth in Peru. Total revenue declined 13.6% and EBITDA was down 1% with a margin of 18%. This quarter reflects a steady though cautious progression of the recovery that began in the first half of the year with meaningful variation across countries. Collectively, our South American operations are advancing through a period of disciplined stabilization, setting the stage for more balanced and sustainable growth ahead. In Peru, total volume increased 2% in the quarter, supported by a stable economic environment and resilient consumer demand. Growth was broad-based across categories, led by sparkling up 1.7%, stills up 1.9% and water at 4.8%. Our core brands, Coca-Cola, Inca Kola and Sprite delivered strong growth, up 1.2%, 1.6% and 8%, respectively. Volume recovery remained consistent across channels with convenience stores leading the way up 22%. Supermarkets showed a sustained rebound while traditional trade maintained solid momentum, supported by our effective price pack and cross-category strategies, further enhanced by our digital capabilities. Turning to Ecuador. Volume declined 1.2%, reflecting softer market conditions and a fragile yet gradually improving macro environment. Even so, our team remained focused on executing our fundamentals and driving performance in the areas within our control. We sustained our value share in NARTD beverages, driven by continued growth momentum in still beverages, up 3.6%. In the sparkling category, Coca-Cola Zero once again delivered solid growth of 2.2%, while Fanta and Fioravanti grew 6.2% and 3.6%, respectively. The water segment rose 3%, showcasing the strength of our diversified portfolio. We also continue to refine our price pack and channel strategies, drive the adoption of returnable packages and invest in targeted market initiatives to strengthen our long-term position. Year-to-date, we have installed more than 17,000 cold drink units, further enhancing our market coverage and reinforcing execution at the point of sale. In Argentina, volume declined 5.6% in the quarter, reflecting the near-term effects of the country's economic adjustment. Nevertheless, we gained value share across NARTD categories, supported by our sparkling portfolio and our continued focus on affordability and returnable packaging initiatives. While volatility remains, our disciplined execution and agile commercial approach positions us well to capture growth as conditions normalize. Our beverage business in the United States delivered another strong quarter, sustaining solid momentum and achieving robust operating results. This marks our 30th consecutive quarter of EBITDA growth. Adding to this momentum, our U.S. team was recognized as the best Coca-Cola bottler in the world, receiving the prestigious Candler Cup. We are proud to be the only bottler to have earned this award twice, underscoring our operational excellence and market leadership. These impressive milestones reflect our team's consistent execution and the strength of our business model. Solid performance this quarter was driven by effective management of our price pack architecture, disciplined cost controls and continued focus on maximizing the value of our most profitable packages. Net revenues rose 3.5% this quarter, with the average price per case up 4.8%, supported by our strategic focus on boosting promotional efficiency through our trade promotion optimization digital platform. Volume for the quarter declined 1.3% and transactions grew 0.1%. Key performance highlights included a 5.9% increase in our low-calorie portfolio led by Coca-Cola Zero, Diet Coke and both Diet Dr. Pepper and Dr. Pepper Zero. In the stills portfolio, Monster, Fairlife, Core Power and Smartwater continued to post sequential growth, supported by robust brand execution. Notably, EBITDA increased an outstanding 9.7%, representing a margin of 17.2%. And an important update on our digital agenda, our e-commerce business continued to deliver strong results, driven by enhancement in our eB2B capabilities and outstanding execution in the e-retailer space. I'd like to close our U.S. update by sharing our excitement for the 2026 FIFA World Cup and our role as whole city supporters for the Dallas and Houston venues. Through this partnership with the World Cup Organizing Committee, we will actively support the city's legacy programs and showcase our brand through targeted initiatives that engage fans and local communities. Our Food and Snacks business delivered a resilient performance posting a low single-digit sales decline for the quarter. While facing top line challenges, our team remained focused on profitability through effective price management, portfolio optimization and operational efficiencies. In line with our broader sustainability objectives, we continue to advance the clean label initiative across our U.S. Snacks portfolio. This includes the removal of artificial colors, flavors and preservatives as well as the simplification of ingredients lists. These efforts exemplify our commitment to transparency, product integrity and long-term consumer trust. And with that, I will now turn the call over to Emilio. Please, Emilio? Emilio Marcos Charur: Thank you, Arturo. Good morning, everyone, and thank you for joining our call. As Arturo highlighted, the same factor that influenced our performance in the first half of the year continued to play a significant role in the third quarter. Macroeconomic environment