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Operator: Good morning, ladies and gentlemen, and welcome to MDA Space Limited Conference Call and Webcast. This call is being recorded on November 14, 2025, at 8:30 a.m. Eastern Time. Following the presentation, we will conduct a question-and-answer session. Instructions will be provided at that time for you to queue up for questions. [Operator Instructions] I'd now like to turn the conference over to Shereen Zahawi, Head of Investor Relations at MDA Space. Please go ahead. Shereen Zahawi: Thank you, operator. Good morning, and welcome to MDA Space Third Quarter 2025 Earnings Call. Mike Greenley, our CEO; and Guillaume Lavoie, our CFO, will lead today's call and share some prepared remarks before taking your questions. A couple of housekeeping items before we begin. Today's call is accessible via webcast on our Investor Relations website. All our disclosures, including the press release, MD&A and financial statements are available from our Investor Relations website and from SEDAR+. I would also like to remind you that today's call will include estimates and other forward-looking information, which may differ from actual results. Please review the cautionary language in today's press release and public filings regarding various factors, assumptions and risks that could cause actual results to differ. In addition, during this call, we will refer to certain non-IFRS financial measures. Although we believe these measures provide useful supplemental information about our financial performance, these measures do not have any standardized meaning under IFRS, and our approach in calculating these measures may differ from that of other issuers and therefore, may not be directly comparable. Please see the company's quarterly report and other public filings for more information about these measures, including reconciliations to their nearest IFRS measures. And with that, it's my pleasure to turn the call over to Mike. Mike Greenley: Thank you, Shereen. Good morning, everyone, and thank you for joining us today to discuss our third quarter 2025 financial results. In Q3, the MDA Space team delivered another quarter of strong financial performance with double-digit growth in both revenue and profitability. Our revenues totaled $410 million, up 45% year-over-year. Adjusted EBITDA was $83 million, up 49% year-over-year, and adjusted EBITDA margin was a solid 20.2%. Operating cash flow was healthy at $33 million, and we ended the quarter with a strong balance sheet. Our backlog of $4.4 billion at quarter end provides revenue visibility for 2025 and 2026 and beyond. Q3 and the subsequent period was a busy one for MDA Space. In early July, we closed the previously announced acquisition of SatixFy Communications, a leader in next-generation satellite communication solutions based on in-house design chipsets. SatixFy's operations and full technology portfolio is now part of the Satellite Systems business area of MDA Space and integration activities are well underway. As you know, during the quarter, we also announced our selection by EchoStar to be the prime contractor on a new low Earth orbit direct-to-device satellite constellation valued at approximately USD 1.3 billion, whereby MDA Space was tasked with the design, manufacture and testing over 100 software-defined MDA AURORA direct-to-device satellites. EchoStar subsequently terminated the contract for convenience in September 2025. As per our contract, MDA Space is entitled to and expect to be compensated for all related termination costs and fees and is in discussions to finalize that contract termination agreement. While we are disappointed with the EchoStar development, as we have said previously, it is unrelated to MDA Space performance and our products and services. These remain in high demand. In events and forums around the world this fall, we continue to be encouraged by the high level of customer interest we are seeing in our space technology, which is uniquely positioned to serve the emerging and evolving needs of the space market. We are also pleased and honored to be named the 2025 Global Satellite Business of the Year by Novaspace and presented with the award, which celebrates excellence in satellite business at the annual -- at the annual World Space Business Week in Paris this past September. I want to take this opportunity to congratulate and thank our MDA Space team for their commitment, expertise and award-winning industry leadership. Subsequent to quarter end, we announced a $10 million equity investment in Maritime Launch Services, a Canadian-owned commercial space company that is developing Spaceport in Nova Scotia, Canada's first commercial orbital launch complex. The investment will help accelerate the Spaceport's readiness for orbital launch operations, providing reliable domestic launch capability for commercial, civil government and defense clients in Canada. We are also reaffirming our previous 2025 full year outlook, which we provided with our Q2 2025 earnings release with full year revenues expected to be between $1.57 billion and $1.63 billion representing year-over-year growth of approximately 48% at the midpoint of guidance and full year adjusted EBITDA expected to be between $305 million and $320 million, representing year-over-year growth of approximately 45% at midpoint of guidance. We look forward to delivering another year of solid financial performance in 2025. I want to take a moment to speak to what we see as an increasing market opportunity for MDA Space related to the growing focus on defense investment as NATO countries rapidly move to reinvest to build capabilities and infrastructure. With the space domain increasingly recognized as a critical domain for defense and security, we believe MDA Space is well positioned for this opportunity to extend our mission capabilities and support the strategic sovereignty and security requirements of Canada and its partners and allies. We are in the early days of a new and what is projected to be a prolonged investment cycle. We are noticing a change in pace and intensity of defense space conversations and are actively engaged in these discussions. I'll now give you an update on our 3 business areas and then pass it to Guillaume for a deep dive on the financials. In Satellite Systems, we continue to see good momentum in this market with our teams working to advance multiple requests for communication satellite solutions and a growing number of constellation projects from multiple markets and geographies. We are also seeing good activity levels from customers and our opportunity funnel remains strong. In Q3, our teams were busy advancing work on our programs. On the Telesat Lightspeed program, our teams are currently working on the program's detailed engineering and manufacturing preparation phase, including the critical design review, which is taking place this year. The team is also advancing work on the Globalstar next-generation LEO constellation, where MDA Space was selected as the prime contractor to manufacture more than 50 MDA AURORA software-defined digital satellites. The team is making good progress on the engineering, development and procurement activities for the program and is progressing work related to the critical design review milestone. In July, our Satellite Systems team also achieved an industry first by demonstrating digital beam forming and steering multiple beams with Ka-band direct radiating arrays using direct sampling. These are among the key features of the MDA AURORA Ka-band DRA and the demonstration marks a key milestone in the development of the digital payload technology for the MDA AURORA software-defined product line. We also continue to advance work on the initial Globalstar program, where MDA Space is the prime contractor to enhance Globalstar's LEO constellation through the addition of 17 satellites, which support SOS features and direct-to-device communication on certain Apple products. In Q3, the team progressed flight hardware production. The team continues to advance final satellite integration and test work with 9 spacecraft currently on the shop floor in our Montreal facility. Due to delays resulting from a number of factors, including the supply chain, the delivery of these satellites is now expected in early 2026. We are currently in discussions with Globalstar to address any potential liquidated damages that might result from this delay. It's important to note that our contracts with our supply chain are structured in a manner that embeds liquidated damage clauses as well. So we have recourse in the event of supplier delays. We're also making solid progress on our facility expansion in Montreal, Quebec, which will add 185,000 square feet to our existing satellite production facility. A portion of the office space is now complete and a number of engineers have moved in with great excitement. And we continue to finalize interior elements of the production facility, which remains on track to be completed this year. Once complete, it will be the world's largest high-volume manufacturing facility in its satellite class with capacity to deliver 2 MDA AURORA digital satellites per day. Finally, in late October, 21 low Earth orbit satellites for the Space Development Agency's Tranche 1 Transport Layer were successfully launched from California's Vandenberg Space Force Base and MDA Space was part of this mission. We provided all Ka-band and L-band antennas as well as motor control electronics for the satellites. The SDA's Tranche 1 Transport Layer, a mesh network of 126 satellites will deliver resilient, low-latency connectivity to support military operations in the United States. Our technology plays a key role in enabling secure and reliable communication across the constellation. Congratulations to everyone involved in making this achievement possible. Moving to our Robotics & Space Operations business. We continue to see good traction and activity levels on both the government and commercial fronts. In Q3, we continued to ramp up work volumes on Phase C of the Canadarm3 program, which we were awarded together with Phase D in 2024. During the quarter, our teams were busy actively building and testing engineering models of the system elements. Phase C will see us completing the final design before we move on to Phase D, which will see the construction, system assembly, integration and test of the full robotic system as well as a ground segment for command and control. We also announced in July that an MDA Space-led team was selected by the Canadian Space Agency to conduct an early phase study for Canada's proposed Lunar Utility Vehicle or LUV. Recall that the 2023 CSA -- recall that in 2023, CSA announced $1.2 billion in funding for a Canadian utility rover that would be contributed to the Artemis program and would support human exploration on the lunar surface. This initial phase study is a first critical step in defining the LUV mission concept and technology development plan. As part of this effort, the team will integrate MDA SKYMAKER, our full suite of scalable and modular space robotics derived from Canadarm technology, paving the way for scalable autonomous mobility solutions on the lunar surface. Moving to our Geointelligence business. Customer demand for our Earth observation offering remains robust, and we are seeing increased recognition of the role that commercial Earth observation satellites can play to provide near real-time data and analytics to governments and private enterprise. Notable awards in Q3 include 2 contracts to equip the Royal Canadian Navy's Halifax-class ships and up to 6 new Uncrewed Aircraft Systems. Part of the Intelligence, Surveillance, Target Acquisition and Reconnaissance Uncrewed Aircraft System, known as ISTAR UAS project, these new systems will significantly enhance the Navy's ability to detect and monitor potential maritime threats, both at home and abroad. The award includes an acquisition contract valued at approximately $39 million for the initial procurement of 2 uncrewed aircraft systems with options to procure 4 additional systems and an in-service support contract estimated at $27 million over an initial 5-year period to sustain operations with opportunities for extension beyond the initial period. We were also selected to deliver enhanced space situation awareness to the Department of National Defense. The standing offer awarded to MDA Space in partnership with Canadian-based Thoth Group underscores the growing importance of space domain awareness in safeguarding Canada's critical space assets amid a rapidly evolving and increasingly congested orbital environment. Building on MDA Space's proven legacy as a space domain mission partner and leveraging Thoth Group's initiative Earthfence radar capability, the new service integrates high-fidelity sensor data with secure cloud-based infrastructure optimized for tracking and assessing satellite and space objects in the geosynchronous belt, approximately 36,000 kilometers above the Earth surface. We also continue to advance work on MDA CHORUS. Our spacecraft electrical integration and testing activities continued, and we have all spacecraft units on hand. Solid progress was made in building and testing the SAR antenna panels, and we're building up the last of 4 panels in parallel with electrical and RF characterization and test activities of the second and third panels. On the ground segment side, the MDA Space team continues to track to development and release plans. Construction works also continues for a new mission control center from where MDA CHORUS will be operated. And while we are overall pleased with the performance of our supply chain, we have encountered some delays with certain units, which are impacting the program time line. As a result of those delays, we are now targeting a launch window for MDA CHORUS in late 2026. We are looking forward to deliver the constellation's enhanced functionality to our current and future customers with many active discussions of the future opportunities in our pipeline. I also want to provide an update with respect to a proposed class action claim that MDA Space was served subsequent to quarter end. The allegations are related to the announcement and subsequent cancellation of the EchoStar constellation contract that was announced by MDA Space in the third quarter of 2025 and the sales by certain insiders of shares after the announcement of contract and before its termination. MDA Space believes the claims are without merit and intends to vigorously defend itself. With that, I'll hand it over to Guillaume to walk us through the financial details. Guillaume Lavoie: Thank you, Mike, and good morning, everyone. For my update, I will walk you through our Q3 financial results and provide more details on our 2025 financial outlook. Overall, Q3 results were solid with growth in revenue and profitability and a strong balance sheet and backlog, providing us good revenue visibility for the remainder of 2025, 2026 and beyond. Total revenues for the third quarter were $410 million. This represents a $127 million or 45% increase over the same period last year. The year-over-year increase is driven by higher volumes of work performed in our Satellite Systems and Robotics & Space Operations businesses. By business area, revenues in Satellite Systems of $284 million in the third quarter were $116 million or 69% higher compared to the same period in 2024. The growth was driven by the ramp-up of the Telesat Lightspeed program and the Globalstar next-generation LEO constellation program. In Robotics & Space Operations, revenue of $78 million in the latest quarter represented a $12 million or 18% increase versus Q3 of last year, driven by the continued ramp of Phase C of the Canadarm3 program. Revenues in our Geointelligence business of $48 million in the latest quarter were in line with our expectations and the levels reported in that business segment last year. Moving to gross profit. For Q3, gross profit was $108 million, representing a $32 million or 43% increase over the same period last year, again driven by higher volumes of work. Gross margin in the latest quarter was 26.4% and compares to 26.8% for the same period in 2024. Adjusted EBITDA in the latest quarter was $83 million compared to $56 million in Q3 2024, representing an increase of $27 million or 49% year-over-year, again, driven by higher work volumes as we continue to execute on our backlog. Adjusted EBITDA margin was 20.2% in the latest quarter, consistent with the company's full year margin guidance of 19% to 20% and compares to adjusted EBITDA margin of 19.7% reported in the third quarter of 2024. Adjusted net income for Q3 was $46 million compared to $35 million in the same period last year. The year-over-year increase of $11 million or 33% is primarily driven by higher operating income after adjusting for the amortization of intangibles expenses incurred in Q3 2025 and attributable to the SatixFy Communications transaction, which we've closed on July 2, 2025. Moving to our backlog. We ended the quarter with $4.4 billion in backlog, a decrease of $185 million or 4% compared with the backlog as of September 30, 2024, driven by continued conversion of our backlog into revenue. Last 12-month book-to-bill ratio stood at 0.9x at quarter end and our current backlog provides us with high revenue visibility for the remainder of 2025, 2026 and beyond that. Moving to CapEx. We remain focused on making investments in the business to support our strategic growth initiatives. In Q3, we spent $70 million on capital expenditures compared to $53 million last year as we continue to progress our development of CHORUS, where most of the investment has been incurred. And other growth initiatives such as the expansion of our Montreal satellite manufacturing facility. Cash from operations during the quarter generated $33 million compared to a cash generation of $259 million in Q3 2024. The year-over-year change was primarily due to working capital fluctuations. Free cash flow was negative $37 million in the quarter, and compares to $205 million for the same period in 2024, with the year-over-year change attributed to the previously noted working capital fluctuations. Excluding growth CapEx, free cash flow was $26 million in the latest quarter and compares to $253 million for the same period last year. Moving to our balance sheet. We ended the quarter with cash of $196 million, available liquidity of $404 million under our revolving credit facility and total liquidity of $600 million. Our net debt to last 12 month adjusted EBITDA ratio stood at 0.3x at quarter end. The slight uptick in leverage is due to the completion of the previously announced SatixFy Communications Ltd. acquisition, which closed again on July 2, 2025. Recall that the company used cash on hand and borrowings from our revolving credit facility to pay for the transaction. In summer, this was a strong quarter, and I'd like to thank our teams for their dedication and efforts to make this happen. Let me now turn to our full year outlook. As Mike noted, we are reaffirming the previous 2025 outlook provided in our Q2 '25 earnings release. For fiscal '25, we continue to expect full year revenue to be between $1.57 billion and $1.63 billion, representing year-over-year growth of approximately 48% at the midpoint of guidance. We continue to expect full year adjusted EBITDA to be between $305 million and $320 million representing year-over-year growth of approximately 45% at the midpoint of guidance and approximately 19% to 20% adjusted EBITDA margin. We reaffirm capital expenditures to be between $210 million and $240 million, comprising of growth investments to support the previously outlined growth initiatives across our business areas. Lastly, we expect full year free cash flow to be neutral to positive in 2025. Note that the financial outlook provided does not factor any potential impact from tariffs. We continue to expect our potential exposure, if any, to be manageable. We are monitoring the situation and may elect to update our financial outlook if deemed necessary. With our $4.4 billion backlog, combined with a robust $20 billion opportunity pipeline, we are confident in delivering continued growth while remaining focused on disciplined execution and profitability. Mike, with that, I'll turn it over back to you. Mike Greenley: Thank you, Guillaume. With that, operator, we will open it to questions. Operator: [Operator Instructions] First, we will hear from Benoit Poirier at Desjardins Capital Markets. Benoit Poirier: Yes. Mike and Guillaume. Maybe first question, could you comment about your latest updates with Globalstar and also how a potential sale would impact your contracts? So if ultimately, Globalstar decided to sell itself, what -- if any, protections do you have in place? I know this is out of your control, but if you could provide any color, that would be great. Mike Greenley: Thanks. As you would appreciate, as a matter of company policy, we can't really comment on rumors or speculation concerning another company or what people are talking about it. For us, with Globalstar, we're actively involved in executing on our 2 contracts. We are making good progress on those 2 contracts as we've indicated. On our original contract, we have 9 satellites being completed and getting ready to be shipped out in early 2026, ready for launch. And in our second larger contract, we continue to execute well on those satellites moving forward. These satellites are important to Globalstar for their constellations, and we are actively engaged in getting them delivered. Benoit Poirier: Okay. That's great. And in terms of outlook, obviously, you're very encouraged with all the discussion you have. But could you maybe quantify your bidding pipeline and talk also about how it has evolved versus last quarter? And I would be curious to see where do you see the greatest opportunities among them. Mike Greenley: Sure. The company pipeline remains at around $20 billion over the next 5 years of specific opportunities that we are speaking with people about in the markets. Of that $20 billion, approximately $13 billion of it would be in the Satellite Systems business area, primarily in the area of constellations for both broadband satellites and/or direct-to-device satellites. After that, there'd be solid opportunities in Geointelligence, specifically around -- the larger opportunities would be around satellite systems for government programs, for Earth and space observation. And then a solid pipeline in robotics for robotics and rover systems for both government and commercial programs. Benoit Poirier: Okay. And you mentioned some delays related to Globalstar and CHORUS. So what could be the -- Mike, the potential outcomes for MDA in terms of liquidated damages? And could you be maybe more specific about what's causing the delays? And is it the same supplier? And do you see an opportunity to do some vertical integration? Mike Greenley: Yes. In Globalstar and CHORUS, I indicated in each case, there was some delays and in each case due to activities in suppliers. They are different suppliers, different topics. Just different people having challenges that we've worked with them to work through. In each case, we've worked through them and have solutions now for the -- to move forward, but they did cause some delays. In the case of Globalstar, to answer your question about liquidated damages, it is normal. All of our firm fixed price contracts have liquidated damages clauses. And so it's been disclosed by Globalstar and by ourselves that those clauses do exist. And as a result of the deliveries now being late due to the supplier issues, that it's eligible to talk about liquidated damages clauses. And these are in discussion. It is normal for us to have back-to-back liquidated damages clauses with our suppliers so that if they are late, then we can impose liquidated damages on them. So all of this is a discussion point. The focus is absolutely just getting the satellites finished by getting them out in early 2026 and getting them to launch. And so that is all well underway and everyone's entire focus across all the teams involved in that project. In CHORUS, that supplier delay had occurred, a different supplier, again, resolved. And so now we're completing the assembly of the units on that satellite and getting it ready out for test. And so the implications are what we stated is that we shifted our target launch date to the end of 2026, and we continue to progress on that basis. Benoit Poirier: Okay. And last one for me, just for Guillaume. In terms of capital allocation, given the recent drop in share price, how does it impact your capital allocation strategy? Do you still see some attractive M&A opportunities out there? Or do you see an opportunity for buyback or -- yes. Guillaume Lavoie: Yes. Thank you, Benoit. We obviously always look at capital allocation. I'm not going to comment too much on the share price movement other than saying that, yes, we are where we are right now. It's not just MDA. The whole sector is down. Our strategy regarding M&A hasn't changed really. We're focused in 2 areas. One of which is, if there are opportunities for us to continue to strategically pursue supply chain opportunities, we'll do that. We did that this year with SatixFy. And the other area of focus for us is to consider expanding in new regions, primarily targeting Europe and the U.S. And obviously, we always think about what type of financing we would need for such potential acquisitions, but I'll leave it at that for the moment, Benoit. Operator: Next question will be from Konark Gupta at Scotiabank. Konark Gupta: I wanted to ask you, Mike, you mentioned in the opening remarks about space defense. I think you're attending and maybe presenting at a conference next week in Ottawa. What kind of space defense opportunities are we talking about here? Like is it all constellation related, just geo, maybe robotics, it's all across? Or anything specific you're focusing on in the near term? Mike Greenley: Sure. From an MDA Space capabilities perspective, space defense provides a number of opportunities. One of the areas would be in defense communication networks. You would have heard in my remarks that we do provide key technologies into the communication satellites in the United States for their Department of Defense communication satellites. We have opportunities in multiple countries to provide satellites and satellite technologies for military communication networks. A second area would be in Earth observation. We own and operate RADARSAT-2 where, as we just discussed, heading towards the launch of CHORUS. Our provision of synthetic aperture radar-based imagery to defense and intelligence customers around the world is obviously a strong defense asset to provide Earth observation for military surveillance operations. Another area is space observation, whereby it was announced in my remarks that we just recently picked up a new contract in partnership with [ Thoth Group ] in Canada to provide space observation to track the activities of satellites in orbit, which is tracking what people are up to and who's moving around and who's going where in orbit with their satellites, which is an important defense-related activity. There are a number of opportunities in Canada and around the world for us to provide space observation technologies, both from the Earth and from orbit, which means from satellites to be able to contribute to space domain awareness or space observation pictures. Once you observe activity in space, sometimes you want to do something about it from a military operations perspective, which is starting to open up a market in the counter space domain. I call it the counter space domain. You would have seen announcements in some countries recently talking about guard satellites, for example. These are defense departments putting up satellites that can sense what other satellites are doing that can maneuver to protect satellites and keep other satellites away from them and/or go and inspect or investigate other satellites from a military perspective. Our really strong experiences in satellite design and operation and proximity operations from our 40 years of robotics activity. We have a very strong background in proximity operations and our experience in robotics. All of these capabilities put us in a strong position to be able to offer counter space or guard satellite solutions for the market. And militaries around the world are increasingly looking for those as the space domain becomes more congested. So that's the long story. The short story is there's opportunities in all 3 business areas. Konark Gupta: That's great. Great to hear that. And if I can follow up, your recent equity investment in Maritime Launch, what's the idea there? I mean, are you guys looking to eventually become more vertically integrated like with obviously SatixFy now on the supply side and now the launch maybe? Or is it just a one-off to support Canada's missions? Mike Greenley: Yes, it's a bit of a longer-term strategic view. Certainly, the words that you just used, which is to support the Canadian space ecosystem is an important element of this. MDA Space, as the largest space company in Canada has a number of roles in addition to delivering a good business. We also have a leadership or championship role that we have in the country to be able to help make everything work in the space ecosystem. One of those areas, as countries get more interested in sovereignty, being able to just take care of themselves as a country. One of the key areas from the space domain for both civil and military purposes is to have domestic launch capability. Canada is moving towards this. Maritime Launch has been advancing this over the last few years. So our small investment gives us a position with the company. It gives us certain investor rights such as Board positions and the like, so that we can be involved in helping to shepherd the advancement of that capability in the country. Over time, we'll continue to monitor that participation, could result in increased investments in the future or not. But it certainly allows us to leverage our size, scope and leadership and different skill sets to the Maritime Launch capability to ensure that Canada advances an effective domestic launch capability through the Spaceport, Nova Scotia. Konark Gupta: Got it. And last one for me before I turn over. Maybe Guillaume can answer this. Looking at the working capital swing, I think it's pretty normal. These swings are happening. Anything out of the ordinary you could point out in Q3? And I'm specifically also looking at the contract liability item. I think it went up. Some is obviously driven by SatixFy acquisition because you tuck them in, but it seems without SatixFy, you also got some increase in liabilities there. Is there like -- is it driven by the new contracts? Or it's driven by the existing contract like SatixFy, Globalstar? Guillaume Lavoie: Yes. Konark, so first of all, the fluctuation in Q3 is totally normal. We've been saying all along that from one quarter to the other, we will be seeing working capital fluctuations. So we had a bit of a reversal this quarter. Overall, our free cash flow performance year-to-date is quite strong. But yes, we maintain our outlook of neutral to positive for this year. We are always being conservative on the cash planning. We're happy with the progress with our programs and overall with our cash management. And from a contract liability, this is just like us progressing the work. And you can see the balance sheet fluctuations associated with that, but there was nothing outside of the ordinary for this quarter, Konark. Operator: Next question will be from Thanos Moschopoulos at BMO Capital Markets. Thanos Moschopoulos: Mike, with respect to the pipeline for Satellite Systems, how would you characterize the mix between government relative to commercial opportunities and how that's evolved? Is it a good split? Or is it heavily weighted towards one versus the other? And then on commercial, are we talking mostly about incumbent operators looking for satellites? Are we talking about maybe corporate entities who are new to the satellite industry, but want to buy infrastructure? Is it start-ups, all of the above? Just any color on the nature of the customers there would be helpful. Mike Greenley: Sure. Yes, satellite opportunities are mainly commercial. There are some government opportunities, but they are mainly commercial, to answer your first question. On commercial opportunities, they are varied. They include experienced satellite operators for sure. Maybe the majority would be experienced satellite operators around the world. There are some that are pulling together new investments to be able to produce space-based networks as a business opportunity. And then there are some that would be corporations looking to have networks. But the majority would be established financed space network operators. Thanos Moschopoulos: Okay. And with respect to your digital cable technology, how important is that becoming a differentiator? Like obviously, you've talked in the past about new customers needing some education maybe in terms of the benefits. But are your advantages there now becoming more recognized? Or are most of the RFPs still looking for analog satellites? Mike Greenley: I think that people are increasingly appreciating the opportunity that digital satellites offer. I think that in my remarks, I mentioned our demonstration capability that we now have in our facility in Montreal to be able to demonstrate dynamic beam forming. This is very important for customers to be able to come in and actually see dynamic beam forming in operation. So to have those technologies advance to the demonstration level is extremely important for those customers to be able to not only mathematically realize the benefits of a digital satellite, but to visually see and experience that technology in operation. I think that, that is really important. I think that our completion of our expanded satellite production facility, high-volume production facility, as I mentioned, with engineers now moving into their spaces, in an exciting development and thus now finishing the manufacturing environment as we complete 2025 puts us in a position where we not only have this digital technology, we can demonstrate this digital technology, but we're entering into a production mode where we can do it at scale and at pace. And so the space-based network market is competitive. There's a lot of activity in this sector, especially in the direct-to-device element of the sector. And so the race to revenue is important. And so our ability to be able to have shorter high-volume delivery times of an advanced demonstratable digital technology is definitely a differentiating element of competitive conversations. Operator: Next question will be from Doug Taylor at Canaccord Genuity. Doug Taylor: Mike, I want to ask another question on the direct-to-handset (sic) [ direct-to-device ] market. You referenced a very dynamic situation right now with some of the participants. I think investors are grappling with what the end state of that market looks like with all these vertically integrated participants moving pretty quickly to consolidate spectrum. Can you talk about how you see that end state evolving here from where you sit in your conversations as a supplier into that market? Mike Greenley: Yes. I think it's -- I agree with your characterization of it as being dynamic. It's certainly a busy time. There have been some moves by players. Obviously, the SpaceX acquisition of EchoStar spectrum has been -- was a sudden development that suddenly occurred and is causing people to adjust. I think that there are a number of parties in the market that are really running, like I say, the race to revenue, really working hard and fast to get their direct-to-device network projects moving forward. And that's an important thing. As a supplier of satellite technology into those markets, there are definitely in our pipeline, a number of opportunities for us to provide our MDA AURORA digital satellite into folks that want to build and operate direct-to-device networks. And those conversations continue. I think that sometimes in the pipeline, as people look at their plans and competitor plans and how to collaborate with each other and stuff, it is resulting in some dynamic conversations to be able to ensure that folks that do want to collaborate can collaborate in the market space in the future, and that's kind of interesting to be able to work through with people. But it's a dynamic busy time. That's for sure. But the opportunities are there. Doug Taylor: Okay. And a lot of focus on that direct-to-handset application of the LEO network. And maybe I can flip to talking about some of the other parts of that communications satellite market being the broadband and satellite-based backhaul applications, more of that Lightspeed type model. How the pipeline on that side progress and that market evolved in response to all this? Mike Greenley: Yes, it's solid. It's definitely solid. There are strong commercial opportunities there to have Lightspeed like relationships with folks around the world. And so we're actively engaged in those types of conversations in our pipeline. There are government opportunities there. One of the geopolitical shifts over the last year in 2025 has been the interest in countries to have increased sovereignty, defense sovereignty, security, sovereignty, economic sovereignty, which can include at times in some countries' minds, the importance of having domestic communications capability and/or domestic Earth observation capability for their country. And so these are -- as folks are looking at increased government spend to increase sovereignty and security of their nations, communication systems and observation systems are key elements, of those sovereignty type postures. And so both in the commercial sector and the Telesat Light companies around the world, in addition to the government sector, there's an increased interest in space-based communication networks. Doug Taylor: And so last question for me with everything that you've just said, and I think you previously talked about the potential for another LEO satellite constellation award within the next year or 12-month time frame even after the EchoStar situation. Is that still the case? Are there programs out there with that kind of immediacy in the pipeline? Mike Greenley: Yes. Certainly, the order pace is always up to the customer in terms of when they want to move out and place an order. I always look at and talk about the maturity of bids. Bids get more and more mature and more and more specific when you're interacting with customers. And so yes, there are a number of opportunities out there that are at a maturity level where people could choose to move over the next year. And so we -- that remains a possibility for sure. And I should emphasize it's a possibility, but it's not a necessity. The backlog that Guillaume speaks to in the company of over $4 billion is extremely strong. It's a good position to be in. It's really important in our focus to execute well on that backlog. But to have the current size of our company, basically a 3-year backlog of signed contracts in hand that we're executing on, we're in a good spot. It means that over the next couple of years, we definitely have to get more orders and have a lot of opportunities to do so. Some of them could come in the next year for sure. But no panic there, but there is a lot of opportunity that we're working as we move forward within that pipeline. Operator: Next question will be from David McFadgen at Cormark Securities. David McFadgen: Yes, a couple of questions. Can you give us an update on what's happening with that Artemis contract, the USD 4 billion contract for the vehicle, the Lunar vehicle? What's happening there? I thought that to be awarded this year? Mike Greenley: The original plan -- that project is called the Lunar Terrain Vehicle System (sic) [ Lunar Terrain Vehicle Services ] or LTVS. We are on one of the teams for the Lunar Terrain Vehicle System (sic) [ Lunar Terrain Vehicle Services ] and -- which is the Lunar Outpost team and really good progress on that team's evolution of its rover solution and in its bid to NASA. It was NASA's intent to announce a winner to that. I believe there's been some delays in that due to the government shutdown in the United States. So there's only certain things that you can do during a government shutdown in the mindset. As -- it looks like that's getting cleaned up right now. So as that gets cleaned up, hopefully, they can complete their assessment and announcement process. David McFadgen: Okay. But do you -- would you expect they would announce that contract award in 2025 or now it's more 2026? Mike Greenley: We still think there's a chance of talking about it in 2025. We don't obviously control the pace of the U.S. government making announcements, but our indications are that there's still a chance that the winner could be discussed publicly in 2025. If not, obviously, it would drift into 2026, but we're still hopeful that something could be said this year. David McFadgen: Okay. And then what about the Canada's plans for the RADARSAT Constellation Mission replacement? I haven't heard anything about this for quite some time. [indiscernible] on that? Mike Greenley: Yes. So Canada announced, what was that, about a year or more ago, that they intended to -- that they put some money aside to do a couple of things, which was to add some additional radar satellite capability into the RADARSAT Constellation Mission to ensure its resiliency moving forward in addition to looking at radar-based or Earth observation-based services moving forward into the future, and doing some studies on the next-generation synthetic aperture radar or radar-based Earth observation capability for the country. There are activities in all 3 of those areas going on within government and back and forth asking industry for inputs in those areas. And so they do -- they all continue to progress. I don't have a focused estimate of like when those things would come out in public or whatever. But there's definitely solid progression of those things in the -- inside government and in the government to industry kind of Q&A information exchange activities. David McFadgen: Okay. And then maybe if I can ask a couple of questions on your pipeline. So within the satellite opportunity pipeline, is there -- are you in discussions with Apple, Globalstar to expand the number of satellites on the second constellation? Mike Greenley: Right now, our focus with Globalstar is execution on our current work. And so that's our absolute focus right now is to make sure that we get those satellites built and moving forward into orbit. David McFadgen: Okay. And of the $13 billion pipeline that you said on the satellite side, how much of that would be, say, direct-to-device versus broadband? Mike Greenley: I don't have an exact percentage number, but it's -- I'm just thinking through my head in real time here. It might be 50-50, 60-40 kind of thing, but there's a legitimate handful of each of those things in the pipeline. David McFadgen: Okay. And then just lastly, you talked about defense and how defense spending is going up around the world. We all know that. Is defense a material part of the pipeline right now? And is it growing? Mike Greenley: I would say it has the potential to grow in the pipeline. We do have some significant opportunities for sure in our pipeline related to defense, but that is an area where it's -- and that's why I made remarks about it in my comments because you can feel the number of conversations increasing in the defense sector. And so that is likely to result in further and new opportunities in the pipeline going forward. So I do expect that based on -- we don't put things in the pipeline until we can talk about a program with a budget that we think is going to move and then we put it in the pipeline. We will have all kinds of conversations, obviously, with people about the potential to do things before they become a specific opportunity that's got parameters around it. And so in the defense sector, you can certainly feel the intensity of the conversation is increasing. The number of questions people are asking are increasing. And so I think that there will be the opportunity to add more defense to our pipeline as we go forward in the future. Operator: Next question will be from Ken Herbert at RBC Capital Markets. Kenneth Herbert: Maybe Guillaume, can you level set us on what you expect -- how much of the third quarter revenues were from EchoStar and what you expect sort of the full year run rate to be on that? And should all of maybe those negotiations be cleaned up? Or would there be any sort of final recognition of EchoStar revenues or reimbursements into '26? Guillaume Lavoie: Thank you for the question, Ken. So we have not recognized a lot of revenue, obviously, for EchoStar. It was very small in Q3. And now we're working with them to have a contract termination agreement. So I won't speculate on the timing of that. And that's why we left our guidance basically intact because that's one thing that's in flux right now, but very minimal revenue associated to that contract in Q3, Ken. Kenneth Herbert: Okay. And you've obviously seen some -- you called out supply chain challenges in both CHORUS and on Globalstar. Are you seeing any incremental risk on the supply chain with Lightspeed? And I guess, do the challenges or delays with -- site delays with Globalstar and CHORUS, do those represent maybe any opportunity to pull Lightspeed to the left a bit? Mike Greenley: I don't think there'd be an opportunity -- I don't think that would represent something to pull Lightspeed to the left. I also don't see any unique, whatever the word you said was incremental supply chain risk. I'm just thinking through the elements of Lightspeed at the moment. So I think that's an issue -- that's not an issue that I would be thinking about at the moment. The Lightspeed project, like I mentioned, continues well through its critical design review process. And so -- and you would have heard from their CEO recently on their earnings call. Kenneth Herbert: Just finally on that, Mike, any update on timing as to when the options on either of the existing contracts could potentially when we -- when is a realistic time frame to expect those could be exercised if they are going to be? Mike Greenley: Yes, I don't really have any specifics on that. The -- all those customers, the customers with options are constantly looking at their businesses and their business activities and the health and size and capacity of their networks to meet the demand that they want to load up on their network, and they'll make their calls there. So I don't -- Yes, I don't have any specific guidance in terms of when we would expect those things. They remain valid. They remain active as opportunities for us, but no specific time estimates. Operator: [Operator Instructions] Next, we will hear from Kristine Liwag at Morgan Stanley. Justin Lang: This is Justin on for Kristine. Mike, just on the $13 billion satellite systems pipeline, I know you've mentioned in the past that the opportunities can span anywhere from $1 million to over $2 billion. Is there any way to put a finer point on that? Maybe how many discrete opportunities are in that pipeline that are valued around $1 billion or more potentially? Mike Greenley: Yes, I don't have a specific number in my head, but there's certainly the number. I would say the range of those would be sort of $250 million to $2.5 billion plus, like in terms of the range of sizes, it depends on the size of constellations that people want to talk about and what orbit they're in. I think that there are definitely a number of them. I think your question was how many are over $1 billion. I don't have a specific number, but there are definitely more than a handful. Justin Lang: Okay. Great. And then just a quick one. Guillaume, the free cash flow guidance looks like it would imply significant free cash flow burn in 4Q if you get close to that neutral guide, and that would be on lighter implied CapEx. So just curious what you're expecting from working capital to end the year? And if you can provide any color on the drivers there would be helpful. Guillaume Lavoie: Justin, so look, we haven't changed our guidance. I think overall, when I take a step back here, we're looking at significant growth year-on-year on the top line. I mean, at the midpoint, it's going to be 48% adjusted EBITDA, 45% growth. And yes, we continue to invest in our business. So far from a CapEx standpoint, we've been sort of spending at the rate we were expecting. And we have a good position on the free cash flow year-to-date, slight consumption in Q3 related to working capital. And so we decided to keep our neutral to positive guidance. I think we're in a good position. And I think that we always plan conservatively. We could see some working capital consumption in the fourth quarter. But again, back to Konark's question, I mean, this is normal as part of our business. And for the time being, we remain focused on getting our milestones completed and then invoicing our customer, getting the cash in the door and then obviously managing our outflows. And as I mentioned earlier, we're very pleased so far with how we've been able to manage our working capital throughout this year. So I'll leave it at that. But for now, there's no concerns on the working capital from my perspective for the fourth quarter. Operator: At this time, Mr. Greenley, we have no further questions registered. Please proceed. Mike Greenley: Okay. Well, thank you. Thanks for the operator, and thank you, everyone, for your time this morning. We look forward to updating everyone on our progress at our next earnings call. Have a great day. Operator: Thank you, sir. Ladies and gentlemen, this does indeed conclude your conference call for today. Once again, thank you for attending. And at this time, we do ask that you please disconnect your lines. Have a good weekend.
Operator: Ladies and gentlemen, welcome to the Analyst Call Q4 Fiscal Year 2025. I'm Moritz, 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 Tobias Hang. Please go ahead, sir. Tobias Hang: Good morning, and a warm welcome to the Siemens Energy Q4 Fiscal Year '25 Analyst Webcast. Today, we are here in the factory in Berlin. First of all, I really have to say that we are sorry that you had to wait for 5 minutes. Of course, we're going to add that -- the 5 minutes up on the end of the call, so that should happen, please excuse for that. As you probably noticed already, we pre-released our results yesterday night and published all the documents around 9:00 p.m. on our website. Now I'm pleased to have with me here President and CEO of Siemens Energy, Christian Bruch; and Maria Ferraro, our CFO. And in the next 30 minutes, Maria and Christian will take you through the developments of the last quarter and the fiscal year 2025. Thereafter, we will continue with our Q&A. For the entire webcast, we estimated roughly 1 hour. So with that, I would hand over to Christian. Christian Bruch: Yes. Thank you very much, and also good morning, everybody, also from my side, and thank you for joining our quarter 4 call. We do it here from the factory in Berlin, and that is something I wish you could see it really continuously because we have our products around us, and this gives a good atmosphere. As we wrap up fiscal year 2025, I would like to take a moment to reflect on Siemens Energy's journey over the past 5 years. And when we listed Siemens Energy on September 28 in 2020, we had a clear ambition, focus and deliver on fundamentals, co-create innovations with customers and partners and start the energy transformation, all this based on our purpose, reenergize society. And since then, we have come a long way. We are offering the right products, solutions and services to serve our customers in a changing energy world, driven by higher electricity demand and the need for energy security. The trust of our customers placed in us and the strength of our portfolio is reflected in our continuous revenue growth since our listing in total by 40% to almost EUR 40 billion in fiscal year 2025. At the same time, our order backlog has increased by around 75%, bringing us to another record high level of EUR 138 billion at the end of fiscal year '25. This is underlining the confidence of our customers and our ability to deliver complex critical infrastructure energy projects and the strong order backlog provides us good visibility for fiscal year 2026 and beyond. Our journey has not been without challenges. We started in a world which was determined by COVID. And in fiscal year 2023, we were confronted with severe challenges at our wind business. Our focus on operational discipline and stringent execution brought us back on the successful path. And since then, the resilience of the company has been strengthened. The result of this journey, a 350 basis point profit margin improvement since our listing and a 1,500 basis point improvement since fiscal year 2023. Looking at this development, I want to thank everyone working at Siemens Energy, our team purple to make this happen. I'm proud of what the team at Siemens Energy has achieved together so far and the journey has just started. If the past 5 years have been about building the foundation and fiscal year 2025 was the start of a growth journey with continuous margin expansion. Earlier this year, we upgraded our guidance at our half year results to reflect our confidence in the development of our business. And I'm pleased to report that we have achieved the top end and partly overachieved our upgraded targets. Fiscal year 2025 has been a year with strong performance. We saw 15% revenue growth, driven by robust demand across our core segments. We achieved significant margin improvement of 500 basis points year-over-year, thanks to operational excellence and the execution of more profitable orders, which we signed in the last couple of years. And finally, we generated an excellent level of free cash flow. While Siemens Gamesa continues its turnaround journey, the rest of our portfolio has demonstrated remarkable performance. For the fiscal year 2026, we have set ourselves ambitious targets. We also upgraded our midterm targets for fiscal year 2028 substantially. For fiscal year 2026, we target a profit margin before special items of 9% to 11% and revenue growth between 11% and 13%. Midterm, for the fiscal year 2028, we are aiming for a low teens percentage range revenue growth and a profit margin before special items of 14% to 16%, more than doubling current margin levels within 3 years. And these targets are based on a robust order book, a culture of accountability and operational excellence. Looking into the development of orders and revenue in the different regions in fiscal year 2025, we have seen strong market momentum and are confident that this will continue in the next years and be a strong base to achieve our midterm targets. During the last year, all our regions, Europe, the Americas, Asia Pacific and the Middle East delivered consistent expansion in demand. The underlying favorable trends are intact and continuing for the foreseeable future as the demand for electricity and the need for modernization and expansion of the electrical infrastructure should proceed to increase. Our portfolio covers to a large extent, today's and future technologies to meet this demand. And next to the coal to gas shift, peaker demand and the generally higher electricity demand from developing societies as well as increase of electrification, 2025 order intake has been substantially supported by the electricity needs for data centers. Especially in the U.S., this has driven unprecedented demand for gas turbines and grid infrastructure and translated into record high order volumes for Siemens Energy in fiscal year 2025. We almost doubled the number of gas turbines sold globally from 100 units in 2024 to 194 units in 2025. Grid technology more than doubled the sales to hyperscalers to over EUR 2 billion in fiscal year 2025 driven by North America, but also across all other regions. It is for us a deliberate target to diversify the origin of our orders, ensuring that our growth is balanced and resilient. Based on the current growth momentum, we are adapting our footprint and aligning our operations to regional demand and customer needs. The increasing regional setup helps us to mitigate the continuous geopolitical challenges like tariffs, which we, for example, experienced in the second half of fiscal year 2025. Let me give you some additional highlights on new projects from the last quarter. In our gas service business, we sold in the quarter 5 gigawatts of gas turbines and signed 11 gigawatts in reservation agreements. And this was mainly driven by Saudi Arabia and the U.S. With that, the total commitments increased to 54 gigawatts in fiscal year 2025, thereof 26 gigawatts orders and 28 gigawatts reservations, 12 gigawatts are related to data center. Pricing momentum for gas services continued to be favorable and is expected to continue that way in the foreseeable future. Grid Technologies achieved the strongest quarterly order intake in fiscal year 2025, driven by substantial demand growth across all regions and the highest quarterly revenue in history driven by both product and solution business. We are confident that the profitable growth we aspire for fiscal year 2026 and beyond is supported by a strong electricity market. Fiscal year 2025 was marked by several milestones that provide a foundation for future success and shareholder returns. And due to our solid financial performance throughout the year, we were able to exit the bond guarantees, improve our credit ratings and lift the dividend ban for fiscal year 2025. Our net cash position and robust liquidity profile allows us to pursue strategic growth and shareholder returns without compromising financial discipline. We have put the right measures in place to continuously drive profitability. This includes optimizing our cost structures, reducing nonconformance costs and being selective with the projects we take on, ensuring they align with our target margins and long-term strategy. Our portfolio optimization efforts are well underway, but we will continue to review our portfolio elements. The divestment of our Indian wind business, which we have agreed in 2025 with a group of investors led by TPG is an important step to focus our onshore wind power on selected regions. Throughout the whole year, we were investing in the growth of our core business and the further strengthening of the supply chain. Examples were the acquisition of RWG and CIC this year, which will help our gas service businesses to deliver on their commitments. We have been and are investing in the expansion of our factories. Strong focus is here by the expansion of existing sites to achieve effective use of the capital spend and short payback times. I'm pleased that also the development of partnerships to enhance our offerings into the market made good progress in fiscal year 2025. Here to mention Rolls-Royce in the area of small modular reactors and Eaton in the field of data centers. You will see a lot more details on our future journey during the Capital Market Day in Charlotte, and we are excited to discuss these measures together with you. We are positioning Siemens Energy to lead in the field of resilient energy, pursue profitable growth and deliver sustainable shareholder returns. With that, let me hand over to Maria for the numbers. Maria? Maria Ferraro: Thank you very much, Christian. Hello, everyone, from my side. A very good morning and also a very warm welcome. I'm pleased to share with you our Q4 and full year financial results. As always, I'm happy to answer any questions you may have afterwards. Before I go into the performance of the specific business areas, I would like to start with an overview for Q4 and full year 2025 at the Siemens Energy Group level. So overall, we had a very strong finish to the financial year. Quarterly revenue exceeded the EUR 10 billion mark for the first time with strong quarterly figures recorded for orders, profit and cash flow. Fiscal year '25 is a record year, and we reached the top end of our guidance for all KPIs. Now looking at Q4, orders reached EUR 14.2 billion, and we saw a continuing strong demand, specifically in GS and GT. For the full fiscal year, we ended up just shy of EUR 60 billion in orders. This marks a record high since the listing. On a geographic basis, growth was broad-based, all regions reporting recorded increases. For fiscal year '25, orders were driven by a significant increase of 21% in our new unit business. Here, we saw exceptional growth in Gas Services with a remarkable 94%. Our service business grew by 16% compared to fiscal year '24. The book-to-bill ratio in fiscal year '25 was at 1.51 for the group, and the order book climbed once again to a new record high of EUR 138 billion. Revenue in Q4 reached an all-time high since the listing, like I mentioned, of EUR 10.4 billion. This is a 9.7% increase on a comparable basis. The improvement of this quarter was primarily driven by GT and TI with both growing by more than 19% on a comparable basis. For the full year, we ended up just shy of EUR 40 billion in revenue, which also marks a record high since the listing. Full year revenue grew significantly in both new unit at 18% and in service with 13%, both on a comparable basis. In Q4, profit before special items was EUR 471 million. This is significantly above the negative EUR 83 million in prior year's quarter, ending the fiscal year almost at EUR 2.4 billion. Again, this is another record for Siemens Energy since the listing. Here, our profit increase was mainly due to increased volume and related productivity effects, but was also driven by improved margin quality of the processed order backlog. Profit was negatively impacted by tariffs in the quarter with a high double-digit million euro amount. As already indicated in Q3, this was mainly due to the changes in the custom regulations between Europe and U.S. Additionally, in Q4, the amendment of Section 232 came into effect, which impacted mainly Siemens Gamesa. In special items, we see adjustments mainly in Siemens Gamesa related to the sale of the Indian wind business, as expected as well as the continued restructuring efforts. Net income for Q4 was EUR 236 million. Free cash flow pretax was more than $1.3 billion for the quarter and therefore, significantly above last year's quarter level, mainly driven by the sharp increase at Gas Services. I will talk a little more in detail about the drivers of our free cash flow on Slide 11. So now let me turn to our order backlog on the next slide. So looking at our backlog, as we mentioned, we ended the year at $138 billion. And for fiscal year '26, so this coming year, the revenue coverage is already more than 85%. And in fiscal year '27, we see this as approximately 60%. We also see an improved order backlog margin development in fiscal year '25. I will stop there because I will provide further details on the backlog margin development by BA at our Capital Market Day next week. So please stay tuned. So now let me talk in more detail about the drivers of free cash flow. Free cash flow pretax, as I mentioned, was EUR 1.3 billion for the quarter, roughly EUR 400 million more than Q4 of prior year, again, mainly due to improved profitability impacting our net income. Positive cash contributions from our net working capital is mainly driven by an increase in contract liabilities and a decrease in inventories. Additionally, we continue to have incoming reservation fees. This is also adding to our cash flow generation. So very quickly, an update on Siemens Gamesa's quality cash outs. For Q4, this amounted to EUR 157 million. And for the entire year, it was approximately EUR 450 million. This is in line with our mid-triple-digit million euro amount that we indicated for this fiscal year. And also, we expect a similar amount for fiscal year '26. Looking at CapEx, we spent $685 million in Q4 or roughly $1.7 billion for fiscal year '25. This is to fuel our future growth mainly for expansion and capacity extensions. For example, the ramp-up in Siemens Gamesa offshore as well as investments for capacity expansions in Gas Services and Grid Technology. The amount spent in this fiscal year was lower than anticipated at the beginning of the year just due to timing and reallocations. So therefore, please stay tuned also in terms of how we see target of CapEx for fiscal year '26. We'll look at that a little more in depth, of course, at our Capital Market Day next week. So now looking at net cash on the right-hand side of the slide. Overall, we have $9.2 billion in cash and cash equivalents. Our financial debt stood at EUR 4 billion, of which $2.4 billion is long term. This is an increase of approximately EUR 0.3 billion versus Q3, mainly due to increased leasing obligations. And taking into account pension provisions of EUR 406 million, this brings us to an adjusted net cash position of EUR 4.8 billion at the end of September compared to just EUR 2 billion a year ago. So overall, we continue to have to build a strong balance sheet commensurate with an investment-grade credit rating profile. So now this is a perfect segue to a question we receive very often from investors over the last few months regarding capital allocation. For this as well, we will provide more details at our Capital Market Day next week. However, one message which we can already reveal today is the dividend proposal for fiscal year 2025, demonstrating our commitment to shareholder return. We will propose a dividend of EUR 0.70 per share for fiscal year '25, subject to approval at our Annual General Meeting in February 2026. So now let's have a quick look at the financial performance of our 4 business areas, starting with our Gas Services business. In GS, we had a very strong finish to an exceptional fiscal year '25. Congratulations to the entire Gas Services team. The Q4 orders of $4.8 billion were up by roughly 38% from prior year quarter, again, driven by strong demand in the U.S. and Saudi Arabia as well as significant growth in service business, which was up roughly 48%, ending fiscal year '25 with a record order intake of EUR 23 billion. Book-to-bill was an impressive 1.89 for the fiscal year. This led to a record order backlog of $54 billion, another all-time high for our GS business. In Q4, Gas Services booked a total of 19 gas turbines for power generation in oil and gas, 11 of those were large gas turbines. Our gas turbine greater than 10-megawatt market share for power generation stood at 14% and for large gas turbines greater than 100 megawatts at 19%. Q4 was always expected to be a bit lower compared to the previous quarters solely due to timing. For fiscal year '25, overall, Siemens Energy achieved #1 position in gas turbines greater than 10 megawatt for power generation with 31% market share. In large gas turbines greater than 100 megawatts, we have secured #2 position with a 26% market share. Again, a fantastic performance, and we are really grateful for the confidence our customers have placed in us and for our team's ability to secure those orders. Q4 revenue was $3.1 billion, a 15.5% increase on a comparable basis. This ends fiscal year '25 with a record revenue of more than EUR 12 billion and a comparable growth of 14.2%. This is above the fiscal year '25 guidance range of 11% to 13%. In Q4, new unit business showed significant growth of almost 34% comparable and service business of roughly 15% comparable. Q4 profit before special items was EUR 251 million. This was a margin of 8.1%. This is 300 basis points versus prior year Q4, again, showing some of the normal seasonality pattern, but also reflecting the improved margin quality for the processed order backlog and new units business. This ends fiscal year '25 with a record profitability of almost EUR 1.6 billion and 13% at the top end of the 11% to 13% fiscal year guidance range. Lastly, but certainly not least, free cash flow for the fiscal year came in at a very strong EUR 3.2 billion for Gas Services. This is a cash conversion rate of just over 2. Again, a fantastic job GS. So now let's take a look at our Grid Technologies business. This was also a record year for Grid Technologies, well done. Q4 orders of EUR 6.9 billion, up 31% year-over-year. This was driven by strong growth across all regions, but specifically in the U.S. and an exceptionally high demand for product business. This ends fiscal year '25 with a record order intake of more than EUR 21 billion. Book-to-bill ratio for fiscal year '25 was at 1.9, again, resulting in another record order backlog of $42 billion. Quarter 4 revenue reached a new quarterly high and grew by 19% on a comparable basis to $3.1 billion. This is ending fiscal year '25 with a record revenue of more than $11 billion for GT and a comparable growth of 25.4% for fiscal year '25, which is within the upper end of the guidance range of 24% to 26%. Revenue increase was supported by the steady processing of the order backlog with the short-cycle business exceeding the solutions business. Q4 profit before special items was EUR 463 million. This was a margin of 14.7%. This is also plus 450 basis points versus prior year quarter 4, ending fiscal year '25 with a record profitability of almost EUR 1.8 billion and 15.8%, again, well at the upper end of the 14% to 16% guidance range for fiscal year '25. Free cash flow for the fiscal year for GT came in at EUR 2.8 billion and a cash conversion rate of just over 1.55. Excellent job. Thank you so much. And again, well done to our GT team. On the next slide, we take a closer look at our Transformation of Industry business area. Fiscal year '25 was a record year for TI with regards to revenue and profitability. Q4 orders were EUR 1.6 billion. This was the highest quarterly order intake for the fiscal year. However, a decrease of approximately 20% versus prior year on a comparable basis. This was due to an exceptionally large order in prior year orders in compression and in sustainable energy systems. The full year came in with EUR 6 billion. The book-to-bill ratio for '25 was just over 1 at 1.01, and the order backlog at the end of the quarter amounted to EUR 8 billion. For TI, Q4 revenue grew by just shy of 20% to EUR 1.6 billion, mainly due to substantial growth in the compression business. This is ending fiscal year '25 with a record revenue of $5.7 billion and a comparable growth of 13.5% Q4 profit before special items was EUR 177 million, almost double compared to Q4 of last year, resulting in a margin of 11%. This is a plus 420 basis points versus prior year Q4, ending fiscal year '25, again, with a record profitability of almost EUR 646 million and 11.3%, above the 9% to 11% fiscal year '25 guidance range. Here, the biggest contribution to the improvement in Q4 came from industrial steam turbines and generators with plus 420 basis points and compression with plus 300 basis points compared to previous year's Q4. Again, huge congratulations to the TI team. They have really been on a successful turnaround path for the last couple of years. On that, when the TI business area was established, we emphasized the turnaround nature of most of its businesses and as a result, provided additional voluntary disclosure for the independently managed businesses or IMBs. Given the successful turnaround of key businesses such as compression and steam turbine generators, this additional disclosure no longer will be provided. Accordingly, beginning with fiscal year '26, reporting for TI will be standardized in line with the group's approach and the other business areas and the separate IMB disclosure will be discontinued. So therefore, as of now, so for Q1 of fiscal year '26, TI will be reported in the exact same manner as all the other business areas. So moving on to the next slide, where we take a closer look at Siemens Gamesa. Here, Siemens Gamesa finished fiscal year '25 in line with expectations despite the strongest headwinds from tariffs. Q4 orders came in at EUR 1.1 billion. This is a similar level as last year's Q4 number if adjusted for roughly EUR 3 billion large offshore order in the North Sea in the prior year quarter. Orders overall for fiscal year '25 are EUR 9.3 billion. The book-to-bill ratio for '25 came in at 0.9 and the order backlog is EUR 36 billion. Q4 revenue of EUR 2.7 billion, representing a decline of roughly 9% on a comparable level to prior year's quarter. In Q4, a significant increase in the offshore business could not offset the expected decline in the onshore business. However, overall revenue for fiscal year '25 was 10.4 billion, well above the fiscal year '25 guidance range of -- with 4.7%. Q4 profit before special items came in at negative EUR 303 million, significantly better than prior year's quarter level, but remained negative, ending fiscal year '25 at around negative EUR 1.3 billion, which is exactly in line with our guidance. This quarter, we did have more underlying operational improvement, which was held back by certain negative effects, for example, tariffs imposed by the U.S., which we already indicated in our Q3 closing. In the Q4, the direct negative impact for tariffs forcing in Gamesa was a low to mid-double-digit euro million amount and again, mainly driven by onetime effects related to long-term service agreements in the U.S. So now let me move on to our outlook for fiscal year '28 and raised fiscal year '28 targets. First, our financial outlook for fiscal year '26. For SE overall, we expect 11% to 13% comparable revenue growth and a profit margin before special items of 9% to 11%, this is at the midpoint, a step-up or increase of 400 basis points compared to fiscal year '25. We also expect a net income of $3 billion to $4 billion and a free cash flow pretax of $4 billion to $5 billion. Looking at the business areas when it comes to revenue growth, all business areas will grow in fiscal year '26 with Grid Technologies leading at 19% to 21%, then followed by Gas Services with a growth of 16% to 18%, both of them in the high teens. All business areas are demonstrating continuous year-over-year improvement and delivering double-digit profit margins or high. The most significant step change will be the anticipated breakeven of Siemens Gamesa. In addition, all other business areas are targeting a margin uplift of approximately 200 basis points compared to the fiscal year '25 target ranges. So now just quickly, the updated financial targets for fiscal year '28. As indicated in Q2 of last fiscal year, when we upgraded the guidance for fiscal year '25, we did use the time to update the midterm targets accordingly. For Siemens Energy Group, we are aiming to achieve a compound annual growth on a comparable basis in the low teens percentage range through fiscal year 2028. In addition, we target a profit margin before special items in the range of 14% to 16% by fiscal year '28. This represents a step-up of approximately 400 basis points compared to previous targets. The business area targets for revenue growth and profitability have been outlined accordingly. So in summary, all business areas foresee continued revenue growth. For profitability, the most significant step change by '28 will include an uplift of approximately 600 basis points for Gas Services and 500 basis points for Grid Technologies compared to prior targets. And with this, thank you very much for your attention. And I now hand back to Christian for some closing messages. Thank you very much. Christian Bruch: Thank you very much, Maria. Thank you. And I will keep it very, very short because, obviously, I look forward to see you next week on the Capital Markets Day when we have more time to discuss, and we will provide you with more details on our different businesses and the way forward of the company. Summarizing 2025, it was a successful combination of an attractive market environment, products from our side, which are really needed by the market and resilient business models, which now provide a very solid foundation for the future. We at Siemens Energy are excited to improve our company further and have kicked off with the new fiscal year, our program, Elevate Performance, which we will talk more about during our Capital Market Day. Our increased midterm guidance for 2028 underlines the performance commitment of the whole organization, driving disciplined execution, innovation and a relentless focus on customer and shareholder value. And for now, let me hand it over to Tobias again for the question-answer session. Thank you. Tobias Hang: Thank you so much, Christian. Thank you so much, Maria. So now we will start our Q&A session. [Operator Instructions] I already see that we have quite a lot of people in the line. So I would always call up the next 3 names so that you already prep for your question. And the first question will go to Sebastian Growe afterwards, it's Ajay Patel and then Max Yates. So Sebastian, please go ahead. Sebastian Growe: First question would be around free cash flow and the pretax target here is EUR 4 billion to EUR 5 billion, which is implying apparently around 100% conversion from the adjusted EBITDA. So could you please help us with the key parameters going into this, such as CapEx, especially in the wake of that you spent EUR 4.3 billion less than earlier guided last year, also the budgeted cash out at Siemens Gamesa. And could you also comment on what the cash impact from slot reservations has been in '25 and how you view the conversion of the now 28 gigawatts in reservation agreements in the year '26. Maria Ferraro: Hello, Sebastian and thank you very much for your questions regarding cash flow. And of course, looking at the guidance to EUR 4 billion to EUR 5 billion. So as you rightly mentioned, we do expect a CCR of 1 in fiscal year '26. And of course, we do continue to see a positive impact from payments with respect to our order growth for the year and our continued backlog growth. Again, looking at CapEx, we'll provide more details on that next week at the Capital Market Day, but consider that the CapEx continues to exceed depreciation. And of course, we also have some shifts back and forth between the 2 fiscal years. And as mentioned earlier, with respect to Siemens Gamesa cash outs, there was around EUR 450 million of cash outs relating to the provisions booked before for the quality topics, and we expect a similar amount for next year. So those are the other aspects that went into the EUR 4 billion to EUR 5 billion cash flow guidance. Tobias Hang: So the next person would be Ajay Patel. Could you please limit your questions to one because we have so many people on the line. Ajay Patel: Congratulations. My focus is just on your guidance. I'm looking at the '28 target. And I just want to compare it with '24 to understand the margin progression and the 2 main drivers. I was thinking, is there any way you could roughly give us the improvement in margin from '24 to '28? How much is driven by productivity? How much is driven by pricing for service and technologies, please? Christian Bruch: Maybe I take this, and I would do this, with, once again, clear invite to next week. I mean we break down for every business more next week, and we want to really to understand the details behind it. So until then, I would keep it relatively generic. I would say the majority is productivity, the minority is pricing on this uplift on the margin. And this obviously helps us a lot that we have a very good planning base, volumes are high. So it allows us a good leverage in productivity that also going forward. Obviously, yes, I mean, backlog margin has continuously improved, and this is what Maria is going to walk through next week. But I would suggest let's take it really up next week when we in detail explain it step after step. Ajay Patel: And that was for both divisions, right? Gas Service and Grid Technologies, that comment? Christian Bruch: Was is what? Ajay Patel: Was for both divisions, right? Christian Bruch: Yes, correct. Yes. Maria Ferraro: It covers. Actually, Ajay, you'll see that -- those details for all of the business areas next week, which show the backlog improvements. Ajay Patel: I will be there. Tobias Hang: The next question goes to Max Yates, please. Max Yates: I wanted to ask about the Gas Services margin guide for 2028, 18% to 20%. I think that's probably the one that has surprised maybe me and the market the most this morning. So I guess I just wanted to understand what is it that has given you the confidence to really put that up sort of as aggressively as you have? Is this mostly around the gross margin expansion on new equipment? Are you also now sort of becoming more optimistic on some of the pricing in services? And maybe just sort of finally within that, I know you won't give us the kind of target by equipment and aftermarket, but is it right to think sort of qualitatively that the margins of those 2 businesses are broadly converging within that target? So that's my question. Christian Bruch: Thanks very much, Max. And also there, I mean, you will see a great presentation on Gas Services next week with a lot of the details. But let me put a couple of comments in there. First of all, what we absolutely do see, and this is different to 2 years ago, we see the gas order intake, gas business level substantially higher than before. And this gives us a long-term planning base, and that has been a substantial uplift, which also helps us to drive the margin because that is also about absorption, the factory, more productivity measures, better supply chain management. So there's a lot of elements into that. On your comment with regard to service and new unit, be a bit careful because actually, the proportion of the new unit business is going to be, let's say, growing faster and bigger than the service business. Some of the service business, which is going to be related to the new units business is only going to kick up in '28 and thereafter. So that is something what you have to see. There is still a decent difference in the margins on the different businesses. But what we are really benefiting from now also going forward is keep in mind, when we started a couple of years ago, we were just introducing the large units, HL. So we have a lot of learnings also through that. And that is where we get better and better really every year. We see that. We know what we need to do. And this is things which are now obviously behind us. But Karim will be there next week also and walk you in detail through the different matters, but that has been mainly it. And yes, the pricing in gas is still very favorable, but I would not underestimate really the productivity elements, which we see really in the business area. Tobias Hang: So the next 3 questions go to Gael de-Bray, Vivek Midha and Alex Jones. Gael de-Bray: So if I have to stick to one question. Let me ask about the 2026 outlook. When I look at the margin guidance for the divisions and put them together, the weighted average implies a margin that is clearly higher than the 9% to 11% range you're guiding for at the group level. So is this because the breakeven for Gamesa is not a real breakeven, but rather start with a minus or is there anything else to consider? Maria Ferraro: I'll take that. Hello, Gael and thank you for the question. And let me just be clear, it does not indicate -- and you're right in your calculations, but that does not indicate any lack of confidence in the BA ranges, not at all. It is correct that if you do the math, of course, there's some, let's say, conservatism in relation to the BA ranges. We want to deliver what we promise, and we try to ensure that we have certain estimates for that because no doubt, the environment in which we operate continues to be dynamic. And headwinds are present in various areas. So for example, last year, of course, in fiscal year '25, we experienced the tariffs. Of course, that's very much under control, we have that embedded in our guidance for next year. But of course, we always are ensuring that there is some -- if headwinds are present that we are able to handle that. And I know it maybe sounds silly, but there's also an element of rounding, of course, within all of it, trying to be as precise as possible as we can be with the BA ranges. But still, I do want to ensure you that there is no lack of confidence on the BA ranges in this regard, not at all Gael. Tobias Hang: Thanks so much, Maria. Gael de-Bray: For Gamesa, what is the sequential path to breakeven that we have to consider for 2026? Maria Ferraro: You want to take that -- the sequential path for -- well, I'm happy to take it, and please jump in, Christian, if you'd like. I mean, look, you see in fiscal year '25, we've done a number of things right in the Siemens Gamesa business. They've been able to ensure that they're starting to look at how does the productivity look in all of their facilities that they're ramping up. We have an example here in Germany, where one of the facilities, the productivity has increased year-over-year by 30%. And as a result, you see that also in their ability to exceed their revenue forecast for this year. They continue to very clearly look at optimizing footprint, ensuring that in terms of cost efficiency, supply chain, et cetera, all of those levers they're bringing into this fiscal year. Please don't expect a linear progression to breakeven. We do expect that the first half or the first quarter for sure, continues to be negative. Q2 and Q3 really then brings us to a positive Q4 for Siemens Gamesa in fiscal year '26. Tobias Hang: So the next question goes to Vivek Midha from Citi. Vivek Midha: I just have a follow-up around the reservation activity. It looks like you had a really good quarter, 11 gigawatts of new reservations in the quarter. You called out Saudi Arabia and the U.S., but it will be great if you might be able to expand on the makeup of the incremental new regions, on frame types and so on. Christian Bruch: I would once again hit a lot next week where we try to give you the breakdowns. But let me say a couple of comments to what you said. Obviously, yes, U.S. has been generally a strong market for us in '25. What I would like to highlight is really our success across all different frames at Siemens Energy. The good thing is, obviously, we have small gas turbines, midsized gas turbines and large gas turbines. And what you have seen that all of the frames are in good demand and really also have helped us sometimes to accommodate timing needs of customers. In terms of markets, also, as I said in the last quarters, we try to keep the balance. Yes, obviously, U.S. with 31% market share in the market -- in the order intake was a good one. But Middle East, it's not only Saudi, you see UAE obviously also now getting very active. You see orders we get in other parts of either North Africa or places like Iraq, where we were successful. So this is really across the board, but I would really ask for your patience, join us next week, much better. Karim is the right person to dive deep into that, and you will see a lot of great information. Tobias Hang: Next question goes to Alex Jones from Bank of America. Alexander Jones: Christian, I think earlier today, you made a comment that there are fewer synergies between onshore and offshore within Gamesa than perhaps is expected from the outside. Could you expand a little bit on that -- those comments and whether that signals an openness to exit onshore once you reduce cost and fix the current issues? And if that's not something you've already decided, what are the key criteria you're looking at for making that decision over the coming years? Christian Bruch: No, thanks for the question. And I -- let's say, don't overrate it. But what I want to flag up is that from my perspective, each of the business has to prove their existence. This might be in a different time frame because they're developing time-wise differently. But I look similar to other parts of the business, I look on it really business unit by business unit. So 1 level deeper or 2 level deeper is to say, and this has to be a good one. And yes, there are some synergies on the administration costs. There are less synergies on the market side because offshore, by and large, is 2 handful of countries. Onshore is a little bit more diverse in the countries. And obviously, on the factories, most of our factories are either producing offshore or either producing onshore, and we have not seen that as a main lever. In both areas, obviously, we tap into wind, turbine technology knowledge. So that is something. But what I wouldn't do is to say, let's say, you definitely can only run it together, but our target is to make both businesses successful look on it like this in that regard, that was the logic behind the statement because we don't have the one factory where we do all products from and just that this is understood. Tobias Hang: Thanks so much. So the next 3 questions go to Akash Gupta from JPMorgan then Uglow from Oxcap and Sean McLoughlin from HSBC. Akash Gupta: I have one on Siemens Gamesa. And maybe if you can provide a bit more color on this almost EUR 1.36 billion loss in last fiscal year between onshore, offshore and service. And when we look at the breakeven, can you also help us what are you assuming for each of the 3 businesses? Christian Bruch: You want to take this... Maria Ferraro: You can start... Christian Bruch: I start maybe one thing to always look at, I think I said it in one of the calls before. Keep in mind, if you talk about the EUR 1.3 billion, there are some one-offs in '25, which I don't expect to reoccur in '26. So the jump-off point is slightly different. In terms of the breakdown of the businesses, maybe, Maria, you take this. Maria Ferraro: And this is what we've always said, Akash, is on our way to the breakeven that we have to have, of course, the onshore has changed in terms of the dynamic, of course, because with the sales stop, et cetera. The offshore revenues, as I mentioned earlier, are now starting to come into the revenue stream. We continue to have a strong service business. The one-offs that Christian is mentioning is actually related to the service business in fiscal year '25, and that's really the components, if you'd like, that will make sure on top of other levers, of course, to get us to our breakeven for fiscal year '26. Akash Gupta: Is it possible to quantify roughly these one-offs so we know idea what underlying profit? Maria Ferraro: No. Those one-offs, of course, are generally project-related in nature. But in terms of the split, I can say that 2/3 is onshore and service and 1/3 is offshore. Tobias Hang: So the next question goes to Ben Uglow from Oxcap. Benedict Uglow: I was interested in the kind of market share commentary. And in particular, if we look at the 194 units, there is this mix shift going on in your business from the large gas turbines to the industrial, the SGT-750 and 800s, et cetera. And when we look across the whole market, if I think about Caterpillar, et cetera, we can see that. I guess my question is, the assumption is that this is all to do with timing and availability of the engines. My question is, is this shift just a temporary thing? Or do you actually think it could be a bit more structural? And the reason why I ask this is there are some aspects of the, let's call it, smaller machines that are more relevant or more appropriate to data centers. So I just want to know your general sense on that. Christian Bruch: Yes. No, happy to take this, Ben. First of all, the big increase also on the MGT side, so the midsized gas turbine side is not only data centers. There is a good amount in data centers also because of shorter delivery times and sometimes of the flexibility to have multiple trains and providing actually also with the build-out of the data centers a better ramp-up curve. But there has been, for example, a very decent amount going to floating power, so gas turbines on a ship, right? There has been quite a decent amount going also on the industrial side afterwards on the compression side. So it's -- I don't want to create the picture that is just because of AI. That's not the case for the midsized gas turbine. This is also -- and we show it also next week, why we decided to increase the capacity on our Swedish facility, and Karim will share this next week in more detail. The good thing is, honestly, today, I cannot tell you, if you would say, long-term picture after 2030 or whatever, I don't know. But what we are doing at the moment is we are doing investments into capacity expansion with a very short payback time. This is what drives us. And so where I'm very sure is that the investments we are doing at the moment in the sites to expand capacity will pay off. That's I'm confident about. But structurally after 2030, to be seen, there is a lot of logic to have a multi-train solution with a robust turbine, what the midsized gas turbine is, but they will not be able to replace whatever an HL unit afterwards. I think this is what we're not going to see. Tobias Hang: So next question goes to Sean McLoughlin from HSBC... Sean McLoughlin: Just latching back on to the comments around productivity. I'm just wondering specifically on capacity. I mean, how much of the real increase on the top line for Gas Services, Grid Technologies is faster-than-anticipated capacity ramp? I mean you've highlighted challenges of ramping and tightness with supply chain previously. Has anything materially changed in your ability to scale faster than you expected versus a year ago? Christian Bruch: I would put it the other way around. The concerns have not materialized. And if you see the output of the factories, it was not a given for me in '25, particularly also with the ramp-up we had on the Grid Technologies side that we are able to get the volume out, which we finally got out. So I think good job done. And we had decent concerns with the ramp-up. We are, I think, also better in the compared to 5 years ago in terms of really standardization of really workflows and waste to producers. And the same obviously applies to the gas turbine. I think the gas turbine is now, let's say, going through this curve. And we see it obviously also on the blades and vanes production, which we have in Florida, the uplift is now happening. But by and large, I would say the main point for me compared to before, the teething pain concerns have not realized in the sense of what we were fearing before. In that regard, it was a good job. Sean McLoughlin: If I could maybe just follow up on Gamesa as well. I recall that the offshore ramp issues, if you like, were part of the big profit warning a couple of years ago. You're still talking about ramp for '26. I mean what about risks or, let's say, lingering risk or where are we on that standardization productivity? Christian Bruch: On the productivity in terms of what I do see and what the team has done in 2025, they have achieved really increases in the factory productivity of around 30%, right? It depends a bit on the factory, but that was a great job, right? And so I see the path is working out. What you have to keep in mind, we switched certain models, also switched certain blade lens in 2025. And this means you have to replace the tools, you have to start new, you have to say, we work the factory shop floor, and this costs productivity. Now it's really of doing the same thing over and over again. All what I have seen now in '25 gives me the confidence that this journey continues in 2026. Tobias Hang: Thank you so much, Sean. So next 3 questions go to Vlad Sergievskii from Barclays, Lucas Ferhani from Jefferies and William Mackie from Kepler Cheuvreux. Vladimir Sergievskiy: Very solid 15% growth in service business in Gas Services last year. Would you be able to give us some idea of the split of this service growth between long-term agreements and transactional business in 2025? Christian Bruch: No, I really struggle also from the top of my head that I give you the right answer. And I would really say next week, I think in terms of breaking it down, happy to discuss it, but I think I would otherwise give you no wrong numbers from the top of my head. Vladimir Sergievskiy: No worries. Even, I can quickly follow up on the gas turbine pricing through the course of last year. Have we been sequentially improving through the year? Have we plateaued at certain point? Christian Bruch: Yes, slightly, right? But I would also -- we will never be a quarter-over-quarter business. In that regard, I do look really on the sum of '25. What I would say is the pricing trend in gas end of fiscal year '25 still is intact and good. Tobias Hang: Next question goes to Lucas Ferhani. Lucas Ferhani: I just wanted to follow up on the gas business and the duration of the cycle. Can you talk a bit more about kind of the confidence kind of post 2028 that it's not, let's say, the best we see and there's more to go. And specifically, there's a lot of discussion on maybe the upside there is at the moment from hyperscalers and data center and whether that would normalize, what would happen to the overall market post that date? Christian Bruch: No, thank you for the question. And I think our midterm -- revised midterm guidance underlines that we very clearly say gas is here to stay. And that is a stronger message than we gave 5 years ago or 3 years ago. And in that regard, we -- if you look towards 2028, we're confident that this continues. We also believe we see the demand towards the end of the decade. Anything thereafter, I think it's really difficult to project and -- to say. But what I would say is what we are now trying to do and also with the build out of the capacity, we are trying to increase our fleet in the market. Whenever it turns, we sit on a super strong service business. That is the logic of Gas Services. But for the time being, for the next years to come, yes, we are confident that this trend remains. And then let's see after '28, what else is coming. Tobias Hang: Thank you so much. So Will Mackie from Kepler Cheuvreux. It's your turn, please. William Mackie: My question goes back to the guidance setting process and the future shape from '26 out to '28. Maybe given we're talking high level today and detail next week, you can just flesh out how the process was built top down, bottom up, how the shape of the guidance should unfold? Is it linear? Or is it very back-end weighted that you deliver on the growth and the profit projections? And to what extent are the elements of ramp-up costs and learning effects as you build through the GS and GT businesses weighing on the '26, but releasing in terms of the performance into '27, '28. Christian Bruch: Do you want to... Maria Ferraro: I can ask... Christian Bruch: So why don't you take the first shot. Maria Ferraro: I'm going to take the first shot. So how was the guidance composed or how did we put it together? I think, well, generally speaking, it's part of our overall planning process. And as Christian mentioned, in certain aspects, we didn't see or foresee such a momentum continuing for as long as we see it even as of our last planning cycle in last year. So how it was put together was very methodically, looking at the momentum that we see in GS and GT, seeing the market positivity that we see there. And I think you said something around linearity or nonlinear or is it back-end loaded. I would suggest it really is a constant, like I said earlier, a constant improvement year-over-year in those businesses. And why is that? That is because it's built on the backlog that we have, of course, in-house of EUR 138 billion, which gives us the visibility. Again, don't forget, 90%, almost 85-plus percent of our revenue is already in-house for this year, an additional 60% is in-house for next year. So really, that gives us a very strong basis for planning in terms of the figures. And then from a market perspective, and this is -- I'm sure what Christian will want to add, we've coupled that and said, okay, how does that factor into growth, et cetera. I mean, as you rightly -- or we've talked about, we have capacity coming on board. But again, it's all built on the back of our backlog plus our market expectations. Christian Bruch: Yes. And plus a couple of programs, which we also drive operational excellence in the organization. We will talk about this next week. The one nonlinear element in the -- if you look '26 towards is really wind, right? I mean there's a big step up next year. And then it's more step by step. This is what you have to keep in mind. The rest is really evolving the backlog and driving operational excellence. Tobias Hang: Absolutely. So thanks a lot, Will. As we started a bit later, we have 2 more questions to squeeze in. So the first question would be going to Kulwinder Rajpal from AlphaValue and the second one to Alex Hauenstein from DZ Bank. Kulwinder Rajpal: So my question was related to Gas Services and particularly the nuclear market. How do you see customer discussions shaping up so far? And if you could expand on the partnership with Rolls-Royce and how this positions you for the nuclear market. Maybe this is a key market for you beyond FY '28. Maybe we expect some details on it in the Capital Markets Day as well. So any thoughts here would be helpful. Christian Bruch: Yes. I mean, to some extent, we addressed it next week. But I mean, always, nuclear market is for us twofold. The one thing is a service market for the large turbines, which obviously we have a good installed fleet, and that is -- continues to be a nice service-driven business, which used to be in the mid- to high triple-digit million or so roughly depending on the year, depending who goes into, let's say, bigger maintenance cycles. And then you have the SMR pieces, as you said, with Rolls-Royce. And you have maybe seen the announcement this week. But this is something for us to 2030 in terms of realization, right? I mean this is long out. This is what we are now preparing. This is an important collaboration for us because we believe as a future project in this, but this will not influence our '26 or '28 or whatever that's not decisive there. That's more thereafter. Tobias Hang: So Alex Hauenstein from DZ Bank, please conclude with your last question. Alexander Hauenstein: I have a question with regards to the German government that speak about strategy to build new gas power plants and to bring them online by 2031. I saw on Bloomberg that you commented a bit on the press -- sorry, but I missed on that one. Nevertheless, maybe you could elaborate a bit from your point, beyond the point you made this morning about what that means for you in terms of potential new orders, if any, to come soon, especially in light of the capacity constraints which you have already. I mean, how realistic is this 2031? And I would be also interested to hear about what -- in terms of size and gigawatts, what you expect to get out of that or any indication on that would be great. And lastly, I would be curious to hear your thoughts about the requirements to build in green hydro readiness for these turbines. Christian Bruch: Yes. I mean, first of all, we are ready here, right, in terms of we are waiting for these projects, and I cannot wait really until they finally pull the trigger to do the auctions. We have -- I said it before, with a certain amount of customers, we have free agreements where it's even you go, we go type of setups. In other customers, we have at least free alignments. It is an open competition with our peers, but we will definitely would like to secure projects in that. How much of this chunk and let's assume it's the 8 giga first and then the 2 giga later, I don't know yet, right? But one thing I can ensure we have planned it in, it's feasible also with the 2031, if they now move ahead. I mean, obviously, it depends on the start date, but we would be more than willing to fight for it, and we will try to secure a fair share out of these different projects. There was the last hydrogen piece. Yes. I mean, we test hydrogen for all our turbines. Most of the turbines take -- all of the turbines take a certain portion of hydrogen anyway. Smaller turbines, we have tested and operated on 100% turbine hydrogen already. And the development program for us is really projected towards 2030. So if we stay in this time schedule, I'm okay also with the hydrogen request. We will make this happen. The turbine will be available for that. Tobias Hang: Thank you so much. So with that, we would conclude our Q&A session. And Christian, do you have any last words? Christian Bruch: See you next week. Hopefully. That's my last word. Looking forward to talk to you and hopefully in person, but the ones who are then online also will be great to have a joint discussion. Thank you. Maria Ferraro: Looking forward. Tobias Hang: Thanks a lot. So with that, we're going to conclude this call. Thanks. Maria Ferraro: Bye-bye.
Operator: Good morning, ladies and gentlemen. Welcome to Syn's video conference about the third quarter results. This conference is being recorded, and you will be able to access the replay on our website, ri.syn.com.br. The slide deck will also be available for download. [Operator Instructions] And right after the presentation, we are going to have a Q&A session. We will provide further instructions then. I would like to provide that the information that will be informed are related on the information that are responsible or available right now. However, since future results may differ substantially from the results presented and herein due to the various important factors, among other factors, investors, shareholders and stakeholders need to take into account that there are other circumstances responsible for the decisions other than the information contained in this presentation. Here, we have Thiago Muramatsu, the Director at Syn; and Hector, the Investors Liaison Director. Now I'd like to give the word to Thiago Muramatsu for the presentation. Thiago, please go ahead. Thiago Muramatsu: Welcome, everyone. Thank you very much for joining on this call to talk about our results. We are going to start talking about some of our achievements from the third quarter. So let's start with capital reduction that we had for this quarter. It was announced at the end of the month of July, a little bit before we had the second quarter results, we had a total of BRL 330 million reduction, which is about BRL 2.16 per share on the date of September 18. We are also moving on with the Shopping D transaction where we are selling our participation along with XP Malls. The sale of our entire stake represents a total of BRL 8.9 million, and we expect to finalize this transaction in the next coming weeks. Finally, as we mentioned at the beginning of the year, we also closed the sale of Brasílio Machado. We have already received the first 5 installments. There is a final one to be received at the end of this year where we are going to close the entire deal. Now a little bit about our operational performance. Let's start with shopping malls. In this quarter compared to the third quarter of last year, we had an increase of physical occupation of about 1%. Throughout this last year, we started with new rentals and exchanged 7% of our total number of stores focused on food, entertainment and services. We also reduced our share in clothing stores focused on those 3 main factors. When it comes to financial occupation, we also had a slight increase, but we continue at about 95%, which we consider to be a healthy occupation. Now a little bit about our sales. When we talk about sales evolution, we can see that we had an increase of 5.5% with BRL 55 million coming from same-store sales, BRL 44 million from new locations or new stores and 18% from kiosks and events. So when we consider the total sales in percentages throughout the 9 months of this year, we can see an increase of 4.2%, and the same-store rent with an increase of 5.6%. Despite the fact that we had these increments of 5.6% compared to 4.2% in sales, we were able to keep our turnover that represents very healthy levels as well. And the majority of this increase or this growth of BRL 18 million was considered also with this growth in portfolio compared about 50% compared to last year. Now about corporate buildings, we maintained basically the same level of physical occupation compared to the same period of last year. And when we look at 82.7% against 91.6%, we had the vacancy of Brasílio Machado, which was a building that we have sold. So when we take that into account, we go from 91% to 93.8% as well as in financial occupation going from 91% to 92.6%. Lastly but not least, talking about our warehouses, the CLD. As we have been seeing over the last quarters, we have already delivered Phases 1 and 2. Both of them are 100% rented, already occupied. We expect to deliver the Phase 3 on December this year. When it comes to the Phase 4, we expect to deliver that fourth phase on the first semester of 2026, but we have this expectation of being able to deliver the last phase already in the first quarter of 2026. We are already having some conversations about occupation. We already have a proposal for the rental of part of this warehouse of about 30%. And in terms of location, we are talking about 10% compared to the last value of Phases 1 and 3 -- I'm sorry, Phases 2 and 3. Now I would like to talk -- to give the floor to Hector to talk about financial results. Hector Bruno de Carvalho Leitao: Well, on the first phase, we can see the performance of our properties compared to the same period of last year. And in the first quarter, we had a very robust growth of 13.7%. And throughout the 9 months, 11.8%, both for shopping malls and offices. The main driver or leverage of those results are in revenue for malls. We had this increase of 10%; and offices, 11%. This is basically due to the fact that we had an increase of revenue of same stores. As Thiago has mentioned, there were some store exchanges with the best portfolio as well as best profitability. There's another factor for shopping malls, though, which has to do with media and kiosk, events and other merchandise campaigns that have been growing at about 20% rate, which is something that has been providing great results for us. For offices, the results are basically focused on reviews -- or I'm sorry, revisions where we are focused on 3 main buildings, 2 at JK Triple A as well as Leblon in Rio de Janeiro. This growth is above the inflation rate. And also for the last 9 months, we can see the same impact where we grew 11.8%, total 13% in malls getting to BRL 48 million, and 8.7% in offices, bringing us to 17% or BRL 5 million in the year. On the next slide, we can see 2 very important indicators. The adjusted EBITDA. In the third quarter, we can see a growth that is cohesive to the ROI, 15.5%. Our EBITDA of BRL 20.8 million. Looking specifically at the 9 last months, we can see that 5 months of this portfolio happened 5 months before the transactions that we have closed. So there is this decrease of 36.8%. So BRL 95.6 million of last year compared to BRL 60.4 million this year. However, when we look at the adjusted FFO, we can see that there is this growth of about 120% in the first quarter where we had this BRL 20 million FFO adjusted to sales effect, and specifically for the 9 months of 2024. In this, we had BRL 35 million last year and this year, 45.6% (sic) [ BRL 45.6 million ] showing a growth of 30%, showing that specifically for the fourth quarter on, we have already distributed BRL 960 million. So even considering that we have this return for shareholders, and we still have an FFO that is consistently better than the same period of last year. In this slide, we can see the evolution of our net debt. From one quarter to the other, we basically maintained the same level of gross debt. In terms of cash, we have closed at BRL 231 million, and this drop is due to the reduction of capital that we have had at the end of this quarter. So with that, we closed with a total debt of BRL 271 million, which is about 3x our adjusted EBITDA, which is still considered to be a quite healthy level of that, and very important pay for our investors and shareholders as well. So when it comes to our indebtedness or amortization schedule, we can see the profile of our debt, which is mainly focused on IPCA, which led us to reduce our average cost with a very important spread compared to the CDI of 85% over the CDI. And I think now we can go to the Q&A session. Operator: [Operator Instructions] The first question is by [ Reinaldo Veríssimo ]. Unknown Analyst: Congratulations for the results. How do you intend to reduce your gross debt until 2028? Do you have any plans to expand the ABL beyond the CLD warehouse? Thiago Muramatsu: Reinaldo, well, about our leveraging. Yes, we have increased our leveraging rate because we had some extra cash. So specifically for this 3% of gross debt that Hector mentioned, it is already considering this reduction, and it goes hand in hand with our practices keeping the gross debt level. That is due to the fact that our debt is focused on IPCA, which is a great cost. About the next coming years, this leverage is going to happen due to the expansion of our portfolio. This is the picture of the last 12 months, but over the course of the year and the coming years, we expect that due to the evolution of our portfolio results, we can reduce this leverage rate until we get to lower levels that may be even allow for us to leverage our company. This deleverage result is coming again from the results of our assets. And when it comes to the expansion of ADL, specifically for CLD, unfortunately, we don't have any more room on that land. So as soon as we finish the last phases, we get to the limit of its constructed area. But of course, we are still analyzing new developments or maybe some new acquirements or expansions, okay? Operator: [Operator Instructions] So with that, we would like to close the Q&A session. We would like to give it back to Thiago Muramatsu so he can give his closing remarks. Thiago Muramatsu: Okay. So once again, I would like to thank you all for your presence. We had a very positive quarter, and we are at your disposal to clarify any other questions. Thank you very much. Operator: So with that, we will close our video conference. Thank you very much and have a great day. [Statements in English on this transcript were spoken by an interpreter present on the live call.]
Omar Al Bayaty: Good evening to all the people connected. Welcome to the 9-month 2025 result presentation. Enel's CEO, Flavio Cattaneo, will open with the key highlights; and our CFO, Stéfano De Angelis will present the economic and financial results of the period. We ask those connected to the webcast to send question only via e-mail at investor.relations@enel.com. Before we start, let me remind you, media is listening both the presentation and the Q&A session. Thank you. And now let me hand over to the CEO. Flavio Cattaneo: Thank you, Omar. Welcome, everybody. Over the past months, we continue to implement our strategy, and our result prove its effectiveness. First of all, EBITDA and net income continued to grow steadily, reaching EUR 17.3 billion and EUR 5.7 billion, respectively. We're improving asset quality and profitability, leveraging on stable geographies with high visibility of returns and a balanced risk profile. Our focus on European countries now representing 75% of group EBITDA and 90% of net income led to an improvement of the EBITDA conversion into net income. We expect this ratio will achieve 30% at the end of this year, 5 percentage point above the 2020-2022 average, also due to our share buyback program, a double benefit of investing in our industrial asset while giving an additional return to our shareholder. This continuous improvement lead to stable growth in EPS and confirming our focus on shareholder remuneration. Furthermore, as usual, we are going to distribute an interim dividend in January equal to the 50% of the guidance floor, even though the final payout in July is confirmed up to 70% of the net ordinary income. As you know, environmental sustainability remains central to our strategy with emission-free production reaching 84% of total generation. Now a brief overview of our 9-month performance across geographies. The results were driven by strong operating delivery in Spain, mainly driven by the integrated position management and in Colombia, mainly due to good water resource availability. A clear example of our attention to process and portfolio optimization is the U.S., where our commitment has led to a positive cash flow for the first time since the beginning of our operation. In addition, the renewables in other countries have been restructured and reshaped in a growth platform. In LatAm, the resilient operation offset currencies dynamics. While Italy continues to face challenges, lower water resource affected the result of our hydroelectric plant. In light of the result presented, we confirm our expectation to close the year with ordinary EBITDA aligned to the guidance and the net income slightly above the top of the guidance range. This is a clear indicator of execution and value creation. Now I leave the floor to our CFO for further details. Stéfano De Angelis: Thank you, Flavio, and good evening to everybody. In the third quarter, the group confirmed positive and consistent economic and financial results. The limited risk exposure and the quality of our earnings are evidenced by the linear trend throughout the quarters with a net income expansion funded on a structural improvement of our asset portfolio profitability. Focusing on the delivery of our strategic pillars, the group profitability continues to be strong with net income up by 5% year-on-year, expanding the 3% growth reported in June, thanks to an improved conversion of the EBITDA, which now stands at 33%. Efficiencies continue to be front-loaded with 80% of the 2027 target already reached. Our efficiency program is part and share the same approach of the capital allocation process, representing our best and cost-free source of funds. Last but not least, on financial sustainability, net debt on EBITDA remained flat at 2.5x despite the EUR 1 billion execution of the share buybacks, which were not included in our guidance for the year. In conclusion, these remarkable results confirm once again the solidness of our business model and our balance sheet flexibility. Before diving into the results, let me show you the delivery on capital allocation. The execution of the industrial plan, I'm on Page 6, presented in November last year is progressively reshaping the asset portfolio of the group, allowing for a substantial improvement of the business performance. This is translating into a better asset quality with reduced volatility exposure and a more balanced risk return profile and an improved asset profitability, which resulted into higher EBITDA conversion into both net income and FFO. Thanks to this growing level of investment deployed in Europe, 75% of EBITDA contribution is now coming from this area. A minority dilution is limited to 9% on the European operations. At the bottom line, this translates into 90% of net income contribution coming from both Italy and Spain. This improvement is driven by coupling new investment guidance and the maximization of the value to be extracted by our asset base. I move to Page 7. Here, I show how the previous investment cycle was focused on growth in renewables capacity in Latin America and U.S. However, lower market visibility and greater market volatility and -- generate a lower-than-expected EBITDA, while the net income conversion was also affected by the higher financial cost and depreciation related to the incremental capital expenditures. On the opposite, the new investment cycle started in 2023 is focused on countries and businesses with secure and visible returns. It is proving to be more efficient and effective, delivering an improved EBITDA contribution, thanks to a more effective and efficient capital allocation and the reinvestment of efficiencies, as I said before, at zero-cost source of funding. This is clearly visible in the stronger results along all the P&L lines, implying an improved conversion of the EBITDA that is set to exceed 30% for the full year when we compare with 25% on the average 2020-'22 period. The first execution of the efficiency plan, the improved conversion efficiencies achieved in the headroom created on the balance sheet that equip us with a significant firepower to implement the share buyback programs already announced that we have on Page 8. The full actionable buybacks plan at group level stands at around EUR 6 billion and includes the total amount of the 3 different programs approved both at Enel SpA and its subsidiaries level by the corresponding AGM. About Enel program approved by the AGM for EUR 3.5 billion, we are on track to complete the EUR 1 billion tranche launched in August. And as of today, we have purchased 63% of this amount. Endesa where the program approved by the AGM amount to EUR 2 billion has already announced EUR 1 billion in 2 different EUR 500 million tranches with the second one already ongoing and having a final date, February 26. As of today, Endesa have purchased EUR 0.5 billion -- have spent EUR 0.5 billion and with an average per share acquisition cost of EUR 26.6 per share that represent 1.9% approximately of the total share capital. Lastly, Enel Américas share buyback was completed and oversubscribed with a total amount of USD 470 million. The partial was financed by the available liquidity. This liquidity is still arising from the sale of Peru from the disposal plan that we executed starting from 2022 until 2024. The operation now that is conclude and will be financially executed -- has been financially executed on the 1st of October will increment the Enel shareholder into the company into the holding Enel Américas from 82.3% to 85.7%. This brings me to say that it's worth to highlight that also the share buyback program at subsidiary level increased the Enel SpA earnings per share, thanks to the higher portion of the consolidated net income post minorities. Then the Investor Relations may make this exercise with you of calculating the percentage point of the increase. Now we are around 1% of net income post minority increase with the execution of this portion of the buybacks. On Page 9, we finally move into the economic and financial results of the quarter. As I said before, the group delivered a solid performance, improving previous quarter's bottom line performance and the trend expectations. It is worth reminding that this year, we face relevant exogenous negative effects, a stronger euro exchange rate compared to our Capital Market Day guidance, the breakout-driven increase in network ancillaries' cost in Spain. And then the program, let me say, curtailment in Brazil that is defined by the regulator without any refund for the generators. Including the impacts of these, let me say, headwinds as we call them, we would have stayed exactly in the expected growth of the budget and the plan that is plus 3%. But the reduced exposure to countries and business where we have this kind of higher volatility and sometimes unnecessary risk profile represented also by the limited contribution to the bottom line allow us to mitigate these headwinds at net income group level. Well, the limited conversion of the EBITDA exposed to these negative impacts smooth this impact that is more than compensated by the better execution, for example, in terms of bad debt and financial expenses. Finally, net income came in at EUR 5.7 billion, up by 5% year-on-year. It is important to remind that as already represented in the previous quarter, at net income level, the adjustment related to different perimeters across 2024 and 2025 includes also the sale of Slovenske that resulted in a negative noncash impact in the reported numbers of 2025 for the release of [ network reserves ] that was booked in the past related to derivatives. Remember that we have the important cash impact of taking back to Italy more than EUR 1 billion of shareholder loan and all the interest that was capitalized in the previous years. Finally, our improved organic results translated also into enhanced cash conversion, enabling us to reduce our net debt by EUR 0.6 billion year-on-year despite an additional EUR 1 billion not included in our business plan allocated to shareholder remuneration through the buyback execution and this maintaining the net debt on EBITDA ratio stable at 2.5x. I will now dive into the key highlights of the business moving to Page 10. We are talking about the grid's delivery, and it's important to highlight, as always, that we deployed a very huge amount of investment in this segment that amount to EUR 4.7 billion with an increase of 14% when we compare the same perimeter of 2025. Italy, that is the unique, I would say, regulatory framework that evolve versus the new needs in terms of network evolution in order to grant the resiliency and the support -- the adequate support to the system network security and contribution to the entire economic environment growth. This is the unique country where we already achieved the most important goal that is having a fair regulatory framework to allow us to invest, and we are ready to invest significant resources if we found other framework like this one. I'm anticipating probably some question about Spain. So it's clear that Italy gained the lion's share. So when we say Europe gained 80% of these shares, we have to also say that 70% of this amount is dedicated to Italy. The huge amount of investment boosted the value of our RAB, which has now reached almost EUR 46 billion, increasing the resiliency also and the visibility of our EBITDA for the coming periods. Finally, it's worth to highlight that as I have been questioned several times, and I don't know if this was part of the communication that you received from the analyst or from the financial market, the WACC in Italy was confirmed at 5.6%. Let's now look at the generation and supply business. In terms of capacity, our renewable asset base grew 3 gigawatt in the last 12 months, supporting the share of the renewables production on total, which remains stable at 72% as of September for the lack of resources in Italy for hydro, approximately in the year-on-year comparison, we have 1.5 terawatt hour less this year. And in Spain for both wind and solar resources and also for the relevant impact in terms of curtailment in Brazil because it's important to highlight that terawatt is not considered also in the production KPIs. We continue to deploy greenfield BESS capacity, reinforcing our leading position in storage, and we add 1 gigawatt in the last 12 months. And if we include our pumping capacity, now the full storage capacity of the group reached almost 12 gigawatt. Continuing on BESS, in the MACSE auction in Italy, we achieved a remarkable result awarding almost 70% of the total battery storage capacity auctioned with 6.7 gigawatt hour out of a total of 10. Moving to the retail segment. In our domestic market, volumes remain pretty stable at around 52 terawatt hour. Other important point, we also underline this, starting from the second part of last year, we complete the reshape of the offer portfolio and now our customer base is more resilient, demonstrated by the strong reduction in churn rate. Furthermore, our offers are now based on a sustainable price level in line with the current market price. I will now move into Page 12, and I will talk about the earnings evolution. As I said at the beginning of my presentation, ordinary net income came in at EUR 5.7 billion with a solid 5% growth that was supported by the mentioned EUR 8 billion CapEx. And this is the result of a strict but simple financial discipline and the value-driven approach that we have bring into the integrated margin management. I will now focus just in some specific topics. D&A increased EUR 100 million versus last year, but this is mainly driven by higher amortization resulting from the increased level of CapEx deployed over the year, but this was fully offset by a very positive result that was the bad debt evolution, especially in Italy that was also connected to the improvement of the -- sorry, on the churn rate, confirming a structural trend that we have observed along all the year. And already in the first half, we have a very positive impact. So the CapEx is doing its job, adding EBITDA, adding D&A. You do not see the impact at EBIT level of this additional D&A because we have the bad debt that is performing very well and reducing EUR 300 million -- sorry, EUR 300 million in Italy and EUR 100 million additionally in Spain, so EUR 400 million in the 9 months that compensate the D&A effects. Another very positive impact is financial expenses that are down by around EUR 300 million, and this is thanks to the reduction in charges on debt driven by the EUR 4.3 billion reduction in gross debt and the lower cost of debt compared to last year. Let's now move to the slide related to the FFO and net debt. I'm on Page 13. The EUR 11.1 billion FFO delivered in the 9 months implies a remarkable 64% cash conversion, which will be confirmed as [ share ] for the full year results. The FFO generated in the 9 months more than covered the deployment of organic CapEx as well as the acquisition of asset, brownfield in Spain with FFO minus CapEx being positive for EUR 2.5 billion. This net cash flow from operation, the net cash related to nonrecurring or accounting adjustment funded a EUR 7 billion shareholders' remuneration that have approximately EUR 6 billion of dividends and the EUR 1 billion approximately related to the buyback. Finally, net debt came in at around EUR 57.5 billion with a remarkable and confirmed ratio of FFO/net debt at 25% that is up by 2 percentage points versus previous year, another sound results proving the quality of our asset and very important for our rating. With this, I end my presentation. Thank you for your attention, and let's now open the Q&A session. Omar Al Bayaty: We thank our CFO. Let's now open the Q&A session. We received a lot of question for the call that we have summarized by topic and will be answered by the CFO. The first one, share buyback program for Enel SpA. Now you are on track to complete the first EUR 1 billion. What's next? Stéfano De Angelis: First of all, it's clear that we have today the balance sheet to execute the entire program, meaning EUR 3.5 billion approved by the AGM. Important to remind that the 18 months that is the difference, for example, from Endesa program, that is the duration of the program is the mandatory maximum duration for the Italian law. So it's not a specific decision underlying the 18 months. Clearly, the buyback is one of the option that we have to use part of the available financial flexibility. But we have to keep in mind that we have other relevant opportunity to expand the industrial asset base in order that is our fundamental goal to ensure stable and long-term earnings accretion. Omar Al Bayaty: Thank you, Stéfano. Let's move to Italy concession extension. In Italy, we are waiting for the final document on concession extension. Any news? Stéfano De Angelis: Not depending where you are, but the last relevant event is the ARERA Resolution in August. So we are currently waiting the decree of the Ministry of Economy. But as of now, in terms of -- you asked about the assumption. Being a decision that is not in our hands, our unique assumption -- for my unique assumption, let's call it this way, about the amount of the lump sum is what we have included in our Capital Market Day in November. And probably some of you remember that we included this amount not having still the opportunity to disclose the ongoing discussion about the scheme of the extension of the concession. Regarding the timing for the cash out, this is based on a step-by-step process whose timing is set by the government bodies because we have different actors that participate into this process that are involved. And this should target, as we always stated, the last quarter of 2026. But let me say about this topic that the value of this concession extension and the related extraordinary CapEx plan has to be considered independently from whenever and whatever will be the lump sum, even if it is a relevant element of the framework because the extension and the new and increased CapEx cap, this is really important as I have the opportunity to share with some of you, will allow us to invest more than EUR 15 billion in the next 3 years in Italy with a dramatic increase in the RAB compared to the past. Don't forget that we will have just in 2026, EUR 1 billion of grant still in our CapEx. But starting from 2027 and in 2028, we will not reduce the CapEx, the gross CapEx for EUR 1 billion, as you see in my number. So you know that the grants do not translate into RAB. So if this is EUR 3 billion or if this is EUR 4 billion, we have 3 year and a new framework that allow us to make an extraordinary level of CapEx, and we have the full firepower to realize a very significant upside in the CapEx that we will transform into RAB. Omar Al Bayaty: Thank you, Stéfano. Let's move to Spain. Can you please update us on the latest news on regulation in Spain? And what's your view? Stéfano De Angelis: We do not expect further updates earlier than the end of November. After that, the regulation will be finalized before year-end. Endesa has already got the access to the file, then they are still, as all the other operators, submit comments as always. We think that the changes proposed by the CMC in the latest documents do not solve the issue of effectively incentivizing the level of investments needed to accelerate the country's electrification and support the energy transition. This means that failing to establish a more predictable and adequate remuneration framework to meet this demand will mean missing a historic opportunity to enhance competitiveness, create jobs and drive economic growth. These are all topics that were part of the program of the government when we start to discuss about this topic. It's not my personal idea of Spain. But to be pragmatic, once the final remuneration framework is approved by year-end, we will be in a position to reassess if there are the condition, and we will assess also the sites for a potential upside in this CapEx plan. So we are talking about an upside. And this will happen ahead of the upcoming Capital Market Day that is scheduled for February 2026. Omar Al Bayaty: Thank you. Next question, if you -- could you please update on hydro concession extension? Stéfano De Angelis: There are several concession in Italy that have already expired by several years. And it's worth to remind that our concession will expire after the end of the next 3 years' industrial plan. So I can say that we expect the process will take longer time to start. It will -- this has to involve regional, national and European authorities. So it should be different from the one of the distribution. This does not mean that -- this is not a negative consideration. Because at the same time, it's a common understanding that in the present macro and geopolitical scenario, the condition that shaped the present regulatory framework need to be currently updated. Finally, what I want to say that we are not in a hurry, and I think it's not the proper time to speed up the process from our side, having the regulatory agenda already full. We were talking about the extension of the grid concession some years before of relevant topics, not just for our company, but the whole industry. Omar Al Bayaty: One more on concession, but Brazilian one. Could you please update us on the process for the concession renewal in Brazil? Stéfano De Angelis: But the process -- there are 3 processes that have different timing. So I will -- about the specific administrative update about the 3 processes that you can share with the -- also with the IR department. The relevant underlying discussion and evidence from our point of view, that is our point of discussion with the authorities are all pointing to the full extension of Enel concession. This is because we -- it's worth to remind that our effort in the country translates into a complete turnaround of the operation, targeting a dramatic improvement of the quality and the effectiveness of our operational processes that is joined with a gain in terms of productivity and efficiency in terms of spending. As an example, we are in-sourcing mission-critical field activities in order to improve the end-to-end management and monitoring of the network, but this is just one of the example. We are strongly increasing -- already increasing the capital expenditure and the OpEx dedicated to this turnaround plan. So despite a complex unfortunate starting point, with this approach, the present scenario drive to a full concession renewal as, I would say, also the unique scenario that we are considering today. Apart the concession topic, let me also update you on the liberalization of the retail market in the country. The government has defined the full liberalization of the retail market with a final deadline within 3 years. This means that our strong leading presence in the country should create a growth platform able to capture an incremental value creation that implying a potential but significant re-rating of our Brazilian operations. Omar Al Bayaty: Thank you, Stéfano. One question on MACSE auction. Could you please elaborate on investments and expected return? Stéfano De Angelis: This is the auction that -- it's in Italy, the counterparty is Terna, the TSO. We were awarded with around 70% market share of the total capacity in the auction. And as I already said in the presentation, 6.7 gigawatt hour, that is the other way of, let me say, measuring the auction level of capacity and megawatt, gigawatt hour as you prefer. The auction was based on a pay-as-bid mechanism. So you see that we have different pricing. So it's very difficult to understand an average point because you have different price for different players and for different plants. What is important is that this auction generated 15 years, 95% regulated revenues that give us full -- also to our shareholders, full visibility of the earnings stream with, let me say, I would say, a very risk profile because we have the construction, but BESS, we are the leading, I think, company. I don't know because nobody was helping me to understand this, but I think that we could be also the leader for sure in Europe and maybe also in some other continent. But I'm not joking that the execution of the construction of the BESS, we already realized approximately 2 gigawatt in Italy. So for us, this is not an element to consider a risky point. So the COD of this capacity and the EBITDA will be 2028 as based in the auction. So you will have full visibility in our next business plan and also positive impact of this CapEx in this auction. Omar Al Bayaty: One more on auction, FER X auction. Deadline for competitive process is at year-end. What's your expectation on the outcome? Stéfano De Angelis: If you look at the press releases that we have from the -- let me say, the administrative bodies, it's already, let me say, quite clear that we are -- first of all, we have 2 different auction. The big one baseline, let me say, auction and then we have another smaller that was dedicated to non-Chinese, let me say, components and agreements. The first one, we already understand, let me say, by the statement, the official statement from the GSE that have been awarded around EUR 60 per megawatt hour, something -- some capacity less, some capacity higher. But you have to consider that this price is adjusted for inflation. There is a full curtailment coverage, and this has generated so we have, let me say, a solar scenario. Solar was the big portion of this auction. And then there is an additional component in the price that is -- that depends from the geography. You have EUR 4, if I'm not wrong, plus in the center of Italy and EUR 10 plus in the north of Italy. This is not adjusted by inflation. So at the end, you have something that is in the range of EUR 65. In some cases, you have more than EUR 70. Again, that for the EUR 60 average of the base auction will be adjusted for inflation. In the other auction, we do not have any statement. We have to expect a price that reflects the spread of the market price against the Chinese prices, something that could be in the range of EUR 5, depending if you have the Indian one or something more. But in the second auction, we do not have the official statements that we have for the first one. Omar Al Bayaty: Thank you, Stéfano. Let's move to CapEx evolution. Do you see opportunity to invest more in renewables? In U.S., in particular, how many megawatts you already lock in? Stéfano De Angelis: Maybe also kilowatt. But again, I think that the market now should start to understand our behavior. It's not just U.S., it's not just Italy, it's not just Germany. It's a question of investing where you have a scenario that have, let me say, a balanced risk rewarding profile. This means that in Italy, we have a different approach than in Spain, for example, it's not just Europe because in Spain, now we are very long in terms of generation. In Italy, we are dramatically short as a country and as Enel. So the approach is different. But at the end of the game, it's the same because in Italy, we could be more aggressive in terms of pricing, let me say, expectation. In Spain, clearly, we have very low expectation because when we look at the market of the PPA with solar, it's not a country where you can imagine today to have a merchant photovoltaic plant to be built in the next months and the next couple of years. Moving to the U.S., it's really an interesting country because it's, first of all, one of the country that is in our scope, and you know that in our scope, you have a country when the -- also the market scenario, the geopolitical scenario and the regulatory scenario is, let me say, visible and let me say, less volatile. The safe harbor discussion, it's important. But at the same time, it's also important to consider that U.S. is a market that is growing. And this growth is visible today, is already visible in the price of the PPAs. It's already visible in the price also of the market, the different markets. And when I say different market, it's more visible in the PJM that in the [ SPP ] or something like this. So the approach remain the same. In U.S., we have a pipeline that should present some interesting safe harbor greenfield opportunity. To transform this opportunity into a positive final investment decision, we are already having discussion about PPAs because it's clear for us that if we are going to build a greenfield plant in the U.S., we will have a signed PPA at the day of the final investment decision. And this is part of the evolution that we are carry on in these months. Omar Al Bayaty: Thank you, Stéfano. Now let's move to guidance. First question regarding EBITDA guidance. Could you please run us through the trend of the last quarter of the year? Stéfano De Angelis: As I -- also last year, I insist, let me say, that utilities should have also, let me say, an annoying trend. And so my annoying answer is that the trend will be the same that we have observed along this quarter. So Europe will have an Italian pro forma that will be, let me say, almost flat year-on-year. And Spain will have a pro forma that will be more or less 5% growth year-on-year. That is exactly the figure that we have in September. It's clear that in South America, we have, let me say, a more, let me say, volatile trend, also considering the FX. So we expect a different -- a recovery, let me say, in LatAm that will be driven by the confirmed positive performance of Colombia, where we have -- is the unique relevant country in the region that do not have a negative FX. And the positive rebound in Brazil, the rebound that will be in the integrated margin will depend on 2 specific point. The first is that the FX impact should reduce because last year, 2024, the euro start to strongly appreciate against real in this period, let me say, in the fourth quarter of the year. So let me say the year-on-year comparison will benefit from a worse 2024 in the last quarter of 2024. But the most important topic because it's a very important industrial change that we will book probably if nothing changed in terms of process in respect expect to the positive impact of the curtailment refund in line with the decree that was approved recently by the Brazilian government. As you know because I read a lot of daily news from the investors, from the analysts, this is not what I would say you were expecting because we were expecting this, it's very difficult to expect that the excess of capacity, it's refunded. When the network operator cut for -- with the programmed cut for security reason. So it's a programmed cut not for a temporary excess of generation, but it's in order to secure the transmission and the network system. In this case, we were expecting strongly to be refunded and the decision is, let me say, positive as again, I [ wrote them ] this is also our position, the generated distribution shouldn't be, let me say, impacted by the definition because it's the reason why we have that kind of congestion in Brazil. So -- but this is something that could be introduced also in the final word of the law when transformed into law. So the impact is not hundreds of millions. It's something that, let me say, bring our performance in line with our expectation because the amount more or less will cover the full impact of the curtailment that is the one generated by the -- let me say, by the programmed cut from the TSO and the other is the real congestion that, in our opinion, is something that is, let me say, a long-term strategy from the -- of this energy system because that kind of evolution in the distributed generation was -- should have been managed some years ago probably. But again, don't move from the positive reaction that we had. So Brazil will driven by these 2 specific FX that will not change, let me say, the trend of the LatAm business dramatically, but we will move from a flat to a low -- no, let me say, to a single-digit growth in the specific fourth quarter results. This is our expectation. Omar Al Bayaty: Thank you. Stéfano, one more on guidance, net income guidance. On net income, you guided slightly above the guidance range. To which extent do you expect to exceed the guidance? Stéfano De Angelis: Let me say, I think that I gave all the elements that have the translation of the EBITDA into the net income. So I will just, let me say, refer to something that is not related to the EBITDA because the mix of the EBITDA will have a negative -- let me say, a slightly negative impact on the minorities. In terms of seasonality, also last year, we had, let me say, a different quarter in terms of economics last year, but you have to consider that there is also a concentration, as always, of the CapEx that you probably remembered also impact. So I probably answered the question of the working capital in this moment that how you expect to recover the working capital because the CapEx concentration, it's a historical that nobody will be able to remove from also all the industries that have this intensity of CapEx. So this will be -- let me say, again, we are a very utility. So the linear trend will continue, excluding this change that we have a higher, let me say, share of depreciation and a slight increase in minorities because -- due to the positive improvement of the LatAm operations. Omar Al Bayaty: Thank you. Let's move to hydro. The hydro production in Italy is down 1.5 terawatt hour year-on-year. What's your expectation for the last quarter? And any visibility on 2026? Stéfano De Angelis: First of all, I think it's very important to keep in mind that 2024 was -- if I'm not here by 20 years, but probably the best year in terms of [ hydraulicity ] in the story of the hydro in Italy. So when you see year-on-year comparison, you not to worry about also our plan because we never make a plan with the historical high. We are always in an average. So we were expecting this trend. In this moment, Italy is not improving. So we will not recover. I will tell you that we will recover the 2024 condition. And to have full visibility, we have to wait still some weeks in order to have, let me say, a first visibility on the first part of 2026. But it's important also the 2026 in the Capital Market Day, industrial plan was defined based on an average hydro resource in Italy as in the other countries. Omar Al Bayaty: Thank you, Stéfano. Let's move to retail. It looks like you recorded a drop into retail clients in Italy and Spain. What is the churn? And what are the main drivers? Stéfano De Angelis: But unfortunately, it's in this quarter, something very strange happened because we talk about churn reduction, and you see the drop of the customer base. The churn is confirmed at the significant lower level compared to last year. And this is what we were expecting because all the -- also repricing that we performed in the last -- until the first part of 2024, this process was completed by the end of first half 2024. And this started to give us improvement of the churn that now is very solid and clear. But another important thing happened in one day that was that in the 1st of July, we have millions of customers moving from one side to another because we lost millions of customers from the regulated base, and we gained in one day approximately 1 million customers. So now we are -- like-for-like this is a change that is real, let me say. The other one also was real because that customer was not in the free portion of our customer base. And this is also important to look at the volumes, let me say, in the reported figures because starting from this quarter, in one day, we lost also the terawatt hour of the -- when you look at the total figure of the terawatt hours sold in Italy, in one day, we lost millions of customers, so some terawatts generated from the so-called [ tutti i lati ] customer base that was in a specific company, and you probably know the story that is not so fantastic... Omar Al Bayaty: Okay. Thank you for your answer. D&A were almost flat year-on-year despite the new investments. Which are the drivers? Stéfano De Angelis: Again that we gave the trend -- the industrial trend of the asset is that we have an increase in the D&A because of the increase in the investment plan. Keep in mind that in the past, you have the figure that was also reporting the disposal plan. So when you see the asset base and the depreciation, when you sell an asset, you sell also the depreciation with the asset base. So now that we are trying to be more stable and comparable, now the pro forma is limited to Peru and Lombardy. When we look at the industrial part of the comparison, we will start to see the increase in the depreciation that is, let me say, organic. But fortunately, as I said before, we have the strong reduction in the bad debt that you will see in the same line, if we don't move into a scheme that have, let me say, an open description of the D&A figures in the simplified P&L. Omar Al Bayaty: One question on data centers. It's a business opportunity for you? Stéfano De Angelis: Yes. As presented 1 year ago, this is part of our additional growth opportunity. As of today, we are working on a specific pipeline of industrial sites through a dedicated full-time organization set at the beginning of last year. The specific business opportunity is represented by the sale of time to market. What does it mean? A value that is embedded in the industrial site where we can offer real estate permitted and ready-to-use energy network connections and facility services on top of a power PPA with a premium above this business model that is different from a spot sale model, we are finalizing the first preliminary agreement in Italy, where we have several potential sites in our pipeline. Omar Al Bayaty: Thank you, Stéfano. Let's move to financial expenses. What is driving the improvement in financial expenses versus plan expectation? Stéfano De Angelis: Because none of you -- I was thinking there is a different -- because already I think I answered through the presentation, and we have also included this EUR 4.3 billion reduction in volume effect. And then we have -- let me say, we have to consider the short-term and long-term part of the debt. But let me say, generally speaking, we have also an important reduction in the cost of debt, also thanks to the new mission of the last, let me say, 24 months. Omar Al Bayaty: Okay. Thanks for the clarification. Stéfano De Angelis: Sorry, before -- somebody that was on the line that I didn't respond about -- I didn't answer about Spain. I just talked about Italy. Spain is a completely different market. I'm referring to the retail churn. In Spain, we have a dramatic churn. What is important that we started to have, let me say, a different approach to different segment of the market on the sales channel. So when you see the positive results that we have in Spain because we don't want to do fight for customers just for an absolute figures of invoices. And the result is negative when you look at customer base, but if you see the trend also comparing us to other peers in the generation supply, let me say that we have a quite -- slight better trend comparing year-on-year. So we expect this to be also something that is an example because the churn in Spain is structurally average churn at 25% that I never seen in my life also in telecommunication sector. For example, that the churn has destroyed also entire groups of companies, but 25% in Spain that have the lower price wholesale in Europe is something that depends on specific behavior on some specific player that it's important not to follow because they are not creating value in that market. This is important to [indiscernible]. Omar Al Bayaty: Thank you, Stéfano. Let's move to working capital. Stéfano De Angelis: I said before that I already answered working capital. It's -- again, the seasonality is always -- last year, I say that we will recover, and we recover. So you have to start to trusting me about working capital. But also because I remember perfectly last year that I said I have the invoice, the visibility, the short-term visibility of our business is very high, very, very high. So the working capital is something that is -- if you have some change because you decide to have some change from the forecasted amounts. So don't worry about the working capital. Omar Al Bayaty: Okay. Thanks, Stéfano. There are no more question. So the Q&A session is over. We cover all the main topics. But if something is missing, the IR team is available for follow-ups after the call. Thanks to everybody. Stéfano De Angelis: Thank you, and see you maybe somewhere before Christmas, different happy Christmas because this time, we will see for the Capital Market Day, not in 2 weeks, but in 3 months. Bye-bye. Omar Al Bayaty: Thank you.
Roger Dent: All right. Well, it's 10:00 so -- hold on I'm just going to mute people here. All right. Well, welcome, everybody. And please welcome to the third quarter Quinsam Conference Call. I'm going to assume that everyone's already looked at the results and probably read the press release. So I'm not going to go into what's already there. Third quarter, basically, we were slightly in the black, which is not terribly dramatic one way or the other. And there wasn't a lot of activity in the quarter. So really, the key update is what's going on here in Q4. We have 2 of our private investments that are both at this stage, looking to list. The largest one, we've carried it under the name Peninsula. It's announced to go public financing with a syndicate of large investment dealers here in Toronto under the name of Renterz. It's a U.S. single-family rental business. It's out there in the market now trying to raise funds at $1.90, our carrying value is quite a bit below that. At this stage, they're in marketing. I understand that it's going sort of okay. We're hopeful that the transaction will complete. There's probably, I'm guessing, some risk in the $1.90 price, but we'll see. That's an important development for Q4. And obviously, we hope that it goes ahead. The other go public that we're looking at here in Q4 is a company called Electro Metals. That is -- it's a relatively traditional Canadian mining story, copper, gold properties. And the market, obviously, for mining is relatively good right now. They are awaiting final approval from the exchange to list. I understand they're down to the short strokes and that they expect to get final listing approval in the next week or 2. And once they have that listing approval, they believe that they have the funds lined up to close and then commence trading. So those are probably the 2 big things in front of us for Q4. Between the 2 of them, there's about $0.02 of NAV that are in play here. So we hopefully will see the amount of liquid investments move from the $0.06 level up to $0.08 and obviously, hopefully beyond that with the expected listing prices of both Electro Metals and Peninsula above where we're carrying them. Unknown Analyst: Excuse me, Roger? Roger Dent: Yes. Unknown Analyst: Quick question. Electro Metals, what are they into? Roger Dent: Well, it's a fairly traditional mining story. This is actually a company that we bought quite a long time ago as a cannabis company. Back in the day, it was called Ancient Strains, and it was run by Daryl Hodges, who used to run Jennings Capital. And he was a mining guy in his -- for most of his life. He's a geologist. He always focused on mining companies. And when the cannabis market turned, he decided to reposition it as a mining play. So he's been working with that for the last 2 or 3 years. He tried to list about 18 months ago, but obviously, mining markets were much less favorable than they are today. And that attempt did not go ahead. He couldn't get the money. But obviously, now we're looking at a much more favorable mining market. Unknown Analyst: What's the -- is it gold or is it... Roger Dent: It's copper, gold. It's sort of... Unknown Analyst: Copper, gold. Roger Dent: It's -- most of the NAV is copper, but it's got a significant gold byproduct. Both of those commodities are quite strong at this stage. And it's a pretty -- it's a very conventional asset. It's Ontario. It's got a resource in place, like it's a pretty conventional story, and it should be able to complete its financing and list. It's just a question of value, I would say. So those are on the private side, the 2 visible situations right in front of us. The other one that is progressing well, I would say is A-Synaptic, which is about $0.02 of NAV. A-Synaptic is developing a CBD treatment for epilepsy, and it's about to start a clinical trial. It's been approved by the FDA and Boston's Children's Hospital is going to do the trial. They also have been working informally on a second indication to use the same treatment for Parkinson's. And they've actually been given a $3 million grant by the Michael Fox Foundation to take it from its sort of informal trial. It's now like basically being given to some patients and has been for about a year outside of a formal trial with very good results. So the Michael J. Fox Foundation is funding it to go into a formal trial for approval for Parkinson's as well. So that -- it's progressing well. We hope to start doing a U.S. go-public process this year. It's not going to happen, I don't think, by year-end, but hopefully, early in the new year, that will begin its march to being public. Otherwise, as far as Q4 is concerned, we have one company, Newlox Gold, which it's under a cease trade at present because its financials are late. And we decided to be conservative to take it to a valuation of 0 in Q3. We definitely do not expect it ultimately to be valued at 0. It was trading around $0.05 or $0.06 before it was halted and it raised money at $0.07 as recently as about 6 weeks ago. So we expect it to be back and trading at those sorts of values in and around the end of the year. But to be conservative, we took that down. So that hopefully is money in the bank for Q4. We also have a few companies that are at this point, even with the sell-off of the last day or 2, above where they were at the end of the quarter, BluMetric, NeoTerrex, Royalties Inc. which won its lawsuit appeal and City View Green, which is now a cryptocurrency play, no longer a cannabis play. So with any luck, Q4 will be a decently profitable quarter. But obviously, there's volatility out there, and we'll have to see what happens over the next 6 weeks or so. And with that, I'll open it up to questions. If anyone's got a question, just take yourself off mute. Unknown Analyst: Question, Roger. Anything coming forward about a transaction? Roger Dent: Transaction. So we've had some very good discussions this quarter with a company that we're quite interested in. It's an American-based company. And because of that, there are some income tax complications for the main shareholders, like they obviously don't want it to be a taxable event, but there are some problems in making it not a taxable event for them. So they are kind of mulling some structural and tax issues. But it is quite promising. It's a company that's in a very interesting business. It makes nice cash flow. The valuation is reasonable. And their funding requirement is quite appropriate for us. It's -- they don't really actually have a funding requirement. They're a cash flow positive business. So really for them, what they find attractive is the ability to raise for them a relatively small amount of money with a small amount of dilution and have a company that would have a very tight float that they would be in a position to influence the share price of. So for us, it's quite interesting because we think we would get a quite decent win coming out of the gate. But this tax issue is something that -- it's got to be solved because if it can't be solved, then they're not going to basically take their whole company value into income tax -- into income and pay tax on it on go public. It's just not viable. Otherwise, I would have to say there's not too much going on. I mean we certainly could go and do a mining transaction, I think, quite easily if we chose to. It's really not what I would want to do. I'd much rather get into an operating business with cash flow or very, very near-term cash flow. Don't really want to go into a mining exploration situation where it's significantly cash flow negative and you're just kind of hoping for geology to work out your way. So that's something that it's certainly fine for an investment or 2. Happy to make those sorts of investments, but not sure I want to bet the whole portfolio on one mining situation. Unknown Analyst: Yes, I would have to agree with that. All right. That's good for me. Roger Dent: Any other questions? There's no further questions. Thanks for attending, and we'll talk to people later. Unknown Analyst: Thanks, Roger. Roger Dent: Bye-bye. Unknown Analyst: Thank you.
Frank Stoffel: Good morning, everyone, and welcome to Allianz's Third Quarter and 9 Months 2025 Media Conference Call. Thank you for joining us today. My name is Frank Stoffel, Head of Financial Communications and Valuation Relations, and I'm here at our headquarters in Munich with our Chief Financial Officer, Claire-Marie Coste-Lepoutre; and our Group Head of Communications, Lauren Day. Today's conference call is scheduled for 60 minutes. And as usual, we will answer your questions following our presentation. With this, it is my pleasure to hand over to our CFO, Claire-Marie Coste-Lepoutre. Claire-Marie Coste-Lepoutre: Thank you very much, Frank, and good morning to all of you. I'm very pleased to report on another very strong quarter for the group, which is building to an excellent contribution to the year and our 3-year plan. Our results are supported by both an ongoing top line momentum and an attractive margin development. Across the organization, we are working on our 3 strategic levers of smart growth, productivity and resilience, with first signs of materializations into our numbers. As you can see on Page A4, year-to-date, our business volume growth continues to be very strong at 8.5%. As previously, this growth is diversified from a segment perspective and within the segment across businesses and geographies, which gives us a lot of strength for the future. Our operating profit is now up by more than 10% year-to-date. The number FX adjusted would even be 13%. Here as well, we see positive developments in all our segments. Our core net income growth is accelerating compared to the first half of the year. Year-to-date, it grows by 10.5% or actually 8% adjusted for the disposal gain of the Life JV with UniCredit in Italy that we did book in the second quarter, and as well as the anticipated tax effect of the disposal of our stake in Bajaj that we did book in the first quarter. Our core EPS adjusted for this exact same 2 effects is now up 10%, which is very strong and ahead of our 7% to 9% target range. Similarly, our core ROE is above 18% and well ahead of our target level as well. Our solvency ratio emerged at 209%, and our operating capital generation continues to be very strong, which gives us flexibility for current and for future capital deployment. Given the excellent performance of the organization at the end of September, I'm very happy to indicate that we have adjusted our outlook upward yesterday night, and that we expect to end the full year at least at EUR 17 billion operating profit. Of course, the year is not over, and we can still see NatCat or market movements. But clearly, we are very confident with the overall outcome. Let me move to Page A5, and let's have a look at our P&C business. Here, we have another excellent quarter, which is building on previously excellent quarters. We are achieving another level of -- another record level of operating profit, now 15% up versus last year, as you can see on the right-hand side of this slide. Year-to-date, our total business volume is at plus 8%, which is excellent. This 8% growth is ahead of our assumed medium-term growth rate of 6% to 7%. Approximately half of the growth is volume and the rest is price. Compared to the first half of the year, the volume growth has been accelerated from both retail and commercial. Our internal top line growth for the third quarter is in line with what we have seen for the second quarter as is our rate change on renewal for the full book, which is now at around plus 5%. We have achieved a very good level of combined ratio at the end of the third quarter at 91.6%, with both retail and commercial performing, as you can see. Also, you can see in our material, how broadly spread the performance remains. In particular, I'm very happy with the development of our attritional loss ratio with more than 1 percentage point of progress year-to-date. This has been particularly driven by our retail business, with the benefit of the underwriting and pricing actions, which are earning through. Also, our constant focus on productivity continues to deliver with our expense ratio down by around 30 bps, just below 24%. And the third quarter was very mild from a natural catastrophe's perspective, but we booked no runoff overall. So we further increased our reserve confidence during the quarter. Overall, our P&C business is doing excellently. We see volume growth, which reflects a mix of strong ongoing developments, especially in retail and targeted growth in commercial as we manage the cycle. Our profitability is not just a reflection of more benign natural catastrophes, but also very strong attritional improvement, relentless focus on productivity and significant prudence when it comes to the recognition of runoff. Let me now move to Life Finance on Page A6, where you can see that we are fully on track to meet our targets there. The numbers are as well more impacted by FX and P&C. And you may remember that we have disposed the UniCredit JV, which is now showing up in the numbers as of the third quarter. Our value of new business is up 4% FX adjusted, with our PVNBP up 5% at a very stable new business margin, which is as well above our 5% ambition level. So we see good developments across the businesses. Our life new business can always be a bit lumpy. And last year, our third quarter was extremely strong, where we are benefiting from various promotions. You may remember that our U.S. life business was up 60% last year in the third quarter. And we also had some large ticket transactions, in particular at Allianz Leben last year in the third quarter. So I think to get a good sense of the fundamental growth in new business of our Life & Health portfolio, this is actually really good to look at the 2 years development between the 9M 2025 and the 9M 2023, where we have been growing by 20%, which gives us an estimated annual growth rate of approximately 10% FX adjusted, which we also consider is the right level of appreciation if you just purely were normalizing the number between 9M '24 and 9M '25. If you look in more details at the profile of our business development, you will see as an example that we continue to grow at 93% in our preferred line of business, that our health business in Germany continues to show exceptional momentum once again with year-to-date new business profit up 56%. Italy is also worth a special mention to highlight with a growth of 13%, excluding the UniCredit business with the vast majority of that business coming into united. Let's move to the contractual service margin. And as you know, the net CSM development is a much better indicator when it comes to the real reflection of the future stock of profit to be earned by us. The net CSM year-on-year is at 5% or is at 8% FX adjusted. This is clearly well on track for our targets as is the normalized growth of the CSM, which is just under 4% at the end of the third quarter. Our Life operating profit emerged at EUR 4.2 billion, growing 6% adjusted for FX. This puts us well on track against our targets. Overall, our Life business momentum is good. Our new business profitability is at a very attractive level, and our IFRS profitability is emerging as expected from a very diversified portfolio. Let's move to Asset Management on Page A7. And here, you can see how structurally our business is doing well at navigating the market environment, delivering outstanding net flows, performance and profitability. We had our best third quarter ever in terms of net inflows at EUR 51 billion, which brings the annualized year-to-date growth rate to around 7%, which is a very impressive level. Net flows in the third quarter are positive, both at PIMCO and AGI across various strategies, platform and geographies. Our asset management franchise continues to be supported by the performance we deliver to our clients with 92% of our third-party assets under management outperforming their benchmarks on a trailing 3-year basis at the end of the third quarter. If you look further in our material, you will see that our third quarter revenues are up 9% FX adjusted. The revenues are supported by the higher average asset under management, the continued resilience in fee margins at both our asset managers together with performance fees in solid territory. Overall, this leads to revenues at EUR 6.2 billion at 9M, which translates into EUR 2.4 billion of operating profit for the segment. This is supported by the continued focus of both our asset managers on productivity, which is fueled by cost discipline, the operating leverage as we grow our revenues, overall resulting in a cost/income ratio improving 60 bps year-to-date, now below 61%. So overall, on Asset Management, we see an attractive diversified franchise with growth momentum and profitability. Let me move to Page A8, where you can see the development of our solvency ratio, which is characterized by a continued very strong operating capital generation, which is fueled by the excellent performance of our P&C business in particular. This capital generation continues to support our attractive payout, both dividends and share buyback with some of our recent -- together with some of our recent capital deployment like the investment into Viridium or the partnership with the Royal Automobile Association in South Australia. As part of our Capital Market Day commitment, we are focusing on the implementation of our capital management framework, and we are confident to achieve our full year objective of more than 20% in terms of operating capital generation. Our sensitivities are almost unchanged at a low level and continue to offer confidence of the resilience of our profile. So overall, we are in a very good position, both in absolute level, sensitivities and our ability to generate solvency through our business portfolio. While we benefit from some positive one-offs in our operating capital generation this year, there are fundamentally a lot of positive elements to be appreciated there this year so far. Let's move to Page A9. And Page A9 is focusing on the special event we had this year. As you can see, we are celebrating the 25-year partnership between PIMCO and Allianz following the completion of our first investment into PIMCO back in 2000. We thought it's very worthwhile to do a zoom on this. And clearly, it has been an exceptional partnership we are very proud of, which has generated considerable value. Let's move to next page to have a look at that at some metrics. PIMCO has, for instance, grown its assets under management sevenfold, its operating profit ninefold, the latter now making up nearly 20% of Allianz Group operating profit. PIMCO is as well adding value through its strong management of almost 50% of the group's assets. PIMCO's franchise as a leading active fixed income manager has been underpinned by consistently strong investment performance. Here again, at the end of the third quarter, for example, 97% of our assets under management were outperforming on a 3-year basis. As I have already mentioned, PIMCO has seen outstanding flows this year and continues to capture a high market share of the flows seen by the industry into active fixed income strategies together as well with the support of some of the more recent initiative, as an example, the active ETF product that I also already mentioned in the second quarter. We continue to look for ways to further increase the synergies between PIMCO and the wider Allianz Group as we leverage the benefits of an integrated asset management and insurance group. The relationship is very symbiotic alongside PIMCO being a manager of our general account assets, Allianz insurance businesses can seek new strategies for PIMCO and help expand distribution as well. PIMCO as well is supporting and benefiting from our third-party capital optimization vehicles like Sconset that we have deployed for Allianz Life in the U.S. Beyond all of this and what may be less identified in the case of PIMCO is how innovative this business is. The success of PIMCO plays as well in its ability to constantly look across the business at new and better ways of acting or investing. You have many examples of that actually also in the presentation of Christian Stracke in the Capital Market Day presentation. So looking ahead and as we outlined at the Capital Market Day last year, we are very positive about PIMCO's future as a leading active manager with skills in both the public fixed income markets and across a broad range of alternative strategies, which are a first part of its business. The focus is there mainly on asset-based finance strategies that support the real economy, as an example, the investment in data centers. So after 25 years of success, we clearly look forward to many more years of working together, sizing growth opportunities and delivering excellent performance to our clients. Let me wrap up on Page A11. So clearly, we have an excellent year so far where our delivery momentum continues across all our segments. Here, I want to take a small pause to say a big thank you to all our employees for their work and engagement in delivering such results. Together, we are working on executing the Capital Market Day levers, including the focus on higher capital generation and the strengthening of the resilience. As part of that, both the fundamentals and the diversity of our business continue to give us confidence even if the environment can be volatile or uncertain. With all of this in mind and given the performance achieved at the end of the third quarter, we have confirmed yesterday in our ad hoc EUR 17 billion to EUR 17.5 billion range for the outlook. This is subject to the traditional caveats, but clearly, we are very confident. With this, I will be very happy to take your questions, and I hand over back to you, Frank. Frank Stoffel: Thank you, Claire-Marie. We are now very much looking forward to taking your questions. But before we start our Q&A session, let me, as usual, remind you of the housekeeping items. We will answer your questions in English. But if you are more comfortable to ask your questions in German, please feel free to do so, and we will repeat it back in English for everyone else on the call to understand. [Operator Instructions] The first question of the day comes from Michael Flämig, Börsen-Zeitung. Michael Flämig: Mrs. Coste-Lepoutre, Mr. Stoffel, I have 2 questions, please. You said it's an excellent year for Allianz. Mrs. Coste-Lepoutre, indeed, we are experiencing an extraordinary success story in the property and casualty insurance. What risk do you see for the current level -- high level of profitability? And the second one, the share buyback ended some weeks ago. You said there is more room for capital management. When we -- when will you decide about a new share buyback program? Claire-Marie Coste-Lepoutre: Well, thank you very much for your questions. Maybe let me start with the second one. So we have clearly highlighted in the Capital Market Day what is our total payout approach, which is made of 60% level of dividend and then minimum 15% additional payout, which can be under the shape or form of share buyback, obviously. That 15%, we want to give us flexibility, obviously, and we want to return back to our shareholders over a 3-year period of time. So that's our total payout approach. This is unchanged at this point in time. And we just finished -- we did just conclude our share buyback that we had announced together with our full year numbers. So it's definitely too early to discuss another one at this point in time. Then I think your second question was around P&C and basically, what are the drivers for the strong performance in P&C, if I am right, right? It was not in particular about rates? Michael Flämig: That's right. And what are the risks there in the future? Claire-Marie Coste-Lepoutre: Yes. So a very good question. I think like -- so what we see in P&C is, first of all, from my perspective, so we need to distinguish between retail and commercial. And maybe let me start with retail. I think clearly is a very strong driver for the performance in retail is the fact that we have been working very strongly on -- I mean, on addressing the inflationary effect on one end, which has led to us taking quite early initiatives, which have fueled both the underwriting, the rate development, but as well, simply the overall pricing action. So that's one driver of it. Clearly, we see that the way we have been able to do that is translating itself in particular into our attritional loss ratio. So that's why I'm always very carefully looking at that dimension. But that's only one part of the story, I believe. The second part of the story is that across the organization, there is a lot of focus on generating good growth and engaging both with our clients, but also working on higher retention and cross-sell, so basically working on the overall growth triathlon that we have been mentioning in the Capital Market Day, for which we see good early signs in some of the geographies like Germany, like France, like Latin America, like Australia or Switzerland. So we see across our portfolio that this focus on those actions are starting to come into actions, and I expect more of them to continue as we progress into our plan. The second dimension, which is very important as well for retail, is the fact that we did not go only with price increase, we have been working a lot on productivity and in particular, around claims, right? So there has been a lot of actions to optimize our processes, also leveraging AI, but also leveraging one of the company we have in-house solved to really secure that we are paying less for the spare parts and so on and so forth. So a lot of actions as well to minimize the pain associated to the inflationary trends and to basically enter that back into our pricing also to fuel the growth. So I think those will be some drivers on the current performance on the retail. Obviously, we had also good support or very good support from the mild NatCat environment. But as you have seen in our numbers, we have offset that almost entirely by a lower level of run-off. So clearly, that's not one of the driver of the overperformance. Maybe moving to commercial, which is a different dynamic. So commercial, as you know, first of all, our book is very different compared to our competitors. Our commercial business is very diversified. We have the large corporate and specialty business there, but we also have Allianz Trade. We also have -- sorry, Allianz Partners and our mid-corp business. So we see very good dynamic into our mid-corp business, which is fueled by the Allianz commercial initiative with also still good stability of rates. So I think for the future makes us confident in terms of focus. Then Allianz Trade continues its excellent trajectory. And on partners as well as part of our platform play, we continue to see very good development both in terms of growth and margin development. So that's also very supportive of the dynamic. Obviously, there is market softening for the large corporate and specialty business that we are maneuvering with, and we are cautious about that as well for the future. So now if we step back and you were asking about the overall dynamic, we are confident on the momentum we are on, and we will be also managing cautiously as it's planned for and as it was anticipated in the Capital Market Day when it comes to the cycle effect on the commercial side. Frank Stoffel: The next question of today comes from Jean-Philippe Lacour, AFP. Jean-Philippe Lacour: Yes, hello to Munich. Bonjour, Madame Coste-Lepoutre. Maybe can you again explain when Allianz sales performance has been supported by underlying improvements, can you explain what does that mean first of all, on the premiums policy, did they raise or did they remain stable? And on the exposure on the other hand, exposure to certain risks. So can you maybe elaborate on this? And one question I can maybe ask again is we have to understand when -- I mean, when the things are tough and there is a lot of claims, so we can understand that maybe the insurer has to write the premiums and then the things are going very well this year. So the profits are high. So how do you return this either to shareholders, we understand it. And on the premiums policy maybe for the clients. So that will be my 2 questions. Claire-Marie Coste-Lepoutre: Yes. Thank you very much, and bonjour. So maybe like starting on your second question, which is -- so I think -- maybe let's take the example, let's illustrate the example with the case of Germany. If you look at -- in retail, right, if you look at our price position in Germany retail, we are competitive in the German market. And this is also very clear when you look at the growth trajectory of our retail business in Germany actually. And then if you look at the overperformance of the German business currently in the third quarter, you have a couple of drivers there. The main driver is the fact that we have a very -- I mean, very significantly improved natural catastrophe experience, by 7 percentage point of combined ratio. So that's a massive effect, right? Obviously, there was no negative weather this quarter or actually this year on the German business. Does not mean that natural catastrophes are not going to materialize themselves either in the fourth quarter or going forward, right? So that should be part of what we are ready to cover our clients for. Secondly, there is an improvement, which is coming from the very, very strong focus of the German colleagues on productivity. So we have a better expense ratio, but we also have a lot of productivity, which is coming as an example, from the processing of the claims, from also the way we are managing the cost of the spare parts and so on and so forth, as I have already mentioned. And then basically, the fundamental effect of the actions which are needed, and I will come back to that in a minute in terms of having the offset of the pricing effect into the numbers is coming in the better attritional loss ratio, which has been improving year-on-year, but exactly as expected and as needed as well to meet the cost of capital that we have for our business. Now if you look at the inflation we see in our dedicated markets, it's a very different type of inflation compared to the headline inflation. So the inflation continues to be high. So typically, in motor, as an example, the inflation is still in the high single-digit level for -- in Germany, but actually across Continental Europe. So we need to reflect that as required in our pricing, but we try to dampen that effect via all the actions I have been mentioning so that we minimize the effect or the replication of that effect into our clients. So I think that's the way to think about the overall dynamic there. The topic of affordability for us, rest assured is a fundamental one, and we are very focused on this and working as extensively as we can as an organization on that aspect. No, go ahead. I was going to your first question. So please go. Jean-Philippe Lacour: Sorry. No, no, go on. Claire-Marie Coste-Lepoutre: No, no. Go ahead. I was going to your first question. So please go. Jean-Philippe Lacour: Please, the first question on the underlying improvement, yes. Can you maybe explain for [Foreign Language] what you mean with that? Claire-Marie Coste-Lepoutre: Yes. I think so the underlying improvement I was mentioning is exactly -- what I was referring to is the fact that when we look at our loss ratio, so loss ratio is the total level of losses we are paying against the premium we receive. We are tranching that loss ratio into different components. So that's becoming a bit technical, but we have what we call the attritional, which is a pure type of both frequency of severity of normal losses which are happening, and then we have what is related to the very exceptional losses and what is related to the natural catastrophes. So when you look at the pure technical development of the business, you need to look at what are the standard losses making. And that's a very important aspect in particular in retail because that's the way we are driving the portfolios. And here, what we see now is that with all the actions that have been taken, we see the improvement of this fundamental piece of our loss ratio. So that's what I call the fundamental improvement, and that's a very important aspect for us in terms of overall steering. Jean-Philippe Lacour: I have a question on New Caledonia. There are news to saying about the claim you had with others. And generally, are you still active in this market? Or did you retire from New Caledonia? Claire-Marie Coste-Lepoutre: So I think on New Caledonia, the key point on New Caledonia is what is the overall legal frame and environment into which we can operate or not when we are insuring. So I think it's very important for us when we are underwriting a contract with our clients, that we have clarity on how typically the state will react in a certain environment. So the issue we had with New Caledonia is the fact that while we were thinking there will be the state intervening in terms of riots, that did not materialize itself at all. So then you are in a different type of environment compared to the environment against which you were providing the insurance coverage. So that's part of the conversation if you want for us to decide this or no, in general, to be ensuring our clients. Frank Stoffel: Next question will come from Tami Holderried from Handelsblatt. Tami Holderried: Allianz was recently victim to cyber attacks in the U.S. in the summer and more recently in the U.K. Maybe you could comment on if you're planning on changing your cybersecurity efforts as a consequence? And if you're expecting, I don't know, financial impact from these attacks? Claire-Marie Coste-Lepoutre: So thank you very much for your question. So we have a very strong cybersecurity setup in place. We have always had. So I cannot share with your numbers, but you will be astonished if you were to know how many cyber attacks we are withstanding every day and basically coping with. So we have a very strong setup. Obviously, we always are revisiting our cyber prevention setup because this is a risk that is constantly evolving, and so we have to be on top of it as much as we can constantly, right? So maybe if you allow me on both the U.K. and the AZ Life attacks, those are very specific attacks on well-known or well-reported cyber attacks that went into specific systems. So the Oracle e-business suite for the U.K. and third-party cloud-based CRM system at AZ Life. Both events are absolutely isolated and did not and have nothing to do with the broader Allianz Group. So you need really to look at those 2 as independent event entirely separated. So that's the way to look at it. Maybe on the U.K. one, which is the most recent one, it has been -- it's an incident where we have obviously taken all the actions that are needed, where we have also reported to both the authorities and the investigation set up the matter very, very quickly. But the incident only affects Allianz U.K. and represents less than 0.1% of our total customer in the U.K. So it's a very, very small base. There is no operational impact. And obviously, the business did entirely continue as normal. As a result of that event, we have 80 current clients and 670 past customers. And obviously, we have notified them and we are engaging with them in case of questions. And as always, we are very sorry for what happened to them, and we are available to support them as required. But overall, clearly, completely isolated, completely separated, very small and as well, we are reactive to be ready to cope against those situations in general. Frank Stoffel: Our next question comes from Ben Dyson. Ben Dyson: I've got a couple of questions, if I may. What was just on the -- you mentioned earlier that the benefit from lower natural catastrophes that was offset by lower contributions from runoff. I was just wondering if you could say a bit more about why there was lower contribution from runoff. And if it was -- if that meant that you've been strengthening reserves in some areas. And if so, where -- what that was for? And then the second question I had was around the collapse of First Brands and Tricolor in the U.S., whether -- I just wanted to ask whether Allianz had in the exposure either on the investment side or on the underwriting side, for example, through Allianz trade to those collapses. Claire-Marie Coste-Lepoutre: Thanks a lot for your question. So on your question on NatCat and the runoff, so indeed, we have increased confidence in our reserve level as part of this offset. And then on your question on First Brands. So we -- as you know -- I mean as a matter of policy and also for trust and confidence of our clients, we never comment on individual exposures on a single-name basis. What I can just mention to you is that in the overall context of Allianz Trade, first of all, you have seen, again the excellent numbers of Allianz Trade. Allianz Trade is very good at maneuvering the type of environment we are into. And obviously, the automobile sector has been under quite some scrutiny in the current environment, given the tariffs in particular and also the various effects on the supply chain. So Allianz Trade is always very good at looking at early signs and acting proactively when it comes to this type of exposure. So that suggests the overall approach and the way that the Allianz Trade credit has performed as a business. Frank Stoffel: Thank you, Ben. A question from [ Maximilian Voltz from Plato ] has reached us via e-mail. I would just read it out for the benefit of everybody. The question about the business as a whole. In Germany, we are seeing many insurers increasing their share of European business at the expense of German business because the German market is saturated. How is this affecting you? Is the share of German business in your European business declining? And what is your strategy? Claire-Marie Coste-Lepoutre: So I think clearly, I was mentioning excellent momentum in our P&C portfolio. So Core Continental Europe, you can see that we benefit from a very strong level of growth across the portfolio, including for the German business that is performing extremely well, and has done a lot of work to secure and to leverage, I will say, the growth [indiscernible] that we see translated in sales into practice as we speak. So clearly Allianz France is seeing a very nice and positive development. We also see very nice and positive developments on our Allianz Direct business. So Allianz Direct has seen an internal growth of 14% into the quarter and actually 7% is volume into that business. So we are comprehensively on a good trajectory, I would say, in the overall setup. Frank Stoffel: I see in the line, a follow-up question from Tami Holderried from Handelsblatt. Tami, do you have a follow-up question? Tami Holderried: Yes. Sorry. Ms. Coste-Lepoutre, you mentioned the Viridium deal that just went through this summer. On that, do you plan on leveraging the Viridium IT platform and transferring life insurance policies from Allianz to Viridium in European markets? Maybe even without telling them, but maybe just using the IT platform and having Viridium manage some growth portfolios? Claire-Marie Coste-Lepoutre: So I think -- for Viridium, so for Viridium, maybe just overall, let me let recap a bit. So Viridium is an investment for us. First of all, I like this investment because it comes with good expectations when it comes to return, right? So that's a good investment on a stand-alone basis. The second aspect of the Viridium investment is the fact that it's part of our play between the asset management and the life insurance business, so basically offering good opportunities as well for PIMCO and AGI in terms of assets under management. And the last piece is indeed related to the fact that we believe, as a company and as an organization also together with other insurers, that we need to have a high-quality back book operator, a life back book operator available in Europe, and we believe we can support as part of that setup in doing so. And you are right that for some of our portfolios, there could be opportunities for us to be ourselves a client of Viridium, not in Germany because today, if you look at our unit cost, given the size of Leben, there is no interest whatsoever to go into that direction, but that can be interesting for some of -- some other European markets where together maybe with other insurers, we would also be interested in doing so. So that required to -- that will require to optimize indeed the IT system of Viridium, which is today a German market system. So you need to enhance the features of the system to make it working for other markets. So that's part of the strategic initiative that Viridium is looking at to balance investment into a new platform and the market opportunity. So I cannot speak for Viridium, but certainly that's the work they are doing at this stage. Tami Holderried: And I guess you cannot give more detail on what countries you're looking at specifically, right? Claire-Marie Coste-Lepoutre: No, not really, yes. But I think you could identify that fairly easily. As an example, if you were to look at our Capital Markets Day material, you will see some insights. Frank Stoffel: Thank you, Tami. We have another follow-up question from Ben Dyson from S&P. Ben Dyson: Okay. Thanks for taking my followup question. I just had a quick question on reinsurance. So almost with particularly property catastrophe prices coming down. I was just wondering if there's anything that you're going to change about your reinsurance buying strategy at January 1 this year. Claire-Marie Coste-Lepoutre: Thanks a lot. So indeed, we see the softening cycle on the reinsurance side, so which for us is a positive, as you mentioned, right, because we are a net buyer of reinsurance, so that's a good thing for us. I mean, at this point in time, we are really happy with our reinsurance program. You may remember that we actually had to adjust a bit our insurance program when the market -- when the reinsurance market did go into hardening, so we had to increase some of our retention and so and so forth, but now those retentions have not moved. So if you want the economic value -- the implicit economic value of the retention is down and up for us. So that's -- so we like overall the program. What we may do is that if the conditions are really good and if we see appetite from some of some -- I mean, from the reinsurance market for certain type of more optimistic coverage, which gives us maybe high level of risk return profile like trading, as an example, volatility against more certainty in particular at a lower return period, there we need -- we may adjust our reinsurance program. But overall, short answer would be positive for us, and we are not planning adjustments to our program. Frank Stoffel: This appears to be the last question for today. Thank you very much for your active participation during this call. Just as usual, for your calendars, we will report our financial results for the full year on February 26, and we look forward to continuing our exchange then. This concludes today's media call on our 3Q and 9 months' financial results. Have a great remaining day. Thank you, and goodbye.