remained challenging and weather conditions were still unfavorable. Even so, we have a sequential improvement in volume for most of our operations, demonstrating strong team performance despite challenges. The improvement in volume, together with our solid revenue growth management capabilities and disciplined approach to expense control resulted in an expansion of our consolidated EBITDA margin. Let me offer further insight into our financial results. In the third quarter, consolidated revenues increased 0.5%, reaching MXN 62.9 billion. Revenues for the 9 months of the year rose 6.6% to MXN 183.4 billion, mainly driven by an effective pricing strategy. On a currency-neutral basis, revenue rose 3.8% in the quarter and 3% year-to-date. During the quarter, SG&A expenses rose 1%, reaching MXN 19.4 billion. Despite the contraction in volume, SG&A to sales ratio was fairly in line with third quarter '24 at 30.8%, reflecting our continued commitment to operational discipline. In the quarter, gross profit increased 1.2% to MXN 29.5 billion, while gross margin expanded by 30 basis points due to a solid price pack architecture and solid hedging strategy. For the quarter, consolidated EBITDA increased 1.2% to MXN 12.8 billion with a 10 basis point margin expansion reaching 20.4%. In the 9-month period, EBITDA grew 6.1%, reaching MXN 36.6 billion, while EBITDA margin decreased by 10 basis points to 20%. On a currency-neutral basis, EBITDA rose 2.6% in the quarter and 2.2% as of September. Net income in the third quarter reached MXN 5.3 billion for an increase of 3.5%. Net profit margin increased 20 basis points to 8.4%. Now moving on to the balance sheet. As of September, cash and equivalents totaled MXN 32.3 billion, while total debt stood at MXN 63.9 billion, resulting in a net debt-to-EBITDA ratio of 0.62x. In our most recent Board meeting, it was approved to distribute an additional dividend of MXN 1 per share to be paid on November 5. Combined with the ordinary dividend of MXN 4.12 distributed in April and the extraordinary dividend of MXN 3.50 paid in June, we will reach a total dividend of MXN 8.62 per share. This reflects a payout ratio of 75% of retained earnings and a dividend yield of 4.3%. Total CapEx reached MXN 11.8 billion, representing 6.4% of sales. Investments were primarily directed towards expanding our production capacity, ensuring that we are well positioned and sustained future growth. We also continue to enhance our distribution and commercial capabilities, which are key enablers for our long-term strategic plan. Looking ahead, we expect market volatility to continue throughout the rest of the year. We remain confident in our business strength and ability to create value despite challenging conditions. We will continue managing expenses carefully to drive profit and sustainable growth. That concludes my remarks. I will turn it back to Arturo. Please, Arturo. Arturo Hernandez: Thank you, Emilio. As we reflect on this quarter, our disciplined execution enabled us to protect volumes, sustain market share and maintain profitability even in challenging conditions. Furthermore, as we marked the third year of our collaboration agreement with the Coca-Cola Company, this partnership continues to deliver on its core objectives while unlocking new opportunities through a broader portfolio. At the same time, we are staying proactive on regulatory developments and pursuing strategic initiatives, ensuring our readiness to capture growth when market conditions improve. By balancing resilience with agility, we're positioned to deliver a strong and sustainable performance across cycles and continue creating long-term value for our shareholders. We are focused, ready and energized to capture the opportunities ahead. Thank you for your continued trust and support. Operator, please open the line for questions. Operator: [Operator Instructions] We'll take our first question from Ulises Argote with Santander. Ulises Argote Bolio: My question is related to the margins in the U.S., right? So another quarter with positive surprises there. I was just wondering if you could give us some color on what continued to be the main drivers there and the main levers despite that slowdown in top line that we're seeing. And maybe just to pick your brain on how sustainable do you think these trends are going forward? Arturo Hernandez: Thank you, Ulises. Well, first of all, we have to say that we're very satisfied with the profitability in our U.S. business, considering also that we faced many challenges in that market. As you know, third quarter, we grew EBITDA, in dollar terms, close to 10%. And our margin is above 17%, which we -- again, we're very pleased with that. The drivers behind it, as we've said before, our pricing capabilities and also the management of promotions. We're looking forward to combine this premiumization of our portfolio with also a price architecture that would cover all segments, considering, again, the economic dynamics. We've also worked on efficiency projects. And I would say that our OpEx ratio has shown this operational discipline. We expect that also to be sustained. There's some efficiency projects underway. And in fact, one of the most important ones will not be fully captured in '26, the Wild West project that we call, which is the restructuring of supply chain in some of our plants and warehouses in the U.S. We also are looking at input