Operator: Good morning, and welcome to Vallourec's Q3 2025 presentation hosted by Philippe Guillemot, Chairman of the Board and Chief Executive Officer; and Sascha Bibert, Chief Financial Officer. [Operator Instructions]. And now I would like to hand the call over to Connor Lynagh, Vice President of Investor Relations. Please go ahead, sir. Connor Lynagh: Thank you. Good morning, ladies and gentlemen, and thank you for joining us for Vallourec's Third Quarter 2025 Results Presentation. I'm Connor Lynagh, Vice President of Investor Relations at Vallourec. I'm joined today by Vallourec's Chairman and Chief Executive Officer, Philippe Guillemot; and Vallourec's Chief Financial Officer, Sascha Bibert. Before we begin our presentation, I would like to note that this conference call will be recorded. A replay will be available following the call. You can find the audio webcast on our Investor Relations website. The presentation slides referred to during this call are also available for download here. Today's call will contain forward-looking statements. Future results may differ materially from statements or projections made on today's call. The forward-looking statements and risk factors that could affect those statements are referenced on Slide 2 of today's presentation. These are also included in our universal registration document filed with the French Financial Market regulator, the AMF. This presentation will be followed by a Q&A session. I will now turn the call over to Philippe Guillemot. Philippe Guillemot: Thank you, Connor. Welcome, ladies and gentlemen, and thank you for joining us to discuss Vallourec's third quarter 2025 results. In the third quarter, we delivered solid results once again with group EBITDA margin rising to 23%, the highest level since the first quarter of 2024. With this, we have now maintained our EBITDA margin around the 20% level and generated positive cash flow every quarter for the last 3 years. Our strategic initiatives are paying off, demonstrated this quarter by the closing of the Tubes profitability gap versus our primary peer. You can see today's agenda on Slide 3. I will move to Slide 5 to discuss the highlights of the third quarter. Our third quarter results were in line with our expectations. EBITDA of EUR 210 million was at the midpoint of our guidance range. We recorded very strong net income of EUR 134 million. Our net income has recently been added by the execution of strategic projects, in this case, the sale of Serimax. Group EBITDA margin was 23%, driven by the robust performance in Tubes. Tubes EBITDA per tonne improved by more than 25% sequentially to EUR 621 Total cash generation was positive for the 12th straight quarter. We reduced net debt to EUR 140 million. Looking ahead, we expect fourth quarter EBITDA to range between EUR 195 million and EUR 225 million. Our full year outlook confirms the expected second half versus first half EBITDA improvement. We have seen some positive trends in the business despite a volatile macro environment. In the U.S., our fully integrated domestic operation is benefiting from high levels of customer demand. Recent bookings have been strong. In Brazil, we secured a major contract with Petrobras, which will expand our OCTG market share. This contract further demonstrates Vallourec's ability to deliver high-value solutions from our domestic manufacturing base. Meanwhile, in select markets in the Eastern Hemisphere, we have seen delays in some customers' activity. These delays will result in some orders being invoiced in 2026 later than initially planned. This delay is embedded in our fourth quarter outlook. Turning to capital allocation. We further optimized our capital structure in the quarter, redeeming 10% of our 2032 senior notes. In addition, today, we announced a special meeting for holders of Vallourec warrants. The key proposal will be to allow Vallourec to satisfy its warrants obligation with existing or new shares. The current terms of our agreement only allows the delivery of new shares. This will enable maximum flexibility in our capital return options over the next year. Let's move to Slide 6. The 2 goals of the new Vallourec plan were to crisis-proof our business and deliver best-in-class profitability. Today, I am pleased to announce that Vallourec has achieved another major milestone. In the third quarter, we fully closed the margin gap versus our primary peer. This is thanks to our core principle of value over volume and our relentless focus on operational excellence. We also continued our strong trend in return on invested capital in Q3. I assure that our journey will not stop here. We have many initiatives underway to further improve our return on invested capital. Let's turn to the current market environment on Slide 8. We start here with the U.S. OCTG market. While crude prices remain volatile, oil drilling activity bottomed in August. The oil rig count increased modestly through the third quarter. Gas directed drilling has stabilized at a healthier level after rebounding in H1. Recent strength in U.S. gas pricing could drive higher activity. OCTG consumption per rig is also a tailwind. Since 2015, OCTG intensity per rig has increased nearly 5% per year, as shown on the right-hand chart. The drivers are clear. Our customers are drilling longer laterals and rigs are drilling at faster rates. The push towards long laterals has driven strong demand for our high-torque connections. Because of this, one of our return-enhancing initiatives is the construction of our new training line in Ohio, which we announced earlier this week. This line will serve the strong and increasing market demand for high-torque connections with a high return on capital. Let's move to Slide 9. On the left side, you can see the import trend. While recent data is unavailable due to the U.S. government shutdown, we believe imports have started to decrease. This is particularly true for seamless products. Our order intake has been robust in recent months, reflecting healthy demand level and an improvement in our market share. This is likely at the expense of some of these imports. Seamless spot pricing was stable in Q3 with the latest survey showing a slight increase. We have seen divergence in welded versus seamless pricing in some recent industry surveys. This validates the differences in import economics we highlighted last quarter. Let's move to the international OCTG market on Slide 10. Demand, as measured by the rig count remains at a healthy level in most regions. On the left, we highlight that activity trends have not been uniform across key geographies. Middle East activity, particularly offshore, has shown a downward trend over the past several months. This was particularly driven by activity reduction in Saudi Arabia. Our premium portfolio is outperforming the overall market. Still, we have seen some delays in customer activity in select countries, especially in the Middle East and North America region. Meanwhile, activity in other international markets has moderated very slightly. Many of our core markets, such as Brazil, have been stable and look set for further growth. Market prices according to Rystad Energy are consistent with the change in activity. There has been softening in the Middle East relative to offshore markets like North Sea. Our product mix is skewed toward more premium grades and connection that is indexed. Our pricing has remained more stable, including in the Middle East. Looking at the long term, our key international customers continue to advance ambitious capacity growth plans. This will inevitably lead to higher drilling activity and higher OCTG demand well into the future. The structural shift towards increased gas and unconventional fields and the resilient development of deepwater basins is a tailwind. These resources require high-tech solutions, including new fit-for-purpose solution that we are developing today. Before I hand over to Sascha for his last participation to Vallourec's analyst call, I would like to warmly thank him for his contribution next to me to the successful execution of the new Vallourec plan, which I announced in May 2022 and that Sascha will recap in his presentation. We all wish him the best for his future challenge in Germany. Sascha Bibert: Good morning, everyone. Thank you, Philippe. Yes, I'm leaving with a lot of gratitude and also some pride when looking back on what we have achieved as a team. Under your leadership, Philippe, we have executed the new Vallourec plan, including the closure of plants and implemented a change in the business mix towards high value-add products, which allowed us to generate cash consistently. This opened the door for the refinancing and the initiation of shareholder returns. Meanwhile, our shareholder base has transitioned from Apollo and SVP Global towards ArcelorMittal and many global investment funds. Similarly, we have established a new banking group and are now fully transitioning towards an investment-grade balance sheet. In short, the chapter has closed and a new one is opening. The Vallourec team will go towards the next level of efficiency, continuing to further optimize our return on capital. This will offer new opportunities, but will also benefit from new skills and fresh energy. I will join the BASF Group to support them with the carve-out and IPO readiness of the Agricultural Solutions business. It was a fantastic journey with Vallourec, and I thank you all for your support during those years. Let me also highlight important changes in our Investor Relations team. Connor will continue to lead the team until early '26. however, then transition the IR leadership to Daniel Thomson, who recently joined us from Exane BNP Paribas. I think many of you know Dan. Sometime in H1 2026, Connor will then fully concentrate on his new responsibility as Finance Head for our North American operations. Furthermore, we have another addition to the IR team, Igor Le Blan, who brings with him lots of valuable experience from his former Vallourec roles, including for sales in Northern Africa. Let's start with Page 12. This slide shows the impact of the new Vallourec plan. As part of our premiumization strategy, we have changed the business mix and increased prices. We also worked hard on our cost, reducing fixed costs and thereby increasing our resilience to market cycles. The combination of higher prices and higher efficiencies have contributed to an EBITDA margin that is now consistently around 20% for the last 3 years. We additionally focused on the bottom line, both in the P&L and manage for cash. With diligent working capital management, we have improved contractual payment terms with our suppliers, focused on the cash profile of our customer contracts and are continuously optimizing our inventory levels. This has led to a balance sheet with basically 0 net debt and ample liquidity, giving us the flexibility to operate successfully in any market environment and allowing for attractive shareholder returns. On Page 13, you have the group KPIs. Q3 was another quarter that added to the execution track record I just referred to. Our EBITDA came in right at the midpoint of our guidance, though again, we had some foreign exchange headwinds. Let's look at our Tubes segment on Page 14. Tubes volumes increased sequentially and so did the average selling price. We have recently recorded some important customer wins, for example, in Brazil. The new LTA with Petrobras will lead to revenues starting in H2 '26 and then fully from '27 onwards. Tube's profitability is shown on Page 15. In line with our value over volume strategy, based upon a clear selection of where to play while making use of our premium capacity, we also increased profitability in the Tube segment to one of the highest levels in recent quarters. As Philippe outlined, we are now also closing the margin gap with best-in-class peers, though there are many more performance initiatives to come. Over to Page 16. Mine & Forest earnings reduced sequentially, but are still higher than the normal run rate we have guided at our Capital Market Day. Volumes were slightly down sequentially, while the quality of the ore sold remained high. As expected, cost went up slightly, though still leading to an attractive EBITDA margin for the segment of more than 40%. Moving to net income on Page 17. Net income was strong, additionally supported by a capital gain recorded as part of the Serimax disposal and a favorable tax rate. Looking at the right side of the chart, Vallourec has clearly moved away from being a company with a predominant capacity and top line focus towards managing for the bottom line, both in the P&L and in cash. Page 18 shows our cash flow. Total cash generation came in at EUR 67 million despite of a EUR 43 million increase in working capital. Restructuring charges and asset disposals offset each other in the quarter following the disposal of Serimax. Cash conversion was once again high. Page 19. In line with positive cash generation, net debt improved and also gross debt came down following the repurchase of 10% of our outstanding bonds. The reduction in gross debt will continue in the next quarter as accrued interest will then reduce subsequent to the payment of the coupon. Philippe, back to you. Philippe Guillemot: Thank you, Sascha. Let's turn to Slide 21 to discuss our outlook. Starting with our tubes business. In the fourth quarter, we expect volumes to increase slightly sequentially. EBITDA per tonne should remain similar to Q3. For Mine & Forest, we expect production sold to be around 1.4 million tonnes in the fourth quarter. The sequential decline is in line with typical seasonal patterns. We expect full year production of around 6.2 million tonnes. EBITDA in the Mine & Forest segment will be contingent on market prices for iron ore. That said, we have hedged a portion of our production, so our results will not be fully exposed to further price developments from here. At the group level, we expect our fourth quarter EBITDA to range between EUR 195 million and EUR 225 million. Looking at the full year, we confirm our prior year guidance for EBITDA improvement in the second half. Based on our Q4 outlook, full year EBITDA is expected to range between EUR 799 million and EUR 829 million. Let's conclude on Slide 22. We remain focused on improving our profitability and return on invested capital as we drive Vallourec towards operational excellence. We were very pleased to close the profitability gap versus our priority in the third quarter, but we will not stop there. Our vertically integrated U.S. footprint is paying dividend with customer demand remaining strong. Finally, we strive to be one of the most shareholder-friendly companies within our peer group. Today, we announced a key step to improve flexibility in our shareholder returns. By allowing our warrants to be satisfied with existing shares, including treasury shares, we can approach our shareholder return in 2026 in a more holistic way. Thank you again for your attention. Sascha and I are now ready to take your questions. Operator: [Operator Instructions] Now we have a question from Matt Smith from Bank of America. Matthew Smith: A couple, please, both reflecting on some of the prepared remarks. So I mean the first one would be around the international business. You commented on some delays to customer activity, sort of orders from 4Q into '26. I guess I just wondered if your confidence level that this is sort of simply order deferrals. I guess you already have visibility on that, but perhaps that sort of leads into some wider comments on the international business for '26 might be useful if you could, and you could talk to the visibility that you already have there from the order book. I think that would be useful. And then secondly, coming back to the warrants that proposed in those modifications to the terms today. I just wondered if you could talk to sort of the intention and what you would see as the sort of ideal outcome and resolution from all of this, please? Philippe Guillemot: Okay. Thank you for the question. Well, first, as you know, our long-term agreement with customers do not have quarterly volumes commitment. So we make an estimate of our activity levels in certain countries has been -- activities has been slower than forecast. In addition, customers have some control over when we deliver and invoice orders. So we have some highly contributed orders that push out of the year. So it's just a question of time. We have these orders. It's just a question of when customers will need the pipe so we can invoice them. And that's why what we don't invoice as expected in Q4 will be invoiced somewhere in 2026. Overall, about the market we are in, I think we are confident. I think our customers have capacity increase plan they are executing. And so far, we have no reason to think they won't do so, especially as you have seen that OPEC+ is ramping up production. So that's for your first question. As far as the second one is question, as we indicated, as I indicated, we want maximum flexibility in our return to shareholder. And with the change of terms of the agreement with the warrants orders, I think we will open the door, obviously, to potentially buy shares in order to have treasury shares that could be used at the time warrants will be exercised and not only to use new shares. Operator: Now we have a question from Guilherme Levy from Morgan Stanley. Guilherme Levy: Sascha, wish you, of course, all the best in your next steps. I have 2 questions, please. The first one, if I may, you commented on your perception of lower imports into the U.S. recently. So I was just curious to see how quickly you think that inventory levels can fall in order for you to see a more significant increase in terms of prices and margins on the back of the recent import tariffs in the country? And then the second one, thinking about this new investment in the dredging line in Ohio, could you perhaps share with us more examples of small-scale investments that you have in mind that you could make over the coming quarters? And how should we see your maintenance CapEx and also your total CapEx, including these small initiatives over the coming years? Philippe Guillemot: So yes, what we start to see is the impact of the tariff on the U.S. imports as even though there is no statistic available, it looks like imports are decreasing. By the way, one of the European player who used to sell to the U.S. has announced yesterday that they will go from 3 shifts to 2 shifts, so lower volume, which is a first clear indication that importing pipes in the U.S. given the tariff may not be as viable as in the past or as profitable as in the past. So this, as a consequence, favor domestic players. And I remind you that 100% of what we sell on the onshore market in the U.S., we make it in the U.S. from steelmaking to finishing that we are the second player on the seamless pipe OCTG business in the U.S. So as far as inventory is concerned, yes, they were up because of the imports in anticipation of the tariff, but now they are obviously slowly but surely depleted. And we think that we will see even more of this happening in 2026. That's the reason why, as I said, we see strong demand for our product and premium product, as I mentioned earlier. Trading line. So the trading line investment in the U.S., USD 48 million, we announced on Monday, and we had, by the way, a groundbreaking ceremony in Ohio to do so is a clear illustration of what we are doing First, value over volume. Here, we are talking about increasing capacity to deliver high connection to help our customers to generate productivity gains. So we are really at the heart of their success. Second, we invest with, obviously, a state-of-the-art line. But I can guarantee you that this is a good example of an investment that will further improve our return on invested capital. As far as CapEx is concerned, we stay very disciplined. And what we have in mind doesn't mean that we are going to increase CapEx envelope in the next few years. I think we are in the EUR 200 million range, and we have no intent to exceed this amount. By the way, talking about return on invested capital, which is a key metric we are focused on, and we will be even more focused in the next few years. Another example is our investment in Thermotite do Brasil, the thermo insulation business in Brazil. We more than doubled the value we can sell to customers. And I can already tell you that this acquisition, this new plant is already fully loaded for next year to thermization, to thermal insulate Vallourec pipes. So another good example of the investments we are making to further improve our return on invested capital. Sascha Bibert: Just adding one addition to what Philippe said on CapEx. for the current financial year, looking at what we have spent at the 9-month stage and acknowledging there's only the fourth quarter left, I think we will come out quite a bit below the EUR 200 million, i.e., in the Capital Market Day, we have mentioned maybe a long-term average of EUR 175 million. I think we'll be closer to that in this fiscal year. And thanks for your wishes, Guilherme. Operator: Now we have a question from Kevin Roger Kepler Cheuvreux. Kevin Roger: And first of all, Sascha, well done for everything that has been done in terms of financial, but also in terms of communication, frankly, it has been very appreciated by anyone. So good luck also for the next journey, wishing the best. The first question, if I may, just going back on the shifting of the volumes from Q4 to 2026. I was wondering if you can provide a bit of magnitude the impact on Q4 in terms of volumes. Making some math, I'm finding that maybe we are thinking about 30,000 tonnes of tubes that will be missed in Q4 compared to the previous expectations. So maybe some words around that, please? And the second one, sorry for this stupid accounting tax question. But implicitly with the new mechanism on the variant, you are telling us that potentially you would buy back some shares. In the current French tax environment that is evolving every day, can you just try to summarize and of course, I understand that it will be subject to what we have in terms of budget in the coming weeks, but what it would imply for the tax payment on any buyback for you, notably related to difference between the cash payment and the book value, et cetera, please? Philippe Guillemot: So going back to Q4 volume and invoicing. First, I remind you that we will invoice more in Q4 than Q3. And I won't give you any indication of how much we could have invoiced had customers ask to be delivered as we forecasted. And again, it's only a forecast. And every quarter, we have to forecast what customers will ask for. But again, I'm talking about orders we have. As far as warrants are concerned and tax treatment, I remind you that the tax in France is such on share buyback is such that if we don't cancel the shares, so we use them. And as an example, we can use them for management incentive plan. We -- they are not tax -- so we are immune to this. And as far as the amendments that have been voted at the parliament, what I understand is that it's not likely to be in the final budget as it is totally incompatible with European laws and other regulations. Operator: Now we have a question from Guillaume Delaby from Bernstein. Guillaume Delaby: Thank you, Sascha, for all your help over the past few years, especially if I remember between Christmas and New Year Eve a few years ago. Three questions, if I may. The first one is the -- two first ones, in fact, are for Philippe. So I've been impressed by your average selling price, which is up 8% sequentially, while globally OCTG prices have still remained flattish. We didn't have yet an increase in OCTG prices. So what has been your secret sauce during Q3? Is it a question of mix, more connection? If you can elaborate a little bit? That's my first question. My second question is on your 2026 outlook. Many services companies have provided a much more constructive 2026 outlook at the Q3 that what could have been expected. So just curious to see what is your -- whether or not your view on 2026 has evolved. You mentioned probably more drilling at some stage. And the third question is about the warrants. Sorry to be long, just to fully understand. So basically, what is going to happen? So the warrants are going to be exercised. So you are going to get some cash with additional shares. Am I understanding correctly? Or if not, please correct me. Philippe Guillemot: Okay. So our secret sauce, but now I think you start to see it in the numbers, value over volume. We are very serious about it. What we sell is high value-added products, which obviously give us some pricing power. And again, we don't only sell tubes. We sell solutions. We sell tubes and service associated. So this is a combination of all this. And as I've said since I joined, our focus is to develop the right portfolio of customers and markets that are in need of these high value-added products. So yes, definitely, what we sell, and that's what I mentioned when we compare our average selling price to the Hat index, nothing to compare. We are much more stable than what you see on that chart. So it's just an evidence that the strategy and the change of strategy I made when I joined is working. '26, I won't guide for '26. But as I said, U.S. market is good. We see demand -- very strong demand month after month. And so far, no reason to think it won't continue that way. And as far as drilling activity is concerned with some international customers or you see that Petrobras is obviously very active. They're even talking about exploration of the Amazonian area. And in Middle East, I think Aramco has seen some decrease in their rig count, but it may increase next year again. So again, so far, I think demand is still there for our high premium solutions. As far as -- so warrants, the question was... Sascha Bibert: Yes. Guillaume, your principal understanding is correct. Provided that the conditions are satisfied in the summer of '26, the warrants will convert, and this will lead to a capital inflow to the tune of EUR 300 million and a bit to Vallourec. There is no change to that. The change, if any, that we have announced today is that we want to create flexibility in how we serve the warrant holders with shares. The existing documentation allows us to create new shares and new shares only, while after the approval from the warrant holders, we would then also have the opportunity to deliver existing shares. Philippe Guillemot: So again, we stick to our return policy. We said we would return to shareholders between 80% and 100% of the total cash generation of the year before. So as you have noticed, we have year-to-date generated cash and obviously, even more at the end of the year. So all this cash is available and obviously, it is supposed to be returned to shareholders within our policy. So with the warrant agreement terms change, we have the flexibility to use existing shares once warrants will be exercised at the latest end of June next year. And obviously, we may decide to buy back shares in order to have them available in due time. Sascha Bibert: Philippe, when it comes to the secret sauce, maybe you also want to just remind people about the current stage of our North American onshore business, which I think is also doing quite well and added to the ASP development that we have seen. Philippe Guillemot: Yes. On the U.S. market, as you see and when we announced the investment on the [ ITO ] connection, it means that, yes, the mix we are selling in North America is more high value-added than it used to be. And as a consequence, lead to higher average selling price, too. So what we see -- what you see on the overall group average selling price is true in all regions. And same thing for Petrobras. The long-term agreement we have signed with Petrobras that will start to fall in our numbers in the second half of '26 is obviously with mix of products of high value added, including larger diameter, 18-inch and above that we, in the past, were not able to produce in Brazil, but now we are able to produce in Brazil, thanks to the investment, which were part of the new plan. Guillaume Delaby: Maybe just a follow-up on the warrant. It means that practically, you are likely or you have the option or the flexibility to buy back and to reduce some of the dilution which will be caused by warrants. Am I correct? Philippe Guillemot: You are correct. If all warrants are exercised and we deliver only new shares, it's roughly 15% dilution. So if we buy back shares and we use existing shares, obviously, we will reduce the dilution. And that's obviously the option we want to have. Operator: Now we have a question from Paul Redman from BNP Paribas. Paul Redman: I just wanted to delve a little bit down into the shareholder distributions for next year. So you've been paying out dividends for the past couple of years as part of the 80% to 90% -- 80% to 100%, sorry, of total cash generation paid out to shareholders. Is this new buyback possibility part of that 80% to 100%? Or does it go beyond it? And if it's part of the 80% to 100%, do you have a minimum level of dividend you would like to guide us towards and the rest possibly coming through buybacks? And then Sascha, I just wanted to ask you, you've been at the company and the company has changed a lot over the past few years. I wanted to ask, have you got any key highlights that you can say have been your biggest successes over the past few years? Philippe Guillemot: So before I hand over to Sascha, Yes, again, we will stick to our return policy. So we are very disciplined, as you know, in everything we do. So we will stick within the EUR 80 million to EUR 100 million. So we'll see how much total cash will be generated in '25, and we will use this to potentially execute any share buyback to, as I said earlier, reduce dilution at the time of warrant execution. But as you rightly said, we will cash in more than EUR 300 million end of June. And this cash, obviously, will have to be returned to shareholders within the same return policy we -- I stated earlier, 80% to 100% of total cash generation. Sascha, over to you. Sascha Bibert: Yes. Well, thanks for the question. But to be honest, I'm not sure whether I had too many successes. But as a team, we had a lot, and that's what we are proud of. I think ultimately leading to the establishment of a track record and therefore, the recreation of trust, I'd say, with many stakeholders, equity and credit alike. So I think it's the sum of many of the operational initiatives from the team, the refinancing, some work on the financial infrastructure that we have been doing that ultimately led to the stage where we are. But again, we don't get tired of hammering the point home that we have done a lot of good, but there's more to come. Vallourec will go into the next phase of optimization. And this is why, for me, the story is ending, but for Vallourec, it's just the beginning. Philippe Guillemot: Maybe Sascha is too modest, but you remember, we have refinanced our balance sheet in 2024. And it was obviously good to see that we managed to refinance it the way we did. On top, you remember that Fitch has awarded an investment-grade rating, and I hope more to come. So again, for a company that was almost bankrupt in 2021 being where we are today with all the -- obviously, the opportunity we have to further create value through a much higher return on invested capital than our weighted average cost of capital is very rewarding. And again, I thank Sascha for having been next to me to deliver this super performance so far. Operator: We have a question from Baptiste Lebacq from ODDO BHF. Baptiste Lebacq: First, Sascha, congrats for the very impressive job you have done, even if it's a job -- a team job, but very impressed by the way you did it and good luck for the future. One question regarding, let's say, working cap in Q4. You mentioned some delays in terms of deliveries. We have seen some tension in working cap already in Q3. How should we think about, let's say, working cap at the end of the year? And second question regarding your, let's say, optimization of Brazilian assets. Is it now fully on stream? And if I'm not wrong, you could sell some, let's say, lands in this country. How is it evolving? Philippe Guillemot: Well, as far as Q4 working cap, we expect a modest increase. So no big deviation versus where we are. As you know, since the beginning of the new alloy plan, I think we have been very focused on working cap. And as shown by Sascha in one of his slides, I think you can see that the working cap expressed in days sales has steadily decreased over time, and we continue and we see room for further improvement in the future. So you refer to maybe, yes, some -- first, as we are very focused, and this is what's going to drive the next 5 years till 2030, return on investment capital, we challenge every asset in Ball. And so that's the part of the challenge. So the forest, obviously, is an asset, as you know, that doesn't generate EBITDA, but is used to produce veg charcoal. So again, as any asset in Vallourec. And you remember when I said when I joined, there is no room for asset which is not generating cash. So each asset in Vallourec is challenged, and that's what just we do again and again. Operator: Now we have a question from Jean-Luc Romain from CIC Market Solutions. Jean-Luc Romain: Congratulations to Sascha and to Connor for his promotion. My question relates to the second phase of investment in the mine in Brazil. Could you update us on where you are there and when it should start? And what are the benefits you are expecting from this second phase of expansion? Philippe Guillemot: Yes. On the mine, thank you for the question. You remember at the Capital Market Day in September '23, we gave you some numbers on what we were doing and what we were expecting. And I'm glad to tell you that we delivered exactly what we said, even better. especially in H1 where we had the opportunity to extract high-quality iron ore from our mine. So the expansion is well on track, Phase 1, Phase 2, and we expect to deliver the EBITDA we mentioned at that time, so up to EUR 125 million between EUR 100 million and EUR 125 million as we go. So very pleased with the progress of the mine. And on the mine, I insist that we are applying the same secret sauce that we do on the tube business, value over volume, and that's the reason why tonnage may be less, but quality is higher. And the way we operate the mine enable us to extract more iron ore from existing room. So again, another good example of a value over volume strategy impact. Jean-Luc Romain: So as a follow-up, do you have in your mind kind of what do your geologists say better -- enough resources of better quality ore, which can help you continue increasing the value. That's what we should understand? Philippe Guillemot: No, we are -- Yes, obviously, iron ore is what it is in the mine, and it may change from where we export from over time. But the way we process the iron ore, that may lead to higher iron ore content, so salable value at the end of the day. So that's exactly what we are doing. I won't go into the details, but... Sascha Bibert: Jean-Luc just remind that we are externally selling the vast majority of our ore production. Philippe Guillemot: We deliver what we said we would deliver. But again, applying the secret sauce, value over volume, so less tonnage, but same EBITDA. Operator: Now we have a question from Jamie Franklin from Jefferies. Jamie Franklin: So 2 from me. So firstly, you mentioned the divergence between seamless and welded. And looking at the historical data, it actually appears to be the highest point on record, the gap between the 2. Can you maybe talk about whether you see any risk here in terms of substitution of welded for seamless given that the differential is so high? And secondly, if I can just push one more time on the Middle Eastern volumes. So I think previous expectation was that 4Q volumes would be substantially up in the third quarter in order to reach around 1.3 million tonnes in 2025. Now if we assume that 4Q is only slightly better than 3Q, we're going to get closer to 1.2 million for the full year. So can we assume that the entire delta there shifts into 2026? And finally, Sascha, congrats on the great job you've done at Vallourec, wishing you all the very best in your new role. Philippe Guillemot: Yes. I assume when you talk about divergence between seamless versus welded, you talk about the U.S. market. So yes, dynamic is -- again, we illustrated in our last quarterly communication, how these 2 markets diverge. Seamless imports are in proportion less than they are in welded. But at some point, it becomes noneconomical -- with the tariff, it becomes faster, noneconomical to import seamless and welded in a nutshell. And that's why we see in our business, which is only seamless, faster, the impact of the tariff on our business. Substitution, we don't think so because as we said, the market is more and more premium and this [ ITO ] connection are seamless pipes, and they will continue to be seamless pipes. As far as volume are concerned, yes, which -- again, we have a slight increase in volume, maybe not as much as we could have expected, thanks to our forecast. So they are delayed because customers ask us to deliver pipes later in '26. This will happen in '26. So we'll see what the volume will be. But as I said, we see drilling activity being back on the increase with some customers, to name one Aramco as an example, in Middle East. So we will see. But again, it's always a question, every quarter, we have to forecast what -- how much volume customer will call off from the orders we already have. It's a question of just delivering the order to match their needs. Operator: There are no more questions at this time, so I hand the conference back to the speakers for any closing comments. Philippe Guillemot: Thank you again for joining us for today's call. We are very pleased with the track record of execution since the launch of the new Vallourec plan in May 2022. We see further room to drive higher returns in our business. We will continue to optimize our capital allocation and capital return framework to deliver maximum value to our shareholders. Thank you again. Operator, you may close the call.
Joshua Schulman: Good morning. We actually have some seats here in the front row. This is like the first day at school. No one wants to be -- it's not like a fashion show because at the fashion show, they really want to be seated in the front row. It's all about your seat. In any case, good morning, and welcome to our interim results and our update on the Burberry Forward strategy. I'm Josh Schulman, CEO of Burberry, and with me is Kate Ferry, our Chief Financial Officer. One year into Burberry Forward, my belief in this extraordinary British luxury house is stronger than ever. Since we met last November, we have moved from stabilizing the business to returning to growth. I am encouraged by the signals I'm seeing throughout the business, which provide initial proof points that our Burberry Forward strategy is working. With our timeless British luxury brand expression and an improved product offer, our brand has become more desirable. We're attracting new customers to the brand while welcoming back existing customers, resulting in sequential improvement in customer growth. And these customers are responding strongly to our autumn and winter collections with a significant increase in sell-through rate compared to last year. We're accelerating our momentum in our iconic categories, outerwear and scarves, and now this growth is extending into additional categories. In Q2, we returned our retail business to comp sales growth for the first time in 2 years. And now our most important wholesale partners are seeing the momentum as well. We recently completed our Summer 2026 wholesale market, and the reaction has been very positive with a significant increase in orders from key opinion leading partners in the U.S. and Europe, an incredible vote of confidence in our product and Burberry's relevance. While I am pleased with what we've achieved in our first year of Burberry Forward, these are just the first steps to reigniting desire. There is a lot more to do, and I am looking forward to building on these foundations in the year ahead. I will now turn it over to Kate to take you through our first half financial results, and I will then update you on our strategy, our progress and our priorities as we look to year 2 of Burberry Forward. Catherine Ferry: Thank you, Josh, and good morning, everyone. For the first half, comparable retail sales were flat with sequential improvement between quarters. In the second quarter, we delivered growth of 2%, our first positive comp growth in 2 years. Total revenue was GBP 1.03 billion in the first half with adjusted operating profit of GBP 19 million. Free cash outflow was GBP 50 million, an improvement from this time last year and in line with our expectations for the half. When we launched Burberry Forward a year ago, we talked about actions to drive sustainable performance. We've returned to adjusted operating profit in the first half. Our gross margin is recovering, up 410 basis points at constant exchange rates versus last year to 67.9%, driven mainly by a healthier inventory position. We continue to bring scarcity back to our inventory model. We have tightly managed buys throughout the half with net inventory down 24% versus last year. Following the expanded restructuring program announced in May, we're on track to deliver GBP 80 million annualized savings by the end of the year. And finally, we continue to invest our capital where we know we can get the highest returns with continued focus on cash generation. I'll now take you through a more detailed review of performance, starting with revenue by channel. I'll refer to changes at constant exchange rates. Retail revenue declined by 1% during the half. Space reduced by 1%, while comparable retail sales remained flat year-on-year. Wholesale revenue decreased by 11%, slightly better than our guidance of a mid-teens decline, reflecting phasing and some uplift in in-season orders from our key strategic partners following improved sellout of Autumn '25. Licensing revenue was down 8% versus last year with ongoing strength in our fragrance and beauty businesses, including the Goddess and Her franchises, offset by the planned destocking of older fragrance lines. As a result, total revenue for the first half declined 3% at constant exchange rates or 5% on a reported basis. Turning now to regional performance. Comparable retail store sales were flat or positive in all 4 regions in the second quarter. Traffic at our stores remained challenging throughout the first half of the year, but we're pleased with the improvement in conversion we've seen. Greater China led with the strongest improvement as compared with Q1 with 3% comparable retail sales growth in the second quarter. This was supported by a strong Chinese Valentine's Day. Globally, the Chinese customer group slightly lagged the regional performance with growth in locals offsetting the decline in outbound tourist flows. Asia Pacific also improved to flat in the second quarter with the first half down 2%. Japan returned to growth in the second quarter, up 2%, offsetting decline in South Korea. Americas saw 3% growth in the second quarter and the first half. The region is continuing to benefit from new customers, offsetting lower tourist spend in the United States during the summer months. EMEA remained in line with the first quarter despite reduced tourism activity, growing 1% in Q2 and the half, supported by growth in local and returning customers. Moving on to the income statement and staying with changes at constant exchange rates. Gross margin was 67.9%, a 410 basis point improvement year-on-year. I'll give more detail on this in just a moment. Adjusted operating expenses were down 5% year-on-year at constant exchange rates following the delivery of our expanded cost savings program as well as nonrecurring store impairment headwinds in the prior year. We remain on track with our cost program, expecting to deliver GBP 80 million in annualized savings by the end of the year. As mentioned the last time we spoke, we're investing behind our journey to reignite desire, restore growth and continue on our path of sustainable value creation. We've prioritized investment in the first half using some of these savings to invest in consumer-facing areas such as marketing. This year, we continue to invest a high single-digit percentage of sales in our brand with a focus on maximizing our return on investment. We delivered an adjusted operating profit of GBP 19 million with an operating margin of 1.9%. Adjusting items amounted to GBP 37 million. This primarily related to restructuring costs resulting from the transformation program announced in May. The business has demonstrated resilience during this period, allowing us to progress swiftly through the program over the summer. Our full year guidance remains unchanged with restructuring costs expected to be around GBP 50 million. As a result, we've reported an operating loss of GBP 18 million for the first half. The net finance charge was GBP 30 million, of which GBP 23 million was interest charge on lease liabilities and GBP 7 million was other financing interest. Gross margin benefited mainly from the non-repeat of inventory actions taken last year. As a reminder, these inventory actions were a combination of provisioning and discounting. This year, we have significantly less inventory, down 24% at the end of the first half. We're also seeing the benefits of our transformation program in gross margin. We experienced a free cash outflow of GBP 50 million in the first half, an improvement versus this time last year. Working capital was GBP 43 million outflow given the seasonal inventory buildup ahead of the festive period, albeit still reflecting tighter inventory management than this time last year. Capital expenditure for the period was GBP 38 million, with investment targeted to those projects with the highest return on investment. In our retail network, we're focused on amplifying our most iconic categories. We've launched over 100 scarf bars to date and are on track to deliver 200 by the end of the year. We also opened a new showroom at our headquarters here in London, which is already driving cost efficiencies and enabling closer collaboration across our global retail teams. Borrowings reduced by GBP 221 million following the repayment of our September 2020 bond, and we closed the period with net debt of GBP 93 million or GBP 1.1 billion, including lease liabilities. At the end of the period, net debt to adjusted EBITDA was 2.2x. We remain comfortable with our liquidity and headroom and are focused on continuing to reduce our leverage through the actions we are taking to rebuild profitability. Turning now to the outlook for full year '26. While we remain in the early stages of our turnaround, we're encouraged by the progress made so far and expect to see the impact of our initiatives build into the second half and beyond. The macroeconomic environment remains uncertain, but our focus this year is to build on the momentum and reigniting brand desire as a key requisite to growing the top line. We will deliver continued margin improvement with a focus on simplification, productivity and cash flow. To help you with modeling, in full year '26, we expect no changes to our guidance with retail space remaining broadly flat and annualized savings of around GBP 80 million alongside a GBP 50 million restructuring charge. Within wholesale, we expect a mid-single-digit percentage revenue decline for the full year, slightly ahead of our original expectations and returning to growth in the second half. This reflects our key wholesale partners' confidence in our new direction. We expect capital expenditure of around GBP 120 million, slightly lower than initial guidance as we've been very intentional in our investment approach, focusing on the highest return on investment projects during this year of transformation. And finally, we expect currency to be a headwind of around GBP 50 million on revenue and around GBP 5 million on operating profit, all based on the 24th of October spot rates. Further detail can be found in the appendix of this morning's statement. As we move into our second full year of Burberry Forward, we are confident that we can build on the progress we've made in quality of earnings, continuing to improve performance and driving sustainable long-term value. I will now hand back to Josh. Joshua Schulman: Thank you, Kate. As we move into the second year of Burberry Forward, we are increasingly confident that we're on the right path to build brand relevance and value creation. If the strategy for the next year of Burberry Forward looks very similar to what we presented last year, this is intentional because we are now focused on accelerating and delivering on our 4 pillars with consistency, placing the summer -- sorry, placing the customer at the center of everything we do. We will continue to anchor Burberry Forward in timeless British luxury as we enhance our product, marketing and customer experience to engage a broad luxury audience. This will be underpinned by an organization that is fit for purpose and executing at pace. Starting with our brand. Our traffic and sales inflected in August as we launched our Chinese Valentine's Day campaign, followed by the Back to the City campaign focused on a more polished expression of city dressing against a backdrop of iconic London landmarks appealing to our investor customer. Next, the elegance of our winter runway campaign set in a quintessentially English country house attracted our opinionated customer, while the winter wardrobing campaign showcased looks that could be worn every day, appealing to all of our customer archetypes. Collectively, these campaigns have driven an improvement in brand engagement in September. In addition to these fashion campaigns, we have continued our institutional outerwear campaigns with the latest installment of It's Always Burberry Weather: Postcards from London, which launched in October across all of our channels. [Presentation] Joshua Schulman: Looking forward, we will continue to fully embed our timeless British luxury brand expression across all touch points, creating universally recognizable stories and imagery, balancing town and country. And our marketing initiatives will celebrate our customers' cultural occasions around the world with a dose of British warmth and wit. We are looking forward to celebrating our 170th anniversary next year with a series of campaigns and activations to celebrate our iconic trench. This will include disruptive amplifications across product and marketing initiatives to drive broad global appeal. Even global icons are leaning into our most beloved Burberry codes and showing that when we have -- where we have the most opportunity, where we have the most authenticity. When influential personalities of the world come to Burberry, they are selecting to wear our most beloved brand codes. From Olivia Dean wearing a modern interpretation of our iconic Check to Tommy Paul and Jack Draper dressed in our Ready-to-Wear and Dua Lipa wearing a full Check dress. It's clear that Burberry continues to resonate in popular culture. Just last week, we launched our festive campaign, bringing a warm and joyous rendition of the British holidays to our customers around the world. Amid the charm and commotion of party preparations, Jennifer Saunders is joined by an all-star cast, including Naomi Campbell, Rosie Huntington-Whiteley and Son Heung-min, who each share beautiful Burberry gifts with their friends and family. [Presentation] Joshua Schulman: We are so excited about the early reaction to Twas The Knight Before..., our festive campaign. And we look forward to bringing other extraordinary experiences, including at Claridge's, where Daniel is designing a special tree decorated with Burberry textiles alongside a pop-up shop featuring iconic Burberry gifts. Building on our momentum in China, we are looking forward to celebrating Lunar New Year, the Year of the Horse. We will be increasing our investment in product and marketing with a more complete product capsule and an immersive campaign, including 4 well-known ambassadors. Moving to product. Our customers are clearly responding to the timeless British luxury brand expression and the synchronicity between our runway looks and the commercial core that is allowing us to reach a broad luxury audience. Here, you can see how the spirit of our runway shows has been interpreted to appeal to a broad luxury audience. On the left is an extraordinary, fringed runway trench from Daniel's Winter '25 show. The item retails for almost GBP 10,000, and we had preorders from our most elite clients from the moment this walked down the runway. And now Daniel, together with our merchandising team, has reworked this inspiration into different silhouettes appealing to a wider audience. These looks are among our best sellers for the season, retailing at around GBP 2,500. Building on our success with Winter '25, on the right, you can see we are taking the same approach to our Summer runway collection. Summer '26 captured the intersection between fashion and music and was yet another uniquely British story that only Burberry could tell. You can see the beautiful leather fringed trench that walked the runway and how this inspiration has been reinterpreted into classic gabardine with leather detailing to reach a broader audience. The product mix and strategy is capturing the attention of new customers and attracting existing customers to return with sequential improvement in customer growth over the course of H1. In particular, we're seeing new customer growth among Gen Z. I was just in China a few weeks ago and walking stores with our teams there, and they were sharing how the evolution in our collection architecture is attracting different customer profiles to the brand. These customer profiles are now fully embedded in our product development cycle. Looking forward, we will be integrating even deeper consumer insights to ensure we're meeting all of our customers' wardrobing needs. As we enter the second year of Burberry Forward, we now have significantly greater knowledge of our customers, which is informing our product strategy. One of our priorities is to refresh our heritage rainwear assortment in the new year. We will be introducing lighter tropical gabardine and strengthening the trans-seasonal appeal of our iconic trench. This will enhance customer centricity, allowing our trench to be worn in global markets year-round. Another observation is that we are only scratching the surface with wardrobing. Building on our foundational strength in outerwear, we are now completing the look with a stronger assortment of knitwear, trousers, skirts and dresses. Across the assortment, we are developing with customers' needs in mind, including the right fabric, the right fit and the right silhouettes for men, women and children. And in accessories, we've made progress on our foundation with the amplification of scarves and resetting the base in handbags. Looking forward, we are strengthening our assortment of leather goods and shoes with a focus on both subtle and overt branding, driving commercial shapes with clear brand signifiers. Across categories, we now feel more confident to place bigger bets on selected families of newness to fuel our growth and improve our productivity. Moving to distribution. In our stores, we are creating more warmth and desire by increasing product density, enhancing our displays and encouraging cross-category selling. We are so excited to have the majority of our scarf bars open for the festive season. These stores are already outperforming, positioning us strongly for the season ahead. Our stores now offer a richer experience, one I hope that you will all enjoy during the festive season. Our e-commerce channel was the first to turn positive and continues to outperform. We've elevated our product storytelling, seamlessly integrating shopping journeys with rich editorial imagery and improved our styling across the offer. Building on the success of our monogramming and scarf personalization services, we're expanding our personalization offer to knitwear and capes launching in the weeks ahead, just in time for festive. Looking ahead, our focus is on driving productivity. Building on our momentum with scarf bars, we're launching more category destinations in the year ahead, including for trench coats and polo shirts. We are also investing in clienteling capabilities, deploying new AI-enabled tools to support our client advisers and serve our customers with a warm and personal approach informed by data. And while wholesale only accounts for around 13% of our business, it serves several very important purposes. Our opinion-leading digital wholesale customers are the ideal place for customers to discover the evolution of Burberry alongside our luxury peers. As I mentioned, we've seen growth in our wholesale order book from these opinion-leading wholesale customers globally who are enthusiastic about the new direction of Burberry. Being present on luxury platforms allows us to share our refreshed brand expression with a broader array of consumers than visit our own sites. And our omni-channel department store partners provide visibility in key locations. I am so excited to get on a plane next week and go to New York. We are literally lighting up the facade of Bloomingdale's, an iconic flagship, with an enormous sparkling Burberry Check scarf. And this activation is going to -- is anchoring dedicated Burberry windows and pop-up shops throughout the store in the flagship and in key branch stores, which tell our brand story. One of the things I am most proud of this year is reigniting our culture. I continue to be encouraged by our incredible team around the world whether it's the product triangle of design, merchandising and marketing coming together, the regions working with the center or our teams across stores, manufacturing sites and warehouses, delivering exceptional service for our customers. We are rekindling the creative and commercial alchemy that is unique to Burberry. We continue to uphold our commitments to social and environmental responsibility. This remains an integral part of who we are and is important to our colleagues and customers around the world. As we move into our 170th year, we are embedding the spirit of Burberry Forward into our purpose. [Presentation] Joshua Schulman: In the first year of Burberry Forward, we moved at pace to execute our strategy and stabilize our business. With the consistency of our timeless British luxury brand expression and an improved product offer, we now have begun to capture the attention of new customers while seeing existing customers return to the brand they love. This has resulted in comparable store sales growth for the first time in 2 years. As we look ahead, our ambition is to deliver sustainable performance, growing the top line while expanding our profit margin and delivering strong free cash flow. As I mentioned earlier, my belief in this extraordinary British luxury brand is stronger than ever. We now have proof points that illustrate that Burberry is at its best when it forges its own path, grounded in timeless British luxury and guided by authenticity. Although it is still early days and there is a lot more to do, as we approach our 170th anniversary, we are confident that Burberry Forward is the right strategy to build brand relevance and value creation. I will now hand it over to Lauren for Q&A, and Kate and I will take your questions. Thank you. Lauren Leng: So we'll kick off the Q&A. I'll just ask that you limit to 2 questions each so we can reach everyone in the room, and please state your name and your firm before you ask your questions. I can see Carol here right in front of me and then we will move over to this side to Luca, Erwan and then I think I saw Grace as well and Thomas. I thought you were there, too. Thank you. Carol Mathis: Carol Mathis from Barclays. So 2 questions then. The first one, I think you mentioned that you went to China or Asia just recently. So can you come back on what you're seeing there in terms of trends mostly on the macro environment? Any sign of stabilization that you saw on the ground on top of, I guess, you've been doing some more work to see improvement of your China performance down there? That's the first question. Second one is about the improvement of, I guess, increasing new consumers at the brand. When you think of the chart you talk about the consumer being investor, conservative, hedonist, what kind of new consumers were you able to attract more if there is a way to put them in those categories? Joshua Schulman: Yes. Two great questions. So I'll start with China. It was a really wonderful trip that I took with several of my colleagues to China. And ironically, it was 1 year to the date that I took my first trip to China last year as part of Burberry. And so literally, we could see the difference in the market year-on-year, but we could also see the difference in the expression of Burberry year-on-year and hear from our field teams, the people who interact with customers every day. In terms of the market, clearly, I do think there is a little bit of stabilization happening in the market. I do think that our inflection in China this quarter was probably driven more by our internal changes that we've made. It was really wonderful to walk through our store estate and to hear about customers literally returning, people who they had been trying to get in for the last couple of years who didn't see themselves in the product that we were offering. And now they were coming in and they were -- and their conversion was way up. We really saw customer engagement globally improve as we went through the quarter but particularly in China. Our earned reach was up 129% in China, which translated into new customer growth of 10% in China. And so they really led. And on a global basis, we had 18% customer growth customer in Gen Z with substantially higher growth in Gen Z in China. So this -- I think, in the past, there may have been an idea that in order to attract younger customers in China, you need to be super edgy and kind of do what other brands are doing. But actually, what's working in China now is this authenticity, the timeless British luxury, the authenticity, and we're seeing that across all of our customer archetypes. We're seeing that against younger, cooler customers. We're seeing that against more mature, sophisticated customers. And the breadth of our customers coming back to the brand in China and globally and starting to attract new customers, especially in China and in the Americas, has been one of the most gratifying things that we've seen in the last couple of months. I would also say that if you double-click on some of these metrics, you really see the quality of the business changing year-on-year in terms of the types of products we're selling, in terms of the channel mix, in terms of the breadth of customers that we're touching. So it just gives us a lot of encouragement for what lies ahead. Luca? Luca Solca: Luca Solca from Bernstein. I have a question on these metrics and the double-clicking in particular, what you're seeing in terms of full price sell-through. One of the pushbacks we're getting is that Burberry has been discounting a lot and is discounting a lot. But I think -- and I assume that, that is connected with the phasing out of the old Burberry. And if you could give us a couple of data points on how you see that has been evolving and how that is impacting, for example, your used dependence on off-price and factory outlets and discounts. Maybe a second question, again, going back to the point about China. I see that there's a lot that you're doing yourselves in terms of improving your predicament there. Do you have a view based on what you see from the landlords and the shopping malls where you operate, how the broader Chinese consumer nationality is doing? Joshua Schulman: Okay. So I really appreciate both questions. But on the first, let me walk you through how we're thinking about this and why I'm so encouraged about what I call the quality of sales. Normally, we don't talk about what's happening in the full-price channel versus the outlet channel. But I think it's important in this case because what we saw in the quarter was that the strength in the newness that we were delivering in our full-price channel fully offset the declines that we were having in the outlet channel, the declines in traffic that we were having in the outlet channel. And traffic has been challenging in that channel in general, but also, we just have less inventory going through that channel now, and we are discounting less. And so all of that is really good for brand health and for brand heat. And you'll see that really across the business. In our full-price stores, last year, we did an exceptional public clearance, and we did that online and in stores, and that contributed about 3 points to our comp in the festive quarter. This year, we're not doing that. We're reverting to our normal end-of-season activities, which are substantially smaller, more discrete, shallower and less. And all of these are contributing to what I call the quality of earnings. Finally, in our wholesale channel, where we're seeing the growth is from our strategic partners. These are the luxury pure-play digital partners. They're the U.S. department stores. They are even travel retail. And they're coming back because they're seeing their sellout of Burberry in the autumn and winter collections. Their sellout is going up. They're coming to our showroom, enthusiastic about finding opportunity, and they loved what they saw from the summer collection, and they believe that their customers will likewise love it. And so that builds a virtuous cycle with the strategic wholesale partners, and that is helping us to offset the planned decline in nonstrategic partners. So overall, I would say [ this print ] is, as you said, no drama, but under -- if you double-click under the covers, there's a lot going on that we feel very positive about and that sets us up in a good way looking forward. In terms of China, what I would say is there does feel to be a little bit of a market stabilization that is happening. But what we understand is that it's very bifurcated and very specific in terms of how a brand is performing there, probably more polarized than the rest of the world. Erwan Rambourg: Erwan Rambourg from HSBC. Congrats on the consistency of messaging and execution quarter after quarter. So I'll stick to 2, even though I have probably 15. So you historically talked about good, better, best coming back with maybe more palatable price points after being disconnected for a while. You just flipped positive in terms of like for like. Can you maybe just talk about the role of volume as part of that equation? I suspect mix is negative. I suspect pricing is limited. But yes, maybe can you talk about how that like for like is built up and what we can expect for the longer term? And then you just mentioned that the disposition channel, the cleanup of obsolete inventories last year meant a 3% headwind on comp for H2. How should we feel about like for like for H2 in that context? And I think historically, Kate, you mentioned whether you were comfortable or not with consensus, so I'm going to be the one to ask the question. What do you think about consensus in terms of sales and EBIT? Are we at a reasonable level today? Joshua Schulman: So Kate, why don't I let you start on the headwind and the -- our view on consensus, and then I'll come back on the other piece? Catherine Ferry: Yes, sure. So yes, I think it's the usual veiled ask about current trading. So I think as usual, I'll say we're not going to comment too much on current trading at this stage, but I will say that Q3 has started well in line with the previous quarter. But Josh has already helpfully highlighted the very public markdown that we had last year. As Josh said a moment ago, that was 3 points on last year's comps, so we're not repeating those activities. So I will just highlight that again. And of course, although we're pleased with performance so far in the quarter, we're mid-November. We've got Thanksgiving, Christmas, Lunar New Year, everything to come, so it would be premature to call it. But in terms of, I guess, half 1, half 2, we would anticipate sequential improvement there. I think on the consensus point, probably similar answer in that, look, we're broadly happy with consensus. Again, really, really important trading period ahead of us. So I think it would be premature to change guidance at this point, but I would just add that we also want to leave ourselves some firepower to invest. So depending on where we get to, you've heard it in the presentation there, we are spending more year-on-year on the kind of consumer-facing areas, specifically marketing. You heard there, we are investing more in Lunar New Year, for example. So I think leaving consensus where it is today feels the right thing to do for the business. Joshua Schulman: So then I'll pick up on the retail equation and what we're seeing in terms of pricing. So we start -- our inventory is down 24%. And then when we look at our traffic in the stores, traffic remains challenging across the board and continues to remain challenging. However, our conversion is up in the low teens, and our AUR is down slightly, which was planned because we did the realignment of pricing along good, better, best and with certain key categories like scarves outperforming, so all what we would want to see at this point in the turnaround. Erwan Rambourg: And the element of pricing in any market? Joshua Schulman: Not so much. We took some surgical increases in the U.S. specifically earlier this year, but pricing is relatively in line globally. And any pricing that we took on individual items was somewhat offset by the difference in mix. Lauren Leng: Grace and then Thomas. Grace Smalley: Grace Smalley from Morgan Stanley. My first question would just be on marketing. You mentioned a few times there that you've increased the marketing spend. You seem very happy with the results you've seen from the marketing campaigns. So just how are you thinking about the return on marketing spend and whether you're still tied to that marketing as high single digit as a percentage of sales or if there's actually room to further increase that and take kind of, I guess, capitalizing on this moment in time and shouting about what you're doing in terms of the brand? Joshua Schulman: Yes. Well, I mean, I think this also relates to what Kate was saying about consensus. We want to leave ourselves more firepower to invest in marketing. And my Chief Marketing Officer is in the front row over there, so he's listening very carefully to this. But we're very focused on having an ROI, and we're pleased that the initiatives we've had have resonated. We are seeing a direct impact from the marketing into the sales. So a year ago, we didn't have that luxury to even consider given where the P&L was. And now we want to be very mindful of those opportunities and not let a moment pass without investing appropriately. I don't know if you have anything to add, Kate. Catherine Ferry: No. And I think the key is, yes, for now, maintaining the high single-digit percentage of marketing, but let's see where we get to. Grace Smalley: Very clear. And then my second one would just be on gross margin. Thank you for the helpful bridge slide. As you think about gross margin in the second half, could you just perhaps talk through those dynamics in terms of the inventory benefits, transformation benefits? And then also given the -- Josh's comments on the improved full-price sell-through, how we should think about that impacting gross margin in the second half as well? Catherine Ferry: Yes. So I mean, recap, obviously, H1, you can see that, that -- there's that -- it's 330 basis points, which essentially is the tailwind from this time last year, all of that inventory actions. I then did flag that we had, which was probably the bit over and above what you might have expected, was what we have badged as transformation benefits. And I think the message there is that although most of the transformation benefits have been in OpEx, we've been looking at cost across the business, and we have actually seen some benefit in gross margin. In terms of then what to expect for the full year, which will help you with the second half, I think guidance there remains the same. We talked about a 300 basis point tailwind for the full year, and that remains the same. You'll remember that, of course, in the second half, in terms of phasing, the trend of the last 2 years has been for H2 to be lower than H1. You'll see that again. But in terms of absolute H2-to-H2 margin improvement, yes, you'll see that because you'll remember, it really was this time last year where we did a lot of nonrepeatable heavy discounting. So I think you'll certainly see that come back, so remaining the same on full year gross margin guidance. Lauren Leng: Thank you. Let's go to Thomas. Thomas Chauvet: Thomas Chauvet from Citi. Two questions. The first one on product newness and categories. If we look at your H1 performance, retail, wholesale by category, I know it's a bit diluted by the wholesale performance, but womenswear was already positive in the half, which is quite an achievement. Menswear, accessories, down 3%, 4%. Has menswear and accessories improved sequentially in Q2? And then when you look at your upcoming spring/summer product, is there anything that excites you in terms of menswear, accessories offering to drive a bit of a catch-up and bring these categories back to growth where they should be? Joshua Schulman: So we are very pleased that the initial improvement in the strength of outerwear and scarves is now spreading, and we're obviously seeing that, first and most importantly, across women's, which historically has been challenging for Burberry. And yes, both men's and accessories improved sequentially during the quarter. As we moved into, I'd say, mid-August, September and that winter wardrobing came into the stores, that has really ignited those categories, specifically on leather goods and shoes. So again, if you double-click here, we reduced our inventory the most in leather goods. So this is really where we really took out a giant amount of inventory, and we said that we would test and learn this year. And we have been doing that, and we have some areas where we have green shoots where now we're going back and building those back. So I think we talked about the B Clip bag. Last time, that family has been strong. We've recently refreshed -- done the first stage of a refresh of our iconic vintage Check. We introduced a vanity case, which has been very strong. We currently have a novelty color in ruby, which is performing well. And we -- and this is all in advance of a bigger relaunch of vintage Check in the coming seasons. And so we've been very deliberate in how we've approached that category. But it's interesting because there's -- we're seeing success in the good, better, best strategy across the estate even in a category that we don't talk about a lot like shoes. And on the runway, there were these beautiful riding boots. And we took a big bet on those beautiful riding boots, even though we had no history of selling very elevated product with minimal branding, frankly. It's GBP 1,500 and up for the Cavalier boots. And they have become among our best shoes and are meaningfully contributing to the growth of this small category. And that was such an important lesson for me because it's such a quintessentially Burberry item. It's something that, in your mind, you would think that you could go to Burberry and find a beautiful English riding boot. And when we put it there, in the context of that beautiful fashion show collection, the customer responded, and actually, it was one of the items leading to customer acquisition. So I know I sound like a broken record with our team talking about the timeless British luxury brand expression and the good, better, best pricing architecture, but it really is resonating with our customers. Thomas Chauvet: My second question on licensing. Could you give a bit of an update on your relationship, first, on eyewear with EssilorLuxottica and of course, beauty? I think Coty's CEO, Sue Nabi, gave interesting numbers recently, implying Burberry has been growing at about mid-teens percentage since 2019. So curious to hear your view here. And just on the cleanup of the older fragrance line that impacted your licensing revenue down high single digit in H1, I understand it will be the case also in H2. That shortfall of licensing revenue, if you gross that up to wholesale, i.e., Coty sales, there's quite a big number of bottles. So I was just curious what's happening to these models. Are they heavily discounted by Coty? Are they being destroyed, gifted? What is Coty doing to drive such a big decline in revenue given Goddess and Her, your top fragrance line, are actually doing very well? And as I said, Sue Nabi mentioned mid-teens sales for Burberry beauty in the last 6 years. Joshua Schulman: Yes. So broadly speaking, we think we have 2 best-in-class licensing partners in Luxottica and Coty, and we are pleased with the trajectory. Within beauty and fragrance specifically, the fragrances that you mentioned, Her and Goddess, have been very strong. And similar to what we're doing in the core brand of focusing on the quality of sales, they're doing the same. They are -- because Goddess and Her are in a position of strength, they're able to destock on some of these lines that are older and less relevant. And so that is why you see this significant decrease this quarter in the channel. Kate, I don't know if you have anything to add. Catherine Ferry: Yes. I mean, I think the key being that we're still seeing good steady growth in those core lines. And in terms of the look forward, obviously, it's not something that's just done in the quarter, so we would actually expect the destocking to continue into the second half. Thomas Chauvet: And be over by the end of fiscal '26? Catherine Ferry: Yes. Lauren Leng: I think we've got one final from Daria. Daria Nasledysheva: It's Daria from Bank of America. And congratulations on your results. I have 2 questions. The first one, could you please talk about what you're seeing in the U.S. market? You saw flattish, no acceleration in trends in this geography. So I was just wondering, could you please help us understand how it's shaping up into the holiday season? And if I can just ask my second question straightaway, outside of some marketing reinvestment that, Kate, you already mentioned, are there any other initiatives that we should be aware of for the cost savings for the second half, like bonuses, remuneration, anything that we should be modeling? Joshua Schulman: Kate, do you want to take the cost savings, and then I'll talk about the U.S.? Catherine Ferry: Sure. So yes, I mean, I guess there are a number of moving parts within cost. We've been very open about the incremental investment in marketing. Of course, the other pieces to consider, as always, there's inflation in our cost base. We've got a very high fixed cost base, 80% of fixed costs. That will be inflating at around 2%, 3%. You talk about people costs. Yes, there's the usual merit in there, and there will be potentially incremental performance-related pay reflecting the performance being below what we would have expected for the last couple of years. And I guess those are probably the key moving parts. It will be people, inflation and marketing. And then the U.S.? Joshua Schulman: And then in the U.S., the U.S. was the first region to return to growth for us. And what we've seen is that the brand expression and the way that we're showing up at retail in exciting ways is really resonating with the customer there. Our team in the U.S. has been very creative in terms of how in a market where retail traffic is so, so, how they're really going to the customer. They hosted over the summer. They hosted an exciting VIC event in the Hamptons, inviting customers from across the country to stay with the Burberry team and have a one-of-a-kind experience in the Hamptons. They're planning something similar for the VICs for Aspen, and that's really for our top-of-the-pyramid customers. And then we also have an opportunity there to really build on the broad universal appeal of the Burberry brand. And that's why this Bloomingdale's takeover -- facade takeover and activation is so powerful for us, because it gives us an enormous stage to share with people the Burberry story and who may or may not come into our network of stores. And so it's that mix of how we do really high-end elite events and then customer-centric events with broad universal appeal for customer acquisition. And so we're really excited about the trajectory there. I would just kind of step back from the U.S. specifically and just reiterate, as we're at the end of the -- I think we're at the end of the Q&A. I would reiterate that after our first year of implementing Burberry Forward, that we are more confident. I am more confident than I was 12 months ago. 12 months ago, this was really a thesis. It was a thesis that we were too niche. We were trying to be kind of a me-too of other brand strategies and that we weren't true to our own unique DNA. And as we've leaned into that at all levels from the runway to the marketing campaigns to the type of visual merchandising you see in stores to our sites, that's resonating with customers. It's resonating with the customers we want to have. And long term, I see this as a bigger opportunity than I envisioned a year ago. We're going to do the right thing with the brand and do it in a steady, slow way, and we're not going to chase sales for the sake of it. But we're feeling confident in the Burberry Forward framework that this is the right path for value creation and for the brand relevance. Lauren Leng: Great. Thank you, Josh. I'll hand over to you for closing remarks. Joshua Schulman: I think I made the closing remarks, but I'll come up here. So really, as we approach 170 years, I want to thank all of my colleagues around the world who have been working so hard to drive Burberry Forward. You only see Kate and I up here, but this is literally the work of thousands of people around the world. And I'd also like to thank all of you, our investors, analysts and partners who have supported us on this journey. So thank you.