costs in '26. They're expected to rise due to inflation, but we do have also a strong hedging strategy. I will ask Emilio to expand on that part. But in general, I would say that we are very confident for '26 to sustain our current margins. Emilio, why don't you expand on our raw materials and hedging situation? Emilio Marcos Charur: Yes. Thank you for your question, Ulises. Yes, for this year, as we have mentioned, we have over 97% of our LME needs in U.S. and 48% Midwest premium portion for this year and 79% of high fructose needs. And we started to hedge for next year. For 2026, we have 95% of our LME needs next year and 20% of Midwest premium. So that will allow us to together with what Arturo already mentioned, to consolidate the levels -- the margin levels that we have this year, and we expect it to reach those levels -- at least those levels for next year. Operator: Our next question comes from Thiago Bortoluci with Goldman Sachs. Thiago Bortoluci: Arturo, question on you for Mexico, right? How should we read the combination of negative sparkling volumes with returnables losing participation in your mix? And if I may expand, the reason I'm asking this is because the big debate today in the space is clearly how much of the drag is structural versus temporary issues, namely comps, weather and another few. So it would be very helpful to hear your perceptions on how you're seeing underlying elasticity, affordability, price pack performance and overall performance by channel. And again, if we can read anything between your volume print and your packaging performance in the quarter, especially in the context where weather conditions didn't help. Arturo Hernandez: Thank you, Thiago. Let me start by giving the context of the consumer environment in the third quarter in Mexico. As you said, this is a combination of not very favorable weather, increased rainfall, cooler temperatures. It was very, very unusual. Rainfall was probably 40% higher than usual in the North of Mexico, even more than that, maybe in some cases, just doubled and tripled in the West regions for us. So temperature has also affected volumes and consumption and traffic throughout the quarter. There was also the economic dynamics where activity slowed down and any activity really was driven by exports rather than domestic demand. So internal consumption has been reduced and special retail activity and traffic weakened. I would like to think that, that is also temporary, not only weather, which would naturally be different as we think about next year. But in terms of the economic weakness, we believe that as we gain greater clarity around trade rules and tariffs and the relationship with Mexico and the bilateral trade with the U.S. that will enhance Mexico's competitiveness and will provide even formal job creation and with that, domestic consumption. If you look at returnable packages, well, the main reason is that supermarkets were basically the only channel that grew volume in the third quarter, and that was driven mostly by intensified promotion, considering the current situation. But we're going to be pursuing our strategy of affordability going forward in Mexico, which means entry-level packages, both returnable and nonreturnable packages. And the 235-milliliter, 12-ounce 250 ml one-way packages. The 450 milliliter that probably you've seen in the market, one-way, very important for us. The multi-server fillable format, what we call the universal model. All those strategies will continue to move forward as we face these challenges. So that is -- it's hard to isolate the effect of weather and the economic situation, but we are convinced that those are the main factors. Our execution in the market continues to improve and our leadership in the market as well, which we believe that's the most important part. Operator: Our next question comes from Ben Theurer with Barclays. Benjamin Theurer: I wanted to get a little bit of how you think about pricing going forward. I mean, obviously, we know about what's in the proposal in terms of taxes for the different categories. But as we think about raw material inflation you face and what you usually pass on, what is your strategy going to be towards the end of the year and then into next year? How should we think about pricing? How much is needed for the taxes? How much would you do on top of that? And what are kind of like the sensitivities you're looking at as it relates to your volume if you were to raise those prices? Arturo Hernandez: Yes. Thank you, Ben. First, let me talk in general about our pricing strategy, which really has not changed. And I think under this market conditions, it's demonstrated that these capabilities do work very effectively of increasing prices in line or above inflation in every business unit. This requires not only this very advanced pricing tools that we have designed jointly with the Coca-Cola Company, but also leveraging the trade promotion models, which operate at a local level. So I think, for years, we have demonstrated these capabilities, which, as I've said, if there is one fundamental capability that consumer goods companies need to get right now or the future is precisely revenue management. So for us, it's combining affordability and also a premiumization strategy, as I said before. We will continue to monitor those pricing dynamics and make sure that we are competitive in the marketplace. And then going