Steve Wadey: Thank you, Stephen, and good morning, everybody, and welcome to our half year results for FY '26. Whilst we continue to operate in challenging market conditions, we have taken decisive action to improve our short-term performance and drive long-term growth, creating value for shareholders. And thanks to the dedication and hard work of our highly skilled employees, we've continued to support our customers' operational needs, delivering mission-critical technologies and services. Today, we'll take you through our half 1 results and the actions we've taken to address both near-term challenges and strengthen our market positioning for the long term. A great example is shown here, which illustrates the successful completion of the synthetic trials we undertook with BAE Systems to demonstrate how drones can operate alongside combat aircraft like Typhoon. This was a significant milestone in developing critical sovereign capabilities needed to defend the U.K.'s national interests. Let me start with our key messages for today. First, in tough near-term market conditions that have delayed orders in the U.K., we have delivered robust operational performance and our restructuring program in the U.S. is on track. Secondly, our mission-critical capabilities remain highly relevant to our customers' needs in a growing defense market and combined with our significant order book and substantial pipeline, provide very good visibility for long-term growth. Thirdly, despite near-term headwinds in our home markets, we have focus and visibility to maintain our full year guidance, and we continue to deploy capital with discipline. In summary, we are delivering the actions to improve business performance in the short term and are well positioned to capitalize on increasing defense spending so that we deliver compelling value creation for shareholders. Our agenda this morning expands on these messages. I'll start by giving you our half year in review. Martin will provide a commentary on our financial results. I'll then come back and give you an overview of our strategic outlook. Finally, we'll open up for questions. So to our review of the half year performance. In response to the market backdrop, we have taken proactive and disciplined portfolio actions, achieving good progress on our U.S. restructuring program as well as rightsizing other areas of the business. The improvement actions are delivering benefits and building resilience that will improve both short- and long-term performance. Overall, our first half financial performance was robust in tough near-term markets. We saw this particularly in the U.K., where we experienced delays to orders on our engineering services and R&D framework contracts, in part due to our customers prioritizing major equipment programs. This reduced our underlying book-to-bill to less than 1, excluding the LTPA contract award. We achieved 2 strategic milestones that strengthen our company for the long term. In May, we secured the GBP 1.5 billion extension to transform the LTPA for future warfare through to 2033. As a result, we closed the half with a significant order backlog and substantial pipeline, providing very good visibility for long-term growth. And in September, we announced the strengthening of the EDP contract to accelerate defense productivity by expanding the partnership and augmenting our high-value engineering skills with artificial intelligence. Together, these strategic milestones show how we are playing our part in delivering on the ambitions of the U.K. government's strategic defense review. As normal, we delivered a healthy cash conversion, enabling investment in the business and increased shareholder returns through our progressive dividend and multiyear share buyback program. Looking forward, we have approximately 90% of revenue under contract for this year, which is the same as last year. Whilst market headwinds continue, we're focused on execution and have visibility to deliver our full year forecast. Martin will take you through a bridge of this later in the presentation. I now want to address our half 1 performance and the progress we are making in each of our segments. Starting with EMEA Services. Due to market conditions in the U.K. and ongoing defense budget pressures in the Australian market, we delivered flat revenue with good margin. In the U.K., we grew 2% as a result of delayed orders on our framework contracts. And in Australia, our revenue was lower, predominantly due to the loss of the Land Systems work package under the MSP framework. In response to these dynamics, we took some resizing actions to build resilience whilst protecting core skills for the future. Our performance was underpinned by successful program execution across our long-term contracts. On the EDP contract, delivery performance was strong with 98% of all milestones delivered on or ahead of schedule. In September, we announced changes to the LTPA that will make it easier and cheaper for SMEs and new entrants to use our test and evaluation capabilities across the U.K. The launch of our T&E Innovation Gateway will help drive greater defense innovation and support wider economic growth across the U.K. Notable new contracts in the half include the strategic win GBP 25 million to deliver collective training for the Royal Navy to improve war fighting readiness at pace. This 5-year contract will see us deliver an immersive virtual training environment that realistically simulates the threats and missions that Navy personnel can expect to undertake in the future. Whilst near-term trading conditions remain tough, we have a clear pipeline of orders to win and deliver in the second half. Turning to Global Solutions. During the first half of the year, we've been focused on executing our plan to address the market challenges and operational issues that we highlighted in May. We've made good progress on the U.S. restructuring program. Key actions completed include the disposal of the U.S. Fed IT business, significant headcount resizing and cost base reduction as well as an improved control of labor rates and inventory. This progress puts us on a stronger foundation to move forward. As we forecast, revenue declined with lower margin compared to the prior year. Half of the decline was due to a lower volume of non-U.S. product sales versus a strong prior year comparator and the other half was in the U.S., principally due to the impact of DOGE on our Fed IT business that we have now disposed of and our planned resizing actions. As the U.S. market changed, we repositioned the business to build resilience and be better aligned to national security priorities. Our strategy is now focused on 4 capabilities where we have differentiated long-term incumbent positions and see good growth potential. These 4 areas are space & missile defense, maritime systems, advanced sensors and persistent surveillance. During the half, we secured $290 million of funded orders with a U.S. book-to-bill of 1.5x. Whilst we continue to focus on improving operational performance and winning longer-term programs, this strong book-to-bill underpins our second half forecast for Global Solutions. To summarize, we're making good progress. Whilst we finished the half with a smaller U.S. business, it is more aligned to national priorities and is well positioned to deliver long-term growth. I'll now hand over to Martin to take us through our financial results. Martin Cooper: Thanks, Steve, and good morning, everyone. As usual, I'll start with the financial highlights before moving on to the key financial metrics at a group level and details on our 2 reporting segments. I'll finish with capital allocation and guidance. And for reference, the U.S. dollar rate for the half averaged $1.34 compared to $1.29 last year, which has provided a headwind to the reported values. So turning to the results for the half. Order intake for the half was GBP 2.4 billion, which drove a closing order backlog of GBP 4.8 billion, both reported records for the group. Revenue was 3% down on an organic basis at GBP 900 million, resulting in a book-to-bill of 0.9x, reflecting the sale of our Fed IT business and trading conditions in H1, which impacted contract awards. Underlying profit was down GBP 10 million versus H1 last year at GBP 96 million, but margin at 10.7% was ahead of our half year expectations and underpins our full year target of around 11%. Underlying basic earnings per share of 14.2p were in line with last half as the lower profit was offset by the enduring benefit of the enhanced level of share buyback. Turning profit into cash remains strong at 85%, which again underpins our full year guide of around 90%. The strong operating cash performance, combined with the sale of our U.S. Fed IT business has enabled effective and value-accretive capital deployment. This has enabled us to not only reduce net debt half-on-half, but also to significantly enhance shareholder returns, which totaled GBP 101 million as we made excellent progress on our ongoing 2-year share buyback program and paid the final dividend. And return on capital employed remained strong at 21.1%. Moving to the key group financials and starting with orders. The book-to-bill of 0.9x, as Steve raised, resulted from delays in contract awards in the U.K. impacting EMEA Services. And within Global Solutions, the year-on-year impact on the federal IT market was particularly stark in the order flow in the business we have now disposed of. Whilst book-to-bill was down, total orders at GBP 2.4 billion was a record when incorporating the 5-year LTPA award. This meant we closed the half with an order backlog of GBP 4.8 billion, which does include GBP 0.4 billion of U.S. unfunded backlog, providing good visibility for future growth of core long-term business frameworks. Revenue at GBP 900 million is down 3% on a like-for-like basis when adjusting for FX and the sale of the Fed IT business. EMEA was lower on reduced volumes in Australia, where we lost a competitive land systems work package. And as Steve mentioned, despite being impacted by delays in orders, the U.K. business did grow 2% half-on-half. Global Solutions declined due to U.S. short-cycle revenues, of which a significant part was in the business now disposed of. In addition, our restructuring activities have resulted in us exiting some business lines as we focus on 4 major areas for long-term profitable growth. Within Global Solutions, our products business was lower against a high year-on-year comparative, but demand and outlook remains robust, and we expect a better second half. Recognizing the step-up required in H2 to deliver our revenue guidance, we have detailed on the chart the drivers that bridge us from half year to our year-end assumption of circa 3% organic growth -- like-for-like growth. So taking each in turn. Revenue cover at the half stood at 89%, in line with last year's assumed outturn at this stage, and that includes the core frameworks of EDP and LTPA, established positions on the likes of Naval Combat Systems and MSCA, Maritime training following the MCAST win and in the U.S., the TARS Persistence Surveillance contract and the work we do with the Space Development Agency. Secondly, our Period 7 order flow has added a further 2% to the cover and includes the mission-critical Typhoon support uplift. Thirdly, we have around 7% of orders, which are extensions of current positions or where we are close to finalizing the awards. Examples include the DragonFire laser weapons contract and target sales with predominantly repeat customers. Finally, we have a good visibility on a pipeline of further awards that we assume we shall win and deliver in year to cover the remaining around 2%. Whilst there are clearly market headwinds prevailing in the U.S., U.K. and Australia, we currently have good visibility and are hence maintaining our full year guidance. Moving to operating profit, which was down GBP 10.6 million against last year, reflecting lower revenue and the impact of the group's restructuring activities. Margin at 10.7% was ahead of expectations at the half with good consistent program execution against our backlog, especially in EMEA Services. In May, I talked about rebuilding margin from 9.6% to around 11%, and we are on track through driving strong program execution, cost base efficiency actions and the portfolio actions in the U.S. As usual, we have detailed the table reconciling underlying operating profit from segments to statutory profit. The income from RDEC and intangible amortization are standard reconciling items and predictable. The other 2 major reconciling items reflect the actions being taken to improve the long-term performance of the business. Firstly, our digital investment has increased in the half, driven by a major rollout to over 60% of the business. As a reminder, this is part of a wide -- of a program to enable growth strategy and wider business efficiency. Secondly, we have booked a further GBP 22.6 million of restructuring costs, driven by the portfolio work in the U.S., coupled with the rightsizing activity in Australia and ongoing efficiency activity in the U.K. To complete profit, the sale of the Fed IT business led to a GBP 0.5 million profit on disposal. Now turning to the segmental split of the group performance, starting with EMEA Services, which had a good operational half in difficult near-term market conditions. Orders increased to GBP 2.2 billion. Excluding LTPA, the book-to-bill was down to 0.8x with delays in contract awards in the U.K. and Australia driving the shortfall, albeit as mentioned in the revenue bridge, some of those orders have come through since period end. Revenue was broadly stable with the U.K. defense delivering growth, but this was offset by order delays and lower revenue in Australia with the loss of the land MSP work package. Program performance and cost control was good, ensuring consistent margins at 11.5% and funded backlog is now at a record high GBP 3.9 billion, which supports second half delivery and longer-term visibility. Next, Global Solutions, which posted orders of GBP 247 million at a book-to-bill of 1.3x, including annual funding on our core U.S. franchise contracts of Tethered Aerostat Radar System, Strategic Capabilities Office and Space Development Agency. These contracts also saw good on-contract growth. Securing these orders in the half helps to derisk second half revenue given the ongoing government shutdown. Orders were down half-on-half due to restructuring of the U.S. portfolio and timing of targets and product awards. These dynamics impacted revenue, which was 16% lower at GBP 192 million. And as covered in the bridge, the book-to-bill gives us a foundation to drive the required second half performance. Margin was down half-on-half at 7.4%, but up from last year as we work through the U.S. restructuring actions and was in line with our expectations at this stage. Moving to cash, where operating cash flow continued to be good at GBP 128 million and was in line with last year, delivering a high conversion ratio of 85%. Capital expenditure was GBP 36 million, of which GBP 21 million related to the LTPA. And in line with guidance, we would expect higher spend in the second half with a total for the year around GBP 100 million. To complete the cash analysis, the movement in net debt from year-end is shown here. We generated GBP 63 million of free cash flow. And with the proceeds from the Fed IT sale, that allowed us to deliver a significant step-up in shareholder returns at GBP 101 million as we accelerated the pace of the buyback program and grew the dividend 7%, in line with our progressive policy. Net debt, therefore, closed at GBP 180 million at a leverage ratio of 0.6x, up from year-end, but a GBP 10 million lower net debt than last half year. Turning to capital allocation, which is unchanged. The business is delivering good consistent cash flow and the focus and priority is driving sustainable organic growth at good margins whilst investing in the business. We maintain a rigorous approach to the deployment of our capital, scrutinizing organic investments against shareholder returns and ensuring we have a balanced and value-accretive deployment of capital. During H1, we've demonstrated our disciplined capital allocation policy by investing in our organic growth through CapEx, research and development, digital and major competitive bids. We provided a 7% progressive dividend, completed the sale of our noncore Fed IT business in the U.S. and used the funds from the sale to accelerate our share buyback program. We have a strong balance sheet, which gives us flexibility to drive organic growth and provides optionality for value-accretive capital deployment in excess of the GBP 200 million share buyback already announced. So pulling all that together and moving to guidance, which is unchanged. For the revenue bridge, we still expect to deliver a circa 3% organic growth on a like-for-like basis when adjusting for the sale of the Fed IT business and the higher exchange rate versus original guidance. Margin, we expect to be around 11% and with the buyback progressing at pace, EPS growth of 15% to 20%. Cash, we expect to be around the 90% conversion level and leverage around 0.5x at year-end. As usual, to help with your models, we've included additional technical guidance in the backup slides. This has been a robust half against a difficult market backdrop. And with the action taken and in train, have the visibility to deliver this full year guidance. I'd like to thank all our teams for delivering critical capabilities to our customers and for this half year result. With that, back to you, Steve. Steve Wadey: Great. Thank you, Martin. So to our strategic outlook. Let me start by explaining why we are a differentiated company, highly relevant to the increasing threat with strong fundamental growth drivers structurally aligned to the increasing defense spend. The threat environment has changed the market dynamics. We are in a new era of defense. Our customers have committed to long-term spending increases as we have seen across NATO and are driving major procurement reforms as they seek to rapidly scale existing capabilities and create new disruptive capabilities to overmatch the threat at wartime pace. We are not standing still. Our mission-critical capabilities shown here on the right are highly relevant and are directly aligned to our customers' priorities. We are a horizontal integrator, developing new technologies, testing new platforms and delivering frontline mission support. We play an essential and vital role in helping our customers accelerate capabilities into service and increase war fighting readiness to counter the threat. As the market is changing, we have adjusted our strategy to increase focus in 3 areas: firstly, partnering more closely with our customers to help them build greater resilience, rapidly modernize and deliver innovation at pace; secondly, continuing to pursue focused growth in each of our key domestic markets; and thirdly, leveraging our capabilities to expand and grow into European NATO markets. Let me take each of those in turn. We are increasing our competitive advantage through greater partnering and innovation with our customers and industry to deliver operational advantage and drive growth. We are a strategic partner to the U.K. government and the fourth largest defense supplier to the U.K. MOD. Our capabilities are aligned to the ambitions of the Strategic Defense Review, and we have increasing opportunities to leverage our expertise in partnership with the government into major export programs, such as our engineering services and mission data capabilities into the recent win of Typhoon into Türkiye. On Monday this week, Luke Pollard, the Minister for Defense, Readiness and Industry, visited us in Farnborough and has welcomed our commitment to proactively transform the way that mission-critical engineering services are provided to the U.K.'s armed forces that I mentioned earlier. This includes our investment in new digital and AI technologies to augment our high-value engineering skills, significantly increasing U.K. productivity and innovation. To stay ahead for the long term, we remain focused on investing capital into our people, technology and capabilities. We achieved a major milestone in the half with the successful transition of U.K. and Australian employees onto our new digital workplace to improve our ways of working and business efficiency. And investing in cutting-edge defense technology continues to be a key driver for our future growth. Our long-term R&D created the laser technology that is critical to the growing DragonFire laser weapon program. Investing in the business is core to our strategy to ensure we have a differentiated portfolio and are well positioned to capitalize on increasing defense spending and drive organic growth. The longer-term opportunity in our domestic markets remains significant, and our mission-critical capabilities are focused on areas of priority for our customers, which are robust and set to grow. In EMEA Services, we have deep expertise that we are leveraging on next-generation technologies, capabilities and programs. This includes the launch of our DroneWorks initiative to help SMEs access our expertise and facilities to accelerate drone development for rapid deployment. And we are delighted with a recent significant competitive win to further develop our disruptive laser technology for next-generation laser weapons beyond DragonFire. In Global Solutions, we now have a U.S. business with much greater focus on the 4 differentiated capabilities that I described earlier. As a result, we have delivered significant on-contract growth across our large multiyear contracts that Martin described, SCO, TARS and SDA. And we see significant growth potential for space and missile defense, where our capabilities are highly aligned to multiple U.S. space programs. From a wider product perspective, we are continuing to invest in our maritime, targets, sensors and secure navigation capabilities where we have differentiated offerings to drive organic growth. Our portfolio is now focused and structurally aligned to national security priorities of our domestic customers, underpinning our long-term perspective. We're also increasing our focus to position the business and drive organic growth in adjacent markets by leveraging our core capabilities across the AUKUS nations and into European NATO and allies. We are collaborating with our customers across the AUKUS nations to develop new opportunities. Examples include sharing laser technology from the U.K. into Australia, leveraging our R&D expertise. We're also sharing our engineering services experience to help shape the future of the EDP and MSP contracts, and we are applying our world-leading maritime T&E capabilities in the U.K. to support the T&E opportunity for the AUKUS submarine program in Australia. Over recent years, we have made good progress with European NATO and allies, where we have differentiated capabilities. We've grown the use of our unique U.K. test and training capabilities from nations such as Germany, Italy, Spain and most recently, Japan. We're also increasing our export focus and a key opportunity progressing well is the export of our electronic warfare and mission data expertise into Belgium. And whilst Poland remains an upside opportunity, we're actively shaping further persistent surveillance opportunities in Eastern Europe and the Middle East beyond our U.S. program. We're also well positioned to capitalize on NATO's increasing defense spending, and we see our addressable market growing. With a focused approach to our international expansion, we are creating value across the company to drive further organic growth. Having secured the LTPA extension, we have a significant order backlog of GBP 4.8 billion, providing a firm foundation for the company. This backlog, combined with our qualified pipeline of GBP 11 billion, provides good long-term visibility at 8x our FY '25 revenue. We have built this visibility by focusing on our customers' needs, partnering with industry and winning larger, longer-term programs. On the left, I'm showing our major domestic programs where we have strong incumbent positions that build up to approximately 70% of our annual revenue. This solid base in our domestic markets gives us a platform to deliver on-contract growth and win new programs in our pipeline. This solid base also gives the platform to leverage our capabilities to expand internationally, shown here on the right, including opportunities to leverage both our services and product capabilities into European NATO markets. Whilst we may not win all of these, our pipeline is robust and prudent with many additional growth opportunities beyond the GBP 11 billion shown here. Overall, our significant backlog, combined with our healthy pipeline, gives us very good long-term revenue visibility and underpins our confidence in creating long-term value for shareholders. So in summary, we've taken the necessary actions in tough near-term market conditions, strengthening our portfolio to improve our performance. The fundamentals of the business remain strong, and our mission-critical capabilities continue to be highly aligned to our customers' needs in a growing defense market. Combined with our backlog and pipeline, this gives us very good visibility for long-term growth. Whilst near-term headwinds continue, we're focused on execution and have visibility to maintain our full year guidance. 10 years ago, we launched our growth strategy. As you can see from the chart on the right, this year is a transition year. Having taken decisive action and significantly grown our backlog, we have a strong platform to capitalize on increasing defense spending. This gives us confidence to drive sustained long-term growth and deliver compelling value creation for shareholders. Martin and I'd be happy to take your questions. Steve Wadey: Okay. Rich, first question. Richard Paige: It's Richard Paige from Deutsche Numis. Could you just give a bit more detail about what's going on in Australia, please, and circumstances there? And on -- second one on U.K. Intelligence, again, sort of dig between there because it feels as though you're reasonably confident that there hasn't been a significant deterioration in trading in that business. And then thirdly, just on exceptionals and digital innovation. If you could just outline thoughts for the full year on both of those numbers and particularly digital innovation, how long they -- how long that persists as an exceptional charge, please? Steve Wadey: Okay. Maybe, Martin, I'll start on Australia. Maybe we do exceptionals, and I'll finish off with U.K. Intel. Okay. So I mean, I think on Australia, I think it's a tough market. In some ways, the Australian market has been very similar to some of the dynamics that we've seen here in the U.K. It's absolutely not unique to us. As you heard in my presentation, right at the start of the year, we had a loss of a competitive work package. Whilst we're not the prime through the team that we're on under the MSP program, that has resulted in lower revenue for us. But I think we need to put that in perspective, Rich, Australia now about 6% of the group. And I think what's been important is that in understanding that market dynamic, whilst we've taken the resizing actions, we've also taken actions to strengthen the portfolio and focus on the programs that are going to give us long-term underpinning growth looking forward. Those key areas, if you are interested in those, there are really 4 big drivers that we're focused on for the future in Australia. The customer is going through an exercise in the coming calendar year, so 2026, looking at what program will replace MSP. It's called future MSP. We expect there to be an RFI and RFP for that, and we're in a market shaping phase. I mentioned sharing experience between the U.K. and Australia customers to secure a prime role and position ourselves for the next phase of engineering services. Secondly, we're continuing and we're delivering really well on our threat representation business through the acquired Air Affairs business. That's under our JATTS contract. We expect a renewal of that contract imminently, and that provides long-term underpinning growth. Thirdly, you have heard me talk about lasers. We have quite a lot of progress on lasers. I'm sure we might get some questions on this in the U.K. in a moment. It's really a strong long-term growth driver, but there's a lot of collaboration between our customers and our teams looking at next-generation lasers in Australia, where we're very, very well positioned. And the final driver that I mentioned in my presentation is related to the AUKUS submarine program, again, where we expect over the next 1 to 2 years, a significant program opportunity on providing the range capability or the test and evaluation capability for both the AUKUS submarine program as well as surface fleet. So yes, it's been a tough year. It's not unique to us. There are plenty of businesses, as you know, having to take resizing actions and improve business efficiency we have. But we need to put it in perspective, and we've got some really good solid positions to grow going forward. Do you want to do exceptionals? Martin Cooper: Yes. Thanks, Rich. I mean I think on -- as I covered in my script, then we've had a pretty significant rollout in the first half across a lot of our workforce on one major work stream within that package. So it was GBP 12 million -- just over GBP 12 million in the half. I'd expect the second half to be a little bit less, but a few models, I'd model about GBP 22 million for the year, and then we'd expect it to start to step down next year and then finally complete in FY '28 for us. Richard Paige: [indiscernible] Martin Cooper: Clearly not by the nature of exceptionals, but I mean, you'll notice just to cover the restructuring point, I mean, I think you -- that could be split into 2 major halves, one around sort of roughly 50-50 around headcount impact and headcount reductions. And then as I mentioned, again, as a reflection of some of the work streams we've either exited or really rationalized down in the U.S., then there were around GBP 10 million plus of further write-downs in the U.S. that went through that line. So you should think a bit of headcount reduction and then sort of final balance sheet cleanups. But obviously, we wouldn't expect anything else material in the second half on either line. Steve Wadey: And I think on U.K. Intelligence, I mean, you'll know U.K. Intelligence had a tough year last year. So this year has very much been a transition year for U.K. Intelligence. And I describe the wider context of the U.K. market has been tough, and we've seen a delay to orders, particularly around the R&D, DSTL areas and engineering services. But I think that UKI is positioned well for this year. It actually did relatively well on its orders in the first half and has got a very good pipeline to deliver a much stronger second half performance that we are planning on. And included in that, the business is also well positioned. You would have seen me mention a couple of export-related orders, particularly in the EW emission data area where certainly in the next, let's call it, 1 year, we would expect some of those export-related orders to positively contribute to the rebuild and next phase of growth for U.K. Intelligence. George Mcwhirter: George Mcwhirter from Berenberg. Maybe coming back to Australia again. Just in terms of the competitive land systems package that you mentioned that you lost, can you just talk about the size of that contract, please? And what lessons you can take from that loss? And the second question is on the U.S. What proportion of the business would you say is shorter cycle now that you've disposed of the federal IT services business? And have you seen any impact from the government shutdown? Steve Wadey: You need to start on the Australia side. I'm happy to talk about lessons. Martin Cooper: Right, George. So certainly, the value of package of work was about AUD 50 million. Most of that was reflected in our guidance at the start of the year. We had hoped to perhaps pick up a little bit of subcontract work, but that's not really materialized. So around $50 million impact, but it was baked into the guidance in essence at the start of the year. Steve Wadey: And I think lessons, George, I think, is similar to what we've discussed before and certainly, I'm seeing that is our focus in the U.K., which is really understanding the pressures and the drivers on our customers, all of our markets, our customers, whilst defense is a high priority, they're all trying to get more for less out of their budgets. So therefore, really thinking through innovative proposals and being focused on areas where we can differentiate and be more competitive is absolutely key. There are many examples I could talk about in the U.K. where we're doing that. And the 4 areas that I mentioned in answer to Rich's question is really about how we become more competitive and more innovative to differentiate and then build those longer, larger sustainable positions going forward. Start on the U.S. of short cycle? Martin Cooper: Yes, I mean I think, George, to sort of turned it around a little bit, the 4 major sort of work streams we're focusing on now that Steve outlined reflects more than 80% of the revenue work that we now do in the U.S. And I think as you remember, as we went into this year, we didn't include really any material values on the likes of robots and sort of short-cycle book-to-bill work. And so the coverage that we've got through the half year book-to-bill relies very little on short-cycle impact at all, and that's where it is. Now you'll all know that in the U.S., you do also have annual contracting. So you could describe that as short cycle in some instances as to where it is. But a lot of that real sort of what you would have traditionally called as short-cycle volatility was stripped out at the start of the year and is not in our bridge for full year as we look forward. And I think in respect of the government shutdown, the reflection that we had a very strong book-to-bill in the first half in most of those big contract awards on the likes of TARS, SCO, SDA, the forward-funded contracts came in, in September, which drove the strong book-to-bill, which has given us that cover now like all defense contractors and all contractors. If there's another government shutdown in January again and/or these things get protracted, then obviously, there could be impacts further down the line or for further orders. But in the short run, then we're fine. Steve Wadey: And I think more broadly, I think, as I said in the presentation, we're really pleased with the progress that we're making. I mean the U.S. restructuring program is on track. The disposal of the Fed IT business was a key milestone. As you heard, we've taken some significant cost out and headcount out to resize the business in line with the market that we see. Hence, my comment about we have now got a smaller business. But as Martin has just said, that smaller business is really well positioned because we've now focused on these 4 revenue streams where we have long-term positions, and we can see that growth potential, which reduces the exposure to that short-cycle volatility that you are pointing out. And as Martin says, the book-to-bill of 1.5x gives us the ability this year to drive through that performance then really focus on these growth drivers for the long term. Hopefully -- does that answer your question, George? Great. Joel Spungin: It's Joel Spungin from Investec. Steve, one for you, sort of a big picture question, and I've got a couple for Martin as well. But I was wondering if you could talk maybe just sort of thinking out beyond FY '26 as we look into fiscal '27, '28. You go back and QinetiQ used to grow roughly double nominal sort of defense budget growth for a long time in terms of organic growth. Is that still something you think is achievable even in a world where nominal defense budgets in the West are rising at an unprecedented rate, i.e., could this business get back to being a high single, even low double-digit organic growth business? Steve Wadey: Yes. I think this is a good question. And I think there are a number of things to say. I think, first of all, we're very confident we've taken the right actions. We've taken the right actions to deal with the dynamics as we came into this year. And that ultimately, hence, your question, puts us on the right trajectory to return to higher rates of growth. And we have an exceptionally strong backlog and exceptionally strong pipeline. You've seen that there with 8x FY '25 revenue cover. And therefore, I think your question is a question of timing. And actually, how do we really make sure that we control the things that we can control. And what we've shared with you today is that we are in control of everything that we can. But there are some market dynamics that will determine partly the answer to your question about how quickly we will return to that from a timing perspective. But we're absolutely doing all the things that we can. And then if you go further into that question and say, well, what are the drivers though? But what are the drivers that could -- that become the bridge from this year into that multiyear phase of returning to that higher level of growth. And it is worth just mentioning them because I think that it will help everybody understand how the company returns to those higher growth rates. So the first one absolutely is in our core strength of test and evaluation. The long-term partnering agreement on a multiyear basis is absolutely going to be a contributor to our growth. The modernization work of bringing in hypersonics directed energy, autonomous systems, the increasing in tasking that we expect to see through our test and evaluation Innovation Gateway, the DroneWorks initiative that I mentioned. And I didn't mention it in the presentation, but we've just won a contract to expand quite considerably the capacity of the ETPS training school, which is going to be considerable increasing capacity both for our domestic and international customers. So that's a really important growth driver. The second is actually, and we've talked about this as our strategy for several years, how do we leverage our test capability into training. Note the strategic win of the MCAST contract. It's GBP 25 million. You might say, well, that's not big, but it's a strategic win as we move into training, and that training is absolutely complementing our test capabilities, and there are quite a considerable number of incremental opportunities above MCAST in a short-term period that will add to growth. The thirdly is U.S. I've mentioned this a few times actually in answers. I think we're really well positioned around space and missile defense. Our capabilities with the SDA. We have SATCOM capabilities, and we also have broader sensors capabilities. Space is a very large growing opportunity in the U.S., and we're well positioned in that and alignment with programs that you all know such as Golden Dome, we're positioning to win a role on that. And separate to that, I think it's in our unfunded order bridge. We did actually win an option, a ceiling option with the Space Development Agency worth up to $95 million to provide additional support to them in this coming year. So that's the third growth driver. Fourth one is around advanced weapons. You go back a year, we talked about -- in fact, it was May, wasn't it? We talked about the 2-year renewal on the weapons sector research framework. That is really starting over this next multiyear period to bring benefit, particularly in the directed energy area, both radar frequency as well as lasers. Martin mentioned the importance of DragonFire. And I just mentioned, we've had another win in next-generation laser technology. And then finally, the focus on Europe and 2 particular areas I would highlight. The framework contract that we signed now 2 years ago with NATO to allow access to our T&E ranges continues to bring and be attractive to nations like Germany, Italy, Spain, Netherlands. And the second area I mentioned in response to Rich's question is our greater focus on export. And we're in a really mature partnering position with HMG and looking at exports together. I mentioned 2 examples around our EW emission data capability with Belgium and with Türkiye opportunity on Typhoon, and those will contribute. So those 5 areas, I think, answer your question is the bridge from this year to those higher rates of growth. Clearly, not everything there is under our control. So it's a matter of timing. But certainly, over that few year period that you've mentioned, I would expect us to really get back into much higher growth rate. So hopefully, that answers your question. Joel Spungin: Can I -- sorry, just a couple of quick ones, Martin, I'm a bit more dull. The -- sorry, I lost you a bit on the guidance, the GBP 22 million. Is that the digital investment that you expect for the full year? Or is that the... Martin Cooper: Yes. So the total cost of digital investment, I expect to be around the GBP 22 million. Joel Spungin: Right. And you're not at the moment, expecting any more restructuring charges? Martin Cooper: Correct. Joel Spungin: Right. Okay. And then sorry, very final one. Fed IT, I was just wondering if you could say how much did Fed IT contribute to revenue and profit in the half? Martin Cooper: Yes. So in revenue in the half, it was about -- you should have modeled around GBP 10 million to GBP 11 million, so around $13 million to $14 million. And it does have a second half weighting, which is why when you're adjusting your models, you'd expect more like $20-plus million in the second half, which is why we want obviously the adjustment in the full year guide. It is fairly low margin. We will get to you, sir. Sash Tusa: Sash Tusa from Agency Partners. Just a very quick one first. I think that you slightly implied that there have been some delays to target orders in the first half. If I understood that right, is that something that has subsequently occurred or that you sort of expect to occur in the second half? Steve Wadey: So do that one first. Yes. So you are right, there has been a slight slowdown. Nothing particular in the market other than a general slowdown. But as Martin showed in our bridge, targets are part of a pickup that we expect in the second half. It is worth saying that we did achieve some initial target sales in the U.S., relatively small in the half, but we did. And we expect to be focused on additional task orders through the ATS-3 contract that we signed 12 months ago in that second half bridge. Sash Tusa: And then just a sort of broader question about U.S. space and Golden Dome and so forth. I mean clearly, you've seen an awful lot of hopes for procurement reform over your careers. And it's possibly quite jaundiced about sort of claims that politicians make for that. But Secretary Hegseth does seem to want to go faster and break a lot of things. And he doesn't seem to be particularly in favor of what he calls legacy contractors, which might be a category that you fall into. How do you make yourself relevant to new defense technology companies whose business model seems to be extravagant claims on PowerPoint, build stuff, it blows up, moves on as opposed to a rather more measured approach in terms of test and evaluation. Steve Wadey: How long have you got? You make a number of points. I mean, first of all, you touched on space and SDA. We have an excellent relationship with the SDA. We're the largest contractor working in with them. And therefore, we partner very closely with them, and we help them deliver their programs at pace. So by being relevant, by deeply partnering and helping them achieve, to your point, their programs faster, that's how you position well. And I think SDA contract was an example of significant on-contract growth in the half. That comes down to good performance and good partnering. And please note what I mentioned about the option that we've had added to that contract for the next few years, which could build even greater on [indiscernible]. So I think the core in that is being close to your customers, understanding the drivers. I think more generally, I think all of our markets are looking for reform. I don't think that's specific in the U.S. And I think that is a nature of what is being driven by the threat. And therefore, all of our governments, whilst they want to spend more money, that money is going to take time to come. And therefore, they want to get more from their money quickly, and that means doing things differently. And I come back to how well positioned we are. And if you look at our 4 capabilities, creating new technologies that create disruptive military capabilities to overmatch the threat quickly. Lasers, the case in point is really good. Focused on engineering services. I mentioned, I think, twice the importance of proactively investing in how do we augment our high-value skills with artificial intelligence. That's not about replacing our people. That's about doing what we do faster and at greater scale to help them drive efficiencies and scale their capabilities. So I think these are the dynamics, Sash, and I could go on further that by being really relevant and partnering, but coming up with different ways of working to support them on their reform, that's how you grow in difficult markets and position yourself well for the long term. I think that's the fundamental ethos. We have 2 more questions behind you. Benjamin Pfannes-Varrow: Ben Varrow, RBC. On the -- maybe kicking off with the second half growth, I think you've addressed it in the slides there, but just maybe on EMEA Services, looking at the second half, I think you need to grow around high single digit. Is the message from the slide there that those prospective orders coming in are pretty much derisked, so you're not concerned there of meeting those numbers. Is that the general takeaway? Steve Wadey: I'll do that one. Maybe I can start generally. I mean we've sort of talked about the market being difficult. And clearly, we've had delays, Ben. But we've got really good focus on execution and what the bridge that Martin showed is the visibility. If you're referring to the 7%, there are really 3 main drivers for that. The first is around EDP-related task orders. Secondly is around laser-related programs. That's not just DragonFire. It also includes the win that I've just mentioned on next-generation lasers because that was post AP7. In fact, it was last night. And then thirdly, targets. They are the 3 biggest drivers in there. And what really we're showing is in that 7%, they're really specific and identified, and therefore, they are high confidence. And we also have a pipeline of further awards that go beyond that and hence, the way that Martin presented it. Benjamin Pfannes-Varrow: Two more. In terms of maybe asking Joel's question slightly differently, over the next couple of years, you've spoken you can get back to that sort of high single digit, low double digit. Is there anything to be mindful of that's working against you or prevents you from getting there over the next couple of years to keep in mind? Steve Wadey: Well, I guess the most straightforward is the things that aren't in our control. So the market dynamics are partly the timing that I mentioned to the answer to Joel's question, but are we doing all the proactive thinking of investing, changing what we're offering, engaging with our customers. We're absolutely all over that. So we're doing everything in terms of the actions on short-term performance and positioning us to shape and win these proposals. So I think it's the things that aren't in our control, which is actually just the flow of orders really. But no, I think we're very well positioned, hence, the answer to Joel's question. Benjamin Pfannes-Varrow: Last one on the sort of upcoming U.K. defense investment plan, thoughts or expectations what could come out there? Steve Wadey: Yes. I mean we've been through a lot in the U.K. market this year. We had a strategic defense review in June, defense industrial strategy in September, defense reform initiative, July, was it? And then we've got the defense investment plan let's say, before Christmas, wherever it's going to be. So we've been through a lot. And I think that getting through, in some ways, the last big block of this reset and renewal of defense in the U.K. will be good. I think it will bring clarity. It will bring confidence. And I think what we expect from it is with that clarity, I think there will be a lot of focus on innovation and R&D and building different capabilities. Clearly, we're well positioned for that. And then more fundamentally, I think it will be calling even more so for initiatives of innovative capabilities to do more for less. And hence, some of the proactive changes that we've been making around the future of EDP and the AI-related investments. So I think clarity and confidence is going to be good. We'll welcome that. And then we really expect innovation and bringing proactive proposals to be part of the implementation and then sort of build that position as support to our government going forward. David Richard Farrell: David Farrell from Jefferies. Two questions for me. Just going back to the exceptionals and the digital platform. Could you just remind us what capabilities that will give you as an organization? What exactly are you doing? What efficiencies does it drive? Steve Wadey: So if we go back a couple of years maybe to when this whole project was launched, I think we talked very openly that the company infrastructure had been built really on the back of a legacy IT infrastructure from the U.K. government. And it went back 20 years. Hence, why this was a fundamental discrete investment project to fundamentally build a digital platform and set of applications for the company globally. And really, that project has been in 3 phases. The first phase was to put a fundamentally different secure network in place across the company using state-of-the-art digital technologies. That is done and complete. Secondly, the next phase was then effectively migrating our people onto the new devices. As both Martin and I have said in our presentations, that is largely complete. And now we're on the sort of the final phase, which is really now all about migration of apps and then new tools, whether that's engineering tools or a project that's very close to Martin's heart, which is around the business system finance tools. So hence, this was that multiyear discrete project to really bring the company digital infrastructure into state-of-the-art capability. And I think it's going very well. And I think both of us use slightly different language. This will change the way that we work. It will allow us to share information, share technology, drive collaboration and also build greater business efficiency into the way that we operate. Feel free to add. Martin Cooper: Yes. I mean I think, David, I think -- I mean, this actually enables us to bid into some contracts as well and be prime lead in some areas Steve mentioned Australia and other areas by having these advanced and better systems that will enable us to actually bid and hopefully win more work going forward as well. I would also make the point that we meant there, and you might be about to touch on margin anyway. But I mean, I think anyone who's been through these digital rollout programs, it is quite disruptive to organizations. And you'll remember at the start of the year, we were a little bit cautious, more cautious on margin just around that operational impact, and there has been some impact and that continue there will be for the rest of the year whilst we're going through that. But as Steve says, we're getting on with it and it will have long-term efficiency benefits as well. David Richard Farrell: I see my second question was about growth. I've really touched on the Polish TARS opportunity. But can you just kind of detail how that works? Who selects the winner? Is it the U.S. government? Is it the Polish government? Has the U.S. government shutdown in any way delayed the award of that project? Steve Wadey: Yes. I mean the first thing is a reminder to ground us all, Poland is not in our base plan, and it is not in our forecast. So just to be really clear on that. In terms of the process, it's an FMS sale from the U.S. government to Poland. Therefore, the decision-making is with the U.S. government. But clearly, they will have dialogue and exchange with the Polish government. And to your point, partly related to shutdown, I mean, there is no public announcement so that remains, as I would think about it more as an upside opportunity. But I think more important to that, you mentioned the phrase TARS, is really thinking about our TARS capability, which if everybody is not familiar, this is where we are running a really significant national program along the Southern U.S. border, providing persistent surveillance between U.S. and Mexico. That is another contract. There are 2, in fact, one called TARS, one called [ TAS ]. And both of those also have delivered good on-contract growth over recent years. And from our perspective, we're really positioning to grow that capability as one of our 4 priority streams, and we're positioning to grow that both domestically in the U.S. We expect further on-contract growth to come this year, and we also expect to grow it internationally, and we're actively shaping a number of opportunities in different countries around the world, both in Eastern Europe and Middle East. Unknown Analyst: It's [ Francois ] from Barclays. Just coming back to the digital investments you've been doing. You mentioned the fact that you can increase your win rates because of that investment on the line. So -- which is obviously good for growth. But just in terms of margin, is this investment going to generate any margin benefits down the line? Or is it just a function of making your business better positioned to win new contracts and fund growth? And then secondly, going back to the U.S. business with those 4 key areas you outlined before. Can you discuss the medium-term growth profile for the business there, compare that with the rest of the group? And then how should we think about the margin in the U.S. in the medium to long term? That would be very helpful. Martin Cooper: I'll start with the digital. I mean, just to be clear, I mean, this is -- as Steve says, this is around also building good long-term business resilience, and you'll all be very aware of, obviously, heightened cyber threats and other things. So this is predominantly around, obviously, having the right systems to be effective for our employees and other things. It does give us the opportunity in some parts of the world where we don't have the current capabilities to be able to bid into things, but this is predominantly an efficiency thing, but also we do need to clearly continue to invest in the business. So I wouldn't want you to think this is going to make a huge step-up in margin going forward as we work through this program, but it should definitely help efficiency drive as we go there. Perhaps in the U.S., just on margins, and then I'll hand over to Steve around growth. I mean, clearly, all the actions we're taking are about designed to drive margin up in the long term. I referenced a couple of areas where we actually also actively took ourselves out of some contracts in the first half because they were lower margin and were noncore to us and things. But I think you should think about this business in the long run as more of the sort of high single-digit margin business in line with sort of peers, so sort of in the 7% to 9% would be the margin, and that would then, therefore, push Global Solutions more up into around the 10% level, as I think we've outlined in the past, but that's the kind of benchmark that we're pushing that business through these actions. Steve Wadey: Yes. And rather -- on the U.S., I mean, rather than giving growth rates and comparisons because as we know, we'll be giving an update on our growth in May. Maybe what I can talk about is the growth drivers. I've sort of talked about a few of them. So just to go back over. So space and missile defense is an absolute growth driver where we are positioned. And I use the phrase multiple space programs. It's worth just touching on. So clearly, we have the SDA program. We also have a SATCOM related engineering services program. And I've just briefly touched on Golden Dome, where we can see some of our engineering services and our sensors capability relevant for that. So we have a series of capabilities, and we're well positioned in our customer relationships to see good growth coming from that program. Second one, Maritime Systems. We know if we look back in time, the company has been very well positioned in its relationship with General Atomics and the U.S. Navy as part of the electromagnetic launch and recovery system on the Ford-class carriers. The Ford-class carrier is a long-term franchise program for us, and we see good opportunity, particularly coming in the next year and bringing further growth on the carrier program. Many of you will remember about 3 years ago, we said we would take those capabilities and position into the submarine program. We initially won some business on to the Virginia-class carriers. That has expanded on to 2 or 3 subsystems. And in the last 12 months, we're very pleased that our track record of performance in Maritime Systems has led to us winning business on the Columbia-class submarine. So we have strong performance with the carriers moving on to Virginia. We've now moved on to Colombia, and we see that -- we see steady but good long-term growth coming on a multiyear basis and then moving into surface fleet programs as well. So that's the second driver. Third one is around Advanced Sensors. This is from our prior MTEQ capability where we have some really good advanced R&D and next-generation sensors. What might be a small win in the half was winning a Phase 0 contract on a program called FALCONS. This is the next generation of really long-range IR sensor for the U.S. Army. It's potentially a very large program of record in the U.S. We've got a very novel and clever design, and we're delivering that Phase 0 program and looking at key strategic partnerships of how we will position ourselves to win. That's a multiyear opportunity. And the last really is the broader franchise opportunity that I discussed around persistent surveillance, which is TARS, [ TAS ] and the domestic growth that we expect on that and then our focus on the wider international expansion. Those really are a bit more color in the growth of those 4 areas. Any more questions? Any questions online from anyone? Operator: There are no questions coming through from our conference call. I'd like to turn the conference back to Steve Wadey for any additional or closing remarks. Please go ahead. Steve Wadey: There's one more opportunity in the room. Okay. Well, thank you very much for your time. We'll both be hanging around if anybody in the room would like to follow up with any additional questions. Thank you.
Mark Allan: Welcome to the presentation of Landsec's 2025 Half Year results. So we continue to see clear positive momentum across all parts of our business. Our primary focus is on delivering sustainable income and EPS growth, and we continue to do so effectively. I've been saying for some time that owning the right real estate has never been more important, and our performance over the past 6 months illustrates this yet again. Following our significant portfolio repositioning over recent years, our best-in-class office and major retail assets now make up over 90% of our income. And driven by the high quality of our market-leading platforms in both sectors, we have again delivered strong like-for-like net rental income growth and positive rental uplifts on relettings and renewals across both office and retail. We see no signs that the strong customer demand for high-quality space, which underpins this positive trend is abating. So this will remain the key driver of near-term income and EPS growth with further asset rotation and residential expected to enhance this over the longer term. As a result, we are raising both our near-term and medium-term EPS outlook, which means we are well placed to deliver material shareholder value as we move to higher income, higher income growth and lower cyclicality over time. To deliver our strategy, we set out 9 key objectives back in February, and we are on track or ahead of plan on each of these. In the near term, most of our EPS growth will be driven by our current platforms, the assets we own today. So that is what the first 5 objectives are built on. We continue to capture the growing reversionary potential in our office and retail portfolios and today raise our guidance for like-for-like income growth for this year to around 4% to 5%. We have also raised our overhead cost savings target, which now implies a saving of more than GBP 10 million against financial year '25 by next financial year. We are on track to deliver half of our 3-year target to reduce our capital employed in predevelopment assets by GBP 0.3 billion during year 1. And we have sold 1/3 of our retail and leisure parks, whilst we are seeing an increasing number of acquisition opportunities in major retail coming to the market over the next 12 to 18 months. Our 4 longer-term objectives are designed to ensure that in 3 to 5 years' time, our asset mix is such that we are still as confident about this outlook for income growth at that point as we are today. Again, progress on each is positive as we've sold nearly GBP 300 million of offices over 12 months ahead of plan. We set a clear expectation for our income growth in retail at our recent Capital Markets Day in September, and we have made good planning progress in residential. Still, as returns in retail continue to look most attractive, we do not plan any meaningful new development commitments over the next 12 to 18 months. And that means that our committed development exposure is set to come down to just GBP 200 million by mid-2026. And we expect this to remain meaningfully below the current GBP 1 billion level beyond that. Our sharper focus on sustainable EPS growth as our primary financial objective that we set out earlier this year is providing real clarity of focus and clarity in decision-making. And we're seeing the benefits of this across all parts of the business. Across the whole portfolio, we have driven 5.2% growth in like-for-like income, and our occupancy is now at a decade high. We have had a highly active half year in terms of shifting our portfolio mix with the sale of GBP 644 million of assets, which generated limited or no return, and we're expecting further capital recycling in the second half. Meanwhile, our capital base remains solid, supported by continued growth in rental values. And we are committed to further improve this as we now target net debt to EBITDA of below 7x within the next 2 years. That's down from a previous target of below 8x. All of this translated into a positive set of financial results for the half year. Our strong like-for-like income growth and continued overhead cost savings meant that EPS was up 3.2%, whilst our dividend is up 2.2%. NTA per share was down slightly at 1.3%, but principally driven by the sale of nearly GBP 650 million of low-returning assets that I mentioned earlier. Aside from the finance lease income on Queen Mansions, the impact on EPS from these disposals was broadly neutral and the cost to NTA about 1%. Our LTV is now 38.9%, and our net debt to EBITDA was up as expected, yet we expect this to come down to below 7x within the next 2 years as our current developments complete and lease up and future development exposure reduces, whilst we expect LTV to reduce to below 35% over time. Reflecting our positive performance, we raised our outlook for EPS growth for the full year and now expect this to be at the top end of our 2% to 4% guidance range. This is before the disposal of QAM, which turns the residual finance lease on the asset from a receipt of income across 2025 and '26 into an upfront capital receipt on completion of the sale next month. So although the amount of cash we receive is effectively the same, this reduces reported earnings for the year by GBP 7 million. In addition, we have also raised the outlook for our financial year '30 EPS potential from around 60p to 62p, and that's a 20% increase in our earnings growth objective. driven by higher growth in retail income, lower overhead costs and lower development. Any upside from our planned medium-term investment in residential only becomes meaningful beyond financial year '30. We'll continue to pursue opportunities to further improve on this, but this now implies a compound annual growth in earnings per share of 4% to 4.5%, adding further to our attractive existing income return. So now on to our operational review. Customers unquestionably remain focused on the best space in both office and retail. So driven by our high-quality operational platforms, our leasing performance remains market-leading and our relative outperformance against the wider market continues to widen. Our occupancy is up to a decade high as our portfolio is effectively full, which is driving growing competition for space. This, in turn, is driving up rental values. So rental uplifts are rising, principally in retail and like-for-like income growth is trending higher. Reflecting this, we now expect like-for-like net rental income to grow around 4% to 5% this year, up from our initial guidance of 3% to 4%. And this established trend remains a key driver for our near-term EPS growth. Turning to offices in more detail. We continue to see growth in utilization rates with turnstile tap-ins up 11% over the 3 months to October compared to the same period last year, even though TFL tube traffic was slightly down over the same period. Mirroring the experience we see across our own portfolio, the majority of active demand in the overall London market comes from businesses looking to increase space. So as the availability of high-quality office space in locations with the right transport connectivity and attractive amenities is limited, this continues to drive rents higher. And that is not just for brand-new developments, but also for existing high-quality assets. And we see the evidence of this in our 2.3 million square foot estate in Victoria, which is 100% full, and we are now achieving rents on existing buildings in line with what just 2 years ago were record rents for a new development. All this is reflected in another set of market-leading operational results. Our office occupancy is now nearly 99%, and that's significantly ahead of the overall London market at 92%. Like-for-like income was up 6.8% with uplifts on relettings and renewals of 6%. And we signed or in solicitors' hands on GBP 19 million of lettings on average 9% ahead of ERV. This drove 3.1% ERV growth over the 6 months, which is well on track against our guidance of broadly similar full year ERV growth to last year's 5%. As our portfolio is now effectively full, capturing this market growth in like-for-like income is increasingly a function of lease events and will therefore be more balanced over time than it has been over the past 6 months. Yet our growing reversionary potential continues to support a positive outlook for like-for-like rental growth from here. This positive customer demand extends to our near-term office completions. Over the next 9 months, we will see 4 new projects complete, including the repositioning of an existing asset to Myo flex office space and a small full purchase that we agreed back in 2021. Now in total, we expect these projects to generate around GBP 58 million of net effective, i.e., P&L rent once let with an associated incremental GBP 43 million of annualized interest expense. The outlook for FY '27 EPS is, of course, sensitive to the pace of lease-up of these schemes, but current engagement with prospective customers is encouraging as we have interest in the form of active negotiations, requests for proposals or live engagement equating to an excess of 100% of space across our nearest term completions. Now not all of that will translate into actual leasing, but in our FY '27 EPS outlook, we currently assume around 40% of the 2 main schemes to be let by the time they complete and for all space to be let around 12 months post completion. And we are comfortable that these assumptions reflect those current activity levels. In retail, brands continue to focus on the best locations as these provide the best access to consumer spend and the highest sales growth. As the chart on the left shows here, the top 1%, 60 of all U.K. shopping destinations capture some 30% of all in-store retail spend. And so this is where major brands focus their investment with, for example, around 90% of all Apple and Intertek stores in these locations. And it's also where close to 90% of our portfolio is focused. The quality of our assets and our platform is driving superior footfall, which in turn is driving substantially higher sales growth than the wider market. Indeed, whereas overall U.K. shopping center retailer sales have increased just 3% over the past few years, sales across our portfolio are up nearly 20%, and the gap in performance continues to widen. And this is why brands want to be in our locations. And as our portfolio is now nearly full, this is why rents continue to grow. And this is clearly reflected in our operational performance. Rental uplifts continue to trend higher, as shown here on the left, whilst occupancy is up 50 basis points year-on-year to almost 97%. This means that like-for-like income growth remains attractive at 5%, and we expect this to continue. We signed or in solicitors' hands on GBP 33 million of leases on average 10% above ERV, which drove 2.2% growth in ERVs over the 6 months, comfortably on track with our expectation of similar growth for the full year to last year's 4%. And as we set out at our Capital Markets event in Liverpool in September, the outlook for future income growth from retail is firmly positive. Building on the unique data and insights that our market-leading U.K. platform provides, we continue to invest in creating experience-led places. The growth in footfall and sales that this then creates continues to attract leading brands. So alongside enhancing our social eating, dining and leisure offer, this creates an environment and experience, which in turn attracts higher footfall, higher sales and so on. Our growth outlook is further enhanced by selective investment in highly accretive smaller CapEx projects. So combined with growing turnover income and commercialization income, this is what underpins our target to deliver between 4.5% and 7% compound annual growth in net rental income from our existing retail platform over the next 5 years. So turning now to capital allocation. We continue to prioritize our capital allocation decisions based on this clear framework. This looks at how our investment decisions contribute to income and EPS growth in the short term and how they shift our portfolio mix such that it can continue to deliver sustainable income and EPS growth for the longer term, underpinned at all times by our commitment to maintain a strong capital base. We continually monitor for any changes in risk and return prospects, but as things stand for the next 12 to 18 months, our priority is further investment into major retail destinations given the high income returns and attractive income growth on offer, funded by further rotation out of lower return assets, including London office assets as we have done over the past 6 months. And we do not plan to commit any meaningful capital to new development over that period, creating further investment capacity. Based on the clarity that this framework provides, we've had a very active period of capital recycling. Our largest disposal was Queen Anne's Mansions, an asset which generated 0 total return despite the high short-term income profile as the valuation depreciates in line with every rent receipt until the end of the lease. Aside from the impact of turning the residual finance lease income into an upfront capital receipt, as I mentioned earlier, this has essentially no impact on earnings and derisks the value of the site by transferring planning risk for a change of use to the buyer. We also sold 2 predevelopment assets, which generated a negative income return as well as 4 retail parks. Combined, these parks comprised around 1/3 of our portfolio of retail and leisure parks. And whilst they delivered a reasonable income return, income growth has been limited. All in all, this means we have sold nearly GBP 650 million of assets, which generated limited or no return in just 6 months. This came at a cost to NTA of 1% when comparing sales to March book values, but will enhance our future income and EPS growth prospects, a clear example of our decisions being guided by a focus on EPS growth. We expect to remain active in terms of capital recycling in the second half. Investor interest in London has picked up from its low point. So whilst we already are ahead of plan in terms of office disposals, this provides us with an opportunity to recycle further capital to fund accretive investment in retail, where we are seeing more opportunities come to market, although not all of those will be opportunities for us. We will, to some extent, be pragmatic on disposal values as our principal focus should be less on NTA per se and more on ensuring that the NTA delivers growing cash flow, growing earnings and growing dividends for our shareholders. So in that respect, the roughly 200 basis points positive yield spread between office and retail, coupled with the superior income growth prospects for the latter is meaningful, which is underlined by the excellent track record of the GBP 1 billion of retail acquisitions that we've made over the past few years, where in all cases, performance is tracking well ahead of our initial underwrite. We expect to see further opportunities like this to add to our market-leading platform. So this remains our key focus in the near term. So whilst we do have a number of development projects that we could start in the near future, we currently see more attractive risk-adjusted returns elsewhere. So we're not planning to commit any meaningful capital to this. In London, we very much see the potential for continued rental growth. But as I explained earlier, our existing portfolio is benefiting from this trend as well. So taking into account the differing levels of risk, we see little upside in selling high-quality existing offices to fund the development of new ones. Although we do see an opportunity to leverage our skill set by working with third-party capital to bring projects forward. For residential development, the picture is a little more nuanced, partly because it would help shift our portfolio towards the higher income growth and lower cyclicality asset mix that we aim for, but also because we are seeing a shift in public sector policy, which could be supportive to returns. For example, with the recently announced reduction in affordable housing requirements and community infrastructure levy in London, which for our London projects could add between 50 and 75 basis points to our current net yields on cost of around 5%. Our near-term focus here is now on locking in this upside. So the outlook for returns could look different in 12 to 18 months' time. Until then, CapEx spend will be very carefully controlled and very limited. Looking beyond the near term, we plan to move to structurally lower levels of development exposure over time in any event as having large amounts of capital tied up in development for prolonged periods has a negative impact on our risk profile and on EPS growth, particularly so in a higher cost of capital environment. Part of this is reflected in our objective to release half of our roughly GBP 700 million capital employed in predevelopment assets, where we're making very good progress. But we also plan to keep our own exposure to committed development closer to about half of the roughly GBP 1 billion that it has been in the past. This means that our balance sheet will have a greater proportion of income-generating assets in the future, which supports our objective to grow EPS in a sustainable way and means that our cash-based leverage measures will also improve. With that, I will now hand you over to Vanessa. Vanessa Simms: Thank you, Mark, and good morning. We have had a positive start to the year with strong operational performance. Our occupancy is at a record high. We're leasing well ahead of passing rent and our like-for-like income growth of 5.2% is well ahead of our full year guidance. Reflecting this and the continued positive outlook from here, we have raised both our near-term EPS guidance and our medium-term EPS potential. For the half year, our strong like-for-like income growth and further reduction in overhead costs meant EPRA EPS was up 3.2%, supporting a 2.2% increase in the interim dividend. Our portfolio valuation was effectively stable with NTA per share down slightly at 863p. This was principally driven by our capital recycling as we sold nearly GBP 650 million of assets, which generated limited or no return, which came at a cost to NTA of 1%. Our capital base remains robust with LTV at 38.9% pro forma for the disposal since the end of September. And our net debt-to-EBITDA ticked up in line with the guidance that we set out in May, but we target this to reduce to below 7x within the next 2 years as our current on-site developments complete and they lease up and we move to a structurally lower level of development exposure in the future. Now turning to income and EPRA earnings. Overall, our net rental income was up GBP 15 million, supported by GBP 12 million like-for-like income growth. This increase was despite the fact that the prior half year benefited from GBP 4 million increase in the recovery of previously provided bad debts, principally relating to a few assets where we bought the management in-house. Surrender receipts were low as well at just GBP 3 million, which means almost all of our rental income for the half year was regular recurring income as the benefit of one-off receipts was limited. Our focus on operational efficiency meant our gross to net margin improved by 130 basis points to 87.7%. And overhead costs were down GBP 2 million with further reductions to come. Finance costs increased as expected, principally relating to the increase in average borrowings following our acquisitions in the second half of last year and a small rise in our weighted average cost of debt. All combined, this meant EPRA earnings were up GBP 6 million or 3.2%. And this slide shows the movements of how this translates into growth in earnings per share. Our high-quality office and retail assets continue to benefit from strong customer demand and our strong operating platforms. And combined, these assets make up 90% of our income. In total, like-for-like income growth drove a 1.6p or 6.4% increase in earnings per share for the half year. And further overhead savings, which added 0.3p offset the increase in like-for-like finance costs. Year-on-year movements in other items, which include lower surrender receipts and the bad debt recovery reduced EPS by 0.9p. But the overall benefit to EPS from both items is minimal now and it's unlikely to have a meaningful impact in the future. The net impact from investment activity was also positive with overall EPS up 3.2%. And as I will explain in more detail in a minute, the outlook for EPS from here remains positive. Our continued growth in income is further enhanced by our improving efficiency. Back in February, we set out a target to reduce overhead costs to less than GBP 65 million by financial year '27. But we've now increased our target savings, and we expect overhead costs next year to be in the low GBP 60 million. This reflects the benefits from our investments in data and technology, which I've talked about previously, and a cultural shift in our organization to sustain efficiency and maintain a structurally lower cost base going forward. We now expect overhead costs next year to be more than GBP 20 million lower than they were in financial year '23. That's despite GBP 9 million increase from wage costs and inflation. So in total, this marks a reduction in costs of over 25%. Turning to portfolio valuation. Our successful leasing drove 2.5% growth in ERVs over the past 6 months, with 3.1% growth in office and 2.2% in retail, both well on track versus our guidance for the full year. The positive impact of ERV growth was partly offset by the continued wind down of the valuation of QWAM as the asset is nearing the end of its leases, so the NPV of the future income continues to reduce and an increase in the business rates at Piccadilly Lights. Combined, these 2 factors reduced our overall portfolio valuation by 0.5%. But as we have agreed to sell QAM and the business rates review was the first since 2021, neither are expected to be continuing factors in the future. This means our overall portfolio valuation was effectively stable. Our main focus is ensuring that we turn this value into growing cash flow, growing earnings and growing dividends for shareholders. With that in mind, we said in February that we would be pragmatic about the value in terms of capital recycling. And the last 6 months have been an example of this. We sold GBP 650 million of assets, which generated little or no return, which came at a cost to NTA of 1% when comparing the proceeds to the book value. Ultimately, these disposals materially enhance our future income growth, yet this is the main reason our NTA was down 1.3%. And this continues to be underpinned by our robust capital structure, which will strengthen further in the near future. Our average debt maturity remains long at 8.9 years, and we have no need to refinance any debt until 2027 at the earliest. I mentioned in May that we expected our net debt-to-EBITDA to exceed 8x this year as our 2 on-site office developments in London are nearing full investment, but they do not produce any income until they complete in the 6 to 9 months' time. Combined with our predevelopment assets, this means we currently have around GBP 1 billion of capital that's invested in assets that do not produce income. So we carry all the debt for this, but none of the EBITDA. As these projects complete and they lease up and we move to a lower level of development exposure in the future, our net debt-to-EBITDA ratio will naturally fall. So we're now targeting a net debt-to-EBITDA of below 7x, down from the previous target of below 8x, which we expect to achieve in the next 2 years. We also expect our LTV to reduce below 35%, down from our current 38.9%. Our financial risk profile will, therefore, be even lower in the future, which further underpins the attraction of our growing income and EPS. And the positive, the outlook for both of these is positive. So following the strong first half of the year, we have raised our guidance for like-for-like income growth for the full year to circa 4% to 5%, up from our initial guidance of 3% to 4%. Combined with further cost savings, this means we now expect EPS growth at the top end of our 2% to 4% guidance range that we provided in May. This is before the impact of the sale of QAM, which turns the residual finance lease income of this asset into a cash capital receipt on sale. The overall amount of cash that we receive is effectively the same, but as we will now receive the cash when the sale completes next month rather than as lease income over the rest of 2025 and '26. This reduces EPRA earnings for this year by GBP 7 million. For next year, we expect like-for-like growth and cost savings to continue, yet the exact outturn in terms of EPS is also dependent on the pace at which we lease up our office developments. As Mark outlined earlier, we are seeing good engagement from potential customers. So we assume our 2 main projects on average to be 40% let by the time that they complete and leased up in full over the 12 months thereafter. On this basis, we currently expect EPS growth for financial year '27 to be broadly similar to financial year '26, again, before the impact of QAM, which reduces earnings for financial year '27 by a further GBP 15 million. As the impact on EPS from the sale of QAM is beyond financial year '27 is minimal, this means we're on track for our medium-term EPS growth potential that we've outlined. So turning to that in more detail. Back in February, we set out the potential for EPS to grow by around 20% to 60p by financial year '30, including the headwinds of QAM and the higher finance costs. We now raised this outlook to 62p driven by higher income growth in retail, a further reduction in overhead costs and a move to a lower level of development exposure. So let me just take a moment to explain the movements -- the moving parts in a bit more detail. So starting with last year's 50.3p. The sale of QAM, which I just explained, had an impact of just under 3p. By far, the biggest part of future growth is capturing the growing reversion in our existing portfolio. As you can see from our strong operational performance, we have a good track record of this with 5.2% like-for-like income growth for the first half across the whole portfolio, building on a 5% like-for-like growth that we reported last year. Our office portfolio is 12% reversionary, and our numbers here assume that we deliver like-for-like rental growth of 3% to 4% per annum, which is a more normalized level than over the last 6 months, given that our office portfolio is now effectively full. At our Capital Markets Day in September, we set out how we target to deliver income growth across our retail portfolio between 4.5% and 7% over the next few years. where rental uplifts are now up to 14%, turnover income is growing, and we're seeing the benefits of accretive CapEx. This outlook is based upon the midpoint of this range. The upside from further overhead savings I set out earlier equates to about 1.5p, and we have a good track record of delivering on this too. Our recent acquisitions and disposals, which include Liverpool 1 and the sale of our retail parks have a net benefit of around 1p. And as Mark mentioned, we are ahead of plan in terms of our objective to halve our capital employed in low and non-yielding predevelopment assets, which will add around 1.5p per share from interest cost savings. And the lease-up of our near-term office completions will add around 2p. The upside from future asset rotation effectively reflects our plans to recycle more capital out of lower return assets and invest a further GBP 1 billion into major retail destinations. As our planned capital recycling out of offices into residential is broadly EPS neutral on this time frame and will mostly benefit EPS growth beyond financial year '30. So taking into account the expected rise in finance costs, all this equates to just over 4% annual growth. Delivering sustainable income and EPS growth will, over time, result in an attractive return on equity. So with a strong capital base and attractive existing income return, we are well placed to drive substantial shareholder value. And with that, I'll hand back to Mark. Mark Allan: Thanks very much, Vanessa. So I'm now going to wrap up with a summary of what you can expect to see from us in the near future, where we see the differentiation opportunity for Landsec before we then open for Q&A. So the updated strategy that we set out back in February provides real clarity in terms of our key objectives and our primary target to deliver sustainable income and EPS growth for our shareholders. This means all of our priorities and decisions flow from this, creating a real clarity of focus across the business. For our best-in-class office platform, we are focused on capitalizing on the continued strong customer demand for space, and that's both for our near-term completions as well as across our existing estate. And this is similar to our market-leading retail platform, where we have robust plans to deliver 4.5% to 7% growth in income over the next few years. As investment activity continues to pick up, we will look to rotate further capital out of offices into retail to capture the superior risk-adjusted returns. Meanwhile, in residential, we are focused on locking in the positive impact of strengthening public policy support as this remains a highly attractive opportunity in the longer term, supported by strong growth fundamentals. So we have now created a clear differentiation in our positioning. We have 2 unquestionably best-in-class irreplaceable portfolios operated by 2 market-leading platforms of real scale and stature. Our primary focus on sustainable income and EPS growth as our principal performance measure provides absolute clarity across our entire business. And our clear capital allocation framework means that we're clear-eyed and rational about investment decisions in pursuit of our primary financial objective as reflected in our decision to significantly reduce our future development exposure, which underpins our move to an even stronger capital base with a net debt-to-EBITDA below 7x. At the same time, the outlook for income growth remains firmly favorable. Strong customer demand for the best office and retail space continues to drive ERV growth, and our overall occupancy is at a decade high of 98%. Both our office and retail rents are highly reversionary, underpinning future income growth, which on an earnings level is supported by additional overhead savings. This provides us with the confidence to raise our guidance for FY '26 earnings per share and increase the outlook for our financial year '30 EPS potential, with dividends expected to grow alongside growth in EPS and a strategy which is seeing us move to higher income, higher income growth and lower cyclicality over time, we are well positioned to deliver significant value for shareholders. Ladies and gentlemen, thank you very much for attending this morning and listening to our presentation. As usual, I'm now going to open for Q&A. We'll start here first in the room here. So please, if you have a question, raise your hand and wait for a microphone. And then we've also got people attending via webcast and conference call, and we'll go to both of those in turn as well. So a couple of questions here at the front first, and then we'll go to a question at the back in the middle. Marios Pastou: It's Marios Pastou here from Bernstein. If I maybe turn to your longer-term plans in residential. I think you've quantified now kind of policy changes that will actually support your development yields within your kind of London schemes, for example. Would that uplift be enough for you to commit to those projects? Or are you looking for more upside potential from other maybe cost savings, for example? Mark Allan: So we've indicated that we think -- and we have to be clear at the moment, what we have is policy announcements from government and GLA together to reduce affordable housing and community infrastructure levy charges. We need to see how those things actually play through in the detail to individual projects. So -- but the indication we provided is if those land at a project level, that would be 50 to 75 basis points improvement. And that would take us to somewhere in the high 5s as a yield on cost, which for a sector which has got structural growth and annual capturing of rental growth feels a pretty attractive starting point. But it's a decision really for us to look at probably in -- towards the end of 2026 when we have more clarity at a project level, we also have an understanding of what the other opportunities to deploy capital look like and what the relative risks and returns look like. It is unquestionably positive in terms of the direction of travel policy support, but it will be a decision ultimately for later in 2026 when we can look at things with a greater degree of certainty. Marios Pastou: Okay. Very clear. And then also just turning to retail. I think you've mentioned again, you're expecting more potential investment opportunities to come to market, and that's where the focus is today and putting capital to work there. It feels also quite crowded with what we're seeing in the market. So are you confident on being able to allocate that capital and at the levels of returns you're previously targeting? Mark Allan: We are in short. There is more capital coming -- starting to look at the market. But I think we have to remember sort of a couple of things. It is a very operational market. I think having relationships with brands, having the operational expertise, having the data around consumer behavior are all critical to be able to successfully operate a shopping center. One of the reasons we have deliberately targeted that sector is because we have a demonstrable capital advantage. If you look at where we are today, our major retail portfolio has 40% more reach in terms of footfall than the next largest U.K. retail platform, and our plan is to build and grow on that. I think the bigger the lot sizes get, the more difficult it is for some of the other investors might be coming into the space to capitalize that and to underwrite an exit. So I think it's good news. You've got more investors looking at the sector in terms of validating what we see within it. I don't think it's enough at this stage for us to be overly concerned about capital deployment. But it does mean one of the reasons we think it's a 12- to 18-month window. And one of the reasons we've accelerated office sales to rotate into that window is we don't want to do things over too long a period of time and find that the cap rate is 6.5% rather than 8% when we start to deploy capital. Jonathan? Jonathan Kownator: Jonathan Kownator, Goldman Sachs. Three questions, if I may. First question is on retail ERV. When are we going to see this grow? You're obviously letting 10% ahead. So how do you think this is going to evolve? First question. Second question, share buybacks were on your allocation charts. How are you thinking about this? Would you need more disposals to do share buybacks? Are you considering those at this stage? And third question, you're obviously willing to redeploy in residential. We've talked about the economics. We've talked about the time frame. Given the long time frame for development as well, would student housing be something that you would consider instead of doing residential development? Mark Allan: Thank you. So just first on retail ERVs. I'll make a comment and then perhaps ask Vanessa just to explain a little bit in the context of valuation. My personal view is that the ERVs that they're putting into valuation metrics are not particularly meaningful on the basis that we see our letting evidence is consistently so far ahead of those ERVs. But I think there's been an issue over recent years of particular lettings being done and then a question of what does that provide rental evidence that can be ascribed to other demises within retail. And when occupancy was lower and there was a variety of different types of occupier demand, I think there were perhaps reasons to say, well, let's be a little bit more cautious on that. I think when you're 97% full and you're leasing, if you look at in solicitor's hands, double digits ahead, I think the evidence is clearer and clearer. For us, in terms of our decisions, we look at our leasing evidence, and we look at our leasing pipeline, and we base it on our conversations with retailers. So whether we find that ultimately finding its way into valuations is a sort of secondary point as far as we're concerned, we're looking at the cash on cash and how does it help us grow our earnings. Jonathan Kownator: And is that your impression that that's increasing, so the letting that you're doing is increasingly at better rates? Mark Allan: Yes. Yes. And I think you saw a chart in the chart which shows retailer sales across the portfolio, which I think is really quite striking. At the end of the day, as a retailer, what are you trying to do? You want space that can help you grow your top line and grow your margin. So to see 19% growth over 3 years across our portfolio in total retail sales compared to a market movement of plus 3%, which is substantially below inflation over that period shows that retailers are focusing on the best locations and so -- and that gap is widening. And so if the gap in terms of sales performance is widening, I think it follows that the room for rental values to grow is also widening. Is there anything, Vanessa, from a valuation point of view that you'd want to add on that? Vanessa Simms: I mean, no, I think the leasing stats speak for themselves that when you're leasing 10% ahead of ERV, you've got 2.2% reflected in your valuation. And we continue to lease ahead of ERV and ahead of passing rent. I think that kind of shows that there's -- we've a bit more successful leasing than probably the wider market. Mark Allan: So on to your second question, we've quite deliberately included share buybacks on our capital allocation framework. And you should take from that as it is something that we, as a Board, will continue to actively consider. You've seen the 2 axis of how we think about how we allocate capital, what does it do to our near-term earnings and how does it help our portfolio mix over time get us to a position that we think can support long-term earnings growth. At the moment, selling out of lower-yielding assets, including offices and deploying into retail is the most accretive use of our capital. We can buy an ungeared yield, which is higher than the implied ungeared yield on our shares. So that will definitely be where we would deploy. I think the second thing is then to make sure that we have a really solid balance sheet. And so we would always look at that quite cautiously. But I think one of the things you've seen with us today is talk about effectively taking development down to me, as things stand at the moment, if we were just looking at -- if we didn't have those other options, we would look at share buyback as being preferable to development deployment, for example, because it would have the same effect in terms of portfolio mix, but it would have much more benefit on earnings accretion. So it will remain on our framework, but we're very clear as things stand deploying into retail is the most accretive use of our capital. Jonathan Kownator: And how long do you wait? There's obviously a different execution risk in both products, right? Mark Allan: There is a different execution risk. There's also a different scarcity value. No one is building any more of these shopping centers. So if we can add 2 or 3 further locations to what is already the leading platform by quite a margin in the U.K., those chances aren't going to come around again. So if we were to say, well, let's do something short term in buying our stock and then not have the capital available in 9 months' time to buy an asset, which isn't going to be on the market again for maybe another 10 years, I think that would be a real shame. And then lastly, just on residential, you understand the time frame, you understand the direction of travel on build-to-rent. That's where we think there's opportunity over the medium to long term to leverage our skill set. We considered student housing as one of a number of living sectors when we looked at our strategy last year before the February announcement. I think it needs real expertise. I think there are some interesting questions about what the long-term growth characteristics of that sector look like. So it's not something that we would plan to deploy capital into. I might just -- if I may, in the interest of the -- oh, I've got my front at the back, sorry. So I know there's a question at the back, we'll go to first. And then I think there are a couple more in the second row here. Unknown Analyst: [indiscernible]. It might have some overlap to the previous question, but given the 1% pool of retail assets that you said you're interested in shopping in, you mentioned maybe about 30 centers, and you obviously haven't made any acquisitions yet since the CMD in February. If no assets do come to market available at the price or yield that you like, how does that kind of shift your larger strategy in terms of capital deployment? Mark Allan: Yes. I mean I think it's a largely hypothetical question because I think those assets will come forward, and they will come forward at returns that will make sense for us. But the reason we have that capital allocation framework is to make sure that we keep that discipline. So I think if we got to a position where in that hypothetical scenario, you had earnings accretion that was meaningfully below the alternative of buying our own stock, then we would need to reassess at that point in time. But as things stand, I think you've still got quite a lot of centers that are owned by investors either individually or collectively that are not natural long-term holders of these assets. As liquidity improves, I think one of the benefits that has is it will encourage some of those existing owners to bring assets forward to market that perhaps weren't available to invest in previously. So I think we'll see the market balance out. As I said to the earlier question, I mean, the operational component of this Plus, I think on some of these assets, the CapEx requirements on some of this, I think they will be, I think, reasons for investors without the real expertise in this sector to be a little bit cautious. Unknown Analyst: That's clear. And just quickly on the GBP 200 million of accretive CapEx, is there opportunity to increase that slightly in the interim if the opportunities are slightly delayed? Mark Allan: There might be. I think there's also hopefully opportunity to try and deliver the same for less, which will probably be our primary focus if we can get the benefit of the return from that GBP 200 million by only spending GBP 180 million, we'd rather do that. But I think there will always be investment opportunities across the portfolio, but we're really focused on the cash-on-cash yield that we can get from those things. There's a question -- we'll start in the middle of the row and then work that way, if that's okay. Unknown Analyst: Bjorn Zietsman from Panmure Liberum. You mentioned increasing opportunities in retail for acquisition. Can you give us a sense of the composition of those opportunities? Are they shopping centers, retail parks elsewhere? Mark Allan: Yes. So the comment was intended really to talk about shopping centers, which is the only sort of segment that we would look at. And within that, there will be some that would not be of interest to us. They don't have the dominance in the catchment. They're not in a strong enough catchment. We don't see the opportunity to leverage our platform sufficiently. So it will be the larger and more dominant of those that would be the likely area that we would look towards. Unknown Analyst: And just on capital recycling, can you give us a sense of on the pace, quantum and timing as well as composition of any disposals? Mark Allan: So it will be capital recycling for the first. So we will use disposals to fund acquisitions. I think that's the first important thing to say. So I think you can judge on the basis that if we're hoping to invest into retail meaningfully on a 12- to 18-month view, that will need to be funded from disposals over a similar time frame. We've said lower-yielding assets, including London offices. So looking at the composition of the portfolio, that will need to involve ongoing disposals of London office assets as we've signaled. Robert Jones: It's Rob Jones from BNP Paribas. This might be a question that's better offline, but we'll try it now to start with. Mark Allan: That sounds like fun. Robert Jones: I was excited when I wrote the question, put it that way. I don't know how you can get to your FY '27 EPS guidance that you published yesterday, which is 53.3p on your website. And the reason why I can't get there, but you'll be able to help me is, for '25, obviously, you did 50.3p. You've then got, let's say, 4% earnings growth for this year to March '26, which adds, say, 2p a share to 52.3p. I've then got to strip out 0.9p for Queens Anne's Mansions, it gets me to 51.4p roughly for FY '26. I then look forward to FY '27. We've got, as you said, the second impact of Queens Anne's Mansions of GBP 50 million, call that 2p a share. So my 52.3p for March '26 goes to 49 -- sorry, 51.4p goes to 49.4p ex Queens Anne's Mansions in FY '27. And then you need to obviously then grow income ex Queens Anne's Mansions from that 49.4p to the 53.3p that you've currently got as your analyst consensus on your website, but that's an 8% growth for '27. And let's say we do 4%, does that mean that consensus is 4% too high? Like what have I missed? And I definitely missed something. Mark Allan: I can't imagine why you thought that might be better offline. But perhaps I might as Vanessa just to comment, there might be a couple of sort of big moving parts in that. I mean... Robert Jones: You can come back if you want, honestly. Mark Allan: We wouldn't -- the number wouldn't be out there if we didn't have the component parts as well. Robert Jones: Or analysts are 4% too high. That's the other option. Mark Allan: I just have a -- is anything headlines to... Vanessa Simms: I'm happy to have a quick -- a bit more detailed offline. But effectively, you've got the continuation of like-for-like growth from leasing performance, cost reductions. We don't have any major refinancing coming through in that year, so a pretty stable position. But there will then be the development completions, which we've had really from now over the next 12 months or so. So we get some -- we're assuming in the bit of leasing performance and then you offset the QAM movement. Robert Jones: So you don't think that 53.3p FY '27 today is too high. Is that any fair? Vanessa Simms: I'll have a quick look at that, if you like afterwards. I haven't actually seen what you specifically talking about. John Cahill: John Cahill from Stifel. Just one question, please. As you say, one of your differentiating factors now is your risk profile is vastly reduced from what it once was. Leverage is going to be lower still, reducing the pace of developments. And in isolation, lower risk, of course, is a positive. But there must be a degree to which that slows down the rate at which you get to your 2030 diversified portfolio. Should we think of this as it's the executive's view that on a risk-adjusted basis, these are the best returns? Or is it that the shareholders via the Board are saying, well, yes, we want you to get where you're going with the resi developments, but actually, we're just going to put the brakes on you a little bit. Mark Allan: Yes. It's very much a -- I mean the capital allocation framework that we set out on the chart there with the exception of adding in share buyback is no different to the capital allocation framework that we set out with the strategy in February. And if you look at the objectives that we set the short term and the long term, the short term included invest GBP 1 billion in retail. The longer term is rotate office into residential. There's no change to that strategy. I think what we might reflect on post February is that there's a lot of focus on residential and perhaps say we needed to do a better job on explaining the time scales and that we were sharing a 5-year view of how we shift the portfolio mix over time. And that, I think, got conflated with what drives near-term earnings per share guidance. What we've sought to do since then and particularly with today is show, look, the earnings guidance near term is, of course, driven by today's portfolio. We're very, very happy with the quality of that. We think retail continues to be the best place for us to deploy capital and leverage our expertise. We still think the rotation into residential is the right thing to do, and we still think the time frame for that is medium to long term. So no change in that respect. I think just trying to be a little bit sharper on what's happening over the next 1 to 2 years, which is -- tends to be -- I may even be giving them a little bit more -- giving markets a little bit more credit, but that tends to be the sort of time frame that markets are more focused on. I think that's what we've sought to do. I may just pass to Paul, it's convenience, and then we'll come to Tom at the front. Paul May: Paul May from Barclays. Three questions from me. Given the losses on disposals on non-income-producing sites, have you proactively written those down in the first half? -- ahead of expected sales further forward? Or should we expect further losses on those as you're being pragmatic? Second one, if recent press comments are correct, sorry, apologies. Are you disappointed having lost out on Merry Hill? Just get some color there. And then final one, as you know, I applaud the earnings-based strategy. I think it'd be a shame if the market doesn't wake up to it and see the earnings growth potential because I think it brings to question the whole European listed sector. But I just wondered what more do you think you could do to convince people and what pushback do you get from investors on that? Mark Allan: Sure. So Vanessa, the first question around sort of, I suppose, where valuations sit relative to ongoing transaction activity? Vanessa Simms: Yes. So the disposal losses that we saw in the first half really related the majority of them to some development site sales where we're seeing that developers are really looking for a higher IRR from development activity than probably in the past they have. So I think that it's quite specific to those sort of assets. So we have reflected that through into our valuation for the first half of the September valuation. So we've been through the discussions that we have, as you would expect, with all the valuers. So we would -- we believe that our valuation now properly reflects what activity we are seeing and experiencing in the market. And we've been pretty active, as you can tell from having sold almost GBP 650 million over that period, we've been pretty active. So I'm sat here pretty confident that our valuation at this point reflects where we see the market position. Mark Allan: And of course, we have reasonable visibility on our own capital recycling plans and are comfortable in that respect as well. Your question on Merry Hill, you won't be surprised, I won't sort of comment on specifics. I guess what I will say is that there are a number of assets, including Merry Hill that are being marketed. And in how we look at those assets, we will look at what's the opportunity to leverage our platform, bring brands in that perhaps aren't there, reposition assets through investment using consumer data to see what might be missing or what might drive performance. And what do we think the CapEx bill is likely to be in order to affect those changes or to deal with backlog maintenance, which will be a feature on a lot of these assets. So that's what we will always look at. So I think you can be confident that anything we do acquire, we will have answered those questions in the positive, and there will be a decent number of assets we look at that we either won't spend much time on at all because we don't feel that they're right or we might spend a fair bit of time on, but struggle to get ourselves comfortable at the sort of levels others may end up being. But again, I think we're comfortable we'll get to our capital deployment targets with what we can see on the market at the moment. And then I think with respect to earnings growth and what more can we do. I mean we post our strategy, had a considerable number of meetings, both then and through results cycles and over the summer and into the autumn, we engage regularly with all of our shareholders. We certainly have had a pretty consistent message back that earnings growth and confidence and credibility in that earnings growth trajectory is what matters most to generalist investors, if that's the right term. Certainly, and you all understand this better than me, but the dynamic of investing in our sector is very different to where it was 10 years ago in terms of specialist versus generalist. I think it is the wider equity markets that we need to be able to talk to in a convincing way of how we are creating value for them. And I think that's a far more convincing story to be able to point in a quite granular way to how we're growing earnings and how you can form a view as an investor on the deliverability or otherwise of the different components of our earnings bridge to 2030 than pointing to a valuation and an NTA where I think there's -- certainly for investors that look globally, NTA is not necessarily a feature in other markets. So I think we're moving in the right direction. We certainly wouldn't be doing it if we didn't feel that. We've got to then deliver and execute on it. And the more we do that, the more confident market should become. Paul May: Sorry. And just on that last bit in terms of that is a bit with Rob's question as well, that consistency of earnings delivery into next year, what would be good to provide comfort for investors that you do have that into next year given the headwinds, as Rob mentioned. But also, are there any acquisitions baked into that FY '27 earnings assumption? Mark Allan: So we put the FY '27 earnings number up there. I think within that, we will assume there's a small amount of recycling based on what we can see today, but not a significant amount in terms of undue reliance on achieving massive amounts of recycling to achieve a number with respect to earnings next year. The biggest sort of sensitivity is the pace of development leasing, and we provided some color in the statement on what a sort of plus/minus 10% on the sort of average occupancy on those assets through the year would do to earnings. And I think that's the one that we're probably most focused on. Tom, on the front here. Thomas Musson: It's Tom Musson at Berenberg. Sorry, I just wonder if I can pin you down slightly on share buybacks. I appreciate what you're saying where you see best use of capital today, but markets are volatile, especially today. I'm just wondering at what share price or perhaps what earnings yield does it suddenly make sense for you to buy back shares? Are we close or still some way away? Mark Allan: We don't have a precise number in mind. I think it would probably be unwise to have that. I would point back to my earlier answer around the scarcity of the alternatives. So I think buying major retail is much less about just a comparison of the spot yield and much more about what does that do to the long-term earnings potential of the business, the quality of the underlying portfolio. So comparing a sort of a spot rate to a genuinely scarce asset, I think, is something that we would be cautious about doing. So at the moment, the cap rates that we believe we can invest in, in major retail would still make that very clearly the right place to deploy capital. And I think there is an opportunity to add some scarce assets to an already market-leading platform on a 12- to 18-month view. That's got to be the right thing to do for the long-term value of the business. Are there any other questions in the room? Otherwise, I'm going to go to the conference call. Okay. So we'll go to the call. I think there are a couple of questions on the call. So let me open up to the operator on the call. Thank you. Operator: Your first telephone question for today comes from the line of Zachary Gauge from UBS. Zachary Gauge: Can you hear me okay? Mark Allan: I can. Zachary Gauge: Sorry, I'm not there in person. Yes, just 3 questions for me, hopefully quite quick. Could you disclose what the discount to book was specifically on the GBP 72 million of development site sales that you had in the first 6 months? The second one is on the overall office acquisition. Just interested to see how that fits into your new strategy, particularly around obviously the office holdings and the location being close to South Bank. And lastly, on the current developments, based on my calculations, when you strip out CapEx, Timber Square dropped by about 5% in value over the period. Just interested to see what was driving that. And also, if you could touch on why Thirty High, which 12 months ago was guided to be completing October 2025, now has a June 2026 completion date. Mark Allan: Zach, I've written down your questions, and I've written the first one down so badly, I can't read my writing. Sorry, what was your first question? Zachary Gauge: The discount to book on the GBP 72 million. Mark Allan: Right. Yes. Yes. Well, look, on the first one, we don't disclose the specific sort of deal by deal of sort of achievements relative to book. I think what Vanessa mentioned earlier with respect to sales is that where we've been selling development sites, there's tended to be in the market a higher IRR requirement than had previously been the case and the valuations are reflecting. What I would say, though, is things are pretty sensitive, and we've got examples of other sites where we're talking to partners that are quite a different outcome to what we saw in the first half, including ones that would point to positive outcomes relative to book. So it is very sensitive, but it is a relatively small part of the portfolio that will, I think, be largely sort of taken care of during the current financial year. The overall acquisition dates back to 2021, very good quality assets just delivered within the last month or so, as you'll see from the schedule, good occupier demand. The thinking of that at the time was looking for assets with a good value entry point in terms of price, perhaps slightly different in terms of local amenity playing to what was quite a different occupier dynamic back in sort of COVID era times. And so we looked at a relatively small acquisition to test that. I think we're pretty happy with the way the occupier demand is shaping up on that particular asset. But as things have moved forward now, we've set out a very clear priorities of where we're looking to allocate capital. And I think you understand where office investment sits in that Thirty High, I'll just talk to briefly and then ask Vanessa just on the Timber Square sort of movement. So Thirty High, yes, I mean, an existing building where the contractors have some challenges within the existing building as a refurb, which has pushed the program back a little bit. We're indicating around middle of next year, there is a recovery program opportunity, which could outperform that. But it's important for us to set a clear date, particularly as we're starting to see quite significant incoming occupier demand, and there's quite short lead times on the sort of people that are looking to take, say, 10,000, 11,000 square foot floor plates. So we need to have a date that we're very confident committing to for those occupiers. So we've moved that guided completion date back for those reasons. And then Timber Square. Vanessa Simms: Yes. So Timber Square as an asset, actually, the valuation because it's pretty close to completion was -- has transitioned to a cost to complete basis. So looking at the end asset with the cost to go. And then it's then therefore, valued at the moment as an asset that's 100% vacant because we haven't actually signed any of the leases at this stage. So as we go throughout the remainder of the next 6 months until that completes on the basis we're expecting to lease that asset, we'll get to a position whereby the yield will shift to reflect that as a leased asset rather than a vacant office with cost to go. So it's just a nuance in the way that the valuations on developments transition over the life of development. Mark Allan: So a point in time factor. Vanessa Simms: Yes. So it's not necessarily any change to any major assumptions on that front. Mark Allan: Is that okay, Zach? Zachary Gauge: Yes. Mark Allan: I think we may have at least one more question on the conference call. Operator: The next question comes from the line of Adam Shapton from Green Street. Adam Shapton: Just one from me on the thinking around residential development returns. I know you had 1 or 2 questions on that already. But I'm going to preface the question by saying I realize there's political dimensions to the communication on this, but hopefully, we can put that to one side. If I look back to the February Capital Markets Day, you were pointing to net yield on cost of 5%, 10% to 12% IRR and described that as attractive. Today, swap rates are a little lower, your share price is broadly the same, and you're saying a 5% net yield cost is not sufficient. Could you explain why that stance has changed or correct me if my sort of February inference was wrong or I'm not comparing apples to apples. And then more broadly, can you explain how you think about what would be a sufficient yield on cost or IRR for you to commit more capital to resi in the medium term? Mark Allan: Yes, certainly. So I think 6 months on looking at what's happened across the wider market, not just residential, and I would include our development sales and what people are looking for an office development, et cetera, to the earlier question within this. I think our view on IRRs will probably be point to something a little bit higher than 10% to 12% being where we need to be. I think we would also take a slightly more cautious view on exit cap rates, which, of course, has a fairly sensitive impact on IRRs. So we're now suggesting, and as I stressed earlier, this is subject to all of this flowing through to the actual projects in detail. So it needs to be very heavily caveated. But at a headline level, the reduction in affordable, the reduction in sale looks like it could add 50 to 75 basis points. That would take us into the high 5s on a yield on cost basis, which with sensible cap rate assumptions, I think, delivers a better -- a decent increase on that 10% to 12% guide on IRR. So I think where we are now, and I think this would also be consistent with a lot of the shareholder discussions we had post strategy is pointing to a need for IRRs to be higher than that 10% to 12% range yields on cost, which we think, frankly, is the most important measure because that's what ultimately is going to flow through to our earnings and earnings growth longer term, high 5s feels a more sensible level at which to be seeking to underwrite these. Adam Shapton: Okay. Understood. And then just on those -- on the additional yield that might come from the policy changes, you would -- is your expectation or your hope that those become permanent rather than temporary or of time-limited measures, which I think is what we're looking at the moment. Mark Allan: I mean, at the moment, they're positioned as acceleration measures. One would hope that if those acceleration measures achieve the desired acceleration, there's a better chance of them being come permanent than if they don't. Certainly, from our point of view, without those changes, we'd have been unable to take any residential projects forward. Other questions on the conference call line. Operator: The next question comes from the line of Paul Gory from CTI. Unknown Analyst: Can you hear me okay? Mark Allan: We can. Unknown Analyst: Yes, just a quick follow-on from Rob Jones' question. I'm looking at Slide 28 and basically, the FY '27 outlook for earnings looks flat against FY '26. So I'm just trying to understand, is that correct? Is that the right interpretation? -- flat year-on-year '27 versus '26? Mark Allan: Is that before the QAM adjustments? Unknown Analyst: That's after the QAM. Mark Allan: After the QAM. Sorry, I haven't got it in front of me. Unknown Analyst: I'm just looking at the -- sorry, yes, it's like purple bars, the deep purple taking QAM fully into account. It looks like is flat year-on-year from Vanessa's comments. It sounded flat year-on-year. Vanessa Simms: Take out the finance lease -- if you take the finance lease income from QAM out because that basically we're receiving that as a cash receipt in the next month as opposed to through the finance lease income that comes through in those 2 years. So if you look at the underlying portfolio, how that performs, that will be the growth -- the guidance we've given is the 2% to 4%. And then if you net out the QAM, that's where it is, which I think goes back to Rob's point earlier, when I just had a quick look. I think what's happened is since we've announced the sale of QAM, not all of the analysts out there have adjusted for the impact of QAM, even though the announcement we were quite specific on the impact over those financial years. So I think that's where the difference is to the roll-up of the consensus that sits out there. So with all the moving parts, when you actually look at the reported, it would be flat, whether you look at the underlying performance of the portfolio, it would be the 2% to 4%. Mark Allan: Any more conference call questions? No, I think we're -- we've either cut them off or are any more questions. So we'll head to the webcast. A couple of -- a few questions coming down on the webcast. So first, with the business plan seemingly on track was the credit rating downgrade a surprise and our corrective measures called for from Mike Prew. So Vanessa, just on credit. Vanessa Simms: Yes, happy to talk about that. We had a Fitch rating that was reflecting of last financial year's position. That rating was reflecting the -- following the acquisition of Liverpool One, our debt was slightly higher as we talked about in our results being slightly higher. But it's worth noting that S&P have just reaffirmed their rating, I think a couple of weeks ago of AA rating, so still a very high investment-grade rating. And overall, we still have one of the -- we are the highest -- have the highest investment-grade rating in the sector. So there's no need for necessarily corrective measures our plan that we have in place at the moment, as we talked about with net debt to EBITDA improving and naturally improving positions us well and our capital operating guidelines position us well and commensurate with high investment-grade rating. So our plans for the future put us in a good position. Mark Allan: Thank you. Then a couple of questions from Alan Clifford. So on future London office development, talked about partnering with third parties to leverage platform. What capacity do you have for this? And how capital light is this likely to be? So I mean, we have, at the moment, following the 2 development site disposals that we've already made, we have 2 further city-based assets plus an additional one in the South Bank, all of which are well advanced in terms of being able to commit capital to and where we are in active discussions on how we best take those projects forward. That's what gives us the confidence to make reference within the statement here to opportunities to work with third-party capital. If you take that in alongside our comment within the results to not planning to commit any significant capital to development ourselves on a 12- to 18-month view, I think you can infer from that, that these would be very capital-light options should we choose to take them forward. And then with regard to the wait-and-see comment on resi, how does this impact progress on the currently owned schemes with planning consent. So that has no bearing at all on what we need to do on those, such as the detail required to take forward schemes from a resolution to grant planning plus deal with the additional requirements of the building safety regulator whilst finalizing detailed designs but more moving on site. even if we wanted to go as fast as we possibly could on those residential projects, it would be mid-'27 with a following wind before we could put a spade in the ground on any of those. So at the moment, there is no bearing. So that gives us the opportunity without spending significant amounts of capital because we've got the consents in place to now work through the viability of those projects by mid next year to then be able to make the decisions I talked about across the second half of 2026 without having any bearing on the delivery time lines of the projects we're looking at. And I think that is the last of the questions. So all that leaves me to do is to thank you all for taking the time to either attend here in person or to dial into the call, and we look forward to further discussions with you over the coming few days and weeks. Thank you very much. Vanessa Simms: This presentation has now ended.
Jarle Dragvik: Good morning, and welcome to HydrogenPro's third quarter presentation. As usual, I'm accompanied by my excellent CFO, Martin Holtet, who will present the financial results. I will take you through the highlights and our recent developments, market updates and our partnership strategy. For those of you who do not know us yet, HydrogenPro is an OEM company, focusing on core technology, which is well suited for renewable energy sources. Our products are pressurized alkaline electrolyzers and a gas separation unit skid. Addressing market for decarbonization of selected large-scale industry segments, which are already using gray hydrogen or where decarbonization is hard to achieve through electrification. HydrogenPro is delivering to 2 of the largest projects in the world. Right now, a 220-megawatt project, which is starting up these days and 100-megawatt project, which we have delivered, all the main components, and now we are producing our third-generation electrodes in our new factory in Denmark. Few other electrolyzer OEMs are delivering to projects of the same scale. Of the recent highlights, our revenue last quarter ended at NOK 35 million. with a gross margin that improved to 55%. We continue our strong focus on technology improvement and expanding our electrode testing and development. The previous announced partnership with Thermax is on a good track. And also our work to establish a foothold in the Middle East is making very good progress. And last but not least, I'm very happy to announce the embarkment of a new Head of Sales and Commercial. Martin, please. Martin Holtet: Thank you, Jarle. Then I will walk you through the Q3 financials. So in the quarter, revenues came in at NOK 35 million, and those revenues are mainly related to deliveries on the ACES project. On top of that, deliveries of electrodes to the SALCOS project also then commenced in the quarter. Gross margin came in at 55% versus 22% in the second quarter. If you recall, in the second quarter, the gross margin was negatively impacted by some cost provisions on the SALCOS project in particular. So we could say that it's -- now we're back more to normalized levels. Personnel expenses was up NOK 4 million, and that increase is due to that we have made severance payments, which is then related to the reduced activities at our factory in Tianjin. The number of FTEs is considerably lower with a lower payroll now going forward. Other operating expenses increased by NOK 9 million in the quarter compared to the second quarter. And the main driver behind that is, first and foremost, project deliveries, where we then accrue more costs when we make a delivery, which is then -- also then sort of accounted for as -- in our financials with revenues and costs simultaneously. In addition to that, we had also some lower level of grants, which means we have then a reduction in the deduction of expenses compared to the second quarter. So the EBITDA came then in at minus NOK 45 million in the quarter. Then let's look into the development in the liquidity position in the quarter. The cash balance at the start of the first quarter was at NOK 107 million, and it ended at NOK 121 million. So the changes in the cash position were as follows: we had an EBITDA then of minus NOK 45 million, changes in net working capital of minus NOK 3 million. NOK 6 million was spent on investments, mainly in the production line in Denmark. So on the production line in Denmark, we have a total budget of NOK 60 million, where we, as of end of September, have spent NOK 42 million. And that line now is fully operational and -- meaning that the remaining investments, which we are now taking, will be then related to further improvements on the line. Financing of NOK 68 million, mainly reflects LONGi's equity investment that was settled in July this year. And last here, the backlog then decreased from NOK 284 million to NOK 252 million, a function of revenue recognition in the quarter and no order intake. On the cost side, so at the start of the year, we set a target to reduce our cost base with NOK 40 million of annual costs or call it roughly 20% of our cost base when we do not include project-related costs. We have now completed that cost program. The number of employees in the quarter were reduced from 147 at the end of the second quarter to 89 at the end of the third quarter, and that is mainly then due to a reduction of the staff in China. So please be aware that the cost program that excludes all project-related expenses, and it's important for us to keep now some competence -- the core competence in the organization in order to deliver on projects. One of our competitive advantages is to maintain a low cost base. And we will, of course, assess further measures going forward in line with the market activity. But our business model with strong partnerships enable us to have a global reach, win contracts on a global scale, but at the same time, remain a lean organization with a low cost base. So with that, I'll give the word to Jarle to give an update on the market. Jarle Dragvik: We have to ascertain that the year has been more challenging than what we saw at this time last year. It's a slower growth than most expected. Only 30% of green hydrogen projects has advanced -- have advanced. However, some completions and feasibilities we do see going forward to FEED and into approvals. But again, 90% of the 2023 and 2024 CODs projects are delayed with more than a year. But we can also see that the delays are getting shorter year-by-year, as we're coming up to 2025 and 2026. As said, we must ascertain that growth is slower than expected. But according to Global Hydrogen Review, the underlying growth is showing strong progress. The installed capacity grew with as much as 145% from 2024 to 2025. Much of the growth is driven by China, but we also see significant growth in other parts of the world, among others, HydrogenPro's project in Utah, United States. Another positive trend is the number of countries developing a hydrogen strategy is growing, which again supports continued growth in project development. So despite a slower growth than expected, a solid progress shows strong underlying fundamentals. Well, this is a busy slide, and I do not intend to go through this in detail, but it is available for the interested reader on our website. The table as such, is not exhaustive, but it is a snapshot of some selected regulations in markets which are in focus for HydrogenPro. And what we see is that more and more of regulations are introduced as well as adaptations of existing regulations like in Europe, where not all regulations have worked according to its intent, but now being adjusted or amended. IEA just issued its annual World Energy Outlook for 2025. Here, they expect the green hydrogen production to increase 70x during the next 10 years. Their forecast is based on adopted policies, proposed measures backed by a market and infrastructure support. The train might be rolling slower than previously expected, but it is for sure rolling. The stated policies are charting the path to a large potential of green hydrogen. And I am very pleased to now introduce Michael Caspersen as new CCO in HydrogenPro. Michael has a strong background, both technically and commercially. He comes from Boston Consulting Group, where he has led several projects along the hydrogen value chain. In addition to several years in Siemens, where he had a key role in starting up and commercializing their electrolyzer business. Michael holds a PhD in hydrogen technology and will, with his background and experience, bring great value to HydrogenPro's management team. His extensive technical and commercial experience will be instrumental in delivering our future growth. Erik Bolstad will continue assuming the role as Director of Partnerships and Key Account according to our strategy. The commissioning of the ACES project is progressing well. All trains have been through the initial start-up. A train here means 2 electrolyzer connected to one gas separation unit. And the electrolyzers are doing their job as the project goes into next phase of operation. On the SALCOS project, we are now delivering the Generation 3 electrodes from our new production line in Denmark. I was recently a few weeks back in India, and I met with several potential customers. And we are now building up a pipeline by submitting firm quotations to project owners, having won in India's hydrogen auctions. Also on the technology side, we are supporting Thermax in developing their gas separation assembly station, and we are progressing well on the Indian market rollout. Based on our strategy, we are also progressing on establishing a foothold in the Middle East. We see that Middle East, together with India, having the lowest cost for producing green hydrogen and are expected to have the lowest cost in 2030. On the way of getting a foothold, we are working together with selected partners and governments where we are building a good relations. As an example, we have appointed now Sheikh Rashid Al Maktoum's Sustainability Adviser, Claudia Pinto, as also adviser to HydrogenPro. The market is driving more and more in the direction of customers requesting total EPC and a complete solutions from power in one end of the plant to direct compressed gas in the other end. This is much driven by strong industrial project developers. HydrogenPro is focusing on core hydrogen equipment. But the customers, they are also occupied with hydrogen equipment and its performance, but then bundled in a total EPC. And together with partners, we fulfill the scope demand, meeting all customers' selection criteria. The electrode coating line in Aarhus is in full operation, producing electrodes for Salzgitter project. We have expanded our testing and development capacity and are now testing electrodes in various conditions, new enhanced materials and longtime effects, and it gives results. As we are developing new and even better coatings combined with technology and design for reducing shunt currents, we are testing out and proving better results with lower energy consumption for producing hydrogen. The goal is to get the power consumption with as little kilowatt hour per cubic meter produced hydrogen with as high current density as possible. The red line in the graph, which is already a very good compared to general market, but as you can see, with a shape which is common for electrolyzers. The bottom green line shows the results of our latest development, which we will now continue to develop for commercialization. The technology strategy and roadmap is to continue to reduce power consumption, commercialize the 30-barg solution, lower the cost by reducing weight of the electrolyzer and optimize the hydrogen production train with increased current density. We have a clear and detailed plan for development and maintaining a forefront position technologically. During the year, projects in our pipeline have been postponed and with further delays. But the pipeline projects, they are being very robust with high-quality company and owners. In Europe, there is a strong traction together with ANDRITZ and JHK with projects ranging from 20 to 200 megawatts. They have been moved from 2025 FID, but now to 2026. Based on funding and regulatory compliance, we believe to see these materialize during next year. And also India, we are now seeing a buildup of a strong pipeline, which we expect some to FID in 2026. 2025 has been a slow year, but based on the pipeline projects, we are remaining optimistic for 2026. And with that, I thank you and invite Martin also for the Q&A session. Unknown Executive: Here comes some questions from the audience. The first one, why does Mr. Espeseth sell so much of his shares and stocks? Jarle Dragvik: We have no influence or saying on shareholders buying or selling shares. Obviously, we welcome every shareholder who is buying shares and are equally saddened with those selling, but there are several motivations for selling and buying shares. And obviously, we're also dependent on the volatility in the shares. To the explicit of Mr. Espeseth, that question has to be asked to him. But we know that, for instance, in Norway, we are burdened with what you call -- [ fortune ] tax, what we call it? Martin Holtet: Wealth tax. Jarle Dragvik: Wealth tax, thank you, which can be one reason, but this would be speculation from our side. I don't know his personal situation. Unknown Executive: What deliveries remain to ACES project, excluding the service agreement? And do you expect any deliveries to the project in Q4? Jarle Dragvik: Martin? Martin Holtet: No. So with regards to deliveries, of course, we are doing now some on-site work still. But as Jarle explained earlier today, the project is now soon to start up. And of course, then there will be sort of the -- call it, the final handover of the project to our clients from our side. But with regards to equipment, everything is delivered from our side. Unknown Executive: And is it possible to disclose how much of the order backlog that consists of the service agreement with ACES project? Martin Holtet: Yes. So we do not provide sort of a breakdown of the backlog on projects. But I think we have previously indicated some sizes of that. And the majority -- the far majority of the backlog is related then to the service agreement on the ACES project, while the -- call it, the other remaining part of the backlog is related now to the outstanding deliveries on or remaining deliveries on the SALCOS order, which is then the electrodes now being produced in Denmark. Unknown Executive: There are several questions regarding the LONGi partnership. So how is the partnership progressing? Jarle Dragvik: The partnership is progressing very well. We are in good discussions and planning of consolidation of the manufacturing capacity in China. We also have discussions on technology side and share of experience and also developing cooperation in other areas, but things like this does take time, but we have an excellent cooperation with LONGi. Unknown Executive: And one question is with all the future optimism and growth prospects you see, why are the insiders not buying stocks to show a commitment? Jarle Dragvik: Well, there are several reasons. First of all, there are some programs of options that has been running. Some has now, what do you call it, been running out in time... Unknown Executive: Expired? Jarle Dragvik: Expired. Thank you. And also, we are often confronted with positions of being an insider position. A small company like HydrogenPro with -- being negotiations with customers, future orders, it could be other strategic discussions, are limiting the windows for buying shares. Unknown Executive: And what would you highlight as the main explanations for the delays in FIDs in Europe? Jarle Dragvik: It's several, and I think we have touched upon it in also previous presentations -- previous quarters, but unclarity in regulations is clearly one major reason. Another reason is that it does take time to build the value chain. So the offtake side, which, again, also dependent on the regulation side has also caused delayed. And then we have had behind us, as we know, a period with high inflation and cost increase, increases in energy prices, which has made a lot of the project owners having to recalculate their investment projections and calculations. And all this together basically has caused much of the delays. Unknown Executive: And how are the contract values allocated between you and Thermax for potential orders in India under your current partnership? And would your electrolyzers carry the same pricing and margin profile as in other markets? Jarle Dragvik: Yes. Good question. Well, in terms of the revenue profile, I think we can say that it's a bit similar profile as you would see with our partner, ANDRITZ in Europe, where Thermax will take the full EPC and basically sell the total plant more or less in a turnkey setting. We will then sell our part of the equipment to Thermax. Now India is a very price competitive market, no question about it. We have yet to finalize, obviously, final contracts with customers in India, although we are in good discussions. But until then, we will see. But I think we have to be realistic to also see that India is competitive. Unknown Executive: And do you -- do the recent project awards in this market represent kind of early signs of recovery or green shoots in your opinion? Jarle Dragvik: Well, recent -- there has been some -- I don't know if the question refers to some of the announcements here in Norway. It's very small projects, although giving a positive sign that project owners are taking the steps toward FID. We see also same kind of movements on larger projects in some place of Europe and also other parts of the world that we have mentioned. So I think we see that project owners are getting more confident and ready to take FID. Unknown Executive: One big news is the recruitment of CCO. So what does this indicate about HydrogenPro's ability to attract strong competence? Jarle Dragvik: I think if you look at the recent recruitment, but also not just that, if you look at the recruitment we have done over the last 1 or 2 years, see that it's very high quality and good competence that we have been able to attract. And I'm very proud that a company like HydrogenPro is able to attract competence several people with PhD and also Masters, but also on the engineering side, commissioning engineers, et cetera, that we have attracted over the year shows that we are attractive. I think it also shows that a lot of people are still looking into -- going into sustainable energy and the green sector and wanting to make a better world and therefore, coming to companies like HydrogenPro. Unknown Executive: And some detailed questions about the projects. So how many projects with LONGi and the Thermax are in FID, if you are able to disclose? Jarle Dragvik: No, we do not disclose details of our pipeline. We will announce projects that's being awarded in due course. Unknown Executive: Okay. Jarle Dragvik: Thank you very much. Unknown Executive: Thank you. Martin Holtet: Thank you.
Operator: Ladies and gentlemen, welcome to the Analyst Call Q4 Fiscal Year 2025. I'm Moritz, 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 Tobias Hang. Please go ahead, sir. Tobias Hang: Good morning, and a warm welcome to the Siemens Energy Q4 Fiscal Year '25 Analyst Webcast. Today, we are here in the factory in Berlin. First of all, I really have to say that we are sorry that you had to wait for 5 minutes. Of course, we're going to add that -- the 5 minutes up on the end of the call, so that should happen, please excuse for that. As you probably noticed already, we pre-released our results yesterday night and published all the documents around 9:00 p.m. on our website. Now I'm pleased to have with me here President and CEO of Siemens Energy, Christian Bruch; and Maria Ferraro, our CFO. And in the next 30 minutes, Maria and Christian will take you through the developments of the last quarter and the fiscal year 2025. Thereafter, we will continue with our Q&A. For the entire webcast, we estimated roughly 1 hour. So with that, I would hand over to Christian. Christian Bruch: Yes. Thank you very much, and also good morning, everybody, also from my side, and thank you for joining our quarter 4 call. We do it here from the factory in Berlin, and that is something I wish you could see it really continuously because we have our products around us, and this gives a good atmosphere. As we wrap up fiscal year 2025, I would like to take a moment to reflect on Siemens Energy's journey over the past 5 years. And when we listed Siemens Energy on September 28 in 2020, we had a clear ambition, focus and deliver on fundamentals, co-create innovations with customers and partners and start the energy transformation, all this based on our purpose, reenergize society. And since then, we have come a long way. We are offering the right products, solutions and services to serve our customers in a changing energy world, driven by higher electricity demand and the need for energy security. The trust of our customers placed in us and the strength of our portfolio is reflected in our continuous revenue growth since our listing in total by 40% to almost EUR 40 billion in fiscal year 2025. At the same time, our order backlog has increased by around 75%, bringing us to another record high level of EUR 138 billion at the end of fiscal year '25. This is underlining the confidence of our customers and our ability to deliver complex critical infrastructure energy projects and the strong order backlog provides us good visibility for fiscal year 2026 and beyond. Our journey has not been without challenges. We started in a world which was determined by COVID. And in fiscal year 2023, we were confronted with severe challenges at our wind business. Our focus on operational discipline and stringent execution brought us back on the successful path. And since then, the resilience of the company has been strengthened. The result of this journey, a 350 basis point profit margin improvement since our listing and a 1,500 basis point improvement since fiscal year 2023. Looking at this development, I want to thank everyone working at Siemens Energy, our team purple to make this happen. I'm proud of what the team at Siemens Energy has achieved together so far and the journey has just started. If the past 5 years have been about building the foundation and fiscal year 2025 was the start of a growth journey with continuous margin expansion. Earlier this year, we upgraded our guidance at our half year results to reflect our confidence in the development of our business. And I'm pleased to report that we have achieved the top end and partly overachieved our upgraded targets. Fiscal year 2025 has been a year with strong performance. We saw 15% revenue growth, driven by robust demand across our core segments. We achieved significant margin improvement of 500 basis points year-over-year, thanks to operational excellence and the execution of more profitable orders, which we signed in the last couple of years. And finally, we generated an excellent level of free cash flow. While Siemens Gamesa continues its turnaround journey, the rest of our portfolio has demonstrated remarkable performance. For the fiscal year 2026, we have set ourselves ambitious targets. We also upgraded our midterm targets for fiscal year 2028 substantially. For fiscal year 2026, we target a profit margin before special items of 9% to 11% and revenue growth between 11% and 13%. Midterm, for the fiscal year 2028, we are aiming for a low teens percentage range revenue growth and a profit margin before special items of 14% to 16%, more than doubling current margin levels within 3 years. And these targets are based on a robust order book, a culture of accountability and operational excellence. Looking into the development of orders and revenue in the different regions in fiscal year 2025, we have seen strong market momentum and are confident that this will continue in the next years and be a strong base to achieve our midterm targets. During the last year, all our regions, Europe, the Americas, Asia Pacific and the Middle East delivered consistent expansion in demand. The underlying favorable trends are intact and continuing for the foreseeable future as the demand for electricity and the need for modernization and expansion of the electrical infrastructure should proceed to increase. Our portfolio covers to a large extent, today's and future technologies to meet this demand. And next to the coal to gas shift, peaker demand and the generally higher electricity demand from developing societies as well as increase of electrification, 2025 order intake has been substantially supported by the electricity needs for data centers. Especially in the U.S., this has driven unprecedented demand for gas turbines and grid infrastructure and translated into record high order volumes for Siemens Energy in fiscal year 2025. We almost doubled the number of gas turbines sold globally from 100 units in 2024 to 194 units in 2025. Grid technology more than doubled the sales to hyperscalers to over EUR 2 billion in fiscal year 2025 driven by North America, but also across all other regions. It is for us a deliberate target to diversify the origin of our orders, ensuring that our growth is balanced and resilient. Based on the current growth momentum, we are adapting our footprint and aligning our operations to regional demand and customer needs. The increasing regional setup helps us to mitigate the continuous geopolitical challenges like tariffs, which we, for example, experienced in the second half of fiscal year 2025. Let me give you some additional highlights on new projects from the last quarter. In our gas service business, we sold in the quarter 5 gigawatts of gas turbines and signed 11 gigawatts in reservation agreements. And this was mainly driven by Saudi Arabia and the U.S. With that, the total commitments increased to 54 gigawatts in fiscal year 2025, thereof 26 gigawatts orders and 28 gigawatts reservations, 12 gigawatts are related to data center. Pricing momentum for gas services continued to be favorable and is expected to continue that way in the foreseeable future. Grid Technologies achieved the strongest quarterly order intake in fiscal year 2025, driven by substantial demand growth across all regions and the highest quarterly revenue in history driven by both product and solution business. We are confident that the profitable growth we aspire for fiscal year 2026 and beyond is supported by a strong electricity market. Fiscal year 2025 was marked by several milestones that provide a foundation for future success and shareholder returns. And due to our solid financial performance throughout the year, we were able to exit the bond guarantees, improve our credit ratings and lift the dividend ban for fiscal year 2025. Our net cash position and robust liquidity profile allows us to pursue strategic growth and shareholder returns without compromising financial discipline. We have put the right measures in place to continuously drive profitability. This includes optimizing our cost structures, reducing nonconformance costs and being selective with the projects we take on, ensuring they align with our target margins and long-term strategy. Our portfolio optimization efforts are well underway, but we will continue to review our portfolio elements. The divestment of our Indian wind business, which we have agreed in 2025 with a group of investors led by TPG is an important step to focus our onshore wind power on selected regions. Throughout the whole year, we were investing in the growth of our core business and the further strengthening of the supply chain. Examples were the acquisition of RWG and CIC this year, which will help our gas service businesses to deliver on their commitments. We have been and are investing in the expansion of our factories. Strong focus is here by the expansion of existing sites to achieve effective use of the capital spend and short payback times. I'm pleased that also the development of partnerships to enhance our offerings into the market made good progress in fiscal year 2025. Here to mention Rolls-Royce in the area of small modular reactors and Eaton in the field of data centers. You will see a lot more details on our future journey during the Capital Market Day in Charlotte, and we are excited to discuss these measures together with you. We are positioning Siemens Energy to lead in the field of resilient energy, pursue profitable growth and deliver sustainable shareholder returns. With that, let me hand over to Maria for the numbers. Maria? Maria Ferraro: Thank you very much, Christian. Hello, everyone, from my side. A very good morning and also a very warm welcome. I'm pleased to share with you our Q4 and full year financial results. As always, I'm happy to answer any questions you may have afterwards. Before I go into the performance of the specific business areas, I would like to start with an overview for Q4 and full year 2025 at the Siemens Energy Group level. So overall, we had a very strong finish to the financial year. Quarterly revenue exceeded the EUR 10 billion mark for the first time with strong quarterly figures recorded for orders, profit and cash flow. Fiscal year '25 is a record year, and we reached the top end of our guidance for all KPIs. Now looking at Q4, orders reached EUR 14.2 billion, and we saw a continuing strong demand, specifically in GS and GT. For the full fiscal year, we ended up just shy of EUR 60 billion in orders. This marks a record high since the listing. On a geographic basis, growth was broad-based, all regions reporting recorded increases. For fiscal year '25, orders were driven by a significant increase of 21% in our new unit business. Here, we saw exceptional growth in Gas Services with a remarkable 94%. Our service business grew by 16% compared to fiscal year '24. The book-to-bill ratio in fiscal year '25 was at 1.51 for the group, and the order book climbed once again to a new record high of EUR 138 billion. Revenue in Q4 reached an all-time high since the listing, like I mentioned, of EUR 10.4 billion. This is a 9.7% increase on a comparable basis. The improvement of this quarter was primarily driven by GT and TI with both growing by more than 19% on a comparable basis. For the full year, we ended up just shy of EUR 40 billion in revenue, which also marks a record high since the listing. Full year revenue grew significantly in both new unit at 18% and in service with 13%, both on a comparable basis. In Q4, profit before special items was EUR 471 million. This is significantly above the negative EUR 83 million in prior year's quarter, ending the fiscal year almost at EUR 2.4 billion. Again, this is another record for Siemens Energy since the listing. Here, our profit increase was mainly due to increased volume and related productivity effects, but was also driven by improved margin quality of the processed order backlog. Profit was negatively impacted by tariffs in the quarter with a high double-digit million euro amount. As already indicated in Q3, this was mainly due to the changes in the custom regulations between Europe and U.S. Additionally, in Q4, the amendment of Section 232 came into effect, which impacted mainly Siemens Gamesa. In special items, we see adjustments mainly in Siemens Gamesa related to the sale of the Indian wind business, as expected as well as the continued restructuring efforts. Net income for Q4 was EUR 236 million. Free cash flow pretax was more than $1.3 billion for the quarter and therefore, significantly above last year's quarter level, mainly driven by the sharp increase at Gas Services. I will talk a little more in detail about the drivers of our free cash flow on Slide 11. So now let me turn to our order backlog on the next slide. So looking at our backlog, as we mentioned, we ended the year at $138 billion. And for fiscal year '26, so this coming year, the revenue coverage is already more than 85%. And in fiscal year '27, we see this as approximately 60%. We also see an improved order backlog margin development in fiscal year '25. I will stop there because I will provide further details on the backlog margin development by BA at our Capital Market Day next week. So please stay tuned. So now let me talk in more detail about the drivers of free cash flow. Free cash flow pretax, as I mentioned, was EUR 1.3 billion for the quarter, roughly EUR 400 million more than Q4 of prior year, again, mainly due to improved profitability impacting our net income. Positive cash contributions from our net working capital is mainly driven by an increase in contract liabilities and a decrease in inventories. Additionally, we continue to have incoming reservation fees. This is also adding to our cash flow generation. So very quickly, an update on Siemens Gamesa's quality cash outs. For Q4, this amounted to EUR 157 million. And for the entire year, it was approximately EUR 450 million. This is in line with our mid-triple-digit million euro amount that we indicated for this fiscal year. And also, we expect a similar amount for fiscal year '26. Looking at CapEx, we spent $685 million in Q4 or roughly $1.7 billion for fiscal year '25. This is to fuel our future growth mainly for expansion and capacity extensions. For example, the ramp-up in Siemens Gamesa offshore as well as investments for capacity expansions in Gas Services and Grid Technology. The amount spent in this fiscal year was lower than anticipated at the beginning of the year just due to timing and reallocations. So therefore, please stay tuned also in terms of how we see target of CapEx for fiscal year '26. We'll look at that a little more in depth, of course, at our Capital Market Day next week. So now looking at net cash on the right-hand side of the slide. Overall, we have $9.2 billion in cash and cash equivalents. Our financial debt stood at EUR 4 billion, of which $2.4 billion is long term. This is an increase of approximately EUR 0.3 billion versus Q3, mainly due to increased leasing obligations. And taking into account pension provisions of EUR 406 million, this brings us to an adjusted net cash position of EUR 4.8 billion at the end of September compared to just EUR 2 billion a year ago. So overall, we continue to have to build a strong balance sheet commensurate with an investment-grade credit rating profile. So now this is a perfect segue to a question we receive very often from investors over the last few months regarding capital allocation. For this as well, we will provide more details at our Capital Market Day next week. However, one message which we can already reveal today is the dividend proposal for fiscal year 2025, demonstrating our commitment to shareholder return. We will propose a dividend of EUR 0.70 per share for fiscal year '25, subject to approval at our Annual General Meeting in February 2026. So now let's have a quick look at the financial performance of our 4 business areas, starting with our Gas Services business. In GS, we had a very strong finish to an exceptional fiscal year '25. Congratulations to the entire Gas Services team. The Q4 orders of $4.8 billion were up by roughly 38% from prior year quarter, again, driven by strong demand in the U.S. and Saudi Arabia as well as significant growth in service business, which was up roughly 48%, ending fiscal year '25 with a record order intake of EUR 23 billion. Book-to-bill was an impressive 1.89 for the fiscal year. This led to a record order backlog of $54 billion, another all-time high for our GS business. In Q4, Gas Services booked a total of 19 gas turbines for power generation in oil and gas, 11 of those were large gas turbines. Our gas turbine greater than 10-megawatt market share for power generation stood at 14% and for large gas turbines greater than 100 megawatts at 19%. Q4 was always expected to be a bit lower compared to the previous quarters solely due to timing. For fiscal year '25, overall, Siemens Energy achieved #1 position in gas turbines greater than 10 megawatt for power generation with 31% market share. In large gas turbines greater than 100 megawatts, we have secured #2 position with a 26% market share. Again, a fantastic performance, and we are really grateful for the confidence our customers have placed in us and for our team's ability to secure those orders. Q4 revenue was $3.1 billion, a 15.5% increase on a comparable basis. This ends fiscal year '25 with a record revenue of more than EUR 12 billion and a comparable growth of 14.2%. This is above the fiscal year '25 guidance range of 11% to 13%. In Q4, new unit business showed significant growth of almost 34% comparable and service business of roughly 15% comparable. Q4 profit before special items was EUR 251 million. This was a margin of 8.1%. This is 300 basis points versus prior year Q4, again, showing some of the normal seasonality pattern, but also reflecting the improved margin quality for the processed order backlog and new units business. This ends fiscal year '25 with a record profitability of almost EUR 1.6 billion and 13% at the top end of the 11% to 13% fiscal year guidance range. Lastly, but certainly not least, free cash flow for the fiscal year came in at a very strong EUR 3.2 billion for Gas Services. This is a cash conversion rate of just over 2. Again, a fantastic job GS. So now let's take a look at our Grid Technologies business. This was also a record year for Grid Technologies, well done. Q4 orders of EUR 6.9 billion, up 31% year-over-year. This was driven by strong growth across all regions, but specifically in the U.S. and an exceptionally high demand for product business. This ends fiscal year '25 with a record order intake of more than EUR 21 billion. Book-to-bill ratio for fiscal year '25 was at 1.9, again, resulting in another record order backlog of $42 billion. Quarter 4 revenue reached a new quarterly high and grew by 19% on a comparable basis to $3.1 billion. This is ending fiscal year '25 with a record revenue of more than $11 billion for GT and a comparable growth of 25.4% for fiscal year '25, which is within the upper end of the guidance range of 24% to 26%. Revenue increase was supported by the steady processing of the order backlog with the short-cycle business exceeding the solutions business. Q4 profit before special items was EUR 463 million. This was a margin of 14.7%. This is also plus 450 basis points versus prior year quarter 4, ending fiscal year '25 with a record profitability of almost EUR 1.8 billion and 15.8%, again, well at the upper end of the 14% to 16% guidance range for fiscal year '25. Free cash flow for the fiscal year for GT came in at EUR 2.8 billion and a cash conversion rate of just over 1.55. Excellent job. Thank you so much. And again, well done to our GT team. On the next slide, we take a closer look at our Transformation of Industry business area. Fiscal year '25 was a record year for TI with regards to revenue and profitability. Q4 orders were EUR 1.6 billion. This was the highest quarterly order intake for the fiscal year. However, a decrease of approximately 20% versus prior year on a comparable basis. This was due to an exceptionally large order in prior year orders in compression and in sustainable energy systems. The full year came in with EUR 6 billion. The book-to-bill ratio for '25 was just over 1 at 1.01, and the order backlog at the end of the quarter amounted to EUR 8 billion. For TI, Q4 revenue grew by just shy of 20% to EUR 1.6 billion, mainly due to substantial growth in the compression business. This is ending fiscal year '25 with a record revenue of $5.7 billion and a comparable growth of 13.5% Q4 profit before special items was EUR 177 million, almost double compared to Q4 of last year, resulting in a margin of 11%. This is a plus 420 basis points versus prior year Q4, ending fiscal year '25, again, with a record profitability of almost EUR 646 million and 11.3%, above the 9% to 11% fiscal year '25 guidance range. Here, the biggest contribution to the improvement in Q4 came from industrial steam turbines and generators with plus 420 basis points and compression with plus 300 basis points compared to previous year's Q4. Again, huge congratulations to the TI team. They have really been on a successful turnaround path for the last couple of years. On that, when the TI business area was established, we emphasized the turnaround nature of most of its businesses and as a result, provided additional voluntary disclosure for the independently managed businesses or IMBs. Given the successful turnaround of key businesses such as compression and steam turbine generators, this additional disclosure no longer will be provided. Accordingly, beginning with fiscal year '26, reporting for TI will be standardized in line with the group's approach and the other business areas and the separate IMB disclosure will be discontinued. So therefore, as of now, so for Q1 of fiscal year '26, TI will be reported in the exact same manner as all the other business areas. So moving on to the next slide, where we take a closer look at Siemens Gamesa. Here, Siemens Gamesa finished fiscal year '25 in line with expectations despite the strongest headwinds from tariffs. Q4 orders came in at EUR 1.1 billion. This is a similar level as last year's Q4 number if adjusted for roughly EUR 3 billion large offshore order in the North Sea in the prior year quarter. Orders overall for fiscal year '25 are EUR 9.3 billion. The book-to-bill ratio for '25 came in at 0.9 and the order backlog is EUR 36 billion. Q4 revenue of EUR 2.7 billion, representing a decline of roughly 9% on a comparable level to prior year's quarter. In Q4, a significant increase in the offshore business could not offset the expected decline in the onshore business. However, overall revenue for fiscal year '25 was 10.4 billion, well above the fiscal year '25 guidance range of -- with 4.7%. Q4 profit before special items came in at negative EUR 303 million, significantly better than prior year's quarter level, but remained negative, ending fiscal year '25 at around negative EUR 1.3 billion, which is exactly in line with our guidance. This quarter, we did have more underlying operational improvement, which was held back by certain negative effects, for example, tariffs imposed by the U.S., which we already indicated in our Q3 closing. In the Q4, the direct negative impact for tariffs forcing in Gamesa was a low to mid-double-digit euro million amount and again, mainly driven by onetime effects related to long-term service agreements in the U.S. So now let me move on to our outlook for fiscal year '28 and raised fiscal year '28 targets. First, our financial outlook for fiscal year '26. For SE overall, we expect 11% to 13% comparable revenue growth and a profit margin before special items of 9% to 11%, this is at the midpoint, a step-up or increase of 400 basis points compared to fiscal year '25. We also expect a net income of $3 billion to $4 billion and a free cash flow pretax of $4 billion to $5 billion. Looking at the business areas when it comes to revenue growth, all business areas will grow in fiscal year '26 with Grid Technologies leading at 19% to 21%, then followed by Gas Services with a growth of 16% to 18%, both of them in the high teens. All business areas are demonstrating continuous year-over-year improvement and delivering double-digit profit margins or high. The most significant step change will be the anticipated breakeven of Siemens Gamesa. In addition, all other business areas are targeting a margin uplift of approximately 200 basis points compared to the fiscal year '25 target ranges. So now just quickly, the updated financial targets for fiscal year '28. As indicated in Q2 of last fiscal year, when we upgraded the guidance for fiscal year '25, we did use the time to update the midterm targets accordingly. For Siemens Energy Group, we are aiming to achieve a compound annual growth on a comparable basis in the low teens percentage range through fiscal year 2028. In addition, we target a profit margin before special items in the range of 14% to 16% by fiscal year '28. This represents a step-up of approximately 400 basis points compared to previous targets. The business area targets for revenue growth and profitability have been outlined accordingly. So in summary, all business areas foresee continued revenue growth. For profitability, the most significant step change by '28 will include an uplift of approximately 600 basis points for Gas Services and 500 basis points for Grid Technologies compared to prior targets. And with this, thank you very much for your attention. And I now hand back to Christian for some closing messages. Thank you very much. Christian Bruch: Thank you very much, Maria. Thank you. And I will keep it very, very short because, obviously, I look forward to see you next week on the Capital Markets Day when we have more time to discuss, and we will provide you with more details on our different businesses and the way forward of the company. Summarizing 2025, it was a successful combination of an attractive market environment, products from our side, which are really needed by the market and resilient business models, which now provide a very solid foundation for the future. We at Siemens Energy are excited to improve our company further and have kicked off with the new fiscal year, our program, Elevate Performance, which we will talk more about during our Capital Market Day. Our increased midterm guidance for 2028 underlines the performance commitment of the whole organization, driving disciplined execution, innovation and a relentless focus on customer and shareholder value. And for now, let me hand it over to Tobias again for the question-answer session. Thank you. Tobias Hang: Thank you so much, Christian. Thank you so much, Maria. So now we will start our Q&A session. [Operator Instructions] I already see that we have quite a lot of people in the line. So I would always call up the next 3 names so that you already prep for your question. And the first question will go to Sebastian Growe afterwards, it's Ajay Patel and then Max Yates. So Sebastian, please go ahead. Sebastian Growe: First question would be around free cash flow and the pretax target here is EUR 4 billion to EUR 5 billion, which is implying apparently around 100% conversion from the adjusted EBITDA. So could you please help us with the key parameters going into this, such as CapEx, especially in the wake of that you spent EUR 4.3 billion less than earlier guided last year, also the budgeted cash out at Siemens Gamesa. And could you also comment on what the cash impact from slot reservations has been in '25 and how you view the conversion of the now 28 gigawatts in reservation agreements in the year '26. Maria Ferraro: Hello, Sebastian and thank you very much for your questions regarding cash flow. And of course, looking at the guidance to EUR 4 billion to EUR 5 billion. So as you rightly mentioned, we do expect a CCR of 1 in fiscal year '26. And of course, we do continue to see a positive impact from payments with respect to our order growth for the year and our continued backlog growth. Again, looking at CapEx, we'll provide more details on that next week at the Capital Market Day, but consider that the CapEx continues to exceed depreciation. And of course, we also have some shifts back and forth between the 2 fiscal years. And as mentioned earlier, with respect to Siemens Gamesa cash outs, there was around EUR 450 million of cash outs relating to the provisions booked before for the quality topics, and we expect a similar amount for next year. So those are the other aspects that went into the EUR 4 billion to EUR 5 billion cash flow guidance. Tobias Hang: So the next person would be Ajay Patel. Could you please limit your questions to one because we have so many people on the line. Ajay Patel: Congratulations. My focus is just on your guidance. I'm looking at the '28 target. And I just want to compare it with '24 to understand the margin progression and the 2 main drivers. I was thinking, is there any way you could roughly give us the improvement in margin from '24 to '28? How much is driven by productivity? How much is driven by pricing for service and technologies, please? Christian Bruch: Maybe I take this, and I would do this, with, once again, clear invite to next week. I mean we break down for every business more next week, and we want to really to understand the details behind it. So until then, I would keep it relatively generic. I would say the majority is productivity, the minority is pricing on this uplift on the margin. And this obviously helps us a lot that we have a very good planning base, volumes are high. So it allows us a good leverage in productivity that also going forward. Obviously, yes, I mean, backlog margin has continuously improved, and this is what Maria is going to walk through next week. But I would suggest let's take it really up next week when we in detail explain it step after step. Ajay Patel: And that was for both divisions, right? Gas Service and Grid Technologies, that comment? Christian Bruch: Was is what? Ajay Patel: Was for both divisions, right? Christian Bruch: Yes, correct. Yes. Maria Ferraro: It covers. Actually, Ajay, you'll see that -- those details for all of the business areas next week, which show the backlog improvements. Ajay Patel: I will be there. Tobias Hang: The next question goes to Max Yates, please. Max Yates: I wanted to ask about the Gas Services margin guide for 2028, 18% to 20%. I think that's probably the one that has surprised maybe me and the market the most this morning. So I guess I just wanted to understand what is it that has given you the confidence to really put that up sort of as aggressively as you have? Is this mostly around the gross margin expansion on new equipment? Are you also now sort of becoming more optimistic on some of the pricing in services? And maybe just sort of finally within that, I know you won't give us the kind of target by equipment and aftermarket, but is it right to think sort of qualitatively that the margins of those 2 businesses are broadly converging within that target? So that's my question. Christian Bruch: Thanks very much, Max. And also there, I mean, you will see a great presentation on Gas Services next week with a lot of the details. But let me put a couple of comments in there. First of all, what we absolutely do see, and this is different to 2 years ago, we see the gas order intake, gas business level substantially higher than before. And this gives us a long-term planning base, and that has been a substantial uplift, which also helps us to drive the margin because that is also about absorption, the factory, more productivity measures, better supply chain management. So there's a lot of elements into that. On your comment with regard to service and new unit, be a bit careful because actually, the proportion of the new unit business is going to be, let's say, growing faster and bigger than the service business. Some of the service business, which is going to be related to the new units business is only going to kick up in '28 and thereafter. So that is something what you have to see. There is still a decent difference in the margins on the different businesses. But what we are really benefiting from now also going forward is keep in mind, when we started a couple of years ago, we were just introducing the large units, HL. So we have a lot of learnings also through that. And that is where we get better and better really every year. We see that. We know what we need to do. And this is things which are now obviously behind us. But Karim will be there next week also and walk you in detail through the different matters, but that has been mainly it. And yes, the pricing in gas is still very favorable, but I would not underestimate really the productivity elements, which we see really in the business area. Tobias Hang: So the next 3 questions go to Gael de-Bray, Vivek Midha and Alex Jones. Gael de-Bray: So if I have to stick to one question. Let me ask about the 2026 outlook. When I look at the margin guidance for the divisions and put them together, the weighted average implies a margin that is clearly higher than the 9% to 11% range you're guiding for at the group level. So is this because the breakeven for Gamesa is not a real breakeven, but rather start with a minus or is there anything else to consider? Maria Ferraro: I'll take that. Hello, Gael and thank you for the question. And let me just be clear, it does not indicate -- and you're right in your calculations, but that does not indicate any lack of confidence in the BA ranges, not at all. It is correct that if you do the math, of course, there's some, let's say, conservatism in relation to the BA ranges. We want to deliver what we promise, and we try to ensure that we have certain estimates for that because no doubt, the environment in which we operate continues to be dynamic. And headwinds are present in various areas. So for example, last year, of course, in fiscal year '25, we experienced the tariffs. Of course, that's very much under control, we have that embedded in our guidance for next year. But of course, we always are ensuring that there is some -- if headwinds are present that we are able to handle that. And I know it maybe sounds silly, but there's also an element of rounding, of course, within all of it, trying to be as precise as possible as we can be with the BA ranges. But still, I do want to ensure you that there is no lack of confidence on the BA ranges in this regard, not at all Gael. Tobias Hang: Thanks so much, Maria. Gael de-Bray: For Gamesa, what is the sequential path to breakeven that we have to consider for 2026? Maria Ferraro: You want to take that -- the sequential path for -- well, I'm happy to take it, and please jump in, Christian, if you'd like. I mean, look, you see in fiscal year '25, we've done a number of things right in the Siemens Gamesa business. They've been able to ensure that they're starting to look at how does the productivity look in all of their facilities that they're ramping up. We have an example here in Germany, where one of the facilities, the productivity has increased year-over-year by 30%. And as a result, you see that also in their ability to exceed their revenue forecast for this year. They continue to very clearly look at optimizing footprint, ensuring that in terms of cost efficiency, supply chain, et cetera, all of those levers they're bringing into this fiscal year. Please don't expect a linear progression to breakeven. We do expect that the first half or the first quarter for sure, continues to be negative. Q2 and Q3 really then brings us to a positive Q4 for Siemens Gamesa in fiscal year '26. Tobias Hang: So the next question goes to Vivek Midha from Citi. Vivek Midha: I just have a follow-up around the reservation activity. It looks like you had a really good quarter, 11 gigawatts of new reservations in the quarter. You called out Saudi Arabia and the U.S., but it will be great if you might be able to expand on the makeup of the incremental new regions, on frame types and so on. Christian Bruch: I would once again hit a lot next week where we try to give you the breakdowns. But let me say a couple of comments to what you said. Obviously, yes, U.S. has been generally a strong market for us in '25. What I would like to highlight is really our success across all different frames at Siemens Energy. The good thing is, obviously, we have small gas turbines, midsized gas turbines and large gas turbines. And what you have seen that all of the frames are in good demand and really also have helped us sometimes to accommodate timing needs of customers. In terms of markets, also, as I said in the last quarters, we try to keep the balance. Yes, obviously, U.S. with 31% market share in the market -- in the order intake was a good one. But Middle East, it's not only Saudi, you see UAE obviously also now getting very active. You see orders we get in other parts of either North Africa or places like Iraq, where we were successful. So this is really across the board, but I would really ask for your patience, join us next week, much better. Karim is the right person to dive deep into that, and you will see a lot of great information. Tobias Hang: Next question goes to Alex Jones from Bank of America. Alexander Jones: Christian, I think earlier today, you made a comment that there are fewer synergies between onshore and offshore within Gamesa than perhaps is expected from the outside. Could you expand a little bit on that -- those comments and whether that signals an openness to exit onshore once you reduce cost and fix the current issues? And if that's not something you've already decided, what are the key criteria you're looking at for making that decision over the coming years? Christian Bruch: No, thanks for the question. And I -- let's say, don't overrate it. But what I want to flag up is that from my perspective, each of the business has to prove their existence. This might be in a different time frame because they're developing time-wise differently. But I look similar to other parts of the business, I look on it really business unit by business unit. So 1 level deeper or 2 level deeper is to say, and this has to be a good one. And yes, there are some synergies on the administration costs. There are less synergies on the market side because offshore, by and large, is 2 handful of countries. Onshore is a little bit more diverse in the countries. And obviously, on the factories, most of our factories are either producing offshore or either producing onshore, and we have not seen that as a main lever. In both areas, obviously, we tap into wind, turbine technology knowledge. So that is something. But what I wouldn't do is to say, let's say, you definitely can only run it together, but our target is to make both businesses successful look on it like this in that regard, that was the logic behind the statement because we don't have the one factory where we do all products from and just that this is understood. Tobias Hang: Thanks so much. So the next 3 questions go to Akash Gupta from JPMorgan then Uglow from Oxcap and Sean McLoughlin from HSBC. Akash Gupta: I have one on Siemens Gamesa. And maybe if you can provide a bit more color on this almost EUR 1.36 billion loss in last fiscal year between onshore, offshore and service. And when we look at the breakeven, can you also help us what are you assuming for each of the 3 businesses? Christian Bruch: You want to take this... Maria Ferraro: You can start... Christian Bruch: I start maybe one thing to always look at, I think I said it in one of the calls before. Keep in mind, if you talk about the EUR 1.3 billion, there are some one-offs in '25, which I don't expect to reoccur in '26. So the jump-off point is slightly different. In terms of the breakdown of the businesses, maybe, Maria, you take this. Maria Ferraro: And this is what we've always said, Akash, is on our way to the breakeven that we have to have, of course, the onshore has changed in terms of the dynamic, of course, because with the sales stop, et cetera. The offshore revenues, as I mentioned earlier, are now starting to come into the revenue stream. We continue to have a strong service business. The one-offs that Christian is mentioning is actually related to the service business in fiscal year '25, and that's really the components, if you'd like, that will make sure on top of other levers, of course, to get us to our breakeven for fiscal year '26. Akash Gupta: Is it possible to quantify roughly these one-offs so we know idea what underlying profit? Maria Ferraro: No. Those one-offs, of course, are generally project-related in nature. But in terms of the split, I can say that 2/3 is onshore and service and 1/3 is offshore. Tobias Hang: So the next question goes to Ben Uglow from Oxcap. Benedict Uglow: I was interested in the kind of market share commentary. And in particular, if we look at the 194 units, there is this mix shift going on in your business from the large gas turbines to the industrial, the SGT-750 and 800s, et cetera. And when we look across the whole market, if I think about Caterpillar, et cetera, we can see that. I guess my question is, the assumption is that this is all to do with timing and availability of the engines. My question is, is this shift just a temporary thing? Or do you actually think it could be a bit more structural? And the reason why I ask this is there are some aspects of the, let's call it, smaller machines that are more relevant or more appropriate to data centers. So I just want to know your general sense on that. Christian Bruch: Yes. No, happy to take this, Ben. First of all, the big increase also on the MGT side, so the midsized gas turbine side is not only data centers. There is a good amount in data centers also because of shorter delivery times and sometimes of the flexibility to have multiple trains and providing actually also with the build-out of the data centers a better ramp-up curve. But there has been, for example, a very decent amount going to floating power, so gas turbines on a ship, right? There has been quite a decent amount going also on the industrial side afterwards on the compression side. So it's -- I don't want to create the picture that is just because of AI. That's not the case for the midsized gas turbine. This is also -- and we show it also next week, why we decided to increase the capacity on our Swedish facility, and Karim will share this next week in more detail. The good thing is, honestly, today, I cannot tell you, if you would say, long-term picture after 2030 or whatever, I don't know. But what we are doing at the moment is we are doing investments into capacity expansion with a very short payback time. This is what drives us. And so where I'm very sure is that the investments we are doing at the moment in the sites to expand capacity will pay off. That's I'm confident about. But structurally after 2030, to be seen, there is a lot of logic to have a multi-train solution with a robust turbine, what the midsized gas turbine is, but they will not be able to replace whatever an HL unit afterwards. I think this is what we're not going to see. Tobias Hang: So next question goes to Sean McLoughlin from HSBC... Sean McLoughlin: Just latching back on to the comments around productivity. I'm just wondering specifically on capacity. I mean, how much of the real increase on the top line for Gas Services, Grid Technologies is faster-than-anticipated capacity ramp? I mean you've highlighted challenges of ramping and tightness with supply chain previously. Has anything materially changed in your ability to scale faster than you expected versus a year ago? Christian Bruch: I would put it the other way around. The concerns have not materialized. And if you see the output of the factories, it was not a given for me in '25, particularly also with the ramp-up we had on the Grid Technologies side that we are able to get the volume out, which we finally got out. So I think good job done. And we had decent concerns with the ramp-up. We are, I think, also better in the compared to 5 years ago in terms of really standardization of really workflows and waste to producers. And the same obviously applies to the gas turbine. I think the gas turbine is now, let's say, going through this curve. And we see it obviously also on the blades and vanes production, which we have in Florida, the uplift is now happening. But by and large, I would say the main point for me compared to before, the teething pain concerns have not realized in the sense of what we were fearing before. In that regard, it was a good job. Sean McLoughlin: If I could maybe just follow up on Gamesa as well. I recall that the offshore ramp issues, if you like, were part of the big profit warning a couple of years ago. You're still talking about ramp for '26. I mean what about risks or, let's say, lingering risk or where are we on that standardization productivity? Christian Bruch: On the productivity in terms of what I do see and what the team has done in 2025, they have achieved really increases in the factory productivity of around 30%, right? It depends a bit on the factory, but that was a great job, right? And so I see the path is working out. What you have to keep in mind, we switched certain models, also switched certain blade lens in 2025. And this means you have to replace the tools, you have to start new, you have to say, we work the factory shop floor, and this costs productivity. Now it's really of doing the same thing over and over again. All what I have seen now in '25 gives me the confidence that this journey continues in 2026. Tobias Hang: Thank you so much, Sean. So next 3 questions go to Vlad Sergievskii from Barclays, Lucas Ferhani from Jefferies and William Mackie from Kepler Cheuvreux. Vladimir Sergievskiy: Very solid 15% growth in service business in Gas Services last year. Would you be able to give us some idea of the split of this service growth between long-term agreements and transactional business in 2025? Christian Bruch: No, I really struggle also from the top of my head that I give you the right answer. And I would really say next week, I think in terms of breaking it down, happy to discuss it, but I think I would otherwise give you no wrong numbers from the top of my head. Vladimir Sergievskiy: No worries. Even, I can quickly follow up on the gas turbine pricing through the course of last year. Have we been sequentially improving through the year? Have we plateaued at certain point? Christian Bruch: Yes, slightly, right? But I would also -- we will never be a quarter-over-quarter business. In that regard, I do look really on the sum of '25. What I would say is the pricing trend in gas end of fiscal year '25 still is intact and good. Tobias Hang: Next question goes to Lucas Ferhani. Lucas Ferhani: I just wanted to follow up on the gas business and the duration of the cycle. Can you talk a bit more about kind of the confidence kind of post 2028 that it's not, let's say, the best we see and there's more to go. And specifically, there's a lot of discussion on maybe the upside there is at the moment from hyperscalers and data center and whether that would normalize, what would happen to the overall market post that date? Christian Bruch: No, thank you for the question. And I think our midterm -- revised midterm guidance underlines that we very clearly say gas is here to stay. And that is a stronger message than we gave 5 years ago or 3 years ago. And in that regard, we -- if you look towards 2028, we're confident that this continues. We also believe we see the demand towards the end of the decade. Anything thereafter, I think it's really difficult to project and -- to say. But what I would say is what we are now trying to do and also with the build out of the capacity, we are trying to increase our fleet in the market. Whenever it turns, we sit on a super strong service business. That is the logic of Gas Services. But for the time being, for the next years to come, yes, we are confident that this trend remains. And then let's see after '28, what else is coming. Tobias Hang: Thank you so much. So Will Mackie from Kepler Cheuvreux. It's your turn, please. William Mackie: My question goes back to the guidance setting process and the future shape from '26 out to '28. Maybe given we're talking high level today and detail next week, you can just flesh out how the process was built top down, bottom up, how the shape of the guidance should unfold? Is it linear? Or is it very back-end weighted that you deliver on the growth and the profit projections? And to what extent are the elements of ramp-up costs and learning effects as you build through the GS and GT businesses weighing on the '26, but releasing in terms of the performance into '27, '28. Christian Bruch: Do you want to... Maria Ferraro: I can ask... Christian Bruch: So why don't you take the first shot. Maria Ferraro: I'm going to take the first shot. So how was the guidance composed or how did we put it together? I think, well, generally speaking, it's part of our overall planning process. And as Christian mentioned, in certain aspects, we didn't see or foresee such a momentum continuing for as long as we see it even as of our last planning cycle in last year. So how it was put together was very methodically, looking at the momentum that we see in GS and GT, seeing the market positivity that we see there. And I think you said something around linearity or nonlinear or is it back-end loaded. I would suggest it really is a constant, like I said earlier, a constant improvement year-over-year in those businesses. And why is that? That is because it's built on the backlog that we have, of course, in-house of EUR 138 billion, which gives us the visibility. Again, don't forget, 90%, almost 85-plus percent of our revenue is already in-house for this year, an additional 60% is in-house for next year. So really, that gives us a very strong basis for planning in terms of the figures. And then from a market perspective, and this is -- I'm sure what Christian will want to add, we've coupled that and said, okay, how does that factor into growth, et cetera. I mean, as you rightly -- or we've talked about, we have capacity coming on board. But again, it's all built on the back of our backlog plus our market expectations. Christian Bruch: Yes. And plus a couple of programs, which we also drive operational excellence in the organization. We will talk about this next week. The one nonlinear element in the -- if you look '26 towards is really wind, right? I mean there's a big step up next year. And then it's more step by step. This is what you have to keep in mind. The rest is really evolving the backlog and driving operational excellence. Tobias Hang: Absolutely. So thanks a lot, Will. As we started a bit later, we have 2 more questions to squeeze in. So the first question would be going to Kulwinder Rajpal from AlphaValue and the second one to Alex Hauenstein from DZ Bank. Kulwinder Rajpal: So my question was related to Gas Services and particularly the nuclear market. How do you see customer discussions shaping up so far? And if you could expand on the partnership with Rolls-Royce and how this positions you for the nuclear market. Maybe this is a key market for you beyond FY '28. Maybe we expect some details on it in the Capital Markets Day as well. So any thoughts here would be helpful. Christian Bruch: Yes. I mean, to some extent, we addressed it next week. But I mean, always, nuclear market is for us twofold. The one thing is a service market for the large turbines, which obviously we have a good installed fleet, and that is -- continues to be a nice service-driven business, which used to be in the mid- to high triple-digit million or so roughly depending on the year, depending who goes into, let's say, bigger maintenance cycles. And then you have the SMR pieces, as you said, with Rolls-Royce. And you have maybe seen the announcement this week. But this is something for us to 2030 in terms of realization, right? I mean this is long out. This is what we are now preparing. This is an important collaboration for us because we believe as a future project in this, but this will not influence our '26 or '28 or whatever that's not decisive there. That's more thereafter. Tobias Hang: So Alex Hauenstein from DZ Bank, please conclude with your last question. Alexander Hauenstein: I have a question with regards to the German government that speak about strategy to build new gas power plants and to bring them online by 2031. I saw on Bloomberg that you commented a bit on the press -- sorry, but I missed on that one. Nevertheless, maybe you could elaborate a bit from your point, beyond the point you made this morning about what that means for you in terms of potential new orders, if any, to come soon, especially in light of the capacity constraints which you have already. I mean, how realistic is this 2031? And I would be also interested to hear about what -- in terms of size and gigawatts, what you expect to get out of that or any indication on that would be great. And lastly, I would be curious to hear your thoughts about the requirements to build in green hydro readiness for these turbines. Christian Bruch: Yes. I mean, first of all, we are ready here, right, in terms of we are waiting for these projects, and I cannot wait really until they finally pull the trigger to do the auctions. We have -- I said it before, with a certain amount of customers, we have free agreements where it's even you go, we go type of setups. In other customers, we have at least free alignments. It is an open competition with our peers, but we will definitely would like to secure projects in that. How much of this chunk and let's assume it's the 8 giga first and then the 2 giga later, I don't know yet, right? But one thing I can ensure we have planned it in, it's feasible also with the 2031, if they now move ahead. I mean, obviously, it depends on the start date, but we would be more than willing to fight for it, and we will try to secure a fair share out of these different projects. There was the last hydrogen piece. Yes. I mean, we test hydrogen for all our turbines. Most of the turbines take -- all of the turbines take a certain portion of hydrogen anyway. Smaller turbines, we have tested and operated on 100% turbine hydrogen already. And the development program for us is really projected towards 2030. So if we stay in this time schedule, I'm okay also with the hydrogen request. We will make this happen. The turbine will be available for that. Tobias Hang: Thank you so much. So with that, we would conclude our Q&A session. And Christian, do you have any last words? Christian Bruch: See you next week. Hopefully. That's my last word. Looking forward to talk to you and hopefully in person, but the ones who are then online also will be great to have a joint discussion. Thank you. Maria Ferraro: Looking forward. Tobias Hang: Thanks a lot. So with that, we're going to conclude this call. Thanks. Maria Ferraro: Bye-bye.