specifically to your point about taxes and Mexico. Well, this tax that we are expecting to be implemented for '26 would require us to pass through the impact via prices. And as you know, we've done that before, actually 12 years ago. And we have estimated that, that increase would be in the range of 8% to 10% probably. And that we would have to add inflation after that, considering that we want to remain competitive in terms of margins in '26. So we don't know exactly what the elasticity would be, but there's certainly going to be an impact in volume for next year. We have some of the learnings of past elasticity patterns following similar adjustments in 2014. But at the same time, we have so many things that work in our favor in the Mexico market going forward. I mean there are reasons to believe that we're going to be able to mitigate part of that impact. And there are many factors. I mentioned before, the impact of unfavorable weather this year. We also face this difficult economic situation. We expect normalization next year, considering the challenges we faced with brand retaliation that you know about some product constraints in our supply chain, particularly Topo Chico in '25 and the opportunities to keep deploying our digital capabilities that are still going to be rolled out, some of the new features and very particularly, the incremental demand that would be driven by the major events in Mexico and the U.S., the FIFA World Cup. In Mexico, we're also going to have the 100th anniversary of Coca-Cola in Mexico. So there are so many things that will work in our favor considering that certainly, it's going to be a challenging volume situation as we pass along these -- the tax that has been imposed, but that's going to be imposed. Operator: Our next question comes from Felipe Ucros with Scotiabank. Felipe Ucros Nunez: A quick question on the taxes in Mexico. Of course, not great news getting this tax increase. I was wondering if you can comment on a couple of things. The first one is the differences between this tax and the one that we saw 12 years ago. No tax for beer were changed. So the gap between soft drinks and beer, I guess, is changing. And I'm wondering if you can comment on what type of impact you would expect through that differential. And whether it's material for us to monitor it or you think the occasions are so different that it's really not a concern. And then the second question related to this is, it looks like there's more serious incentives in place to move the consumer towards no-low options. So I'm wondering if you can talk about how this may change profitability and returns for the business in the long run, if at all. And I'm talking about there's differences on the price per unit of sweetening from sucralose and sugar, perhaps there's a margin differential between the different presentations and concentrating price -- concentrate pricing might also be different. So just wondering if there's going to be like a change on the profitability of the business in the future from the change to no-low categories. Arturo Hernandez: Thank you, Felipe. Well, to the first part, we really don't anticipate an impact from any difference in the tax treatment of other categories really. We're looking at the dynamics within our own industry for sure. And in this case, as you saw, we really have a commitment to reduce the calories in our portfolio going forward. And this is not something that is new or that is improvised by the system. We've been, for years, developing and promoting options with less sugar and with no sugar in Mexico and in other markets. So now what we intend to do is to offer more proactively our broader portfolio, a more balanced and lower-calorie portfolio. And those are part of the commitments we've made with the government as we discussed the implementation of the tax. So as part of that, we also want to promote competitive prices and affordable Coca-Cola Zero packages, particularly. This, as you know, has been a great innovation in our portfolio. Coca-Cola Zero continues to grow, and we will connect that also even to the FIFA World Cup next year. Coke Zero will take center stage in many of the campaigns connected to the World Cup. In terms of profitability, we don't think that, that will really affect overall profitability going forward. Felipe Ucros Nunez: Great. That's very clear. And if I can do a second one on sales in Mexico, they did very well. And it's another quarter with the same categories, tea, energy and juice doing very well. So I was wondering if you could talk a little bit about what you're doing there and why the category is behaving differently from others during adverse weather. Is it that the elasticity for this category is a little different? Or it's more a case of things that you're doing at the micro level? Arturo Hernandez: I think it shows the opportunity that we have to grow these categories. As I said before, energy and juices and sports drinks and tea, they're underdeveloped really in the Mexican market. So we have proved that we can be successful in those categories as well. I think that's very important as you look at the story of Powerade in the last 15 years. And now you see Santa Clara, which I mentioned, also, it's a great success story. Tea grew 22%. Juices grew 6%. Monster continues to grow. So I think it's interesting to see them grow even under very challenging conditions, which means the great opportunity that we have to increase the per capitas of these categories that they don't compare very favorably to more developed markets like our own U.S. market. So it's very promising to see them grow even under a more challenging conditions. So we're excited about those possibilities and especially that we can be leaders in those categories as well as we've also demonstrated. Operator: Our next question comes from Rodrigo Alcantara with UBS. Rodrigo Alcantara: Arturo, Emilio, nice to hear from you. I want to go deeper into some of the comments about the commitments regarding -- with the government, right, ahead of the tax discussion, right, in the conference, the government and the Coke system hosted a couple of days ago. As you mentioned, there were some commitments in relation to this trend of increasing low-carb categories, et cetera, et cetera, right, like namely the reduction of commitment to reduce by 30% caloric needs of your products in a period of, if I'm not mistaken, 1 year or something like that, right, in addition to other commitments, right? So the question here would be how much of a challenge or deal in your view is implementing this, right? How are you implementing this? And possibly linked to the previous question is as a result of implementing this, we may see some impact on margins or profitability, which I think you already said no, right? But I mean just to confirm that, that would be the main question. And the other one, just because this is the one that we're receiving from investors as we speak. We have seen macro numbers in Mexico at the margin not looking as good as we may decide, right? Retail sales in September quite weak. So I mean how would you think 4Q would be shaping up in terms of volumes looking from a consumer demand perspective in Mexico? That would be my question. Arturo Hernandez: Thank you, Rodrigo. Talking about the taxes and also the commitments, as I said, this is really not new for us in terms of the commitments that we made with the government, with Congress. This is part of this plan to strengthen our caloric reduction innovation. And this has been around for years. So plan builds on the calorie content that we've actually been testing in the market for a long time in the Coke portfolio. So here, what we're going to do is just continue the migration. So those commitments are actually part of our own strategy in the last few years and also part of the promotion of Coke Zero that has been our strategy as well. But I think the most important takeaway of those commitments is how we remain committed to be part of the solution and how we've been able to have a dialogue with the government and stakeholders and how this collaboration really highlights our ability to engage constructively with the government and adapt to the frameworks and advance really our journey towards a more sustainable and health-focused portfolio because we really share with the government the need to advance in reducing obesity rates in the country. So we want to be, again, part of that solution. So I think that's main takeaway that we are -- that all this story about tax implementation concluded with a very constructive dialogue and conversation with government. And then talking about volumes and profitability, there is -- our concern is not really that this transition to low-calorie or no-calorie version is going to impact our profitability. Obviously, the impact will come from the volume decline that will be the result of the elasticity in these categories. But again, as I mentioned, looking forward in 2026, we have many things to be positive about as we compare with '25, where we've had so many negative factors combined with -- for the performance that we are seeing so far and that we expect to continue to see throughout the end of the year. So that is why, aside from our ability to pass through the tax and pricing in a smarter way, promoting the packages that we believe are important to protect, I think also we have these mitigating effects that I mentioned before, including our promotional activities, the FIFA World Cup and also the uplift we've seen from the deployment of our capabilities that we've been talking about before. So all in all, I think we're good positioned to mitigate that impact. Operator: We will move next with Lucas Ferreira with JPMorgan. Lucas Ferreira: Sorry to insist on the [indiscernible] topic. And just comparing and contrasting 2014 with the situation guys you will face in 2026, what sort of the tools do you think the company has now enhanced to mitigate the impact and mainly talking about price pack architecture, but also the sort of more developed relationship with Coca-Cola company, better partnership, I would put it this way. And if you can speak about -- generally about your, let's say, market share expectations for next year. If you think this is a situation, obviously, a challenging situation, but at the end of the day, could help you even expand your share. So how to think about that? And also, if I may, a quick follow-up on the very short term, obviously, second quarter for Mexico was already better in -- sorry, third quarter better than second. If you expect to end the year at a better note, how sort of the latest news are coming regarding consumer demand and traffic on the floor, et cetera? Arturo Hernandez: Thank you, Lucas. Well, first of all, talking about the tax and the learnings from 