Annie Bersagel: Good morning, and welcome to the presentation of Orkla's third quarter results. My name is Annie Bersagel and I'm the Head of Investor Relations and Communications. Our President and CEO, Nils Selte, will begin with a summary of the highlights from the quarter. After that, our CFO, Arve Regland, will go into a deeper dive in the financials. Nils will come back with some concluding remarks before we go over to the Q&A. So just a reminder, we have a video Q&A with analysts first. And after that, we will take all of the questions that come through via the web. So you're welcome to submit your questions via the web at any time. So with that, I think I will now leave the floor to you, Nils. Nils Selte: Thank you, Annie, and good morning, everyone. This quarter, we continued to execute on our active ownership model and capital allocation strategy. The focus is on improving our core business in the portfolio companies and investing in opportunities that drive long-term value. To start with a highlight this quarter. In Q3, Orkla delivered 4.4% organic growth across our portfolio companies. Of this volume mix contributed positively with 1.3%. Underlying EBIT adjusted growth grew by 1.1%. This quarter, we see a mixed development across the portfolio companies. Adjusted earnings per share was NOK 1.85, a 9% increase year-on-year. And the IPO, Orkla India. I said at the Capital Markets Day in November 2023 that we were initiating IPO readiness study. Last week, we reached a major milestone with the IPO of Orkla India. It is the result of a year of steady work, and I'm proud of the persistence shown by our team in India and at headquarters to reach this point. Since we bought MTR Foods back in 2007, we have had an amazing journey starting with strong local brands and strong local management team. Orkla India acquired Eastern -- in Eastern in 2021, and have steadily grown the company to what it is today. Let me be clear, this is not -- this IPO is not an exit for Orkla. Orkla will remain committed -- a committed major owner of the company. As a listed company, Orkla India now has its own currency and the flexibility that comes with it, a tool that will support growth over time. The proceeds from the sale of Orkla India provides additional financial contribution alongside Orkla's robust cash flow from operation. To optimize the capital structure and return excess capital to shareholders in line with our capital allocation policy, we have decided to initiate a NOK 4 billion share buyback program. The program will begin on November 17, 2025, and conclude by the end of December 2026 at the latest. Moving on to organic growth development for the consolidated Portfolio companies here shown over the past 2 years. Nearly all of the Portfolio companies contributed to growth in this quarter. Orkla Food Ingredients and Orkla India had the largest positive contribution to volume mix. Orkla Snack, also a larger positive contributor to price growth due to extraordinary cocoa price situations. Turning to a breakdown of the Portfolio companies' performance. We see a more flattish development in the results this quarter compared to a strong quarter last year. With our continued focus on long-term value creation, we see positive underlying development in several of the companies. Profitability varied across our Portfolio companies, and Arve will present a more detailed picture of the individual companies, but a couple of developments deserve mentioned. Jotun continued to deliver strong results during this quarter with double-digit underlying EBIT growth in local currencies, while maintaining the high margin levels. Orkla Food Ingredients delivered lower EBIT growth compared to past quarters. This led to a weaker development in the Bakery segment, in addition to volume growth, in lower-margin categories in plant-based. The positive growth in the Sweet segment continued. Excluding the impact from Cocoa, Orkla Snacks continued to have a positive underlying development. Moving on the 12 month -- the trail rolling months, EBIT adjusted margin for the consolidated portfolio companies held at 10.3% in the third quarter, a 0.3% improvement year-on-year. This improvement was broad-based with corresponding margin improvement in 7 of the 9 consolidated Portfolio companies. In terms of input cost, the development remains polarized. We continue to expect raw materials prices in sum to stabilize in 2025, excluding cocoa. Beyond 2025, we expect a continued polarized cost development across sourcing categories and for the Portfolio companies with an overall neutral cost outlook despite inflationary market sentiment. At our Capital Markets Day, we laid out our 3-year financial targets for the consolidated Portfolio companies. At the same time, I said that improving the performance of our existing portfolio will create the most value in the short term. I'm impressed by the progress of our Portfolio companies so far delivering EBIT adjusted to compound annual growth rate of 11.8%, margin expansion of 1.3 percent points and an improvement in return on capital employed by 2 percentage points. All in line with our financial target for this strategy period. At the same time, a lot of work remains. We will be fully focused on delivering on each of these goals in 2026, concentrating particularly on continued organic growth, cost management and capital discipline, achieving our 2024-2026 target is central to delivering top-tier long-term shareholder return, which is our overarching mission. I'll now hand over to Arve to walk through the quarter in more details. Thank you so far. Arve Regland: Thank you, Nils, and good morning. Let's start with the income statement highlights for the third quarter. Operating revenue was NOK 17.9 billion, up 4% year-over-year, and EBIT adjusted was NOK 2 million, up 2%. Lower cost in Orkla ASA and the business service companies contributed positively. Other expenses was NOK 401 million in the quarter, and the main element was a write-down of NOK 240 million of trademarks in Orkla Health and a write-down of NOK 130 million in the European Pizza Company equal to the remaining goodwill in New York Pizza's German operations. Profit from associates, which is mainly Jotun, was NOK 603 million, up 10% year-over-year and then landed at profit before tax at NOK 2 billion. And the improvement compared to last year is mainly due to the substantial impairment charges last year. And as Nils mentioned, adjusted EPS at NOK 1.85 per share, up 9%. Year-to-date cash flow from operations was NOK 4.8 billion. We are around NOK 400 million below record last year for 2 reasons. Some working capital buildup due to higher trade receivables and inventory, and increased net replacement investments primarily related to Orkla Foods, Orkla Food Ingredients and Orkla Snacks. These include replacement project at various factories, ERP projects and new long-term leases. Dividend from Jotun is unchanged versus last year at NOK 948 million, and we received the second installment in the third quarter. Turning to capital allocation bridge, and I will comment on specific development in the quarter. Expansion CapEx is around NOK 400 million year-to-date, of which NOK 250 million in the third quarter. And the increase in the quarter is related to -- mainly to increased production capacity in Orkla Snacks and Orkla Food Ingredients. Purchase of companies increased with roughly NOK 100 million and is related mainly to bolt-on acquisition in Orkla Food Ingredients. We maintain a robust balance sheet with a net debt at NOK 17.7 billion, equal to 1.7x EBITDA and 1.3x excluding Orkla Food Ingredients. Moving to some more details on the Portfolio of companies. And as usual, we'll start with Jotun. And please note that the figures and graphs relate to Jotun is the end of August year-to-date as Jotun do not publish Q3 results. However, I will discuss some highlights from the quarter. Operating revenue declined 2% in the quarter, excluding negative currency translation effects, the sales growth was plus 4%. This follows a continuing trend, revenue growth driven by higher volumes as well as increased premium sales in the decorative segment. EBITA increased by 6% over the quarter and 12% excluding the currency effects related to a stronger Norwegian krona. Both higher sales volumes and gross margin from lower raw material cost contributed positively. Jotun had financial gains related to currency hedging in the quarter, but the amount is still much smaller than the negative impact to EBITA related to the stronger NOK. We guided that we expect to report 2025 results on par with last year. We continue to expect currency headwinds to negatively impact growth year-over-year in the fourth quarter. That said, given the strong underlying operational development year-to-date, Jotun's contribution to Orkla results for 2025 tracks ahead of our outlook. Orkla Foods had organic growth of 0.8%. It was a temporary negative volume mix impact in Q3 due to ERP modernization in the Czech Republic. And the go-live process created challenges for our main warehouse resulting in lost sales. Adjusted for this, volume mix growth was slightly positive for Orkla Foods in total. Orkla Foods Norway had a negative volume mix but with a significant improvement compared to the second quarter. Market share in growth categories increased in line with the strategy communicated at the Capital Markets update. Underlying EBIT growth was 2.4% and came primarily from increased sales. Input costs increased during the quarter and Orkla Foods expects higher prices for beef, dairy, marine and berries to continue into next year. Orkla Snacks had organic growth of 7.5%, driven entirely by price. The Chocolate segment was the main driver of the price growth as well as a drag on volumes. Organic growth in the Snacks category was flat in the quarter, while biscuit contributed positively. Underlying EBIT declined 8.4% year-over-year reflecting impact of higher cocoa prices. BUBS launched in the U.S. in September through a production and distribution agreement with Mount Franklin Foods. The BUBS U.S. launch was promising, but was not material in Orkla Snacks P&L for the quarter. We expect limited EBIT effect from BUBS in the coming quarters as we continue to invest in A&P and SG&A to support the rollout. Orkla Home & Personal Care had organic growth of 0.9%, driven by continued volume mix growth in Norway and Sweden. And this was partly offset by lower volume mix in contract manufacturing and Finland. Underlying EBIT growth was 7.6% year-over-year, primarily cost-driven. Organic growth in Orkla Food Ingredients was 8.3% with 3.9% from volume mix. The plant-based cluster drove the volume mix growth but on lower margin products with limited impact on EBIT growth. There was a volume mix decline in Bakery across business units impacted by softening consumer sentiment and intensified competition. Underlying EBIT growth at 1.6% for the quarter was impacted by continued improvement from sweet ingredients, offset by a loss of volume in Bakery as well as lower margins in plant-based, as mentioned. Organic growth in Orkla Health was 2.5%, with volume mix growth of 1.6%. The main positive contributors were Wound Care and Food Supplements in Europe. The growth was offset by continued weak development in both Oral Care and Functional Personal Care categories for B2B customers. Underlying EBIT decline was driven by contribution margin pressure, increased SG&A costs and higher advertising spend in food supplements. The new Orkla Health CEO, Mats Palmquist, joined in mid-August, and initiatives are launched to reduce complexity and improve growth. And we will find the right opportunity in 2026 to present an update on Orkla Health to the Capital Markets. Orkla India reported quarterly results yesterday, so I will only name a few points here. And please note that Orkla India reports to the Indian Stock Exchanges in local currency according to Indian Accounting Standards with the financial year starting April 1. The quarterly numbers we report are according to IFRS, given in NOK and presented on a calendar year basis. Organic operating revenue growth was 4.3%, with positive volume growth and a decline from price. Underlying EBIT declined by 1.8% due to higher advertising costs related to early festive season. Transition expenses associated with recent sales tax reform in India and also Orkla India recorded financial incentives from the government of India in the same quarter last year. Excluding the impact of government grants, underlying EBIT adjusted growth was 6.2%. Organic growth in the European Pizza Company was 2.2% in the quarter with consumer sales growth in the Netherlands, Finland and Poland. Underlying EBIT increased with 7%, driven by consumer sales growth and cost control. And lastly, Orkla House Care had a top line organic growth in the quarter, while the development was flat in the Health and Sports Nutrition Group. But there were substantially improved profitability in both companies compared to the same quarter last year. With that, I'll hand it back to you, Nils, for the closing remarks. Nils Selte: Thank you, Arve. Having now entered the second half of our statutory period 2024 to 2026, I'm pleased with the progress we have made across the 3 strategic pillars presented at our Capital Markets Day. Driving organic value in our existing portfolio, simplifying the portfolio structure and executing value-adding structural transactions. As we enter the last part of the strategy period, we remain committed to delivering on these 3. At the same time, we have initiated development for our next strategy plan, which will guide Orkla through 2030. This work is being carried out in close collaboration with our Board and grounded on the same principles of focus, discipline and long-term value creation. We look forward to presenting the next strategy plan to the market towards the end of 2026. In closing, I want to thank our employees across Orkla and our Portfolio companies for their hard work and our owners for continued support. We entered Q4 with determination to finish the year strong and with confidence in the path ahead. We have more work to do, but we are pleased with the direction. Thank you for your attention. Arve and I are now happy to take your questions. Annie Bersagel: Welcome back. We are now ready to begin our Q&A. [Operator Instructions] So our first question is from Hakon Nelson from Kepler Cheuvreux. Hakon Nelson: I have 2 from me. The first is about Jotun, they delivered a very solid quarter. Could you elaborate on the key drivers by the solid volume growth and margins? And whether do you see this level of performance as sustainable into 2026? And the second is regarding the transformation and exit portfolio. How should we think about the remaining assets in terms of timing? And are there business outside the current transformer exit classification that you could consider opening for a strategic review or potential sale if the right conditions arise? Nils Selte: Let's start with the Jotun question. I think as we describe the result and the good performance of Jotun is very much due to the higher volume and also improved gross margin. I think also we have said that we guide now ahead of what we guided for the total year 2024. So we are -- I think we will be a bit above what we guided early this year. We don't want, at this stage, guide for 2026, but I guess we will get back to that on the Q4 presentation. So can you repeat -- so when it comes to transform or exit portfolio, we have 2 companies left we have never guided on structural deals. So I think we will stick to that policy and not guide on any structural deals. And that goes for the whole portfolio to say so. Annie Bersagel: Our next question is from Ole Martin Westgaard from DNB Carnegie. Ole Westgaard: I'll start with a quick 1 on Foods. You highlighted delivery issues in the Czech Republic in this quarter. Just to be clear, are these issues now resolved? Or is this -- will this also impact Q4? Arve Regland: They are resolved. So that's -- this is also a Q3 incident in relation to implementation of the ERP system, which had -- we had some problems in the main warehouse related to that, but that's resolved at the end of Q3. So it shouldn't be impacting Q4. Ole Westgaard: Yes. And on Snacks, can you be specific on how much snack or sort of chocolate demand was down in Q3? And when do you expect this to stabilize or has it stabilized now? Arve Regland: It has stabilized, but we don't give any clear guidance on exact numbers. But as we have said earlier, we have at least a 10% volume decline on -- due to chocolate price increases. But it's stabilizing, but it's still obviously affecting the numbers year-over-year, as you can see in the report. Ole Westgaard: Yes. And then on the write-downs. I understand this is -- majority of this is related to Nutrilett. What is the remaining book value of Nutrilett on your balance sheet as of now? Arve Regland: There's nothing left on Nutrilett, but it's also several trademarks in Orkla Health that was written down in the quarters. Nutrilett was 1 of them, but they are also consolidated a few other trademarks into Sana-Sol as a new main brand for some of the trademarks or it's a combination of several trademarks that's written down, which then in total was the number, as I presented. Ole Westgaard: Yes. And then last 1 on Foods and Snacks. Can you comment on how you see your market share development in this quarter and how the competition is from private label? And I'll join back in the queue. Nils Selte: I think, in general, we see that we are flattish, more flattish when -- if you look at the prioritized categories within Foods, we see that we are taking market shares. Otherwise, in the other categories in Foods, we are more or less flat. Also that goes for -- but it's a few variation between the different categories in Snack, but all in all, it's more a flattish development this quarter. Annie Bersagel: And it looks like the next question we have is from Petter Nyström in ABG Sundar Collier. Petter Nystrøm: So just a very quick question for me. And that is, could you share some insight on how you see raw material prices developing into 2026 versus 2025? Nils Selte: As I talked about that briefly in my presentation earlier this morning, and I think this -- we are expecting flat development, including cocoa prices going into 2026. And that's the picture we see as of today. A bit fragmented, there are a big variation between the different categories, and it might see the different Portfolio companies differently. But in general. Annie Bersagel: I see Hakon Fuglu has a hand up, if you have another question. Hakon Fuglu: This is the first. But yes, I have a couple of ones, and I'll take them 1 by 1. In the second quarter, you talked about inventory rebalancing within Food for a couple of your clients. Did we have any impact on that this quarter as well? Arve Regland: That was a very limited impact this quarter. Hakon Fuglu: Okay. And looking at your headquarter costs, they continue to decline sequentially also in this quarter. Are we sort of reaching a sort of more normalized level in this quarter? Nils Selte: We don't want necessarily to guide on the headquarter cost. But I think this quarter, we see a reduction in FTEs in the IT part of the Orkla IT AS, and we also see a reduction in number of FTEs in the headquarter, as well as a reduction in bonus cost due to the share price development in this quarter. But we don't want to guide for going forward. Hakon Fuglu: And final 1 from me. Talking about your hero brands. Elevating those brands, now you're going to sort of help and what sort of the expected impact for the other Portfolio companies there? And are you seeing any impact from the ambitions that you launched on the CMU? Nils Selte: Implementing new ways of actually running our portfolio of different brands takes a lot of time, and it takes also time before it gets effect into your performance as well. So I think all the companies are now implementing this new way of thinking. And we presented the Snack and Food, how they are working on the Capital Markets Update in May this year. So this is work going on. We see progress as we have said that in prioritized categories in Food over the last few quarters. And I think that's a good sign on that this will work and this is working, but it takes time before it hits into the P&L to say so. Annie Bersagel: And I see our next question is from Ole Martin Westgaard in DNB Carnegie. Ole Westgaard: Another question for me. When it comes to your marketing spend in this quarter, how is that year-on-year? And what was the underlying margin improvement adjusted marketing spend? Arve Regland: Yes. We haven't given a clear number of that, but it's fairly flattish compared to the last year. Ole Westgaard: Yes. And then just on BUBS. You -- can you say a bit more on how you see the performance of BUBS in Q3 relative to your expectations? How has it changed any perception of how you view the attractiveness of the U.S. market? Arve Regland: No. In U.S., it's still early days. So as we also stated in the report, it's a promising launch in the U.S. Limited, however, limited impact to the numbers in the third quarter given that we launched at the end of the quarter. And we are also now very keen to support that rollout, meaning that we're going to support the sales with SG&A resources and also A&P. So on the back of that, it's promising, but I wouldn't expect a huge impact to the P&L in the coming quarters due to the efforts that we put behind the rollout. Nils Selte: We will in that for the long term in the U.S. market when it comes to BUBS. Annie Bersagel: That seems to be the last video question. So we're going to turn it over to questions from the web. It looks like we've had a couple coming from Marcela Klang, Handelsbanken. The first question from Marcela is on the strategy. Can you give an indication of the continued strategy plan that you will present towards in 2026? What areas are you contemplating on targeting real estate, M&A? Nils Selte: I think that's way too early. I said this is a process that we just started with the Board. It's ongoing discussions, and we have made a plan on how to make a good strategy for the future heading towards 2030. We also, in this process, will dive into the Portfolio companies, and the Portfolio companies will make their own full potential plans and strategy plans, and we need to see the totality before we can give any guidance to the market. And we would wrap in the end of 2026 with a new Capital Markets Day to tell about our strategy for 2030. Annie Bersagel: And the last question from Marcela here is, do you expect the NOK 4 billion share buyback program to be spread across Q1, Q2, Q3, Q4 2026 evenly or more in the first half? Arve Regland: The share back program will be run according to the MAR regulations meaning that we will buy a volume not affecting the share price, meaning up to 25% of the volume in the recent periods. So that it will take the time it will take. And we're not going to give a clear guidance on how many months it will take, but obviously, it will take some time to accumulate that volume in the market. Annie Bersagel: And that appears to be the final question on the web. So before we conclude, let me just remind you that we will report results for the fourth quarter on February 12. So with that, thank you for joining, and please enjoy your day.
Operator: Good afternoon, everyone, and thank you for joining us today for Nagarro SE's Q3 9 Months 2025 Earnings Call. [Operator Instructions] With that, it's my pleasure to hand you over to Michael. Michael Knapp: Great. Thank you, Sami, and good afternoon, everyone. My name is Michael Knapp, and I'm part of the Investor Relations team at Nagarro. If you have not yet received a copy of our Q3 2025 earnings release, you can find it as well as a copy of today's presentation in the Investor Relations section at nagarro.com. Joining me today is Manas Human, our Co-Founder and Custodian of Entrepreneurship. Manas and I will be covering the results and strategic updates for the quarter. Before we begin, please note that some statements made during this call may be forward-looking and are subject to risks and uncertainties as outlined in our earnings release. Additionally, please refer to the release for important information regarding non-IFRS measures. And with that, I'm pleased to hand you over to Manas. Manas Fuloria: Thanks, Michael. Once again, welcome, everyone, and thank you for joining us on this earnings call. We are taking a slightly different approach this quarter and hosting just 1 combined call so that we can expand on our prepared remarks a little and still have time to address your questions. We'll start by briefly highlighting our strong Q3 results, but perhaps even more importantly, underscoring the important and sustained actions we have been taking to address investor concerns, improve corporate governance and enhance our financial reporting and transparency. I also want to discuss how we have set the stage to drive better shareholder returns through improved execution and a disciplined capital allocation strategy. The operational changes we have made are already driving measurable improvements in our results, which perhaps have been overshadowed a bit at this time by a subdued demand environment and FX noise, but we believe we are still at the very early stages of showing the benefits from some of these new initiatives and processes that we have put in place, especially on the sales execution side. I'd also like to talk more about the future and in particular, about our vision of Fluidic Intelligence. We would like to explain that to you. We are promising our clients significant productivity improvements by unlocking the intelligence that already exists within their organizations. We are removing barriers for our clients between their people, their data, their decisions, creating low-friction enterprises that adapt faster and execute with clarity. And I'm excited to say that we're already seeing a very positive response from our clients around this promise, this theme of productivity improvements, and we will present an example of this. And finally, we'll be happy to take your questions. Now we are pleased with our execution in Q3, which demonstrates the strength and resilience of our business model despite all the ongoing macroeconomic challenges. Our teams delivered exceptional service to our clients, and we focused intently on operational discipline. During Q3, our revenue growth accelerated and is tracking to the guidance we provided last quarter. This is a testament to the stability of our customer base and the confidence our loyal customers place in us. Importantly, we're also seeing significant outperformance in profitability. Both our gross margin and adjusted EBITDA margin are ahead of expectations, reflecting the positive impact of the efficiency measures that we have implemented. In fact, the adjusted EBITDA margin of over 17% is the highest level we have seen since 2022. This margin expansion positions us well to generate strong earnings and cash flow moving forward. Over the past few quarters, we have prioritized making fundamental structural improvements to the way we operate. To that end, we have taken a number of decisive actions to improve corporate governance, financial reporting and transparency. We're already seeing tangible improvements in our internal process and operations. I'll talk more about this shortly. But these changes are not simply about meeting regulatory requirements. They're about building a world-class company about strengthening the foundation of trust and operational excellence that will support our growth ambitions for years to come. Our success is directly linked to our client success, and we are intensifying our efforts to deliver quantifiable business impact to help them win in their markets. We are actively showing clients how we drive significant measurable improvements to their businesses. We aren't just selling hours. We are pitching outcomes. And importantly, clients are responding. The quality of our relationships is improving, evidenced by the increase in client satisfaction scores and a strong pipeline of new high-value contracts. This focus on value creation ensures that our services remain essential and deeply embedded in our clients' strategic initiatives. Finally, in line with our disciplined approach to capital allocation, we remain committed to enhancing shareholder returns. We are pleased to announce that we are extinguishing approximately 75% of our treasury shares. We're also buying back EUR 20 million worth of stock. We believe there's a clear disconnect between the current share price and the intrinsic value of our share. The current share price even after today's jump does not reflect our strong financial performance, our expanding margins and improving operational structure. We believe the buyback program is one of several tools we are using to deploy capital, while signaling our confidence in the company's long-term outlook. We are confident that as we continue to execute on our strategy, the market will recognize the sustainable value that Nagarro has been building and in fact, has been building for a couple of decades now. Digging a little deeper into the numbers, we are pleased to report that our Q3 revenue growth reached 9.4% year-over-year at constant currency. This solid performance in a subdued demand environment keeps us on track with the revenue guidance we provided earlier. Turning to profitability. Our focus on operational discipline continues to yield impressive results. Our Q3 gross margins came in at 33.1%, which is over 300 basis points better than the guidance that we have provided. This significant outperformance is a direct consequence of our increased focus on margin expansion through targeted initiatives, including the successful implementation of the margin support program that we have earlier talked about. This program has optimized resource allocation, improved utilization rates and driven efficiencies across our organization. Our Q3 adjusted EBITDA margins were over 17%, which is above the high end of our guidance range. These strong margins are a clear highlight of our quarter and underscore our deliberately improved operational efficiency and our ability to translate top line growth into meaningful bottom line results for our shareholders. And all in all, we are maintaining the guidance we provided last time. But when you look at our tracking to our guidance for 2025, please also keep in mind the significant headwind presented all year by foreign exchange rates, especially the conversion between dollars and euro. To put this in perspective, if we were to adjust our revenue for the full 9 months to account for the foreign exchange impacts from the dollar and euro, our revenue would be approximately EUR 719 million, which would have placed us right near the midpoint of the initial 2025 full year guidance that we had issued back in January '23. Further, as you will see on the next slide, if currency exchange rates have not moved, our adjusted EBITDA would also have been at or above the midpoint of the initial 2025 full year guidance we issued in January. This ability to deliver what we promised at the start of the year despite the highly volatile environment, underscores the fundamental strength of Nagarro's business and the fundamental strength of Nagarro's positioning in the market and the fundamental strength of our relationships with our clients. Beyond these financial metrics, our long-term focus on delivering a superior client experience remains the primary driver of our sustained success, our commitment to our intimate partnership, innovation and measurable outcomes for our clients. By deeply understanding their strategic challenges and exceeding their expectations, we ensure that our services remain indispensable and embedded in the long-term digital transformation road maps. We believe the quality of our client relationships is our most valuable long-term asset. We believe that we can double our revenues well within this decade simply by doing more for the 187 clients we already have today that generate more than EUR 1 million in revenue each with us. Operator: We have lost connection to Manas, please bear with me regaining connection. Manas Fuloria: Coming out of this -- let me just talk again on the slide, and I hope, I'm not repeating my words too much. I want to take a few minutes to provide a clearer view of our underlying profitability. We recognize that our reported adjusted EBITDA figures for recent quarters have been significantly impacted by fluctuations in foreign exchange rates, specifically related to noncash impacts on loans between different companies within the Nagarro Group. Here, I want to highlight what our adjusted EBITDA margins might have looked like for the past 3 quarters, if we had corrected for this FX impact on intercompany loans, the resulting adjusted margins would have been materially higher and more representative of our sustained and resilient operational efficiency. We believe that this adjusted view provides a better picture of the fundamental robust earnings power of our business than the numbers that we have reported. This is also tangible evidence that the margin discipline we have been driving throughout the business is taking hold. We have now started to work similarly to elevate our sales execution. We are confident that as we continue to embed these operational improvements, the strength and stability of our business will shine through regardless of market conditions. Now as you know, we have taken a number of actions over the past several quarters to address investor concerns to improve our corporate governance and enhance our financial reporting and transparency. I want to highlight some of these by putting them all on one page. First, KPMG was appointed as Nagarro's external auditor. KPMG approved the 2024 annual financial statements without qualification, hopefully putting to rest many of the allegations that have been made against the company since we have been public. Working with the Tier 1 auditor has also led to enhanced reporting and disclosures, including how we account for purchase price allocation for deals and a combined management report that aligns to the specific broad topics defined by GAS 20. Then we developed new programs to drive a basic level of profitability across our business units and introduced an expanded bonus component for senior people, linking compensation directly to the company's margin performance. And now we are expanding that incentive linked to growth. Then we added 3 new members to the Supervisory Board with outstanding backgrounds as leaders at global companies. Martin Enderle is an experienced Chairman. Jack Clemens is an excellent Chair for the Audit Committee, and that's having an impact. And then Hans-Paul Bürkner has been an excellent mentor, a sparring partner for me in his role as the Chair of the Strategy Committee, and all of this change has been fantastic. Next, we have outlined a commitment to a disciplined capital allocation policy that included share buybacks, dividends and M&A. We have done all of these. We bought back EUR 52 million worth of stock to date. We intend to buy back another EUR 20 million as we announced this morning. We also paid out a EUR 12.6 million dividend and continue to pursue smaller tuck-in acquisitions. We are on track to announce soon a very small, but meaningful acquisition in the Japan, India tech services corridor. So that's that. And then we have some more good news this week, just a couple of days ago, our sustainability commitment was validated by an EcoVadis Gold Star rating, which is up from bronze that we had. This places our sustainability management system in the top 5% of assessed companies. And I would like to congratulate the Nagarro team that worked on this. We continue to uphold our dedication to becoming a more sustainable organization through ambitious science-aligned climate targets following the science-based target initiative. We have run a CFO search process and should have good news for you soon on that front. And finally, Nagarro has been developed from the first day on strong principles of ethics and full regulatory compliance. But in order to ensure that even in the decades to come, we are continuing to maintain the highest standards of integrity, compliance and operational resilience, we are further enhancing our processes and governance frameworks across the organization. Now our customer diversification across industries continues to provide both growth and stability. But in the meantime, there has been an evolution in our thinking given the tighter market conditions that have now persisted for a couple of years. We are going to be a bit more deliberate about targeted growth and more deliberate about where we place our bets. We're going to give a little extra emphasis in terms of sales efforts, where we have the right to win in those verticals and topics where we feel we can go big. While we do this, we continue to explore meaningfully our big secular growth opportunities that we have outlined in past calls in Japan and for Japan Inc. around the world. German Mittelstand in hardware and IoT and now in a fledgling way in the supply chain. We are developing playbooks around many of these topics and are improving our discipline around these. We see this improved discipline of execution and improved focus on commercial excellence as a new phase in Nagarro's evolutionary journey. Just a few words on our geographies. You know that our diversification extends to geographies as well. The U.S. and Germany remain of top importance for us. The Middle East has been a nice addition to growth in the last few years. We fully expect Japan to play this role in the coming years. Michael, with that, do you want to now discuss the balance sheet and cash flows? Michael Knapp: Absolutely, Manas. Thanks. The chart on the left shows our financial position at September 30, 2025. Financial liabilities were EUR 301.2 million and lease liabilities were EUR 70.8 million. Our cash balance remained strong at EUR 129.4 million, implying net liabilities of EUR 242.6 million, which leads to a net leverage ratio of 1.7x. The company's liquidity position at the end of the 9-month period was comfortable with working capital of EUR 223.5 million. In the interim consolidated statement of cash flows for 9 months of 2025, Nagarro has included the unrealized loss on intra-group loans within the Nagarro Group of EUR 15.8 million that was formerly under other noncash income and expenses into net cash flow from operating activities. And this is leading to a positive impact on it and a corresponding decrease in effects of exchange rate changes in cash and cash equivalents. For Q1 and first half 2025, this reclassification has a positive impact on net cash inflow from operating activities with a corresponding negative impact and effects of exchange rate changes on cash and cash equivalents of EUR 7.4 million and EUR 15.9 million, respectively. The numbers for comparable periods in 2024 are not material. Overall, there's no change in cash and cash equivalents and total changes in cash and cash equivalents in the statement of cash flows for Q1 and the first half of 2025. Cash flow for the 9-month period ended September showed a total cash outflow of EUR 49.2 million versus an inflow of EUR 33.1 million for the comparable period last year. Operating cash flow for the current 9-month period increased to EUR 77.1 million versus EUR 64.9 million for the comparable period last year. This was primarily due to other noncash incomes and expenses of EUR 7.2 million. Days of sales outstanding improved from 88 days at year-end 2024 to 85 days at the end of September. Kindly note that we calculate DSO based on quarterly revenues and include both contract assets and trade receivables. Cash flow from investing activities for the current 9-month period was an outflow of EUR 8.9 million, and CapEx was EUR 6.1 million. That's less than 1% of 9-month revenue, which reflects our asset-light model. Cash outflow from financing activities for the current 9-month period was EUR 117.4 million, mainly due to purchase of treasury shares amounting to EUR 50.1 million, net repayment of bank loans of EUR 24.3 million, lease payments of EUR 16.6 million, interest payments of EUR 13.8 million and the dividend paid during the period amounting to EUR 12.6 million. Turning to our capital allocation initiatives, which are designed to create shareholder value. We bought back a total of 684,000 shares that amounts to EUR 50.1 million. And we are pleased to announce this morning that we're continuing the buyback program and intend to acquire up to EUR 20 million worth of shares. In addition, we plan to redeem approximately 75% of the roughly 1.1 million treasury shares currently held to enable further share buybacks and adjust capital levels to appropriate levels for the company's business needs. We announced and paid a dividend of EUR 1 per share amounting to EUR 12.6 million or 13.1% of 2024 EBIT. This was declared during our AGM in June, and we expect to sustain our dividend policy of distributing between 10% and 20% of our EBIT annually. Our inorganic growth strategy remains highly disciplined, and it's focused on synergistic tuck-in opportunities rather than large transformative M&A. These smaller strategic acquisitions are crucial for filling specific technological, geographical and client-specific gaps. And we believe this measured approach ensures rapid integration, minimizes operational disruption and provides a clear path to immediately enhance our service portfolio and deepen client value. And with that, I'll hand it back to Manas. Manas Fuloria: Thank you, Michael. Now we spent the first half of this call talking about all the good work we have done in the recent past. I would like to shift gears and look towards the future a bit. We believe that in the next few years, every company in every industry will have to find significant double-digit productivity gains. Competition around this will heat up. A company without a clear path to realizing these productivity gains with AI will be lost. It will be a bit like a consumer company without a website in the '90s or 2000s or today, a consumer company without a social media presence. So this productivity movement is a big transformation ahead of us that will cut across each and every industry. Now as you know, Nagarro has been a big proponent of agile, and we have helped a large number of our corporate clients make the move to agile. In the next years, we're going to help them make the move to what we call Fluidic Intelligence. Let me spend a few minutes explaining what we see as Fluidic Intelligence. When we say Fluidic Intelligence at Nagarro, we are describing a fundamental shift in how individuals, technology and enterprises will operate in the age of AI. It's a deep rethinking of how human judgment and machine capability will come together to create step change outcomes. So let's start with individuals and take the example just of engineering and software engineering. So there's a big revolution ongoing in the software front, as you know, where engineers are no longer just writing code. They're orchestrating entire systems alongside AI assistants and agents. They're debugging complex distributed systems faster. They're exploring architectural options that they may not have considered otherwise and shipping micro services in days instead of weeks. But the real shift is that the nature of work has changed. The engineer is now the decision maker, the strategic decision maker setting direction, applying judgment, teaching the AI what good looks like in that project's context. And the result is a seamless and fluid collaboration between the human engineering nutrition and the AI capability. And we believe that this is the way the future will work and all individuals and teams that are not working this way will be simply too slow to compete. And this is what we call Fluidic Intelligence at the individual or small teams level. But if you look then beyond this at technology inside large enterprises, most organizations sit on 10, 20, 50 years of operational knowledge. Much of it is scrapped in systems that only some experts understand or it's in the head of -- heads of managers or experts or buried in some spreadsheets or logs. And when an issue takes place, whether it's a quality issue, supply chain issue or whatever, the disruption just has to trigger teams spending days piecing together this tribal knowledge from here and there to diagnose what's going on. With Fluidic Intelligence, AI can surface the right insight at exactly the right moment by understanding every bit of adjustment, anomaly, recovery pattern that's stored across the enterprise historically. So the real unlock isn't just data, it's the accessible contextualized decision-making knowledge. And this is the technological dimension of Fluidic Intelligence. And it goes beyond technology to the enterprise itself. Most organizations are like cities that grew organically. They are built with a certain old context in mind, the departments that don't talk to each other, they work in silos. They have independent objectives, independent incentives, independent budgets, workflows create friction and information moves slowly. And even a simple change to a simple topic may take weeks or months and may require many changes to many systems. And in this friction-free future enterprise that we see powered by Fluidic Intelligence, that same scenario is intelligently orchestrated end-to-end in minutes or hours, pulling context on the right systems, checking constraints, routing decisions to the right humans, automating everything else. So Fluidic Intelligence for us in some is at one level, human AI collaboration, at one level, the knowledge fluidity across different technology platforms. And the third is like the friction free flow at the enterprise across departments. And we think it's the architecture of how the next generation of intelligent organizations will operate. Now given Nagarro's own context of not only being an agile software engineering company, but trying to build an agile company, given our deep engineering expertise, given our history of engaging with clients on the agile transformations and other complex and challenging cultural topics, I think this is work we are uniquely positioned to deliver. Now in a minute, I'll show an example of what Fluidic Intelligence looks like in practice because it's the best way to understand it is to actually see an example. But first, a few words on how we are going to deliver it using special intellectual property that we have developed. What we are doing is we have, in the past several months, centralized our IT investments that used to exist in the BU silos. We have consolidated them all these AI accelerators and platforms into a portfolio that we call the Fluidic Forge. At a high level, it includes 4 streams of activity broadly. The first is the operational intelligence to run the business where work actually happens. This is a front line with orders and fulfillment and exceptions and incidents, and you want to bring predictability to the messiest part of operations, which is this. The second is more around decision planning intelligence. This is where strategy and map come together to improve the business. The third is around the technology integration and orchestration across the ERP, CRM, order management, warehouse management, finance, HR and whether it's legacy mainframes or the latest data platforms by using agents that work across systems and inside every workflow. And the final pillar is the modernization of the mission-critical core of data across legacy mainframes as well as data platforms. So this vision is about what an organization needs to do to move to this new world. It's not about small pilots in some corner, but rather about transforming the enterprise end-to-end. And we feel that Nagarro is just the right size. We are big enough and embedded enough at our clients to take on such transformational work, but we are also technical enough and agile enough to work on every little piece that needs to come together for this transformation at our clients. Now let's take a real-world example of how this transformation is achieved. And this example is the example of Dublin Airport and of modernizing Dublin Airports operations. And I believe most of us would be frequent travelers, frequent air travelers, so we will be able to relate to this example. Dublin Airport is Ireland's national Gateway and the 12th largest airport in Europe. It handles over 30 million passengers annually. It operates in a highly dynamic system with thousands of different processes with interdependent, airside logistics coordination, retail management, security, ground transportation and so on. And every decision impacts passenger experience, safety and operational agility. Now despite its evidence and the scale of the airport, it has faced frequent disruptions and challenges in decision-making. Data critical decision-making is scattered across silo systems, baggage handling, for example, passenger information, for example, gate management, air traffic control, ground operations and many more. And this fragmentation resulted in delayed awareness, reactive operations and inefficiencies. And a lot of the operational intelligence of the airport was not in the systems, but facet knowledge held by experienced staff insights that were not captured or shared across teams. And to manage this complexity as the airport plan to scale, it needed to evolve into a Fluidic system, where data decisions and intelligence flow seamlessly across teams and technologies. So this is what Nagarro did. We came in, mapped the airport as a single connected system. We revealed the fragmentation across these different operational and decision-making layers. We identified these critical knowledge assets and key friction points that were limiting the agility and cross-functional decision-making such as challenges with operational command visibility and unified control into flight operations, passenger operations, the limited ability to anticipate passenger flows or peak loads or queue congestion and not being able to drive retail and other non-aeronautical revenue and leaving money on the table and not being able to optimize the utilization of pavement and assets stands, taxiways, runway users and so on. And we use the Fluidic Forge AI accelerator that I just talked about to address these friction points, creating this sort of connected intelligence and predictive control and optimization with measurable business outcomes. Now I won't go into the details, but the airport has now much more data streaming, real-time event-driven dashboards, AI models for flow prediction, for congestion alerts. And these are integrating all kinds of data, like weather data or airline schedules or how people are coming through security and so on. There's agent-based modeling for dynamic workforce planning. There's a digital twin of airfield operations, there's AI maintenance schedulers and so on. So -- and the outcomes are, of course, how -- everything is optimized, how airlines use the airport, how the revenue and yield from retail locations is optimized, efficiency and ground handling, better experiences for passengers. And if you think about it, it's also going to drive better regulatory compliance and also agility to respond to things that may happen in the environment, which all comes from this unified data fabric with intelligence sitting on top of it. And this collaboration with Dublin Airport is not a one-off thing. It continues as the airport expands its AI native capabilities from passenger flow forecasting and retail intelligence and so on to sustainability analytics and other new frontiers setting this global benchmark for frictionless airports of the future. So in this example, we talk about how we brought Fluidic Intelligence to this airport, to Dublin Airport. But from the vantage point of where Nagarro sits, we have like hundreds of such clients. We have this opportunity to deliver similar results on data and AI to many great clients across various industries. And as you know, we are privileged to work with some of the world's most recognized and forward-thinking companies, companies that are not just leading their industries today, but actually reimagining what the future will look like across how we live, how we move, how we work, how we bank, how we connect and so on. And these are loyal clients. These are not just one-off partnerships. These are loyal clients who work with us year after year. They include, for example, 3 of the top luxury car manufacturers, 3 of the top 5 global leaders in industrial automation, 5 of the leading global retailers, 2 of the top 3 global hotel groups, 2 of the leading global cities. And then there are these niches like half -- almost half the top banks in the Middle East. 3 of the top 4 management consulting companies and so on. I could just go on and on, right? So there's a huge base of loyal clients where we can bring these capabilities to them. And with these clients, we will work towards the future, we work towards inventing what comes next. And with that sort of like a little bit of framing of where we sit and to speak into how we see Nagarro evolving into the future, maybe we transition to the Q&A. Maybe the operator can switch to Q&A. Operator: Our first audio question comes from Nicolas David from ODDO BHF. Nicolas David: I have a few questions. The first one is regarding the overrun environment. Manas you said that the demand is still soft. But I understand that this comment is more on a 9-month basis because, I mean, you showed a pretty good Q3, both on a year-on-year basis, but also on a quarter-on-quarter trend. So did you see, nevertheless, an improvement in the trend recently? And how do you see Q4? Do you see further improvement? Or are you worried about potential big furlough by the end of the year? So my first question would be around the overall environment. And regarding that, also, could you comment please on the pricing environment. Some of your competitors have been mentioning further pricing pressure be it linked or not to the AI evolution? And my last question is regarding the profitability. So if we take the midrange of your annual guidance, it implies a 14% EBITDA margin. Excluding the write-off of your intercompany loan, it would be like 15.8%. Is this profitable level sustainable for the next years? Or do you need some investment? Or is that something that could push downwards the margin for the next year? Manas Fuloria: Thank you, Nicolas, for these questions, and I'll take them one by one. I think that the demand environment is still soft, but I think the degree of clarity and confidence that now exists about where AI is going to take us, has not been there for a long time. So it's difficult to predict how the quarters will look, but I think the 3-year, 5-year horizon is really bullish now, I would even say bullish because the transformation is here. I think we had this period when the technology had been introduced. There were lots of questions about whether it would be capable enough to bring about changes, how it would impact the IT services sector and so on. I think these questions are by and large, behind us. I think there is a fair amount of tangibility into how the future will look. Q4 is a quarter with fewer working days typically. So there is some of that. And again, I would not want to predict quarters, but I think that in general, the outlook is bullish. In terms of pricing pressure, I think there's pricing pressure in large multiyear deals because there's some doubt about where the productivity improvements will take us. But I think that in general, Nagarro's business is still majority T&M business, and we don't see that much pricing pressure there as maybe in multiyear managed services deals. Finally, in terms of profitability, I think a couple of years ago, we had said that we believe that when we spun off the company, we said that 15% adjusted EBITDA was our target. And a few years later, we said 18% is where we want to gradually get to, I think that's where our target is. I think that we will need to make some more investments, but we also see still a lot of opportunities to rationalize our costs and to pool our resources and make more targeted bets. So I think that we will -- we do expect profitability to keep improving in the years to come. Nicolas David: And if I may, regarding the outlook, you mentioned more the AI visibility driving the demand. It's you really believe that it's really technology and AI, which has been driving up and down. It's even more than the macro itself? Or macro has still an important role to play. And if so, what is your view regarding the macro? Is it really unchanged there or slightly better? Manas Fuloria: That's a great question, Nicolas. I think that there have been periods in this -- in the last few years, where the macro has played a role but in general, I think technology is seen as a must invest, when it becomes critical to competition. And I think we are entering a phase where it will become a must invest when it comes to productivity improvements. That's why I'm very bullish about this. I don't think that companies will pare back their budgets only to spend more money in terms of reduced productivity. So I think the technology changes will prompt the macro. That's my personal reading. Operator: Our next question comes from Fabio Holsch from M.M. Warburg. Fabio Holscher: Starting with maybe can you confirm that the sequential margin improvement now in Q3 was mainly driven by FX in the other operating results compared to Q1 and Q2? And then how we should think about FX revaluation risk going forward? That's my first question. And then second question, can you comment on what drove the decision to redeem the 75% of treasury shares now? And how aggressive you plan to be with the EUR 20 million buyback? Manas Fuloria: Sure. So the margin improvement is -- I mean, it's a secular trend. The underlying margin improvement with the reported adjusted EBITDA margin because we don't correct for this revaluation of intracompany loans, it has shown a weakness in the first 2 quarters, but with the adjustment, you can see that there's a secular trend of being over 15% and now in a 17% range. So I think that the revaluation risk remains because if the dollar drops dramatically to -- against the euro, then the adjusted EBITDA margin that we declare will be affected. On the other hand, if it rises, it will be affected. But I think we're also going to be talking to our auditor about potentially restating our adjusted EBITDA to account for this intracompany loan topic because we think it's not -- we think it's distracting and doesn't fully reflect the operations of the business. So that's that. I think in general, the margin improvement is not predicated on FX. It's actually the underlying effect is really about all the operational efficiency that we're working towards. On the redeeming the 75%, we keep looking at our balance sheet from time to time and monitoring it and seeing what's best. And at the moment, we have I mean, currently, we have decided to redeem 75%. And the share buyback, I think we have certain regulatory, I think how much we can buy on any single day, but we will be trying to buy this EUR 20 million as soon as possible. Fabio Holscher: Okay, perfect. And if I may squeeze in 1 more. Can you elaborate on your growth plans and Fluidic Intelligence, how that is concentrated in the specific verticals or geographies, which ones you maybe prioritize? Manas Fuloria: So we are actually in the middle of a strategic review, and we will have more clarity by the beginning of next year. But in general, we -- if you look back over the last years, we have seen that the U.S. and Germany continue to be our largest market. And we see excitement across the Middle East and Japan. So I think these are the markets where we have the real focus. And outside that, in terms of verticals, we are doing very well in industrial, and we're doing well in retail and CPG, life sciences. So there are a few verticals that we can easily see that are bucking the trend and then there are some verticals which are really big for us and really important, like banking, for example, or automotive, to some extent, even if they are not doing very, very well at this particular moment. So I think that in general, we are -- we have already started to shift away from some of the verticals that we used to report like horizontal tech. I think from -- for the last 5 years, we've been kind of shifting away from that. But there may be a few others that we decide at least not to invest too much in. It's not that we shut down accounts or anything like that. I think it's just that we don't want to be -- we want to be playing in a tight market where we have a very good chance of winning. And that's the philosophy going forward. So the company has been a very entrepreneurially driven company, but we also have the ability, I believe, to be strong and to take decisive decisions centrally to steer it in certain directions, and that's kind of what we have been kind of playing out in the last few months. Operator: [Operator Instructions] And I'd now like to hand over to Michael for text questions. Michael Knapp: Great. Thanks, Sami. So first question, Manas. Congratulations on strong quarterly results and clarity of the presentation, wanted to ask about the recent significant reduction in equity through the cancellation of treasury shares. Can you elaborate on the strategic objective behind this move? And how we should interpret it in the context of your future capital allocation policy? Manas Fuloria: Well, I think it's just -- thanks, Michael. I think it's just an assessment of the levels of capital needed to run the company, and that's the reason for the exhibition of the shares. And our capital allocation policy continues along the lines of what we have described before, we will take a good look at it as the new CFO in place and come out with a fresh update. But at the moment, this is our -- we are on track with our -- we're in line with the current capital allocation policy. I don't see this as a departure. Michael Knapp: Great. Thanks, Manas. The next question is in 2 parts. First is can you please elaborate on your strong expense control, noting that your SG&A declined by EUR 12 million sequentially. And then secondly, can you explain what changes were made to the stock compensation and incentive plan, which was called out as EUR 11.5 million in your quarterly report. Were those related in any way or discrete items? Manas Fuloria: So on the first, I think the main change that we have made is to try to push towards a certain minimum margin in every business unit. And what this has led to has been streamlining of the spend that we have in practices, which are mainly sales and presales oriented. I think that when we spun off in 2020, our target was that we were aim for 15% EBITDA and really invest in practices and capabilities to drive a global footprint across different industries. Because that was the nature of the situation, we found ourselves beautifully placed to ride the wave of digital transformation, and we felt that we should take full advantage of that wave to build out as many footprints as possible across different industries and different verticals, different offerings. And what this is, is a little bit more of a rationalization. It's also a realization and recognition that the AI revolution is going to be a lot more common to different industries. So it's better to invest in a central way than in all these different practices across the BU. So that's the main theme. On the stock compensation and incentive side, my guess is that's coming from just revaluation based on stock options, et cetera, but I'm not totally sure maybe we can reconnect separately and go over that line item. Michael Knapp: Great. Next question is a 3-parter. Do you have any visibility on returning to double-digit growth in 2026? And then what free cash flow conversion target do you have for the coming quarters? And do you have an estimated net debt level by year-end? Manas Fuloria: Sure. So we don't like to predict the short-term future. It's always more difficult and volatile -- but I think that double-digit growth in the medium term is absolutely where we need to be at. And we don't know, when it will come, but the company is just gearing up to ensure that no matter what the market conditions, we are able to deliver that. And that's the first part. It involves a lot of different changes that we are making to the way we run our business units, but also the way we run our different geographies and the way we run key accounts and the playbooks we use and how sales is organized. But that's definitely something in our future. In terms of FCF, we are not -- we don't talk to set targets because the faster you grow, the more your cash flow suffers. So we are really focused more on growth and margins rather than FCF. And in terms of net debt level, we have obviously an outer bound that we have always declared of 3x adjusted EBITDA, but typically, we like to steer at the 2x EBITDA level to keep that as a -- and maybe go up a little bit beyond that. But 3x is the outer bound. We don't expect the net debt level to change. I mean, let me not give a prediction for the year-end, but that's a general approach to stay around the 2x mark. Or rather, actually also a question of how much cash you want to keep. And typically, we're trying to keep between EUR 100 million to EUR 125 million of cash across our different offices. So that's kind of where we kind of end up with the net debt. Michael Knapp: Great. Thanks for that, Manas. Next question would be you're seeing big tax implications that the dividend payment had this year? Are you exploring ways to improve this? Manas Fuloria: Yes, we have been obsolete transferring cash that was at different parts of the organization upstream towards the [ SE ] and there have been some tax implications of that. And yes, we are definitely working on how to reduce those and normalize those in the years to come. Michael Knapp: Okay. The next question is the current narrative for the sector seems to be that AI could disrupt the IT sector, implying clients are focusing most on their budgets, most of their budgets on hyperscalers, meaning that could be less for companies like Nagarro. Could you please share your view on this? Manas Fuloria: No, I don't think that's the right way to think about it personally. I think that if you want to use more compute and do more things with technology, you need to know what you are doing, right? So the challenge is not in -- it's not just a question of harnessing more chips. But as each one of us knows enterprises are horribly complex. And the example of Dublin Airport totally is one example that we all can relate to, but I think we see similar frictions in every experience that we have, whether it's on a hospital chain or insurance or banking or there are all these different frictions that we have or in cities and governments and so on. And I think the opportunity to actually drive change with AI and with what we call Fluidic Intelligence, is going to be dependent a lot on the people who get it done, who have done this many other companies, and they can bring it to you and they can tell you how it's done, what works, what doesn't work, and that can actually design it in a way that doesn't lock you in as a customer, that keeps you flexible to jump on the next wave of innovation that happens. So I don't at all believe that IT services is -- or the IT services sector is going to be depressed. I think it has good room to grow. There's, of course, intermediate adjustments that we have been seeing in the last couple of years. But I don't think that this -- I'm very excited about the medium-term outlook for the sector. Michael Knapp: Okay. The next question is, should we expect the head count to keep on rising in the following quarters? Manas Fuloria: We try to -- again, I'm always very wary of giving predictions. I think we do -- personally, I would say, I guess, head count will keep rising gradually. But it's a lot more about what we do with people than the number of people that are deployed. So there is a big change to retrain, to improve the productivity, the people we already have and then to choose a different kind of person when you are hiring. So for example, in India, our fresher hiring, which we hire the most people fresh from colleges has now moved to the AI business unit so that the people that we are hiring are all AI native. And we see that there is a whole new level of capabilities that people like that can bring. So I think it's a reorientation of how people are added to a company, but I don't think it's an end of people growth. We do expect the growth to be a bit more conservative in the next few quarters, but maybe picking up after that. Michael Knapp: Perfect. Thanks for that. The next question is what impact will the potential higher act in America have on your business? Manas Fuloria: At the moment, we don't expect any significant impact, but we keep waiting and watching. We don't expect any significant impact. Michael Knapp: Okay. And the next question is how much growth is expected to come as a percent of revenues from joint ventures in Japan? And when will we start to see them contributing to revenue? Manas Fuloria: That's an interesting question. So whether it's joint ventures or partnerships, I think we are going to have like double-digit millions next year. And hopefully triple-digit millions by -- in a 2 years, right? So we have a very strong pipeline. It's -- as you know, the Japan is a complicated environment to work in because there are cultural nuances, there are language topics. And that's why the acquisition that I just mentioned briefly is important because it allows us to work with -- work globally with the language trained workforce, for example. So I think we're putting the pieces in place, and we have the pipeline, and we expect it to take off in the next year or 2, but I must say that at this moment, we probably have already a 3-digit number of leads and opportunity for separate projects that we are looking at. Michael Knapp: Great. And the final question is around conversations with your clients for 2026 digital transformation spending, how are those evolving so far? I know it's still early and companies are finalizing their 2026 budgets. But according to conversations so far, they are still conservative? Or do they look more optimistic about ramping up projects next year? Manas Fuloria: I think that in general, it is better than it's unit for the last few years. But I won't say that spring is here and summer can't be far behind. I think that it is definitely a stronger base than we are projecting out than we have had in any of the last few year ends, but let's wait and see. I don't want to be -- go out on the limb and forecast a recovery, but it does look better than it has been in the last years. Michael Knapp: Great. Well, thanks for your feedback on those points, Manas. I want to thank everyone for joining us today. We really appreciate your interest in Nagarro, and we look forward to connecting with you again soon. Manas Fuloria: Thank you very much. Operator: Thank you, everyone. This now concludes Nagarro's Q3 2025 earnings call. You may now disconnect your lines.