2014, increased prices double digit at the time plus inflation. I guess it was around 12%. We had a 3% volume decline approx, a little less than 3% in 2014 and -- but the volume decline was sequentially better throughout the year. I mean we started with a strong decline in volume in first quarter. By the end of the year, there were -- volumes were pretty flat that year, which means there's kind of a psychological impact as well in that elasticity. Now I think to your point about how are we better prepared. I think we've developed our RGM capabilities in this last 12 years quite a lot. We have a stronger leadership in the marketplace. And as you mentioned, we have a stronger partnership with the Coca-Cola company to jointly navigate through this situation, which is not only about passing along the prices, but also what are we going to do in the market to sustain leadership and increase our presence. So what are the things that works in our favor is that the price -- the tax is designed as a peso per liter. So that means for more premium-priced products, it's going to be a less percentage increase as compared to, let's say, value products out there, brands in the market. And thinking about the fourth quarter, well, the environment will remain very challenging. Again, we are continuing to focus on things that we can control, which are basically 3 pillars: disciplined execution with very targeted campaigns. We have very well-designed campaigns to be implemented in this final part of the year. We're launching especially higher impact marketing campaigns for the Gen Z consumers and also Share a Coke and Christmas that kind of deepens the connection of our brands with consumers as well. We continue to double down on our affordability initiatives, as I mentioned before, with entry packages and with single-serve packages that also provide affordability. And we'll start also deploying all of our efficiency initiatives and playbook in this next quarter and throughout' '26, which means reducing cost to serve as we have redesigned new service models. And a number of other projects like lightweighting, improvement in distribution logistics as well. We have an organizational restructuring that mostly addresses agility and clarifying roles, but also it's going to bring more efficiency. So there are a number of things that will help us mitigate this adverse environment. Operator: Our next question comes from Álvaro Garcia with BTG Pactual. Alvaro Garcia: Arturo, I have a question on Texas. I was wondering if you can comment on potential changes to SNAP benefit in Texas and how that might impact demand for your products. And just general commentary on sort of Hispanic consumer and just the consumer environment in general into next year ex World Cup would be very helpful. Arturo Hernandez: Thank you, Álvaro. Yes. Well, we are currently assessing the potential implications of those SNAP benefit changes in our portfolio. It's not -- we don't anticipate a significant impact, but it's something that certainly we're monitoring and looking at consumer trends and consumer demands and especially paying attention to the segment that this is going to impact the most, which is mostly the take-home segment. So we -- at this point, on the impact, we don't have a specific number to provide. But we continue to believe that's important to give consumers the freedom to choose what groceries they want to purchase for the family with the SNAP benefits, but we're still assessing the implications. What I can tell you about the U.S. market dynamics is that we have seen a sentiment among low mid-income and Hispanic consumers that has declined this year. Rising cost of living or interest rates probably, that's been softening spending. If you look at, for example, our value channel in the U.S., that grew almost 4% year-over-year. It's gained some mix. And also that's related to some of the border tensions we've seen this year, fewer people crossing. And Hispanic traffic has declined more sharply in retailers, even in Walmart Hispanic outlets as compared to the non-Hispanic stores. So total retail traffic did fall in this third quarter convenience stores only. Again, club and value saw traffic growth. So that tells you about how the dynamics are playing out. So what we have adopted is, as I said before, this premium strategy -- this dual strategy of premiumization with brands like Topo Chico or Smartwater for some consumers, for the higher income consumers and the introduction of a packaging architecture that addresses the pressure in that middle and lower-income segments in the U.S. market. And for sure, we're going to capitalize the FIFA World Cup events that are going to start actually this year. These major events include the tournament itself next year, we're going to be hosting 24 of the 104 matches in our 4 cities in Mexico and the U.S. We're the Coke bottler with the highest of matches in the tournament and 16 of those are going to be in our U.S. market. So we'll capitalize on all the activities surrounding the World Cup and also the celebration of the 250 anniversary of the independence of the U.S., we're going to be part of that as well next year. Operator: We will move next with Alejandro Fuchs with Itaú. Alejandro Fuchs: I wanted to shift gears and ask you one about South America, especially Argentina and Ecuador. I know it's a very uncertain scenario, right, but I want to see what your expectations going forward, maybe in the next 12 months. We're seeing volumes coming down, but margins going up. So I want to see how you see the business on the ground talking to the teams and what would be kind of the expectations if we should continue to see volumes being pressured or maybe profitability normalizing a little bit. Arturo Hernandez: Yes. Thank you, Alejandro. Let me start with Argentina. As you've seen, we've been facing a very challenging macro environment in the third quarter, rising uncertainty and some of the indicators deteriorating. And that has impacted the lower income segments of consumers and those provinces with high public employment. Unfortunately, we're in a market with high public employment. So we saw the steepest impact of this situation with consumption falling between 6% and 7% in general as compared to the central regions, which were -- had a less significant impact. So our year-to-date performance was still ahead of last year. But certainly, the trend is not very favorable. What we're doing is we're balancing our pricing discipline and affordability and our operational efficiency to stay competitive in this highly dynamic market. What's been important for that are, again, our pricing tools, our promotional tools to align prices with inflation. Our affordability and our playbook for things like Tapipesos promotions, tactical pricing on nonreturnable formats as well. Returnable is very important in Argentina. As you know, it's the highest mix of returnable in all of our markets. And to protect margins, we've been implementing very strict cost control measures. We are also launching new products and continue to innovate in some of the stills category. So we expect Q4 to outperform the third quarter as we expect a gradual improvement. But certainly, we're going to continue to focus on efficiency initiatives to protect margins. If we look at the context for margins in Argentina, we're going to see some upward pressure in some of the expenses related to payroll, particularly, but we're going to have efficiency in other concepts that will offset these pressures. Raw materials, we expected them to rise, driven by inflation. But we had the acquisition of the second sugar mill in Tucumán that is going to mitigate the impact of input cost for us. And I think that's also going to be very important going forward. If we look at Ecuador, and the dynamics in that market, also a difficult environment, mostly challenged by rising insecurity. The economy actually grew in the third quarter in Ecuador, but declining oil production and increased costs have resulted in some new policies like the elimination of the subsidy on diesel fuel and things like that. So -- but retail remains active despite this complex environment in Ecuador. And I think it's important to see how our business, and this is the same case for, I would say, all of our markets in this very difficult third quarter have demonstrated very strong resilience, improving in the case of Ecuador, profitability in the third quarter and outperforming the industry's volume decline in the year. So here, affordability also is going to be important. The execution of our point of sale with new cold drink equipment. That's also a very important in Ecuador. And how we leverage our new service models to enhance customer experience and also to bring efficiency to our go-to-market strategy. So stills categories is an opportunity and deployment of digital as well in Ecuador. So under this challenging environment, again, we're able to effectively protect the profitability for '26 in Ecuador. We are expecting OpEx to grow above inflation, and this is mainly due to the increased depreciation and diesel costs that I mentioned. And -- but some of the pressures will be partially offset by the optimizations that we have planned for our service models, our go-to-market models and some other adjustments. So PET are expected to rise in '26 with freight cost. Sugar is expected to be in line with the '25. So there's going to be some margin pressure considering all these factors, basically the removal of the subsidy, but our focus will be to protect our '25 margin in '26. Operator: Our next question comes from Renata Cabral with Citi. Renata Fonseca Cabral Sturani: It's a follow-up about Mexico. I would like to ask you if you can give some color in terms of competitiveness and how the brand has been reacting to the current environment for volumes and the company has been sustaining shares? And if you can provide some color on the performance in the channel strategy, the traditional channel versus the modern trade if they are different in terms of one is better than the other in the current environment? Arturo Hernandez: Thank you, Renata. Well, in terms of channels, the traditional channel received part of the impact and the decline in consumption this quarter, also convenience store reduced traffic. The only channel that actually increased volume in the quarter was supermarkets. And as I mentioned, was mostly driven by intensified promotions and more competitive pricing. So I think that's a natural consequence of the economic dynamics. But most importantly, we are strengthening our leadership in the marketplace, even considering that we have a price gap versus our main competitor versus rebrands as well. We did have an impact on our share of market with the first half of the year as a result of the retaliation