Unknown Executive: Welcome to Dentsu FY 2025 Third Quarter Earnings Call, and thank you for joining us today. My name is Morishima. I'm from the Group IR Office, and I will be your conference operator today. Please be reminded that today's call is being recorded. This call will be held in Japanese and English with simultaneous translation for those joining online. Please choose your preferred language from the bottom of the Zoom screen. For those joining on the telephone line, you will only be able to hear the original language spoken. Today's presentation material is available on our website. Joining me today. Global CEO Dentsu, Hiroshi Igarashi. Hiroshi Igarashi: [Foreign Language]. Unknown Executive: Global COO Dentsu and Chairman and Acting CEO Dentsu Americas, Giulio Malegori. Giulio Malegori: Hi, everybody. It's Giulio here. Hi. Unknown Executive: CEO Dentsu Japan and Deputy Global COO Dentsu, Takeshi Sano. Takeshi Sano: [Foreign Language]. Unknown Executive: And Global CFO Dentsu, Shigeki Endo. Shigeki Endo: [Foreign Language]. Unknown Executive: They will be responding to your questions after the presentation. Today's agenda will begin with business and strategic update from Hiroshi Igarashi, followed by a financial update from Shigeki Endo. We will invite you to ask questions after the presentation. Mr. Igarashi, please start your presentation. Hiroshi Igarashi: Thank you very much for joining the third quarter FY 2025 earnings call today. Let me start with the 9-month summary and outlook. The 9 months organic growth rate was 0.3%, in line with our expectations, while the operating margin reached 13.0%, exceeding both the previous corresponding period and our expectations. Based on these 9 months results and the outlook for the fourth quarter, we are upgrading our full year profit guidance. As for the year-end dividend forecast, which is currently undetermined, we will announce that once it is determined, based on profits from business, progress on asset sales and future capital allocation. As we announced in August, to achieve fundamental improvements in our international business, we will continue to explore and implement strategic alternatives, including forming comprehensive and strategic partnerships. Lastly, we will review the current midterm management plan as necessary with the aim of achieving sustainable improvement in corporate value to maximize shareholder value. Let me move on to the highlights of the third quarter and the recent period. We secured a 3-year media count for Vodafone across EMEA. And also won a new Vodafone 3 account in the United Kingdom. We also won Carlsberg Britvic in the United Kingdom, while we continue our global relationship with Carlsberg. In Japan, we have a new client, Zurich Insurance, to which we will offer the integrated solution of media and creative. In the United States, Hy-Vee, a leading supermarket chain, has appointed us as their media agency. This expands upon our existing retail media partnership. In APAC, we have welcomed the fashion brand, COS, as our new clients. In addition, in the creative domain, we have been recognized at various advertising awards this year, including being named MAD STARS Agency of the Year. Additionally, at the MINSKY Awards, one of India's largest AI festivals, Dentsu Global Services was selected as a leading global capability center in the AI innovation category. Next, a business update. The Japan business is performing strongly, driven by growth from existing clients and revenue recognition from new clients. The key to this success is our integrated growth solutions. For example, even when a project starts as a simple media assignment, we identify the core challenge and go beyond addressing it directly. We explore and propose solutions across a broad range of domains that truly support our clients' growth. Our strengths lie not only in advanced marketing powered by AI, data and technology, but also in our broad capabilities spanning BX and DX, combined with our proven execution capabilities. Our track record of accurately capturing clients' needs, proposing optimal solutions, and delivering them to completion builds trust. This contributes to our competitiveness that drives high-pitch win rates. Looking ahead, we will continue to expand our integrated growth solutions to ensure stable growth for our Japan business. As outlined in our midterm management plan, Dentsu is working on advancing our Media++ strategy in our international business. Media++ is a strategy designed to drive clients' business growth by integrating media with CXM, creative and data and technology, while elevating the core value of media services by harnessing the power of AI, data and new insights to deliver greater added value. By incorporating new media such as retail media and social commerce, Media++ aims to deliver a more integrated and performance-driven approach that maximizes clients' marketing return on investment. Media++ has already contributed to a new business win with Dollar General, one of the largest discount retail chains in the United States in the retail media category. In EMEA, we have seen strong traction in major media pitches such as for the Vodafone and BMW, enabling us to secure wins in those pitches. The positive impact is becoming increasingly evident across regions. Looking ahead, we will further accelerate its expansion across markets, including the U.S., the UK, Germany, and China. Media++ will be positioned as a key growth driver of our international business, and we will be focusing our internal investments more intensely in this area going forward. Next, I would like to talk about the progress of our midterm management plan. First, the rebuilding of our business foundation. As of the end of the third quarter, we recorded a cost of approximately JPY 8.6 billion. For the fiscal year, we expect to record approximately JPY 28 billion. While we will continue to book costs from fiscal 2026 onward, we remain on track to achieve the anticipated annual cost reduction in fiscal 2027 that will be needed for us to achieve an operating margin of 16% to 17% in that fiscal year. Next is about our internal investment. After a thorough review, we are now allocating approximately JPY 12 billion this year to internal investment, with a strong focus on enhancing our AI as well as data and technology capabilities. Moreover, we will further sharpen our focus on the Media++ strategy in order to restore our competitive advantage. Now I'll hand over to our Global CFO, Shigeki, to give you an update on our financial results. Shigeki Endo: This is Shigeki Endo. Let me take you through the financial results for the third quarter of fiscal 2025. I will start with our key metrics. The organic growth rate in the first 9 months was 0.3%, which was in line with our guidance disclosed on August 14. For the 3 months of the third quarter, it turned positive at 1.4% year-on-year. Following on from the first and the second quarters, the Japan business continued to perform well in the third quarter, exceeding our August expectations. Meanwhile, the international business showed mixed results by region. The Americas and EMEA were generally in line with expectations, but APAC fell short. While organic growth was positive, the negative impact of exchange rates and other factors led to the group net revenue to JPY 851.3 billion, a 0.8% decrease year-on-year. Subsequently, underlying operating profit was JPY 111.0 billion, a 14.1% increase, and the operating margin increased 170 basis points year-on-year to 13.0%. Operating margin for the 3 months of the third quarter was 15%, higher than 12% for the same quarter the previous year and our August expectations. The year-on-year increase is mainly due to the strong performance of the Japan business. On a statutory basis, an operating loss of JPY 7.4 billion and a net loss of JPY 61.5 billion were recorded. The difference between the underlying operating profit and the statutory operating loss was mainly due to the goodwill impairment loss recorded in the international business in the second quarter. I will now explain the results by region for the first 9 months. Japan, the largest region accounting for 42% of the group's net revenue, continued to perform well in the third quarter, with high organic growth exceeding 5%, as it did in the first and the second quarters. Meanwhile, all regions of the international business recorded negative organic growth rate for both the 3 months of the third quarter and the first 9 months. By market year-to-date, the United States, the United Kingdom, China, and Australia reported negative organic growth, while Spain, Poland, Taiwan, and Thailand saw positive organic growth. Moving on to the detailed explanation of each region. Japan saw organic growth of 6.8% in the first 9 months, with both net revenue and underlying operating profit reaching record highs. It marked the 10th consecutive quarter of positive growth and the 4th fourth consecutive quarter of growth of 5% or more. The 9.9% organic growth rate in the 3 months of the third quarter was due to strong growth in all of the domains, including BX and DX. In particular, internet media led the Japan business, achieving double-digit growth and turnover for the 7th consecutive quarter, driven by business expansion with existing clients, and revenue recognition from new clients won through pitches. Events, such as sports events and turnover of TV media, increasing year-on-year for the first time this fiscal year, also contributed to Japan's performance. In Japan, we have increased staff costs as we continue to enforce talent expansion for future growth, but the increase in net revenue more than offset this, resulting in a high operating margin level of 24.6%, continuing the trend from the first and the second quarters. I will explain in more detail later, but based on the strong performance, we are raising our full year forecast for the Japan business. In the Americas, which accounts for 28% of the group's net revenue, organic growth in the first 9 months was negative 3.4%, which was generally in line with our August expectations. By business domain, CXM is relatively stabilizing as we confirm the sequential improvement by quarter in the organic growth rate. However, given the ongoing uncertainty in the macro and industry environments, we will continue to carefully monitor the situation. On the other hand, as mentioned at the time of second quarter earnings announcement, creative saw reduced client spends and losses, resulting in a low single-digit decline in the first 9 months. Media continued to remain stable, with results broadly at the same level as the previous year. Hence, the top line decline as a result of the SG&A expenses control, the operating margin for the first 9 months improved 220 basis points year-on-year to 22.7%. However, as mentioned earlier, this also included the impact of the allowance of trade receivables recorded in the third quarter of the previous year. EMEA's organic growth in the first 9 months was negative 1.9%, broadly in line with our August expectations. By business domain, CXM and creative were weak, while media remained stable. For the 3 months of the third quarter, the U.K. continued to face challenges in CXM, while Italy showed weakness due to client losses in the previous year. In contrast, Spain recorded positive growth in all domains, maintaining its mid-single-digit organic growth. As for operating margin, it remained at 7.9% for the first 9 months of the year, despite our efforts in controlling the SG&A expenses. APAC's 9-month organic growth rate was negative 10.1%, below our August expectations. By business domain, CXM and creative continued to struggle with double-digit negative growth. Meanwhile, media remained stable. In the 3 months of the third quarter, India and Thailand showed solid performances, with Thailand in particular maintaining favorable momentum with a high market share. Meanwhile, Australia continued to face difficulties. Despite continued efforts to control SG&A expenses, APAC recorded underlying operating loss for the 9-month period, as was the case at the end of the first half-year period. Next, I would like to explain the year-on-year changes in the underlying operating profit. Underlying operating profit for the 9 months increased from JPY 97.2 billion to JPY 111 billion at this fiscal year. Net revenue increased by JPY 22.8 billion in Japan, but decreased by JPY 22.3 billion in international business, excluding currency impact, resulting in a JPY 500 million net revenue increase for the group as a whole. Staff costs increased by JPY 9 billion in Japan, mainly due to talent expansion, but decreased by JPY 12.5 billion in total in the international business, primarily in the Americas and APAC, resulting in a group-wide cost reduction of JPY 2.6 billion for the period. As for operating expenses, Japan recorded a reduction of JPY 1.8 billion and international business a reduction of JPY 9.3 billion. Consequently, the group as a whole registered a decrease of JPY 11.7 billion during the period. This decrease in the international business does include the impact of the allowance for trade receivables recorded last year, as I mentioned earlier in the Americas part. However, even if we exclude this impact, we were still able to reduce operating expenses. Lastly, I would like to go through our guidance for the fiscal year. As explained earlier, consolidated organic growth rate for the 9-month period was in line with the guidance announced in August and with the international business falling short and the Japan business exceeding our expectations. In light of these factors, we have maintained our full year guidance for consolidated organic growth rate at broadly flat. However, we will update our regional forecasts with Japan business revised up from circa 3% to circa 4%, and the international business revised down from circa negative 2% to circa negative 3%. As for the Americas and EMEA, forecasts remain unchanged. As for underlying operating profit, we will upgrade our August guidance of JPY 141.6 billion, to JPY 161.2 billion in reflection of the strong performance of the Japan business, scrutiny of internal investments, and the anticipated realization of some cost reduction effects from our initiative in rebuilding our business foundation. As a consequence, we will upgrade our consolidated operating margin guidance from circa 12% to in the 13% range. With the upgrade of underlying operating profit guidance, we will also upgrade our guidance for statutory numbers with operating loss of JPY 3.5 billion, revised up to operating profit of JPY 17.6 billion. And a net loss attributable to owners or parent of JPY 75.4 billion, revised up to a net loss of JPY 52.9 billion. While these revisions in our guidance primarily reflect improvements in profitability, our international business is still expected to post negative growth for the full fiscal year. As such, we acknowledge that the situation remains to be uncertain. In concluding my presentation, I would like to stress that rebuilding our business foundation that we have been focusing on this year is making steady progress. With a month and a half remaining this fiscal year, we as the management remain fully committed to driving the reform and in achieving the guidance presented today. Thank you for your attention. I will now hand back to the operator. Operator: We will now begin the Q&A session. [Operator Instructions] The first question is from Abe-san of Daiwa Securities. Please state your name and affiliation before asking questions, please. Masayuki Abe: My name is Abe. I'm from Daiwa Securities. I have two questions. One is about Japan business. 10% increase in profit given the TV media business is very difficult. Well, CXM need a good change. And in the next year, can we expect the same level of profitability? My second question has to do with the impact of cost reduction initiative. I think the probability of success is rising. That's my impression. But of the JPY 52 billion cut target, how much will you achieve this fiscal year? And what would be the pace of achieving toward JPY 52 billion next year. So the intention must be to achieve upside through cost reduction next year, but I would like to ask about that. Unknown Executive: Abe-san, thank you for your question. Unknown Executive: Thank you for your questions. Two questions. So your first question regarding Japan business, 10% profit increase in TV media. Given the CXM business, further growth can be expected next fiscal year. So what is the kind of situation we are envisioning for this business next year? Sano-san will respond. So cost reduction of JPY 52 billion must be achieved, it is assumed. And so what is the amount that's achieved this fiscal year and how much is expected next year? Endo-san will respond to that. Okay. First, over to Sano-san. Takeshi Sano: Abe-san, thank you very much for your questions. Yes. 9.9% growth, which was very good this year. What's going to happen next year? Of course, we will see some impact from Fuji TV, but it's not just TV media, but internet media is also growing at a very high level. As I mentioned earlier, business transformation, digital transformation, and AI, these areas are growing. We are receiving lots of orders. So to a certain extent, I think we will be able to achieve a robust growth. However, as was explained earlier, last fiscal year, Q4 was 8.4%. So 5 consecutive quarters, we've been achieving above 5%. So there's pressure to achieve more year-on-year. We cannot promise anything at this moment, but mid-single-digit growth is something that we can expect -- we hope. Thank you. Shigeki Endo: Endo speaking. With the midterm management plan announced in February, JPY 50 billion of expenses to be spent on rebuilding management foundation. So investing that amount and 2027 and onward, a JPY 50 billion of cost reduction impact is to be achieved. This year, we're expecting to invest about JPY 28 billion. And in December, mainly staff, we will see impact in terms of staff in December. So in terms of the effect or the impact next year and onward, I think we are likely to see an impact of over JPY 50 billion. For the numbers this year, we're still examining them at this moment. Operator: The next question is from Mr. Harahata from the Nomura Securities. Ryohei Harahata: My name is Harahata from Nomura Securities. Also I'd like to ask two questions. The first is in regards to international business. I understand that you are considering various alternatives. I think you said that previously and this time as well. What is the most important thing, things that you don't want to change? In terms of your customers, what are things that they don't want to see changes in you? So if you could share that as a hint to understand your course of direction going forward. Second is in regards to cost. My question overlaps some of Abe-san's question that the cost is the key point. That's what I wanted to ask about. And so what is the cost to be achieved next fiscal year for the three years? And were there any changes in terms of internal investment amount? These are my questions. Thank you. Unknown Executive: Thank you very much Mr. Mr. Harahata for your question -- two questions. So in terms of the partnership for the international business, was -- for your first question, we are considering various alternatives. What are things that we don't want to change? Or, from the perspective of the clients, what are things that they don't want to see changed? I think that was your question. And I will answer that question. And the second question was to do with cost. Now this fiscal year, so what are some of the costs that have been kind of delayed in terms of being realized? And how much will there be in the next fiscal year onwards? And Mr. Endo will respond to that question. So please allow me to answer the first question, partnership for the international business. And so this is something that we communicated in August. So in many ways, we have been working on comprehensive and strategic partnership. We've been considering to look into this. Now we have been working on the various initiatives that we are trying to rebuild our business foundation. We are focusing on internal investment as well. And so to ensure strong growth, is something that we are focusing on. And in that regard, we want to work with partners who are able to contribute that. So to be able to secure that element is an absolute necessity. So in what areas are we going to enhance? And where are we able to secure growth? This is what we are currently looking into and reviewing right now. From the clients' perspective, I think they are quite varied. And the clients have entrusted us for many years and the value that we provide. And they have assessed this favorably. And for those customers who have continued to work with us and continued to be partners, to be able to continue, that is probably something that the clients don't want to see changed the most. And the enhancement that we are doing for us to achieve growth and then to raise the expected level of the expectation from the client perspective, that's the kind of partnership that we want to realize. So that's all from me. Endo-san will respond to the second question. Shigeki Endo: This is Endo speaking. And so as I said earlier, the amount of investment this fiscal year is JPY 28 billion, and majority of that is onetime expenses, retirement allowances related to people. So in this regard, now in the third quarter, we've invested about JPY 8.6 billion, and the remainder will occur in the fourth quarter. And as for the total amount, in the midterm management plan, we have already shared the number, and that's JPY 50 billion. And if we see the breakdown, about 80% will be onetime expenses, retirement allowances. The remaining 20% is essentially improving the efficiency, automation and also standardization of business or the expenses related to that. So for that part, the amount of investment has not changed in a significant way. It essentially remains the same. That is all for my response. Ryohei Harahata: And just a follow up. So there were no -- the execution that has been delayed in comparison to the -- in comparison to the previous announcement, the amount has changed, but there is nothing that has been delayed. That's what I wanted to ask. Shigeki Endo: This is Endo speaking. We are making progress in accordance with the plan, but partially for Europe, in particular, in regards to onetime retirement allowance in Europe, we still need to get the acknowledgment of the person in scope. So in that portion, that could potentially be pushed back into the next year, but the amount of reduction, amount that we will realize as a target, remains unchanged. Operator: The next questions will come from Tokai Tokyo Intelligence Lab. Yamada-san, please. Kenzaburou Yamada: Yes, Yamada from Tokai Tokyo. So I would also like to ask two questions. First, I would like to ask about the details of the background to Japan business, which is performing very well. Internet media is growing fast. TV media is robust as well. It seems that Dentsu is doing better than your competitors. So internet media is growing very robustly. What is the background to that? If you could please elaborate? As you said, integrated solutions are being increasingly appreciated by your clients. Is that the case? As a result, you are getting more orders and expanding business? That's my first question. Second question is as follows. This is also about the Japan business. Next fiscal year. Internet media growth expectation. How much growth are you expecting next year? Well, this year, you are performing very well. So the hurdle must be higher for next year. Do you think you will be able to outperform the market's average growth next year? Unknown Executive: Yamada-san, thank you very much for your questions. Two questions. Regarding Japan business. So the background of Japan's well-performing business, it seems that one of the factors behind this strong growth in internet media. Why? So before we were talking about proposals for integrated solutions that had a positive impact, but is that the answer today as well? And second, again, on internet media business, what is the expectation next fiscal year? Do you expect to outperform the market next year? Both questions will be answered by Mr. Sano. Takeshi Sano: Sano speaking. Thank you very much for your questions. And we have recorded and remembered my answer that I gave previously. Thank you. As you mentioned, internet media is a means for clients. The purpose is to improve our marketing ROI. And various medias are combined in our proposals, and we're chosen. As a result, internet media business is outperforming our competition. So as you rightly mentioned, that is the factor behind our success. As I said, business transformation is ongoing, and that is broadening. As a result of that as well, we are performing well. There are some market forecasts that are put out. Compared to this fiscal year, 2025, next year's market growth will be somewhat slower, but it will continue to grow. Is Dentsu going to be able to outperform the market? Sorry for being conservative, but so that we can outperform the market, we would like to further strengthen our integrated solutions, make proposals based on that so that we will be able to outperform the market next year as well. That's all for my answer. Operator: The next question is from Barclays, Julian Roch-san, please. Mr. Roch, can you hear us? Julien Roch: Can you hear me? Operator: We can hear you. Julien Roch: Thank you very much for letting me ask questions. Two, if I may. The first one is, if I put together your three regions outside of Japan, your organic in the first 9 months was a decline of 3.8%. How much of that decline was net new business loss versus how much was existing clients spend declining? And the second question is following up on the strategic review of the international business. In your previous answer this morning, you said you were looking for partners that could help you accelerate growth while continuing to service your existing clients. Can you give us any idea in what areas you believe you would need partners? Media, creative, Merkle, somewhere else? Unknown Executive: Thank you very much, Mr. Roch, for your question. I have received two questions. The three regions other than Japan for the 9-month period, we ended up with a minus 3.8% organic growth. So the loss of the existing client? Or are we losing the new client? In terms of pitch I think you're asking about. So asking as to whether these were the factors behind the minus 3.8%. I would like to ask our Global CEO of Dentsu Group, Giulio, to respond. And for the second question, in regards to us looking at the partnership, what are the partnerships for accelerating growth or what area? I will respond to that question. So I would like to ask Giulio to respond to the first question. Giulio Malegori: Thank you. Thank you, guys. And thank you, Roch, for the question. It depends on the practices, I would say. So your question is, how much is existing client and how much is lost client? Well, when we look at the media practice, it's not there are some losses, but most of it is also decline on spend from existing client, I would say, which is probably 60-40 in that regard. When we look at the Merkle, the CXM business, clearly this is a project-based business, so it's not that much losing, not the loss of client, but it's more the variation on the number of projects for existing clients. So I would say that on the CXM area, there are no major losses of clients. It's just a number of projects by clients that diminished. On the contrary, when we look at the creative practice, which, as you probably know, is the smallest of the international business, there has been a component of lost clients. These are especially in the US. So for the creative practice area, probably I would say that 70% of the decline is lost clients. The net wins have not been able to compensate the loss. There is variability, of course, on the client portfolio, especially in project-based business like creative, but the issue has been that we didn't compensate some of the losses with enough win, and this resulted in a negative. So I hope this answers your question, Roch. Thank you. Hiroshi Igarashi: So this is Igarashi. Please allow me to respond to your second question. In regards to partnership, so partnership for accelerating growth. And so your question was, what we refer to as our practice, our business domain, whether it be media or creative, or is it CXM? In which area are we going to seek partnership to enable acceleration in growth? I understand that was your question. So my response is that we are considering all types of different possibilities in looking at partnership. It's not the case that we are focusing on one particular area. So we are not just looking at a single area. Of course, there are various processes, and we are looking at whether we can make contribution to enabling growth in certain areas. Of course, we will look at all that. But in regard -- so we are not limiting the partnership consideration to a certain area. We want to achieve a comprehensive growth, and we are looking for partners who will contribute to enabling overall growth. This completes my response. Operator: The next question will come from SMBC Nikko Securities. Maeda-san, please go ahead. Eiji Maeda: Yes. Maeda from SMBC Nikko Securities. I also have two questions. First, comprehensive partnerships that you are examining. To pursue them, unless you have the specifics, you will not be able to announce, I would assume. But partner selection, partner negotiations, in terms of those, do you think you are making progress successfully in terms of seeking partnerships? Or do you think that the hurdle is pretty high for identifying a partnership? And what is the timeline? Are you looking for a partner by the end of next year, for example? My second question. The other day, Hakuhodo, their North America consulting business is recovering, they said. And AI transformation type of business is increasing for Hakuhodo. Well, in your case, DX demand has run its circle. It's deteriorating. But with respect to AI transformation, do you think that the business environment is improving for you as well. Going forward, do you think that AI transformation type of business will be a tailwind for you? So global consulting business, especially centering around North America and other adjacent areas. What are your thoughts? Hiroshi Igarashi: Maeda-san, thank you very much for your questions. To address your first question regarding partnerships that we are studying, and is the process of considering partnerships going well? And when are we going to have a conclusion? Is it a plan for next year? That will be answered by Igarashi myself. Your second question regarding North American consulting business is becoming active due to AI transformation need according to Hakuhodo. Well, at one point in the past, it was not very good, but consulting business in North America is now on a recovery track. What is the prospect? That was your question. For that, the Chair of Americas, Giulio, will be answering that question. So to address your first question, partnerships without restricting ourselves to constraints, as I said, we will consider various types of partnerships. So on a broad ranging basis, we are considering a variety of potential partnerships. The process that we envision, is it moving? Well, I would say that we are moving through the process as planned. However, in partnerships, there are counterparties that we have to work with. So frankly speaking, I will not be able to suggest a timeline at this moment. However, this is something that requires speed given the severity of the external environment and the changes happening in the environment. We need to respond to such changes. And we must enhance the value of our proposals to our clients. So in that regard, at the earliest possible stage, we would like to come to a conclusion on a partnership that we're going to have. So I would like to turn to Giulio for the second question. Giulio, please? Giulio Malegori: Thank you very much, Maeda-san, for the question. In the North America business, you know, the DX offer is part of the offer that we ended, the work that we do at Merkle level in CXM, and therefore, is developing and is recovering slightly. When we look at the AI impact on that as an acceleration, this is more centered on the Media++ strategy. I would say that there's been -- in the recent wins that Igarashi-san mentioned at the beginning of the call, there's been clearly a component of the element of the digital transformation for our clients in terms of integration and delivery of different capabilities within the digital offer. And more specifically, the acceleration that we are looking at in AI is once again referred to the deployment on the Media++ strategy. A good example of that is clearly the AI platform of dentsu.Connect, which is helping our client by using generative audiences and enabling AI-driven target setting, consumer profiling, and last but not least, communication planning. And the same is for generative audience, where, again, this helps within the Media++ strategy in the development of the digital transformation. Thank you. Eiji Maeda: May I ask a follow-up question? Just one, please? So Media++ that you talked about and acceleration through the use of AI. At this moment, in the stock market, your international business is having difficulty on its own, and it seems that the views are pessimistic about your international business next year as well. But through such initiatives that you talked about, do you believe that you will be able to bring the business back to organic growth? Excluding the media environment, because of the factors that you have on your own, do you think that you will be able to come to a turnaround point? Hiroshi Igarashi: Thank you for the question. Igarashi speaking. This is a follow-up question for North America. So let me focus on North America. Regarding North America, as Giulio answered, in the area of CXM, just to explain, we have an asset called the Merkle there, and the portion of North America in that business is very large. For many years, the area of CXM has had challenges, and I think that is understood by Maeda-san and other people. Earlier, Endo reported on our Q3 performance. As he said, CXM in North America, the area covered by Merkle, continues to be tough, but negative growth is becoming better and better quarter after quarter. It's improving. Rather than the whole market improving overall. The new management system that we have put in place since February this year has been conducive in addressing client challenges, and that is leading to an increase in the number of leads. We are also looking at reviewing the pipeline. So month after month, we are seeing recovery. I think -- and next year, I'm sure that we will be able to head toward a more positive direction. Now, another point regarding media. One of the topics is the consolidation of the agencies, and the scale merit is very much focused upon. Our Media++ strategy is generating good results because it combines media and retail media and others, as we discussed. So in this area of media, we are expecting strong growth. The value of international business, especially the United States, which commands a high portion, it is essential that we achieve a turnaround in that business, and that is something that we're looking to achieve so that our corporate value will be acknowledged. Thank you. Operator: We are nearing the conclusion time, but we still have many hands up, so we'd like to extend and respond to your questions. The next question is from Mr. Nagao from BofA Securities. Yoshitaka Nagao: This is Nagao from BofA Securities. I have two questions. First, in terms of internal investment, do you plan to invest JPY 12 billion this year? But AI is causing changes in clients and changing the behavior of consumers more than expected initially. So on that basis, is JPY 12 billion sufficient? And so what will be the size of internal investment that you're thinking of next fiscal year? The second question is in regards to the dividend. And the year-end dividend remains to be undetermined at this point in time, but you have the plans. You should be able to anticipate the profit from business in terms of asset sales. I think this will be management revision as to whether you will sell or not. And the plan that you've changed for this year, so the profit attributable to owner of parent still about minus JPY 40 billion. So I don't know whether you're in an environment of having to make a dividend. Given the fact that you have investment for AI as well, I think in terms of capital allocation, you have more important areas of spending money. But if you could explain as to why you have continued to remain undetermined for the year-end dividend? Hiroshi Igarashi: Thank you very much, Nagao-san, for your question. I received two questions. The first question is in regards to internal investment and for AI. Whether it be customers or the consumers, we are seeing significant changes. And so in that regard, you feel that there is a need to make investment into the AI. So the JPY 12 billion of internal investment for this fiscal year is sufficient, particularly given the fact that you need to invest in AI. And also you wanted to ask about the thinking for next fiscal year. This will be responded by myself, Igarashi, and Endo-san will respond if there is addition to make. And in terms of dividend, the business state and asset sales, and looking at the net profit level, if you take all these into consideration, and also the capital allocation perspective as to whether to pay dividend or not, you should be able to come up with a course of direction and what needs to be focused upon given the fact that you have the investment for AI and that you have referred to earlier. Now, that question will be responded by Endo-san. So I'd like to respond to your first question. In terms of internal investment, we are assuming about JPY 20 billion initially. And so we scrutinize the internal investment for this fiscal year. So the amount has been reduced to JPY 12 billion, as I have explained. In particular for AI, is it sufficient or not? So that was your point. Now, in that regard, our thinking regarding AI is that, of course, we will be making investment on AI on a standalone basis ourselves. But a unique initiative that we have is that we have initiatives with various platforms, and we've been ahead of others in this area for quite many years, whether it be data, whether it be the area of content creation. We have been working with the various platforms, and we have moved in this area ahead of others. So how can we use that in responding to the clients' issues? Now, we have many options to choose from, and we are able to combine those to provide the appropriate AI solution. We are in an environment to be able to enhance that. So it's not just the amount of internal investment as to whether our investment is sufficient or not. Is that sufficient in strengthening our solution? That is not only the perspective that should be used as a basis to make your decision. And for next fiscal year as well, I suppose leading initiatives with the platform providers at the center. We have various unique capabilities that we have, which we will work on enhancing. So that's the major course of direction for us going forward. And here, we want to do a sufficient amount of customization with our clients. And for us to engage in this type of initiatives of others, and that is the unique element of our initiatives with the platform providers. So that is my response. The second question will be answered by Mr. Endo. Shigeki Endo: This is Endo. And please allow me to explain from a few perspectives. First, in terms of the capital allocation and how we think about that. Now, from our perspective, what we are working on right now, we are working on rebuilding our business foundation. And over a medium to long-term perspective, we are focusing on achieving growth, and we're making internal investment to realize that. And we also have the dividend aspect. And also, we need thorough communication with the supply side. We want to engage in such communication with the market too. And on that basis, right now, when it comes to dividend, the securing profit that is distributable, and we are focusing on that. So we've been selling the strategic shareholding. And so dividend of returned earnings from subsidiaries. We are also considering the disposal of some real estate as well. But at the year-end forecast. In that regard, at this point in time, as of the third quarter, we have not registered impairment as yet. But the situation overseas remains uncertain. And so I am unable to say that we are completely free of the possibility of having to take impairment this fiscal year. And as I've explained at a previous occasion in regards to impairment, when we look at the forecast for this year, whether it be net revenue or whether it be for revenue, but the medium to long-term growth of our net revenue from next fiscal year onwards, that will be used in calculating the impairment possibilities, interest rate, the foreign exchange rate. These factors also need to be taken into consideration in discussing with the accounting auditor in the end. So at this point in time, as for dividend, so we want to secure a distributable profit as much as possible, and whether it be strategic shareholding sales, but we will do our utmost to be able to secure those amounts. Yoshitaka Nagao: May I ask a follow-up question? So you're going to make maximum effort in terms of management to secure the profit for distribution, but there could be plus or negative of international business impairment. So that is the reason as to why the dividend remains to be undetermined at this point in time. Am I right? Shigeki Endo: Yes, your understanding is correct. Operator: Next, Mr. Russell Pointon from Edison Group. Russell Pointon: Good morning. I have two questions, if that's okay. First of all, there's been a good mix in the account wins of extending existing relationships and new business wins. So are you able to talk about what you think has helped to contribute to those wins from what you've done in your business? And my second question is, I think there's a slower rate of restructuring spend. So does that mean there's a slightly slower rate of profit improvement through to 2027? Hiroshi Igarashi: Mr. Russell Pointon, thank you for your questions. So account wins, regarding that. Existing customers as well as new customer acquisitions. The pitch wins. The mix is pretty good, and you asked about that. The status of current our accounts for existing customers and new client acquisitions. What is our assessment? How do we view that? Well, I would like to respond to that. If there are any additional comments from Endo, I will ask for them later. And the second question that you asked is about the slow speed of restructuring or the slow spend of restructuring. 2027, toward that, the restructuring spend cost, is it progressing as planned? Do we think that we will be able to hit the goal? That will be answered by Endo-san. First, regarding the status of accounts, we have various pitches we're making and the circumstances surrounding that. While talking in particular about our international business, media, creative, and CXM, in all practices, net wins are accumulating. That is where we are overseas. The current pipeline, of course, we have different projects. And 83% of media pitches are offensive. Creative, 74% is offensive pitches. So maintaining existing customers, that is our overriding assumption. Plus, how many new customers can we acquire? We are looking at that. As a result, we're having this pretty good mix, as you pointed out. So first and foremost, that we're focusing on maintaining existing clients, and that will continue into the future. With respect to CXM, this is a long-range business. We have a new business pipeline, and the pipeline is increasing and growing. Therefore, for CXM as well, inclusive of cross-selling to existing clients and acquiring new clients, how to go about doing that is something that we always focus on. I think we're in a pretty good situation in that regard right now. For Japan, pitch wins are pretty high in different areas. Frankly, here in Japan, we're not having losses of existing clients. So the fact that we're having increasing pitch wins of new customers is contributing greatly to our good performance. And so we have to make sure to achieve pitch wins in all practice areas. That is something that we would like to continue to ensure in the future. Regarding restructuring, I would like to turn it to Endo-san for an answer. Shigeki Endo: Endo speaking. The status of restructuring, we announced our midterm management plan in February. Targeting 2027, we have set several KPIs. One of such KPIs is operating margin percentage. That is to be 16% to 17%. That is the target toward 2027 based on that. The cost base right now, with that as a baseline, we would like to achieve a cost reduction of JPY 50 billion. And so that is the target. Well, achieving JPY 50 billion is not the goal per se. Our ultimate goal is to achieve operating margin of 16% to 17%. As a result, vis-a-vis our competition, we would like to ensure good competitiveness on our part. JPY 50 billion, we are confirming where we are every month as to how much progress is being made. And we're spending part of that for retirement allowances. And there are to be paid considerably in December onwards. We will be seeing that impact next year. So at this moment, we are progressing on plan. And of course, we would like to be speedy to work toward the 2027 target. With the target of achieving JPY 50 billion or more, we are taking actions, and we're on plan. That would be all. Operator: With that, we would like to conclude the earnings call. Once again, thank you very much for taking time out of your busy schedules to join us today. Please disconnect. Thank you. [Statements in English on this transcript were spoken by an interpreter present on the live call.]
Carolina Senna: Good afternoon, everyone. I am Carolina Sena, Cemig's IR Superintendent. Welcome to Cemig's Third Quarter 2025 Earnings Video Conference Call. This video conference is being recorded, and it will be available on the company's IR website at ri.cemig.com.br, where you also find the full package on our earnings call. [Operator Instructions] We will now start Cemig's video conference call with Reynaldo Passanezi Filho, CEO; Andrea Marques de Almeida, CFO and IR Officer; Luis Cláudio Correa Villani, Chief Information Officer; Sergio Lopes Cabral, Chief Commercialization Officer; Sérgio Pessoa de Paula Castro, Chief Legal Officer; Carlos Camargo de Colón, Gasmig's CEO; Iuri Araújo de Mendonça, Cemig SIM's CEO. For their initial remarks, I turn the floor over to our CEO, Reynaldo Passanezi Filho. Reynaldo Filho: Good afternoon, everyone. Welcome to our earnings call for the third quarter. It's always an opportunity and a pleasure to be able to bring to you our results and our efforts in another quarter. This is a quarter in which we have more difficult news. Of course, I would like to highlight some important topics that show the strength and the resilience of Cemig's earnings. About specific news on the quarter, we had distribution results that were affected by large clients that left the network. They migrated to the basic network about trading. We tried to decrease some positions. Also, that involves the submarket prices that have affected the results. What's important, and you know that when we look at our net position, it is very favorable in the scenario that we have for pricing today. The same thing happened with generation because of the difference in the GSF and the need to offset that with the spot price. This is what I would like to highlight. And despite of these topics, we moved on with a recurring EBITDA, proving the company's resilience, and we have confirmed the AAA rating by Moody's. We have 2 agencies now guaranteeing us a AAA rating, showing our resilience capacity to any type of scenario. We also had an award by a magazine called Veja Negócios, as the best energy company in Brazil in the top 30 award. And we also had the approval of our health care plan for retired employees. So we finalized a collective agreement with the union and that allows us to look for a positive structural solution that will preserve a positive transition to all of us. Therefore, they can keep their health care plan and also we'll be able to guarantee the company's sustainability. And the final topic, and Andrea is going to go over the details, which is our investment program. We are, once again, making the largest investment program in the company. For this quarter, we have BRL 4.7 billion, a significant increase when compared to last year. I believe we have a very positive message here, and we are maintaining our investment plan. And that means very positive results for the tariff review situation when that comes. So here, we have BRL 3.6 billion in distribution by itself. If we multiply that by the WACC, we know that the results bring additional revenue of a little over BRL 500 million just for that 9 months. So these are very cautious investments in regulated areas that when they get mature and the agency recognizes that we are going to have very positive results for the company. This is what allows us to have resilience today, and this is what allows us to have very positive results in the future, whether by these investments or by a very favorable position in the trading business in the near future. These are my initial remarks. Obviously, we are here to take your questions after the company's presentation. I'll turn the floor to Andrea, but I would like to stress the strength of this company and that we are very confident that we are going to move on with this investment plan and maintain the company's debt levels and the covenants and therefore, to keep on investing, keep on generating value. And this is going to get more mature according to the regulations and tariff regulations as expected. Thank you very much. Andrea de Almeida: Good afternoon, everyone. It's also a pleasure to be here with all of you today, going over our third quarter earnings. Now moving on, talking about our investments, as Reynaldo mentioned, we invested in the 9 months of 2025, BRL 4.7 billion. And this is how they break down BRL 3.6 billion in distribution, focused obviously in substations. This is a milestone and we have some pictures to show you the substations that we had in the quarter, but also 5,349 kilometers of low and medium voltage networks, which are very important to bring good service to Minas Gerais. For generation, we also mentioned our participation in the GSF credit auction with BRL 199 million. That's very nice. It guaranteed the extension of our concession in some of our plants. But also we had investments of BRL 149 million in expansion and maintenance. For transmission, we have our Verona project, around BRL 30 million, and we are still investing in reinforcements and improvements, and we are going to mention some of those and how the allowed annual revenue is performing in transmission. For Gasmig, the centralized project is the most representative one, around BRL 180 million being invested in the project. And for Cemig SIM, the delivery of new photovoltaic plants and 31 megawatts of installed capacity. Moving forward, we have the pictures of the 5 new substations, the ones this quarter, Andrelândia, Coronel Xavier Chaves, João Pinheiro, São Tiago, Fronteira. These are our highlights of new substations for distribution. Now turning to transmission. We see where in our operation we had improvements: Taquaril, Três Marias, São Simão, Itajubá, Volta Grande, Lafaiete. And we were able to add over the year, BRL 32 million of allowed annual revenue in our transmission business. And of course, this brings great results as well. Moving over to the figures. As Reynaldo mentioned, we have BRL 1.5 billion of EBITDA, and we see a drop in our EBITDA in around 16.3% when we analyze the recurring EBITDA, and I will talk about the recurring numbers, and then I'll talk about the nonrecurring events of last year, which were significant. We can talk about them as well. In generation, we already mentioned we had the effects of a lower GSF. We had to buy energy to cover for the GSF. So we had an impact of BRL 54 million. In the trading business, there was an impact here. And we already had the reduction in margin in the trading comparing '24 to '25. And we ended positions. We closed positions and of course, came from our exposure and other positions that were also open. So the closing of these positions and the purchasing of energy and the prices -- the spot prices that we have seen ended up having this impact of BRL 136 million for distribution. In '24, we had a change in the methodology, which was a reversal of our ADA and that reverted how we provisioned our ADA. We didn't have that in 2025. Therefore, there is a negative delta effect in distribution. And you will see that the market also has reduced it. And as Reynaldo mentioned, some clients left and went to the basic network. Therefore, this impacted distribution. Now turning to our net profit, the major investment that we are making has a greater depreciation impact than the funding, the increase of the interest rates, and of course, the increase of leverage of the debt also affects our net profit, the recurring net profit, and we realized that there was this drop of around 30.2%. For nonrecurring effects of last year, just let me remind you, they were very relevant. We had BRL 1.6 billion of the disposal of Aliança last year. Of course, this is not happening this year, and the tariff review for the transmission business of BRL 1.5 billion. These did not show in 2025. That's why we have also this relevant delta here. Let's move on. Here, zooming in, in GSF, when we compare GSF of 2024, we see the performance of July and September. GSF for 2024 going from 0.8 to up to 0.7. So we did have to purchase to deal with the hydrological risk and also the level of the energy price that we see this year. Of course, higher levels than what we have seen last year. Just September of last year, we had higher prices than this year, as you can check in the charts. So this is the impact. Now operating costs and expenses. We are growing below the inflation rate. And outsourced services, which is what draws our attention, we have an increase in areas where distribution has to invest more efforts to guarantee the improvement of services, whether maintaining, installations or in technology, and we still are working on the improvement with smart meters. We have to invest in that. And we have to fund technology. We have to prune trees and also clear the pathway. So that's where we have a higher increase in other expenses. Also, we had the sale of a plot. For personnel, we see a performance -- a good performance here. But here, we have in-sourcing of employees. We are bringing in our own teams so that we can cater to our clients faster in specific regions. And we really want to be more efficient in our service in regions. And we know that Minas Gerais is a largest state. So we want to be quicker serving further away areas. So we have an increase here in personnel in our headcount. Moving on, in line with our capital structure, we, yes, need the debt to fund our investments, but our leverage is at very safe levels. We are at 1.76 or net debt over recurring EBITDA. That's why we have our best rating in history. As Reynaldo mentioned, two AAAs and one AA+, and we are structuring our debt in a way to increase the average tenure. We reached 5.7 with the average term -- as average term. And the cost performance, we see the fact of the high cost of the interest rates, which affect all of us in the market and as well as Cemig, of course. Now for our cash flow. This is how we have been financing our activity, our investments. We start with cash. This is for 9 months, okay? So we start with cash of 2024 at BRL 2.3 billion. We have cash from operations of BRL 3.4 billion. We have the debentures issuance in May of BRL 5.1 billion, the debentures payments, of course, obviously. These are prior debentures of BRL 2.4 billion. Dividends and IOC, BRL 1.7 billion. Our activities for investments of BRL 4.5 billion. Earmarked funds here, BRL 187 million. We have to have this amount aside. So we come to our final cash of BRL 2.3 billion. For Cemig D, everything is more or less explained already. But effectively, we show a drop in EBITDA of 4.7%, especially because of the market reduction, whether it is by economic activity, once it's not that positive and also the temperature that was mild and the market dropped. Once again, the client that has migrated in the second quarter to the basic network. And of course, now in the third quarter, we see the full impact of this migration. In addition to that, we have the reversal of the constitution that I said of the ADA, as I mentioned before. And of course, in the net profit for Cemig D, we see the effect of our fundings and also the interest rates affecting that result. Talking a little bit now about the energy market. We had a drop of 4.4%, and we see the full effect in all the different markets and our distributing company coming from the rural, commercial, industrial, all the effects coming from all the markets. And in fact, here, we see this drop being caused by this client that has migrated for the basic network. Our operating indicators show that our collection is still very strong, focusing in the digital channels and Pix, our payment method is the cheapest. And now we are going to have the auto Pix as well. And we will be able to have campaigns so that people choose this payment mode, which helps us all and also reduces our costs. And this is growing as a good option of payment. And now our ARFA, the receivables collection index is at good, stable levels, and our regulatory OpEx and EBITDA show that we are within the regulatory standards. In terms of regulatory losses, we are also within the standards. There was a change in the criteria which already happened. We are now are integrating the effects of micro and mini generations that are distributed. So we are continuing to work. We have always keep working on losses. We have to install the armored meeting panels. We have to install the smart meters. And all the actions that we have to keep on taking so that this indicator is within the regulatory limits. For Cemig GT, once again, we talked about it. GSF was the main impact. We had to purchase energy to tackle the hydrological risk and the recurring net profit. Here, you can see the results as well. And Cemig GT was the one that had the main nonrecurring effects from 2024. So the major impacts are there represented last year. Therefore, we had a higher EBITDA in 2024 effects that are not replicated in 2025. And Gasmig, that also had impact for EBITDA reduction because there was a drop of 6% in the market and also the clients that migrated to the free market. This, once again, effect on Gasmig. And on this page, we have Cemig's recognitions. Reynaldo already mentioned, and that we are very proud to be recognized as the best energy company in Brazil by Veja Negócios. And there are other recognitions. We are also recognized as the best financial team in the infrastructure and energy sector by FILASA. We also got the transparency award from ANEFAC. We have always room to improve, but it's already great to be recognized by the 19th time by ANEFAC. And there is a new one, the ESG award. Cemig has thousands of awards in sustainability. And we are very proud, and it's always great to have another one. So ESG from ANEFAC in this category, Transformative Internship category. Therefore, I end my presentation, and I turn the floor back to Carol to ask -- to open the Q&A session and take your questions. Carolina Senna: [Operator Instructions] Our first question is from Victor Sousa, Genial Investimentos. Vitor Sousa: Hello, can you hear us? Carolina Senna: Yes, we can hear you, Victor. Go ahead. Vitor Sousa: My question is about Technical Note 53 that changes how you post losses in the distribution sector. I would like to understand if there is a possibility of republishing the level of losses that Cemig had. Now looking backwards here, I would like to understand if this change can end up generating any accounting retroactive effect regarding the application of this technical note if your concerned amount receivables, provisions and other adjustments, or is this just a prospective impact, just an accounting impact? And another question still on this note. How would have been the level of losses for distribution if this technical note did not exist? So in the same comparison base, what would have been the performance of Cemig losses? Would they have increased, decreased, or they would have been the same? I think this is important to understand for the process of assessing the distributing companies. Reynaldo Filho: Thank you, Vitor, for your question. Denis Mollica, our Strategy, Innovation and Sustainability Officer. Please, Dennis. Denis Mollica: Thank you for your question, Vitor. About the method used for calculation of losses. The method, even having it being reviewed, it does not -- it's not applied to past calculations. Even if we were to simulate that in the prior losses and the older losses, we would still be within the limits. So for practical accounting effects, adjustments have done from now on. And as it was said already, we are still within the regulatory losses, both before and after this technical note. So we have major actions to manage and to fight our losses, and they are within the limits with no effects that might affect accounting at all. And of course, yes, we also have here a positive effect on the tariff once we have the recognition of the impacts of the DG in the method of calculating losses. Carolina Senna: [Operator Instructions] Our next question is from Luiza Candiota from Banco Itaú. Luiza Candiota: It is about your trading strategy. Analyzing the changes in the energy balance in this quarter compared to the prior one. I would like to go over the details of the rationale regarding the short exposure when we look at '25, '26 and '28. What could be explaining this change that we see? Reynaldo Filho: Thank you, Luiza. I'll turn the floor to our Chief Trading Officer, Sergio Lopes. Sergio Cabral: First, thank you for your question. We have been doing a great effort to close our positions. Of course, we have some marginal sales that we are executing with clients that are strategic, but our position is not to open more positions. We want to close, as Andrea has mentioned. For this quarter, we could close positions in these past months. And also, we have the impact of gold that ended up making us go to the market to buy energy, but we are not opening positions. We are rather than that closing them. Carolina Senna: There are no further questions. We thank you all very much for your participation. And the superintendents of IR is available to take any other questions you might have. Therefore, we end Cemig's third call -- video conference call. Have a nice afternoon, and thank you very much.
Operator: Good morning, ladies and gentlemen. Welcome to Sigma Lithium 2025 Third Quarter Earnings Conference Call. We would like to inform you that this event is being recorded. [Operator Instructions] There will be a replay for this call on the company's website. [Operator Instructions] I would now like to turn the conference over to Anna Hartley, Vice President of Investor Relations. Please go ahead, Anna. Anna Hartley: I'd like to welcome you to our third quarter earnings conference call. Joining me on the call today is Ana Cabral, CEO of Sigma Lithium. Our third quarter 2025 earnings press release, presentation and corresponding documents are available on our website. I will now turn the call over to Ana Cabral. Ana Cabral Gardner: Good morning, everyone. It's a great pleasure to present Sigma Lithium's Third Quarter 2025 results directly from the Amazon, where COP30, the United Nations Climate Conference is being held. Sigma is here as a member of the Brazilian delegation. We have been engaged in high-level dialogues with other delegations from all over the world, and we are showcasing how we have implemented and executed on every single one of our targets of sustainability set out in 2017 when we made the original investment in the company. Since then, we have managed to build the most sustainable lithium beneficiation plant in the world, digitalized and using algorithms, the employee bots or AI to become more and more efficient in treating the mineralogy of our mines and increasing plant recovery. So our plan is where technology meets metallurgy meets mining and delivers sustainability, doing more with less. Please kindly read the disclaimers. We're going to make quite a number of forward-looking statements and projections and guidances as we go through this presentation. We're very proud of our accomplishments in the third quarter, especially considering the state of the lithium markets throughout the quarter. we have managed to increase the resilience of our business significantly, achieving the following 5 initiatives. First, we substantially increased our net revenues through optimum commercial strategy. We increased revenues by 69% quarter-on-quarter and by 36% if compared to the third quarter of last year. We have generated cash of $31 million, resulting from final price settlements of sales that happened throughout the year. In addition, we expect cash generation from sales of our processing, high-purity, high-grade middlings, which are the result of our sustainable efforts. We have approximately 1 million tons of those dry stacked high-purity materials. We are also in the process of successfully upgrading our mining operations. Our plant has already restarted this week, our mine is expected to resume operations within 2 to 3 weeks, and Sigma will operate the mine with equipment lease directly from the manufacturer. Lastly, we continue to maintain financial discipline, and that's demonstrated by deleveraging on our short-term trade finance debt by 43% this year despite the challenging lithium pricing environment. On this page, we showcased the financial highlights of the third quarter of '25 related to the increased cash margins and the deleveraging of our short-term trade finance debt. Our revenues have increased by 69% if compared to last quarter. More importantly, we increased revenues by 36% versus the third quarter of last year. Our pricing also increased by 33% versus last quarter. So the revenues increase are a result of our efficiency increase. Our margins also increased. The operating margin increased in 42% versus the third quarter, and the net margin increased 67% [Technical Difficulty] quarter of last year. Both margins also increased substantially versus the previous quarter. But by showcasing the increase versus last year, we demonstrate how we increase the resilience and the strength of the business. Our deleveraging is demonstrated by the decrease in trade finance. We managed to pay down export financing, short-term debt in 43% this year. The remaining balance is just $33.8 million as of November 13. Our cash has also increased by 42% versus last quarter, which is a trend very different from our peers, which had burned current cash. Our current cash today is $21 million plus $8 million of incremental trade receivables, all related to sales realized until the third quarter of 2025. On this page, we discuss our stellar record of 0 accidents. We have achieved 787 consecutive days without accidents with lost time injury. It's over 2 years with 0 records. This demonstrates our operational excellence in addition to managing to continuously decrease our costs. So we haven't cut costs at the expense of health and safety. Our TRFIR is 1.79 amongst the lowest in the world. This results in employee engagement and safety processes, a direct connection to the factory floor, which leads us to enhance performance and ideas for cost optimization coming straight from our employees. So it's a self-fulfilling circle where focusing on safety enables us to keep on getting better, both operationally by increasing efficiency, but also cost-wise by gaining ideas directly from employees on how to be lower cost. We're very proud of this. On this page, we're going to start to discuss our financial performance this quarter. On this slide, we demonstrate how Sigma achieved an optimum commercial strategy, which allowed us to price efficiently our material capturing the price cycle despite the price volatility that took over the metals market throughout the period that followed Liberation Day and the tariffs. You can see on this chart in red, the sales on provisional prices and in green, the sales on final prices. And it's visible that we were able to capture a much higher final price as we managed to authorize our clients to resell the products and settle our final prices. These adjustments resulted in incremental cash revenues for this quarter. So a picture is a thousand words. And here is how that translates into cash generation. This commercial success resulted in incremental cash from the final settlement with the trade partners. And you can see that by looking at the initial cash position at the end of the second quarter, the increasing cash from operations on a provisional price basis of $30 million, then the generation of trade receivables booked on sales up until third quarter on provisional prices of $20 million. That got converted into cash as of now, but that refers to sales with a cutoff on the third quarter. In addition to that, we had another incremental increase in trade receivables because of the extra increase in prices that we have been experiencing to date at $1,700 per ton. So that's another $8 million, which means that there were $28 million extra that resulted from our optimum commercial strategy. So when you observe our cash as of today, we have $21 million in the bank plus $8 million of settled trades at current market prices. Now in addition, we have $33 million of potential sale of lithium middlings, which are high-purity middlings or dry stack material that currently sits both at the port and at our plant at current market prices quoted at Shanghai metal markets of $112 per ton, net of transportation costs to port for part of it and to China for the material sitting at the port. So a significant cash boost coming from materials that have already been produced. But more importantly, a direct result of our investment in dry stacking our tailings and recycling and reprocessing and optimizing our lithium Greentech industrial plant. On this page, we show what that cash position enabled us to do. We managed to pay down our short-term trade finance 60% year-to-date to November. If you cut it off as of October, we paid it down 44%. That's a significant debt reduction, especially considering the down markets and the lithium prices volatility we experienced this year. So we had a cash increase, and we decreased our short-term trade finance expensive debt. That's a significant accomplishment in financial results for a year such as these in lithium markets. On this page, we demonstrate how the debt maturity profile will be lengthened further because all that's left now is essentially $10 million that we already paid down, plus $100 million that will be paid down next year in December, which relates to our shareholder debt, whose generosity has allowed us to get here to commission our Greentech plant and to continue to make improvements to achieve the stellar operational performance the plant has been delivering. So we are in a very comfortable debt position as of November 13. And we demonstrate here on this page all the short-term debt that we have managed to pay down or roll. This page demonstrates our low-cost resilience and the fact that we are a source of responsible lithium production in this industry. We have managed to maintain the highest sustainability and ethical sourcing standards throughout market pricing, meaning our resilience is here to stay. Even with the slight decrease in production, which is shown here in the little green over our regular costs, we're still lower than the lowest cost producer for nonintegrated lithium oxide concentrate in Africa. And this location to the very left of the nonintegrated supply curve is exactly where we plan to remain throughout the foreseeable future. On this page, we demonstrate how the lower production levels in September have not really affected our low-cost position. In other words, the slight increase in cost maintained this on guidance for the all-in sustaining cost, and that's demonstrated by the chart to the right, where we show the 9-month all-in sustaining cost versus the full year guidance we provided at the beginning of the year. This all-in sustaining cost includes interest, CapEx, maintenance, all of it, royalties, SG&A, environmental and social that is voluntary. So we're very much on track. We're issuing guidance of this all-in sustaining cost becoming $560, meaning lowering to $560 for 2026 based solely on production from the first plant. Now the increase in CIF cash costs and plant gate costs are easily corrected once we return to full production in the first quarter '26. So our low-cost position is unmatched and unchanged. On this slide, we basically outline the offtake agreements expected for this year. They're basically enabled by the significant commercial leverage and power we achieved by being an ethical producer and one of the lowest cost producers of lithium concentrate globally. Now what we've done, we tailored different types of offtakes to cater for different specific client needs across geographies. So this year, what we have is 3 different kinds of offtakes being discussed with 3 very different kinds of clients. The first kind is what we call the 3-month rolling offtake. They're done at market prices, and these are prepayment of upcoming production until March. The objective is to provide Sigma with low-cost working capital. The second kind of offtake is a 20,000 tons for 3 years for $25 million. It's a small long-term offtake and the use of proceeds will be to pay for the mining equipment that will help us upgrade our mining operations, meaning the larger-scale trucks and overall excavators and mining equipment. The third category is a conventional offtake or prepayment being negotiated with a global European trading company. So the use of proceeds is to deploy towards our expansion plans remaining on track for our growth strategy next year. We are in contract negotiation stages with them. Now for 2026, we still have another 120,000 tons of product uncommitted to be contracted into offtakes. The objective is to strike conventional offtakes for both amounts. The first amount for 80,000 tons will be assigned to a regular end user. And the objective is to repay the long-term shareholder debt that was generously enough offered to Sigma in December 2022 and enabled us to get here to this very strong operational position. We are in contract negotiations for that one. The second offtake is going to be achieved against an agent, meaning a trading company, which again, is going to be a typical conventional offtake, once again deployed towards building and delivering on our growth strategy, meaning building a second plot. And this offtake is under contract negotiation. So we're expecting to announce 3 offtakes still this year and 2 more next year. This page demonstrates our production and cost guidance for the upcoming years, 2026 and 2027. Our cash flow is poised to increase as our production efficiency increases with the execution of our strategic plan. With Plant 1 alone, we're bound to generate an all-in sustaining cost of $560 per tonne, and that includes everything, including interest expenses. Now at the current price levels of $1,000 per tonne, that represents a cash flow -- free cash flow generation of $132 million. Once we complete Plant 2 by the end of next year, we expect to have 550,000 tonnes of production throughout 2027, which will lower our all-in sustaining cost to $500 approximately that at current price points for lithium is expected to generate a free cash flow of approximately $270 million. So this page really demonstrates how by remaining the lowest cost producer globally, we are bound to benefit with excess returns from this relative increase in lithium prices from $700 per ton at mid-third quarter to $1,000 per ton as of November 13. This page demonstrates how our Greentech Plant upgrade into the 3.0 version concluded and executed in November '24 was not accompanied with [Foreign Language] this page demonstrates how the upgrade in our Greentech Plant into a 3.0 version, which was concluded in November of '24 of last year, 1 year ago, was not followed by our mining operations. Here at Sigma, just to recap, we have 2 different operations, which are integrated. We have a mine that delivers raw material to a state-of-the-art industrial lithium beneficiation plant, the Greentech Plant. That is automated, digitalized and run by an algorithm. Throughout the first 9 months of this year, what we could demonstrate is that the plant outperformance was compensating for the mine. You can clearly see that in the chart at the bottom left of the slide, where we had an 11% increase in production in the first 9 months of this year. Now the chart above show and demonstrate the significant upgrade that took place in the Greentech Plant last year when from the beginning of '24 to the end of '24, the production went up 43%. In other words, the plant can produce 300,000 tonnes of lithium concentrate if properly fed with fresh rock, fresh spodumene ore. It processed efficiently because the plant recoveries are 70%. Now that made it clear that a mining upgrade was required. So we reassessed our mining plan and concluded that we needed larger equipment scale to basically ensure higher volumes that would be moved faster. More importantly, that would also ensure that we would maintain our stellar safety and health record at our operations. The chart on the right break down the 2 quarters, the second quarter '25 and the third quarter '25. And it clearly shows that the last month of the third quarter when the mining equipment provider was demobilized was where we had a significant production decrease because they were simply demobilizing and phasing down their efforts in operating and moving material at the expected productivity rates. This page shows what's the way forward. Well, we have mastered dense media separation technology, achieving 70% recovered. Let me go back to the beginning, pause, pause again. This page demonstrates our way forward in our operational plan. Clearly, we have mastered dense media separation technology for lithium processing, achieving 70% recovery rates. That's equivalent to flotation. We have demonstrated also greater efficiency and reliability throughout 2025. And now we're going to match it by upgrading our mining operations. First, our plant. It has already restarted. So it restarted processing high-grade material that's in our current operating site. The target for 2026 is to achieve full plant operational capacity of 300,000 tons of lithium oxide concentrated. We have been recurrently achieving unprecedented recovery levels throughout the year up until the third quarter. So that's where our confidence comes from, from this track record. Now on the feed of the plant. Clearly, a mining upgrade was required and is underway. We reassessed the mining plan and the geometry. So we observed that we have mined about 798,000 tonnes in July and 659,000 tonnes in August. We continue to mine waste and strip in order to optimize geometry, and that is something I talked about during our second quarter '25 announcement. The ore grade has been perfectly aligned with our mine plan with no significant dilutions. So we maintain the cadence of the ore grade fed to the plant. As a result, we're very well positioned to resume our mining operations within 2 to 3 weeks once we're able to mobilize large-scale equipment so that we can increase the volume mined and the operational speed at which we advance the geometry and increase mining volumes. So with those upgrades, we expect to evolve our production capabilities at the plant already in the first quarter '26, reaching 73,000 tonnes of lithium oxide concentrate produced. That's the guidance for the first quarter of '26. This slide demonstrates how by being the low-cost and most sustainable producer at large scale, we have been able to obtain significant support by our clients to execute our -- on our expansion plans. That's financial support and offtake support. We plan to reach 80,000 tons of lithium carbonate equivalent upon completion of our Phase 2 expansion next year. By just adding a third production line, which infrastructure is already on site, we expect it to achieve 120,000 tons of LCE equivalent of production. That is a consequence of Sigma already being a pillar throughout global lithium supply chains. So this underpins the financial support that we receive from our very large clients downstream in the lithium supply chain. So we also conclude by outlining how we're going to continue to deliver on our strategic plan for 2025. First, we're going to conclude our offtake agreements as we have outlined in the presentation. Second, we have achieved financial strength, but we're going to continue to do so by continuing to close final prices on the provisional price sales that we have achieved year-to-date until the third quarter and we'll continue to deliver throughout the fourth quarter. We have deleveraged and we'll continue to delever by basically paying down expensive short-term trade finance debt. We're also going to monetize existing lithium products that are currently sitting in our plant and in a port, taking advantage of the current robust pricing environment where demand for these products become actual. Currently, these products are priced at about $120 per tonne, which could bring the additional revenues of $33 million throughout the fourth quarter. Thirdly, we are going to upgrade our mining operations to increase the Greentech Plant production scale, more feed, more concentrate. So there's another advantage to that, which means we're going to lower the structural costs of this company by lowering the plant gate costs by increasing production volume and by actually decreasing the absolute number of mining costs, which represent 2/3 of our plant gate costs. Four, we're going to continue to partner with our very large clients with very large balance sheets to create commercial strategies that allows us to navigate lithium price seasonality, benefiting from achieving higher prices during the high seasonality. Number five, we're going to continue to increase the scale of our suppliers so that we can obtain working capital support. This is a strategy where we're simply matching or copying with the global leaders in downstream, including battery makers and carmakers receive from their own suppliers in the duration of their account payables. The average of the largest carmakers in the world is from 130 days to 180 days to 210 days. We've been barely doing 30 days of deadlines for suppliers. So we are lengthening that period by leaning on larger suppliers that are as large as us. I want to thank you for the opportunity to present to you our third quarter earnings. And I'm now going to open the floor for the Q&A questions that are going to be submitted to our moderator through the chat function of this Zoom. Operator: [Operator Instructions] Our first question comes from [ Bavida ] from Bloomberg. Thanks for the granularity on the cash balance. Based on Page 9, is current cash balance at USD 29 million plus USD 33 million or only USD 29 million. Ana Cabral Gardner: No. The current cash balance is $29 million. The $33 million are basically bids we received on the current lithium material we already have, and we were mentioning that exists in the port and at the plant. Operator: Our next question comes from [ Leanne Crozier ]. What is the region of lithium middlings from the process circuits? What is their LI 20 grade even as a range? Ana Cabral Gardner: Yes. These are typical materials that are processed through the DMS circuit. They are more valuable because the chemical structure of the particle hasn't been broken. In other words, it's a very different manner of processing lithium ore than the flotation plant. So the lithium grade goes from 1% to 1.3%. There's an official quote for these products at Shanghai Metals Market, which can be validated daily. So in current market environment, where it's actually a search for physical materials to close open positions in Guangzhou, we've been getting bids for these materials, 100,000 of which are at the port already, which makes their cost simply shipping to China, which is $40 a tonne. And then we have another 850,000 tonnes of these materials at the plant, which makes their costs approximately $85. So when we bank on $33 million, it's just pure profit, given that there are costs incurred in transportation. So the number is net of transportation. The current quote for these materials at Shanghai Metals Market is $120 per tonne. They are roughly 11-ish percent of current lithium oxide concentrate prices as of today, which is about $1,070 to $1,080 per tonne. Operator: Our next question comes from [ Armando Wolfrid ]. Could you please provide some more info on the 100 million shareholders credit and the status of your BNDES loan disbursement for Phase 2? Ana Cabral Gardner: Absolutely. Well, we're going to lean on our suppliers -- on our credit clients the same way we have been leaning on them for a number of advancements we've been doing here, including mining upgrade. There are a number of ways to basically disburse the BNDES loan. However, as we discussed earlier, we were awaiting for a quarter of lithium price stability given the highly volatile pricing environment we experienced this year. I mean we were one of the few companies to actually generate cash this year. Our peers were mainly cash burning. So our Board decided to wait for a quarter of stability so that we could basically green light purchasing equipment. Once we do so, it could happen as early as January or late January, given current price environment being very robust. So we're going to utilize the same structures we've been utilizing, which are large customer balance sheet support to basically disburse [Technical Difficulty] what are we doing about expansion is ensure [Technical Difficulty]. Operator: Ms. Ana, your connection just dropped in the middle of the answer, if you can repeat that part, please. Ana Cabral Gardner: Okay. Yes, so regarding the structure for this bus in BNDES, our Board was waiting for at least 1/4 of price stability given the volatility in lithium prices, the market experienced this year. So what we are planning to do if the lithium prices environment continue to be as robust as it is now is probably green light equipment purchasing as early as January, late January of '26. But more importantly, we have already disbursed a certain amount and file that with BNDES. So it's all basically ready to be deployed once we continue on equipment purchases, which is the plant portion of Phase 2. Now the key element in ensuring the timeliness of a potential 2026 commissioning of the plant was adjusting mine geometry so that we could feed the plant with the same geometallurgy that we are feeding our current Plant 1. So feeding Plant 1 and Plant 2 with the same geometallurgy would ensure a shorter ramping up period given that we would have more chemical certainty of the ramp-up. In other words, any ramp-up issues could be only narrowed to processing, which are relatively easy to fix. So the work on mine geometry would continue the same way we carried on geometry work throughout the second quarter despite the lithium prices volatility. Operator: Our next question comes from [ Habbou ]. Will production be fast-tracked if the lithium market tightness and the market price of lithium increase happily? Ana Cabral Gardner: Yes. That's exactly why we're carrying through the mining upgrade. You were spot on, meaning we know what the plant can't do. I mean we have a state-of-the-art Greentech lithium plant that can't do 300,000 tons of lithium oxide concentrate on its own. What we needed to do was to match mine to plant. And this is exactly what we're doing, taking advantage of the relatively muted lithium price environment that we observed on the third [Technical Difficulty] production a year. Operator: Ms. Ana, your connection dropped again. If you can repeat... Ana Cabral Gardner: Okay. So resuming, what we are doing is basically spot on. In other words, we are basically matching -- the reason to decide on the upgrade of the mine was exactly what you asked us. In other words, we know what the plant can do. The plant can deliver 300,000 tonnes of lithium oxide concentrate per year. If properly fed with fresh rock. So by upgrading the plant, by revisiting the mine plan and moving more material, what we're doing is making more product available for the robust lithium price environment that we were expecting in 2026. We took advantage of the muted price environment still in the third quarter to make that decision, and it was the accurate timing to do so because as we enter '26, we will already enter with an upgraded quarterly production, as we indicated, to 73,000 tonnes. Operator: Our next question comes from [ Benson Chen ]. What's your estimated CapEx for bringing Phase 2 and 3 online, respectively? And what could be the risk of further delays. Could you not utilize some credit lines to speed up the expansion and avoid delays? Ana Cabral Gardner: Well, we have a credit signed with BNDES, which is the best possible credit we can get. But to your point, the offtakes, as I outlined on the discussion that we had about them, and it was quite detailed, are meant for that. In other words, we have the conventional offtakes when we declare the use of proceeds is to fund the growth, what they will be doing is essentially closing that gap. As offtakes get closed this year, what we will do is redirect those proceeds for the plant Phase 2, given that the mining upgrade has been fully covered by our current clients. Operator: [Operator Instructions] Our next question comes from Joe Jackson from BMO Capital Markets. Please confirm as of today, how much production Sigma had at the mine in Q4 due far? And how much spodumene inventory there is as of today. Ana Cabral Gardner: Yes. What we are planning to do, Joe, is to issue guidance for fourth and first quarter together. We issued the first quarter guidance, and we're going to issue fourth quarter guidance soon when we show a remobilization plan. What we have, though, is the full cost to upgrade mining operations, which is $25 million, which has been fully covered by our clients. So what we need to do now is to just wrap up what we call the mobilization curve for large tonnage equipment, which is either twice the tonnage of what we got or probably 2.5x the tonnage of what we got. Depending on the mobilization curve, which will be announced promptly, we will be able to perhaps have a surprise for the fourth quarter. And we've given the first quarter guidance and the fourth quarter guidance will be given as soon as we wrap up the mobilization curve for the very large tonnage equipment that's been made available to us by the manufacturer directly. By the way, one more point that's very important. The $25 million are not going to be paid at once. They're going to be paid in very nice soft installments throughout 2 to 3 years at very low rates, SOFR plus under 1% or 1%, again, facilitated by our very supportive clients given that we are the pillars of global downstream supply chains. So you'll be like -- it'll be an offtake like any other. Operator: Our next question comes from [ Ricardo Fernandes ]. Are your volume contracts based on spot price or negotiated? How much of lag is there between spot and realized at prices? Ana Cabral Gardner: Well, it's spot essentially. We closed provisional prices at spot. Today, fortunately, there's a very liquid market for both chemicals and spodumene or we call lithium oxide concentrate. Shanghai Metals Market, Guangzhou, I mean, they're literally moving with significant volumes. I mean, just for example, last night, Guangzhou negotiated over 600,000 tonnes of LCE of open interest contracts. That's a term of global lithium demand. So there's [Technical Difficulty] quite precise pricing. Last night, prices hovered around $1,070 a tonne. So that level of liquidity allows for spot to be quite precise, meaning clients bid and hedge immediately into chemicals. So we believe pricing is becoming more and more efficient, which helps producers like us, given that there's less opacity, more transparency. And again, what we do though is depending on the season, we close at final, or we close at provisional. And what we've done this year, given volatility, we basically closed the provisional pricing. And now we're benefiting from having the clients to lean on and realizing final pricing. Hence, the cash boost we received from sales of the third quarter at the moment, as we explained in detail in our cash from operations section of this presentation. Operator: Our next question comes from Shiva Kumar. Are you getting any premium at all of the green lithium compared to the market price? Ana Cabral Gardner: No, unfortunately not. I'm here at COP30. That's been one of the frustrations. What the advantage is, though, is commercial power, meaning given that global supply chains are being rearranged, what we have is similar battery makers supplying carmakers globally in the West, in the East, all over. So there's a huge focus on traceability, on sustainability, on health and safety. And what we have is essentially a brand that safeguards us from any questions. I mean it's very easy to ascertain the Quintuple Zero advantage. And that's what we have, a commercial advantage, which translates into what we showcased so far. Our ability to negotiate provisionals when we believe it's reasonable to negotiate provisionals, our ability to lean on our clients' balance sheets for support for mining upgrades and so on and so forth. But unfortunately, there is no green premium. And we do not believe there will be a green premium. If -- hopefully, that could be, but it's years ahead. What there is, is a green [Technical Difficulty] commercial advantage. Operator: Our next question comes from David Feng. Ana, this is David from CICC Research, and thanks for the presentation. We can see that there is still over 30 kt of spodumene concentrate inventory by comparing year production and shipments. Just wondering how we expect all these inventories to be sold in 4Q '25? And what would your inventory management strategy if lithium price continues to rise. Ana Cabral Gardner: Yes. Thank you, David. We'll sell it all down. I mean at current prices, the plan is to basically monetize everything we have, including the -- what we call in China middlings, right? And we have high-purity middlings with an intact we call intact spodumene chemical structure because it comes from DMS, and it hasn't been affected chemically by the flotation nor by organic contaminants nor by the chemicals utilized in flotations. Hence, we can get a straight quotation for $120 even for middlings, which is -- which just shows that the current strategy is to monetize all the lithium we currently have. Operator: Our next question comes from [ John Christian ]. Can you quantify in U.S. dollars, how much working capital will be required to restart the mine in the first quarter 2026? And can you bridge the $6 million on third Q ending cash balance to $21 million today, considering your slide show $20 million debt paid down in the 4Q so far. Where did that approximately $35 million came from in the past 6 weeks? Ana Cabral Gardner: Well, no, we discussed that. I mean if you look at lithium price behavior, it came from the final price settlements. I mean the lithium prices have rallied considerably, RMB contracts for LCE and Guangzhou were close to $88,000, $87,000. So we were able to receive the final price settlement adjustment from the sales of product that took place up until the cutoff date of September 30, 2025. So that's where the adjustment comes from, from actual cash from these settlements. And more importantly, there's extra adjustments from the settlements that haven't been closed yet. We started to close settlements at $875, and we kept going until the latest ones, which were $1,035 just last week. But again, these were shipments material in boats in the water. We were literally shipping everything and selling everything. The other question you asked was about the $33 million. That's essentially middlings which are monetized their bids out. We are waiting to work out on logistics. The profit varies significantly on logistics because we have $100,000 at the port. That is simply $40 to China. $120 minus $40, that's net profit, pure profit, no cost associated with it. Then we have 850,000 tonnes of those middlings' high purity with chemical structure intact at the plant. The logistic costs there are different because we need to truck it to port. So what we're working on is to thinking through berthing the biggest ships we can obtain and therefore, lower the shipping cost to perhaps $25, $30, so that $120 minus $70 of logistics back-to-back plant to China. So essentially 2 different costs of logistics. These products are 0 cost to produce because they are middlings or what we call dry stacked high-grade lithium tailings. And that's the sustainability advantage. We are able to monetize it to a net of USD 33 million, which is a considerable sum. It's equivalent to a boat or a bit more actually, pure profit. Operator: [Operator Instructions] Our next question comes from [ Olin Chen ]. Could you please clarify the expected lithium concentrate production volume for the 4Q 2025 based on your current operational plans and the ramp-up schedule. Ana Cabral Gardner: Yes, we're not there yet. I answered a similar question. We issued guidance for the first quarter '26. And as soon as we wrap up the -- what we call the mobilization curve in terms of the scale of the large equipment being made available to us, it could vary from 60-tonne trucks to up to 95-tonne trucks, which is a significant increase from the small [Technical Difficulty] trucks we were [Technical Difficulty] 75-ton truck can move twice much material than a 40-tonne truck, a 60-tonne truck could move 50% more material. A 95 to 120-tonne truck, same access size can move 3x more material. Cost, not that dissimilar because it's diesel, one driver instead of -- I mean, it's 4 drivers per equipment. So we are decreasing the number of men involved, consumption of diesel, not that dissimilar. So overall, structurally lowering the cost of this operation. And this is the guidance that we plan to provide in detail as soon as we wrap up mobilization schedule for the equipment, which is currently taking place. I was in China for 2 weeks, just go back 1.5 days ago. And we're making progress in strides on that front. And we're delighted with the support we received from manufacturers, clients because we're pillars of 3 global supply chains actually, Europe, Asia and China. Operator: Thank you. This does conclude the Q&A section. I'll now return the floor to our CEO, Ana Cabral, for her final remarks. Please, go ahead, Ana. Ana Cabral Gardner: Well, we're very optimistic about 2026. It's been a year where volatility dominated the conversation. It's consensus now where lithium is headed. Now what's important to highlight is lithium is a commodity like any other, meaning prices will be where they are. We're not talking about price spikes. We're talking about prices being at $1,000, $1,100, which for low-cost producers such as Sigma with current plant gate costs of around $350 normalized is a fantastic operating environment. And so the key is to continue to be a low-cost producer. Hence, our efforts in upgrading our mining operations to match the exceptional industrial operations we have achieved throughout this year. So thank you all for listening. Thank you all for being with us on our journey, and we're going to be open for welcoming you all through my colleague, Anna Hartley, who is heading Investor Relations, and we'll be visiting some of you through conference calls in the next couple of days throughout the world. Operator: Thank you. This does conclude the third quarter of 2025 conference call of Sigma Lithium. For further information and details of the company, please visit the company's website at www.sigmalithiumresources.com. You can disconnect from now on and have a wonderful day.