of our brand that you know about. But that really has been solved, and now we're back to the position of leadership that we've had before. Operator: We will move next with Henrique Morello with Morgan Stanley. Henrique Morello: So I would just like just to explore the margin performance in Mexico. As you saw another quarter of compression on a year-on-year basis and at higher levels if compared to the last quarter, right? So if you could dive deeper on the dynamics behind the margin decline this quarter, perhaps beyond the volume decline? And if anything changed from last quarter? And how do you expect the margin to behave in Mexico going forward when you look at your hedge positions right now? Arturo Hernandez: Thank you, Henrique. I will turn that over to Emilio to respond the question. Go ahead, Emilio, please? Emilio Marcos Charur: Yes. Thank you, Henrique, for your question. Yes. Well, in Mexico, basically, there's several factors that affected the margin -- EBITDA margin being the one, the decline in volume as we have explained already. But there are also some changes that Arturo already mentioned. One is the mix of channels. The traditional trade was more affected by the rainfalls during the quarter compared to supermarkets. So channel mix change and also presentations. The mix of single-serve also declined in the quarter. So that was basically the main impact for the margin -- EBITDA margin in Mexico. . For the rest of the year, we've been working on expense control. You also can see that throughout the year, we've been improving our sales -- OpEx to sales ratio every quarter. So internally, everything that we control, we are looking in every efficiency that we can implement in all the operations. So in Mexico, we've been able to mitigate part of the volume decline impact talking about the margin. So for the full year, we're expecting to maintain -- at least maintain the current levels of EBITDA margins for the region. Operator: We will move next with Axel Giesecke with Actinver. Axel Giesecke: Just a quick one. Given your healthy balance sheet position, are you considering further M&A opportunities? And if so, which regions are you looking forward into? Emilio Marcos Charur: Thank you for the question. Yes. Well, as you know, there's -- talking about capital allocation, that's one of our main priorities. Well, as we have mentioned, number one is investing in our operations, and then we just announced an additional dividend. But yes, M&A, as you know, we continue to evaluate, basically, opportunities in U.S. and Latin America. So we have a very strong balanced position in order to close any opportunities. But in the meantime, we've been able to find another avenues for inorganic growth that we are on line with our core business, such as the recent acquisition that we announced, the Imperial, the vending and micro market business in U.S. But we keep exploring opportunities, basically, within the Americas. Operator: We will move next with Fernando Olvera with Bank of America. Fernando Olvera Espinosa de los Monteros: I just have one, and it's related to Mexico. Arturo or Emilio, how are you thinking about CapEx next year and the potential tax increase? Any insight on this would be helpful. Emilio Marcos Charur: Thank you, Fernando, for your question. Yes, regarding CapEx, well, as I mentioned, as of September, we reached MXN 11.8 billion, representing 6.4% of sales. We were expecting to invest around 7%. That's what we mentioned at the beginning of the year. The [ 6% ] of those CapEx are in Mexico and U.S. But at the beginning of the year, when we saw a slowdown in volume, we have postponed some initiatives this year. So ratio OpEx -- CapEx ratio will be around the same level that we have right now, 6.4%, instead of 7%. So we just adjusted some of the CapEx that we were expecting for this year without compromising our long-term growth strategy. So we remain committed to the strategic investment that we have for our capabilities and expanding our capacity and distribution, but I would say in a slower pace than we expected at the beginning of the year. Fernando Olvera Espinosa de los Monteros: Okay, Emilio. And thinking -- I mean, considering that the increase of the excise tax was just announced, I mean, how do you expect CapEx to behave in Mexico next year? I mean, is it possible that you keep postponing some projects for 2027 or... Emilio Marcos Charur: There are some projects that we started and we need to continue in order to be ready for the volume in the next, let's say, 2, 3 years. So there's some of the CapEx that needed to keep going to be ready in 2, 3 years. But the short-term ones are the ones that we are just postponing and see how the volume behave and then we'll decide if we continue with those next year or if we go and move it to 2027. So we expect around 5% to 6% maybe in Mexico CapEx to sales. Operator: This concludes today's Q&A portion. I would like to now turn the conference back to Arturo Gutierrez for closing remarks. Arturo Hernandez: Thank you. We really appreciate your time today and especially your ongoing commitment for company. So please reach out to our investor relations team for any follow-up questions you might have. Look forward to speaking with you again next quarter. Have a great day. Operator: Thank you. And this does conclude today's program. Thank you for your participation. You may disconnect at any time.