Operator: Good day, and thank you for standing by. Welcome to the Bavarian Nordic Third Quarterly Report for the 9-month period ended 30th of September 2025 Conference Call on Webcast. [Operator Instructions] Please note that today's conference is being recorded. I would now like to turn the conference over to your speaker, Mr. Paul Chaplin, CEO. Please go ahead. Paul Chaplin: Thank you, and hello, and welcome, everyone, to Bavarian Nordic's Q3 results. Before I start, I just want to make sure you've seen our forward-looking statements on Slide 2. On Slide 3, on today's call, you have myself, Paul Chaplin, and I will walk through the key highlights of the first 9 months and talk a little bit about the excellent progress that we've been -- that we've made. And then I'll hand over to Henrik Juuel, the CFO, who will walk you through the commercial performance and the financials. So if you go to Slide 4, it really has been a fantastic first 9 months of the year. We've recorded close to DKK 4.8 billion in total revenues, which is a 32% increase compared to this time last year, which is a fantastic result and one that is really due to a strong performance across the whole portfolio, both Travel Health and Public Preparedness, and that has resulted in an EBITDA margin of 31%. We've had probably the strongest quarter for our Travel Health business, which is an endorsement of our strategy. And as I'm sure we have many new investors on today's call, I want to just take a few minutes walking you through the graph on the bottom right-hand corner of Slide 4. This shows the financial performance over the last 5 years. And before 2020, Bavarian Nordic was really an R&D-focused company. We had our government business, which we now call public preparedness, and I'll talk more about that. But essentially, we were a loss-making company coming to our shareholders frequently for capital raises. In 2020, we took the bold step on our growth journey to commercialize the business, and we bought 2 assets our rabies and tick-borne encephalitis vaccines, which started our commercial journey. And despite COVID, which obviously had an impact on travel, on travel vaccines, we were able to grow that business. And in '22, we sold more doses of rabies and TBE than any other previous owner. And that's exactly the strategy that we implemented. We thought that we could purchase what I call unloved assets that weren't performing well in previous owners' hands. And with our dedication and focus, we could turn them around. And that's exactly what we've done with rabies and TBE, and that actually are the golden jewels that are really driving the performance for travel health that we have today. In '23, we also added 3 more assets from another company, which complemented our Travel Health portfolio. And one of those was a chikungunya vaccine in Phase III, which is now approved as Vimkunya, which we're launching this year and is also adding not only to the performance in the first 9 months of this year, but is a key driver for the future growth. On top of this, we also had our Public Preparedness business, and I'll talk more about that in the coming slides. But basically, what we've seen over the last 5 years is a complete transformation of Bavarian Nordic from a loss-making R&D-focused company to a profitable vaccine company that is having a huge impact on the global stage in terms of public health. Before I move on, I also want to take note, and I'll leave more of the details in terms of the guidance to Henrik later. But we have refined our guidance today. And I just want to address one comment that I've already read that this is a lowering of our guidance. This is actually not the fact because at the beginning of the year, when we provided the guidance, we had a range for both revenue and EBITDA. This is related to our public preparedness business. And I'll come back to why there's a range, but essentially, this is government contract business where you either get a contract or you don't. And therefore, we had a range. We refined that range during the year. And today, we are recognizing that with 1.5 months left, we have secured -- we have the business that we've secured, which is DKK 3.1 billion which means together with Travel Health and other income, we're at the DKK 6 billion range. While that's at the lower end of the guidance, it is still within guidance. And I would say DKK 3.1 billion in terms of Public Preparedness, I have to remind you, is DKK 1 billion above our annual -- normal annual base business of DKK 1.5 billion to DKK 2 billion. So it's an exceptional year in terms of Public Preparedness, and we are still standing by our revised and high increased guidance for Travel Health of DKK 2.75 billion. So a very strong first 9 months, and I want to actually take this opportunity to thank all the employees for a tremendous effort. It's really down to their focus and dedication that time and time again, I'm allowed to talk on a quarterly basis of our strong financial performance. If we go to Slide 5. On Travel Health, as I said, it's probably the strongest quarter since we've built up this portfolio. We've seen a 23% increase in sales compared to this time last year. And our 2 flagships, rabies and TBE, as I said, these were purchased back in 2020. We've really turned them around. Rabies has gone from strength to strength. We've seen both an improvement in the growth in the market, but also in terms of market share. In the U.S., we've seen a 4% improvement in market share compared to this time last year. And in Germany, we're really seeing a strong growth, a 53% growth in the first 9 months of this year compared to last, which is an outstanding performance. On TBE, again, we have stopped the decline in market share in key markets like Germany since we bought these assets, and we're actually beginning to now see an improvement in market share, particularly in Germany. So we're incredibly happy with the performance that we're seeing in terms of Travel Health, and we believe there is future growth in the months and years to come. If you go to Slide 6. Within our portfolio of Travel Health, we have a vaccine against chikungunya. And chikungunya is a mosquito-transmitted disease. And until very recently, there were no vaccines or treatments available. The vaccine -- our vaccine was part of an acquisition that we acquired in '23 and was approved earlier this year. And subsequently, we've launched our chikungunya vaccine Vimkunya in 10 different countries. So we have had an aggressive launch plan, and we've stuck to that schedule. And we're beginning to see an uptake in the sales of the vaccine, which is great to see. And we're on target to meet the DKK 75 million in the first launch year, which is a very strong performance in our first launch year. We filed for further approvals in Canada and with Swissmedic in Switzerland, and we expect those approvals to be coming next year. And we've already begun some of the post-marketing commitments for expanding the label, and we have a pediatric study and an efficacy study all in progress, which, as I said, are commitments that we've made to the different regulators in the U.S. and Europe. So chikungunya or Vimkunya really represents a future growth potential. Yes, we have to educate and prepare the market, but we believe that this market has the potential to grow to $500 million annually within the next few years, and that's for travel alone. So a great future business opportunity. We turn to the next slide on Public Preparedness. And I want to spend a little bit of time talking about Public Preparedness and what it actually is and why it is different to Travel Health. And the best way of walking you through that is to talk about the revenue graph that's again on the bottom right-hand corner of this slide. And Public Preparedness is actually one vaccine. It's based on a vaccine against smallpox. Smallpox is a disease that has been eradicated. But unfortunately, there is concerns by many governments that smallpox could either reemerge through deliberate release in a bioterrorism attack. It is also closely related to another emerging disease called mpox, formerly known as monkeypox. And we've had a long-standing collaboration with the U.S. government in the development of our vaccine, which is now approved in many countries around the world. And if you look at the graph at the bottom right-hand corner, in 2020, we really had 2 customers, one major customer, which is the U.S. government, where we've secured more than DKK 2 billion in both development and acquisitions over the number -- over the years and Canada. So we had 2 customers. This changed in '22 when there was the first outbreak of mpox. And here, we really saw, and you can see a spike in activity in '22 and '23, where we supplied more than 15 million doses of our smallpox mpox vaccine. And coming through that first outbreak, we were left with more customers. So we now have the EU, both HERA, which is a new organization, but also other funding mechanisms in the EU, such as rescEU. We had other EU nations like France. So going from 2 customers to a handful of customers. At that point, we said our base business moving forward would be DKK 1.5 billion to DKK 2 billion annually, but we would see these spikes from time to time in revenue due to either future outbreaks of mpox or one-off large orders from different governments. Then in '24, we also had another outbreak or a larger sustained outbreak of mpox in Africa, and that also led to a continued spike, which has flowed over into '25. So in this year, we are guiding to secure DKK 3.1 billion in revenue, which is, as I said, about DKK 1 billion higher than our base business of DKK 1.5 billion to DKK 2 billion. So with Public Preparedness, it is not as easy to guide accurately in terms of growth or the future revenues simply because it's all down to government contracts. Some government contracts can take many years to negotiate. And unfortunately, I've been involved in government contracts, which we thought were coming through that fell down at the very last minute. So it is a little bit more unpredictable than a traditional vaccine sales like with Travel Health. But as I've said, we have since '22, been guiding with a base business of DKK 1.5 billion to DKK 2 billion. But obviously, since '22, we've been recording revenues much higher due to the 2 spikes that I've explained. In terms of where we are, we are obviously secured contracts of DKK 3.1 billion already this year. We're well on our road to securing. In terms of the first 9 months this year, we've exceeded the DKK 2 billion already in the first 9 months, and we're well on track to secure the guidance for the rest of the year. We have secured contracts for next year for a total of DKK 1.1 billion. So we're well on our way to securing our base business of DKK 1.5 billion to DKK 2 billion moving forward. We have ongoing clinical studies that are funded through a collaboration with CEPI, both in a pediatric study, which will hopefully support a label extension to include children in addition to the adolescents and adults that we already have. So if we move on to Slide 8, just to talk a little bit about the pipeline. One area is what we call MVA cell line. This is actually a trial that was initiated a few weeks ago, and this is moving away from the egg-based production that we currently have to a proprietary cell line that we've developed. The trial that has started is comparing the safety and immunogenicity of the vaccine produced in the different processes. And this is really an initiative that we've taken, which will greatly improve our manufacturing capacity so that not only can we deal with an mpox outbreak as we have since '22, but we would, with partnerships, also be able to deal with a much larger global outbreak either of mpox, [indiscernible], even smallpox. And it also makes us much more robust for any competition that may come later down the road. Other activities in the pipeline relate to chikungunya. These are post-marketing commitments that we have with the regulators, pediatric study, expanding the label and also an efficacy study and other activities are either funded through DoD or early stage such as Lyme and EBV, which is still preclinical. And with that, I will hand over the presentation to Henrik Juuel. Henrik Juuel: Thank you very much, Paul. So on Slide #9, just a few more words on the commercial performance for the period. So we delivered for the 3 quarters in Q3 here, we delivered close to DKK 1.8 billion, and that corresponded to an overall revenue growth of 32%. So very significant growth, supported by both our business mix, 50% growth on our Public Preparedness business and 22% on our Travel Health business. If we take the Public Preparedness business, Paul already alluded in detail to this one here. And so that has really been about, first of all, securing orders and executing on these orders this year. So targeting the DKK 3.1 billion for the full year. So strong growth on that front for first 9 months as well compared to prior year. On Travel Health, it is really our Rabies and our TBE business that has been driving the strong growth we have seen both for the quarter but also for 9 months, 22% overall growth, 23% from our Rabies business, 18% from Encepur And I think for both products, I think we can say here, it's driven by both strong market growth, but also strong brand performance and actually market share gains for both products. So very strong performance. Vimkunya, our new vaccine against chikungunya as we launched earlier this year. We are so far very pleased with the performance. We have in a very short time managed to launch in 10 countries, after the Q3 in the Nordic countries, Italy and Spain as well. So we have in record time, I would say, we have actually made quite a wide launch possible. From the start of the year, we guided on Vimkunya DKK 50 million to DKK 100 million, and we are now refining that to the midpoint. That's DKK 75 million, and we have so far delivered DKK 42 million after 9 months. So going very well and in accordance with our expectations. Vivotif, our typhoid vaccine, we are -- on a 9-month basis, we are seeing a positive growth. We have been struggling somewhat with this product, but we are finally starting to see positive growth, and it's being driven by initiatives taken to gain market share. Unfortunately, the typhoid market has been down by approximately 7% these 9 months compared to prior year, but we have actually year-to-date managed to compensate for that market decline by gaining market shares. Third-party products at the end, these are the main driver of that one is our Japanese Encephalitis product that we have a partnership with Valneva that comes to an end by the end of this year and our partnership on hepatitis B vaccine, HEPLISAV-B with Dynavax comes to an end as agreed April next year. So all in all, very strong growth on both parts of our business, 32% for the quarter and actually the same for the full 9 months. So performance that we are very pleased with. On the next slide, we are looking at the full P&L, where we start with the revenue we just talked about DKK 1.8 billion for the quarter. We have a gross margin of 50%, which is significantly up compared to the same quarter last year. This is driven by volume, obviously, the higher volume, the more busy we are in the production area, the more efficient we can be and the easier it is to absorb all the costs to the products being manufactured. But it's also explained by what we call other production costs, which is typically cost -- it could be cost of idle capacity. It could be cost of scrap. It could be caused by less efficient yield coming out of manufacturing. So we have been successful in all these parameters. And therefore, we are seeing a gross margin of the 50% versus 43% last year. R&D cost varies a little from quarter-to-quarter. You will see that we are actually spending less than last year, both for the quarter and for the 9 months. This is mainly due to timing of some of the committed studies we have on chikungunya that is progressing. And on SG&A, you see quite a substantial increase. It's mainly or very largely explained by the launch efforts we are putting behind Vimkunya, the chikungunya vaccine and also by Bavarian Nordic entering into new markets. We have, during the last 12 months, established ourselves a commercial presence in a number of countries, including Canada, it's U.K. and it's France, which, of course, will give us further opportunities to drive growth going forward. If you look further down the P&L, that gives an EBIT of DKK 1.2 billion nearly. Then we have included in that one other operating income of DKK 810 million, which comes from the sale of the priority review voucher that was recognized in the third quarter. Further below, you can see the EBITDA margin, excluding the other operating income, that is DKK 515 million, which corresponds to an EBITDA margin before special items of 29%. So on a 9-month basis, that takes us to an EBITDA, excluding other operating income of nearly DKK 1.5 billion or an EBITDA margin of 31%. So again, strong performance, all in line with what we have communicated previously and in line with our expectations. On the next slide, a quick overview of the cash flow and balance sheet. We saw positive cash flow from operating activities for the 9 months, driven, of course, by the positive profit that the business delivered, but also impacted by the proceeds or the income we earned from the sale of the priority review voucher. Cash flow from investment activities, here, we recognized actually the last milestones that we paid to Emergent BioSolutions and GSK for the acquisitions we did previously. They were recognized here, not all of them paid yet, though. And then finally, cash flow from financing activities is the sum of the share buyback we did previously in the year and then employee warrant exercise that was executed as well. So all in all, a net positive cash flow for the period of DKK 500 million approximately which obviously improves our cash position, which you can see on the table to the right. We do today have a cash position of close to DKK 3 billion. I have to say here, though, that our accounts payable are somewhat inflated at the moment as we still owe DKK 70 million to GSK, and we also owe royalties on the voucher we sold to NIH and taxes to be incurred in connection with the voucher. But a strong cash position of close to DKK 3 billion. Then one slide on our outlook here. As we talked about already, we have refined our outlook. We have confirmed the outlook within the range that was previously communicated. So right now, we are looking at a guidance without an interval as we are so close to the year-end. We do not operate in an interval for the Public Preparedness business any longer, but are expecting DKK 3.1 billion. We confirm the upgraded guidance that we issued in connection with Q2 for the Travel Health business. So that is now DKK 2.750 billion. And then we have some other income adding up to a total of DKK 6 billion. So a confirmation of all previous guidance, but a refinement now being so close to year-end. We are anticipating an EBITDA margin for the full year, excluding the impact from the voucher of 26% and including the voucher, it will be approximately 40%. The 26% is sensitive to how the last 2 months here pans out when it comes to the R&D projects running at the moment. And depending on how they end, there is an upside here that it could be closer to the 27%. But given the current plans, I think we are guiding 26%, and that's most likely where we will end. We have not guided for '26, obviously, but what we have stated here is that we have previously announced an order to BARDA of USD 143 million. Most of that goes into '26. We also announced recently the HERA framework agreement where there is a commitment of 1.1 million doses, where of 750,000 is impacting next year. So if we add the commitments we have so far, we right now have an order book worth DKK 1.1 billion for '26. And we will, of course, keep communicating to the market when there are material orders being added to this order book. The next slide is simply just a slide we brought to sort of round off the process that we have just been through. I don't want to read out every word here, but basically, it has been a longer process with the takeover attempt on Bavarian Nordic. And we just feel it's important to understand that the company was not for sale. We were approached with an offer, which the Board of Directors rejected to start with later in the process, there was an offer where the Board basically judged that now it is at a level where we have to ask the shareholders -- the shareholders has voted. The offer did not succeed. So that is the situation. And we, of course, we acknowledge that and we respect that decision by the shareholders, and we remain an independent listed company, and we continue to execute on the growth strategy that was in place even before this process started. I think we are very pleased to be today to be able to report these numbers here, and we are very grateful to our organization who have actually demonstrated that they have maintained a focus on the business while this process has been running. That has been extremely important to us. We have even seen in our engagement surveys that the company or the employees have really stayed engaged in the company. So thanks to the organization for that. Without that, we wouldn't have been able to deliver these fantastic results that we're seeing here today. And in order to -- to make sure that the market is well informed about the strategy that we talk about, we have called for -- and we call it an investor information meeting on December 11 during the morning. More details will be announced. It will be in Copenhagen. There will be a possibility to attend in person, but it will also be live streamed and recorded. And yes, basically, the agenda will be about give an update on the business and a recap of our growth strategy. But as I said, more details will follow. We will issue a press release once we have the details in place. So with that, I will give the word back to the operator and open up for Q&A. Operator: [Operator Instructions] we are now going to proceed with our first question. The questions come from the line of Romy O'Connor from VLK. Romy O'Connor: I have 2, if I may. The first being on your thinking about reaching the DKK 75 million for Vimkunya. I'm just wondering what steps you're now taking given that there's only 1.5 months left in the year? And also maybe a bit on the launch steps of into Canada? And then secondly, just maybe a little bit of color on the bid outcome. I was just wondering what your thinking is by future business development or M&A? And yes, what's your thinking now in terms of focus on value creation into the coming months? Paul Chaplin: Yes. Thank you for the questions. The first one related to Vimkunya and the projections of DKK 75 million. It's true there's only 1.5 months left for the year, but we only reported to the first 9 months. So we haven't reported some of the months that we've already gone. So we have launched according to plan. We are seeing good traction in a number of countries, slower in others due to some of the national recommendations, but we are confident that with the launches that we've made and the traction that we're seeing that we will be able to meet that target. I think your second question related to the bid outcome and our future growth strategy. I think it's clear, it's important to stress again that our strategy that we put in place back in 2020 was a growth strategy. It was to grow the portfolio of the assets that we purchased over a number of years to grow public preparedness, but it also included additional M&A. I think in my introduction to the presentation today, I tried to highlight the successful history that we've had of not only acquiring assets, but turning these, what I call unloved assets around and also bringing in manufacturing. It's a capability that very few others have demonstrated, and I think it's a key strength. And I think what we want to do is when the opportunity arises is to continue that M&A journey and bring more commercial assets on board. And that's a strategy that we've had in place since 2020. We've been successful at it, and we will continue to execute on it. Operator: We are now going to proceed with our next question. And the questions come from the line of Thomas Bowers from SEB. Thomas Bowers: A couple of questions. So firstly, just on shareholder returns. Can you give us any color on the current plans for any share buybacks now that we are out of this M&A process? So I think that you were talking a little bit about share buyback of excess cash. So anything that could sort of reflect the PRV sale you did here in the summer? And then second question, just on JYNNEOS. So just wondering the delta between the previous guidance range, so looking at that DKK 3.7 billion at the high end of the range. So we have around DKK 600 million delta compared to the DKK 3.1 billion guidance. So I'm just curious, normally, you only guide for something that you are sort of where you are in negotiations with governments or potential customers. So those DKK 600 million, is that something that we should expect could simply or likely move into 2026 and of course, not part of that DKK 1.1 billion? Or is there something else that we need to be aware of in terms of those -- of that delta? And then maybe just a question on Travel Health, super, super strong momentum, surprises me every time. And now looking at your guidance for '25, so you're sticking to that DKK 2.75 billion. Of course, there as you hit up with some of the [ typhoid ] vaccines. But you are now DKK 400 million short of reaching that DKK 2.75 billion. And looking at the numbers, so you're sort of implying that [indiscernible] should be flat or even slightly decreasing for the remainder of the year. So is there anything here that I'm sort of not seeing? Or are you just maybe a little bit conservative given it's normally a weak quarter, of course? And then maybe if I can squeeze in number 4 here, just on the R&D phasing, can you provide any color on the scenarios from Vimkunya? So we know that this outbreak in Thailand is pending or potentially ongoing. So is there any think that indicate that this should shift into '26? And what could be the R&D spend cost reduction range, so to say, for the '25. So you're guiding still for DKK 900 million. So I'm just understanding whether it's going to save you DKK 100 million or where we are here. Yes, I'll stick to that. I can repeat if... Paul Chaplin: Some of them. But let me take the JYNNEOS guidance. And then maybe, Henrik, I'll let you take the other one. So on JYNNEOS guidance, a few years ago, we would only really guide on Public Preparedness on contracts that we had in hand. And that reflected the fact that we had very few customers. So we didn't have the confidence a few years ago to guide broader I would say that has changed over the last number of years that we're guiding, obviously, with contracts that we know we have in hand, plus what we also think that we can secure within the next 12 months. So it's not actually only things that we're negotiating, it's things that we believe that we can secure. I mentioned in the presentation that sometimes, unfortunately, part of the unpredictability of the part of this business is that it's with governments, right? And even though you can be very -- one day, you're incredibly confident that you're going to secure a contract, there may be a change in a political leader or the government may change, and it completely stops overnight. So it is unpredictable. What I would say is where we guided is where we thought the range would be. That's why we gave a range. Already in Q2, we stressed that DKK 3.1 billion was secure, but that we thought we could secure more. You've seen that we have announced an agreement with HERA. That could have come earlier in the year potentially that could have led to more revenues this year, but it's now pushed into next year. Obviously, that doesn't account for the whole DKK 600 million that you're referring to. But I would say what the guidance reflects is that some contracts came later than we anticipated and some contracts were still unsure whether we can secure. I hope that answers that question. And then Henrik, maybe. Henrik Juuel: Yes. Let me try the other 3, Thomas. I think, first of all, on the share buyback thing, I think what we have communicated previously is that our capital allocation policy, priority #1 there is to pay back the milestone payments to GSK and Emergent. That's soon behind us. It is not yet though. We still owe EUR 70 million to GSK, which we expect to be paid early Q1. Number 2 priority, of course, is to invest in the business, and that means R&D, it also means sales and marketing to grow the top line. And then I think third priority would be to look into our M&A strategy and eventually consider returning money to the shareholders. It's very clear we are not a bank, and we are constantly evaluating that situation. So what is the current need? What do we have on the balance sheet? Is that appropriate for the plans we have? If not, then we will return money to the shareholders. At this point in time, so that as this is a continuous evaluation, I cannot give you any more update right now. But of course, we evaluate the situation constantly. On Travel Health for the fourth quarter and our outlook, we are still guiding the DKK 2.750 billion. And here, I think you need to remember that some of our travel vaccines are seasonal vaccines. We sell in all quarters, but some quarters are better than others. So typically, the fourth quarter is not the strongest quarter. So we are still targeting DKK 2.750 billion for the full year. And on the R&D phasing, we are still targeting the DKK 900 million in R&D for the full year to a large extent driven by the Vimkunya committed trials that we have to do. I'm just alluding to that, there could be some of it phased into next year. And typically with the clinical trials, I think a lot of the steps you go through there, the timing can change. So some of it could slip into next year of the R&D spend. If that happens, then, of course, it could impact our EBITDA margin positively this year. But let's see, the plan is still DKK 900 million. And we're only raising this as it's a little out of control with the exactly at what pace these trials they run. Operator: [Operator Instructions] we are now going to proceed with our next question. And the questions come from the line of Lucy Codrington from Jefferies. Lucy-Emma Codrington-Bartlett: Just regarding chikungunya then. In terms of the U.S. launch, I was wondering how important is the MMRW publication when it comes to launching in the U.S.? And then maybe a bit niche, but in similar lines, have you thought about the potential substitute that the New England Journal of Medicine and Public Health Group have talked about replacing the MMRW? And any thoughts on that at all? Paul Chaplin: Yes. Thank you. Yes. So this is a tricky one. So yes, in the U.S., post approval from the FDA, you need an ACIP recommendation, which we're very fortunate that we have for chikungunya. And that recommendation, as you then say, is then published in the MMWR, which is a publication from CDC. And many of the distributors actually want to see the publication, even though it's recommended and it's posted on the website before they will start to purchase. And obviously, the situation where we're in is the MMWR has not been published. And it has, as we said, has slowed down the traction, I would say. The one thing I would also give as another example is that when we launched JYNNEOS in the private market in the U.S., the same situation. We had a recommendation from ACIP, but actual fact, the MMWR was only published earlier this year. And what we did in that situation was that we were able to convince the distributors that they could start to acquire the product before the publication, and that was successful. And I would say we're in that phase right now. We've convinced some already to go ahead with chikungunya, and we're still convincing others. So it has certainly slowed down the traction, but it's something that we've already had experience of with JYNNEOS. And again, one of the main arguments for that is there's always been sometimes a lengthy delay between the recommendation and the publication. And right now, it's very uncertain with ACIP and CDC what would the time will be. And as you say, that is leading to many others talking about alternatives and whatever, but we'll have to just see how that develops. Operator: [Operator Instructions] We are now going to proceed with our next question. And the questions come from the line of Thomas Bowers from SEB. Thomas Bowers: Just a quick follow-up here for me. Just on the sales and marketing cost spike you can say here in the third quarter related to mostly Vimkunya, of course. But should we see this as sort of a new baseline going forward? Or is there some one-off expenses in that Q3 S&M number that we should be aware of just to sort of have an indication on how we should model at least going forward? Henrik Juuel: I think that there's certainly an element of one-off in there because typically when you launch a new product, you will be in a launch phase that will require promotional costs for a period of time. So it's for a period of time, but such a launch can easily stretch over like, let's say, 2 years perhaps. And then you will see at least the promotional spend part of it to normalize again. But right now, I think we are spending money establishing the awareness of chikungunya and Vimkunya in particular, in the markets. It's a nonexisting market in most places we go into. So therefore, there is a need to build the awareness. But it will normalize after a couple of years where you can no longer argue you're in a launch phase. Operator: That does conclude the question-and-answer session. I will now hand back to Mr. Paul Chaplin for closing remarks. Paul Chaplin: Thank you, and thanks, everyone, for joining the call and for your interest and the questions. Thanks, and have a great day and a good weekend. Operator: This concludes today's conference call. Thank you all for participating. You may now disconnect your lines. Thank you, and have a good day.
Operator: Welcome to the NIBE Q3 presentation for 2025. [Operator Instructions] Now I will hand the conference over to the CEO, Eric Lindquist; and CFO, Hans Backman. Please go ahead. Gerteric Lindquist: Thank you very much. Good morning, everyone out there. Hans Backman: Good morning from me as well. Gerteric Lindquist: And just a few things when it comes to the order we are going to introduce, of course, ourselves and some figures afterwards, we have the Q&A sessions, and we will be pleased if there would only be 2 questions per individual and also try to end this Q&A session around 12 because we have other commitments shortly afternoon there. So with that said, once again, welcome to this conference call. And I think that the headline is that we are very proud to be able to present these figures as we are today. We've said several times that the organization that we represent, Hans and I, is very, very strong, very, very proud to have the ability and possibility to lead this organization. So that's the headline. Of course, it's a gradual recovery that we -- as you go through for the group. And of course, when comparing the situation in the world today, compare what it was when we started [Audio Gap] environment like that. And also the increased strength of the Swedish crown from many perspective, is very nice, of course. But when you compare figures, it's a little bit shadowing the real organic growth, which we, therefore, have explained very explicitly when separating it from the currency effects. And we gave a very bold promise from the very beginning of the year that we're going to be back at the intervals of the historic levels for each respective business area. And we are, of course, very proud that as far as we've come, and we are very transparent with where we are as we are with the targets. And of course, those disturbances that I just described, of course, they are causing some hindrances, but we are trying our best to give you some kind of a guidance where we possibly could land at the end of the year. You've seen them. We don't have to dwell so much about it. It's very pleasing, of course, that there is growth there well beyond the 1.2, like 4.6% organic growth. And what's also very pleasing is that we see that the gross margin is going up and the operating margin is moving in the right direction. And of course, moving into the quarter as such, the third quarter, then we see that the gross margin to be improving and the operating margin is now up to 11.3%, which is, of course, what we like when the margin that corresponds well to where we like to be. And if we just continue a little bit about the graphs that we typically look at, I mean we see now that the income is gradually coming back, and that's even more described perhaps in the next graph, where we see the curve is going in the right direction. And when we look at, again, it's an improvement quarter after quarter. And of course, it's a recovery all over, you can say, but in smaller portions, of course, where it's Germany and Sweden and Netherlands, particularly on the residential side, the U.S. remaining stable and also Italy, very much on the commercial side, which is very pleasing to see. We also see that there is a more traditional seasonal pattern, particularly with Stoves and with Climate Solutions. And it is also pleasing to note that all the efforts that we've done during the year despite the action program that we took, R&D remained at the same level and also the sales forces, and that is paying off now, of course. You can't look at things shortsighted. You have to be very determined long term to be successful. And here, we, of course, have now come up to the third quarter when it comes to the margin that is just in the right, can I say, level and the right span. And of course, we are giving a little bit of an indication here on this slide saying that, well, within margin of error, we should be close to the 13%. And that's, of course, again, a very bold statement, but you've been following us. We've been giving you very clearly the intervals. And now with 6 weeks remaining, it's very important we are into a quarter that is typically decent when it comes to invoicing and order intake. So we -- the best thing we can state is exactly what you read there, and that's also stated in the report. We are very cautious not to do anything or mention anything or do any saying here that wouldn't correspond to the report as such. So Hans, of course, is going to dwell a little more on the quarter as such on Climate Solutions. It's a good growth organically, and we've seen that, of course, and the margin here so far just south of 12%, whereas the quarter is coming in above the 13%. So it's a balancing act, a very delicate balancing act for the rest of the year. And coming into Elements, they, of course, at when the whole industry of heat pumps went down all over Europe, and of course, being a main supplier there of components, they also took a dive. They're a little bit behind [Audio Gap] but we also see now that, that is coming along. And electrification in general, of course, and also the rail segment, which is very pleasing to see. Industrial segment is more a reflection of somewhat cautious or subdued market, particularly in Europe. As a comparison, we can say that in general, Europe seems to be a little bit more cautious or subdued compared to the U.S. or the North American market. And if we just look at the same sort of forecast again if we dare to say or what we could offer as far as margin predictions, we say, well, it's going to be some close to the 8%, of course, but we also give a little bit of a buffer for ourselves depending on how the last weeks will look like. And particularly on the Element side, being a supplier or sub-supplier, we know that although the order intake could be good, but for obvious reasons, no customer wants to sit on too large inventories. It's always delicate to do the forecasting for the Element side. But looking at the figures there again, good growth. Operating margin is back at 6.8%. And when we look at the quarter as such, as Hans is going to come back to that. It's again, of course, on the higher level, up to 7.4% for the quarter. Quickly into Stoves. And there, of course, we noticed that had already indicated in the second quarter that, that would be difficult to arrive at the old or the interval of that we have been -- where we've been or where we used to be. So there, we need a few more quarters. And I think that is what we think that is more referred to -- be referred to the overall cautiousness, particularly in the European market. In North America, it's -- the markets are fairly buoyant, but there, we have difficulties with the manufacturing of stoves that's taking place in Canada and then being shipped into the U.S. So there, we take a hit when it comes to the margins. And there, we very consequently say that they're going to take us a few more quarters to come back to the span that we typically talk about between 10% and 13%. And there we see, of course, it's a thin margin and the quarter as such, that is around 3%. So it's not getting any worse. If we were bold enough, we could say that we've seen the bottom of also the stove market with the figures that we've seen during quarter 3 with a margin of 8%, which, of course, is not satisfying, but still is slightly higher than the previous quarter '24. And just a few concepts in here. I mean, Climate, it's a typical graph really on the pie chart here with climate being like 2/3 roughly and then Element and then Stoves. And on the distribution side, profitability, then we see that, of course, Climate Solutions coming out quite dominating here. And then geographically, not that much has happened. North America remains slightly above 30%. The Nordics, slightly below 20% and then Europe, of course, around the 45%. So no dramatic changes really there. So I think with those quick comments, I hand over to Hans, but I have a lot of eager people out there that would like to put questions to us. All right? Hans Backman: All right. Thank you, Eric. Yes, I'll try to be quick, but not rushing it, but to allow for questions, of course. Before we jump into Climate Solutions here, I would just like to mention from the main report, speaking for the tax rate. Some of you might have seen that the tax rate in the quarter is above 30%. And that is not a new normal as we see it. It's rather a matter of timing differences now, very much related to the introduction of the so-called Big Beautiful Bill in the U.S. where the rules and regulations around capitalization of R&D expenses has changed, and that has led to a couple of one-off effects, but that doesn't change anything in the long run really. That's the major reason for that tax rate going up. If we then move into Climate Solutions, I mean, Climate Solutions definitely shows a very robust performance in what still is a challenging world in a way. It's a very strong comeback from the challenges we faced last year and the profitability level at the time. We've been able now to grow sales with some 7% organically, but then, of course, current [Audio Gap] but due to increased sales and also our cost efficiency programs that we have undertaken, profit has improved by close to 50%, coming up from the SEK 1.5 billion to more than SEK 2.3 billion, landing in this operating margin at 11.9%, mentioned. And on a 12-month rolling basis, we are up to roughly that level, 11.8%. In the quarter, sales grew by some 8% and gross margin improved even further, coming up to 35.4%, up from 32.5%. So that's a good achievement as well coming from the volume that we get. And profit grew by another close to 29% or almost 30%, more than 29%, landing in the operating margin there at 14%. So it's a very robust performance and a robust and strong comeback from last year, showing our ability to adapt the cost levels when market conditions change and also to reap the benefits of a good volume that comes in. In terms of split of sales per geography, there is virtually no change at all from last year. It's very stable with Europe, Mainland Europe being 50%, our home turf here up in the Nordics being slightly north of 22% and North America with a solid quarter of total sales. NIBE Element has also shown a very robust in a challenging world. And here, we are really exposed, as you know, to many segments in many parts of the world. Organic growth here was above 6%. But then again, the Swedish currency took away a large portion of that, landing it in then at 2.9%. Gross margin took a jump up here from 19.8% to 21.1%. So that's a nice improvement. And then the profitability itself coming up with more than 30%, landing in on the 6.8%, which leads then to a 12-month rolling that is around that level as well. In Q3, sales actually grew even more organically, that is close to 9%, but again, with a headwind from the Swedish currency. Gross margin continued to improve and profitability again, and we came very close to at least the lower range in the interval for our historical profitability ranges there at 7.5% and a nice step in the right direction. Neither here have we seen any large changes in terms of split of sales per geography. So that's basically how it looked last year with North America being a very strong portion of that business. I would say when it comes to Stoves that despite these very challenging market conditions that they have experienced, first, an overconsumption, you can say, during the COVID period when everyone renovated their homes and then when Putin invaded Ukraine, leading to a lot of people wanting a freestanding and alone off the grid type of heating system. And after that, a period with low energy prices, higher interest rates, low new build. Despite all of those challenges, the business area has defended its position quite well. Despite, I mean, an organic decline there of 8% and more than 11% when you include currency, they have been able to generate a profit here and continue to spend time and money on interesting products and market activities for the future. Here, the -- yes, performance for the last past 12 months is just above 4% and far from where we're used to being, but not that we see that there is any in coming back to a stronger performance as soon as the market returns. And I think we see that a little bit in Q3. Here, sales dropped organically by 1.6%, so much less than before. With currency again, it's obviously a drop there, which is much larger than that. But despite this drop then of 7%, we were able to defend the operating profit from last year. So it remained on the same level, generating a margin there of 3%, which shows the ability also here to take out costs and of course, keeping a portion of them on board or a good portion to be able to meet an expected better demand going forward. In this area, we see a small shift or a clear shift in a way in the distribution of sales in the sense that North America has increased up to 37% from 32% of last year. That's the major change. And that shows that North America has actually, from a sales point of view, been quite decent. What then has hampered the picture for us is, of course, that we have our manufacturing in Canada, and this is where the tariffs have hit us from a profitability point of view. Moving then into the balance sheet. There are no major changes here. We have a fairly stable balance sheet. We've been able to amortize both on intangible and or depreciate rather -- intangible and intangible assets. The investment level has come down a little as well, which we will see on a slide later. On the liability side, you can see that both the interest-bearing -- long-term interest-bearing liabilities and the current interest-bearing liabilities, both have come down, which we also will see the effect of when we look at the net debt figure soon. The performance then and what we have on stock, so to speak, has an effect on the cash flow. We have had a good cash flow from the operating activities of slightly more than SEK 2.9 billion, up from just below SEK 1.8 billion for the corresponding period of last year. Then you see a change in working capital, which is negative with SEK 1 billion. That is solely related to an increase in receivables. It's the exact same situation we actually had -- inventories have been reduced and accounts payables have contributed in a positive way. So it's a result of us invoicing more, and we've not changed any payment terms really. So this should come eventually. And on the next line, you see that the investment in the current operations has decreased by some SEK 500 million, then leading to an operating cash flow, which is plus SEK 420 million rather than minus SEK 450 million of last year. And then we've had some amortization of loans and things affecting the change in liquid assets -- the currency change, we cannot do much about. A few comments here on the key financial figures. The -- we have a fairly decent amount of cash on hand, the unappropriated liquid assets. The number there is actually correct. I mean, the SEK 5,119, which was the exact same. But if you look into the report on Page 13, I think it is, you see that the composition is different. But it's a good portion of cash there. And then interest-bearing liabilities have come down and the net debt is now [Audio Gap] which is very pleasing to see. We typically amortize our loans and liabilities effectively after acquisitions. And what took a little longer this time was, of course, the acquisition of Climate for Life, one of the largest acquisitions we've made and then a market that took a very strong downturn after that. But we're definitely heading there in the right direction. And the equity assets ratio is solid as well, being above 45%. Just a quick comment there on the working capital. If we look upon it, excluding cash, it's also been improved from last year with more than a percentage unit. We are still targeting 20% as an intermediate target. So we still have some work to do imminently moving in the right direction. And moving in the right direction are also these key figures, although they are, of course, not where we want them to be yet, but they are heading there. Return on capital employed, now 9%, up from [indiscernible] return on equity also above 9% there, up from just below 7% and a profit per share that has increased just like equity per share. So things are slowly but surely moving in the right direction. And as always, we don't comment upon the share price, especially not today, I think I think. By that, I'm done. So, if you want to add something before we open up. Gerteric Lindquist: No, I think we open up now. And as we say, about 2 questions per individual and then we take it from there. All right. Operator: [Operator Instructions] The next question comes from Uma Samlin from Bank of America. Uma Samlin: Two for me, please. So first question is on the Nordic market. I was wondering if you could give us a bit more color on the lower growth in the Nordic this quarter. It seems like it's minus 1.5%. So what is the main drivers there? What are the trajectories do you expect in Q4? Gerteric Lindquist: Okay. So we should [Audio Gap] in general or you're referring to Climate Solutions now or you're talking about the whole NIBE group? Uma Samlin: Yes, the whole group is the one that you have reported. Gerteric Lindquist: Yes. Okay. That's fine. Well, I think that, of course, the contraction is substantial, as we said, in the Nordic when it comes to Stoves. That's very obvious. And also, we noticed that the industry as such is not that strong in the Nordic region when it comes to the heating element. And I think what's keeping it up at a decent pace is still the Climate Solution. So I think the consumer -- so cautiousness when it comes to Stoves, that's certainly an observation. Also that the industry in general is not that strong in performance, which is heating element where heat pumps are keeping up fairly decently. Uma Samlin: Okay. That's super. My second question is on your margin guidance. So I guess if you assume that Climate Solutions will reach the corridor of 13% to 15% for the full year with some margin of error, let's say, around 13%, does that indicate, I guess, significant upside in your EBIT margin profile in Q4? Would that be then like trending more close to 15%? So what would you expect to be the drivers of the step-up in Climate Solutions margins in Q4? Gerteric Lindquist: Well, I think that to start with, as we mentioned, the seasonal or the seasonality is back. So here is a little bit weaker and the second half is a little stronger. That's the traditional pattern that we've had prior to pandemic and the -- and those years with crazy, if I may call it, energy prices. So of course, quarter 3 and 4 traditionally should be stronger. And it's very difficult to predict anything, and we try our utmost to give you some kind of an indication that if we now say, as we say, regarding Climate Solution, of course, that is the best hint we can give you. It's impossible to say it's going to be so and so common. I think that's as far as we get -- the Stove side, of course, we saw after Q2 that it would be difficult, very difficult to arrive at within the span. And that's also clearly indicating now. That doesn't mean that we wouldn't have an uptick again. It's just that they came into this downturn a little bit later. First quarter '24 was not bad at all, whereas the other ones were really taking a hit. So it's more a matter of that has staggered a little bit when it comes to sales and profitability. Operator: The next question comes from Karl Bokvist from ABG Sundal Collier. Karl Bokvist: The first one is just a follow-up to the margin here and especially if we think about Climate because historically, the fourth quarter's margin is on average lower than the third one. So if possible, if we take aside the seasonality effect here, I see volume is one thing, but what other drivers do you think could help the margin in the fourth quarter help you approach the full year target that you guide towards? Gerteric Lindquist: Things that are moving in the right direction when you talk about the strengthened productivity. I mean, that continues quarter after quarter. Productivity is one factor and also the ambitious program that we have across the business areas, Element and Climate Solutions. So I mean, there are no magic factors, but there are some factors that we feel will continue to assist the profitability. Karl Bokvist: Understood. Yes. Understood. The second one is on the receivables point that you mentioned, Hans. Historically, the kind of balance between receivables and payables have kind of yielded a net neutral situation. But the last couple of quarters, the receivables have increased more than the payables. So how long do you think this kind of gap will be before they normalize? Hans Backman: That's very hard to predict. I think the result of the increase in the receivables is a consequence of the seasonality kicking in and with us invoicing more, so to speak. And typically, the invoicing takes place in the latter part of each month as well. So it's typically weaker in the beginning and then a lot happens and that you don't collect it until the next period. On the payables side, we have a little bit more deliberately than before, begun reviewing payment terms without treating our suppliers bad in any way, but to make sure we have competitive terms. And when it's going to level out, it's hard to predict. Operator: The next question comes from Christian Hinderaker from Goldman Sachs. Christian Hinderaker: I'm going to follow up on the working capital side, if I may, and on inventories, 23.9% of last 12 months revenue. I appreciate we're improving quarter-on-quarter, but still above the sort of long-run average. I guess, firstly, do you anticipate a seasonally strong Q4 for inventory? And then longer term, how do we think about the inventory level required to support growth either as a percent of sales or perhaps on an inventory days basis? That's the first one. Gerteric Lindquist: Well, I mean, as Hans mentioned, of course, we like to drive down the inventories. And I think that there's been a little bit of cautiousness here now from sales because we don't like to have any disturbances when it comes to deliveries. We know that everyone is on the tip toes out there. And of course, it's very tempting to say we are -- now we're going to bring down the inventories. And I think that we and our colleagues, we really have to restore our, should I say, reputation in the market by really delivering promptly. And I think that the discipline is coming back. And I think the next step is keeping the discipline and then very diligently moving down inventory levels further. So there is a cautiousness on our side and also our colleagues, I'm sure, that no one wants to sit out there saying that, now we have like so many more weeks of delivery. That is no, no go for us. And I don't think that's -- I think that's pretty much a symbol for the whole industry. And that was my immediate answer... Hans Backman: No, no, absolutely. It's very correct. And if I just may add, I mean, what we are taking down also step by step. It takes a little bit longer, but it's a deliberate work to do it, level of component inventory. We -- as you know, we had delivery issues, so to speak, during COVID because we couldn't get products on board to the extent we needed. And when we could source something, we sourced it to the extent possible. And that inventory, given the strong shortfall that came afterwards, is now being used step by step and being reduced. So -- but without, as Eric is pointing out, disturbing any production that we have throughout the group or deliveries to the customer. Christian Hinderaker: Okay. So just to be clear, the pre-2020 levels is probably an unfair number to think about in the immediate term? Gerteric Lindquist: Well, I think it's the reverse picture. Then there was an enormous demand or if I say, quite a heavy demand. And then we were lagging. And then, of course, the figures turned out to be very nice, perhaps a little bit bigger than -- or better than we really deserved being viewed for or criticized for, evaluated for. And now we come from the other side. Now sales are picking up, we are cautious. So I think that we have to take it step by step and bringing it down perhaps to '20 at least and then take it from there. Christian Hinderaker: My second one is on the action program. In the Q4 presentation last year, you gave a summary of the potential split for those savings by segment. I suppose, firstly, is it fair to assume that the 73% of savings have come in Climate Solutions as was set out in that slide? Or has there been a sort of readjustment as we move through the year? Gerteric Lindquist: No. Hans, you... Hans Backman: Yes. No, I think that the calculations we made at the time and as the program evolved, so to speak, they were pretty accurate. And that's what we see has come in as well. And given that the stretch in the return to normality has dragged out a little, we've undertaken a few more saving actions. But that's all kicking in now, you can say, according to the program. And then -- well, running a business, you always have cost reduction initiatives. So it's -- but it's mainly related to the program, kicking in as we planned. Operator: The next question comes from Johan Sjöberg from Kepler Cheuvreux. Johan Sjöberg: I have a question starting off with the Climate Solutions, Eric, if you could. You talk about sort of demand being back to -- or demand for next year, you're talking about external consultants and they share -- or you share their view upon sort of the growth. There are a lot of reports out there on the heat pump market in Europe, especially. Could you sort of give some sort of ballpark range what is the sort of the underlying assumptions you are looking for or basically the consultants are looking for, which you agree with? Gerteric Lindquist: Well, as you say, there are so many reports out there. And some are very biased and some are more -- I don't know where statistics come from. But I think that you can get reports anything from 5% to a few double digits plus, like anything from 5% to 12%, depending on which report you read. But the common denominator is that no one foresees a decline any longer, but rather growth, but in various sizes or various numbers, whether it's 5% or 7% or 11% or 12%, it's very difficult to predict. But what we take away from all those reports is that we -- the tide has turned. We are back on a market that is getting or growing again, which is very pleasing. Then, of course, it's up to all the colleagues out there, including ourselves to do as much as possible out of those figures. But perhaps, as we said before, we all love when the growth figures are phenomenal, but not necessarily do the customers always benefit from that. I think that we believe that a growth in an orderly fashion is better for everyone because then the installation work is done professionally and the distribution flow works much better. So those figures indicated that I think that would, to us, mean that it's a healthy growth possibility, but still in a way that they're going to make things materialize in a profitable and decent way for us as manufacturers, but also for the installers out there and for the end users. Johan Sjöberg: That's very clear. And also just looking at the different segments in Climate Solutions also. I mean, looking at sort of what is heat pumps and of course, the different segments within the heat pump and also you got the water boilers. Is it a big difference between the growth rates right now between sort of -- if you take sort of the bigger sort of subsegments, not going out to sort of add to water or anything like that, but more sort of between the different bigger segments within Climate Solutions, it's a bigger -- it's a big difference in growth right now? Gerteric Lindquist: Yes. Well, I think that the water heaters, if you talk about them, they have a more modest growth, and that goes for all over, of course. And that's pretty much -- construction is down -- new construction is down, and that's where you typically, you install those and when you build new houses and so forth, although the houses themselves, they might have heat pumps or district heating. But you have those modules there we typically have 1 or 2 of those water heaters. When construction is down, it's also down. So the water heater market is very, very cautious, a few percentage units, but doesn't have the same growth at all as the heat pumps, but stable, decent margin. So it's not something that we should neglect by any means, but the growth pattern is strictly on, you can say, on heat pumps. Johan Sjöberg: Got it. Hans, also a few questions for you, if I may here. You mentioned in the report the impact on sales from the currency. Could you also talk about the impact on EBIT just to get sort of a feeling for the dilution, if any, from FX in the quarter, if that's something you can provide us with? Hans Backman: Yes. It's roughly the same. I mean the margin is not influenced to a large extent. Of course, you can convert less dollars or euro or what have you at a poorer rate, so to speak, or stronger or weaker rate, which has an impact. But in percentage-wise, it doesn't deviate too much from the effect on the sales side either. Johan Sjöberg: Okay. And also your comments on the Stoves business also, the tariff, of course, impacting -- of course, impacting even more now when you have a higher share of sales in the North America coming from Canada. But what are sort of the impact from tariffs in the quarter, if that -- just give us some sort of feeling? And also what are your -- how can you mitigate that? And how long time will it take before you can mitigate these tariffs? Gerteric Lindquist: It is substantial. We won't dwell on any [Audio Gap] of course, partly will be taken like -- in any case, will be taken by price increases. But we -- at the same time, we've said we're never going to put our position on the market in jeopardy by being ridiculous in that. We just have to trim and trim and trim and be more efficient, try to come back to a margin that is decent. So we have taken quite a bit of a hit during Q3 and of course, during the whole year, and we don't expect that to improve, but price increases takes away a little bit. And then we just have to be more efficient and streamlined. Those are the only 2 recipes. And then thirdly, you could possibly -- but that's more of a guess. I mean the American manufacturers might be tempted to increase their prices when they see that's difficult to import from other countries. But that's a speculation. I wouldn't dwell on that. So we are between a rock and a hard spot, as I say, but we're going to come back to a decent margin by streamlining and doing everything possible without jeopardizing our position in the market. That was a long answer to you, but because that is a little bit of a long answer to us. We are, of course, doing our utmost just to keep and increase our position in the U.S. because we are well positioned. And now it's really up to productivity and doing everything we possibly can to combat the difficulties with those tariffs. That was a long answer. That's it. Operator: The next question comes from Anders Roslund from Pareto Securities. Anders Roslund: Yes. I was curious about your thoughts about next year for Europe and heat pumps. I mean this year have been characterized by de-stocking coming to an end, and now it's the true market growth we are looking for. And at least in Germany are sort of coming with some growth into next year. How do you see structurally on Europe for next year? Gerteric Lindquist: No. As I said there, we assume that Europe will grow overall. And of course, Germany is going to be one important contributor to that growth. And then, of course, there are -- it's important to distinguish between those applications and the number of heat pumps really being installed because you have a sort of a period once you have the application in and is approved, you don't necessarily start to install the week after. You have an allowance or is it like how many quarters was it now like -- many months... Hans Backman: Yes, yes, I don't recall exactly. Gerteric Lindquist: And then, of course, the true figure is around 40% -- or well above 40% that's been installed, partly taken from inventories, of course, and partly from producers directly. And we believe strongly that there will be a real organic growth for the manufacturers next year because now we should be out of the inventory, has been dampening things. So the overall picture, I mean, now again, sitting here or standing here on the 14th of November making predictions for '26, but if you ask us, we look at the European market in a fairly positive way because also that the interest rate die or at least they come down, that is also sending a report to consumers or sending a signal to consumers that, okay, now it's more decent. They can start to build homes, which is very important when you start to build homes in a country. That's a driver for the whole economy. So without too many other disturbances, but then you never know about Europe what's going to happen. We believe that it's going to be a stronger year '26 than this year. And then, of course, that is a prediction. I don't know whether I answered your question, but I tried. Operator: The next question comes from Christian Hinderaker from Goldman Sachs. Christian Hinderaker: I boldly went back in the queue, so I'm surprised to be fit in for the follow-up, but I appreciate it nonetheless. Yes, I wanted to ask the Selmo acquisition you made in Italy during the quarter, I guess, interesting in terms of its components, focus, smart thermostats and so forth. How should we think about that transaction and the scope of your broader M&A priorities looking forward? Is that illustrative of the type of deals you're looking at? Or are you still balanced in terms of also reviewing sort of OEM type transactions? Gerteric Lindquist: I think that we have received a number of questions earlier on today in other forums, and we say we're always working on acquisition. Nothing has come down. Of course, '24 was a year when there weren't that many signings carried out. But I think this is a decent acquisition for Element with a turnover around EUR 20 million. It's not gigantic, but it's profitable. It's a company that we've known for a long time. It's a company that we've been working with for a long time. We don't foresee any [Audio Gap] issues if I had to say that because we know the founders and has a very good relationship. So it's one of those add-on acquisitions that we really like to do, family-owned companies, and they remain helping us, it's perfect. I don't know whether I answered that question fully, but we have similar activities within Stoves and within Climate Solutions, ideal partners and that we try to trim and try to bring on board. But everything is timing, just like anything else in life. And this Italian acquisition was something we've been discussing with them for a long time. And then all of a sudden, they say, we are fine. Should we really -- now we really go and then we are ready. An acquisition takes more than a quarter or 2 in our world, we like to come in on a friendly basis, not coming in as an intruder or -- yes, exactly like that. We like to come in as partners, and it takes time to develop that over years. So those are the most successful ones in our book. Okay? Operator: The next question comes from Carl Deijenberg from DNB Carnegie. Carl Deijenberg: I was a little bit late, so apologies if this question has already been asked. But I wanted to come back a little bit on the topic of pricing. I mean we talked about this for roughly 2 years now. And I guess earlier this year, we were talking about inventory reductions amongst the distributors and increased campaigns on the back of elevated inventories. But now we hear, I guess, also from some of your listed peers that pricing environment on the hydronic side seems to have been improving here a little bit towards the latter part of the year. So I just want to hear your view here on sort of pricing in general and maybe if yourself have done any sort of definite price adjustments here in the latest months. Gerteric Lindquist: Well, I think that's one area we've been very cautious that we are one of the leading actors because to sell premium product, you can't devaluate the value because short term, they just deteriorates everything. So coming back again to the overstock situation, we had some of that. We've been very cautious of reducing prices. And therefore, it might have taken a little bit longer to reduce those inventories because you know that if you sort of spoil the market with lower prices, then that is very contaminating. But further on in the distribution chain, and I'm repeating this again, of course, when our distributors or installers have been sitting on inventories, knowing that also might have been refrigerants and stuff like that, they see a new wall coming towards [Audio Gap] well, and they have to be gone. Of course, it's very tempting just to free the capital tied up. And our own method has been sit still in a boat, be very cautious. And as far as price increases are concerned, monitor that very, very cautiously again, being very observant. Of course, we agree what you say. We also see that there is some signs of price increases in the market, which is very natural once it's been stabilized as it's been. And I think no one is the winner in the price war, just like any other war, all are losers. Carl Deijenberg: Fair enough. Then I wanted to ask also a little bit coming back to the balance sheet and sort of gross margin development. I mean, quite a good rebound here in Q3, but still, as you evaluated earlier on, you're still in the situation where inventories -- your own inventories are on the way down. And I just wanted to ask a little bit on the sort of internal production rates for you. Obviously, you've been adding capacity quite dramatically in the last couple of years. But would you say that sort of the shipments you are delivering on right now is the sort of utilization in sort of your base production sort of excluding the capacity expansion, is that fairly much 1:1 right now? Or are you still suffering quite tangibly on the gross margin from some utilization? Gerteric Lindquist: Well, I mean, we can't avoid depreciation. I think that's kicking in, of course. So of course, they're going to be lesser than what we sell. That's very obvious. But at the same time, on the other direction, those new facilities that we have, that's also offering better productivity. So it's not so easy to say that, okay, now we sit with a tremendous depreciation. Of course, it's going up. But they're also built for a reason, not only for volume increase, but also to do things more rational. So that's working in the other direction. I don't know whether I answered your question, but there was... Carl Deijenberg: No, no, no, but -- yes, yes, yes, absolutely. No, but I guess, I mean, my question was a little bit, and I understand there's multiple variable components to it. But I mean, assuming if you would see further volume support next year, it sounds like you could still have some upside on that gross margin development even now when we look at Q3, where you saw quite a good development year-on-year at least. Gerteric Lindquist: I think that we have to give you right there, yes. Correctly, so... Operator: The next question comes from Karl Bokvist from ABG Sundal Collier. Karl Bokvist: But I just wanted to go back to one thing that you've been very good at in the Nordics, which has been kind of heat pump products towards new buildings or new residential buildings. And if we think about both Nordics and Europe potentially seeing a bit of an uptick in new residential construction, how have you worked with that kind of product assortment in other areas than Sweden? Gerteric Lindquist: No, I think that if you talk about the exhaust air heat pumps, we've been working with that as well, but that comes to legislation -- the construction legislation and also preferences for what you can do. And I think that we see very positive view on our next generation of heat pumps where you also can -- like I'm talking about the exhaust air heat pumps now in well-insulated homes, that we also have a cooling capacity. When you come a little bit further south, then there's been a question, could you also possibly cool our facilities in the summertime. And I think that has given us quite a stir in demand. So that's one way of mitigating that. But of course, when you have lower standards, then you have to adapt to that when it comes to building standards. Here, we have a very tough situation up -- for instance, Sweden or that's pretty much the same, in the Nordic markets, you can say that you can only use 40 watt per square meter a year, and that limits your amount of energy of 6,000 kilowatt hours per year in house, and that's including tap water. So of course, that is -- that's quite a challenge. But that's also something we can -- we use when selling that to house manufacturers and customers when we go in other countries, ventilation and heat pumps in Holland or Netherlands, for instance, that's very, very important. So they are tagging along the same lines. And also in Germany, that is pretty much the standard that you have to recapture the ventilation air or the energy in the ventilation air. So the larger heat pumps, they are typically for renovation when you have -- when you're replacing a gas burning boiler or an oil burning boiler with an output of some 16, 20, 18 kW, then, of course, you have to have a larger heat pump and then you talk about a different vehicle or a different animal, but you still supply the same sufficient amount of energy to the radiators. But then you talk about refurbishment. I hope I answered your question. Karl Bokvist: Yes, partly one, I mean it is just that you've built up a strong position in the Nordics. And I mean, as you expand in the other countries, how you work to kind of get close to that level of relationship with the important stakeholders, house builders, et cetera, so that you're in their blueprint, so to say. Gerteric Lindquist: Yes, yes. Of course. And also working with house builders and giving them the upper hand, the advantage of using our products and demonstrating what can be achieved having the Nordic market as references. Operator: There are no more questions at this time. So I hand the conference back to the speakers for any closing comments. Gerteric Lindquist: Well, once again, thank you for the disciplined way you've all times, you would like to have very, very much of a decimal, comma and so forth. And we, of course, couldn't do that. But I hope we've put some flesh on the figures in the report. So once again, thank you for calling in, and we see you, if not earlier, beginning of next year when we report the full year. Thank you again. Hans Backman: Thank you, everyone. Thank you. Bye-bye.
Operator: Good morning or good afternoon. Welcome to Swiss Re's 9 Months 2025 Results Conference Call. Please note that today's conference call is being recorded. At this time, I would like to turn the conference over to Andreas Berger, Group CEO. Please go ahead. Alexander Andreas Berger: Thank you very much, and good morning or good afternoon to all of you. I appreciate that you're taking the time today to listen to us and also to engage into a hopefully very vivid Q&A. Before our Group CFO, Anders Malmstrom, walks you through the details of our 9 months results, I'd like to start with some brief remarks as usual. After another strong quarter with a profit of USD 1.4 billion, we're pleased to report a net income of USD 4 billion for the first 9 months of 2025, corresponding to an annualized return on equity of 22.5%. This puts us very well on track for our full year net income target of more than USD 4.4 billion. We benefited from exceptionally strong P&C results in the third quarter, helped by a low burden of large claims. These amounted to around USD 200 million in the quarter, well below expectations across P&C Re and Corporate Solutions. The result of the second consecutive benign large-loss quarter is that both our P&C units are tracking well ahead of their respective targets. This is the principal reason why we're in such a good position at this point in the year. You've heard me stress our two key priorities, and they are unchanged. Firstly, deliver on the more than USD 4.4 billion group net income targets; and secondly, increase the group's overall resilience to improve long-term delivery. Now on resilience. This journey started with a complete turnaround of Corporate Solutions and the implementation of a new reserving philosophy, which we subsequently extended to P&C Re, 2 years ago. We also successfully addressed P&C Re's in-force U.S. liability reserves last year. This year, we've been focused on further improving the resilience of the third business unit, Life & Health Re. After 3 quarters, Life & Health Re net income stands at USD 1.1 billion, which is actually a quite solid result and a very important contribution to the group's earnings. But Life & Health Res' result has been too noisy. As mentioned at our half year results, we continue to focus on reducing volatility in smaller portfolios, where experience has lagged expectations, thereby producing negative variances to our expected results. These negative variances are unacceptable, even as our largest portfolios, including U.S. mortality, performed in line with expectations. In the third quarter, we, therefore, decided to partially accelerate efforts to strengthen the resilience of the in-force book based on detailed reviews of underperforming portfolios. Some of these are still ongoing and will be completed at the end of this year. We have full confidence in reaching the group's net income target of more than USD 4.4 billion over the year. But given where Life & Health Re stands after 3 quarters and given our focus on resilience, we feel it is prudent to flag that in a base case, we are likely to fall short of the USD 1.6 billion Life & Health Re full year target. We will do what's required to get this business to produce results closer to expectations. At this point, and I emphasize, we do not expect significantly outsized impacts from Life & Health Re in the fourth quarter relative to Q3. So you heard me emphasizing that. We will update you on this on December 5 at our Management Dialogue Event, and we're looking forward to that. Let me also briefly touch on new business CSM generation across our segments. We remain focused on disciplined underwriting as profitability continues to be our priority. To reemphasize again, we don't have a top line target. New business generation remained resilient with a new business CSM of USD 3.9 billion for the first 9 months, slightly down from last year's USD 4.2 billion. The decline versus last year, partially reflects the more challenging pricing environment that we're facing in some lines of business in the P&C business, but also in Corporate Solutions. It also reflects our continued focus on portfolio quality, including the setting of prudent initial loss assumptions. Overall, we're still satisfied with the margins we're able to generate across the businesses. Importantly, we continue to maintain discipline on terms and conditions and attachment points. I look forward to presenting further details on our group priorities at the upcoming Management Dialogue Event on December 5. On that date, we'll also announce our financial targets for 2026. I'll be joined by our Group CFO, Anders Malmstrom, to provide an update on key topics across our businesses followed by then an extended Q&A session. I think with that, I'm happy to hand over to Anders to give you more flavor. Anders Malmstrom: Thank you, Andreas. And again, good afternoon or good morning to everyone on the call. I will make a few remarks on the results we released this morning before we go to the Q&A session. Andreas has taken you through the highlights of our overall strong results for the first 9 months of the year. Let me add a few further details. On revenues, the group's Insurance revenue amounted to USD 32 billion in the first 9 months, down from USD 33.7 billion last year. The USD 1.7 billion decline has a few major drivers, most of which were already highlighted in the first half of the year. At Q2 2025, we had indicated that group revenues in the second half would be around USD 1.5 billion higher than in the first half. In line with this guidance, Q3 revenues were around USD 600 million higher than the average quarterly revenue in the first half of the year, reflecting the increased claims seasonality. While Q4 is also projected to be higher than Q1 and Q2, we now expect revenues in the second half to be slightly below the USD 1.5 billion previous estimate, primarily due to our continued focus on portfolio quality in P&C Re. As you have heard from us by now, we do not manage for top line. Let me move on to the Insurance Service result of our businesses. In P&C Re, you will continue to notice a decline in the CSM release versus last year's period. The USD 2.1 billion release in the first 9 months is down from last year's $2.7 billion. This decrease is driven by the earn-through of prudent initial loss picks, including impact of new business uncertainty allowance and slightly lower margins. Experience variance and other, which captures all variances relative to initial reserving assumptions, contributed positively by USD 549 million in the first 9 months, including $447 million in the third quarter alone. This quarter's positive experience was mainly attributable to large nat cat losses that came in $678 million below expectations, bringing year-to-date favorable nat cat experience to USD 900 million. In addition, P&C Re benefited from a one-off risk adjustment release in the third quarter in the amount of USD 170 million. Against this very favorable backdrop in the third quarter, we selectively added to both current and prior year reserves. Year-to-date, we have added around USD 300 million to our current year reserves in P&C Re. Nominal prior year reserve releases stand at around $150 million for 9 months, which means we added around USD 100 million in the third quarter. Please note that no further actions have been necessary on the U.S. liability portfolio we strengthened, a year ago. On the back of all the pieces I just described, P&C Re reported a very strong combined ratio of 71.3% in the third quarter, resulting in 77.6% for the first 9 months, well below the 85% target we have for the year. Moving on to Corporate Solutions. The 9-month CSM release of USD 668 million is above last year's $628 million, driven by higher in-force margins. Experience, variance and other was positive at USD 111 million. This reflects favorable large loss experience and a positive prior year reserve result, partially offset by an allowance for potential late claims reporting. Large nat cat claims of USD 60 million came in below expectations for the first 9 months, while large man-made claims of $282 million were slightly above, partially offsetting the favorable nat cat experience. Corporate Solutions continues its track record with a 9-month combined ratio of 87.1%, below our target of less than 91% for the full year. Finally, on Life & Health Reinsurance, as Andreas mentioned, we decided to partially accelerate our efforts to strengthen the resilience of the in-force book, following detailed reviews of underperforming portfolios. This resulted in negative assumption updates hitting the P&L in the amount of around USD 400 million for the first 9-months, [ there ] was USD 250 million in the third quarter. The large majority of the third quarter's impact related to selected Health business in the EMEA and ANZ regions. The fact that this hits P&L mostly reflects the onerous nature of these portfolios under IFRS, and this makes it particularly important that we strengthen them sufficiently. We have also seen negative claims and volume developments of approximately USD 250 million year-to-date, primarily in the third quarter. Q3 was mostly driven by the Americas region, which had a relatively poor quarter in terms of experience, driven by volatile large claims. Importantly, over year-to-date claims experience in our largest -- overall year-to-date claims experience in our largest portfolios, which includes the U.S. Mortality, which was strengthened before our transition to IFRS, continues to perform in line with expectations over the first 9-months. Despite all of the actions and impact, Life & Health Re has produced a net income of USD 1.1 billion in the first 9 months with $280 million achieved in the third quarter. While some of these assumptions reviews also affected our CSM balance in addition to the P&L, our CSM overall remained unchanged at USD 17.4 billion compared to year-end 2024, supported by attractive and prudently priced new bases and favorable FX impact. A few words on investments before concluding with SST. We benefited from a strong investment result, with a return on investment of 4.1% ahead of last year's 3.9%, supported by strong recurring income standing at USD 3.0 billion in the first 9-months. We estimate the group's SST ratio at 268% as of 1 of October 2025, 11 points higher from where we started the year. That's where I will leave it for now, and I'm happy to hand over to Thomas to kick off the Q&A. Thomas Bohun: Thanks, Andreas. Thank you, Andres. Hi to you from my side as well. [Operator Instructions]. With that, operator, could we start with the first question, please? Operator: The first question comes from Kamran Hossain from JPMorgan. Kamran Hossain: A couple of questions. The first one was just on the Life side. I think the commentary you've given around like quantum in Q4 versus Q3 is helpful. I just wanted to clarify a few things. So when you say it's not going to be a much larger quantum than Q3, I'm just trying to understand whether you mean the $250 million you flagged or the $450 million negative experience in Q3 stand-alone? Because there's quite a difference between the two numbers. So any kind of clarification on kind of what that comment kind of meant slightly more precisely? And the second question is in terms of like portfolios left to review, can you maybe talk through kind of the proportion you've got left to review, like what proportion is of kind of Life reserves? How meaningful is this? I'm hoping you're going to say a low number, but I just kind of wanted to hear what you say on that. Alexander Andreas Berger: Thanks, Kamran, maybe I should give Anders the first words on the size, and then I might jump in to give you a bit of background then. Anders Malmstrom: So, Kamran just on the -- when we talk about outsized or not outsized impact in Q4, we basically mean the $250 million impact that we saw in Q3. That's what kind of puts it in a box. So it's not much left. There's a few portfolios that we have to go through. We need to finalize that. And yes, by the end of the year, we should be done. Alexander Andreas Berger: Yes. And maybe just to give you the perspective, the bigger picture. So we have three phases that we looked at, and that's exactly why we come to that small number in comparison. So Phase 1 was introduction of IFRS. That's where we addressed the large portfolios, in particular, critical illness in China and U.S. mortality. Then we had, as a second phase, midsized portfolios, that also have been digested. And now we were turning the attention to the remaining smaller portfolios that are distributed across the regions and also lines of businesses. So what we needed to do, is really to address the individual noise in those many small portfolios, they are actually quite modest, but we needed to address the accumulation of this noise. And that's exactly why we took this view now, and that's the background to the question that, or the answer that Anders gave you. On the details of the regions, I think we will give you more details in the management update on the 5 of December. Operator: The next question comes from Andrew Baker, Goldman Sachs. Andrew Baker: First one, just on the Insurance revenues. So I hear what you're saying on you don't manage the top line. But are you able to give a bit more detail on which areas of the business has led for the, I guess, change -- slight change in view in the second half. Obviously, you previously said it was sort of $1.5 billion, you're expecting it to be higher than the first and now it seems like slightly below that. So just any more color there would be really helpful. And then secondly, are you able just to confirm how much of the uncertainty allowance you've added so far this year and what you expect this to be by the end of the year? Alexander Andreas Berger: Okay. Maybe I'll take the first one on the revenues. So maybe just to give you a bit of context again, and I think maybe it's a bit repetition from the first half. But overall, when I talk about $1.7 billion year-over-year lower, $1.5 billion, I think we already told you. First of all, it's the pruning actions on the P&C Re side, which is about $0.5 billion. It's the termination of an external retro transaction on the Life & Health Re side, which is $400 million, it's a nonrenewal of the Irish MedEx business, which is about $400 million, and it's then the sale of the P&C EMEA IptiQ, which is about $200 million. So that explains basically the majority of that. So overall, the remaining piece is then really coming from the P&C side, where we have this NDIC feature that we talked about, the netting of the commission with the -- that we didn't do before that and then just continued management of the business itself. So I think that explains it. I think that should be clear now. Anders Malmstrom: On the uncertainty note, I think this is a prudency measure. We're not quantifying it. Operator: The next question comes from Shanti Kang, Bank of America. Shanti Kang: So it was just mainly on the Life & Health side. So I understand that the L&H miss today won't derail the group net result target. But I think it does raise a couple of questions about the run rate into 2026. So I'm just curious whether or not the adjustments today will adjust the forward view on the run rate of the Life & Health book, i.e., if that's like a structural concern today that we should be thinking about? And then just given the fact over last 6 quarters, we've had a number of assumption updates. I get that you're saying you'll complete that in the full year, this year. But do we need to take some more caution on our assumptions for those into the next year, i.e., can we get a bit more comfortable as you think about there being no more updates or repeats in the future? Alexander Andreas Berger: Maybe let me do the intro and hand over then to Anders. Maybe just to clarify, we could have let the noise continue, that is another option. But -- and then we could have made our targets also in Life & Health. That's the one option. But again, we want all our business units to look healthy across all portfolios. We want all business units to play their role that they play in the portfolio of Swiss Re Group. We'd like to see the diversification benefits come through over time and consistently. Life & Health is decorated to P&C. That's the strength of our portfolio. Within the P&C, CorSo is not so correlated to the P&C Re business because we buy external reinsurance. So we think we've got a pretty clean setup at group level with all 3 business units. That's why we want all units to play their role and also to have a healthy portfolio to play optimal role. Anders Malmstrom: So maybe just to add to what Andreas said, I mean, I think it's really critical that we get that through. And that's the last phase of -- we started with large portfolios and now we're doing the small ones. But then this is done. We're going to give an update on the target and the expected run rate for the next year's -- at the management dialogue. And that's where you can also then expect a bit more details how this will perform going forward. Operator: The next question comes from Ivan Bokhmat from Barclays. Ivan Bokhmat: My first question would be on Life & Health as well. Maybe you could talk in a bit more detail about the underlying reasons for deterioration in those Health portfolios. Maybe there are any common drivers in these markets that developed negatively and what would make them unique compared to the better performing ones? Just to see if there's some trends that we can monitor from our side. And my second question, I mean, Anders, considering you suggested that the Q4 adjustment will be smaller than $250 million and your run rate is still quite comfortably getting you above $4.4 billion. I was just wondering if you consider taking any additional steps to add prudence in Q4 beyond the run rate that you have shown so far? And maybe if you could just highlight a bit more color on the movements in reserves that you have done year-to-date by portfolios. Anders Malmstrom: Okay. So let me start on the Health side. And this is -- I mean, all the actions are really driven on Health portfolios in EMEA and then APAC. And I think one that I can actually highlight is Australia. You might have seen also the press release that we put out, that in Australia, we're actually pausing new business because the environment is just not sustainable, and this is a market issue. This is not a Swiss issue. This is a market issue. That's really driven by the environment that we have higher claims than what we expected, and that's why we paused that business. So that's -- I would say that's the core. We give you more details then at the management dialogue also on the other portfolios, but that's a key element here. And we're not afraid of actually stopping or pausing a new business, if that's necessary because it's not sustainable in the market. I think overall, when you look at the reserve development, I mean, I can reiterate what Andreas just said in the beginning, I think we have two main objectives. One is to meet our financial targets and the other one is to then strengthen the resilience. We've done that already, I think, year-to-date, you can see that clearly. P&C, we talked about. Life & Health, we also -- and P&C, we also used the benefit of having a risk adjustment release in Q3 of $170 million. We immediately kind of re-purposed in that because we also had a very positive development coming from the nat cat. So all that together helped us to put more resilience in the balance sheet. It has nothing to do with the U.S. Casualty. It's completely different to that, but we took the opportunity now, very strong nat cat results, risk adjustment release to strengthen the balance sheet that I mentioned in my opening remarks. Operator: The next question comes from Iain Pearce, BNP Paribas. Iain Pearce: They're all on new business CSM. So when I look at the new business CSM for the non-Life divisions, if I just look at Q3 stand-alone, they're down by 30% to 35%. I'm just wondering if you could run through why there's been such a big move? I know it's not a massive quarter for P&C Re, but for CorSo, it seemingly is quite a big quarter on new business CSM. So why are they down so much in Q3 standalone? And same for the Life business, where clearly, ex-MedEx, it still looked like the new business CSM would be down quite a lot. So just trying to understand that as well. Any comments would be really useful. Alexander Andreas Berger: Just quickly before Anders answers this MedEx that was mentioned here, not Life & Health, that's actually the CorSo MedEx business in Ireland where the minus $400 million was stated. Anders Malmstrom: Yes. So I think CorSo is clear. I think Andreas mentioned it. It's really the MedEx business. On the Life & Health, you -- I mean, it can be a bit lumpy here because Life & Health, obviously, it also depends on the transactions. We didn't have transaction in Q3. So year-over-year, we were slightly down. Actually, compared to Q2, we're up. So I think overall, I think I'm actually pretty pleased with the Life & Health CSM despite having not had transactions. Obviously, when you have transactions, you have additional CSM. And then on the P&C side, I would say it's mainly driven by the property prices that are coming down that we see. I think other than that, we're pretty comfortable with the new business that's coming through. Alexander Andreas Berger: Yes. And let me make a general statement again on this top line growth aspect versus profitability bottom line view, and the reason why we don't put out growth targets because and I repeat myself again, in our industry, there's no problem to grow. If you want to grow, you can grow. And we learned our lessons, by the way, ourselves also in Swiss Re. The importance here to manage volatility and to manage cycles. And this is critical. Our customers, the [indiscernible], but also the corporates and the public entities, they rely on us being resilient even in stressful market cycles and market environments. And that's why we put the emphasis really on the healthy portfolio and also on growing the bottom line, which is that forces us also to find attractive growth pools where we can then go after. So that's the general statement I wanted to make. Operator: The next question comes from James Shuck from Citi. James Shuck: I'm probably going to go over a couple of areas again, if you don't mind. So on Life & Health Re, I think on the call last time, Anders, I was kind of asking you about the outlook for the experience, variances and loss components, which have been negative previously. And obviously, we've got the same thing coming through just now. You previously indicated you expect those to trend to zero. I presume that the actions you're taking today means that, that trend should actually accelerate. So really kind of just getting an insight into that kind of glide path to getting to zero. So should we expect 2026 to be a clean slate in terms of the experience, variance? And I kind of think linked to that, it's kind of the CSM amortization rate is much higher than the 8%, and I think when I asked previously, you suggested that it would come down. It wasn't clear to me why it would come down. And obviously, you've guided 8%, it's running around 10%. So just keen to get an outlook for the amortization, please. And then secondly, it was also actually on the P&C new business CSM, which is obviously down very sharply in the third quarter, as Iain highlighted. I understand what you're saying about not having top line targets. And -- but on the other hand, margins are very good and should be able to deploy capital incrementally. So if I look at your target capital over time in recent years, you haven't actually managed to deploy any incremental capital over the last kind of 2 or 3 years, and I'm kind of wanting to get an insight, particularly on that P&C Re new business CSM, in terms of the outlook there? And I appreciate you might return to this at the Management Dialogues Day, but I think it's an important point to try and get this feel for, are you still able to grow your earnings through a soft cycle? Anders Malmstrom: Yes, sure. So maybe, James, I'll start on the Life & Health side. I think you're absolutely right. I mean the whole objective of what we're doing here is to reduce the experience variance, and it should come to zero. I mean you will always see normal volatility. That's clear over the quarters, but the volatility for the full year should be close to zero, if not actually positive. That's where we're going to go in the long run. So that's why we took these actions. The other reason also, I think when we looked at this portfolio, all assumption changes here went through the -- because it's onerous business. It's even more important that you take these actions upfront because you don't want to have that noise in the P&L. I think that's really the driver. On the CSM release and the CSM amortization, I think we mentioned a couple of times now that we're running higher than the guidance we gave you. I think this is something that we will address at the Management Dialogue. We give you full guidance where we're going to expect that coming forward because we need to make sure that the guidance is what we see, and we saw a higher release than what we guided you to. On the P&C new business CSM, that's down year-to-date. I mean maybe another -- just -- I think you mentioned this before, your colleague mentioned before, we obviously talked now about the smaller portion that was renewed in Q3. That -- because until Q2, the CSM was actually in line with the previous year. Now you see it coming down from a small portion that got renewed, mentioned, of course, it was driven by the prices, also driven by the casualty pruning that we still continue -- that we say continue on a relative basis. I think Casualty overall, I think we're fine now with the market positioning. I mean, look, the outlook, I think we will see. We're very comfortable with the margins that we're writing. Andreas mentioned that before. We're still in a good position, but we manage to margin, and we just don't manage to volumes. And actually, in our view, that's why CSM is a good measure. That's why we're also explaining it to you that way because it talks about value. It doesn't talk about volume, it talks about value. But obviously, it reflects, if you have business mix changes in the business where you basically move to the more profitable ones, and that's exactly what we did. I don't know, Andreas? Alexander Andreas Berger: Yes. And I mean I can maybe just report out quickly from the discussions I have on the renewal side. We're just in the midst of the negotiations. So I don't have any indication to panic. We're still in very healthy territory, and I'm very careful to say, to guide you here because we're in the midst of the discussions. But you can already sense that I'm not pessimistic here about the outcome of the renewal. It's very constructive. And in cases, even, I would say, for me, quite optimistic. So let's see. The teams are working hard. Operator: The next question comes from Vinit Malhotra, Mediobanca. Vinit Malhotra: I mean some of these topics have been addressed. So I will just have maybe one theoretical question really. The fact that we've had 2 good quarters on tax means obviously, the targets are achievable easier, a bit easier. So I would say, was that one of the reasons why this Life & Health review was initiated? Or actually you were -- you would have initiated that even if 2Q and 3Q were normal cat quarters? Because in that instance, it might have been that the targets would have been a bit more difficult to reach. So I'm just curious about that. And also one question, if I can ask on Corporate Solutions, where the price cuts is a bit worse, minus 7% on just a quick check of 3Q. Could you comment on how the inflation or business mix or something else is changing to get good numbers on CorSo? Which obviously are helped by cat, but I understand even the underlying is good. So could you explain a little bit about the margin management at CorSo with minus 7% pricing? Anders Malmstrom: Just maybe quickly on the first one. Yes, of course, I mean, we are doing quite well at group level. And that helped us to take the decision on the Life & Health actions, and this is very clear. And by the way, we're consistent with all the meetings that we had before the call, in the last quarters or months where we continuously were telling that resilience of the group is really one of our two priorities. And should we be in a position to do that and still make our group target, why wouldn't we do this? So I'll bring this what you call theoretical question to a very concrete action now. On CorSo, I think CorSo, like all other companies in that sector have produced very good numbers. They're in a very healthy margin space. If you see slight reductions on rates, that's the same as in reinsurance, we're still very, very healthy in the longterm pricing adequacy as we call it. So I'm not nervous about this. Now the -- what's the focus of CorSo? CorSo doesn't want to play in this very commoditized space where the pricing pressure is really increasing due to increased competition. CorSo wants to play their advantages in the differentiation, international programs and alternative risk transfer. And I think this is a sweet spot because some of the very large corporates take premium out of the market, and manage it via their captives. And there, they need support through alternative risk transfer tools and solutions. The same actually also you can see also in the reinsurance market. The very large players think of taking business, reinsurance premium out of the market and try to find structured solutions, maybe some access to alternative capital solutions, et cetera. And again, here, we are best positioned to give not only advice but also solutions and those also generate revenues. So overall, for us, not a situation to be nervous in, but we're observing, obviously, and we're growing in areas predominantly where they're not correlated with the lines of business that have a stronger decline in rates. Operator: The next question comes from Will Hardcastle from UBS. William Hardcastle: The first one is just coming back to something we discussed a bit, but just trying to verify that $250 million of our outsized comment a bit relative to that. Are you saying there's not much chance that it could escalate further from this $250 million already done or another $250 million? And just to be clear on it, have you moved up on an actuarial margin basis? Or this is still best estimate still? Coming back to the $1.5 billion higher revenue 2H on 1H. FX hasn't really changed too much, and I guess you knew the parameter deviation already. Of the reduced number that you're thinking about now, how much of that's been a bigger NDIC impact and therefore, maybe a combined ratio offset? Or is it purely organic growth driven? Anders Malmstrom: Okay. So just to confirm on what we said -- what we meant is that for Q4 because we continue to clean up the Life & Health, the smaller Life & Health portfolios. You should not expect an impact that is bigger than the impact we saw in Q3. So to your question, to be very precise, this would be on top of the $250 million that we see. It's not more than $250 million in Q4, that's in a way, what I would expect. Now we haven't done it. We're not fully done. So we're going to give you the final update at the Management Dialogue. That's where you should then see much more details, but that's kind of the direction of travel that we're telling you as a floor. On the revenue side, yes, I think once we have the final run rate now, I think we're fully on this new -- with the full adoption of the NDIC methodology that we introduced last year. So you should then see based on that, a smaller revenue just for the same business on a relative basis, which has marginal impact on combined ratio. That's absolutely correct. Operator: The next question comes from Ben Cohen from RBC. Benjamin Cohen: I had two questions, please. Firstly, on the Life & Health side, could you talk a bit more about the areas in where you did see new business CSM growth? I think you flagged U.S. Mortality and Health and Longevity in EMEA. And specifically, I guess, the reasons why you feel confident to kind of grow those business lines, perhaps particularly with regards to Longevity? And my second question was in CorSo and P&C, I think on a 9-month view, the expense ratios rose reasonably materially year-over-year. Were there some one-off features in there? Do you need to do more to address costs because of the top line pressures that you're seeing? Anders Malmstrom: Okay. So maybe I start on the Life & Health side with the new business CSM growth areas. I think you will continue to see new business CSM growth on Mortality, the classical mortality that we write, that's still a big driver. We have a lot of contracts there and there's new business coming in there, which is good. Longevity is, I would say, a new area that for us became quite important, and we saw some traction there during the year. It's something that will develop. I would love to be more in the U.S. on the Longevity side. I think the problem there is just I think people need to start to realize that they actually have an issue because the local RBC framework in the U.S. doesn't really reflect that and you don't have a longevity chart. But I think the discussion we already have with clients is that this is a topic that will come over the next few years. And then still Asia is a growth driver where we will see CSM growth and particularly also on the Health side, after we have fixed all of the issues on the in-force. Alexander Andreas Berger: So maybe on your expense ratio, the increase of expense ratio is not business driven, and the reason why in Q3, we've got 3% year-on-year increase, that's mainly due to restructuring costs. We have restructured parts of the businesses. For instance, in CorSo, we have decided to exit the Aviation business and concentrate the underwriting on the Reinsurance side. So there were costs attached to that, the restructuring costs. Then we have a slight increase in volume-driven commissions. That's due to shift of some of the businesses, in particular, when you go into businesses that are more volume or facility-driven, those have -- and also specialty lines, those have elevated commission levels and then also slightly the lower insurance revenue. I think that I would look at it. Now we don't look at a quarterly basis for the expense management side because overall, we see a very positive trajectory by reducing actually the expenses because the actions that we took now are coming through and we see it in earning [indiscernible] and also. So I actually applaud then CorSo to address these things in a situation where CorSo was really performing very, very well. So that's the moment when we need to address those things. So you will expect the expense ratio going down. So remember, we put out the number bigger than $300 million cost savings target overall, and we are very, very well on track to achieve this. So even alone this year, we are exceeding the $100 million. So we're well on track to achieve this by 2027. Benjamin Cohen: And we will provide details on that management... Alexander Andreas Berger: Yes, absolutely. Operator: There are no more questions from the phone. Thomas Bohun: There seems to be maybe one more. Alexander Andreas Berger: We actually lost him. So he probably decided not to ask the question anymore. Thomas Bohun: Thank you very much for all the questions and your interest. Should there be any questions outstanding, as always, please do not hesitate to contact the IR team. With that, thank you for attending the call, and have a good weekend. Alexander Andreas Berger: Thank you. Operator: Thank you all for your participation. You may now disconnect.